Summary Key challenges to the welfare state
Preparation for the introduction lecture
1. De Swaan – The beginnings of social security in Western Europe and United
States
1.1 Bismarck’s beginnings
The first nationwide compulsory insurance scheme against income loss was established in Germany
by an authoritarian and activist regime of Bismarck’s government (19 th century). It was established
against much opposition of the workers’ movement and parliament, mainly with the support of the
Central Association of Industry, but the scheme became the model for other countries and it had
survived two world wars and National Socialism.
Bismarck’s goal was state-building to improve ties with the industrial working class. Bismarck’s
short-term goal was to stop the growing workers’ movement by providing a social complement to the
law against the Socialist Movement. The intention was to sidetrack (afleiden) the German parliament
by building a corporatist system of workers and employers which was to take over the parliaments
functions in social and economic legislation. After the adoption of the insurance laws, the Socialist
Party grew quickly, as well as the parliamentary influence. The corporatist structure was never
realized. National insurance created stronger bonds between the German workers and the new state.
And most important: insurance provided the wage-earners with a new institutional alternative to the
private accumulation of property (privatization).
Before 1900 compulsory insurance schemes were adopted by authoritarian countries with no
industrialization. The authoritarian elites attempted in this manner to circumvent (omzeilen) the parties
and to reach out directly to the working masses and win their trust. The early social legislation of
authoritarian regimes contradicts the hypothesis that working-class strength prompted such initiatives,
but it corresponds with the weakness of the petty bourgeoisie (which had little power in the
authoritarian regimes). As long as rural interests were not threatened by the new legislation, a coalition
of the regime and large-scale employers might overcome the opposition of the petty bourgeoisie. But
this relative independence from middle-class pressures also implied a lack of support which made the
regime all the more sensitive to the vindications of another stratum in society, the new industrial
proletariat.
The coalition that carried national insurance through the vicissitudes of German polities was one of the
three typical alliances that may bring about the scheme: in this case, a coalition between the
administrative and political elites on the one hand and large-scale industrial employers on the other. So
the national insurance in Germany was adopted without the support of the workers ‘organizations. But
the worker’s preferences were taken into consideration by Bismarck even though their leaders were
outlawed by the rule of anticipated preferences = the designers of the scheme anticipated what the
workers might want (the workers exercised their influence not by direct articulation of the wishes).
By 1880 the German workers had developed a large, united and politically most articulate movement
with sick funds and union insurances. But because of the repressive policies, the Socialist workers
mistrusted the regime. But once national insurance was adopted, the Social Democratic elite was quick
to perceive and to exploit the opportunities provided by the representative committees that managed
the sickness and pension funds and the potential these institutions might have for organizing the
working class. On the whole, the Social Democratic leadership keenly gauged the insurance schemes
in terms of the power chances they afforded in the class struggle.
,Many of the companies heads were quite willing to accept the costs of insurance if this would leave
them master on the factory floor and in full control of the funds' management. So the regime and
companies found themselves in close agreement.
The regime sought ways to domesticate the labor movement and to create closer links between
workers and the state. In this way they would better control the system even if they had to pay a price
for it (administrative network to manage the insurance systems). National insurance was seen as a part
of nation building – a strong and nationalist labor force seemed a necessity if Germany was to play its
role in the rivalry between states. Employers could not be expected to pay the bill entirely as it was
also an economic rivalry. But in return for state support by means of legal coercion and financial
subsidies employers had to go along with the system.
Another circumstance that made the entrepreneurs (employers) and the central government to propose
reforms was that the poor workers had to return to the place of birth for relief but the rural
communities were incapable of supporting them and sent them back to the towns they had last worked
and they became a burden to the local authorities.
In 1880 three major compulsory insurance laws were passed: accident, disability and sickness. No
unemployment insurance was proposed.
