Although for many decades, it was customary to focus on GDP and other measures of national income,
there has been growing interest in developing broad measures of
economic well-being. National and international approaches include the Beyond GDP programme developed by the European Union, the Better Lives Compendium of Indicators developed by the OECD,
as well as many alternative metrics of wellbeing or happiness. One of
the earliest attempts to develop such an index at national level was Bhutan's Gross National Happiness Index and there are a now a number of similar projects ongoing around the world, including a project to develop for the UK an assessment of national well-being, commissioned by the Prime Minister David Cameron and led by the Office for National Statistics.
GNH
The
GNH phrase was initially used as an off-hand remark by the King of
Bhutan to indicate his lack of interest in western materialistic style
of economic development.
The implementation of the GNH philosophy was meant to prohibit TV and
Jeans from becoming part of the culture of the Bhutanese population. Despite modernization of the GNH concept by Karma Ura, Up to date the GNH is seen by some to hide some values that are in contradiction to western lifestyle.
In 2005, a US based think tank, the International Institute of Management, published a working paper
followed by a policy white paper in 2006 calling for the implementation
of GNH philosophy in the United States. The papers called for a secular and more scientific implementation of a public policy framework and econometric measurement tool also known as Gross National Well-being
or GNW and launched the first secular global gross national happiness
index survey. Despite, the differences in the visions, both papers
credited the King of Bhutan for the inspiration.
The American GNH framework and GNH Index Survey was referenced by various researchers and policy makers
as an answer to the failures of unchecked capitalism and hyper-focus on
GDP. Among the prominent proposals was a report to US congress, UK
Prime Minister Office, and Government of Goa.
Later happiness and well-being development frameworks were similar to the proposal.
For example the Bhutan GNH Index published in 2012 after 2 years of
research was not dissimilar from the first secular GNH framework and
Index of 2005. The main difference was the addition of spiritual
elements such as Karma and prayers indicators to fit the local Bhutanese
culture. The Bhutan GNH philosophy was initially dismissed due to its
generality and was considered as touchy-feely concept, but later taken
seriously after it published an econometric framework.
Beyond GDP
In 2007, the European Commission, the European Parliament, Club of Rome, OECD and WWF
hosted a conference titled "Beyond GDP". The consensus was to widen
measures of economic growth and come up with measures that can inform
policy making.
The conference was attended by over 650 policy makers, experts and
social activists. Spurred by its success the European Union released a
communication titled GDP and beyond: Measuring progress in a changing world
that identified five actions to improve the indicators of progress in
ways that make it more responsive to the concerns of its citizens:
Complementing GDP with highly aggregated environmental and social indicators
Near real-time information for decision-making
More accurate reporting on distribution and inequalities
Developing a European sustainable development scoreboard
Extending national accounts to environmental and social issues.
Following this communication and its adoption by the European
Parliament in June 2008, many European governments and policy makers
have started work on developing new measures of economic development.
The time taken to publish key environmental indicators such as
greenhouse gas emissions has been shortened by as much as eight months
by using advanced statistical methods to arrive at so-called 'early
estimates', which have proven to be sufficiently accurate to inform
policy decisions. Since 2012, Eurostat has produced 'early estimates'—within four months—for CO2 emissions from energy use.
A consensus has not been reached on the EU Sustainable Development Scoreboard. However, a preliminary scoreboard of resource efficiency indicators (REI) is currently being tested and discussed.
Since 2010, European statistics have been published on 'annual
adjusted disposable income in purchasing power standards' and the
quarterly 'real disposable income of households'.
Summary indices on poverty and human development have been calculated for all 277 European regions.
In addition, the European Commission provides a list of different indicators that can be categorised into five categories :
Enlarged GDP measures - include costs such as expense of
environmental degradation, resource depletion or higher income
inequality. They provide a more accurate indication of a country's
actual economic, environmental and social performance.
Social indicators – combine several aspects of social progress.
Environmental indicators – relate to the environmental development and linked issues such as human health.
Well-being – include both subjective and objective measures to report on quality of life and life satisfaction.
Following a national debate in 2011 asking “what matters” to the
general public, the programme has published a series of releases on
experimental methodology such as the value of the non-market production
of households collected in the Household Satellite Accounts and ad-hoc analysis like the Commuting and Personal Well-being release. It has also established a series of periodic publications. For example, the Human Capital estimates and the Life in the UK report are published annually.
The Life in the UK report was first published in November 2012 and included the National Well-being Wheel of measures,
which is being updated twice a year, with the May 2014 update being the
latest. The wheel includes headline indicators in areas such as health,
relationships, job satisfaction, economic security, education,
environmental conditions and measures of 'personal well-being'
(individuals' assessment of their own well-being).
A Summary of National Well-being Measures from March 2014
The programme will continue developing and improving the measurement
of the well-being of the citizens in the United Kingdom in order to
report on the findings to inform both public debate and policy-making.
life expectancy at birth, as an index of population health and longevity,
knowledge and education as measured by the adult literacy rate and functions of school enrollment rate and
standard of living measured as a logarithmic function of GDP, adjusted to purchasing power parity.
The NHI focuses on the spiritual and material development of human
beings by focussing on the four pillars of sustainable development,
preservation of cultural values, conservation of natural resources and
establishment of good governance. The bank also notes suggestions made
by President Nicholas Sarkozy for the modification of the definition of
GDP that stops the social and cultural damage that the current
definitions are leading to. The Bank also suggests Adjusted Net Savings as an alternative to GDP.
Suggested measures
Some other measures that have been suggested as a replacement of GDP are Index of Sustainable Economic Welfare (ISEW) as suggested by Friends of the Earth, Environmentally Sustainable National Income (eSNI) by Dr. Hueting,
Welfare economics is a branch of economics that uses microeconomic techniques to evaluate well-being (welfare) at the aggregate (economy-wide) level.
Attempting to apply the principles of welfare economics gives rise to the field of public economics, the study of how government might intervene to improve social welfare. Welfare economics also provides the theoretical foundations for particular instruments of public economics, including cost–benefit analysis, while the combination of welfare economics and insights from behavioral economics has led to the creation of a new subfield, behavioral welfare economics.
