Lecture #2: The Welfare State

1. Lecture #2: The Welfare State Theories and Implications for Inequality

2. Goals of the lecture • Introduction - Discussion Questions - Think about capitalism - Define the Welfare State • Theory -To understand how and why different welfare states have developed. • Implications for inequality -How do modern welfare states shape income inequality between different classes? • Why welfare states persist - The role of public opinion?

3. Discussion questions • Who benefits most from the Welfare state? • Do we actually need social policy? • Can a society function without it, and if so how? • If you work hard, is mobility possible (and likely)?

4. Inequality trends in Canada

5. Interpreting the figure • Market inequality has risen drastically since 1980. • From 85-90 there was a huge spike, but social policy counter balanced this shift (green line). • From 1995-2000 government taxes and transfers did not keep up with rising inequality. • However, from 2000-2010 there was a plateau • Begs the questions, though, if market inequality increases will the government be able to counter balance these trends? • Inflation has outpaced wage gains (more debt).

6. Income Gains by Social Class • Class Differences: • The top 20 percent increase in their average income by $49,400 between 1980 and 2009 (from $128,500 to $177,900). • The bottom 80 percent saw an average increase of only $5,450. • The bottom 20 percent gained only $1700.

7. The Welfare State:a response to marketfailure Questions Answers • 1.Can private insurance solve the problem of negative income shocks due to unemployment and sick-leave? • 2.Will private savings for old age be sufficient? • 3 .Why is redistribution not left to private charities? 1.Adverse selection would create a situation of incomplete coverage. 2.Time-inconsistent preferences will generate innsufficient private pension saving. 3.Conditional altruism and co-ordination problems.

8. The point about policy: • A capitalist economy simply cannot be maintained without social policy. • A functioning economy depends on broader social institutions to help out. • Cannot be maintained by isolated pure market relationships of supply and demand.

9. The Welfare State A definition…

10. The Welfare State: Defined What is the welfare state? • “A social system in which the government (or state) undertakes the responsibility of providing for the social and economic security of its citizens” • This is done though the execution of different types of social policies and public provisions which include: • Pensions, health care, unemployment benefits, child care, job training, educational programs, university/college subsidies.

11. A Definition (2) • “A capitalist society in which the state has intervened in the form of social policies, programs, standards, and regulations, in order to mitigate class conflict and accommodate certain social needs” • Welfarism is an institutionalized response to the negative effects of capitalism and the needs of the new working class

12. What gave rise to the Welfare State? • Creation of a capitalist labourmarket and working class, and the freeing of this class from the means of production • A need to defend the working class against the exploitative nature of the capitalist class • Rise of industrial capitalism • Protecting the working class against unemployment and suffering from the business cycle’s economic ups and downs

13. The Decline in Canada • Trade union decline • Withdrawal of federal funding in social programs (decline in federal transfers to provinces) • An attempt to get workers back into the labour force by diminishing rights of unions (inability to strike) • Toughening the qualifying criteria for social programs • Change in political ideologies of the state • Erosion of social rights, national identity, and democracy

14. To summarize: Why we should care Why study the welfare state? • Implications for inequality and stratification: • Shapes individuals’ life chances. • Influences the overall level of income inequality.

15. Shaping life chances: • Implications for inequality and stratification: • Shapes individuals’ life chances: In part, though the process of decommodification.

16. Background: Connection to Marx • Marx’s and class development: - independent producers to wage-earners. - commodification of labour implied alienation. • Mainspring of modern social policy lie in the process by which both human need and labour power became commodities and our wellbeing came to depend on our relation to the cash nexus alone. • In the middle ages it was not a labour contract, but the family, the church, or the lord that decided a persons capacity for survival. The blossoming of capitalism eroded ‘pre-commodified’ social protection

17. Background… • In pre-capitalist societies, few workers were proper commodities in the sense that their survival was contingent on the sale of labour. • As markets became universal and hegemonic, the welfare of individuals came to depend entirely on the ‘cash nexus’. • Stripping society of the institutional layers that guaranteed social reproduction outside of labour contracts meant that people were themselves commodified.

