Whither the US Welfare Regime?

In the throes of the second greatest economic crisis in the country’s history, the U.S. welfare regime is under systematic attack from those purportedly aiming to put the United States’ fiscal house in order. As poverty rates and unemployment rise and the country’s infrastructure and education system are slowly decaying, the limited social safety nets the United States provides—particularly compared with its peers in Western Europe—are being dismantled at an ever quickening, seemingly quotidian, pace. Political leaders from both parties frequently pillory anyone who calls for expanding welfare benefits and propose privatization or draconian reforms of entitlement programs that keep many Americans afloat. Even before the 2008 financial crisis, the level of welfare provided by the U.S. was severely lower than that of most of the developed industrialized world. However, even in the United States there have been important historical moments, generally during periods of great economic calamity, in which substantial expansions of the social safety net or welfare benefits have been provided. As such, is there the possibility, given the current economic climate, for the U.S. to become more aligned with the rest of the developed world and develop a more redistributive welfare regime?

This is an important question given the state of the American economy and the situation of the average American. A recent Organization for Economic Cooperation and Development study on social justice, which took into account various welfare policies, ranked the United States 27 out of 31 countries. A recent study by the non-partisan Congressional Budget office noted that income growth between 1979 and 2007 for the top one percent of the population has grown by over 275 percent, while growing only 65 percent for those in the top 20 percent and only 18 percent for those in the bottom fifth quintile during the same period. All the while, poverty rates continue to rise.  With this economic picture as background, will the United States do anything to alter its welfare regime to protect more of its citizens and redistribute wealth in a more equitable fashion?

I will utilize a collection of works from Esping-Andersen (1990), Hall and Soskice (2001), Pierson (1995), Estevez-Abe (2008), and Alesina and Glaeser (2004) to address this question. It is my contention that due to a host of historical, institutional, and societal independent variables, the U.S. is unlikely to construct a more expansive welfare regime (the dependent variable) and indeed, given the current state of the global economy, may begin to engage in further retrenchment.

Each of the readings from this unit elucidates issues related to welfare regimes, state coordination (or lack thereof) in the national economy, differing types of welfare, and variables that can assist in the explanation of the development of various welfare regimes. Esping-Anderson examines the three types of welfare regimes and discusses the variables that can help to explain their development. His analysis provides a framework for understanding why the United States developed a limited liberal welfare regime. Similarly, Alesina and Glaeser employ a comparative institutional approach, examining electoral systems, federalism, separation of powers, and the power of socialist parties in the United States and Europe, in order to explain the differences in welfare regimes. Pierson’s work provides two important contributions to this essay. First, Pierson’s approach to institutional analysis, grounded in an historical, path-dependent methodology, will provide a framework for my argument regarding the trajectory of the American welfare state. Secondly, Pierson’s discussion of the concept of “systemic retrenchment” provides an exposition of the historical institutional conditions that have cultivated the current state of welfare in the United States.  From a normative perspective, I will use Hall and Soskice’s work on coordination among firms and institutional arrangements and their role in coordinated and liberal market economies and Estevez-Abe’s discussion of the welfare state in Japan. Both of these works examine state coordination in the economy and welfare regimes and, given their emphasis on private sector and/or public-private coordination, provide plausible and positive examples of policies the United States could implement to improve its welfare system.

In capitalist societies, workers, lacking ownership over the means of production, are forced to sell their labor. This commodification of labor necessarily binds the wellbeing of workers to the market. In his cross-sectional analysis of the “three worlds of welfare capitalism,” Esping-Anderson asserts that welfare regimes can be defined by what extent they de-commodify workers.  He avers, “De-commodification occurs when a service is rendered as a matter of right, and when a person can maintain a livelihood without reliance on the market.”  Whereas in social-democratic welfare regimes workers experience the most de-commodification, in liberal regimes they are most commodified. Social democratic regimes can be defined by their principles of universality and de-commodification, expressed through efforts to promote equality at the highest standards. Alternatively, in liberal welfare regimes, most assistance is means tested and modest. Since workers in the US are more dependent on the private job market and for basic sustenance, they are less likely to undertake strikes and other forms of solidarity based protest against capital-induced inequalities. Furthermore, the attenuating power of unions and the total absence of left-party power have contributed to the development and maintenance of the asthenic U.S. welfare system.

