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Holes in the ‘Safety Net’

A vision of a stable, poverty-free capitalism was shared by many during the post-war years of steady economic growth. Through government investment and economic control, it was thought that severe slumps, like the 1930s Great Depression, could be avoided. Poverty, squalor and disease, it was claimed, would be a thing of the past (Economic Slumps—What Causes Them). As part of this most ambitious of programmes to sanitise capitalism, the welfare state was launched as a social and economic safety net.

This development originally represented an advance for the majority of people. However, contrary to current received wisdom, it was certainly not introduced with benevolence in mind.

Rise Of The Welfare State In Europe

It was not only the left-wing—dominated by reformist Social Democrats—who argued for government provision of welfare. Bismarck’s government in Germany in the 1880s was actually the first to initiate steps towards a welfare state. His views were reflected in the Kaiser’s announcement that:

the cure of social ills must be sought not exclusively in the repression of Social Democratic excess, but simultaneously in the positive advancement of the welfare of the working masses (from Rimlinger—Welfare Policy, Industrialisation in Europe, America and Russia—Wiley, New York)

This need for a more efficient system of ensuring that workers’ very basic needs were met was one of the main motives behind the introduction of the welfare state. Further justifications for it were outlined by the Beveridge Report in Britain, which formed the basis of Britain’s post-war policy and influenced the development of welfare in countless other countries. It emphasised the need to preserve the population’s morale and efficiency in wartime and to help offset any social discontent after the war.

After World War II, spending on welfare in real terms rose under several non-left governments who all unambiguously stated their belief in it—McMillan in Britain, Adenauer in West Germany, de Gaulle in France, and Nixon and Kennedy in the US. The social and economic reasons for introducing the welfare state were thus apparent to governments of all colours.

However, difficulties soon arose. The continuous rise in economic growth and prosperity which was expected after the war evaporated, particularly from the late 1960s onwards after the post-war reconstruction had run its course with the return of world slumps. The welfare state became more difficult to finance out of sustained economic growth at exactly the time the burdens of poverty and unemployment placed increasing demands on it. (Economic Slumps—What Causes Them).

Unanticipated demographic shifts (such as the rise in the state-dependent elderly) also hugely increased the welfare burden for governments in the industrialised world. This point was recognised in a 1996 International Labour Organisation report. It stated that pensions now represent 25% of public spending in Western Europe, which is twice the level of 25 years ago and comments:

The trend towards early retirement is a disturbing one… It diminishes contribution revenue at the same time as it increases overall social security expenditure.

Hence recent years have seen cutbacks in welfare payments and services in most industrialised countries on a scale that would have been considered impossible, indeed ‘politically unacceptable,’ years ago.


French Prime Minister Alain Juppe provoked huge street protests in 1995 when acknowledging that public finances were in a state of ‘national peril’ due to unsustainable levels of public spending (a large proportion of which goes on welfare.) France’s taxes were “six percentage points of GDP higher than Germany’s and its spending 13 points higher than Britain’s” (The Economist, 14 October 1995). Alongside President Chirac, he planned to cut France’s

total public deficit (central and local government spending plus the separate social welfare account) from an estimated 5% of GDP this year to 3% by the end of 1997.


In Austria in early 1996, the country’s social democrats introduced welfare cuts. In the recent election they had campaigned against their centre-right rivals ostensibly to prevent exactly this happening (The Economist, March 1996).


President Clinton will soon be pushing through measures to end peoples’ entitlement to welfare payments after five years—a measure that has been predicted to throw

1.1 million more children into poverty. This will reduce the current spending ($107 bn from the federal government on all welfare programmes with 17.5 billion chipped in from the states) by $16 billion a year (The Observer : New Deal to Great Betrayal—London.)

The Guardian of 26 August 1996 makes the economic reasons for this clear:

Back in the early 1960s, when unemployment was well under 500,000, social security transfers amounted to around 6 per cent of GDP. By the time the jobless total peaked in the recession of the early 1990s they accounted for more than 12 per cent of GDP.


Across the world the warm blanket of welfare that the working class could once pull around their shoulders has grown thin. Nowhere illustrates this better than Scandinavia. Sweden, Norway , Denmark and Finland claimed to have discovered a ‘third way’ between capitalism and ‘communism,’ combining sustained growth with extensive welfare provision. This claim has since been shattered. The Economist, (23 October 1993) stated rightly that:

the bill grew and grew until it outpaced the taxpayers’ ability to pay. It was fine to pay unemployment benefits at up to 90% of your previous earnings when only 1.5–2% of your workers were between jobs. When unemployment rose to 20% as it has done in Finland the cost is crippling.

Last year the Swedish and Finnish public sectors spent the equivalent of 71% and 62% of GDP respectively, compared with an OECD average of 42%. To pay for this, both countries have relied heavily on the bond markets. Sweden’s outstanding gross debt comes to 83% of GDP and is increasing rapidly: this year its budget deficit is likely to amount to 13% of GDP (The Economist, 19 November 1994).

The inevitable cuts arrived, with Sweden’s Social Democratic government proposing SKr57 billion of debt reduction in its 1994 autumn budget and another SKr20 billion of cuts in January 1995. Even these savings were not enough to stop Sweden’s debt rising.

As Scandinavian deficits have swelled, investors have become more wary about financing them. They have dumped Swedish and Finnish bonds by the bucket-load this year. Yields on Swedish and Finnish government debt have risen especially badly. (The Economist, 19 November 1994).

The Future

The ‘welfare state’ is in some difficulty across the industrialised world. Despite this, welfare systems will not be dismantled completely—their main aim, after all, is to provide some support for workers who are ill or unemployed so that they might return to the labour market at a later date. They also help mitigate against social unrest.

However, it is unlikely that welfare services can ever be restored to what they once were. The private sector is generally the profit-making sector of the capitalist economy and the often-repeated message of governments everywhere is that the proportion of national income commandeered by the state must be reduced if profits are to be restored to adequate levels. The hope of those on the left to pay for expanding welfare services out of sustained economic growth is becoming an increasingly forlorn one. The welfare state of the future is likely to be only a shadow of what it was in the 1950s and 60s, with further attacks on universal benefits and with an increase in means-testing.

This is another demonstration that the reforms promised by politicians in order to obtain votes, far from removing the problems that they claim to remedy, merely ameliorate them at best. The social problems that give rise to reforms—in welfare as in other spheres—are inherent to the capitalist system and can only be ended by ending capitalism.

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