Decline or
Impasse?
The Current
State of the
Welfare State
JOHN MYLES
A
few years ago many of us thought the vocabulary of
crisis to be quite appropriate for describing the current
state of the welfare state. Now we are not quite so sure.
Conservative
efforts
to dismantle
the welfare state have been
turned back.' And welfare state expenditures
to rise in all capitalist democracies despite
have continued
attempts to cut
costs." These facts do not imply nothing has changed. Expenditures have been rising, but at a decelerating rate, over a
period when demand for assistance in many countries and
regions has been growing.s And though the welfare state has
not been submitted
to radical surgery, it has undergone
Studies in Political Economy 26, Summer 1988
a great
73
Studies in Political Economy
deal of what Wolfson calls "modest tinkering."4 In particular,
there has been a significant shift of the tax burden for the
welfare state into the lower end of the income distribution in
Canada, Britain and the United States. The question is whether
such "tinkering" represents a crisis and, if not, what metaphor
should be used instead.
In the first part of this paper, I consider three answers to
this question. One view is that the "modest tinkering" of the
past decade marks the beginning of a long-term process of
welfare state erosion. This is a variant of traditional crisis
theory: the welfare state is being destroyed, but slowly. A
second, very different, view is that we are witnessing the
familiar case of a growth process that has gone into equilib-
rium.s The welfare state could not expand
faster than the
economy forever and we have come up against a welfare state
ceiling. The problem now is to learn how to manage the
welfare state as "a mature social institution."
Neither view describes the current state of the Canadian
welfare state very well. The third and more accurate assessment, I argue, is that the particular welfare state regime put
in place in Canada and the other Anglo-American democracies
since World War II has reached an impasse." Welfare states
are ensembles of social practices and strategic understandings
designed to resolve historically specific problems of harmonizing the production
of wealth with its distribution. Welfare
states become stuck, unable to go forwards or backwards, when
they no longer provide such solutions. My second purpose,
then, is to locate the problems that current welfare state
practice is unable to resolve.
The present impasse will not last forever. Whether by design or default, a new set of strategic understandings
and
social practices for harmonizing the production of wealth with
its distribution will be institutionalized. And already the contours of the set of possible solutions are visible. My third
purpose is to sketch these alternatives and their likely consequences.
Is the Welfare State Withering Away? One reason the crisis
metaphor has been brought into question is because it is now
fairly clear that the health, education and welfare institutions
established after World War II and especially during the sixties
74
MyleslWelfare State
are not about to be dismantled overnight. Even the most
determined ideologues (Reagan, Thatcher) have demonstrated
their inability to do this. It is less evident, however, that we
have not begun a long, slow process of welfare state erosion
- a sort of incrementalism in reverse. The welfare state was
created through a slow series of sometimes imperceptible reforms - what conservatives liked to call "creeping socialism."
It may well be that what we are now witnessing is "creeping
neo-conservatism": instead of being dismantled, the welfare
state is withering away. This interpretation is one I have
elaborated elsewhere," but for a variety of reasons I no longer
find it a convincing account of recent social policy history in
Canada.
Whether or not the welfare state is in "crisis" is not something that can be directly read off from changing patterns in
welfare state outputs (e.g., a rise or fall in expenditures or a
growing gap between expenditures and revenues). What is at
issue is the process producing the outputs (which mayor may
not be changing). In one of the earliest formulations in the
"crisis" literature, James O'Connor used the term in a very
precise way to describe a process that is self-destructive.? A
system may be said to be in crisis in this sense when doing
those things that are imperative for the system's reproduction
sets in motion processes and events that destroy the conditions
necessary for the system's own survival,
Both the left and the right have defined the present situation as a "crisis"in this sense, though in rather different terms.
In the conservative version, the crisis is defined as the welfare
state biting the hand that feeds it: welfare state expenditures
have risen to a level where the market does not retain enough
of its own output to satisfy its requiremenrs.iv The welfare
state acts as a drag on capital accumulation by creating inefficiencies and distortions in normal market processes. As a
result, the welfare state has become self-destructive. The problem would go away, however, if the welfare state were cut
back, trimmed down, rationalized, or perhaps abolished altogether. The left version of the crisis is rather more serious. It
is not just the welfare state that is in crisis, but the capitalist
state more generally. It is caught in a bind of making things
worse no matter what it does. The welfare state is destroying
the capital accumulation process, but abolishing or cutting back
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Studies in Political Economy
on the welfare state would have the same result: modern
capitalism needs the welfare state to underwrite infrastructural
costs, absorb surplus labour and generally maintain social
harmcny.!'
These arguments are extremely difficult to either prove or
disprove since, as conservatives discover when they come to
power, it seems virtually impossible to conduct the kind of
political and social experiments
necessary to test them. However, we know from comparative studies that there is no simple
or obvious association between the size of the welfare state
and outcomes like economic growth or unemployment.«
And,
most importantly, the evidence of the past decade indicates
that the more severe economic symptoms attributed
to the
welfare state can be resolved without dismantling
it. One
reason, then, for thinking that the welfare state will not disappear is that its disappearance
is probably unnecessary. Instead, the "crisis" such a move might resolve can be and has
been dealt with by an accentuated use of traditional monetary,
fiscal and labour policies.
The main symptom of the "crisis" as it became defined in
the seventies was the breakdown of the Phillips curve tradeoff between inflation and unemployment.
Traditionally, when
labour became strong enough to create inflation-generating
wage pressure, discipline was restored with restrictive fiscal
policies that raised unemployment
levels. In the seventies, it
appeared this strategy was no longer working: wage pressure,
inflation and unemployment
could all rise together, and the
result was "stagflation." The welfare state was thought to be
implicated in this development.
Welfare states - or at least
the social security side of welfare states - immunize workers
from market forces, increase their bargaining power and generally skew the capital-labour
relation in favour of labour.v
Because of unemployment
insurance and other benefits, the
impact of rising unemployment
on wage demands and labour
militancy is muted.i- The result is continued wage pressure,
inflation and a profit squeeze. Since the welfare state was part
of the problem, it was thought that dismantling the welfare
state must be part of the solution. But this proved to be
unnecessary: there is a variety of ways to discipline labour.
The most important and successful strategy was the tight
money policy adopted
76
by the Bank of Canada
in 1975. This
Myles/Welfare State
had the intended effect of driving unemployment
rates to the
levels required to contain wage pressure and, hence, inflation.is
Monetary policy was supplemented
by fiscal and labour policies. From 1975 until the recession of 1982, the federal government successfully brought down the ratio of federal expenditures to Gross National Product (GNP).I6 And, when all else
failed, wage controls and other legislated limits on the bargaining rights of organized labour were used.!" What withered
away under this assault was not the welfare state, but wage
pressure and demands from labour and popular groups for a
bigger and better welfare state.!s
Two things should be noted about this pattern. First, it was
a product of the seventies, not a neo-conservative revolution
of the eighties. Secondly, while there was a new mix of policy
instruments,
the strategy itself was quite traditional. Canada
has always been what Bordogna calls a "stop-and-go" welfare
state, as opposed to a permanent
full-employment
welfare
state.'? In a handful of countries (Austria, Sweden) where
there has been an ongoing commitment
to permanent
full
employment,
wage pressure is contained through a "political
exchange" between labour and government.
Elsewhere, the
equilibrium between price stability and employment levels is
typically maintained through "stop-and-go" policies, with expansionary
periods followed by deflationary
measures that
have tended to produce both more fluctuation in employment
levels and higher average unemployment
rates. Canada has
always been an exemplar of the latter tradition.w Perhaps the
policy mix introduced in the seventies was new (i.e., greater
reliance on monetary policy) and the strategy was carried to
new extremes (unemployment
rates rose to levels unprecedented in the post-war period). But there was nothing new
about the strategy itself (using unemployment
to contain wage
pressure), nor about the willingness of Canadian governments
to use state power to limit the rights of labour. In brief,
dismantling the welfare state has not been necessary: the crisis
has been solved through other, more traditional, means.
There is a political version of crisis theory the preceding
discussion does not address - one which attributes the actual
or imminent decline of the welfare state to the growing power
of right-wing political forces. Dismantling the welfare state
may not be necessary but, given the opportunity,
conservatives
77
Studies in Political Economy
will do it anyway for ideological reasons. I am sure many
conservatives would like to do so, but the evidence so far
indicates a limited capacity to accomplish this task - even
when they come to office with enormous electoral majorities.
In Canada, the symbol of the conservative assault on the
welfare state was the universality debate that accompanied the
massive electoral victory of the Conservative
During the election campaign, soon-to-be-Prime
Party in 1984.
Minister Brian
Mulroney gave the debate its classic formulation.
Why, he
asked, should bank presidents earning in excess of half a
million dollars be receiving family allowances and old age
security? To his surprise, the right of bank presidents and
their wives to these benefits was defended by just about everybody except bank presidents. This included anti-poverty
groups, the women's movement and organized labour. Mulroney, the political pragmatist, quickly retreated and declared
universality to be a "sacred trust."