One of the primary independent variables that Esping-Andersen utilizes to explain the development of welfare regimes is left-party power. Perhaps obviously, he suggests that states with more powerful left wing parties, or socialist parties, are more likely to develop more expansive welfare regimes, such as those that are seen in the social democratic welfare regimes and to a lesser extent in the conservative-corporatist regimes. For Esping-Andersen, “the single most forceful explanation of liberal ‘regimeness’ is the negative impact” of left-power mobilization, that is, the presence or paucity of influential leftist parties.  Alesina and Glaeser suggest, “the presence of socialist political parties in government explains the adoption of a more generous welfare state.”  In the United States, there has never been a socialist party with any salient political power. Moreover, unions have generally viewed the state as an ally of capital and business interests, much to the detriment of the working class. Essentially, “unions were ‘anti-government’ in the sense that they focused on receiving ‘private’ concessions from employers with no hope for government intervention in their favor.”

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Alesina and Glaeser also discuss several institutional arrangements that played a critical role in the development of the liberal welfare regime in the U.S. The electoral system in the U.S., with its first-past-the-post method and electoral districts with a magnitude of one, produce parliamentarians that work to secure benefits—also known as pork—targeted to their specific district and constituents. In contrast, systems that utilize proportional representation, particularly those that have a single national district, tend to result in universal programs. Unlike most of Western Europe, the United States has a highly decentralized, federal system. Utilizing the Tiebout model, the authors suggest that localities compete for businesses and people and thus militate to keep taxes low in order to attract those that vote with their feet. Even the U.S. system of checks and balances has been an important foundational element in its liberal welfare regime. The frequent occurrence of divided government often leads to policy moderation. Furthermore, the judiciary branch has often served as a protector of capital interests.  “The involvement of the courts in social legislation in the United States has been a constant feature of the U.S. experience.”  The aforementioned dearth of left-party power and institutional arrangements in the United States have led to the development of the liberal welfare regime of the United States.

While I find both Alesina and Glaeser and Esping-Andersen’s analysis useful for explaining the development of the U.S. welfare regime, there is one variable that is notably absent. Neither works speak to the role of social homogeneity as an independent variable. The countries that are frequently lauded, or derided depending on your ideological inclinations, for their expansive welfare regimes and more equitable societies are generally homogeneous. The Scandinavian countries, which score high on their levels of social justice, income and wealth distribution, and de-commodification, have ethnically homogeneous societies. In contrast, the United States is an incredibly fragmented, heterogeneous country with a variety of ethnic and religious groups. People are generally less willing to vote for or support redistributive policies that will benefit those outside of their own particular group or identity. The example of the stigmatized “black, welfare queens” speaks to this phenomenon. This is an important variable that is missing from Esping-Andersen and Alesina and Glaeser’s works.

Pierson discusses the role of the Reagan administration’s efforts to dismantle the welfare state. While Reagan is frequently given credit for his battle to reduce the size of government, Pierson asserts that Reagan was not particularly successful at programmatic retrenchment—cutting funding for specific programs or ending them altogether—rather, Reagan’s legacy resides in systemic retrenchment. Tax reforms implemented by Reagan in 1981 and 1986 “weakened the federal government’s ability to finance social programs.”  Reagan’s fiscal policy, particularly his willingness to reduce taxes and run deficits, has manifested in the current political debate. Politicians have a myopic obsession with reducing the deficit and frequently target reductions in social programs as the main mechanism for doing so. The decisions that the Reagan administration made decades ago to defund welfare programs will continue to have monumental implications for the welfare system in the United States. While Pierson aimed to demonstrate that social welfare policies retain resiliency because of path-dependency, he also recognized the role of critical junctures in history. Pierson notes, “policymakers must operate in an environment fundamentally conditioned by policies inherited from the past.” Today’s policymakers are forced to operate in an environment conditioned by the systemic retrenchment of the Reagan administration. As such, given the structural, institutional, and historical variables that have affected U.S. welfare policy are there any plausible alternatives to the current system?