The field of welfare economics is associated with two fundamental theorems. The first states that given certain assumptions, competitive markets produce (Pareto) efficient outcomes; it captures the logic of Adam Smith's invisible hand.
The second states that given further restrictions, any Pareto efficient
outcome can be supported as a competitive market equilibrium.
Thus a social planner could use a social welfare function to pick the
most equitable efficient outcome, then use lump sum transfers followed
by competitive trade to bring it about. Because of welfare economics' close ties to social choice theory, Arrow's impossibility theorem is sometimes listed as a third fundamental theorem.
A typical methodology begins with the derivation (or assumption) of a social welfare function,
which can then be used to rank economically feasible allocations of
resources in terms of the social welfare they entail. Such functions
typically include measures of economic efficiency and equity, though
more recent attempts to quantify social welfare have included a broader
range of measures including economic freedom (as in the capability approach).
Utility is cardinal, that is, scale-measurable by observation or judgment.
Preferences are exogenously given and stable.
Additional consumption provides smaller and smaller increases in utility (diminishing marginal utility).
All individuals have interpersonally commensurable utility functions (an assumption that Edgeworth avoided in his Mathematical Psychics).
With these assumptions, it is possible to construct a social welfare function
simply by summing all the individual utility functions. Note that such a
measure would still be concerned with the distribution of income (distributive efficiency) but not the distribution of final utilities. In normative terms, such authors were writing in the Benthamite tradition.
The New Welfare Economics approach is based on the work of Pareto, Hicks, and Kaldor.
It explicitly recognizes the differences between the efficiency aspect
of the discipline and the distribution aspect and treats them
differently. Questions of efficiency are assessed with criteria such as Pareto efficiency and the Kaldor–Hicks compensation tests,
while questions of income distribution are covered in social welfare
function specification. Further, efficiency dispenses with cardinal
measures of utility, replacing it with ordinal utility, which merely ranks commodity bundles (with an indifference-curve map, for example).
Criteria
Efficiency
Situations are considered to have distributive efficiency when goods are distributed to the people who can gain the most utility from them.
Pareto efficiency
is a useful efficiency goal that is standard in economics. A situation
is Pareto-efficient only if no individual can be made better off without
making someone else worse off. An example of an inefficient situation
would be if Smith owns an apple but would prefer to consume an orange
while Jones owns an orange but would be prefer to consume an apple. Both
could be made better off by trading.
A pareto-efficient state of affairs can only come about if four criteria are met:
The marginal rates of substitution
in consumption for any two goods are identical for all consumers. We
cannot reallocate goods between two consumers and make both happier.
The marginal rate of transformation
in production for any two goods is identical for all producers of those
two goods. We cannot reallocate production between two producers and
increase total output.
The marginal physical product
of a factor input (e.g. labor) must be the same for all producers of a
good. We cannot reduce production cost by reallocating production
between two producers.
The marginal rates of substitution in consumption equal the marginal
rates of transformation in production for any pair of goods. Producers
cannot make consumers happier by producing more of one good and less of
the other.
There are a number of conditions that lead to inefficiency. They include:
Government restrictions on prices and quantities sold and other regulation resulting from government failure.
Note that if one of these conditions leads to inefficiency, another
condition might help by counteracting it. For example, if a pollution
externality leads to overproduction of tires, a tax on tires might
restore the efficient level of production. A condition inefficient in
the "first-best" might be desirable in the second-best.
To determine whether an activity is moving the economy towards
Pareto efficiency, two compensation tests have been developed. Policy
changes usually help some people while hurting others, so these tests
ask what would happen if the winners were to compensate the losers.
Using the Kaldor criterion, the change is desirable if the
maximum amount the winners would be willing to pay is greater than the
minimum the losers would accept. Under the Hicks criterion, the
change is desirable if the maximum the losers would be willing to offer
the winners to prevent the change is less than the minimum the winners
would accept as a bribe to give up the change. The Hicks compensation
test is from the losers' point of view; the Kaldor compensation test is
from the winners'. If both conditions are satisfied, the proposed change
will move the economy toward Pareto optimality. This idea is known as Kaldor–Hicks efficiency. If the two conditions disagree, that yields the Scitovsky paradox.
Equity
There are
many combinations of consumer utility, production mixes, and factor
input combinations consistent with efficiency. In fact, there are an
infinity of consumption and production equilibria that yield Pareto
optimal results. There are as many optima as there are points on the
aggregate production–possibility frontier.
Hence, Pareto efficiency is a necessary, but not a sufficient condition
for social welfare. Each Pareto optimum corresponds to a different
income distribution in the economy. Some may involve great inequalities
of income. So how do we decide which Pareto optimum is most desirable?
This decision is made, either tacitly or overtly, when we specify the social welfare function.
This function embodies value judgements about interpersonal utility.
The social welfare function shows the relative importance of the
individuals that comprise society.
A utilitarian welfare function (also called a Benthamite
welfare function) sums the utility of each individual in order to
obtain society's overall welfare. All people are treated the same,
regardless of their initial level of utility. One extra unit of utility
for a starving person is not seen to be of any greater value than an
extra unit of utility for a millionaire. At the other extreme is the
Max-Min, or Rawlsian utility function.
According to the Max-Min criterion, welfare is maximized when the
utility of those society members that have the least is the greatest. No
economic activity will increase social welfare unless it improves the
position of the society member that is the worst off. Most economists
specify social welfare functions that are intermediate between these two
extremes.
The social welfare function is typically translated into social indifference curves
so that they can be used in the same graphic space as the other
functions that they interact with. A utilitarian social indifference
curve is linear and downward sloping to the right. The Max-Min social
indifference curve takes the shape of two straight lines joined so as
they form a 90-degree angle. A social indifference curve drawn from an
intermediate social welfare function is a curve that slopes downward to
the right.
The intermediate form of social indifference curve can be interpreted
as showing that as inequality increases, a larger improvement in the
utility of relatively rich individuals is needed to compensate for the
loss in utility of relatively poor individuals.
