Why We Need a New Welfare State - Literature review Example

Running Head: Economics of Social Policy Economics of Social Policy [Institute’s Economics of Social Policy Introduction Manyeconomists now believe that the current global economic crisis is the worst in the History after the great depression of 1930s. Quite understandably, not only it has affected people all around the world but it has also created a widespread debate about the current social and economic system, its compatibility, sustainability, and fitness. Many ideas about reforming and revolutionizing the current system have appeared on the scene. One of them is creation of a welfare state that would clearly be opposite of the free market system prevailing, more or less, in many forms today. This paper is an attempt to look at the failure of the current system, need of welfare state, its dynamics. Discussion Quite understandably, capitalism leads to exploitation of workers even when they are working in a democratic system. In fact, the true democracy remains restricted to the capitalist class under a capitalistic system (Clarke, pp. 198-206, 2004). The clearest example is of the profit-driven media industry, since they are working under the system of “survival of the fittest.” In addition, they are more likely, and in fact, they have been trying to broadcast events that can boost their rankings and gather public attention rather than the ones that are unbiased, fair and based on truth (Pierson & Castles, pp. 52-57, 2000). With out any doubts, exploitative economic industry structures like oligopoly and monopoly do not nurture under welfare states but under capitalistic and free market systems. Quite understandably, these systems led to social alienation, unemployment, unfair distribution of wealth, social inequality and therefore, lead to economic instability. Economic freedom, which is the core idea of laissez faire or free market policies, in reality, damages economic freedom than nothing else. As a notable Croatian economist, Branko Horvat (1928 -2003) said, “it is now well known that capitalist development leads to the concentration of capital, employment, and power. It is somewhat less known that it leads to the almost complete destruction of economic freedom” (Barr, pp. 56-59, 1993). Moreover, as Karl Marx argued that looking at the structure of a capitalist system, exploitation of labor is inevitable. Quite understandably, capitalists control all the resources or means of production in that system and all that labor can have is the control over their production (Jensen, pp. 98-102, 2002). Therefore, in some or the other, the labor is bound to provide its services to the capitalists and its lower bargaining power and little threat of forward integration decreases his bargaining power to large extent. This problem is compounded because smart capitalists always try to maintain some level of unemployment under normal conditions therefore; they are always able to keep the wages down (Pierson, pp. 133-137, 2006). As a Russian economist Vladimir Ilyich Lenin (1870-1924) points out that in the absence or welfare states and presence of capitalistic free marker economies; imperialism is a predictable result. The unplanned nature of free markets coupled with the exploitation of labor, quite understandably, results in excess use of resources and surplus production. Moreover, when these corporations or industries run out of resources or when the run out of seller for their products, they start advocating globalization and free trade. Colonization by English people in the 17th century until the late 19th century is an example for the same. Quite clearly, International Monetary Fund and its polices are doing the same today, giving access to wealthy countries of the cheap resources of the third world countries. As John M. Keynes puts it, "Capitalism is the astounding belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone” (King, pp. 10-14. 1996). Planned obsolescence is another problem of capitalism. Free markets and absence of governmental control as it is in the welfare states allow industries to deliberately design their products in such a way that they go obsolete before the actual need of a new model or replacement arises (Frank, pp. 108-109, 2007). Refilled printer cartridge industry is the perfect example. One can refill the printer cartridges for almost half the price of cartridge, eight to ten time, for the same or improved performance. However, printer companies have it difficult for the refill industry to operate by frequently launching new models, tweaking inkjet cartridges and laser toner containers. Commenting on this planed obsolescence, owner of a small cartridge refilling company names Laser Logic said, “It’s kind of a Mission Impossible; at the end of this tape, the toner cartridge will self-destruct” (Bochel, Ellison, Ellison & Powell, pp. 179-181, 2003). Clothing and fashion industry is