Two works from this unit provide feasible examples of alternative policies. Hall and Soskice provide a spectrum paradigm to explain the varieties of capitalism based on the coordination between firms in a national economy. In liberal market economies (LME), such as in the United States, there is limited coordination between firms. Indeed, the coercive laws of competition discourage coordination. Alternatively, in coordinated market economies (CME), coordination depends on non-market relationships and networks. Hall and Soskice demonstrate that unemployment in CMEs is usually lower, despite attendant lower growth rates.  As the unemployment rate in the United States continues to hover near nine percent, coordination among firms to determine a more effective labor policy could reduce the unemployment and help to mitigate the macro demand problem the United States faces. One example of a CME that implements such policies is Japan.

Estevez-Abe asserts that despite Japan’s low level of direct income transfers, it has an extensive welfare state. Much like the United States, Japanese society has an aversion to direct income transfers. Japan’s welfare state utilizes a system of functional equivalents, where, in many cases, industrial policy is a substitute for social policy. For example, the state will provide tax incentives to firms if they provide housing complexes for their workers. Japan also employs worker-based protection and savings-oriented programs to provide social safety nets. The system is “highly fragmented on occupational lines.” (20) Estevez-Abe adds, “Japan socialized capital by means of state control over welfare funds. The vast reserves of long-term capital under the state’s control…have provided each Japanese government with a far greater financial capacity than its small tax revenue otherwise would have allowed.” The broad discussion of CMEs provided by Hall and Soskice and the specific example of the Japanese welfare state provide examples of policies that United States could implement to reorient its welfare state and extend social safety nets in an uncertain economic climate.

I have suggested that the United States could benefit from the policies of CMEs, specifically Japan, in part, because of the above-discussed institutional and historical variables. With the aversion to direct income transfers, the absence of left-party power, the institutional arrangements, and the historical legacy of the Reagan administration as context, there is seemingly little hope for a transition to a more social democratic regime. However, coordination among firms, specifically, coordination that is not market-driven, and between firms and the state could produce an economy that is better able to weather the current financial crisis. Germany, one of the archetypal CMEs, has been able to keep unemployment rates low during the global recession because of coordination between firms, labor, and the state. The United States, with its proportionately small level of tax revenue, could at the very least begin to provide succor to the many unemployed and underemployed by facilitating coordination between firms and between firms and the state to reduce unemployment and concomitantly increase demand. As Esping-Andersen, Pierson, and Estevez-Abe all assert, welfare regimes cannot simply be measured by their social expenditures. There are a variety of mechanisms for the United States to utilize that could expand its welfare state without direct income transfers. Path-dependency arguments would posit that unless the exit costs of discarding our current welfare regime are low enough to supersede the increasing returns the current system provides there is unlikely to be any fundamental change.  Surveying the current political climate, with the Occupy Wall Street movement in mind, I am dubious that the United States will adopt even limited functional equivalency policies or adopt the policies of CMEs.

Estevez-Abe’s analysis of the welfare regime in Japan provides specific examples of successful CME policy that could help the United States’ lethargic economy and perhaps militate for the de-commodification process of American workers. In conclusion, I would argue that despite the seemingly evident benefits some of these policies would bring, they are unlikely to be adopted. With Pierson’s path-dependency in mind, the U.S. will need an even deeper economic crisis for there to be any sort of fundamental reorientation of welfare policy. In the meantime, the structural, historical, and institutional variables point to a continued attenuation of the U.S. welfare regime.

Adam Gallagher