Patterns in the Three Worlds of Welfare Capitalism

Kathryn Nave

Esping Andersons Three Worlds of Welfare Capitalism model . (Esping-Andersen, 1990) seems generally successful at predicting patterns found in the political and welfare regime characteristics of various states, supporting his claim that any satisfactory comparison of welfare states must consider far more than ranking of transfer payment generosity. The three models identified by Andersen are: states with predominately Social Democratic governance, where we see reasonably high transfer generosity, supplemented by an extensive provision of public services, and supported by high tax and high employment. Conservative states, which are similarly generous but resist both redistributive and public service provisions, favouring preservation of the status quo and traditional reliance on the church and family. And residual welfare states, which encourage citizens to secure their needs on the market with minimum provisions only for those who fail to do so. We do however see exceptions to these patterns with the introduction of some typically liberal/residual mechanisms in the form of flexicurity in the social democratic and Christian democratic regimes of Denmark and the Netherlands. There is also the anomaly of public healthcare in Britains residual regime. The former are explicable as responses to the endogenous challenges of these specific types of regime, and the latter in the historical development of Britain's welfare state. The policies of Social Democratic welfare states reflect this parties core support from Labour movements. The distinguishing characteristics being a universalistic welfare state that places emphasis on income equality, and decommodification. Such regimes have been particularly successful in the Scandinavian countries, a fact that cannot be explained by strong labour movements in these countries alone. Other countries have had strong Labour movements but have not produced anything like a social democratic regime. Thus Esping Andersen notes both

Patterns in the Three Worlds of Welfare Capitalism

Kathryn Nave

the importance of class coalitions, and the strength and character of the other main parties in explaining the formation of welfare states. (Esping-Andersen, 1990) The latter factor will be dealt with in consideration of Britains unique residual welfare regime, but the former in particular is relevant to Scandinavian universalism, and wealth redistribution. By universalism it is meant that the welfare state does not just act as a safety net, providing means tested cash payments to allow those who fail in the capitalist system to secure a minimal standard of living via the market, such payments being subsidized by those who succeed. Rather in social

democratic welfare states we expect to see direct state provision of necessary public services for all, thus in Denmark for example we find 74% of 1-2 year olds in public day care. (Tables) The importance of this is that the high taxes paid by the well-off benefit secure high quality childcare for their own children, as well as subsidizing such services on behalf of that of the needy. Thus we have a form of wealth re-distribution without the attendant social stratification found in a residual regime. The success of social democratic welfare states in Scandinavian countries is therefore in part due to their social democratic partys success in making the welfare state appealing to working and middle class alike, thereby making possible the much higher tax rates needed to support such extensive public services. The combination of these universally available state funded services with high transfer payments targets the other goal of social democracy, to emancipate the individual from the family and the market. All can expect childcare, healthcare and generous unemployment benefits solely in virtue of citizenship, rather than on the basis of contributions, or needs tests. Thus the population does not have to depend on their market value to secure a high standard of living, they are decommodified. While this might lead one to expect high levels of unemployment as people do not need to work to maintain acceptable living standards, the opposite is the case. Firstly social

Patterns in the Three Worlds of Welfare Capitalism

Kathryn Nave

democratic states combine these generous benefits with a strong activation component. Denmark with its 76% 1 employment (Ferrera, 2003) is a particular success, its innovative flexicurity model combines high income protection, at an average 68% replacement rate for unemployment benefits (Tables), with an unusually flexible labour market and active labour market policy, involving state sponsored retraining and employment incentives. (Rasmussen, 2007) The emphasis on maintaining high employment is particularly essential for social democratic states, as they rely on a large tax pool of contributors for such generous transfer payments, and to subsidize their extensive public services While costly these public services are self-reinforcing in that they help to account for high employment levels and so high tax revenues that sustain them. Predictably we find high

government employment at 23% in Denmark in 1998 over double that of America, the archetypal Residual Welfare State (Ferrera, 2003). This high percentage of public sector