another of capitalistic policy. There have been various such allegations of Microsoft and Intel in this regard that they have been holding their next generation computer models, chips, and softwares to reap the highest possible profits from the previous ones. An author summarized it skillfully that “the marvels of modern technology include the development of a soda can which, when discarded, will last forever… and a car which, when properly used and cared for, will rust out in two to three years” (Shapiro, pp. 89-95, 2007). Not this absence of a welfare state that can look after these issues has created problems for the sustainability of the environment and has disturbed the ecological balance but these greedy and capitalistic acts have disturbed the balance of the life of an individual as well. Interesting here is to note that a study of changing American and European life since the Second World War would show a consistent yet astonishing trend. If put on a graph, every line concerning money and luxury would seem to sky rocketing, exponential growth over the years indicating a never ending trend towards materialism (Ertuna, pp. 247-256, 2009). Consumers are now obsessed and would literally die in the absence of those products and services, which did not even exist a couple of centuries back. Inflation adjusted per capita income of an average American has tripled since 1950s yet the American nation is in debt. In fact, statistics reveal that on average American households spend around 1.22 US dollars for each dollar that they earn (Clarke, pp. 198-206, 2004). Another important thing to note here is the view that free market advocates have of the government. Under Laissez Faire system, the government is supposed to act as a separate entity or a corporation in the whole economy. Moreover, like any other entity or corporation, its job should be minimize its deficits and maximize its profits and whatever is happening in its surrounding it has nothing to do with until and unless is not directly affecting its budgets (Schweickart, pp. 147-178, 1996). It asserts that the government has absolutely no role to interfere in the markets. If the government should not interfere in the markets and let them, operate freely, then what remains the purpose of the government itself? People elect governments to provide them relief, interfere in the markets for the common good, and take corrective actions (Shapiro, pp. 89-95, 2007). If the government is not allowed to undertake these actions then there remains no sense for even electing a dummy government. It is under the welfare state system where the government gets to play its part in the truest sense. People can expect meaningful actions from their governments to save them from greedy corporations (Bochel, Ellison, Ellison & Powell, pp. 179-181, 2003). Quite understandably, people elect governments for their own welfare and expect them to play an important part in economic and social well being of its citizens at all times and under all circumstances. The government assumes responsibility for its citizens to ensure their equality, protection, and soundness (Clarke, pp. 198-206, 2004). Welfare States are an inevitable reality even countries like the United States where which has tried its best to keep itself away for being a welfare state and embrace free market policies had to take a u-turn from their traditional stands by providing bailouts of billions of dollars. Additionally, considering the situations of today, welfare states are the answer to many of the problems that we are facing. Historic obsession of governments with capitalism, as mentioned above, is the cause most of the societal evils. Social inequality, terrorism, crimes, social unrest, unemployment, intolerance, imperialism, scandals, greed, cold wars and many others are a result of previously tried capitalistic and so called free market system, which are by no means “free” (Stiglitz, pp. 269-274, 1996). Quite understandably, the solution to all these problems is making the world as welfare state. Welfare state would create a society where people would collectively own all the resources thus the sense of ownership would decrease the feeling of alienation amongst the masses and decrease the gap between the rich and the poor (Åslund, pp. 19-28, 1992). If the free market capitalistic system is allowed to prevail then in the same case, it is easy to predict a bloody revolution since it is making the poor even more poorer and adding on to the wealth of the rich. Furthermore, the history tells us that never in the past the poor have always had, remained quiet if suppressed and this is human tendency that after a certain period of time he has to burst out against the external forces that try to hold him back (Pierson, pp. 133-137, 2006). Intrusting here to note is that many philosophers, experts, and economists of the past, regardless of their pro capitalism or anti capitalism nature predicted the decline of capitalism and free markets and rise of a reformatory system, most probably somewhat near to communism, socialism, and welfare state (Esping-Andersen, pp. 345-348, 2002). Adam Smith in his book of concentration of wealth mentioned that this process of accumulation of wealth will go on and on until a certain limit, and after that like plateau, it would not increase any further than that. This lengthy decline in accumulation would be followed by a system of redistribution (King, pp. 10-14. 