A crude social welfare function can be constructed by measuring
the subjective dollar value of goods and services distributed to
participants in the economy.
The field of welfare economics is associated with two fundamental
theorems. The first states that given certain assumptions, competitive
markets (price equilibria with transfers, e.g. Walrasian equilibria) produce Pareto efficient outcomes. The assumptions required are generally characterised as "very weak". More specifically, the existence of competitive equilibrium implies both price-taking behaviour and complete markets, but the only additional assumption is the local non-satiation of agents' preferences – that consumers would like, at the margin, to have slightly more of any given good. The first fundamental theorem is said to capture the logic of Adam Smith's invisible hand,
though in general there is no reason to suppose that the "best" Pareto
efficient point (of which there are a set) will be selected by the
market without intervention, only that some such point will be.
The second fundamental theorem states that given further
restrictions, any Pareto efficient outcome can be supported as a
competitive market equilibrium. These restrictions are stronger than for the first fundamental theorem, with convexity of preferences and production functions a sufficient but not necessary condition. A direct consequence of the second theorem is that a benevolent social planner
could use a system of lump sum transfers to ensure that the "best"
Pareto efficient allocation was supported as a competitive equilibrium
for some set of prices.
More generally, it suggests that redistribution should, if possible, be
achieved without affecting prices (which should continue to reflect
relative scarcity), thus ensuring that the final (post-trade) result is efficient. Put into practice, such a policy might resemble predistribution.
Utility
functions can be derived from the points on a contract curve. Numerous
utility functions can be derived, one for each point on the production
possibility frontier (PQ in the diagram above). A social utility
frontier (also called a grand utility frontier)
can be obtained from the outer envelope of all these utility functions.
Each point on a social utility frontier represents an efficient
allocation of an economy's resources; that is, it is a Pareto optimum in
factor allocation, in production, in consumption, and in the
interaction of production and consumption (supply and demand). In the
diagram below, the curve MN is a social utility frontier. Point D
corresponds with point C from the earlier diagram. Point D is on the
social utility frontier because the marginal rate of substitution at
point C is equal to the marginal rate of transformation at point A.
Point E corresponds with point B in the previous diagram, and lies
inside the social utility frontier (indicating inefficiency) because the
MRS at point C is not equal to the MRT at point A.
Although all the points on the grand social utility frontier are
Pareto efficient, only one point identifies where social welfare is
maximized. Such point is called "the point of bliss". This point is Z
where the social utility frontier MN is tangent to the highest possible
social indifference curve labelled SI.
Criticisms
Some, such as economists in the tradition of the Austrian School, doubt whether a cardinal
utility function, or cardinal social welfare function, is of any value.
The reason given is that it is difficult to aggregate the utilities of
various people that have differing marginal utility of money, such as
the wealthy and the poor.
Also, the economists of the Austrian School question the
relevance of Pareto optimal allocation considering situations where the
framework of means and ends is not perfectly known, since neoclassical
theory always assumes that the ends-means framework is perfectly
defined.
The value of ordinal utility functions has been questioned. Economists have proposed other means of measuring well-being as an alternative to price indices like willingness to pay using revealed or stated preference method. This includes
subjective well-being functions based on individuals' ratings of their happiness or life satisfaction rather than on their preferences.
Price-based measures are seen as promoting consumerism and productivism
by many. It is possible to do welfare economics without the use of
prices; however, this is not always done. Value assumptions explicit in
the social welfare function used and implicit in the efficiency
criterion chosen tend to make welfare economics a normative
and perhaps subjective field. This can make it controversial. However,
perhaps most significant of all are concerns about the limits of a
utilitarian approach to welfare economics. According to this line of
argument, utility is not the only thing that matters and so a
comprehensive approach to welfare economics should include other
factors.
The capability approach
is a theoretical framework that entails two core normative claims:
first, the claim that the freedom to achieve well-being is of primary
moral importance, and second, that freedom to achieve well-being is to
be understood in terms of people's capabilities, that is, their real
opportunities to do and be what they have reason to value.
The welfare state is a form of government in which the state
protects and promotes the economic and social well-being of its
citizens, based upon the principles of equal opportunity, equitable distribution of wealth, and public responsibility for citizens unable to avail themselves of the minimal provisions for a good life. Sociologist T. H. Marshall described the modern welfare state as a distinctive combination of democracy, welfare, and capitalism.
As a type of mixed economy,
the welfare state funds the governmental institutions for health care
and education along with direct benefits given to individual citizens.
Early features of the welfare state, such as public pensions and social
insurance, developed from the 1880s onwards in industrializing Western
countries. World War I, the Great Depression, and World War II have been characterized as important events that ushered in expansions of the welfare state, including the use of state interventionism
to combat lost output, high unemployment, and other problems. By the
late 1970s, the contemporary capitalist welfare state began to decline,
in part due to the economic crisis of post-World War II capitalism and
in part due to the lack of a well-articulated ideological foundation for
the welfare state.
Etymology
The German term sozialstaat ("social state") has been used since 1870 to describe state support programs devised by German sozialpolitiker ("social politicians") and implemented as part of Bismarck's conservative reforms. In Germany, the term wohlfahrtsstaat, a direct translation of the English "welfare state", is used to describe Sweden's social insurance arrangements.
The literal English equivalent "social state" did not catch on in Anglophone countries. However, during the Second World War, Anglican Archbishop William Temple, author of the book Christianity and the Social Order (1942), popularized the concept using the phrase "welfare state". Bishop Temple's use of "welfare state" has been connected to Benjamin Disraeli's 1845 novel Sybil: or the Two Nations
(in other words, the rich and the poor), where he writes "power has
only one duty – to secure the social welfare of the PEOPLE". At the time he wrote Sybil, Disraeli (later a prime minister) belonged to Young England, a conservative group of youthful Tories who disagreed with how the Whigs dealt with the conditions of the industrial poor.
Members of Young England attempted to garner support among the
privileged classes to assist the less fortunate and to recognize the dignity of labor that they imagined had characterized England during the Feudal Middle Ages.