18. To summarize: • The class structure changed. - labour was now the predominant commodity. • Capitalism shifted human needs from institutionally provided, to market driven. - family, church, etc.

19. Decommodification of labour (1) • Esping-Andersen in ‘Three Worlds…” Defineddecommodification as the extent to which individuals and families can afford an acceptable standard of living independently of market participation (1990: 47).

20. Decommodification of labour (2) • Decommodification defined (again): -- In a market economy, citizens (and their labor) are commodified. Given that labor is a citizen's primary commodity in the market, de-commodificationrefers to activities and efforts (generally by the government) that reduces citizen's reliance on the market (and their labor) for their well-being -- It is the process of viewing utilities as an entitlement, rather than as a commodity that must be paid or traded for. In effect, a decommodified product removes itself from the market

21. Decommodification of labour (3) • Decommodificationoccurs when a service is rendered as a matter of right, and when a person can maintain a livelihood without reliance on the market.

22. How policies differCross national differences All welfare states are different. This is because they approach policy in a different way.

23. Cross national differences (1) • ‘Piggy bank’ versus ‘Robin Hood’ • P.B – Collective assurance against social risks. ‘horizontal redistribution’ Social insurance has the goal of reallocating income across the life course. -no attempt to redistribution between the ‘rich’ and ‘poor’. -smooth lifetime income and guarantee well being (illness and old age).

24. Cross national differences (2) • Robin Hood model: -- Vertical Redistribution • equalization will depend on the progressivity of the tax system and on the degree to which social benefits go disproportionately to the least well-off

25. Means tested versus Entitlement • Social welfare policies provide benefits to individuals, either through entitlements or means-testing. • Entitlement programs: Government benefits that certain qualified individuals are entitled to by law, regardless of need. • Means-tested programs: Government programs only available to individuals below a poverty line.

26. Theories of the Welfare State Why have welfare states developed? • Industrialization • Power resources Theory • Regime Theory

27. Industrialization (1) (1) Industrialization • Erosion of kinship and patrimonial traditions. • Growing dependence on wage labour created vulnerability. • Goal of the welfare state: a new and expanded role for the state to maintain the labor force. • Main Cause: Economic growth mediate by demographic change.

28. Industrialization (2) • These theories argue against the importance of social class. • the growing complexity of industrialization and the increasing specialization of the education and labour force “dissolve[d] the class structure of early industrial society” • the end of ideology and the “embourgeoisement” of the working class

29. Power Resources Theory (1) • Power Resources Theory (1970s) -Marxist roots. “class matters” for political and economic outcomes in advanced democracies • “Politics matters” in explaining Welfare State diversity. • For workers, their only ‘power resource’ is their numbers. • The Mechanism: Unionization and the Left parties.

30. Power Resources Theory (2) • “[p]ower resources are characteristics which provide actors – individuals or collectives – with the ability to punish or reward actors… [and can]…vary with regard to domain, which refers to the number of people that are receptive to the particular type of rewards and penalties” (1983: 15).

31. Power Resources Theory (3) • Main arguments: 1) The welfare state is a product of the historical legacies of working-class power and left party influence of government. 2) Inequality divides people (and social classes). 3) Unequal economic relationships facilitate the formation of social groups with distinct and competing interests. 4) Elections provide classes and unions with the opportunity to influence government and politics Famous quote: “Politics is the democratic class struggle”

32. Power Resources Theory (4) • Emphasizes the role of class and income inequality in society • inequalities generated by the class structure drove political activism. • begins with the premise that workers are oppressed by capitalism, thereby transforming labour power into a commodity.

33. Power Resources Theory (5) Why are there differences? • Core class (industrial owners, farmers, manual workers) vary by nation. • Sweden: highly organized working class was allied with farmers. • Universal social security programs were implements in conjunction with price subsidies with farmers. • The USA: high levels of regional and racial/ethnic fragmentation that inhibited class alliances. Thus, the interest of employers became more central.

34. Regime Theory • “What is the explanatory power of industrialization, economic growth, capitalism, or working class political power in accounting for regime differences?: very little”. • The hope of finding one single powerful force must be abandoned. • History is important: Welfare states are a product of historical legacies.