1. Accident insurance – employers were liable for accidents at work unless the worker’s
negligence could be proven. Therefore, employers had to pay insurance contributions united in
trade associations to promote industrial safety. Accident victims would receive two-thirds of
their wage
2. Disability insurance – financed under a full capitalization system from employers and workers
and by the state with a fixed yearly addition. The insurance provided for a pension of two-
thirds of the most recently earned wages after at least five years of contribution in cases of
complete disablement, workers over the age of seventy qualified for a pension if they had
contributed for at least thirty years
3. Sickness insurance – financed by employers and workers contributions and implemented by
sick funds already in existence, benefits consisted of medical care and sickness pay
Accident insurance most fully embodied the interests of the regime and the employers, effectively
excluding workers from any say in its workings but at the same time exempting them from the costs.
In the sickness and disability insurance the regime and the employers had to allow for the vested
interests of the many funds already in existence. Moreover, they knew that the sums involved in the
pensions were bound to expand to astronomic proportions and this too prompted them to opt for
combined employers' and workers' contributions under a capitalization system together with state
allowances. As a corollary, they accepted workers' representation in the managing bodies. In doing so,
the regime laid the foundation for the subsequent tripartite coalition that was to maintain and expand
social security in Germany for the next forty years and that was revived after the Second World War to
realize the West German welfare state. These principles have remained guidelines of compulsory
national insurance.
1.2 The British breakthrough
25 years later, in Britain, came the next wave of social innovation of the activist regime out to conquer
the working-class vote. In England, employers hardly played a part, while the essential support in
passing the pension and insurance laws of 1908 and 1911 came from workers ‘organizations.
Capitalist entrepreneurs had played an important role in English politics through privatization and free
enterprise. Yet throughout 19th century the central state has intervened in education, sanitation and
poor relief. Under the Poor Law in 1834 a system of local relief had developed with much more
central management. Such state intervention was prompted time and again by the perennial balance
,between local resources for relief and the need for it as determined by broader economic
developments. Under the 'New' Poor Law, the threat of the workhouse was intended to keep the poor
from applying for relief. But wardens and guardians refusing aid risked indictment by the Poor Law
Board for criminal negligence and even murder. Too generous a policy was punished by the local
voters who had to pay the poor-rates.
Next to the difficult relief system, a network of private charitable organizations developed geared to
reeducate and help the poor to become wage-earners. Mutual societies and union funds constituted a
third circuit of maintenance, one that provided for employed workers and not for the poor people
(paupers): here a voluntary collective action operated to establish a functional equivalent to the
providential functions of private property.
Mutual company = a private firm that is owned by its customers or policyholders. The company's
customers are also its owners. As such, they are entitled to receive a share of the profits generated by
the mutual company.
Thus, around 1880, a triad of institutional arrangements operated in Britain; this, together with the
political pressure from small property-owners, explains why compulsory insurance was not enacted
for another thirty years. These institutions stood in the way of legislative reform. The ideas and
practices prevailing under the Poor Law continued to associate indigence with moral failure and relief
with punishment. The encompassing Charity Organization Society insisted that all material aid was to
be combined with measures of moral reform. And the mutual societies jealously guarded the
autonomy that their members had so sourly conquered. The propertied citizenry which made up the
bulk of the electorate did not see why it should sacrifice its earnings for taxes to support those who
obviously had not cared to save for themselves.
It took a lot of reports on the conditions of the English working classes to alert the political elites to
the realities of industrial society (unemployment and a lot of elderly among indigent). Social scientists
were more closely associated with policy design than ever before and Bismarck’s legislation
(Germany) served as a point of reference.
More important, Mutual societies found it hard to support the aging members who lived longer than
expected. The unions, who were not themselves involved in pension insurance, had no reason to resist
state interference in this field and supported the massive campaign of the National Pension
Committee.
