“The Three Worlds of Welfare Capitalism”, part 2: Stratification, Pensions, and Crystallization

Chapter 3: The Welfare State as a System of Stratification

Many sweeping generalizations about welfare are incorrect. For example, you might hear someone argue that it lessens class divisions. But not all welfare is created equal: some welfare policies lessen class divides, but some enhance them. And the redistributive effect of even the same amount of welfare spending can vary greatly. Mirroring the regime types, there are 3 “ideal types” of welfare stratification.

Conservative

The origins of conservative stratification comes from two related phenomena: etatism and corporatism. Etatism, pioneered by Bismarck, means giving preferential treatment to public sector workers to ensure their loyalty to the state. Meanwhile, corporatism ties benefits to where you work, harkening back to the medieval era. The pre-capitalist idea of “noblesse oblige” mixes with Catholic ideology to create a system that generally helps the poor more than the liberal type does. Benefits can also be occupationally-segmented: Italy, for example, has 120 occupational pension schemes.

Liberal

On principle, liberalism is opposed to stratification, viewing state interference as creating paternalism and elitism. Interference is thus kept to a minimum through stingy, means-tested benefits. But the state is not a neutral actor in liberal regimes: rather, it’s actively involved in centering the market in society. This can be seen in schemes like tax deductions for occupational benefits: a liberal state artificially promotes such things over social democratic alternatives. This all adds up to a highly stratified system, with the poor relying on stigmatized means-tested benefits, the middle class on subsidized and individualized social insurance, and the rich on the market. “Liberalism’s universalist ideas were contradicted by the dualism and social stigma it promoted in practice.”

Socialist

Unsurprisingly, the social democratic or socialist approach aims to build solidarity and prevent the divisions of state paternalism, exclusionary corporatism, and the market itself. Yes, socialists opposed the pacifying welfare of Bismarck for example. But welfare could be used as a base to strengthen working class power. This idea was not new: Marx thought similarly about the British Factory Acts, for example. As mentioned previously, early attempts to build solidarity outside the state through cooperative and fraternal societies proved inefficient. Not only was there stratification between members and non-members, but worker-financed funds were always severely weakened during economic downturns due to unemployment. The unemployed were also a problem for the socialist project, as they undercut working class power (making strikes and high wage demands less effective), while not having much power themselves. We’ll return to this problem in the next article.

Comparative Dimensions of Welfare State Stratification

Now, we turn to some data on stratification. Corporatism is measured by the number of occupationally distinct public pension schemes, and etatism is measured by the percent of GDP spent on public employee pension. Universalism is measured by an average of coverage rates for sickness, unemployment, and pension benefits. Lastly, average benefit equality is measured by the ratio of minimum to maximum pension benefits. As you can see, divisions into welfare types are not perfectly clear cut: countries have a mix of different kinds of policy.

4. State and Market in the Formation of Pension Regimes

Special attention should be paid to generally the biggest welfare expenditure: pensions, including both old-age and disability pensions. Governments grant very different social rights here, varying from generous public pensions to schemes that push for occupational or individual pensions. So, the coverage of different types of pensions matters. But how much of retired folks’ income is actually from different pensions matters too: government granting you a social right to a pension doesn’t mean the quality of that pension is good.

Restructuration in the Post-War Era

“The hope that a minimalist state and buoyant market would complement one another in a harmony of capitalism and welfare was falsified even before the Depression shattered it entirely.” In 1939, the countries we’re studying averaged pension coverage rates of 40%, with replacement rates of 15.5%. This was woefully inadequate, even if you were lucky enough to get a pension (only 5% did in the US). But much changed in World War 2. First, due to wage controls, employers started offering fringe benefits like pensions to attract workers. The high taxing and spending common to the war also expanded the baseline for what was acceptable for government to do. Some numbers from the US: from 1945-1950, private pension spending increased 68%. From 1950-1960, it increased a staggering 364%.

Chapter 5: Distribution Regimes in the Power Structure

Several explanations have attempted to explain why nations crystallize into certain welfare structures. First is functionalist moderation, which argues that economic development naturally leads to average folks demanding services the market can’t provide, which governments respond to. However, this can’t explain why similarly developed countries have different welfare state structures. There’s also the power-centered approach, which argues that governments are not necessarily responsive to the people. As such, policy is changed through power mobilization, of the working class. However, this is a very one-dimensional view: the working class can be mobilized in lots of different ways, depending on the structure of unions and the role of parties. Whether right-wing parties are unified and the structure of parliament may also play a role in how this power mobilization works.

Conclusion

The data overall supports our hypothesis: political differences have a strong effect on how welfare states are structured. But it also urges caution. None of these relationships are perfect: some are weaker than expected, some may be spurious. And history is always hard to put hard numbers to. We should also note that these relationships may not hold forever: whether they even hold today is something only more modern research can address. Plus, one important aspect has been largely left out of these discussions: how these welfare regimes approach employment. The next article begins to address that question.

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