35. Regime Theory • Where does Canada’s welfare state sit relative to other countries?

36. Liberal Welfare StatesCanada, U.S.A, and Australia Welfare State Characteristics: • Means tested assistance • Taxfinanced public basic pension, supplemented by private coverage • Modest Universal transfers, modest social insurance plans. • Cater to lower income groups. • Entitlement rules are strict, and usually highly stigmatized. • The State encourages the market. • Emphasis on targeting. Assumption: the majority of citizens can obtain adequate welfare from the market. Role of Government: To nurture rather than replace the market. Consequences: • Minimal decommodificaiton • Constrained social rights • Encourages inequality, and increase the likelihood of stratification.

37. Liberal Welfare States • Liberal regimes favor un-regulated markets under the assumption that this bolsters employment growth. • But it also promotes greater labor turnover, which heightens social insecurity, and greater wage inequality, which, in turn, increases the risks of poverty.

38. Conservative Welfare StatesGermany, Italy, France, and Austria Welfare State Characteristics: • Goal: To cater to the new ‘post-industrial‘ society. • Liberal obsession with market efficiency was never prominent. • Social rights were never a contested issue. - Built on mandatory social insurance, but revolve around narrowly defined occupational distinctions – depends on life long employment thusfavouring men. Consequences: • However, strongly concerned with the preservation of status differentials. • Shaped by the church, strongly comitted to family.

39. Socially Democratic Welfare StatesSweden, Denmark, Norway, Finland • high tax volume, based on infrastructure • characterized by extensive, generous and social spending programs • characterized by universalism and decommodificaiton • Eradicated dualism (state versus market; working versus middle) towards a welfare state that true equality. • Crowds out the market: all benefit, all are dependent, and all will (presumably) feel obligated to pay.

40. Study: U.S.A versus Sweden

41. Income V. Wealth inequality

42. Implications for Inequality Korpi, Walter and Joakime Palme. 1998. “The Paradox of Redistribution and Strategies of Equality: Welfare State Institutions, Inequality, and Poverty in the Western Countries.” American Sociological Review, 63 (5) 661-687. • Targeted versus Universalism - Organized around the poor or for all citizens? • Flat-rate versus earnings-related benefit levels - Equal for all or based on pervious earnings and income? The goal of social policy is to reduce inequality

43. Why is policy controversial? • Social welfare policies provide benefits to individuals, either through entitlements or means-testing. • Entitlement programs: Government benefits that certain qualified individuals are entitled to by law, regardless of need. • Means-tested programs: Government programs only available to individuals below a poverty line.

44. Discussion Question • What do you think the poverty line sits at? • In 2009, half of Canadians were living on less than $25,400 • In 2009, the poverty line – for after tax incomes were as follows:   • 1 person: $18,421 • 2 persons: $22,420 • 3 persons: $27,918 • 4 persons: $34,829

45. Income, Poverty, and Public Policy • Who’s Poor in America? • Poverty Line: considers what a family must spend for an “basic” standard of living. • In 2003 the poverty line for a family of three was $14,824. • Many people move in and out of poverty in a year’s time.

46. It isn’t just about ‘spending’

47. Targeting • Dates back to ‘poor laws’ • War on poverty was explicitly directed at the poor • Focus on the ‘poverty line’ • Foundation for the ‘means tested model’

48. The Debate: Targeting versus Universal Targeting social policy: • We can eradicated inequality if we focus on certain groups in need. • Cheaper (resources aren’t ‘wasted’). • Lower expenditures mean lower taxes. • Greater economic growth Targeted welfare states are biased in favor of vertical redistribution.

49. Critique of targeting • High administrative costs. • Monitoring trends and needs • Subject to higher ‘non-take up’ • Stigmatization • Give rise to ‘poverty traps’ • Recipients have little incentive to change, because benefits would be lost.

50. Critique of targeting (2) • In societies that target, taxation is lower and there are less resources to go around • i.e., the impact tends to be smaller. • A selective system creates class conflict between the least well off and the middle. • Misguided conflict.