Download Lecture #2: The Welfare State

Lecture #2: The Welfare State
Theories and Implications for Inequality
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?
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)?
Inequality trends in Canada
Interpreting the figure
1) Market inequality has risen drastically since 1980.
2) From 85-90 there was a huge spike, but social policy counter
balanced this shift (green line).
3) From 1995-2000 government taxes and transfers did not keep
up with rising inequality.
4) However, from 2000-2010 there was a plateau
5) Begs the questions, though, if market inequality increases will
the government be able to counter balance these trends?
6) Inflation has outpaced wage gains (more debt).
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.
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The Welfare State:
a response to market failure
Questions
Answers
 1.Can private
insurance solve the
problem of negative
income shocks due
to unemployment
and sick-leave?
1.Adverse selection would
create a situation of incomplete
coverage.
 2.Will private savings
for old age be
sufficient?
3.Conditional altruism and coordination problems.
 3 .Why is
redistribution not left
to private charities?
2.Time-inconsistent preferences
will generate innsufficient
private pension saving.
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.
The Welfare State
A definition…
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.
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
What gave rise to the Welfare State?
 Creation of a capitalist labour market 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
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
To summarize: Why we should care
Why study the welfare state?
 Implications for inequality and stratification:
1. Shapes individuals’ life chances.
2. Influences the overall level of income inequality.
Shaping life chances:
 Implications for inequality and
stratification:
1. Shapes individuals’ life chances:
In part, though the process of
decommodification.
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
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.
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.
Decommodification of labour (1)
 Esping-Andersen in ‘Three Worlds…”
Defined decommodification as the extent to which
individuals and families can afford an acceptable
standard of living independently of market participation
(1990: 47).
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-commodification refers 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
Decommodification of labour (3)
 Decommodification occurs when a service is rendered as
a matter of right, and when a person can maintain a
livelihood without reliance on the market.
How policies differ
Cross national differences
All welfare states are different.
This is because they approach policy in a different way.
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).
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
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.
Theories of the Welfare State
Why have welfare states developed?
(1) Industrialization
(2) Power resources Theory
(3) Regime Theory
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.
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
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.
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).
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”
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.
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.
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.
Regime Theory
 Where does Canada’s welfare state sit relative to other
countries?
Liberal Welfare States
Canada, U.S.A, and Australia
Welfare State Characteristics:
Means tested assistance
Tax financed 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.
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.
Conservative Welfare States
Germany, 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 thus favouring men.
Consequences:
- However, strongly concerned with the preservation of status
differentials.
- Shaped by the church, strongly comitted to family.
Socially Democratic Welfare States
Sweden, 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.
Study: U.S.A versus Sweden
Income V. Wealth inequality
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
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.
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
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.
It isn’t just about ‘spending’
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’
The Debate: Targeting versus
Universal
Targeting social policy:
1. 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.
Critique of targeting
1) High administrative costs.
-
Monitoring trends and needs
2) Subject to higher ‘non-take up’
-
Stigmatization
3) Give rise to ‘poverty traps’
-
Recipients have little incentive to change, because
benefits would be lost.
Critique of targeting (2)
4) In societies that target, taxation is lower and there are
less resources to go around
-
i.e., the impact tends to be smaller.
5) A selective system creates class conflict between the
least well off and the middle.
-
Misguided conflict.
The Benefit of Universal Policy
 The ‘paradox of redistribution’ thesis argues that narrowly
targeted policies are typically ungenerous and
potentially stigmatizing due to lack of broad electoral
support.
 In contrast, universal benefits marshal broad citizen
support and will, hence, offer more generous benefits
that will reach all the needy with greater certainty (Korpi
and Palme, 1998).
 This explains why pro-targeting welfare states, like the
American or Australian, produce less income
equalization than universalistic ones.
 Poverty and inequality are highest in countries with the
targeted and basic security models and lowest in
countries with the encompassing model.
 By providing higher earners with earnings benefits,
governments can reduce inequality and poverty more
efficiently.
Why?