employment allows the state more control over wage setting, allowing social democratic regimes to avoid the tension between wage equality and high employment. This, in conjunction with wage negotiations that take place at industry level and high levels of union contract coverage, means we see low wage disparity, at only 2.1 in Denmark for example (Tables). Along with daycare provisions and generous parental leave, this high public sector employment also explains the high female labour force participation, as public sector jobs such as health, care and education typically attract female applicants. Looking at the generosity of the welfare state alone there is little difference between the social democratic, and conservative model, found in predominantly Christian Democratic countries. Denmark and The Netherlands display the same social security expenditure, and their transfer
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Patterns in the Three Worlds of Welfare Capitalism

Kathryn Nave

generosity is likewise almost equal. The ideological basis behind Christian democracy is directly in opposition to the principles behind both social democracy and liberal capitalism however, and this highlights the distinctive features of its welfare regime. Christian Democratic parties arose from Social Catholicism, which views society as an organism in which each person has a defined role to play and all have obligations to one another. As such they reject the idea of class struggle and the call for wealth redistribution instead favouring state provision of social security corresponding to a persons role and status in society. Thus we see a lower percentage of income inequality reduction through taxes and transfers in Germany at 23% than in Sweden with over 40%. We also see a large difference of 57 percentage points between the very low minimum and very high average pension replacement rate in Germany (Tables), reflecting the generous but largely contribution dependent nature of benefit pay-outs. Nevertheless Wage disparity is still much lower than in Liberal welfare states. The reasons for this can be identified in the Coordinated market economy usually found in conservative welfare states, with collective bargaining at industry level ensuring pay equity in a standard wage across firms for the same role. This is reflected in the relatively high Union contract coverage at 60 % in The Netherlands and 76 % in Germany (Tables). Despite similarly high social expenditure, conservative welfare states are on the whole not nearly as successful at avoiding the high employment vs high equality tension as Social Democratic states. Unemployment in France is higher than EU-15 average, and while lower in Germany at 7.9 in 2000 it is still significantly higher than in Denmarks 4.7% (Ferrera, 2003). Along with the inflexible nature of the Labour market, and the high cost of employment, two key reasons for this are firstly the generally passive nature of benefit provision with generous long term pay-outs and few conditions attached to receipt. And secondly the ideology of social

Patterns in the Three Worlds of Welfare Capitalism

Kathryn Nave

Catholicism in preserving an out-dated institutional framework for welfare provision. While the problem of the former is straightforward latter is a more complex issue, with far reaching consequences for the viability of the conservative welfare state. The out-dated framework of conservative welfare states is linked to the subsidiarity principle of Catholic social thought, which proposes that whenever possible matters should be handled at the local level. In particular this involves a significant role for the church and family, and as such we find these institutions, with some public funding, taking on a significant role for welfare provision in conservative welfare regimes. As the state funds, rather than directly provides such services, despite high public share of total health care expenditure, we see low health care employment and low public service employment in general, at only 4% in Germany for example (Tables). As noted above public services are a key employer of women and as such we see low levels of labour force participation among women in Germany at 57% (Tables). Low

employment of women in conservative welfare states is more than just a consequence of low public employment however. Rooted in traditional values and the idea of responsibility for care provision lying firstly with the family, these welfare regimes actively conspire to encourage stay at home mothers. The lack of public daycare provision, in Germany for example where only 5% of 1-2 year olds are in public daycare (Tables), forces most mothers who wish to work to pay for expensive private daycare. The high costs of this combined with a joint taxation system, which taxes the income of the lower earning spouse (generally the woman) at the rate of the higher earner, result in a situation where a woman with a family makes little economic gain through employment. This is compensated for by a high wage for the working partner, typically the husband, referred to as a breadwinner wage in that it is supposed to be sufficient to maintain an entire family.(Edwards, 2012)

