The_Affect_of_Wwii_on_the_Welfare_State

The effects of the Second World War were felt throughout the world. Citizens suffered a significant decrease in living conditions due to the spread of disease, poverty and wounded economies. It was during this period that the ‘welfare state’ emerged, with states implementing distinct systems of social policy in order to cope with these problems. These welfare systems aimed to secure basic income and living conditions, to promote societal equality and eradicate poverty. However, since being established, these systems have faced and continue to face significant challenges. These challenges tend to compromise the ability of welfare states to function as they were originally intended to. Thus it is not surprising that these welfare states have undergone inevitable reform since the post-War period. This essay will primarily seek to identify and analyse the various challenges which exist. These include political challenges, such as constitutional obstacles, economic challenges, such as costs and demographic change, and the rising threat of globalization. The essay will then look at the systems of the United Kingdom and Sweden. For the purposes of this essay, it is necessary to give only a brief overview of these systems. The main objective is to illustrate the specific challenges these states have faced and how they have been dealt with. The final part of the essay will consider the future of the welfare state. This will address what possible measures can be taken by states to ensure the survival of these systems without changing the fundamental structure or function. At the outset it is important to define the term ‘welfare state’. Generally this is the term used to describe those countries in which public expenditure has risen to very high levels in order to finance the social programs in place. Welfare states can usually be categorised into one of three types – the ‘liberal model’, the ‘social-democratic model’ or the ‘conservative model’. The liberal model makes a clear distinction between the deserving and undeserving poor by implementing limited benefits, which results in lower taxes. The system encourages citizens to stay in work and use the private sector where possible. This can be distinguished from the social-democratic model. This model typically promotes universal benefits from the state. These states have a higher taxation level and active employment policies, with an emphasis on redistribution. The conservative model is more work-orientated and is based on individual contributions. This system places an emphasis on social solidarity and workplace-based benefits. These different models illustrate the various attitudes towards poverty. For example, in much of Continental Europe, poverty is seen as inevitable. However in others countries, such as the United Kingdom, there is a prevailing belief that poverty may be the result of peoples lack of effort in order to better themselves. The first and perhaps the most critical challenge is monetary, namely the cost of running a welfare state. There are two types of costs involved with running a welfare state. There are the direct budgetary costs of providing the services. There is also the loss of economic efficiency which comes as a result of some types of social services. The money which is needed to fund a welfare state must be raised through taxation and to a lesser extent, through borrowing. However, high taxes raise the cost of labour, consequently increasing the gap between the cost of labour and the wages received by workers. This effect is also the result of employment protection legislation and high minimum wage levels. This creates higher levels of unemployment, as it generates an incentive for employers to reduce their labour demands or for individuals to choose activities which escape taxation. Generous unemployment benefits also reduce incentives to work. For example, those which last for a long amount of time and replace a high proportion of previous income. As the levels of unemployment increase, the cost of the system also increases because there is less tax revenue going into the system but more coming out in the form of unemployment benefits. However, with the cost of pension and unemployment expenditures remaining high, it is more difficult to reduce these tax levels. Consequently, countries frequently enter into debt as a means of funding the system when tax revenue is not sufficient. However, these economic challenges must also be seen in the context of demographic change. As living and hygiene standards have increased, as well as major medical advances and disease control, life-expectancy has increased. At the beginning of the twentieth century, life expectancy of citizens in industrial countries was approximately fifty years old. It has since increases to approximately seventy to seventy-five years old. However, the retirement age has tended to be lowered in this period. The effect is that increasing levels of pensioners are supported by fewer workers. This increases the cost of running a welfare state. Due to economic difficulties, the welfare state is often subject to potential reforms by governments. Social policy is often used by parties as a political tool, effectively creating political and constitutional obstacles. Governments with a political life-span of only three years are arguably constrained by electoral consideration to make any significant changes. Any significant cut-backs would most likely find the government voted out of office at the next election. Also, systems of proportional representation rarely produce majority governments. Minority governments require constant compromise with the opposition in order to pass legislation. Therefore, the opposition must be ‘won over’ in order to make any effective reform. This limits the ability of the government to make significant changes. This