Mixed Economies Welfare

Norman Johnson

• Publisher: Routledge
• Year: 2014
• ISBN:
  9781317903796
• Edition: 1
• Topic: Medicine
• Subtopic: Health Care Delivery

This book explains the changes that have occurred in welfare states since the early 1970s and considers some of the policy dilemmas that have arisen. Each of the chapters begins with an introduction to set the scene, followed by an examination of the theoretical and conceptual perspectives of the sector under discussion. Chapters analyse the major changes in the sectors, with issue-based conclusions highlighting the policy dilemmas identified in the chapters. The influence of ideology and values is given prominence throughout. Although each of the sectors has its own chapter, the book emphasises the importance of the relationships between the sectors, allowing each sector's place in the production and delivery of welfare to be assessed.

CHAPTER 1

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INTRODUCTION

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There has never been a time when welfare states were free from criticism. The conservative right criticised them for interfering with markets and damaging both the economy and individual self-reliance and self-respect. There was much talk in conservative circles of welfare dependency. The welfare state was seen as the enemy of freedom – Hayek's road to serfdom epitomising this view. Marxist critics argued that there was a contradiction between capitalism and welfare. The welfare state worked primarily in the long-term interests of capital, although concessions to working class pressure might be necessary to legitimate capital accumulation. Fabian friends of the welfare state frequently highlighted its shortcomings, pointing to the persistence of poverty and inequality and to large areas of unmet need. Yet for all this criticism there was little talk of crisis or retrenchment in the 1950s and 1960s; still less was there any talk of the dismantling of the welfare state. The criticisms of the New Right and of the Marxists were not taken very seriously, and the Social Democratic and Fabian criticisms were used as arguments for improving and extending welfare provision.

This comfortable, not to say complacent, view of the welfare state began to be eroded in the early and mid-1970s to such an extent that in 1984 an influential book by Mishra, The Welfare State in Crisis, opened with the following sentence: ‘In varying degrees and forms, the welfare state throughout the industrialised west is in disarray’. More than twenty years after the onset of the problems which allegedly gave rise to the welfare state's predicament, there is continuing talk of crisis. Esping-Andersen (1996, p. 1), for example, writes: ‘It cannot be for lack of prosperity that welfare states are in crisis’ (emphasis added). Whether the word ‘crisis’ is appropriately applied to chronic rather than acute problems is open to question. It could be, of course, that talk of crisis occurs only when there is a recession. Thus, the early 1980s and the early 1990s might be characterised as periods of crisis, with the intervening period, between 1985 and 1990 and the period after 1995 seen as periods of growth and greater economic confidence. In this interpretation there are recurring crises interspersed with periods of stability. The early part of this chapter will analyse the factors that are said to have precipitated the alleged crisis in the 1970s, considering whether there are any new elements present in the 1990s. The emphasis is on problems rather than crisis, because the evidence for a crisis is equivocal. Crisis would show itself in at least two major ways: a retreat on the part of governments from the welfare state with partial dismantling of basic programmes and a diminution in popular support for welfare services. The later part of the chapter will examine the meaning and significance of the term ‘mixed economies of welfare’.

It is possible to identify four major groups of problems facing welfare states in the 1980s: economic problems, problems of government and fiscal problems combining to create legitimation problems. It should be stressed that much of the discussion of these problems takes the form of criticisms of state welfare. The discussion is not so much about practicalities as about ideology. In what follows, the views of both the New Right and Marxists are given some prominence, because in their different ways these two ideological groups have been among the sternest critics of the welfare state.

Economic problems

The first sign of impending trouble for the welfare state was the oil crisis of 1973, which sparked off or intensified a world recession. In the period between the mid-1970s and the middle of the following decade most advanced industrialised countries experienced lower rates of economic growth, higher levels of unemployment and lower rates of investment. This presents a stark contrast to the low rates of unemployment, the relatively high rates of capital formation and the substantial economic growth which characterised the 1950s and 1960s.

In the 1950s and 1960s governments in most countries generally believed that social provision benefited the economy, by providing an educated and healthy workforce and maintaining people as consumers when they were unemployed, sick or retired. This view began to be questioned with the onset of recession and as Keynesian economic theories were abandoned in favour of monetarism. High social expenditure was identified as contributing significantly to economic decline by diverting resources from the ‘productive’ to the ‘non-productive’ sectors of the economy; by reducing incentives to work and invest; and by creating large numbers of welfare dependents. In other words, the welfare state was less the victim of economic problems than their cause.