Patterns in the Three Worlds of Welfare Capitalism

Kathryn Nave

Low female labour force participation is clearly a waste of human capital, particularly as women tend to be educated to a higher level than men. Thus as Esping Anderson points out, female unemployment is much more than just a womens issue (Esping-Andersen, 2002). The consequences are more far reaching than just a waste of current human capital however. Not only does low female employment decrease the current pool of contributors to the welfare state, but as barriers to working motherhood force women to choose between a career and a family we see the more moderate female employment rates in countries such as Germany paid for by low fertility rates. This then translates to fewer potential future contributors to the welfare state. Thus a demography dilemma develops as this decrease in contributors is combined with longer lifespans in general, and so an increased drain on the welfare stare through pension payments. In relation to this endogenous crises for the conservative welfare state, we find an exception in the Netherlands to the extent that it is sometimes viewed as closer to the social democratic, than conservative welfare state model. (Binnema, 2004) Alongside doing away with passive benefit provision in favour of a Danish type flexicurity model, The Netherlands has also become more friendly to female employment reflected in an index of support for mothers employment 10 points higher than Germany, and a higher percentage of children in public daycare (Tables).Thus we find the Dutch exception to the conservative welfare state pattern, ranking with among the lowest unemployment in Europe and at 63.7%, the highest female employment rate among the conservative welfare states (Ferrera, 2003). The third and final welfare state Anderson considers is the residual welfare state that develops where neither Christian, nor social democrats have experienced the same duration in power necessary to shape an extensive welfare regime. Such welfare states tend to correspond with a liberal market economy, operating on similar minimal state intervention principles. In the

Patterns in the Three Worlds of Welfare Capitalism

Kathryn Nave

trade off between high employment and equality, the focus is very much on the former. The liberal market economy involves minimal labour protection, and wage setting takes place at firm level, rather than through cooperative negotiation with labour unions. The percentage of employees covered by Union contracts is thus particularly low, under 50% in the US, Britain and Canada (Tables). A flexible labour market, combined with low pay roll taxes leads to high employment, as hiring is much less of an expensive commitment. However this low cost of employment combined with a low levels of vocational education, and generally minimal public sector employment means that a large part of these higher employment levels is due to more lowskill, low-productivity and therefore low-wage jobs. This explains the high wage dispersion in such welfare regimes at 3.5 in Britain and 4.2 in Canada (Tables). Low pay roll taxes result in low social expenditure hence the term residual welfare state, as such regimes provide only a minimal safety net of benefits for those who fail to secure their basic needs on the market. The focus on transfer payments to the unemployed, has a socially stratifying effect, as those who draw on the welfare state are resented by those whose taxes pay for them to do so. As this non-universialism means the reasonably well-off themselves benefit far less from such a use of their taxes so the liberal welfare state fails to secure their support as in the social and Christian democratic countries. An such we find low replacement rates for unemployment and the minimally redistributive effect of taxes and transfers in such regimes, as any tax increase required to increase such schemes is met with widespread unpopularity. A notable exception to the typical residualist pattern is Britains welfare regime. Across several indicators it is slightly closer to social democratic models than America, but by far the most significant exception is its extensive, universal publicly provided healthcare. We see an 85% share of healthcare employment compared to 30% in Canada and just 17% in America, despite