After taking office, however, Finance Minister Michael Wilson raised the universality issue once again, and the topic
dominated the Conservatives' first year in power. Matters came
to a head in Wilson's budget speech of May 1985, when he
proposed to partially deindex universal benefits. The uproar
that followed monopolized parliamentary debate and the news
media for almost two months. In the end, Mulroney allowed
deindexation of family allowances, but forced his finance minister to retreat in the more costly area of old age benefits.
The universality debate and its outcome are symbolic of
several key features of the current state of the welfare state
in Canada. First, it is clear that the right faces the same
electoral
dilemma
as the left. 2 \ Winning
and retaining
office
requires electoral majorities, and majorities are not easily formed
around proposals to abolish programs that benefit wide sectors
of the population
and incorporate
the middle class. Even
unemployment
insurance, the main concern of the business
lobbies, appears to be immune from assault. This is not for
ideological reasons, but simply because the kind of restructuring being called for would spell electoral defeat for Conservative Members of Parliament (MPs) representing
regions of
the country in which unemployment
insurance is the foundation of the local economy.
78
Myles/Welfare State
Secondly, the universality debate highlights the fact that the
attack on the welfare state in Canada is not an attack on the
welfare state for the poor. To the contrary, the objective is to
consolidate and expand this part of the welfare state. Mulroney's critique of universality was not an attack on the poor,
but on the inclusion of the middle classes in the welfare state.
The rhetoric was the rhetoric of rationalization and efficiency
through better targeting of benefits on those most in need not an assault on the poor.22
The underlying policy model of the Conservatives has two
components.
The first is to cap further expansion of social
insurance programs (such as the Canada/Quebec
Pension Plan
[C/QPPJ) and to encourage expansion of private sector alternatives (such as Registered Pension Plans [RPPs] and Registered Retirement
Savings Plans [RRSPsJ). The second component is to shift away from universal programs towards an
income-tested
Guaranteed
Annual Income (GAl) or negative
income tax.23 Neither component is new in the sense of originating with the Conservatives. It was not Brian Mulroney who
first attacked universality, but Pierre Trudeau. In the election
campaign of 1968, he assured Canadians that if elected there
would be "no more of this free stuff."24 And the Trudeau
Liberals were more successful in their assault on universality
than Mulroney's Conservatives. The proposal to shift emphasis
from the universal Old Age Security (OAS) program to the
income-tested Guaranteed
Income Supplement was presented
in the 1970 white paper, Income Security for Canadians, and
OAS benefits were frozen.w The Liberals failed because of the
1972 election in which they returned as a minority government
dependent
on the New Democratic Party (NDP), which demanded increases in OAS as part of the price for their cooperation.ss A strong faction in the Liberal Party, lead latterly by
Monique Begin, continued to fight for an adequate income
security program for Canada's retired workers, but the battle
was clearly lost well before the Conservatives came to office.
The 1982 "green paper," Better Pensionsfor Canadians, made it
clear that any real improvement in pension quality would have
to take place in the private sector.
Indeed, on close inspection, it becomes evident that there
has been little real change in the social policy mix in Canada
for almost two decades.v
The last major addition
to Canada's
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Studies in Political Economy
social insurance system was the reform of unemployment insurance in 1971. Nor is Canada exceptional in this respect. In
the seventies, welfare state reform came to a halt in virtually
all capitalist democracies and, despite the sound and fury, little
has changed since. One explanation for this lethargy is that
after the expansionary burst of welfare state legislation of the
sixties, we entered a new phase of welfare state development
- a period of consolidation. The problems we now confront
are those of managing a mature welfare state.
Managing Mature Welfare States The central idea of the
mature welfare state thesis is simple and familiar to all of us
- that of a growth process that reaches equilibrium. In the
early days of the welfare state, according to this view, life was
exciting and reckless; it was a period of experiment, innovation, and expansion. As with firms, social movements, or romances, however, this "fun" part of the growth process cannot
go on forever. There are inherent limits to growth and the
institutions that have grown have to be managed. Charisma
must give way to bureaucracy. Social spending will no longer
consistently grow faster than the rate of economic growth
because it cannot. To deal with new problems as they arise in
future, we will have to learn to shift resources from elsewhere
and to rationalize the system by spending scarce tax and
transfer dollars more efficiently. This is difficult for us because
our basic conceptual models and ways of thinking about the
world were formed during the period of expansion. One might
say that the politics of the past weighs down on us and prevents
us from giving up programs and institutions that no longer
serve any purpose. Our "sacred trusts," the welfare institutions
created in the fifties and sixties, have become "sacred cows."
It is easy to show that the rate of growth in welfare state
spending characteristic of the fifties and sixties could not go
on forever. Large growth in small welfare states is easy, but as
social spending becomes large, the amount of additional relative growth that is possible becomes more and more constrained. As Klein and O'Higgins point out, if social spending
accounts for 10 per cent of an economy growing at 2 per cent
annually, then social spending can grow at 4 per cent and still
leave 1.8 per cent for other things. But when social spending
reaches 30 per cent, continued growth of 4 per cent leaves
80
Myles/Welfare State
only 1.1 per cent for other things. In short, as the welfare
state grows, the "opportunity costs" of yet more growth also
increase.v- Similarly, to finance better benefits requires higher
contribution rates, and as contribution rates rise, redistribution
declines. Even the most "solidaristic" labour movements (e.g.,
in Sweden) have been compelled to introduce graduated (i.e.,
unequal) benefit structures in order to maintain solidarity.
Under this constraint, a system financed by the most progressive tax schedule reaches a limit beyond which redistribution
is impossible. As a result, further welfare state growth could
be self-defeating. But all this was to be expected: no growth
process can go on forever. Instead, we have reached a new
equilibrium: the era of rapid relative growth in social spending
has simply come to an end. Rather than a crisis, we face a
period of "reformulation.ve
There is a seductive quality to this argument. It sounds
rather like a plea from the sensible centre to the Chicken
Littles on both the left and the right to stop proclaiming the
end of the world and to get on with the serious business of
managing the world as it is. There are two problems with this
analysis, however. First, it does not describe very many welfare
states, least of all the Anglo-American welfare states. Second,
in those few countries that have reached the "limits to growth;'
the solution offered is not the only one available.
It is really quite stunning that the "mature welfare state"
metaphor should have emerged within the Anglo-American
democracies such as Canada, the United States and the United
Kingdom, none of which are big welfare state spenders and
where many holes remain in the welfare state infrastructure.
The question begged by the maturation model is why different
welfare states "matured" at different levels of development
and now seem bound to stay where they are. The United
States is unlikely to get national health care or even health
insurance in the near future; Canada and the U.K. are stuck
with incomplete and underdeveloped
old age security programs. The American example is especially striking, since
comparison with other health care systems clearly indicates
that the United States could reduce health care expenditures
by moving this spending into the public sector and gaining
control over health care prices.w The American example highlights the fact that a key element
of the current
impasse is a
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Studies in Political Economy
boundary problem. It is not simply a matter of spending levels;
rather, it is a question of who will control and do the spending
- the private sector or the state. The impasse that was reached
in the mid-seventies was not about whether we should have
pensions or health insurance, but whether we should have
public or private pensions, public or private health insurance.
The protagonists for market principles have not been able to
take us back, but neither have reformers taken us forward to
the "mature" welfare state suggested by this model.
But let us imagine the current impasse is transcended and
slowly but surely countries like Canada, the U.S. and the U.K.
develop welfare states that are institutionally complete and, in
terms of spending levels, genuinely up against some sort of
welfare state ceiling. What then? Do we turn the system over
to the rationalizers and planners? The answer from countries
where the mature welfare state metaphor actually seems to fit
suggests otherwise. Sweden has encountered the limits of the
welfare state strategy, but the result is an understanding
derived from practical experience that to achieve the "good
society" it is necessary to go beyond the welfare state. This is
what lies behind the Meidner wage-earner fund strategy to
establish democratic control over investment. The lesson from
the Swedish experience seems to be that when we do reach
the limits of the welfare state it will be time to start a new
round of social, economic and political experiments, not to
turn things over to the managers. And, as I will suggest below,
it is probably an error to wait until then; we should begin
those experiments now.
The Impasse of the Welfare State If the welfare state is not
withering away, and we have not yet developed mature welfare
states, what is happening?
In a simple but provocative formulation, Mendelson argues that social policy is "dead."31 He
does not mean that Canada's social programs are dead, that
the cost-cutters have won the battle, or that social policy questions are no longer of interest. Rather, he is drawing an
analogy to a dispute of the sixties in which philosophers and
theologians debated the question, "Is God dead?" The controversy was neither about the biological demise of God, nor
about whether religious belief was declining, but whether there
was a meaningful
82
role for God in the context
of a highly
Myles/Welfare State
educated scientific society. What stimulated the debate was not
a failure in belief or declining attendance at churches, but
rather the failure to find any relevant applications for religious
ideas in an age of science.
Mendelson's point is that social policy is dead in exactly the
same way. It is not a matter of whether people are undertaking
policy research or whether social policy is of interest to the
popular media. The question is one of relevant application:
How useful is social policy in helping us decide what kind of
society we will have in the future? The answer, according to
Mendelson, is not very much, with the result that we are at
an impasse.