The Swedish welfare state is called folkhemmet
("the people's home") and goes back to the 1936 compromise, as well as
to another important contract made in 1938 between Swedish trade unions
and large corporations. Even though the country is often rated comparably economically free, Sweden's mixed economy
remains heavily influenced by the legal framework and continual
renegotiations of union contracts, a government-directed and
municipality-administered system of social security, and a system of universal health care that is run by the more specialized and in theory more politically isolated county councils of Sweden.
The Italian term stato sociale ("social state") and the Turkish term sosyal devlet reproduces the original German term. In French, the concept is expressed as l'État-providence. Spanish and many other languages employ an analogous term: estado del bienestar – literally, "state of well-being". In Portuguese, two similar phrases exist: estado de bem-estar social, which means "state of social well-being", and estado de providência
– "providing state", denoting the state's mission to ensure the basic
well-being of the citizenry. In Brazil the concept is referred to as previdência social, or "social providence".
Emperor Ashoka of India put forward his idea of a welfare state in the 3rd century BCE. He envisioned his dharma
(religion or path) as not just a collection of high-sounding phrases.
He consciously tried to adopt it as a matter of state policy; he
declared that "all men are my children"
and "whatever exertion I make, I strive only to discharge debt that I
owe to all living creatures." It was a totally new ideal of kingship. Ashoka renounced war and conquest by violence and forbade the killing of many animals.
Since he wanted to conquer the world through love and faith, he sent
many missions to propagate Dharma. Such missions were sent to places
like Egypt, Greece, and Sri Lanka. The propagation of Dharma included
many measures of people's welfare. Centers of the treatment of men and
beasts founded inside and outside of the empire. Shady groves, wells,
orchards and rest houses were laid out. Ashoka also prohibited useless sacrifices and certain forms of gatherings which led to waste, indiscipline and superstition.
To implement these policies he recruited a new cadre of officers called
Dharmamahamattas. Part of this group's duties was to see that people of
various sects were treated fairly. They were especially asked to look
after the welfare of prisoners.
However, the historical record of Ashoka's character is
conflicted. Ashoka's own inscriptions state that he converted to
Buddhism after waging a destructive war. However, the Sri Lankan
tradition claims that he had already converted to Buddhism in the 4th
year of his reign, prior to the conquest of Kalinga. During this war, according to Ashoka's Major Rock Edict 13,
his forces killed 100,000 men and animals and enslaved another 150,000.
Some sources (particularly Buddhist oral legends) suggest that his
conversion was dramatic and that he dedicated the rest of his life to
the pursuit of peace and the common good. However, these sources frequently contradict each other, and sources soundly dated nearer to the Edicts (like Ashokavadana,
circa 200 BCE at the earliest) describe Ashoka engaging in sectarian
mass murder throughout his reign, and make no mention of the
philanthropic efforts claimed by later legends. The interpretation of
Ashoka's dharma after conversion is controversial, but in particular,
the texts which describe him personally ordering the massacre of
Buddhist heretics and Jains have been disputed by some fringe Buddhist
scholars. They allege that these claims are propaganda, albeit without
historical, archaeological, or linguistic evidence. It is unclear if
they believe the entire Ashokavadana to be an ancient fabrication, or just the sections related to Ashoka's post-conversion violence.
China
The Emperor Wen (203 – 157 BCE) of Han Dynasty
instituted a variety of measures with resemblances to modern welfare
policies. These included pensions, in the form of food and wine, to all
over 80 years of age, as well as monetary support, in the form of loans
or tax brakes, to widows, orphans, and elderly without children to
support them. Emperor Wen was also known for a concern over wasteful
spending of tax-payer money. Unlike other Han emperors, he wore simple
silk garments. In order to make the state serve the common people
better, cruel criminal punishments were lessened and the state
bureaucracy was made more meritocratic. This led to officials being
selected by examinations for the first time in Chinese history.
Rome
The Roman Republic intervened sporadically to distribute free or subsidized grain to its population, through the program known as Cura Annonae. The city of Rome grew rapidly during the Roman Republic and Empire,
reaching a population approaching one million in the second century AD.
The population of the city grew beyond the capacity of the nearby rural
areas to meet the food needs of the city.
Regular grain distribution began in 123 BC with a grain law proposed by Gaius Gracchus and approved by the Roman Plebeian Council
(popular assembly). The numbers of those receiving free or subsidized
grain expanded to a high of an estimated 320,000 people at one point. In the 3rd century AD, the dole of grain was replaced by bread, probably during the reign of Septimius Severus (193-211 AD). Severus also began providing olive oil to residents of Rome, and later the emperor Aurelian (270-275) ordered the distribution of wine and pork. The doles of bread, olive oil, wine, and pork apparently continued until near the end of the Western Roman Empire in 476 AD.
The dole in the early Roman Empire is estimated to account for 15 to 33
percent of the total grain imported and consumed in Rome.
In addition to food, the Roman Republic also supplied free entertainment, through ludi (public games). Public money was allocated for the staging of ludi, but the presiding official increasingly came to augment the splendor of his games from personal funds as a form of public relations. The sponsor was able to cultivate the favor of the people of Rome.
The concept of states taxing for the welfare budget was introduced in early 7th century Islamic law. Zakat is one of the five pillars of Islam
and is a mandatory form of 2.5% income tax to be paid by all
individuals earning above a basic threshold to provide for the needy. Umar (584–644), leader of the Rashidun Caliphate (empire), established a welfare state through the Bayt al-mal (treasury), which for instance was used to stockpile food in every region of the Islamic Empire for disasters and emergencies.
Modern
Otto von Bismarck established the first welfare state in a modern industrial society, with social-welfare legislation, in 1880s Imperial Germany. Bismarck extended the privileges of the Junker social class to ordinary Germans. His 17 November 1881 Imperial Message to the Reichstag used the term "practical Christianity" to describe his program.
German laws from this era also insured workers against industrial risks inherent in the workplace.
In Switzerland, the Swiss Factory Act of 1877 limited working hours for everyone, and gave maternity benefits. The Swiss welfare state
also arose in the late 19th century; its existence and depth varied
individually by canton. Some of the programs first adopted within the Cantons of Switzerland were emergency relief, elementary schools, and homes for the elderly and children.
