The welfare state is a system in which the government plays an active role in the economic activities of a given country. It is based on the idea that all members of society should have access to basic needs, such as: healthcare, education, housing, and financial security. The main goal of a welfare state is to reduce inequality, prevent poverty, and ensure that everyone can live with dignity. As such, the concept of the welfare state is often associated with modern liberalism and mixed economies. In fact, most modern democracies contain some elements of a welfare state. As such, economists consider the concept of the welfare state as important to understanding modern economic conditions.
WELFARE STATE – HISTORY
The welfare state is best associated with the 20th century and modern democratic nations. During the 19th century many people began to question whether or not laissez-faire capitalism was meeting the needs of all people in society. In fact, some argued that laissez-faire capitalism was causing a wide income gap in society between the business owners and working class. It was during this time period that the ideas of socialism developed. In general, socialism is a left-wing economic system that favors government intervention in the economy in order to try to decrease the imbalances created by laissez-faire capitalism. For instance, socialism supports the idea of government-funded social programs such as pensions and social assistance. These programs would be funded by those wealthy enough to afford the taxation while they would benefit those who were less well off financially. The ideas of socialism spread throughout Europe and North America and had a profound impact on capitalism. Essentially, it caused laissez-faire capitalism to adopt many of the principles of socialism, while also maintaining several of the main principles of capitalism. Therefore, the welfare state is placed near the center of the economic spectrum and takes a mixed approach to economics.
Often, the welfare state is also referred to as a mixed economy. Historically it developed out of the ideas of socialism and laissez-faire capitalism during the 20th century and can best be seen in the events of the Great Depression. During this time period, governments around the world, including the United States, transformed their economies to include elements of socialism. This was done in order to benefit working class people who were struggling in the economic downturn of the Great Depression. As such, the welfare state includes principles from both sides of the economic spectrum. For example, welfare states maintain many principles of laissez-faire capitalism, including: private ownership, competition, free trade, self-reliance, self-interest, and the principles of supply and demand. However, these same welfare states also adhere to socialist-based principles, such as: public ownership, cooperation, collective-interest, and government regulation to ensure the equitable distribution of income. One of the main impacts of the Great Depression was this shift in economic and political thinking, especially that of Franklin D. Roosevelt and the New Deal.
WELFARE STATE – MAIN PRINCIPLES
Public ownership is a central principle of the welfare state. It is the idea that the government should have the ability to own property, which could include: land, businesses, products, ideas, etc. For example, in the United States, Amtrak is partially funded by the federal government. Amtrak is a nation-wide rail service that allows passengers to travel the United States by railroad. A central argument for government ownership is the idea that the government should ensure the continuation of an essential service, such as transportation. The hope is that public ownership of the business will help control prices for average consumers while also providing a service that, if it failed, would be harmful to the citizens of the country. For instance, in Canada, Canada Post is a government run mail service that exists to ensure that all citizens of Canada have access to relatively inexpensive and reliable mail delivery. The inclusion of public ownership in the welfare state does not mean that private ownership is denied. For example, while Canada operates Canada Post, other mail delivery businesses also operate in the country, including: UPS. Therefore, the welfare state includes both principles as a means of balancing services within the country for all citizens.
Cooperation is another important principle of the welfare state. It is the idea that citizens in a country should work towards a common goal rather than competing against each other. An example of cooperation in a society is co-operatives. A co-operative is a company that is owned and operated by several, or many, individuals rather than one single person. Often co-operatives are run by the workers of the company and they each share a similar stake in the company. For example, in the United States, Dairy Farmers of America is a large co-operative in the country and operates a marketing co-operative for dairy producers. Based out of Missouri, it is collectively owned by 15,000 dairy farmers and produces over 30% of the milk in the United States. The inclusion of cooperation in the welfare state does not mean that competition is denied. For example, while Dairy Farmers of America is a co-operative that operates in the country, other dairy-based corporations also exist. For instance, Nestle is a private corporation that sells of large portion of the dairy products in the United States. Therefore, the welfare includes both principles and simultaneously allows individuals to compete and participate in co-operatives.
Collective-interest is also a central principle of the welfare state. It is the idea that a society should act, economically, in the interest of all people for the common good. For instance, welfare states would support the idea that the government should fund and operate social programs that are in the best interest of most, if not all people. A social program is a government-funded and program that is, in general, universally provided to all citizens of the country. There are many examples of social programs in modern democratic nations, including: old age pensions, some form of government funded healthcare, public education, welfare, etc. For example, countries such as Canada, the United States and England offer public education to citizens of their countries. The idea is that a basic education for all citizens is in the collective-interest of the country as a whole and not just for individual people. For example, public education allows low income citizens to afford to send their children to school and receive a similar education to others in the same country. With that said, the principle of collective-interest in a welfare state does not rule out the principle of self-interest. Rather, just as there are public schools in the countries mentioned, there are also private schools, and individuals may choose to send their children to those schools if they deem it in their own self-interest.