Patterns in the Three Worlds of Welfare Capitalism

Kathryn Nave

the formers similarly high healthcare expenditure (Tables). This break with the pattern can be explained in the history of Britains welfare stare which unlike America, was shaped under a period of social democratic governance. As such universal public healthcare was developed in line with the initially universalistic nature of Britains post war welfare state. This formation was followed by substantial periods of conservative, rather than Christian democratic government, thus as Ferrera points out (Ferrera, 2003), The flat-rate nature of, Beveridgean benefits and their coverage loopholes (based on earnings thresholds) allowed Conservative governments in the 1980s and 1990s to 'residualize' social protection. Yet while there has been strengthening of a market component in health care provision with a two-tier system supporting the well-off securing more luxurious care privately, the NHS has constantly resisted attempts at significant reform. As a vast complex institution it cannot be simply residualized in the manner of transfer payments. And as an employer of over 1.43 million (NHS, 2012), and sole healthcare provider to approximately 88% of the population (Boyle, 2012) the NHS commands a powerful loyalty among British citizens, ensuring attempts to downscale it will be met with fierce opposition. As such something of a ratchet effect is found with the cross class support the universalistic NHS evokes, preventing its being brought in to line with the expected residual welfare regime pattern. We have seen an interplay of factors in each welfare state, for example how in social democratic regimes, extensive public services contribute to high employment, thereby leading to the large pool of contributors necessary to support these extensive public services. This helps explain how the simple ideological basis of a welfare state leads to the largely predictable patterns we see across a variety of indicators. Such patterns are not entirely consistent however. As countries such as Denmark and the Netherlands adapt to the endogenous employment difficulties of their welfare regimes, we see the introduction of more liberal systems, explaining the Netherlands

Patterns in the Three Worlds of Welfare Capitalism

Kathryn Nave

surprisingly high employment for a conservative regime. And in Britain we see how despite the conditions for determined residualization, the ratchet effect in the NHS results in its preservation as a universalistic anomaly in what is by all other accounts a residualist welfare state. Bibliography

Esping-Andersen, Gsta. "The Three Political Economies of the Welfare State." The Three Worlds of Welfare Capitalism. Princeton, NJ: Princeton UP, 1990. 9-35. Print. Ferrera, Maurizio, Anton Hemerijck, and Martin Rhodes. "Recasting European Welfare State." Governing Europe. Ed. Jack .. Ernest, Anand Menon, and Shalom Hayward. Oxford: Oxford UP, 2003. 346-69. Print. Rasmussen, Poul Nyrup. "The Danish Model of "Flexicurity"" AARP International. AARP International, 1 Apr. 2007. Web. 08 Apr. 2012. <http://www.aarpinternational.org/resourcelibrary/resourcelibrary_show.htm?doc_id=541876>. Alderman, Liz. "Why Denmark Is Shrinking Its Social Safety Net." Web log post.Economix Blog. The New York Times, 16 Aug. 2010. Web. 08 Apr. 2012. http://economix.blogs.nytimes.com/2010/08/16/why-denmark-is-shrinking-its-social-safety-net/ Edwards, Erica. Week 8: Lesson and Reading Notes The Welfare State in Crisis 2012. Edwards, Erica. Lecture Slides 2012 Esping-Andersen, Gsta. "A New Gender Contract." Why We Need a New Welfare State. Oxford [u.a.: Oxford Univ., 2002. 68-96. Print. Binnema, H. (2004) 'The Netherlands. How OECD ideas are slowly creeping in', in K. Armingeon and Beyeler, M. (eds.) The OECD and European Welfare States, Cheltenham: Edward Elgar, pp. 113-125. Anon. "NHS Staff Numbers in England Increase for Second Year Running to Reach Just over 1.43 Million, Census Shows Today." NHS The Information Centre. NHS. Web. 08 Apr. 2012. <http://www.ic.nhs.uk/news-and-events/press-office/press-releases/nhs-staff-numbers-inengland-increase-for-second-year-running-to-reach-just-over-143-million-census-shows-today>. Boyle, Sean. "The English Health Care System." The Commonwealth Fund. The Commonwealth Fund. Web. 8 Apr. 2012. <http://www.commonwealthfund.org/Topics/International-HealthPolicy/Countries/~/media/Files/Publications/Other/2010/Jun/International%20Profiles/1417_Squ ires_Intl_Profiles_England.pdf>.

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Kathryn Nave

Blendon, R. J., and K. Donelan. "British Public Opinion on National Health Service Reform." Health Affairs 8.4 (1989): 52-62. Print. Pierson, Paul. "The Impact of Conservative Governments." Dismantling the Welfare State?: Reagan, Thatcher, and the Politics of Retrenchment. Cambridge, England: Cambridge UP, 1995. 131-64. Print.