In the Austro-Hungarian Empire, a version was set up by Count Eduard von Taaffe a few years after Bismarck in Germany. Legislation to help the working class in Austria emerged from Catholicconservatives.
Von Taffe used Swiss and German models of social reform, including the
Swiss Factory Act of 1877 German laws that insured workers against
industrial risks inherent in the workplace to create the 1885 Trade Code
Amendment.
Later, Paxton writes "All the modern twentieth-century European
dictatorships of the right, both fascist and authoritarian, were welfare
states… They all provided medical care, pensions, affordable housing,
and mass transport as a matter of course, in order to maintain
productivity, national unity, and social peace." Adolf Hitler's National Socialist German Workers' Party
expanded the welfare state to the point where over 17 million German
citizens were receiving assistance under the auspices of the National Socialist People's Welfare by 1939.
When social democratic parties abandoned Marxism after World War II,
they increasingly accepted the welfare state as a political goal,
either as a temporary goal within capitalism or an ultimate goal in
itself.
Writing in 2005, Jacob Hacker said that there was "broad
agreement" in research on welfare that there had not been welfare state
retrenchment. Instead, "social policy frameworks remain secure."
Modern forms
Modern welfare programs are chiefly distinguished from earlier forms of poverty relief by their universal, comprehensive character. The institution of social insurance in Germany under Bismarck was an influential example. Some schemes were based largely in the development of autonomous, mutualist
provision of benefits. Others were founded on state provision. In a
highly influential essay, "Citizenship and Social Class" (1949), British
sociologist Thomas Humphrey Marshall identified modern welfare states as a distinctive combination of democracy, welfare, and capitalism,
arguing that citizenship must encompass access to social, as well as to
political and civil rights. Examples of such states are Germany, all of
the Nordic countries,
the Netherlands, France, Uruguay and New Zealand and the United Kingdom
in the 1930s. Since that time, the term welfare state applies only to
states where social rights are accompanied by civil and political
rights.
Changed attitudes in reaction to the worldwide Great Depression,
which brought unemployment and misery to millions, were instrumental in
the move to the welfare state in many countries. During the Great
Depression, the welfare state was seen as a "middle way" between the
extremes of communism on the left and unregulated laissez-fairecapitalism on the right. In the period following World War II, some countries in Western Europe moved from partial or selective provision of social services
to relatively comprehensive "cradle-to-grave" coverage of the
population. Other Western European states did not, such as the United
Kingdom, Ireland, Spain and France. Political scientist Eileen McDonagh
has argued that a major determinant of where welfare states arose is
whether or not a country had a historical monarchy with familial
foundations (a trait that Max Weber called patrimonialism);
in places where the monarchic state was viewed as a parental steward of
the populace, it was easier to shift into a mindset where the
industrial state could also serve as a parental steward of the populace.
The activities of present-day welfare states extend to the
provision of both cash welfare benefits (such as old-age pensions or
unemployment benefits) and in-kind welfare services (such as health or
childcare services). Through these provisions, welfare states can affect
the distribution of wellbeing and personal autonomy among their
citizens, as well as influencing how their citizens consume and how they
spend their time.
Broadly speaking, welfare states are either universal, with
provisions that cover everybody; or selective, with provisions covering
only those deemed most needy. In his 1990 book, The Three Worlds of Welfare Capitalism, Danish sociologist Gøsta Esping-Andersen further identified three subtypes of welfare state models.
Since the building of the decommodification index is limited
and the typology is debatable, these 18 countries could be ranked from
most purely social-democratic (Sweden) to the most liberal (the United
States).
Ireland represents a near-hybrid model whereby two streams of
unemployment benefit exist: contributory and means-tested. However,
payments can begin immediately and are theoretically available to all
Irish citizens even if they have never worked, provided they are
habitually resident.
Social stigma varies across the three conceptual welfare states.
Particularly, it is highest in liberal states, and lowest in social
democratic states. Esping-Andersen proposes that the universalist nature
of social democratic states eliminate the duality between beneficiaries
and non-recipients, whereas in means-tested liberal states there is
resentment towards redistribution efforts. That is to say, the lower the
percent of GDP spent on welfare, the higher the stigma of the welfare
state.
Esping-Andersen also argues that welfare states set the stage for
post-industrial employment evolution in terms of employment growth,
structure, and stratification. He uses Germany, Sweden, and the United
States to provide examples of the differing results of each of the three
welfare states.
According to Evelyne Huber and John Stephens, different types of
welfare states emerged as a result of prolonged government by different
parties. They distinguish between social democratic welfare states,
Christian democratic welfare states, and "wage earner" states.
According to the Swedish political scientist Bo Rothstein,
in non-universal welfare states, the state is primarily concerned with
directing resources to "the people most in need". This requires tight
bureaucratic control in order to determine who is eligible for
assistance and who is not. Under universal models such as Sweden, on the
other hand, the state distributes welfare to all people who fulfill
easily established criteria (e.g. having children, receiving medical
treatment, etc.) with as little bureaucratic interference as possible.
This, however, requires higher taxation due to the scale of services
provided. This model was constructed by the Scandinavian ministers Karl Kristian Steincke and Gustav Möller in the 1930s and is dominant in Scandinavia.
Sociologist Lane Kenworthy
argues that the Nordic experience demonstrates that the modern social
democratic model can "promote economic security, expand opportunity, and
ensure rising living standards for all ... while facilitating freedom,
flexibility and market dynamism."
American political scientist Benjamin Radcliff has also argued that the universality and generosity of the welfare state (i.e. the extent of decommodification)
is the single most important societal-level structural factor affecting
the quality of human life, based on the analysis of time serial data
across both the industrial democracies and the American States. He
maintains that the welfare state improves life for everyone, regardless
of social class (as do similar institutions, such as pro-worker labor
market regulations and strong labor unions).
Prior
to 1900 in Australia, charitable assistance from benevolent societies,
sometimes with financial contributions from the authorities, was the
primary means of relief for people not able to support themselves. The 1890s economic depression and the rise of the trade unions and the Labor parties during this period led to a movement for welfare reform.