1996). David Ricardo and John Stuart Mill also predicted a state of stationary society once the process of accumulation of wealth is over. Long-term profits would diminish and then the society would start moving towards equality (Åslund, pp. 19-28, 1992). Karl Marx is well noted for identifying that this system of capitalism would definitely face a decline due to its internal contradictions, and a revolution of communism and socialism will replace it making a classless society were all individuals will have access to all the resources. John Maynard Keynes predicted that a time would come when the central concern in making an investment would be social cost and benefit of the society (Pierson, pp. 133-137, 2006). Like Karl Marx, Joseph Schumpeter believed that the forces that would cause an end to capitalism would come from within; especially the tendencies to capitalists to create an environment in which entrepreneurship will no longer prevail in thrive (Esping-Andersen, pp. 313-318, 1996). The same would hinder the economic progress of the country and then people would try to bring social democratic parties into the parliament for the creation of welfare system and entrepreneurial society (Stiglitz, pp. 269-274, 1996). Many critics of welfare states put forward their critic that welfare states lead to inefficiency and lower economic growth states, because in a system where people see no personal or private benefit for producing more then will always produce less than their own capability. Moreover, private sector is the most productive and competitive one, therefore, private sector, and not the public sector should be spending the resources of the country (LeGrand, Propper & Smith, pp. 64-68, 1984). However, statistics show that countries, which are spending the most on providing their citizens with social benefits, are the ones that have high GDPs per capita and are progressing with great pace. Examples include, France, Denmark, Germany, Belgium, Austria, Finland, United Kingdom, Poland, Norway, Italy, Greece, Sweden, Finland and others (Clarke, pp. 198-206, 2004). Conclusively, over the past couple of decades, these countries have been able to pose average annual growth rates of 3-9 percent. It is also important to note that a welfare state helps in reducing the poverty rates of any country this increasing its efficiency and productivity and provides many indirect benefits that stem from the elimination of poverty. As Lane Kenworthy proves with his research conducted in 1999, proves that welfare states are able to reduce poverty by drastic levels. Examples include Sweden, Norway, Netherlands, Finland, Denmark, and Germany that have been able to reduce their poverty levels from 23.7 percent to 5.8 percent, 9.2 percent to 1.7 percent, 22.1 percent to 7.3 percent, 11.9 percent to 3.7 percent, and 15.2 percent to 4.3 percent respectively. References Åslund, Anders. 1992. Market socialism or the restoration of capitalism. Cambridge University Press. Barr, Nicholas 1993. Economics of the Welfare State. Oxford University Press. Bochel, Catherine, Ellison, Nicholas, Ellison, Nick, & Powell, Martin A. 2003. Social policy review: UK and international perspectives. The Policy Press. Clarke, John. 2004. Changing welfare, changing states: new directions in social policy. SAGE. Ertuna, İbrahim Özer. 2009. Wealth, welfare and the global free market: a social audit of capitalist economics. Gower Publishing, Ltd. Esping-Andersen, Gøsta. 1996. Welfare states in transition: national adaptations in global economies. Sage. Esping-Andersen, Gøsta. 2002. Why we need a new welfare state. Oxford University Press. Frank, Robert H. 2007. The economic naturalist: in search of explanations for everyday enigmas. Westview Press. Jensen, Henrik. 2002. The welfare state: past, present, future. Edizioni Plus. King, Preston T. 1996. Socialism and the common good: new Fabian essays. Routledge. LeGrand, J., Propper, C., & Smith, S. 1984. The Economics of Social Problems. Palgrave Macmillan. Pierson, Christopher, & Castles, Francis Geoffrey. 2000. The welfare state: a reader. Wiley-Blackwell. Pierson, Christopher. 2006. Beyond the welfare state: the new political economy of welfare. Polity. Schweickart, David. 1996. Against capitalism. Westview Press. Shapiro, Daniel. 2007. Is the welfare state justified? Cambridge University Press. Stiglitz, Joseph E. 1996. Whither Socialism? MIT Press. Read More