As evidence for the impasse, Mendelson points to the apparent impotence of both liberal and conservative paradigms.
Liberal reformers have not had a significant achievement to
their credit for almost two decades. And conservative costcutters have been unable to implement their vision even when
elected with large majorities. Each side appears to have won a
few and lost a few in recent years, but on balance we are
going nowhere: neither side has been able to alter significantly
the basic policy structure put in place in the twenty-five years
that have followed World War II. What we have before us is
an exhausted (liberal) social policy paradigm and a utopian
(conservative)
one. The liberal reformist
paradigm
is exhausted: new and better social programs that will make us
healthier or more equal no longer seem part of general strategy to solve the problems that confront us, but merely an
expression of do-gooder sentiment. The conservative agenda
is utopian in the sense that for both political and theoretical
reasons it can neither be tested nor implemented. Hence, it is
of no practical relevance to the current situation.
A situation like this may be thought of as analogous to
Kuhn's (1962) description of the way paradigms eventually
break down and are transcended in science. 52 An established
paradigm allows "normal science" to proceed for a while, but
eventually begins to generate problems and encounter questions for which it has no answer. Solving these problems
requires more than additive adjustment to the theory: the
scientist must come to view the world in a fundamentally
different way. Her nes (197fi) shows that many social processes
can be characterized
as "problem-generating
structures"
of this
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Studies in Political Economy
sort.33 The notion here is that a particular form of social
organization (or social paradigm) may solve old problems and
generate new ones simultaneously. As these new problems
accumulate, some may be tempted to go back to an earlier
paradigm, since there these new problems were invisible. This
rarely works, however, since it is difficult to wipe out history.
The conservative solution that would take us back to the
nineteenth-century
world of Adam Smith is like this: it presumes the world can be reconstituted without the large corporations, state organizations, and international
systems of
coordination and regulation that have evolved in the meantime.
Paradigms become stuck when they begin to generate problems they cannot solve - when it becomes apparent that a set
of social practices and strategies for problem solving are both
functional and dysfunctional at the same time. This is the
source of the great debate about the welfare state, with conservatives pointing to the dysfunctional and liberals to the
functional aspects of the current arrangement. We cannot go
back to the nineteenth century; so the conservative solution is
utopian. Through a combination of monetary, fiscal and labour
policies, it appears we can stay where we are for some time
without the system blowing up. But this is not a solution for
either the right or the left. What is clearly required is a new
paradigm to take us forward.
So what is the new paradigm? The answer is that we do
not know, since unlike mathematics, there is rarely a unique
solution to social problems. The process of problem solving,
as Piore and Sabel emphasize, provides only particular answers
to general problems.v "Solutions" are the result of experiments
that are always evaluated against a set of historically contingent
background conditions (e.g., racism in the United States, a
decentralized federal state structure in Canada). We can begin
to identify the problems, however, point to the emergent
paradigms proposed to solve them, and evaluate their consequences.
The first task is to identify the problem. To do this, I begin
with a brief reconstruction of the history of the welfare state.
My purpose is to illustrate that particular welfare state regimes
(systems of distribution) have generally been implemented as
particular
84
responses
to specific historical problems
associated
Myles/Welfare
with
production.
But these
problems
State
are not universal
or
eternal; so particular welfare state regimes may become redundant. Having established the general premise, I attempt to
identify the production problems that will condition the kinds
of welfare state regimes likely to emerge in future.
From Less Eligibility to Social Security In the beginning, say
nineteenth-century
England, markets regulated society. But as
Polanyi (1944) and others have emphasized, market societies
did not evolve; they had to be created and they were created
by states.:" States created the conditions under which markets
could flourish and become the dominant form of economic
organization.
As the economic historians have taught us, labour markets were especially hard to create. Pollard writes
that "men who were non-accumulative, non-acquisitive, accustomed to work for subsistence, not for the maximization of
income, had to be made obedient to the cash stimulus, and
obedient in such a way as to react precisely to the stimuli
provided."36 Nineteenth-century
welfare policy dealt with this
historical problem using the principle of "less eligibility" enshrined by the British Poor Law commissioners: the treatment
of welfare recipients was always to be less desirable ("less
eligible") than that of the poorest wage earner. The main
policy instrument of this strategy was the poor house, where
the situation of the indigent was systematically rendered "less
eligible." The principle that "less is more" prevailed and traditional poor relief systems such as the Speenhamland
system
(an early version of the GAl) were abolished.
Market economies proved to be very good for the production and circulation of goods, but not so good for people. Or,
to use contemporary
language, markets were good for production, but not reproduction.
The basic problem was the
commodity fiction of labour. Unlike pots, pans or ships, the
supply of people is determined, not by their saleability, but by
"non-strategic demographic processes and the institutional rules
of human reproductive activity">? More simply, people - the
bearers of labour power - are not produced or destroyed
because of their expected value on the market and some
people (e.g., the severely disabled) have no labour power to
sell. Accordingly, to allow income distribution to be shaped by
the market mechanism alone - to organize society as though
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Studies in Political Economy
labour were produced for sale in the market (the commodity
fiction) - would, as Polanyi argued, result in the self-annihilation of society.se Hence, labour markets need welfare states,
or people will die, revolt, or both. Almost from the beginning,
then, the spread of market relations sparked its opposite - a
countermovement
to check this spread in definite ways.v' The
great problem, however, was how to create welfare states that
would not destroy labour markets. How does one devise a
system that will allow individuals and families to subsist independently of markets, but simultaneously induce them to participate in markets?
The solution one that began in the late nineteenth
century, accelerated between the two Great Wars, and prevailed approximately
until World War II - was the social
assistance welfare state. This was a welfare state for the poor,
designed to allow individuals and families to subsist when the
main bread-winner
fell out of the labour market through
unemployment,
sickness, disability or old age. Social assistance
welfare states provided very low, subsistence benefits, typically
used a great deal of means-testing, drew heavily on distinctions
between the "deserving" and "undeserving"
poor, and were
very "flexible" (i.e., gave discretion to local authorities to adjust
benefits and eligibility criteria to local labour market conditions). Until the thirties, this system seemed to provide a
solution to the problem of allowing people to subsist while
maintaining labour market incentives.w It was in the interests
of most people to enter the labour market at the going rate
most of the time.
After World War II, a very different kind of welfare state
- the social security welfare state - began to emerge. The
social security welfare state implies just what the name suggests. It is not an anti-poverty welfare state, but rather one
designed to ensure continuity of living standards over the ups
and downs of the economic life cycle. It is not intended to
provide subsistence to the "poor," but wage stabilization to the
working class and, in its more developed forms, to the new
middle class as well. The social security welfare state is based
on two novel principles of state distribution: universality and
wage replacement.«
Universality means less targeting of benefits to the poor. This in turn eliminates the "flexibility" of the
older
86
system, since payments
become entitlements,
rights of
MylesfWelfare
State
citizenship or earned benefits that cannot be manipulated by
officials or local authorities. The principle of wage replacement
means not merely that benefits are linked to past earnings
(Bismarck reluctantly established this practice), but rather benefit levels sufficient to allow individuals and families to maintain continuity of living standards when the wage earner leaves
the market through illness, unemployment
or old age.
The rise of the social security welfare state for workers was
part of a more general Keynesian or "Fordist" solution to the
problems of capitalism that became so evident in the thirties.
Just as Keynesian macro-economic
policies are intended to
smooth the flow of profits to corporations over the ups and
downs of the business cycle, the social security welfare state is
intended to smooth the flow of income over the ups and
downs of the economic life cycle of individuals and families.
They are, of course, not just parallel systems of income stabilization, but part and parcel of the same system.
The so-called Fordist paradigm provided a solution to the
high fixed-overhead
costs of mass production technology by
ensuring high and stable levels of mass consumption.s- It did
this by ensuring high and stable levels of employment (for
adult males) along with high and rising real wage rates. Two
features of this arrangement
made it possible to go beyond
the traditional subsistence approach to social transfers without
eliminating labour market incentives. First, the fact that real
wages are high means a larger gap between subsistence wages
and average wages. The larger the gap, the higher benefits
can rise without eliminating wage incentives. Secondly, benefits
are always tied to past wages, and when real wages are rising
it means the longer one is out of the labour market, the wider
the gap is between benefits and what the market can provide.
Full participation
in the mass consumption (of cars, houses,
appliances, etc.) economy of the post-war period required
more than ever being in the labour market on a continuous
basis despite the welfare state. Now, it is necessary to have two
wage earners in the labour market.
The "social security" or "wage replacement" welfare state
was part of a more general solution to a new problem of
production. In the mid-twentieth century, the big problem was
not how to create labour markets, but how to stabilize product
markets
and especially markets
for mass-produced
consumer
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Studies in Political Economy
goods. Systems of wage stabilization helped to solve this problem. The fact that social policy seems to be "dead" - that
countries like Canada with incomplete and underdeveloped
social security systems are not bringing them to maturity suggests this particular strategy for harmonizing the production of wealth with its distribution is no longer working. This
in turn has generated a search for a new paradigm - a new
kind of welfare state regime that will be compatible with a
new wave of productivity growth and accumulation. This, it
seems to me, is what the past decade of social policy debate
has been about.