Traditional arguments for targeting have overlooked three
areas:
1) Budget size is not fixed, but instead depends on the type
of welfare state
2) Trade off between the extent of low-income targeting
and budget size
3) Private earnings insurance is heavily stratified (available
to the rich).
Public opinion and Social Spending
The Big Picture
 Relationship between policy and public opinion
 Two explanations:
1. Elected officials maximize chance of re-election by responding
to public preferences (Stimson 1995, Wlezien 2004, Brooks and
Manza 2007)
2. Economic and political factors influence public preferences
(Andersen and Fetner 2008, Kenworthy and McCall 2008)
 Regardless of causal interpretation one prefers, growing
inequality within nations (Fisher and Hout 2006, Firebaugh
2000, Banting 2006, Myles 2010), and a general rightward
shift in government policy underscore the importance of
studying these relationships
Why do Welfare States Persist (1)?
 Welfare state exist today because people want the
government to spend (or not spend) on policy.
Social policy responsiveness
 Elected officials have an incentive to incorporate policy
preferences in order to reduce:
-- electoral losses for themselves (or members of their
party generally).
-- reduce the possibility of public reprisals (public protest
or disobedience).
Why do Welfare States Persist (2)?
 Following this theory, public
opinion should track closely
to actual spending on social
services.
Does this theory hold in Canada?
Canada, our Welfare State, and Public Opinion:
 There has been a gradual move to the right in Canadian
politics.
 Canada is typically considered a liberal social welfare
regime characterized by fairly limited social spending.
 Following the theory of policy responsiveness, we should
expect Canadians to be less supportive of government
spending than citizens of countries with less liberal market
economies
Policy Attitudes in Canada (1)
Trends in public expenditures and public opinion
(b) Support for public spending
3.0
2.5
Poverty
Child care
Welfare
1.5
2.0
Average response
20
18
16
14
Percentage of GDP
22
(a) Public expenditures
1980
1985
1990
1995
2000
2005
1980
1985
1990
1995
2000
2005
Explaining the trend (1)
 Panel A:
A rising trend in spending from the early 1980s until 1994,
with a following sharp decline until spending reaches
approximately the same level as in the 1980s.
 Panel B:
Rise: 1985-1990
Decline: 1990-1995
Rise again: 1995- present
Policy Attitudes in Canada (2)
Trends in Economic Indicators
(c) Unem ploym ent rate
1980
1990
2000
11
10
9
8
6
7
Percentage unemployed
9.0
8.0
6.0
7.0
Ratio 80th perc./others
12
(b) Incom e inequality
45
40
35
30
2005 constant dollars (1,000s)
(a) Median fam ily incom e (after tax)
1980
1990
2000
1980
1990
2000
Compare…
1990
2000
9
8
6
1980
1990
2000
1980
1990
2000
(b) Support for public spending
2.5
Poverty
2.0
Child care
Welfare
14
1.5
16
18
Average response
20
3.0
22
(a) Public expenditures
Percentage of GDP
7
Percentage unemployed
9.0
8.0
6.0
7.0
Ratio 80th perc./others
40
35
1980
10 11 12
(c) Une m ploym e nt rate
45
(b) Incom e ine quality
30
2005 constant dollars (1,000s)
(a) M e dian fam ily incom e (afte r tax)
1980
1985
1990
1995
2000
2005
1980
1985
1990
1995
2000
2005
Canadian Public Opinion: Conclusions
 No evidence that the decline in spending in the
1990s had anything to do with public opinion
 Public opinion tracked most closely to the business
cycle (measured by the unemployment rate, but
also levels of income inequality)
 When economy is strong, public opinion favours
spending
 When income inequality rises, people want
more help.
Canada versus the U.S. (1)
Class Differences in Public Opinion
2
4
6
Income
(deciles)
8
10
6
5
4
3
2
1
0
1
2
3
4
5
6
Opinion toward government responsibility
USA
0
Opinion toward government responsibility
Canada
2
4
6
Income
(deciles)
8
10
Canada Versus the U.S. (2)

Differences in income effect between Canada and US also suggests
that politics matters too, however

NDP in Canada may play a role
1) In Canada, people with lower than median incomes
tend to be supportive of government redistribution;
2) they become less so as income rises until it reaches the
approximate median income, at which point income has
no further effect.