In 1900, the states of New South Wales and Victoria enacted
legislation introducing non-contributory pensions for those aged 65 and
over. Queensland legislated a similar system in 1907 before the federal
labor government led by Andrew Fisher
introduced a national aged pension under the Invalid and Old-Aged
Pensions Act 1908. A national invalid disability pension was started in
1910, and a national maternity allowance was introduced in 1912.
During the Second World War, Australia under a labor government
created a welfare state by enacting national schemes for: child
endowment in 1941; a widows' pension in 1942; a wife’s allowance in
1943; additional allowances for the children of pensioners in 1943; and
unemployment, sickness, and special benefits in 1945.
Canada
Canada's welfare programs are funded and administered at all levels of government (with 13 different
provincial/territorial systems), and include health and medical care,
public education (through graduate school), social housing and social
services. Social support is given through programs including Social
Assistance, Guaranteed Income Supplement, Child Tax Benefit, Old Age
Security, Employment Insurance, Workers' Compensation, and the
Canada/Quebec Pension Plans.
After 1830, French liberalism
and economic modernization were key goals. While liberalism was
individualistic and laissez-faire in Britain and the United States, in
France liberalism was based instead on a solidaristic conception of
society, following the theme of the French Revolution, Liberté, égalité, fraternité
("liberty, equality, fraternity"). In the Third Republic, especially
between 1895 and 1914 "Solidarité" ["solidarism"] was the guiding
concept of a liberal social policy, whose chief champions were the prime
ministers Leon Bourgeois (1895–96) and Pierre Waldeck-Rousseau (1899-1902). The French welfare state expanded when it tried to follow some of Bismarck's policies. Poor relief was the starting point. More attention was paid to industrial labour in the 1930s during a short period of socialist political ascendency, with the Matignon Accords and the reforms of the Popular Front. Paxton points out these reforms were paralleled and even exceeded by measures taken by the Vichy regime in the 1940s.
Some policies enacted to enhance social welfare in Germany were
Health Insurance 1883, Accident Insurance 1884, Old Age Pensions 1889
and National Unemployment Insurance 1927. Otto von Bismarck, the powerful Chancellor of Germany (in office 1871–90), developed the first modern welfare state by building on a tradition of welfare programs in Prussia and Saxony that had begun as early as in the 1840s. The measures that Bismarck introduced – old-age pensions, accident insurance,
and employee health insurance – formed the basis of the modern European
welfare state. His paternalistic programs aimed to forestall social
unrest and to undercut the appeal of the new Social Democratic Party, and to secure the support of the working classes for the German Empire, as well as to reduce emigration to the United States, where wages were higher but welfare did not exist. Bismarck further won the support of both industry and skilled workers through his high-tariff policies, which protected profits and wages from American competition, although they alienated the liberal intellectuals who wanted free trade.
During the 12 years of rule by Adolf Hitler's Nazi Party
the welfare state was expanded and extended to the point where over 17
million German citizens were receiving assistance under the auspices of
the Nationalsozialistische Volkswohlfahrt (NSV) by 1939, an agency that projected a powerful image of caring and support.
The Directive Principles of State Policy, enshrined in Part IV of the Indian Constitution reflects that India is a welfare state. Food security to all Indians are guaranteed under the National Food Security Act, 2013
where the government provides food grains to people at a very
subsidised rate. There are public health insurance schemes, social aid
to families and new mothers, free school meals, pension schemes and
unemployment benefit schemes run both at the federal and the state
level.
As of 2020, the government's expenditure on social security and welfare
(direct cash transfers, financial inclusion, health insurance,
subsidies, rural employment guarantee), was approximately ₹1,400,000 crore (US$200 billion), which was 7.3 percent of gross domestic product (GDP).
Latin America
Welfare states in Latin America have been considered as "welfare states in transition", or "emerging welfare states".
Welfare states in Latin America have been described as "truncated":
generous benefits for formal-sector workers, regressive subsidies and
informal barriers for the poor to obtain benefits. Mesa-Lago has classified the countries taking into account the historical experience of their welfare systems.
The pioneers were Uruguay, Chile and Argentina, as they started to
develop the first welfare programs in the 1920s following a bismarckian
model. Other countries such as Costa Rica developed a more universal
welfare system (1960s–1970s) with social security programs based on the
Beveridge model. Researchers such as Martinez-Franzoni and Barba-Solano
have examined and identified several welfare regime models based on the
typology of Esping-Andersen. Other scholars such as Riesco and Cruz-Martinez have examined the welfare state development in the region.
About welfare states in Latin America, Alex Segura-Ubiergo wrote:
Latin American countries can be unequivocally divided
into two groups depending on their 'welfare effort' levels. The first
group, which for convenience we may call welfare states, includes
Uruguay, Argentina, Chile, Costa Rica, and Brazil. Within this group,
average social spending per capita in the 1973–2000 period was around
$532, while as a percentage of GDP and as a share of the budget, social
spending reached 51.6 and 12.6 percent, respectively. In addition,
between approximately 50 and 75 percent of the population is covered by
the public health and pension social security system. In contrast, the
second group of countries, which we call non-welfare states, has
welfare-effort indices that range from 37 to 88. Within this second
group, social spending per capita averaged $96.6, while social spending
as a percentage of GDP and as a percentage of the budget averaged 5.2
and 34.7 percent, respectively. In terms of the percentage of the
population actually covered, the percentage of the active population
covered under some social security scheme does not even reach 10
percent.
The Nordic welfare model refers to the welfare policies
of the Nordic countries, which also tie into their labor market
policies. The Nordic model of welfare is distinguished from other types
of welfare states by its emphasis on maximizing labor force
participation, promoting gender equality, egalitarian and extensive benefit levels, the large magnitude of income redistribution and liberal use of the expansionary fiscal policy.
While there are differences among the Nordic countries, they all
share a broad commitment to social cohesion, a universal nature of
welfare provision in order to safeguard individualism by providing
protection for vulnerable individuals and groups in society and
maximizing public participation in social decision-making. It is
characterized by flexibility and openness to innovation in the provision
of welfare. The Nordic welfare systems are mainly funded through taxation.