The catastrophic defeat of the Conservatives in the elections of 1906 brought a Liberal Government to
power with a radical wing around Lloyd George in the Treasury and Churchill in the new Board of
Trade. An activist regime who wanted social legislation was thus in power, while in the country a
broad and well-organized base of working-class support for social legislation had emerged. The
Pension Act of 1908 was the result of a coalition between regime and workers, as clearly as the
Accident Insurance Law of 1884 in Germany had been the product of a coalition of regime and
employers. Under the British pension scheme employers were completely excluded from control: the
pension was noncontributory, financed from general taxes and paid at the local post office to every
citizen over seventy with an income of less than… a year. This accorded quite closely with the unions'
demands which had served them as a rallying cry for many years. The employers had little to do with
the enactment of state pensions.
More importantly, across the nation and for many years, unemployment and health insurance had been
the province of the unions and Friendly Societies. They insisted contributions were levied from
workers, employers and the government added to finance the extra costs of elderly subscribers.' , The
Act was radical in one respect: it covered all workers. – health insurance.
, Although the regime around Lloyd George was essential in bringing about the health insurance, it
hardly did so in coalition with organized employers or employees: the vested interests of the firmly
and widely established Friendly Societies and the rising forces of commercial insurance and medical
professional groups came to dominate in the power struggle. Workers and industrialists seem to have
accepted the tripartite division of burdens quite passively, without protesting against the regime's
concessions to the friendly and commercial insurers.
Friendly society (England)= Before modern insurance and the welfare state, friendly societies
provided financial and social services to individuals, often according to their religious, political, or
trade affiliations.
Workers' and employers' organizations were much more involved in unemployment insurance, and in
this instance the regime broadened its base by seeking support from employers also.
With the Depressions of 1879 and 1908 it had become clear to the public that individual cases of
unemployment were particular instances of a general phenomenon, associated with the economy as a
whole and quite independent of the virtues of the particular workmen affected. But these insights did
not of themselves point to a remedy. As has been pointed out before, unemployment is a cumulative
risk and at the time it was even considered 'an uninsurable risk'. The one prior example of compulsory
unemployment insurance, an experiment in the Swiss canton of Saint-Gall became a monitory
example of failure. Ever since, authorities on the continent had preferred to subsidize voluntary union
insurances according to the Ghent system. Bismarck had avoided the matter of compulsory
unemployment insurance and in Germany legislation did not come until 1927.
Nevertheless the British regime proceeded with a national unemployment insurance, insisting on
compulsory membership. Beveridge and Churchill advocated an employers' contribution, because in
the long run insurance would improve the quality of the workforce to their advantage. Churchill wrote:
'Unemployment is primarily a question for employers ... ‘
The concerns of the unions was that the unemployed should not be made to accept work at a wage
below standard nor should the existing union insurances be taken over by the government.
The act of 1911 – employers and workers contribute equally and the government a little less to the
unemployment insurance. Unemployment insurance was essentially a tripartite arrangement with the
state in a position of dominance. The coalitional base that supported social legislation after 1908 was
broadened to include the employers, although tripartite relations among the partners remained very
tenuous. Unemployment insurance did not involve commercial interests as the 'health business' did. As
it stood, it covered only the stronger industries, steering clear of economically more precarious
branches.
British national insurance began as a government initiative with labor support, bypassing employers as
much as possible. lt soon grew into a tripartite enterprise, as large-scale employers were persuaded to
support legislation. Unemployment insurance had been the most ambitious initiative, but in later years
its financial base proved incapable of supporting the burdens of mass unemployment. However, the
groundwork for social security had been laid and its shortcomings did not turn opinion against it, but
rather served as an added argument for the more extensive and centralized system which was to be
established after 1945.
Conclusion Germany – social insurance began in Germany with coalition between industrialists
(employers) and the regime. First only anticipating workers’ preferences and then broadening to
include the Arbeiterkassen.