Having said this, we are in no better position than we were
previously to describe the welfare state paradigm that will
enable us to transcend the current impasse, but we are in a
better position to look for the sort of problem it must help to
resolve. It is unlikely, for example, that a new welfare state
regime will emerge automatically because there are new problems of distribution (e.g., an increase in single parent families).
Welfare states often solve distributional problems, of course,
but they do so in ways that simultaneously solve new problems
of production and accumulation. So what are the sorts of
problems the next welfare state must address?
Flexibility: The Slogan of the Transition To begin, we can
consider Piore and Sabel's conclusion that for a whole series
of reasons, the Fordist mass production mass consumption
paradigm has broken down, at least for the First World.w Mass
production is based on combining semi-skilled labour with
product-specific machinery to produce a large volume of standardized goods for homogeneous markets. The emergent and
increasingly successful technologies (specialty steels in Germany, textiles in Italy) combine skilled labour with general
purpose machinery to produce small batches for specialized
markets. New technologies allow producers to realize "economies of scope" (volume production of a variety of goods) rather
than "economies of scale" (volume production of a single
good).44 The system of "flexible specialization" that results
from this strategy is the antithesis of the rigidities embedded
in the mass production model.
Piore and Sabel's analysis bears a striking resemblance to
another, more famous, diagnosis of our present situation. The
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MyleslWelfare State
contrast
they draw between
the "rigidities"
and "inflexibilities"
of the Fordist system seems remarkably like the complaints of
conservatives
who seek less regulation
and more "flexible"
labour markets by limiting the rights of labour unions and
adjusting the welfare state to "improve" labour response to
the price mechanism. Indeed, as Cohen and Zysman observe,
flexibility has become the slogan of the- current transition.e
Despite disagreement
over causes and solutions, the implication is that the emergent production
problem is the capacity
of an economy to handle change - not just to absorb change,
but to stimulate it.
But as Mahon observes, this emphasis on the importance
of labour-market
and shop-floor flexibility in order to accommodate a new wave of technological
change is constructed
largely around analyses of blue collar work in manufacturing.w
The distinctive feature of advanced capitalist labour markets,
however, is the fact that most employment is now in the service
sector - a result of the greater potential for productivity
growth in the machine-based
industries. This is a feature of
contemporary
economies that is of particular importance
for
women (over four-fifths of female employment in Canada is
in services).
The critical issue, however, is not the size of the service
sector, but the kind of service sector we have developed and
will develop in future.s? Service economies come in a variety
of sizes and shapes. What we globally label as "services" is a
mixture of industries employing skilled, well paid labour (especially the "welfare state" industries, including health, education and welfare) and industries that employ unskilled, poorly
paid labour (retail trade and the "servant" industries such as
food and accommodation
services).e Service economies vary
enormously in the relative mix of these sectors - a point to
which I return below.sv
The next welfare state, then, must accommodate
two features of a post-Fordist economy. First, it must be compatible
with, and encourage, "flexibility" and technological innovation
in goods production.
But second, it must be compatible with
an economy in which most labour is employed, not in the
production of goods, but in the production of services.
The conservative solution to the problem of "flexibility" is
well known.
The
Fordist
institutions
that encourage
stability
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Studies in Political Economy
also introduce rigidities, both in the labour market and on the
shop floor. The welfare state, by stabilizing wages, immunizes
workers from market forces, reducing "response time" to market signals. Welfare states, regulations, and unions create sticky
wages at the bottom of the labour market (preventing the
creation of low-wage jobs) and too much wage equality (limiting mobility between regions and industriesj.>"
In sum, the
security and equality afforded by the welfare state is an obstacle to innovation.
In contrast, the solution traditionally offered by social democrats and by a growing number of neo-institutional economists and economic sociologists is a welfare state that provides
more equality and more security for workers.» At least since
the Myrdals, it has been part of social democratic lore that the
welfare-efficiency "trade-off" would be a positive sum precisely
because of the labour flexibility and responsiveness to innovation more equality and security would bring. Insecure workers threatened by job loss or a shift from high- to low-paid
work will naturally (and correctly) resist innovation and further
development
of the productive forces. In contrast, workers
confronted with an egalitarian wage distribution and security
of employment will welcome and promote structural change.
A growing body of neo-institutionalist
economic analysis suggests that this is indeed the case. 52 Streeck, for example, concludes that flexible specialization is not only facilitated by, but
requires, a high-wage, full-employment economy. 53
It seems we are confronted by a contradiction, or at least
a paradox. On the one hand, neo-classical orthodoxy asserts
that flexible labour markets require workers to be exposed to
market forces. On the other, the neo-institutionalists and social
democrats argue that innovation and flexibility are enhanced
by security and equality. Before resolving the paradox, however, it is first necessary to describe the problems they purport
to resolve.
The Rigidities of the Welfare State There
is not one, but
several, versions of the modern welfare state. The variant most
familiar in the Anglo-American democracies is the "stop-andgo"-"dual labour market" welfare state. The "stop-and-go"
feature means that employment policies are designed to soften,
but never to eliminate
90
the threat
of unemployment.
Unern-
Myles/Welfare State
ployment is always held in reserve to dampen wage demands
and any incipient "revolution of rising expectations." The
second key feature - dualism - means that to enjoy the full
benefits of the Anglo-American version of the "social security
welfare state," it is not sufficient to be a citizen. One must also
be a member of the primary or core sector of the economy
where, in addition to public social benefits, one has access to
employer-sponsored,
but state-subsidized, "private" insurance
plans and other fringe benefits. For workers not located in the
core, the post-war welfare state is in many respects very much
/
like the "social assistance" welfare state of the pre-war era.
Health care in the United States provides a stunning, if
exceptional, example. There is "social security" (from corporate
health plans) with respect to illness for the new middle class
and core sector workers, but "social assistance" (Medicaid) for
the rest. However, the example of old age security, the largest
and most important component of the post-war welfare state,
is more typical. In Canada, the U.K., the U.S. and Australia,
income security in old age hinges critically on access to employer-sponsored pension schemes. Public sector programs may
bring people up to or even above poverty levels; but real
income security in old age requires a combination of public
and private coverage in all four countries. Similarly, "full
employment" policies in the form of job tenure and seniority
provisions are available to some, but not all, workers.
In sum, full participation in the mass consumption economy
of high wages and income security in Canada is selective rather
than universal, confined to core workers and the new middle
class. For those in the periphery, or who are marginal to the
labour force, the welfare state remains largely a social assistance welfare state. As Piore and Sabel and many others
observe, the persistence of peripheral
or secondary labour
markets has been an integral, not an incidental, part of the
entire system. Tolerating rigidities in the core depends on
labour reserves willing to move in and out of the core, or in
and out of employment, to meet fluctuations in demand reserves usually provided by women, migrants and minorities.
There are, no doubt, important
national variations this
thumb-nail sketch of dual labour market welfare states ignores.
The important point, however, is to recognize the rigidities
this kind of welfare state induces. The most obvious will be
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Studies in Political Economy
the reluctance of core workers to move into the uncertain
world of the periphery, and rightly so. There, they will encounter lower wages, more insecurity, and lose access to the
corporate benefits won in the past. The result, however, is
rigidity in external labour markets. Dualism also reinforces
rigidities on the shop floor and in the internal labour market.
There is resistance to technological innovation that might
reduce the number of core jobs and convert them to skilled
jobs for which current job-holders are unqualified, or to jobs
that cannot be contained within the bargaining unit and its
detailed system of job classification and hierarchical lines of
progression and seniority which currently provide job security
and wage protection.
Dualism also generates a particular set of capitalist strategies. Employers spend a great deal of time trying to smash
the core, on the one hand, and trying to escape to the periphery on the other. The latter takes a variety of forms, from
migration to low-wage,non-unionized labour markets (whether
at home or abroad), to contracting out. It also leads to a
particular vision of the future: a world without the social
institutions of the core (i.e., unions, regulations and social
security). There is nothing new about this, of course. What is
new is the growing recognition and consensus that in order to
peripheralize the core, it is probably necessary and desirable to
modernize the periphery - to make it more inhabitable and to
build bridges between low-wagejobs in the periphery and the
world of social assistance. The conservative solution is a GAl
that reduces work disincentives in current social programs,
maintains the supply of low-wage labour, and generally increases labour flexibility at the bottom of the income distribution.
In conservative proposals, a GAl is accompanied by the
elimination of everything else - union rights, regulations and
income security.54 Liberal variants typically propose to modernize the periphery with a GAl, but to leave the core largely
intact. The main concern is with the growing share of employment, especially female employment, in low-wage service
jobs, which exacerbates the long-standing problem of the
"working poor."55A GAl eliminates the working poor by establishing a system of wage subsidies for low-wage earners.