China traditionally relied on the extended family to provide welfare services. The one-child policy
introduced in 1978 has made that unrealistic, and new models have
emerged since the 1980s as China has rapidly become richer and more
urban. Much discussion is underway regarding China's proposed path
toward a welfare state.
Chinese policies have been incremental and fragmented in terms of
social insurance, privatization, and targeting. In the cities, where the
rapid economic development has centered, lines of cleavage have
developed between state-sector and non-state-sector employees, and
between labor-market insiders and outsiders.
About the British welfare state, historian Derek Fraser wrote:
It germinated in the social
thought of late Victorian liberalism, reached its infancy in the
collectivism of the pre-and post-Great War statism, matured in the
universalism of the 1940s and flowered in full bloom in the consensus
and affluence of the 1950s and 1960s. By the 1970s it was in decline,
like the faded rose of autumn. Both UK and US governments are pursuing
in the 1980s monetarist policies inimical to welfare.
The minimum wage was introduced in the United Kingdom in 1909
for certain low-wage industries and expanded to numerous industries,
including farm labour, by 1920. However, by the 1920s, a new perspective
was offered by reformers to emphasize the usefulness of family allowance targeted at low-income families was the alternative to relieving poverty without distorting the labour market.
The trade unions and the Labour Party adopted this view. In 1945,
family allowances were introduced; minimum wages faded from view. Talk
resumed in the 1970s, but in the 1980s the Thatcher administration made
it clear it would not accept a national minimum wage. Finally, with the
return of Labour, the National Minimum Wage Act 1998
set a minimum of £3.60 per hour, with lower rates for younger workers.
It largely affected workers in high turnover service industries such as
fast food restaurants, and members of ethnic minorities.
December 1942 saw the publication of the Report of the Inter-Departmental Committee on Social Insurance and Allied Services, commonly known as the Beveridge Report after its chairman, Sir William Beveridge.
The Beveridge Report proposed a series of measures to aid those who
were in need of help, or in poverty and recommended that the government
find ways of tackling what the report called "the five giants": Want,
Disease, Ignorance, Squalor, and Idleness. It urged the government to
take steps to provide citizens with adequate income, adequate health
care, adequate education, adequate housing, and adequate employment,
proposing that "[a]ll people of working age should pay a weekly National Insurance
contribution. In return, benefits would be paid to people who were
sick, unemployed, retired, or widowed." The Beveridge Report assumed
that the National Health Service
would provide free health care to all citizens and that a Universal
Child Benefit would give benefits to parents, encouraging people to have
children by enabling them to feed and support a family. The report
stressed the lower costs and efficiency of universal benefits. Beveridge
cited miners' pension schemes as examples of some of the most efficient
available and argued that a universal state scheme would be cheaper
than a myriad of individual friendly societies and private insurance
schemes and also less expensive to administer than a means-tested
government-run welfare system for the poor.
Before 1939, most health care had to be paid for through
non-government organisations – through a vast network of friendly
societies, trade unions, and other insurance companies, which counted
the vast majority of the UK working population as members. These
organizations provided insurance for sickness, unemployment, and
disability, providing an income to people when they were unable to work.
As part of the reforms, the Church of England
also closed down its voluntary relief networks and passed the ownership
of thousands of church schools, hospitals and other bodies to the
state.
Welfare systems continued to develop over the following decades.
By the end of the 20th-century parts of the welfare system had been
restructured, with some provision channelled through non-governmental organizations which became important providers of social services.
The United States developed a limited welfare state in the 1930s.
The earliest and most comprehensive philosophical justification for
the welfare state was produced by an American, the sociologist Lester Frank Ward (1841–1913), whom the historian Henry Steele Commager called "the father of the modern welfare state".
Ward saw social phenomena as amenable to human control. "It is
only through the artificial control of natural phenomena that science is
made to minister to human needs" he wrote, "and if social laws are
really analogous to physical laws, there is no reason why social science
should not receive practical application such as have been given to
physical science." Ward wrote:
The charge of paternalism is chiefly made by the class
that enjoys the largest share of government protection. Those who
denounce it are those who most frequently and successfully invoke it.
Nothing is more obvious today than the single inability of capital and
private enterprise to take care of themselves unaided by the state; and
while they are incessantly denouncing "paternalism," by which they mean
the claim of the defenseless laborer and artisan to a share in this
lavish state protection, they are all the while besieging legislatures
for relief from their own incompetency, and "pleading the baby act"
through a trained body of lawyers and lobbyists. The dispensing of
national pap to this class should rather be called "maternalism," to
which a square, open, and dignified paternalism would be infinitely
preferable.
Ward's theories centred around his belief that a universal and comprehensive
system of education was necessary if a democratic government was to
function successfully. His writings profoundly influenced younger
generations of progressive thinkers such as Theodore Roosevelt, Thomas Dewey, and Frances Perkins (1880–1965), among others.
The United States was the only industrialized country that went into the Great Depression of the 1930s with no social insurance policies in place. In 1935 Franklin D. Roosevelt's New Deal instituted significant social insurance policies. In 1938 Congress passed the Fair Labor Standards Act,
limiting the work week to 40 hours and banning child labor for children
under 16, over stiff congressional opposition from the low-wage South.
The Social Security law
was very unpopular among many groups – especially farmers, who resented
the additional taxes and feared they would never be made good. They
lobbied hard for exclusion. Furthermore, the Treasury realized how
difficult it would be to set up payroll deduction plans for farmers, for
housekeepers who employed maids, and for non-profit groups; therefore
they were excluded. State employees were excluded for constitutional
reasons (the federal government in the United States cannot tax state
governments). Federal employees were also excluded.
By 2013, the U.S. remained the only major industrial state
without a uniform national sickness program. American spending on health
care (as a percent of GDP) is the highest in the world, but it is a
complex mix of federal, state, philanthropic, employer and individual
funding. The US spent 16% of its GDP on health care in 2008, compared to
11% in France in second place.