political instability and weak governments make effective reforms very difficult and allows only minor and defensive reform measures. Globalization poses an increasing threat to the welfare state. First, it creates competition by lowering trade barriers, removing the ability of countries to hide behind these protective barriers. Prima facie it may appear that welfare gains from freer trade. However, countries are less able to support the level of benefits for their work forces that are superior to those in competing countries. The increasing mobility of capital also makes it appealing for multinational corporations to transfer to locations where operational costs are lowest. This results in a loss of jobs and a loss of income revenue to the state, making it increasingly difficult for countries to have tax levels which are substantially above their competitors. Hence it is difficult for these countries to increase, or even maintain tax levels, which are above the levels set in countries which are not welfare states. Therefore, countries are forced into tax and wage competition in order to defend or improve their share in the global market and their attractiveness as a location for productive investments. Second, globalization causes a potential loss of state autonomy which is the result of international integration. There is a risk that social policies and standards may be eroded as international integration affects a state’s formal authority to make independent decisions in regard to social welfare policy. This is the result of horizontal system adaptation through treaty obligations, which can lead to expected standards of welfare. This can lead to pressure on individual governments to either promote or reduce benefit levels. In Europe some policy options have been ruled out by treaty obligations which regulate the relationships between member states of the European Community. The Maastricht Treaty 1992 sets out criteria for joining the Monetary Union. For example, deficit spending can no longer be used as a policy tool. The Treaty effectively removes monetary policy and exchange rate policy from the control of its member states, for example countries can no longer devalue their currencies. This is significant as it was a policy choice that was previously used by countries, including Sweden and Britain, to restore international competitiveness and boost the economy. The Maastricht Treaty imposes strict policies on public debt and on public-sector borrowing. This is significant as we have already established that these measures were often used to previously finance the welfare state. Therefore some countries were forced to cut expenditure and rely on proceeds from privatisation. It should be noted that some countries, including Sweden and the United Kingdom, did not actually have to make any alterations to their fiscal and monetary policies, as they were already compatible with the Maastricht criteria. However, this still removes the ability of these states to resort to deficit financing. After identifying these challenges more generally it is useful to examine particular case studies in order to reveal how individual states have been affected. This allows us to consider how the systems have developed, in light of how the governments have responded to these challenges. It is worthy to recognise at the outset that both systems preserve a proportional representation system. However, although these two systems preserve very different models, it is clear that both are susceptible to the challenges we have identified. The United Kingdom preserves a liberal model. The blueprint for this system was the 1942 “Beveridge report” which identified five “giants” to be destroyed. These included squalor, want, idleness, disease and ignorance. In 1945, the new Labour government promised to eliminate these evils and promoted the idea of a “cradle to grave” welfare system. The Beveridge reforms established a system on universal flat-rate social assistance, a small number of means-tested benefits and universal health care and education. The link between contributions and benefit levels was relatively weak. Pensions were operated at a flat-rate level, but were basic and ungenerous. The first major challenge to the British system was the “1973 Oil Crisis”. The United Kingdom felt the effects of this crisis more than any other country. It caused high inflation rates, rising unemployment and a fiscal crisis which required heavy foreign borrowing. The 1974 Labour government initially responded to this threat by expansion of the welfare state. This included extending a number of existing benefits, and also introducing a second tier pension system (the State Earnings-Related Pensions Scheme or SERPS). However, wage and price inflation continued and unemployment increased. The International Monetary Fund then demanded that governments cut expenditure to receive loans. Hence the government was forced to introduce the first (albeit minor) retrenchments. However, as the crisis continued Labour was eventually voted out of office in 1979 for the Conservative Party. Margaret Thatcher, leader of the Conservative Party, was the boldest challenger to the United Kingdom’s welfare state. She was convinced that a radical change in the states social and economic policy would improve Britain’s condition. However, after the threat of revolt from her own Cabinet and protest by Labour opposition, she was forced to scale back these ambitions. Although some direct cuts did occur, such as the abolition of SERPS, benefit rates were also reduced by changing the indexation mechanism. This meant that instead of following the growth of average earnings or prices, the adjustment mechanism was linked to price inflation only. This change produced approximately £6 billion in savings by 1985. Therefore, this was regarded as the most significant change under Thatcher. Thatcher’s