What is a welfare state?
“Welfare state” derived from the notion of “fare well”, to get by on a decent level. Even if for us it might seem to be an old and established reality, the welfare state is instead a relatively recent invention. It was used from the end of the Second World War, aspiring for a social, politic and economic system in which the promotion of security and social wellness is assumed as prerogative and a responsibility of the State. The Welfare state is identified by the state’s relevant public presence in important sectors such as public welfare, health care, education and council housing; this presence is followed by an interventionist approach and governmental control on economic life through legislation and economic scheduling.
Historically it was born in the aftermath of World War II, at a time when contradictions in the capitalist economy became obvious, in an era characterised by the birth of the working class, urbanisation, immigration and the extension of the right to vote in Western Europe. With these changes, new forms of poverty emerged and ordinary families experienced increasing difficulties in the everyday life.
After economic recessions, high unemployment rates and the growing necessity of meeting the needs of the weakest part of the society, Europe witnessed a gradual public expectation of a direct state intervention. This movement has its own historical roots. In Germany, during the period 1883-1892, Otto von Bismarck established the so-called social laws, but only from 1920 did these laws reach the necessary extension to become something we today would recognise as social policy. Previously only the UK has seen this kind of legislation with its “Poor law”, a legislation launched in 1601 and suppressed in 1834.
The welfare state is identified by the state’s relevant public presence in important sectors such as public welfare, health care, education and council housing; this presence is followed by an interventionist approach and governmental control on economic life through legislation and economic scheduling.
In the post-WW2 era, when the welfare state was truly the catchword of the decade, the aspirations were higher. This social policy, according to the ideas of its creators, would have led to the softening of capitalism’s contradictions, conciliating production, efficiency and widespread welfare. These policies were designed to grant an equal distribution of public resources, bearing in mind the weakest part of the population and the promoting social peace. In the minds of its creators, these policies would have been the “Third Way” between capitalism and socialism, with a strong sense of cooperation in the name of a common good for the countries.
But is this truly possible? Is this idea working within the counties? Let’s consider three European cases.
Italy: Welfare for the middle class?
In Italy, on the fiscal side, the exigency to cover all the costs for the expansion and the maintenance of the welfare state have involved a huge growth in taxation pressure and a decrease in private investment and consumption, with evident negative effects on employment rates. Besides, the major benefits of this system were not tailored to people in need but they have fostered the middle class, creating a good basis for a system of corruption of a political class less and less representative of citizens and more and more interested in obtaining economic power. Public investments have limited the freedom of action of citizens and the capacity of taking risks in investments, provoking a progressive irresponsibility of people and society. With the enormous growth of the bureaucratic machine, ever more inefficient, this system has assisted also to a growth in public debt, which now afflicts Italy more than ever. This is topped by an unequal and unsustainable fiscal pressure. The demographic structure of an aging society does not help the condition of the social security either, which represents the heaviest expense of the welfare state. Without a steady shift in the demographic trend and positive migration, in only 30 years the Republic of Italy will be composed of a population of elderly people with only a few youngsters, which would cause a collapse in pensions and the healthcare system. According to the words of Maurizio Milano of the IDIS (Institute for the Doctrine and Social Information) to see a light at the end of the tunnel “it will be necessary to reduce the public participation and to re-evaluate private initiatives in economic and social matters.”
UK: who gets the emergency loans?
In the case of the UK, in April 2013, the Department for Work and Pensions (DWP) abolished Crisis Loans and Community Care Grants and transferred the funding previously used to support the elements of the Discretionary Social Fund to upper tier local authorities in England. Authorities were not placed under any statutory obligation with regards to the use of this funding. However, the government’s expectation was that they would develop “Local Welfare Assistance” schemes “concentrated on those facing greatest difficulty in managing their income”. The intention was for local authorities to deliver a more flexible response to unavoidable needs with the wider range of local support than what local authorities already offer. The decision to transfer funding to local authorities was made in the context of a significant rise in Community Care Grant and Crisis Loan expenditure in the years leading up to 2010/11. At the end of that year, total spending across Great Britain stood at £368.4 million, with 61% of this amount spent on Crisis Loans. The government became concerned that spending increases were driven by a large number of repeated applications, suspecting that in some cases applicants were abusing the system. In particular, there were concerns that applicants requested help to purchase essential items but instead spent their award, (which was made in cash) on less crucial things. Crisis Loan expenditure in 2011/12 fell by 41% compared to the previous year, to £133.3 million.
Whilst these administrative measures were successful in containing the level of spending, they did not address the underlying needs of applicants who had become reliant on the scheme and who were now unable to access the same level of financial support. According to the Local Government Association “transferring the funding to local authorities, and providing these with the freedom to design their own schemes, therefore provided an opportunity to ensure support was given to those in greatest, and genuine, need; and enable the more effective use of resources, particularly by linking financial help with other forms of support to better meet the underlying needs of applicants.” The transfer of funding to local authorities has also allowed them to develop cost-effective mechanisms regarding fulfilment. Without exception, this has involved a move away from cash payments to in-kind assistance. The move to in-kind assistance has had two main effects. Firstly, it has reduced the chance of potential abuses. Secondly, the move to in-kind fulfilment has meant that authorities have been able to negotiate bulk purchasing deals with suppliers and use local providers, including recycling projects, to both keep the cost of items low and improve the level of service.
Germany: more worse jobs?
Regarding Germany, 10 years after the new Hartz legislation was launched, the reform was seen as very successful having helped the decrease in unemployment rate. The reform gave stamina to German welfare, thanks to the government’s condition towards unemployed people who have to demonstrate that they’re actively searching for a job. Unemployed are solicited with job proposals and if people refuse all the proposals offered in three months, they’ll see their subsidy suspended.
The reform helps to find a balance between the individual and the state’s responsibility and was created through four steps. First of all, the simplification of the employment’s procedure and the introduction of job centres. The second step has seen the introduction of “Minijob” contracts, with a low rate of taxation and new forms of individual job for the unemployed and a major support network for people over 50. There has been the introduction of a Federal Agency for Employment and the introduction of an economic assistance system in order to reduce long term unemployment. All this became possible only thanks to flexibility, giving the possibility to have access to the work market, creating work places also for unqualified persons. Subsidies are given to persons who had worked for at least 12 months, calculated according to the salary of that employment. Contributions have no time limit so checks are severe. But has this reform been truly successful? According to Eurostat data, in 2002 this resulted in Germany ranking first in having a high percentage of workers with low salary, when compared with countries such as France, Norway or Sweden. So to recap, the result of the Hartz reform is that unemployed people receive less than before the reform and employed people receive lower salaries. According to statistics, salaries are down 1.8% from 2000 to 2012.
From these comparisons we can probably deduce that the reality of welfare is not just a promise of a job to everybody or an idea to give the control of the economy to the state. Far from it. A state could be called a functioning welfare state when all the small realities are taken into account, balancing the private and the public initiative and everyone is helped on the basis of what they really need, trying to work as a community. Unfortunately, for most countries having a welfare state in this sense is still a utopia.