Some scholars, such as Gerard Friedman, argue that labor-union weakness in the Southern United States
undermined unionization and social reform throughout the United States
as a whole, and is largely responsible for the anemic U.S. welfare
state. Sociologists Loïc Wacquant and John L. Campbell contend that since the rise of neoliberal ideology in the late 1970s and early 1980s, an expanding carceral state, or government system of mass incarceration,
has largely supplanted the increasingly retrenched social welfare
state, which has been justified by its proponents with the argument that
the citizenry must take on personal responsibility.
Scholars assert that this transformation of the welfare state to a
post-welfare punitive state, along with neoliberal structural adjustment
policies and the globalization of the U.S. economy, have created more
extreme forms of "destitute poverty" in the U.S. which must be contained
and controlled by expanding the criminal justice system into every
aspect of the lives of the poor.
Other scholars such as Esping-Andersen argue that the welfare
state in the United States has been characterized by private provision
because such a state would better reflect the racial and sexual biases
within the private sector. The disproportionate number of racial and
sexual minorities in private sector jobs with weaker benefits, he
argues, is evidence that the American welfare state is not necessarily
intended to improve the economic situation of such groups.
Empirical evidence suggests that taxes and transfers considerably
reduce poverty in most countries whose welfare states constitute at
least a fifth of GDP.
Country
Absolute poverty rate (1960–1991) (threshold set at 40% of U.S. median household income)
Researchers have found very little correlation between economic performance and social expenditure. They also see little evidence that social expenditures contribute to losses in productivity; economist Peter Lindert of the University of California, Davis attributes this to policy innovations such as the implementation of "pro-growth" tax policies in real-world welfare states, nor have social expenses contributed significantly to public debt. Martin Eiermann wrote:
According to the OECD,
social expenditures in its 34 member countries rose steadily between
1980 and 2007, but the increase in costs was almost completely offset by
GDP growth. More money was spent on welfare because more money
circulated in the economy and because government revenues increased. In
1980, the OECD averaged social expenditures equal to 16 percent of GDP.
In 2007, just before the financial crisis kicked into full gear, they
had risen to 19 percent – a manageable increase.
A Norwegian study covering the period 1980 to 2003 found welfare state spending correlated negatively with student achievement. However, many of the top-ranking OECD countries on the 2009 PISA tests are considered welfare states.
Social expenditure as a percentage of GDP
The table below shows social expenditure as a percentage of GDP for OECD member states in 2018:
Early conservatives, under the influence of Thomas Malthus, opposed every form of social insurance "root and branch". Malthus, a clergyman for whom birth control
was anathema, believed that the poor needed to learn the hard way to
practice frugality, self-control and chastity. Traditional conservatives
also protested that the effect of social insurance would be to weaken
private charity and loosen traditional social bonds of family, friends,
religious and non-governmental welfare organisations.
On the other hand, Karl Marx opposed piecemeal reforms advanced by middle-class reformers out of a sense of duty. In his Address of the Central Committee to the Communist League,
written after the failed revolution of 1848, he warned that measures
designed to increase wages, improve working conditions and provide
social insurance were merely bribes that would temporarily make the
situation of working classes tolerable to weaken the revolutionary
consciousness that was needed to achieve a socialist economy.
Nevertheless, Marx also proclaimed that the Communists had to support
the bourgeoisie wherever it acted as a revolutionary progressive class
because "bourgeois liberties had first to be conquered and then
criticised".
In the 20th century, opponents of the welfare state have
expressed apprehension about the creation of a large, possibly
self-interested, bureaucracy required to administer it and the tax
burden on the wealthier citizens that this entailed.
In 2012, political historian Alan Ryan
pointed out that the modern welfare state stops short of being an
"advance in the direction of socialism. [...] [I]ts egalitarian elements
are more minimal than either its defenders or its critics think". It
does not entail advocacy for social ownership of industry. Ryan further wrote:
The modern welfare state, does not set out to make the
poor richer and the rich poorer, which is a central element in
socialism, but to help people to provide for themselves in sickness
while they enjoy good health, to put money aside to cover unemployment
while they are in work, and to have adults provide for the education of
their own and other people's children, expecting those children's future
taxes to pay in due course for the pensions of their parents'
generation. These are devices for shifting income across different
stages in life, not for shifting income across classes. Another distinct
difference is that social insurance does not aim to transform work and
working relations; employers and employees pay taxes at a level they
would not have done in the nineteenth century, but owners are not
expropriated, profits are not illegitimate, cooperativism does not
replace hierarchical management.
In 2017, historian Walter Scheidel
argued that the establishment of welfare states in the West in the
early 20th century could be partly a reaction by elites to the Bolshevik Revolution
and its violence against the bourgeoisie, which feared violent
revolution in its own backyard. They were diminished decades later as
the perceived threat receded. Scheidel wrote:
It's a little tricky because the US never really had any
strong leftist movement. But if you look at Europe, after 1917 people
were really scared about communism in all the Western European
countries. You have all these poor people, they might rise up and kill us and take our stuff.
That wasn't just a fantasy because it was happening next door. And
that, we can show, did trigger steps in the direction of having more
welfare programs and a rudimentary safety net in response to fear of
communism. Not that they [the communists] would invade, but that there
would be homegrown movements of this sort. American populism is a little
different because it's more detached from that. But it happens roughly
at the same time, and people in America are worried about communism,
too – not necessarily very reasonably. But that was always in the
background. And people have only begun to study systematically to what
extent the threat, real or imagined, of this type of radical regime
really influenced policy changes in Western democracies. You don't
necessarily even have to go out and kill rich people – if there was some
plausible alternative out there, it would arguably have an impact on
policy making at home. That's certainly there in the 20s, 30s, 40s, 50s,
and 60s. And there's a debate, right, because it becomes clear that the
Soviet Union is really not in very good shape, and people don't really
like to be there, and all these movements lost their appeal. That's a
contributing factor, arguably, that the end of the Cold War
coincides roughly with the time when inequality really starts going up
again, because elites are much more relaxed about the possibility of
credible alternatives or threats being out there.