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Myles/Welfare
State
In contrast, the social democratic strategy is to eliminate the
periphery by universalizing the core. The problem of the "working poor" is addressed by eliminating low-wage employers in
the context of full and high levels of employment. Most people
are expected to be in the labour force most of the time and
they expect to receive high wages. A major mechanism to
achieve this state of affairs is through the welfare state in its
capacity as emplover.v' Under these conditions, social benefits
for those unable to work can be, and are, quite luxurious. The
locus classicus of this arrangement,
of course, is Sweden - a
"full employment"-"social
citizenship" welfare state. In the
following, I discuss each strategy and its implications.
Back to the Future? As described by Polanyi, the first GAl
(or negative income tax) was adopted by the justices of Berkshire, meeting at the Pelikan Inn, in Speenhamland,
near
Newbury, on 6 May 1795, in a time of great distress.e? The
result was the so-called Speenhamland
system that subsequently spread throughout
England and, as Polanyi observes,
"introduced no less a social and economic innovation than the
'right to live'." It provided for a minimum income for the
poor, irrespective of earnings. The minimum was tied to the
price of bread and adjusted for family size. The traditional
practice under Elizabethan
poor laws had been to provide
relief only to those without employment.
Under the Speenhamland system, relief was given so long as the main breadwinner's wages were less than the family income set by the
scale. Speenhamland
remained in place until 1834, abolished
as a result of the Poor Law Reforms of 1832. As Polanyi
observes, abolishing Speenhamland
was necessary to create a
labour market.w Now, 200 years later, it appears that a Speenhamland-like solution is necessary to restore the labour market.
According to Moynihan, the rediscovery of Speenhamland
was made by U.S. Treasury Department
economist Milton
Friedman in 1943. The idea was simple: in good years workers
would pay taxes to the treasury and, in bad years, the treasury
would pay taxes to workers.w This is the notion of a negative
income tax or GAL It has great appeal since it has the potential
to eradicate poverty among both the working and non-working
poor and still leaves incentives for the poor to increase their
incomes (i.e., to work). The latter is a key ingredient:
it
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Studies in Political Economy
eliminates the so-called "welfare trap" produced by effective
marginal tax rates of up to 100 per cent that now characterize
programs for the poor and unemployed.
As a result, current
disincentives for those on unemployment
insurance and social
assistance to take a job are removed.
It is fundamentally
different
from social security, however. It prevents poverty,
but makes no guarantee of income security for workers earning above poverty levels. In this sense it is fundamentally
different
from the social security welfare state. But the key
shift is not from the universality principle, as is often implied
by critics of GAL Rather, what changes is that which is universally guaranteed:
subsistence instead of wage replacement.
In Free to Choose, the Friedmans describe the GAl welfare
state as a transition stage en route to Adam Smith's heaven, in
much the same way that traditional Marxists describe socialism
as a transition state en route to communist heaven.w It would
be a world with GAl and nothing else: no unions, no government regulations, and no social security (i.e., wage stabilization)
programs.
No unions and no regulations
(or at least weak
unions and weak regulations) are necessary to eliminate the
bargaining advantages of core workers and to restore managerial control over the shop floor. The GAl solves the problem
of labour market rigidities created by the dual labour market
welfare state by peripheralizing
the core and modernizing the
periphery. There is no wage replacement other than through
insurance
purchased
in the market, and hence high-wage
workers always have an incentive to work. There is universal
welfare to prevent poverty, but there are no welfare traps; so
low-wage workers also have an incentive to work.
Liberal GAl proposals tinker less with the rights of coresector workers and address themselves primarily to problems
of modernizing
the periphery. The concern is less with productivity gains in goods production and more with rationalizing state expenditures
and helping the working poor. A major
assumption
is that future employment
growth, especially for
women, will be concentrated
in the labour-intensive,
low-productivity, low-wage and unskilled sectors of the service econorny."! Hence, a fundamental
requirement
of the welfare state
of the 1990s and beyond, according to the Canadian Council
on Social Development,
is "to find acceptable ways of accommodating this form of economic development. .. ."62 (i.e., to
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Myles/Welfare State
provide an income conduit from high-wage workers to a growing pool of low-wage workers).
There are any number of variants of the liberal GAl, and
some are more "liberal" than others. The less liberal versions
emphasize the need to shift resources from existing income
security programs (especially Unemployment
Insurance and
Family Allowances) to finance a GAL The result is a tendency
to reduce wage replacement in order to finance wage subsidies.
More liberal variants emphasize elimination of the welfare
state for the rich (i.e., the very expensive subsidies for wealth
accumulation created by the tax systernl.s> All such proposals
would tend to reduce income inequality, at least in the short
run. This kind of reform has been on the liberal agenda in
Canada for almost two decades and has served as the implicit
policy model for much of the reform of the tax-transfer system
of the past decade.
The core innovation of the GAl model - liberal or conservative is the creation of a system of wage subsidies
(sometimes called income supplements) for low-wage workers.
But wage subsidies for low-wage workers are also subsidies for
low-wage employers, and herein lies the problem. The existence of so-called welfare traps in social assistance and unemployment insurance programs are also traps to catch employers who can produce profits only on the backs of lowwage labour. 54 This is precisely why employers object to these
programs. The result of eliminating barriers between the world
of social assistance and the world of work - the main objective
of a GAl - is to expand the pool of labour willing to work
for low wages and hence the pool of capitalists willing to invest
in industries that cannot survive at higher wage levels.s- To
put it another way, a GAl is a system to subsidize "lazy"
capitalists - those that survive by sweating labour; it encourages all capitalists to find ways of investing into the low end
of the wage distribution to take advantage of the subsidy. A
GAl is an industrial strategy to encourage the expansion of low-wage,
low-skill industries and ''crowd out" high-wage, high-skill industries.
Is there a way around the low-wage trap? One solution is
to push up the minimum guarantee to a point where the
marginal benefit of additional employment income crowds out
low-wage cmployers.w' But high minimum guarantees and low
marginal
tax-back
rates also mean very high ceilings below
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Studies in Political Economy
which people are still eligible for assistance. With a $16,000
minimum and a 25 per cent tax-back, for example, wage
subsidies would be paid out to those earning up to $64,000 a
year. At this point, there is almost no one left to pay the taxes
to finance the wage subsidies. Hence, to avoid the low-wage
trap and maintain a financially viable system, it would be
necessary to increase the tax-back rate again (i.e., to move
back towards the social assistance model and the welfare traps
the GAl is intended to avoid). By design, a GAl requires
relatively low minimum benefits and so makes the low-wage
trap unavoidable.
But the GAl model does have the potential to serve as the
model for the next welfare state precisely because it provides
a solution for the double problem of labour flexibility and the
service economy. What it provides for, however, is a particular
kind of labour flexibility and a particular kind of service
economy. The capacity to change and innovate may mean that
skilled workers equipped with the appropriate
technologies
are able to apply these skills and technologies on a continuous
basis to improve product quality, to change products to accommodate changing markets, and to adopt - even to create new technologies. But flexibility may also mean the ability to
layoff workers, lower wages, and contract out to non-unionized firms. The first - dynamic flexibility - is defined by
Cohen and Zysman as the ability to increase productivity
steadily through improvements in production processes and
innovation. The second - static flexibility - they define as
the ability of firms to adjust operations at any moment to
shifting conditions in the market.v? Whereas the former requires a high-skill, high-wage work force with security of
employment, the latter requires a low-wage, unskilled labour
force. The flexibility it offers is characterized as "static" because
of a tendency to adopt new technologies at a slower rate (low
labour costs reduce incentives to innovate) and because innovation occurs in a series of successive plateaus rather than on
a continuous basis.w
Labour market policies that encourage labour flexibility at
the low end of the wage distribution (such as a GAl) also
encourage the development of a service economy concentrated
in the "servant" and other low-wage industries.w Post-industrial
employment
96
structures
are a mix of "good" and "bad" jobs,
MyleslWeifare State
but the balance between them is highly indeterminate.
The
precise mix of services that become monetized in a "service
economy" is not the product of some ineluctable logic of postindustrialism, but is very much a matter of political direction
and social choice. This is already evident in cross-national
differences
in service mix. According to Esping-Andersen's
estimates, 26 per cent of the Swedish labour force is in the
health, education and welfare industries, and less than two per
cent in food and accommodation services. The corresponding
numbers in the United States are 17 per cent and 7 per cent
respectively. In Sweden, high-wage welfare state employment
simply makes it difficult for low-wage service industries to
expand. High-wage employment in services also eliminates the
threat of wage loss from declining employment in manufacturing.
The welfare state not only has the capacity to shape the
mix of services; it also has enormous potential to determine
the labour mix within service industries, since both the quality
and price of labour inputs are relatively indeterminate.
Two
welfare industries that will grow in future are those designed
to service either end of the life cycle - the elderly and preschool children. But these services can be provided in radically
different ways. Day care, for example, can be provided by
highly qualified teachers with training in child development,
or by minimum-wage childminders. There are two alternative
models available for the day care industry to emulate in its
labour mix: low-wage, unskilled babysitting services, or highwage, skilled, educational services. A GAl that enhances labour
flexibility at the bottom of the wage distribution is precisely
the stimulus that will ensure the prevalence of the former. In
fact, in a background
paper for the Macdonald Commission,
Jonathan
Kesselman presents this as one of the benefits of a
GAl: it would enable the public sector to expand the pool of
low-wage service jobs and reduce the number of "unskilled to
semi-skilled regular public employees" who are now paid "relatively high wage rates."?" Rather than solve the problem
created by the growth of low-wage service jobs, a GAl guarantees this will be the trajectory of future employment growth.