3) In the US, on the other hand, income has far less
influence on attitudes.
Economic conditions matter
 A breadth of research on the role of changing economic
conditions:
-economic development
-income inequality
Changes lead to significant class differences in public
opinion.
Theory of self interest.
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Background (1)
 Self-interest plays fundamental role in policy preferences
related to government intervention
 Individual economic position is negatively related to support
(Blekesuane 2007, Durr 1993, Schneider and Jacoby 2007,
Derks 2004, Fraile and Ferrer 2005, Svallfors 1995, 1997,
2008)
 Near consensus that public support decreases with economic
prosperity (Blekasuane 2007, Dion and Jaeger 2013, Jaeger
2013).
 Assumed mechanism: smaller proportion benefits when
society is affluent, thus average public opinion is less
supportive
 Other research suggests that public opinion is more
supportive when inequality is high (Meltzer and Richard 1981,
Finserass 2009, Joakim and Svallfors 2013, Kelly and Enns
2010, Lupu and Pontusson 2011, Shaw and Gaffef 2012).
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Background (2)
 Aside from rising inequality and welfare state
retrenchment, theoretical and methodological
limitations to previous research suggest more
research is needed
 We agree that preferences tend to reflect selfinterest, but the widely accepted negative relationship
between economic development and public opinion is
not consistent with this premise
 People should be most likely to favor government
intervention when it has little consequence for their
own living conditions
 Simpson’s paradox (Simpson 1951)
69
Economic Development and Public Opinion
(a) Economic Development
All countries
(lowess)
Within country
relationships
JPN
7
SLO
ESP
6
CHI KOR
SLV
GER
TUR
POL
5
ITA
NOR
MEX
CZR
MEX
NZ
FINNED
CAN
AUS FRA
UK
USA
SWE
4
Mean 'government responsibility' score
EST
10000
20000
30000
GDP per capita
(2004 US dollars)
SUI
40000
On economic development
 If utility maximization is the mechanism driving the
influence of economic context, people will be most likely
to favor government intervention when it has little
consequence for their own living conditions. We argue,
then, the mechanisms of self-interest dictate that people
will become more supportive of intervention as the
economy strengthens because they will tend to have
more resources of their own.
Income inequality
(b) Income Inequality
All countries
(lowess)
Within country
relationships
EST
7
JPN
SLO
ESP
6
SLV
GER
CHI
ITA
CZR
TUR
POL
NOR
MEX
5
FIN NEDFRA
AUS CAN UK
NZ
USA
4
Mean 'government responsibility' score
KOR
SUI
SWE
0.20
0.25
0.30
0.35
0.40
0.45
Gini Coefficient
(for equivalived household incomes)
0.50
On income inequality
 the self-interest argument that public opinion typically
becomes more supportive of government intervention as
inequality rises, a nuanced consideration of how public
opinion is formed suggests that inequality does not affect
the attitudes of people from all socio-economic positions
equally.
 This further implies that class differences in preferences
will be highest at low levels of income inequality and
converge as income inequality rises.
Other important work
 Esping-Andersen. 1990. “Three Worlds of Welfare
Capitalism”
 Brooks, Clem and Jeff Manza. Why Welfare States Persist
 Andersen, Robert and Josh Curtis. “Attitudes towards
Government Responsibility: Simpson’s Paradox and the
Role of Economic Context”.
 Pierson, Paul “Dismantling the Welfare State”
Possible research topics
 The relationship between public opinion and social
spending.
-Whose interests are being responded to? Is it the
aggregate? Or specific classes?
 How has gender responsiveness changed (if at all)?
 Compare and contrast different theories of the welfare
state. Which holds the most explanatory power and why?
 Why have governments not responded to Canadian
public opinion?
Paper Bonus Marks
 At least 1.5 pages double spaced.
 At least 7 solid references all integrated into the text.
 A strong argument (thesis statement).
 A solid introduction. Where your going with the paper,
and what you’re going to argue.