The debate gave rise to some very odd bedfellows with a surprising degree of agreement between policy analysts from the right and left of the political spectrum. For example, O'Connor (1984), an American Marxist, supported the view that in the long term the welfare state would reduce opportunities for capital accumulation: he wrote of an ‘accumulation crisis’ in the United States stemming from the ‘dominant national ideology’ of individualism. Individualism legitimates the struggle for more: higher wages and the production of consumption or wage goods as opposed to capital goods. A similar process occurs in social policy. There is a demand for more benefits and services of higher quality. These processes necessarily reduce surplus value for appropriation by capital. Consequently, in the developed countries, ‘average profit rates and the profit share of national income … declined and average unemployment and/or inflation rates increased’ (p. 1).

The economic problems came to the fore again in the recession of the early 1990s. The question being asked was whether welfare states could continue to finance systems of social protection at present levels. The OECD (1994) issued the following warning:

The risks remain, as do the programmes that have evolved in response to them. But the economic context has changed. All countries now are confronted by increasing demands on their social policy expenditures while, at the same time, they face growing resource constraints and, often, budget deficits. And the current recession has underscored the serious financial pressures affecting systems of social protection.

(p. 7)

The worst of the recession in Western Europe had passed by 1995, but economic concerns remained paramount as countries tried to reduce budget deficits in order to meet the criteria for membership of the European Monetary Union in 1999.

Of particular concern in all industrialised countries is the increasing proportion of older people in their populations and the possible economic consequences of what the European Commission (1995, p. 13) has called ‘the impending demographic time-bomb’. The ratio of older people to those of working age will go on increasing until well into the next century. This has implications for retirement pensions and for expenditure on health and social services, but as we shall see in Chapter 5, informal care will also be affected.

The final economic consideration is the impact of globalisation on welfare states at different stages of development.¹ One facet of globalisation is the increasing influence of international financial institutions on the policy choices of individual countries. This is most obvious in Central and Eastern Europe, Latin America and more recently in South-East Asia, but it is not restricted to these areas. Globalisation also implies less protected, more open economies, and Esping-Andersen (1996) argues that more economic openness

entails tougher competition and greater vulnerability to international trade, finance and capital movements. Governments' freedom to conduct fiscal and monetary policy ‘at will’ is therefore more constrained: profligate deficit spending to maintain employment or pursue redistributive ambitions will be punished…

(p. 256)

The mature welfare states of Western Europe find themselves in competition with Japan and South Korea, and in Japan, at least, wage costs are higher than in the ‘tiger economies’ of Thailand and Indonesia. In order to compete with low-wage economies, the countries of Europe and North America have adopted a variety of strategies in relation to unskilled labour. Esping-Andersen (1996) identifies three different approaches with ‘Europe opting for an exit strategy, subsidizing workers to leave the labour market; North America and Britain favouring a wage deregulation strategy, thus bringing down relative wage costs; and Scandinavia stressing a retraining strategy and welfare state jobs, the latter mainly a source of women's employment’ (p. 258). It would be a mistake to apply this categorisation too inflexibly. It is mainly a matter of emphasis, and most governments adopt a mixture of approaches. All of them have retraining schemes, for example: the Labour Government which came to power in 1997 in the UK is placing increased emphasis on training and retraining. The European Commission (1996, p. 15) says that ‘all states continue to be active with the various employment promotion schemes which they developed or extended during the recession years’.

Problems of government

Since the early 1970s political science has been much exercised by the problems of government growth leading to overload. For the New Right the growth of government is an unmitigated disaster. In particular, the intervention of governments in the economy and in the provision of welfare services has been a failure. In each capitalist country a long list of deficiencies of the welfare state is compiled as evidence of this failure. The massive expenditure of resources and effort has brought little benefit and caused a great deal of harm: governments become overloaded to the point of inefficiency and ineffectiveness.

Brittan (1977) and King (1975) were the overload theorists most frequently cited by the neo-liberals in the 1970s and 1980s. Brittan (1977) claims that the problem of overload stems from the operation of the ‘political market’. The businessman or businesswoman attempts to maximise profit, the politician attempts to maximise votes and the bureaucrat attempts to maximise the size of his/her bureau.