In view of prevailing patterns of sex segregation by occupation
and industry, it is also obvious that the main consequence of
all this concerns
the future employment
patterns
of women.
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Studies in Political Economy
The Social Democratic Alternative The basic elements of the
Swedish variant of what Mahon calls "welfare capitalism," and
what I have labelled the "full employment"-"social
citizenship"
welfare state, are well known, and many of its basic features
have already been identified above. The most distinctive result
of this strategy has been the ability of the Swedish economy
to combine full employment with a high and relatively egalitarian wage distribution, high levels of total employment and
high levels of income security available to all."! The importance
of the full-employment component is obvious. It has long been
a first principle of social policy reformers that the main source
of poverty in an economy where most people depend on wages
for subsistence is unemployment.
Moreover, a full employment
economy creates wage pressure that drives out less efficient,
low-wage employers. The result is fewer "working poor." In
the Swedish case, a high and relatively egalitarian wage distribution is reinforced by a "solidaristic" wage strategy that forces
wages up at the bottom and restrains them at the top. This
means not just containing wage increases, but actually bringing
down the relative earnings of "new middle class" managers
and professionals. As a consequence, the wage bill of efficient,
high-wage employers is lower and their profits higher than
would otherwise be the case. In this sense, the Swedish strategy
is the mirror image of the conservative GAl design to subsidize
low-wage employment.
Social democracy is not a post-capitalist or socialist solution,
but does represent a distinctly novel strategy towards capitalists. It forces inefficient capitalists out of business and subsidizes efficient capitalists that are able to pay high wages. As a
competitive strategy, it involves competing with society's strongest
workers, including managers and professionals, rather than
the weakest workers. Indeed, as we shall see, it tends to force
employers to move labour up the skill gradient, making weak
labour strong.
Full employment at high wages is not so great an accomplishment if large sectors of the population (women, older
males) are kept out of the labour market as in Germany. The
Swedish version of full employment also means high employment: most people are expected to work most of the time.
Single-parent
mothers are expected to put their children in
day care
and
take a job.
Disabled
workers
enter
98
~-----~-~~-~----------------------------
sheltered
Myles/Welfare
State
workshops. The major mechanism for maintaining high levels
of employment
at high wages, especially for women, is employment inside the welfare state (i.e., in health education and
the social services). In the current transition, this is undoubtedly the most important role of the welfare state. In its role
as employer, it has the capacity to determine
employment
levels, the services that will be monetized, and the wage mix.
Under conditions of full and high employment, those who
do not work (e.g., the elderly) can be provided with very high
incomes
through
the income
security system. Sweden is the
only country where the proportion
of elderly with incomes
less than half the median income is exactly zero. In Canada,
12 per cent of the elderly are below this level; among welfare
state "laggards" - Britain and the United States - the figure
is almost 24 per cent.?s
The fact that Sweden is a welfare state leader is well known.
Less widely understood
is the way in which this particular
configuration of social and labour market policies have shaped
the Swedish path through the current transition. As Aberg
observes, from the neo-classical perspective this is social democratic madness.t- The price mechanism with respect to labour
is all but abolished. How can labour markets function under
these circumstances? But as numerous studies have shown, the
Swedish labour market is among the most "flexible" in the
Organization
for Economic Co-operation
and Development
(DEC D) area.?" The non-Taylorist, post-Fordist mode of shop
floor organization
emerging in Sweden, as in Germany, is
typically used as an exemplar of the "dynamic flexibility" required to realize the productivity gains to be had from new
technologies and "flexible specialization."75 Unlike Germany,
however, Sweden has accomplished this without reducing employment levels and has simultaneously built a high-wage service economy. All this is not in spite of the welfare state, but
because of it.
As Mahon documents, the unique combination of social
and labour market policies in Sweden was the source of pressure on employers to develop a flexible product and work
organization strategy." Elimination of the opportunity to use
low-wage labour compels employers to increase productivity
both through technological change and by utilizing a labour
force with a higher skill mix. Labour mobility remains high,
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Studies in Political Economy
both because of labour market adjustment programs and because workers face little risk of moving into unemployment or
low-wage, unskilled work ghettos."? And in the transition to a
service economy, the use of the welfare state as employer has
prevented the creation of large, low-wagejob ghettos.
Social Democratic Valhalla? The social democratic alternative
is clearly a preferable strategy for moving through the current
transition than either conservative or liberal versions of a GAl.
An obvious objection, even from those sympathetic to the idea,
is that the "Swedish model" is not transportable from a small,
homogeneous and historically egalitarian society like Sweden
to heterogeneous, inegalitarian societies like Canada and the
United States. In short, the proposal is utopian because it
cannot be implemented. This is undoubtedly correct if the
referent is the Swedish model, which is a particular adaptation
to a particular set of social, economic and political conditions.
But it is also a particular adaptation of a more general strategy,
or what I have been referring to here as a paradigm - a set
of general assumptions and principles that informs the choice
of policy instruments, not the instruments themselves. Canada
does not have a fully developed GAl; but the GAl paradigm
has provided the "logic" for changes to the Canadian taxtransfer system for over a decade.
Part of the appeal of the "full employment"-"social citizenship" paradigm is its non-utopian character: we know it can
be implemented and with what effects. What is required is to
begin to abstract and formalize the main components of the
paradigm - forcing out low-wage employers, putting ceilings
on at the top under conditions of full and high employment
- so that it can be adapted and inserted into a very different
historical situation.
Rather than dismissing this proposal as utopian, critics from
the left will emphasize the limits and failures not just of the
particular model but of the paradigm itself: social democracy
is not socialism. There are two reasons we should resist this
conclusion. First, as Goran Therborn (1986) observes, there
are unlikely to be further advances towards socialism so long
as large parts of the (potential) working class are unemployed
and marginalized. As he concludes: "People on the dole will
not bring about socialism."78Second, and more important in
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Myles/Welfare State
my view, is the fact that the way to learn how to transcend the
limits of social democracy is by physically bumping up against
these limits, not just thinking about them. Whether or not the
Swedes ever succeed in implementing
the wage-earner fund
strategy laid out in the Meidner plan, and, if they do, whether
or not it brings about more economic democracy, remains to
be seen. It is hardly surprising that such proposals should
emerge in Sweden, however. And that is the point. It is only
through praxis - by experiencing the limits of social democracy - that we will learn what it can and cannot accomplish
and begin to devise social experiments to transcend it.
Nor are we entirely ignorant of those limits. Precisely because of the Swedish experience, the limits of social democracy
are well known. That experience
demonstrates
that social
democracy generates its own "crisis" and that the kinds of
solutions indicated require some form of democratic socialism
- a transition from social to economic democracy.?? But we
have no historical experience with democratic socialism - only
bureaucratic or state socialism. So it is also strategic to begin
experiments in democratic socialism now.
Conclusion
The inherent bias of the Anglo-American democracies is towards a liberal version of a modernized dualism,
simply because that is the path of least resistance. A conservative regime faces the problem of overcoming political resistance from workers in the core and the popularity among the
new middle class of whatever universal programs are in place.
And even if elected, social democrats typically lack control
over the requisite economic and political levers necessary to
move quickly towards some version of the "full employment""social citizenship" strategy.
Liberal solutions, however, are no solution at all in the sense
of providing a new paradigm for harmonizing production and
consumption
since they build upon and exacerbate the very
dualism that is the source of the present impasse.w The result
will be continuing pressure for a more radical departure and
a more radical paradigm shift. In that event, the balance will
be tipped in favour of those institutional actors who have been
building their power resources, not just their paradigms, in
the interim. As the comparative political economy literature
demonstrates,
the size and cohesion of the labour movement,
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Studies in Political Economy
its level of political mobilization, and its power inside the state
are the key factors accounting for national differences in the
realization of the full employment, social citizenship welfare
state."! But the historical record also makes clear that the
causality is reciprocal in this instance: full employment, active
labour market policies and luxurious welfare states that decommodify
confident
labour
are also the key to creating
strong,
self-
labour movements.v
Notes
Earlier versions of this paper were presented at the meetings of the American
Sociological Association, August 1987, and the conference on Social Democratic
Futures, sponsored by the Canadian Centre for Policy Alternatives, in November
1987. I want to thank Hugh Armstrong, Carl Cuneo, Gosta Esping-Andersen,
Rianne Mahon, Alan Moscovitch, Leon Muszynski, Alan Puttee, Jill Quadagno,
Theda Skocpol, Michael Wolfson, and participants in the Social Policy Study
Group of Carleton and Ottawa universities, for their important criticisms that
led to the present revision.
l . Rudolf Klein and Michael O'Higgins, "Defusing the crisis of the welfare
state: a new interpretation,"
forthcoming
in Social Security: A Reassessment,
ed. T Marmor andJ. Mashaw (Princeton, N.J., 1988).