Conclusion England – England began with a coalition between the regime and the workers’
movement, extending to accommodate the employers on unemployment and the commercial and
mutual insurers on health insurance
Preparation for the introduction lecture
1. De Swaan – The beginnings of social security in Western Europe and United
States
1.1 Bismarck’s beginnings
The first nationwide compulsory insurance scheme against income loss was established in Germany
by an authoritarian and activist regime of Bismarck’s government (19 th century). It was established
against much opposition of the workers’ movement and parliament, mainly with the support of the
Central Association of Industry, but the scheme became the model for other countries and it had
survived two world wars and National Socialism.
Bismarck’s goal was state-building to improve ties with the industrial working class. Bismarck’s
short-term goal was to stop the growing workers’ movement by providing a social complement to the
law against the Socialist Movement. The intention was to sidetrack (afleiden) the German parliament
by building a corporatist system of workers and employers which was to take over the parliaments
functions in social and economic legislation. After the adoption of the insurance laws, the Socialist
Party grew quickly, as well as the parliamentary influence. The corporatist structure was never
realized. National insurance created stronger bonds between the German workers and the new state.
And most important: insurance provided the wage-earners with a new institutional alternative to the
private accumulation of property (privatization).
Before 1900 compulsory insurance schemes were adopted by authoritarian countries with no
industrialization. The authoritarian elites attempted in this manner to circumvent (omzeilen) the parties
and to reach out directly to the working masses and win their trust. The early social legislation of
authoritarian regimes contradicts the hypothesis that working-class strength prompted such initiatives,
but it corresponds with the weakness of the petty bourgeoisie (which had little power in the
authoritarian regimes). As long as rural interests were not threatened by the new legislation, a coalition
of the regime and large-scale employers might overcome the opposition of the petty bourgeoisie. But
this relative independence from middle-class pressures also implied a lack of support which made the
regime all the more sensitive to the vindications of another stratum in society, the new industrial
proletariat.
The coalition that carried national insurance through the vicissitudes of German polities was one of the
three typical alliances that may bring about the scheme: in this case, a coalition between the
administrative and political elites on the one hand and large-scale industrial employers on the other. So
the national insurance in Germany was adopted without the support of the workers ‘organizations. But
the worker’s preferences were taken into consideration by Bismarck even though their leaders were
outlawed by the rule of anticipated preferences = the designers of the scheme anticipated what the
workers might want (the workers exercised their influence not by direct articulation of the wishes).
By 1880 the German workers had developed a large, united and politically most articulate movement
with sick funds and union insurances. But because of the repressive policies, the Socialist workers
mistrusted the regime. But once national insurance was adopted, the Social Democratic elite was quick
to perceive and to exploit the opportunities provided by the representative committees that managed
the sickness and pension funds and the potential these institutions might have for organizing the
working class. On the whole, the Social Democratic leadership keenly gauged the insurance schemes
in terms of the power chances they afforded in the class struggle.
,Many of the companies heads were quite willing to accept the costs of insurance if this would leave
them master on the factory floor and in full control of the funds' management. So the regime and
companies found themselves in close agreement.
The regime sought ways to domesticate the labor movement and to create closer links between
workers and the state. In this way they would better control the system even if they had to pay a price
for it (administrative network to manage the insurance systems). National insurance was seen as a part
of nation building – a strong and nationalist labor force seemed a necessity if Germany was to play its
role in the rivalry between states. Employers could not be expected to pay the bill entirely as it was
also an economic rivalry. But in return for state support by means of legal coercion and financial
subsidies employers had to go along with the system.
Another circumstance that made the entrepreneurs (employers) and the central government to propose
reforms was that the poor workers had to return to the place of birth for relief but the rural
communities were incapable of supporting them and sent them back to the towns they had last worked
and they became a burden to the local authorities.
In 1880 three major compulsory insurance laws were passed: accident, disability and sickness. No
unemployment insurance was proposed.