Demand-side pressures for government growth have two sources. First, powerful pressure groups and the electorate generally urge governments to increase and improve provision. Second, competitive party politics encourages political parties to make ever more extravagant promises in an attempt to win electoral support. Keynesian economic policies and Beveridge-style welfare policies were responsible in the post-war years for the growth of government. Keynes made deficit budgeting and increased government borrowing and spending respectable. The initial success of these policies exacerbated the problem of overload in the long term because it increased the prestige of government and encouraged people to believe that there need be no limit to its munificence. Supply-side pressures leading to big government also have two sources. First, there is what might be termed ‘administrative accretion’: once programmes are initiated they gain a momentum of their own. New programmes do not always replace those already in existence, so that the functions of the government agency concerned grow year by year. Second, bureaucrats have a vested interest in expanding their departments and resisting any reduction in its resources and responsibilities. Professional providers of services, too, have an interest in extending services. Public bureaucracies work in the interests of the providers rather than consumers. These arguments were reinforced by the work of the adherents of the public choice school of economics (Downs, 1957, 1967; Buchanan and Tullock, 1962; Niskanen, 1971, 1978) who sought to apply economic theory to the behaviour of governments. More particularly, they argued that the methods employed in the analysis of markets could be applied to the public sector. The behaviour of bureaucrats was just as self-interested as the behaviour of individuals in the market. The difference was that bureaucrats were not subject to the discipline of the market and the necessity of making a profit.

The consequences of government overload, according to King (1975), include a serious decline in government effectiveness and an increase in the number of policy failures. This raises the possibility that ‘mass dissatisfaction with the consequences of our present political arrangements could grow to the point where the arrangements themselves were seriously called in question’ (p. 287). A further problem is that as the governmental system becomes larger and more complex, the difficulties of co-ordination and control increase. Among other things, this means greater freedom from political control for administrative and professional staff. It is curious that Offe, a Marxist, analyses the aetiology of the ‘ungovernability crisis’ in terms similar to those used by the overload theorists, particularly King: he blames the growing pressure of expectations and the diminished steering capacity of the state. The ungovernability crisis according to Offe stems from a contradiction between the functions of the state in facilitating the accumulation of capital and its functions in relation to legitimation. Class conflict is at the base of this contradiction.

The New Right use overload theories and the extremely one-sided evidence of policy failures to argue for rolling back the state and returning to laissez-faire policies; a return to the marketplace and more reliance on families and voluntary effort. Government intervention is said to be the negation of freedom, a close parallel being drawn between economic freedom in the market and freedom in general. State-provided social services, attempts by the state to reduce inequality and to maintain high levels of employment are all rejected as being unattainable except at too high a cost in terms of freedom. What the New Right is advocating, therefore, is a welfare state based on residual principles with government restricted to the protection of individuals from coercion, the administration of justice and mediation in disputes, the provision of basic amenities and compensation for external or neighbourhood effects and, finally, the protection of those members of society who cannot be regarded as ‘responsible individuals’.

Space has been devoted to theorists active in the 1970s, because they provided a foundation for more recent contributions which have developed and modified the earlier work. The New Right in Britain have continued the critique of big government (Green, 1996; Marsland, 1996). Other writers without new right connections, and indeed directly opposed to new right ideas, have been critical of the central state. Communitarianism (see Chapter 5) certainly anticipates a reduced role for government.

Le Grand (1991), certainly no friend of the New Right, has attempted to construct a theory of government failure comparable to the theory of market failure by freely adapting the work of Wolf (1988). The theory is mainly concerned with efficiency in three spheres of government activity: provision, subsidy and regulation. Government provision of goods and services may be inefficient because very often government providers are monopolies free from competition both actual and potential. The absence of competition reduces the pressure to keep cost to a minimum. Where government providers are not monopolies and are forced to compete, the level of efficiency will depend upon the kinds of organisation with which they are competing. If their competitors are profit-maximising organisations, then government providers will be forced to reduce costs to a minimum. If competitors are other government agencies or non-profit organisations, the effect on costs will be less, although inter-departmental competition in government may have its own benefits in terms of s...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• Preface
• Acknowledgements
• 1 Introduction
• 2 The State and Social Welfare
• 3 The Commercial Sector and Social Welfare
• 4 The Voluntary Sector and Social Welfare
• 5 The Informal Sector and Social Welfare
• 6 Conclusion
• References
• Index