The final principle of the welfare state is government regulation to ensure the equitable distribution of income. It is the idea that the government has a role to play in the economy in terms of solving issues related to wages. For example, at different times in history, such as the Industrial Revolution or the Great Depression, there has been wide income gap between the highest earners and the lowest earners. For example, some economists have argued that a wide income gap was one of the main causes of the Great Depression. Governments across North America and Europe have sought to solve this issue through government regulation. For instance, minimum wage laws were created to protect working class citizens from being taken advantage of by wealthy owners. The idea was that the government should set a minimum wage such that those earning the lowest amounts in society are still able to take care of the basic necessities of life. While this may not always be true, minimum wage laws show the government’s attempt to increase the equitable distribution of in come in society through government influence and intervention in the economy, while also still allowing laissez-fare principles such as free trade and private ownership.
WELFARE STATE – IMPACT ON CAPITALISM
Capitalism is the most important economic system of the last two centuries and is the dominant economic system in the world today. However, capitalism is ever-changing as countries attempt to deal with different economic issues. Capitalism in the 18th and 19th century is referred to as laissez-faire capitalism and involved a move away from government influence in the economy. Yet, as time passed, capitalism changed in an attempt to try to meet the needs of more individuals. For example, throughout the last century, capitalism shifted towards the center of the economic spectrum, which is referred to as the welfare state. This form of capitalism includes several principles of socialism while still maintaining many of the key principles of laissez-faire capitalism. This shifting on the economic spectrum continues as countries elect different leaders with different views on the government’s role in the economy. For example, while Barrack Obama introduced policies that were considered to promote the welfare state, Donald Trump is introducing policies that are more right-wing in nature.
WELFARE STATE – POSITIVES
The welfare state is associated with the center of the economic and spectrum because it allows for elements from both socialist ideologies and capitalist ideologies, combined with individual rights and freedoms and the principle of rule of law. As such, economists consider welfare state societies to be examples of modern liberalism and mixed economy. It developed in response to the perceived hardships created by classical liberalism in the 19th century and the early 20th century in England and the United States during the time frame of the Industrial Revolution and the Great Depression. Today, most modern democratic countries are some degree of a welfare state, including: United States, England, France, Canada, etc. As such, when people today consider the positives and negative aspects of the welfare state they often use the impacts of industrialization and economic recession to determine their response.
First off, there are several positive aspects of the welfare state. On the positive side, a mixed economy benefits society because it focuses on the principles from the both the left (collectivism) and right (individualism) sides of the spectrum. This is positive because it means that a mixed economy does not contain the extreme left elements of a command economy or the extreme right elements of a free market economy and it instead tries to strike a balance between both. As such, many economists argue that a mixed economy is more stable because it can change to the conditions of the economy and be more free market or command when needed. For example, usually in a mixed economy, the government intervenes less in a period of boom which is when the economy is doing well. However, when the economy is in recession, the government generally intervenes more in order to prevent a crisis and improve the overall economy. Furthermore, under a mixed economy, the government still allows free market principles, thereby still allowing for self-reliance and competition in the economy. At the same time, a mixed economy avoids the issue of income disparity common in a classical liberal society under a free market economy, because it allows government intervention that steps in to provide basic social programs if people are in need. Therefore, many consider a mixed economy to be a system that balances the needs of the citizens with their freedoms. Furthermore, another positive of the welfare state is that while it includes elements from the left side of the spectrum, it still allows for both individual rights and freedoms and rule of law. These principles are important in maintaining a society based on democratic values and their inclusion ensures that citizens in modern liberal countries enjoy freedom from oppression by their own governments.
WELFARE STATE – NEGATIVES
With that said, there are several negatives associated with the welfare state. As stated above, the welfare state is best associated with a mixed economy since it is also in the middle of the economic spectrum and includes elements from both the left and right. First, a mixed economy contains more government intervention than a free market economy (through taxation) and therefore may not lead to the periods of boom that a free market economy does. The taxation required to fund the social programs puts a burden on private businesses and limits their ability to thrive. This problem highlights another issue with mixed economies, which is finding the right balance between socialism and laissez-faire capitalism. Although a mixed economy contains elements of both, it can be a struggle to truly find a balance and governments may sometimes intervene too much and other times intervene too little. Furthermore, mixed economies sometimes struggle from large income gaps, just as free market economies do. Although mixed economies contain social programs such as welfare to avoid these gaps, the programs often do not do enough to truly stop wide gaps from growing between the rich and poor. As such, societies with a welfare state and mixed economies often still struggle with the issues of poverty and unemployment.