1. Accident insurance – employers were liable for accidents at work unless the worker’s
negligence could be proven. Therefore, employers had to pay insurance contributions united in
trade associations to promote industrial safety. Accident victims would receive two-thirds of
their wage
2. Disability insurance – financed under a full capitalization system from employers and workers
and by the state with a fixed yearly addition. The insurance provided for a pension of two-
thirds of the most recently earned wages after at least five years of contribution in cases of
complete disablement, workers over the age of seventy qualified for a pension if they had
contributed for at least thirty years
3. Sickness insurance – financed by employers and workers contributions and implemented by
sick funds already in existence, benefits consisted of medical care and sickness pay
Accident insurance most fully embodied the interests of the regime and the employers, effectively
excluding workers from any say in its workings but at the same time exempting them from the costs.
In the sickness and disability insurance the regime and the employers had to allow for the vested
interests of the many funds already in existence. Moreover, they knew that the sums involved in the
pensions were bound to expand to astronomic proportions and this too prompted them to opt for
combined employers' and workers' contributions under a capitalization system together with state
allowances. As a corollary, they accepted workers' representation in the managing bodies. In doing so,
the regime laid the foundation for the subsequent tripartite coalition that was to maintain and expand
social security in Germany for the next forty years and that was revived after the Second World War to
realize the West German welfare state. These principles have remained guidelines of compulsory
national insurance.
1.2 The British breakthrough
25 years later, in Britain, came the next wave of social innovation of the activist regime out to conquer
the working-class vote. In England, employers hardly played a part, while the essential support in
passing the pension and insurance laws of 1908 and 1911 came from workers ‘organizations.
Capitalist entrepreneurs had played an important role in English politics through privatization and free
enterprise. Yet throughout 19th century the central state has intervened in education, sanitation and
poor relief. Under the Poor Law in 1834 a system of local relief had developed with much more
central management. Such state intervention was prompted time and again by the perennial balance
,between local resources for relief and the need for it as determined by broader economic
developments. Under the 'New' Poor Law, the threat of the workhouse was intended to keep the poor
from applying for relief. But wardens and guardians refusing aid risked indictment by the Poor Law
Board for criminal negligence and even murder. Too generous a policy was punished by the local
voters who had to pay the poor-rates.
Next to the difficult relief system, a network of private charitable organizations developed geared to
reeducate and help the poor to become wage-earners. Mutual societies and union funds constituted a
third circuit of maintenance, one that provided for employed workers and not for the poor people
(paupers): here a voluntary collective action operated to establish a functional equivalent to the
providential functions of private property.
Mutual company = a private firm that is owned by its customers or policyholders. The company's
customers are also its owners. As such, they are entitled to receive a share of the profits generated by
the mutual company.
Thus, around 1880, a triad of institutional arrangements operated in Britain; this, together with the
political pressure from small property-owners, explains why compulsory insurance was not enacted
for another thirty years. These institutions stood in the way of legislative reform. The ideas and
practices prevailing under the Poor Law continued to associate indigence with moral failure and relief
with punishment. The encompassing Charity Organization Society insisted that all material aid was to
be combined with measures of moral reform. And the mutual societies jealously guarded the
autonomy that their members had so sourly conquered. The propertied citizenry which made up the
bulk of the electorate did not see why it should sacrifice its earnings for taxes to support those who
obviously had not cared to save for themselves.
It took a lot of reports on the conditions of the English working classes to alert the political elites to
the realities of industrial society (unemployment and a lot of elderly among indigent). Social scientists
were more closely associated with policy design than ever before and Bismarck’s legislation
(Germany) served as a point of reference.
More important, Mutual societies found it hard to support the aging members who lived longer than
expected. The unions, who were not themselves involved in pension insurance, had no reason to resist
state interference in this field and supported the massive campaign of the National Pension
Committee.