successor, John Mayor, implemented less extensive retrenchments. However, some reforms were made. These focussed on means-testing and aimed to curtail expenditure. In 1997, Tony Blair came into power and attempted to restructure the welfare state, targeting assistance to poor families and low wage earners. The slogan was ‘work for those who can, security for those who cannot’, with a continued focus on means-tested benefits and setting working incentives. However, despite the initial cut-backs made by Tony Blair’s Labour government, retrenchment has been rare since 1997. This illustrates the vulnerability of the British system to obvious political and economic challenges. In the international context, these cutbacks that have occurred since the post-War period are significant. It is evident that despite being a less ambitious system, the United Kingdom welfare state has also been vulnerable to challenges. In comparison, Sweden preserves a much more ideological welfare state and can be classified as a social-democratic model. This model combines growth and high unemployment with an egalitarian income distribution. This system can be distinguished by three main features: first, the comprehensiveness of the state’s role in intervening to provide welfare; second, the institutionalised social entitlements; and third, a social security system which is based on universal coverage and solidarity. The Swedish system reflects the consistent election of the Social Democratic governments from 1932 to 1976. This has lead to an impressively high living standard. However, this high standard of social welfare comes at a significant cost. During the 1990s, Sweden faced an economic crisis which marked a policy turning point. Sweden went into recession with unemployment rising steeply, negative economic growth and a high budget deficit. The 1992 currency crisis saw high speculative pressure building up against the Swedish Krona. The result was a rise in interest rates and a floating currency, bringing social expenditure under scrutiny. The Social democratic government introduced cut-backs, such as the sickness benefit. In 1991, the Centre-right coalition made further cutbacks, including the lowering of parental leave and sickness benefits, and most significantly the reform of pensions. The new pension system (the “notional defined contribution” system or NDC) was designed to mimic a fully-funded contribution system. The system required fixed contributions. Benefits were calculated by average income growth and cohort life expectancy. This new system accounted for an entire lifetime record, as opposed to the best 15 years. Overall the retrenchment of this system has been limited in comparison to other countries, such as the United Kingdom. Any cutbacks have been in order to cope with crisis as opposed to dismantling the state. It is important to note that the retrenchment which occurred during this period was enacted in a relatively co-operative multi-party manner. There have been no radical movements by an existing government. However, this is largely because the political instability which existed in Sweden made significant reform very difficult. The fragile power base of Swedish governments which existed during the 1970s and 1980s meant that only “short-sighted” and defensive reforms were made, which actually intensified Sweden’s economic problems. The future of the welfare state is uncertain. However, it is evident that these challenges continue to pose very real threats. Therefore, in order for these welfare states to survive there must clearly be some reform. Some believe that the welfare state should be wholly dismantled and replaced with minimal government intervention, requiring citizens to look after themselves. However, this essay submits that the welfare state is an essential part of maintaining a civilised society and should not be eliminated. However, some action must be taken in order for these welfare states to survive. Therefore, this essay proposes that a favourable solution would allow states to deal with these challenges, without fundamentally changing the role of the government in preserving minimum standards of welfare. This would primarily be done by adjusting the social systems in a way which motivates people to find regular employment, without counterproductive incentives. This objective can be achieved in various ways. First, pensions can be reformed. The most obvious way is by raising the retirement age. Governments should also work to discourage early retirement by reducing or eliminating any possibilities of taking early retirement without a proportionate reduction in pension benefit. Furthermore the government could reduce the size of pensions by less generous indexation mechanisms. Another more positive method of dealing with this problem would be to promote systems and incentives which encourage citizens to supplement the minimal level of pension that the state supplies, through privately run pension schemes. Second, there can be a review of health and education systems. The government may need to increasingly place some of the burden upon individual citizens, by encouraging them to seek private provisions. However this is not to suggest complete privatisation. For example, in terms of health care, measures can be taken to discourage unnecessary treatments or developments which are too expensive, for example by increasing the charges paid by patients. There could also be an increase in selectivity of sickness benefits. This would make eligibility harder to satisfy and therefore lower expenditure. Expenditure for education could be lowered by replacing traditional teaching methods by introducing more modern technology and teaching methods in schools. Ultimately this would shift some expenses to the private sector. Since the 1970s most welfare states have been on the defensive. The case studies