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Gurutz Ansola Larra˝aga > Extracts

Essay (literary and non-literary)

The Crisis and Future of the Welfare State |


The period following the Second World War saw the spread of very broad consensus throughout Europe in social and political spheres, which, in turn, enabled social policy to make constant progress during the 1950s and 1960s. However, early in the 1970s a heated debate concerning the crisis of the Welfare State and the need to change it arose and spread.

Since the term "Welfare State" was coined, it has had numerous meanings and different spheres during those thirty years and up until today. The definition we have come up with is widely accepted and it is this: when referring to the Welfare State, political power is used in a deliberate way to bring about the transformation of the results of market forces in the following three directions:

Firstly, by guaranteeing a minimum income for all persons and families.

Secondly, by providing support for people and families when faced with a lack of security caused by certain events (illness, unemployment, old age).

Thirdly, by offering certain good or preferential services (like education, health or housing) in the best way possible to all citizens, whatever their status or class.

The State is responsible for all these benefits, because they are established within the sphere of social rights and not exclusively within the benefits of social charities.

By specifying the spheres where the responsibilities of the Welfare State lie, it is possible to conduct an accurate study into how social policies have developed over the last few decades. So, in the sphere of the Welfare State we include the following activities: on the one hand, financial assistance linked to unemployment, disability, illness and old age; on the other hand, bringing education and health to all sectors of society, because they are the most valuable assets.


Around the end of the 19th century Bismarck paved the way by implementing a number of measures in the area of social security. Bismarck's social security system was on a national scale; it was compulsory and was funded by workers, the company and the State. Afterwards and until the 1920s all kinds of insurance schemes, both voluntary and compulsory ones, flourished all over Europe to provide cover in the event of accident, illness, old age, for certain categories of the workforce, etc. At the same time some insurance was available to cover unemployment. And further progress was made when some of the insurance schemes became compulsory.

These beginnings and the progress made opened up the way that led to the subsequent increase brought about by social policy in the 1930s and 1940s.

In the 1930s social democrats were in power in Germany and Sweden. In France they were the years of the Popular Front, while in Spain there was a Republic (1931-1936). It was an auspicious time for sowing the seeds of numerous social security schemes and developing them and this is what in fact happened.

In 1942, right in the middle of the 2nd World War, the Beveridge report established what was to be a permanent milestone in social policy in Great Britain. It laid down the foundations for a new social security system. It guaranteed a minimum income for all citizens, not just for those employed by companies. The aim of the minimum income was to eliminate poverty, but at the same time, there was no desire to turn that guarantee into an excuse not to work or save.

Moreover, the insurance system was complemented by a health scheme. And as it was designed to be available for everyone, it was free all over the country.

After the 2nd World War the spread of the Welfare State seemed unstoppable. In the period between 1950 and 1975 social transfers doubled in relation to GDP in five European Countries (Denmark, Sweden, Norway, Italy and Holland); they were closely followed by France, the United Kingdom, Belgium and Switzerland. So, within those twenty-five years social transfers grew or increased more rapidly than GDP and the whole of public spending.

If there was an unceasing expansion of the Welfare State, it was because of the consensus achieved on social policy among the main political forces, whether they were liberal or social democrat. It existed on all sides, because the Welfare State was regarded as a political strategy that could greatly benefit social policy, not only from the point of view of economic growth, but also as a way of maintaining the democratic system and developing social justice further.


It is well known that Keynes' thoughts led to the foundations, both analytical and governed by regulations, which were indispensable for the State to intervene in the market economy. Keynes rejected certain pillars of classical thought. He rejected Say's Law, according to which aggregate supply has the capacity to create its own supply. In Keynes' view, this law does not work in the economy of the 20th century. Nor did he accept that the market has the capacity to regulate itself of its own accord whenever an imbalance caused by price fluctuations occurs. Keynes felt that quantities fluctuated more easily and more quickly than prices when disruption occurred.

In classical thought, the market economy by its own power and virtue creates its own stability and balance and is a system that leads to full employment. Keynes, however, defended the opposing argument. An unchecked market economy often suffers insurmountable instability. And it can go on for a very long time in a "stable" situation without full employment; in other words, in a serious situation like unemployment in which the market does not have the capacity to correct itself automatically with its own strength. The liberal-capitalist economy has frequently been through long crises. And in Keynes' view, one of the main roots of these dire situations is the fact that company investments are very changeable, they undergo great fluctuations. So, he draws the inevitable conclusion: if you want to curb fluctuations in the economy, the State somehow has to intervene and get involved in the life of the economy. The symbol "laissez faire", or "don't interfere" is not Keynesian.

In Keynes' view, the cost of money and capital exert an influence on productive investment, as do many other factors, especially demand and future prospects. That is why the State has to maintain the level of investment by making an effort from the point of view of demand for goods and services; it does so by using fiscal policy incentives in times of economic decline. For example, budget imbalances, or a deficit which is reasonable, can have a beneficial effect. A deficit can act as a brake on a decline, whereas a surplus can slow down excessive acceleration and reduce levels of inflation.

After Keynes came neoclassical synthesis in the academic field and many famous economists tried to apply a permanent internal framework to the mixed economy, in other words, to the mixed economy of public and private sectors. Thus the way of thinking of these theorists opened up a broad field for understanding economic policy and putting it into practice. Indeed, it was well adapted so that different ideologies and interests could understand each other and be allied pragmatically.

Neither liberals nor conservatives disapproved of State intervention, as long as it corrected market failures and increased the economy's effectiveness while respecting the free play of the market. Moreover, from the perspective of liberals and conservatives, State action and, in particular, policies for the benefit of society, could of themselves lead to periods of peace and stability in the economy.

For social democrats, on the other hand, through fiscal and social policies and, in particular, through the distribution of income and wealth, it was possible to achieve aims in favour of justice and against inequality.

Indeed, during the "prosperous thirty years" after the 2nd World War, the economy grew vigorously, there was much wealth to share out in the West, and the fruits of that growth could be redistributed without deep conflicts. That was the atmosphere at a time when consensus among liberals and social democrats was achieved once again.

In Europe, Great Britain, France, Sweden and Norway were the first to adopt Keynesian policies. In these countries the bases were established to enable the Welfare State to be rapidly built during the twenty years that followed, in the 1950s and 1960s.
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