2. Keith Banting, "The welfare state and inequality in the I980s," Canadian
Review of Sociology and Anthropology 24:3 (August, 1987), pp. 309-38.
3. Klein and O'Higgins, "Defusing the crisis" (see n. I above); Allan Moscovitch,
"The welfare state since 1975," Journal of Canadian Studies 21:2 (Summer
1986), pp. 77-95.
4. Michael Wolfson, "The arithmetic of income security reform," in Approaches
to Income Security Reform, ed. S. Seward and M. Iacobacci (Ottawa: Institute
for Research on Public Policy, 1987).
5. Thomas Courchene, Social Policy in the 1990s: Agenda for Reform (Montreal:
C.D. Howe Institute, 1987); Klein and O'Higgins, "Defusing the crisis";
Hugh Heclo, "Toward a new welfare state," in The Development of Welfare
States in Europe and America, ed. Peter Flora and H.J. Heidenheimer (London,
1984), pp. 383-406.
6. Klein and O'Higgins, "Defusing the crisis."
7. The concept of welfare state regimes is developed by Gosta Esping-Andersen
in a number of places, including "The comparison of policy regimes," in
Stagnation and Renewal in Social Policy, ed. Gosta Esping-Anderson, Martin
Rein, and Lee Rainwater (Armonk, N.Y.: 1987), pp. 3-12.
8. See John Myles, "Postwar capitalism and the extension of Social Security
into a retirement wage," forthcoming in Margaret Weir, Ann Orloff; and
Theda Skocpol, The Politics of Social Policy in the United States (Princeton, N.J.
1988).
9. James O'Connor, The Fiscal Crisis of the State (New York, 1973). As Hernes
shows, both nature and history are replete with such processes and they are
amenable to precise mathematical formulation. Well known examples include
102
MyleslWelfare State
Marx's analysis of the transition from feudalism to capitalism and biological
and social models of ecological succession. See Gudmund Hernes, "Structural
change in social processes," American Journal of Sociology 32:3 (November
1976), pp. 513-47.
10. Theodore Geiger and Frances Geiger, Welfare and Efficiency: Their Interactions
in Western Europe and their Implications for International Economic Relations
(London, 1978).
11. O'Connor, The Fiscal Crisis of the State (see n. 9 above).
12. Samuel Bowles, David Gordon, and Thomas Weisskopf,Beyond the Wasteland:
A Democratic Alternative to Economic Decline (New York, 1983): Goran Therborn, Why Some People are More Unemployed than Others: The Strange Paradox
of Growth and Unemployment (London, 1986).
13. The thesis that the "crisis" that developed in the seventies occurred because
capital was too weak is widely shared on the left. See Sam Bowles and
Herbert Gintis, "The crisis of liberal democratic capitalism: the case of the
United States," Politics and Society 11:1 (1982),51-93: Alain Lipietz, "Behind
the crisis: the exhaustion of a regime of accumulation," Review of Radical
Political Economics 18: 1&2 (1986), pp. 13-32; John Myles, Old Age in the
Welfare State: The Political Economy of Public Pension (Boston, 1984) chap. 5.
For a critique of this view see Michael Lebowitz, "Labour strategies in a
world of capital" (Paper presented to the political economy section of the
Canadian Political Science Association at the annual meetings of the Learned
Societies, June 1987).
14. Bowles, Gordon and Weisskopf, Beyond the Wasteland, pp. 84-91. (See n. 12
above).
15. Arthur Donner and Douglas Peters, The Monetarist Counter-Revolution (Toronto, 1979); Richard Lipsey, "Canadian inflation: past experience, current
controversies and future options" (Paper read at Harvard University, 1981).
16. David Wolfe, "The politics of the deficit," in The Politics of Economic Policy,
ed. B. Doern (Toronto, 1985).
17. Leo Panitch and Donald Swartz, From Consent to Coercion: The Assault on Trade
Union Freedoms (Toronto, 1985).
18. The last major offensive for an expanded welfare state was the Great Pension
Debate initiated by the Canadian Labour Congress in 1975. It ended during
the great recession of 1981-82. On this, see John Myles, "Social policies for
the elderly in Canada," in North American Elders: U.S. and Canadian Comparisons, ed. Betty Havens and Eloise Kathbone-McCuan (Evanston, III., 1988).
19. L. Bordogna, "The political business cycle and the crisis of Keynesean
politics" (Paper presented at the meetings of the American Sociological
Association, August 1981).
20. Tight monetary policy was the main ingredient used to control inflation
even in the midst of Prime Minister's Trudeau's construction of the 'Just
Society" - the heyday of Canadian welfare state expansion. In the face of
the Vietnam War-induced inflation of the late sixties, the Bank of Canada
succeeded in raising the unemployment rate from 4 to 6 per cent in a
period of eighteen months. See Lipsey, "Canadian inflation," p. 2 (see n. 15
above).
21. On the electoral dilemma of the left, see Adam Przeworski, "Social democracy as a historical phenomenon," New Left Review 122 (luly-August 1980),
pp. 27-58.
22. Alan Moscovitch has correctly pointed out to me that this conclusion is a
result of selectively focusing On the federal state. The real attack on the
poor has taken place at the provincial and municipal levels. The "Boubon
Macoutes" sent out to harass welfare recipients in Quebec are an example.
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Studies in Political Economy
But harassment of the "poor" is not new. Beneficiaries of "poor law"-type
social assistance programs are always subject to waves of harassment following
the cycle identified by Frances Piven and Richard Cloward in Regulating the
Poor (New York, 1971). As I discuss below, what is new is the effort - by
conservatives - to abandon the social assistance model for the poor in
favour of a Guaranteed Annual Income (GAl). And here, too, Quebec is on
the leading edge: a GAl-type set of reforms was presented with the Quebec
budget of April 1987 in the APPORT program.
23. The Conservatives were perfectly consistent in this respect: deindexation of
family allowances was followed in the subsequent budget with improved
child tax credits, a GAl-like policy.
24. Kenneth Bryden, Old Age Pensions and Policy-Making in Canada (Montreal
and London, 1974), p. 176.
25. The white paper was not just about pensions. Rather, the objective was to
implement the principles of a GAl across the entire social support system.
See James Rice, "Politics of income security: historical developments and
limits to future change;' in The Politics of Economic Policy, ed. Doern, pp. 22150 (see n. 16 above).
26. Bryden, Old Age Pensions and Policy-Making in Canada, p. 17. (See n. 24
above.)
27. Michael Mendelson, "Is social policy dead?" (Paper presented to the Seminar
Series on Public Policy, Department of Political Science, University of Toronto, February 1986).
28. Klein and O'Higgins, "Defusing the crisis."
29. Heclo, "Toward a new welfare state." (See n. 5 above.)
30. Robert Evans, "Universal health care in the year 2000," Canadian Public Policy
13 (June 1987), pp. 165-80.
31. Mendelson, "Is social policy dead?" (See n. 27 above.)
32. Thomas Kuhn, The Structure of Scientific Revolutions (Chicago, 1962).
33. Hernes, "Structural change in social processes;' pp. 536-40. (See n. 9 above.)
34. M. Piore and C. Sabel, The Second Industrial Divide: Possibilitiesfor Prosperity
(New York, 1985), p. 92.
35. Karl Polanyi, The Great Transformation (Boston, 1944). Markets have always
existed but, until capitalism, were subordinated to other principles of social
organization. Markets are freed to become self-regulating when this subordination is abandoned or overthrown, when the social is subordinated to the
economic.
For a contrast between
market and state socialist societies that
draws on the distinction between markets and market societies, see George
Konrad and Ivan Szelenyi, The Intellectuals on the Road to Class Power (New
York, 1979).
36. Sydney Pollard, The Genesis of Modem Management: A Study of the Industrial
Revolution in Great Britain (Cambridge, Mass., 1964), P: 161.
37. Claus Offe, Disorganized Capitalism (Cambridge, Mass., 1985), p. 16.
38. Polanyi, The Great Transformation p. 73. (See n. 35 above.)
39. This is Polanyi's famous "double movement." As he points out, a pure selfregulating market existed for only a brief historical moment, if at all. He
dates the protectionist "countermovement" from the 1870s, when a wave of
social and national legislation began to sweep Europe. He lists the following
to make his point: factory laws; social insurance; anti-liberal legislation with
respect to municipal trading; health services; public utilities; tariffs; bounties
and subsidies;
cartels and trusts; embargoes
on immigration,
on capital
movements, and on imports. See Polanyi, The Great Transformation, chap. 12.
40. There was always a delicate balance to be maintained, however. The system
requires either a sharp distinction between deserving and undeserving poor,
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MyleslWelfare State
or average wage levels that are above subsistence levels. The system becomes
easier to operate as a real wages begin to rise and the gap between wage
levels and starvation levels grows.
41. Guy Perrin, "Reflections of fifty years of social security," International Labour
Review 99 (1969), pp. 249-90.