The catastrophic defeat of the Conservatives in the elections of 1906 brought a Liberal Government to
power with a radical wing around Lloyd George in the Treasury and Churchill in the new Board of
Trade. An activist regime who wanted social legislation was thus in power, while in the country a
broad and well-organized base of working-class support for social legislation had emerged. The
Pension Act of 1908 was the result of a coalition between regime and workers, as clearly as the
Accident Insurance Law of 1884 in Germany had been the product of a coalition of regime and
employers. Under the British pension scheme employers were completely excluded from control: the
pension was noncontributory, financed from general taxes and paid at the local post office to every
citizen over seventy with an income of less than… a year. This accorded quite closely with the unions'
demands which had served them as a rallying cry for many years. The employers had little to do with
the enactment of state pensions.
More importantly, across the nation and for many years, unemployment and health insurance had been
the province of the unions and Friendly Societies. They insisted contributions were levied from
workers, employers and the government added to finance the extra costs of elderly subscribers.' , The
Act was radical in one respect: it covered all workers. – health insurance.
, Although the regime around Lloyd George was essential in bringing about the health insurance, it
hardly did so in coalition with organized employers or employees: the vested interests of the firmly
and widely established Friendly Societies and the rising forces of commercial insurance and medical
professional groups came to dominate in the power struggle. Workers and industrialists seem to have
accepted the tripartite division of burdens quite passively, without protesting against the regime's
concessions to the friendly and commercial insurers.
Friendly society (England)= Before modern insurance and the welfare state, friendly societies
provided financial and social services to individuals, often according to their religious, political, or
trade affiliations.
Workers' and employers' organizations were much more involved in unemployment insurance, and in
this instance the regime broadened its base by seeking support from employers also.
With the Depressions of 1879 and 1908 it had become clear to the public that individual cases of
unemployment were particular instances of a general phenomenon, associated with the economy as a
whole and quite independent of the virtues of the particular workmen affected. But these insights did
not of themselves point to a remedy. As has been pointed out before, unemployment is a cumulative
risk and at the time it was even considered 'an uninsurable risk'. The one prior example of compulsory
unemployment insurance, an experiment in the Swiss canton of Saint-Gall became a monitory
example of failure. Ever since, authorities on the continent had preferred to subsidize voluntary union
insurances according to the Ghent system. Bismarck had avoided the matter of compulsory
unemployment insurance and in Germany legislation did not come until 1927.
Nevertheless the British regime proceeded with a national unemployment insurance, insisting on
compulsory membership. Beveridge and Churchill advocated an employers' contribution, because in
the long run insurance would improve the quality of the workforce to their advantage. Churchill wrote:
'Unemployment is primarily a question for employers ... ‘
The concerns of the unions was that the unemployed should not be made to accept work at a wage
below standard nor should the existing union insurances be taken over by the government.
The act of 1911 – employers and workers contribute equally and the government a little less to the
unemployment insurance. Unemployment insurance was essentially a tripartite arrangement with the
state in a position of dominance. The coalitional base that supported social legislation after 1908 was
broadened to include the employers, although tripartite relations among the partners remained very
tenuous. Unemployment insurance did not involve commercial interests as the 'health business' did. As
it stood, it covered only the stronger industries, steering clear of economically more precarious
branches.
British national insurance began as a government initiative with labor support, bypassing employers as
much as possible. lt soon grew into a tripartite enterprise, as large-scale employers were persuaded to
support legislation. Unemployment insurance had been the most ambitious initiative, but in later years
its financial base proved incapable of supporting the burdens of mass unemployment. However, the
groundwork for social security had been laid and its shortcomings did not turn opinion against it, but
rather served as an added argument for the more extensive and centralized system which was to be
established after 1945.
Conclusion Germany – social insurance began in Germany with coalition between industrialists
(employers) and the regime. First only anticipating workers’ preferences and then broadening to
include the Arbeiterkassen.
Conclusion England – England began with a coalition between the regime and the workers’
movement, extending to accommodate the employers on unemployment and the commercial and
mutual insurers on health insurance