show that neither system has stayed entirely intact. These challenges continue to pose threat, and even more so in light of the changing demographic and economic conditions. This shows that in order for these welfare states to survive, reform is necessary. However a total dismantling of the welfare state seems impossible in light of the current democratic political conditions. These case studies also illustrate the effect of proportional political systems, which require multi-party consensus and therefore prevent any radical unilateral policies being made by governments. Therefore this essay proposes that ultimately governments should aim to implement new policies which encourage employment without offering counterproductive incentives. This would lead to an increase in employment which would lower expenditure. Also by reducing the attractiveness of other benefits, such as sickness or housing, people may be more likely to actively seek alternatives. However, this is not to say that the system should be retrenched too far. It is important to help those who cannot help themselves. Welfare systems are important in lowering poverty and preserving equality in a civilised society. -------------------------------------------- [ 1 ]. Lowe, Rodney, The Welfare State in Britain since 1945 (London: Macmillan Press, 1993), 1-6. [ 2 ]. Camdessus, Michael, “Worldwide Crisis in the Welfare State: What next in the Context of Globalization'” (Paper presented at a seminar for the International Monetary Fund, Paris, France, October 15, 1998), 2. [ 3 ]. Esping-Anderson, Gosta, “The Three Worlds of Welfare Capitalism,” in Pierson and Castles The Welfare State: A Reader, 154-169. [ 4 ]. Schifferes, Steve, “Is the UK a model welfare state'” BBC News, 8 April, 2005, accessed at 20 September 2010 at http://news.bbc.co.uk/go/pr/fr/-/2/hi/business/4704081.stm, 1. [ 5 ]. Ibid. [ 6 ]. Ibid, 2. [ 7 ]. Ibid. [ 8 ]. Camdessus, Michael, “Worldwide Crisis in the Welfare State: What next in the Context of Globalization'” (Paper presented at a seminar for the International Monetary Fund, Paris, France, October 15, 1998), 3. [ 9 ]. Camdessus, Michael, “Worldwide Crisis in the Welfare State: What next in the Context of Globalization'” (Paper presented at a seminar for the International Monetary Fund, Paris, France, October 15, 1998), 3-4. [ 10 ]. Ibid, 4. [ 11 ]. Ibid, 5. [ 12 ]. George, Vic and Taylor-Gooby, Peter, European Welfare Policy. London: MacMillan Press, 1996, 78. [ 13 ]. Starke, Peter Radical Welfare State Retrenchment: A Comparative Analysis. New York: Palgrave MacMillan, 2008), 167. [ 14 ]. Anderson, Torben M., “European Integration and the Welfare State,” Journal of Population Economics, Vol.16, No.1 (Feb, 2003), 11. [ 15 ]. Camdessus, Michael, “Worldwide Crisis in the Welfare State: What next in the Context of Globalization'” (Paper presented at a seminar for the International Monetary Fund, Paris, France, October 15, 1998), 5. [ 16 ]. Ibid. [ 17 ]. Scharpf, Fritz W., “Globalization and the welfare state: Constraints, Challenges and Vulnerabilities” Paper presented at The Year 2000 International Research Conference on Social Security, Helsinki, 25-27 September 2000, 50. [ 18 ]. Camdessus, Michael, “Worldwide Crisis in the Welfare State: What next in the Context of Globalization'” (Paper presented at a seminar for the International Monetary Fund, Paris, France, October 15, 1998), 6. [ 19 ]. Scharpf, Fritz W., “Globalization and the welfare state: Constraints, Challenges and Vulnerabilities” Paper presented at The Year 2000 International Research Conference on Social Security, Helsinki, 25-27 September 2000, 54. [ 20 ]. Scharpf, Fritz W., “Globalization and the welfare state: Constraints, Challenges and Vulnerabilities” Paper presented at The Year 2000 International Research Conference on Social Security, Helsinki, 25-27 September 2000, 54. [ 21 ]. Ibid, 2. [ 22 ]. Ibid, 3. [ 23 ]. Lowe, Rodney, The Welfare State in Britain since 1945 (London: Macmillan Press, 1993), 11. [ 24 ]. Field, Frank, “The Welfare State – Never Ending Reform” BBC – History: British History in depth, accessed at 16 September, 2010 at http://bbc.co.uk/history/.../field_01.shtml, 2. [ 25 ]. Starke, Peter, Radical Welfare State Retrenchment: A Comparative Analysis (New York: Palgrave MacMillan, 2008), 176. [ 26 ]. Ibid, 178. [ 27 ]. Ibid, 52. [ 28 ]. Starke, Peter, Radical Welfare State Retrenchment: A Comparative Analysis (New York: Palgrave MacMillan, 2008), 176. [ 29 ]. Painton, Frederick and Malkin, Lawrence, “Europe: Reassessing the Welfare State,” Time Magazine, January 12, 1981, accessed 19 September 2010 at http://www.time.com/time/magazine/article/0,9171,922356,00.html, 3. [ 30 ]. Starke, Peter, Radical Welfare State Retrenchment: A Comparative Analysis (New York: Palgrave MacMillan, 2008), 179. [ 31 ]. Cavanna, Henry, Challenges to the Welfare State: Internal and External Dynamics for Change (Cheltenham: Edward Elgar Publishing, 1998), 64. [ 32 ]. Starke, Peter, Radical Welfare State Retrenchment: A Comparative Analysis (New York: Palgrave MacMillan, 2008), 167. [ 33 ]. Oyen, Else, Comparing Welfare States and their Futures (Cambridge: University Press, 1986), 129. [ 34 ]. Starke, Peter Radical Welfare State Retrenchment: A Comparative Analysis (New York: Palgrave MacMillan, 2008), 66. [ 35 ]. Ibid, 170. [ 36 ]. Ibid, 172. [ 37 ]. Ibid, 170. [ 38 ]. Starke, Peter Radical Welfare State Retrenchment: A Comparative Analysis (New York: Palgrave MacMillan, 2008), 176. [ 39 ]. “Europe’s welfare system under threat” 24 May 2010, accessed at http://stuff.co.nz/business/world/3730479/Europes-welfare-system-under-threat, 1. [ 40 ]. Camdessus, Michael, “Worldwide Crisis in the Welfare State: What next in the Context of Globalization'” (Paper presented at a seminar for the International Monetary Fund, Paris, France, October 15, 1998), 6. [ 41 ]. Ibid, 7. [ 42 ]. Ibid.