42. Piore and Sabel, The Second Industrial Divide (see n. 34 above); Rianne Mahon,
"From Fordism to ?: new technology, labour markets and unions," Economic
and Industrial Democracy 8 (1987), pp. 5-60.
43. Piore and Sabel, The Second Industrial Divide.
44. Stephen Cohen and John Zysman, Manufacturing
Matters: The Myth of the
Post-Industrial
Economy (New York, 1987), p. 130.
45. Ibid., p. 156.
46. Mahon, "From Fordism to ?" p. 18. (See n. 42 above.)
47. Ibid., p. 19.
48. On the skill component, see John Myles, "The expanding middle: some
Canadian evidence on the deskilling debate," forthcoming in the Canadian
Review of Sociology and Anthropology
25:3 (1988). My general observations
about wage patterns reflect some preliminary conclusions from ongoing
analyses at Statistics Canada.
49. Gosta Esping-Andersen, "Post-industrial employment trajectories: Germany,
Sweden and the United States" (Department of Politics,European University,
Florence).
50. For a succinct summary of this argument, see the Economist, I November
1986, pp. 72-3.
51. Rune Aberg, "Market-independent income distribution: efficiency and legitimacy," in Order and Conflict in Contemporary Capitalism, ed. J. Goldthorpe
(Oxford, 1984), pp. 209-30; and especially Rune Aberg, "Economic work
incentives and labor market efficiency in Sweden" (Paper presented to the
conference on "Prospects for Active Labour Market Policies in Sweden,"
York University, December 1986).
52. The characterization of this literature as "neo-institutionalist" is suggested
by Fred Block's review of John Goldthorpe's Order and Conflict in Contemporary
Capitalism, [(see n. 51 above),] a collection of articles by a number of authors
writing in this tradition. See Fred Block, "Economic sociology: progress and
regression," Contemporary Sociology 16 Ouly 1987), pp. 476-8. It is also suggested by similar arguments made by institutional economists such as Commons, Perlman, Polanyi and Kerr.
53. As cited in Mahon, "From Fordism to ?" pp. 16-8.
54. For the conservative version in its pure expression, see the Canadian Manufacturers Association's A Future That Works (Toronto, 1984), especially p.
49.
55. Canadian Council on Social Development, Proposals for Discussion: Phase One
-Income
Security Reform, Work and Income in the Nineties (WIN), Working
Paper no. 8 (August 1987), p. 5.
56. This argument and the evidence for it can be found in Esping-Andersen,
"Post-industrial employment trajectories." (See n. 49 above.)
57. Polanyi, The Great Transformation, p. 78.
58. Polanyi also shows at some length low Speenhamland, by subsidizing lowwage employment, was simultaneously destroying British workers and their
families. See The Great Transformation, chaps. 7 and 8.
59. Daniel Moynihan, The Politics of a Guaranteed Annual Income (New York,
1973), p. 50.
60. Milton Friedman and Rose Friedman, Free to Choose (New York, 1979), P'
110-5.
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Studies in Political Economy
61. As Marjorie Cohen observes, a second, Often implicit, assumption of GAl
proponents is that we are moving into a post-employment or post-work
economy and that we require a distributive system independent of the world
of work - a view that is also emergent on the left (Gorz, Offe Keane,
Resnick). See Marjorie Cohen, .~ good idea goes bad: guaranteed income
or guaranteed poverty," in This Magazine 21 #2 (May/June 1987), pp. 19-23.
On the post-employment literature, see Steven McBride, "The state and
labour markets: towards a comparative political economy of unemployment,"
Studies in Political Economy 23 (Summer 1987), pp. 141-54. This is a complex
issue that requires a paper in itself. Surely a major gain from the enhancement of the productive forces is a reduction in the total amount of socially
necessary labour time. But for a whole variety of reasons it is extremely
important that this not take the form of a social division between those in
the paid labour force and those outside of it, as is sometimes envisioned by
progressive supporters of GAl-like programs. As Monica Townson points
out in her discussion of the GAl, a likely basis of division will be gender, a
result of using the family rather than individuals as the relevant income
unit. See Monica Townson, "Income security," The Facts 8 (March-April 1986),
pp. 27-30.
62. Canadian Council on Social Development, Proposals for Discussion: Phase One.
(See n. 55 above.)
63. For example, see Michael Wolfson, "The arithmetic of income security
reform" (see n. 4 above). In contrast, the Canadian Manufacturers Association proposal was to expand subsidies for wealth accumulation in the form
of more tax relief for RPPs and RRSPs. See A Future that Works, p. 50 (see
n. 54 above).
64. From labour's point of view, social assistance and income security programs
should create work disincentives and welfare traps (i.e., weaken market
despotism and the compulsion for workers to offer their services to any
employer at any price). It does not follow, however, that luxurious social
assistance benefits that create enormous welfare traps are a desirable objective. To finance a luxurious social assistance system would require very high
taxes on those who work, with the result that the income gap between
workers and non-workers would be quite small. This implies there would
have to be enormous
non-monetary
rewards to workers in order to maintain
the supply of workers. If this reward were the chance to do truly "creative"
work, non-workers would have to be denied chances to do creative work; if
it were power, status or respect, these would have to be denied to nonworkers. Socialism is not about the elimination of work, but about the
creation of a society where people work freely and utilize their creative
powers. Socialism is about reducing compulsory labour time, not by creating
a division between those who work and those who do not, but by reducing
the compulsory labour time of all workers through the improvement of
productive forces.
65. At 100 per cent tax back, a welfare mother receiving $8,000 a year has to
be paid at least $12,000 a year in earnings just to break even once her childcare and other work-related costs are considered. But at a 50 per cent taxback rate, she could earn $12,000 in the labour market and receive $2,000
from GAl for a total of $14,000. At a 25 per cent tax-back rate, she would
still get $6,000 from GAl for a total of $18,000. The result is to expand the
pool of labour willing to work for $12,000 per year. See Ruth Rose, Demystifying the Notion of a Guaranteed Minimum Income (University of Quebec at
Montreal, June 1986).
106
MyleslWelfare State
66. If the welfare mother's benefits were doubled from $8,000 to $16,000 per
year at a tax-back rate of 25 per cent, she could still increase her income to
$20,000 by accepting a $12,OOO-a-year
job. Obviously the marginal gain from
employment is now lower and at some point she will lose interest in a lowwage job; but it suggests that the minimum guarantees might have to be
quite high to avoid encouraging the growth of low-wage employers.
67. Cohen and Zysman, Manufacturing
Matters, p. 131. (See n. 44 above.)
68. Ibid., p. 134.
69. Esping-Andersen, "Post-industrial employment trajectories."
70. Jonathan R. Kesselman, "Comprehensive income security for Canadian
workers;' in Income Distribution and Economic Security in Canada, ed. Francois
Vaillancourt (Toronto, 1985), p. 297.
71. See, especially, Robert Erikson and Rune Aberg, Welfare in Transition: A
Survey of Living Conditions in Sweden 1968-1981 (Oxford, 1987).
72. Peter Hedstrom and Stein Ringen, "The economic status of the elderly: a
cross-national analysis" (Paper presented at the meetings of the American
Sociological Association, Chicago, August 1987).
73. Aberg, "Economic work incentives and labour market efficiency;' p. 10. (See
n. 51 above.)
74. Aberg, "Economic work incentives and labour market efficiency"; Barry
Bosworth and Alice Rivlin, The Swedish Economy (Washington, 1987); Organization for Economic Co-operation and Development, Economic Outlook 33
(1983), p. 48; Economist, 7 March 1987, pp. 21-6.
75. Rianne Mahon, "From Fordism to ?" pp. 45-8; Cohen and Zysman, Manufacturing Matters, p. 163.
76. Mahon, "From Fordism to ?" p. 47.
77. See, especially, Aberg, "Economic work incentives and labour market efficiency"; and Bosworth and Rivlin, The Swedish Economy, pp. 70-7 (see n. 74
above).
78. Therborn, Why Some People are More Unemployed than Others, p. 36. (See n. 12
above.)
79. For an analysis of the "crisis"of social democracy, see Costa Esping-Andersen,
Politics Against Markets: The Social Democratic Road to Power (Princeton, N.J.,
1985); and Aberg, "Economic work incentives and labour market efficiency."
80. Recent pension history provides a good example. Canadian labour failed in
its campaign of the late seventies to win a bigger and better income security
scheme for retired Canadian workers (i.e., a significantly enhanced C/QPP).
Instead, subsequent pension reform has reinforced Canada's dual labour
market welfare state with increases to the income-tested component of old
age security (the Guaranteed Income Supplement), legislated improvements
to "private" employer pensions (RPPs) and increased tax subsidies for wealth
accumulation (RRSPs).
81. For an overview of the class origins of the post-war welfare state, see Myles,
Old Age in the Welfare State (n. 13 above).
82. Esping-Andersen, Politics Against Markets (see n. 79 above); Winton Higgins
and Nixon Apple, "How limited is reformism: a critique of Przeworski and
Panitch," Theory and Society 12 (September 1983), pp. 603-30.
107