“The Three Worlds of Welfare Capitalism”, part 1: Why do welfare states exist?


The 1960’s and 1970's saw dramatic expansion and empowerment of welfare states. No longer was welfare a marginal role of the state: instead, it reshaped how society and the economy was organized. But different welfare structures shaped countries differently with regard to decommodification, stratification, and employment. Crucially, these effects cannot be determined just by looking at the amount of welfare spending: it’s more complicated than that. Chapter 1, acknowledging this, will re-conceptualize the welfare state with a sociological approach. Chapters 2–4, drawing from political economist Karl Polanyi, will discuss how welfare relates to social rights. Chapter 5 will attempt to identify how different political forces led to the welfare policies we see in the data. Chapter 6 analyzes ties between welfare states and labor markets, while Chapter 7 focuses on full employment specifically. Lastly, Chapters 8 and 9 examine the post-industrial transformation.

Chapter 1: The Three Political Economies of the Welfare State

Let’s start addressing the question up top: why do welfare states exist? Esping-Andersen examines a few theories from the time. First is the structuralist approach, which has two forms, both focused on the structure of the economy as an explanatory variable. The first goes like this: industrialization destroyed the traditional power of families, churches, and guilds, necessitating the state to take over some of their function in the form of welfare. The second, the Marxist structuralist approach, says welfare comes from the state attempting to smooth over class conflict caused by capitalism.

Ideological Approaches to the Welfare State

Different ideologies, unsurprisingly, have massively different views on welfare. They follow from answers to fundamental questions about the role of the state, democracy, property, and markets. First, we start with the classical liberals. Adam Smith, for example, embraced markets as a way to attack class, inequality, and privilege. This seems strange in our modern times, where markets have produced serious class divides and inequality. But he lived in a time when the privileged class was monarchs and aristocrats, not CEO’s or company owners. The state at the time was controlled by this class: thus, the classical liberal opposition and wariness towards the state makes sense. They saw markets as a way to free people from these, and other, traditional institutions.

Features of the Welfare State

Capitalism is centered around the labor market, in which you sell the ability to do labor (labor power) in exchange for a wage. While markets existed before capitalism, this omnipresent labor market is new. Capitalism commodified labor. But welfare can decommodify it to an extent by giving you income outside of the labor market (full decommodification would entail you get paid the same whether you’re working or not). Again, decommodification here describes the “degree to which individual, or families, can uphold a socially acceptable standard of living independently of [labor] market participation.” This is a key feature by which to analyze welfare states. In general, Anglo-Saxon countries have low decommodification, as their benefits are meager and means-tested. Germany has compulsory social insurance, with fairly high benefits. Yet the benefits mainly rely on contributions from work, so it’s far from highly decommodified. Lastly we have the Scandinavian model, which decommodifies labor the most. Benefits are universal, with generous minimums, yet also with high replacement rates for most folks.

Meet the Three Worlds

With that background in mind, let’s finally address the three welfare state regimes that form the basis of this book.

2. Decommodification in Social Policy

Before capitalism took hold, one’s capacity for survival depended on their relations to lords, their family, and the church. This is pre-commodification, as opposed to the commodification of labor that came with capitalism. It’s important to note that this commodification wasn’t natural: for example, the UK’s poor laws made the cash nexus, the market, the “linchpin of existence”. This process of commodification led to new demands: “with no recourse to property, and no state to which human needs can be directed, the market becomes to the worker a prison within which it is imperative to act as a commodity in order to survive.” Thus, labor movements often pushed for the next stage, decommodification. It’s important to note that decommodification is a scale. It’s a question of what standard of living folks can have outside of the market.

Socialists Against Commodification

As part of their goal to end class conflict, early socialists wanted to end labor’s commodification, as it caused competition (and thus alienation) between workers. Marx praised and pushed for worker rights, like the 8 hour day, that fought commodification. Marxist theorists Karl Kautsky and Rosa Luxemburg both praised the social wage (providing income outside of work). In the early 20th century, Lenin created a split among socialists. While revolutionary communists “believed that the roots of revolution lay in crisis and collapse [of capitalism], the reformists realized that the human misery that crisis breed would only weaken the socialist project”.

Data on Decommodification

For our first test of our welfare regimes, we’ll measure decommodification. We’ll use an index in which easier access, longer duration, higher income replacement, and a greater range of coverage leads to higher scores. Entitlement could depend on need (like Supplemental Security Income in the US), on work performance (as in Germany), or simply on the basis of being a citizen (the most decommodified option). The index will measure scores for pensions, sickness, and unemployment benefits, then combine them into a single number.



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