The Old Welfare State in the New Age of Competition
Barkan, Joanne
In 1944, John Maynard Keynes suffered a heart attack as he ran up a flight of stairs on his way to yet another committee meeting in the New Hampshire resort called Bretton Woods. Meetings,...
...It sustains aggregate demand and, more useful in argument, increases productivity...
...Weren't those the jobs supposedly reserved for the first world...
...To varying degrees, the industrialized nations devised fiscal and monetary policies aimed at full employment...
...Check all your figures, dates, names, etc...
...Few people in income-producing sectors would vote for a program requiring them to support "ablebodied" men and women who didn't work in the traditional sense or who put in less time or less effort...
...In addition to battling health problems, Keynes wrangled over postwar international monetary, employment, and spending policies...
...In Sweden, unions once stood high in public opinion...
...But political choices, not economic inevitability, produced the current mess...
...as they look for ways to cut spending or placate the markets, they frequently oppose union demands...
...A Keynesian world order, if it ever came about, would be a loose, unevenly realized affair—an agreement among economic leaders, resting on a few assumptions, a few regulations, and a couple of refurbished institutions...
...As we're not an academic journal, we prefer that they, wherever possible, be dropped altogether or worked into the text...
...they're the author's responsibility...
...Then there's the well-worn example of skyrocketing absentee rates in workplaces all over Europe on the Mondays after big soccer games...
...Although they are still preferable to the misery of inadequate transfer payments, labor market policies can't function effectively unless there is enough economic growth to generate jobs...
...As a result, a growing economy generated revenue for the welfare state, while labor applied political pressure to win reforms...
...We've heard good rhetoric on the subject...
...Of course, it took cataclysmic events—the Great Depression and the Second World War—to create an opening for Lord Keynes...
...Suppose instead that the EU adopted a social charter with standards as low as those of the weakest member or a charter with fine principles and no teeth (the latter pretty well describes the actual social policy of the EU...
...child care and home care for the elderly allow more women to enter the labor market...
...Capital might move to Portugal to take advantage of lower wages and taxes...
...Adequate instruments exist in the abstract—transaction taxes, stiffer banking regulations, fixed currency exchange rates— but not much can happen until the major economies act in concert...
...But who would select and develop them if income weren't linked to work...
...Assar Lindbeck made the comments summarized here during a seminar at Columbia University in New York City on October 3, 1994...
...It's over now, undermined by conditions that Keynes predicted and hoped to avoid...
...Over the next decade or so, the United States pressured other countries to decontrol their financial systems...
...The East European nations have even greater reserves of unemployed people, and they will work for less, driving down wages in the West...
...The remarkable thing about this proposal is that it defies good sense in so many domains — economics, politics, psychology, ethics, history...
...According to Assar Lindbeck,* Sweden's most prominent mainstream economist, welfarestate insurance programs need deductibles of some kind to deal with abuse and inefficiency...
...No doubt, these play a role in many cases, but to ignore the slender autonomy of an individual national government in today's global market is to deny reality...
...and then . . . investments would seek out lower wages in, say, South Korea...
...In 1973, the Nixon administration threw out the fixed exchange rates of Bretton Woods...
...The SAP fell to 45 percent in one week and withdrew the proposal...
...Would society coerce that individual...
...Parts of the left have always built their models on "the new man and woman...
...dollar and, consequently, of the U.S...
...Carrying out another round of reforms without economic collapse or global conflaguration would count as progress of a revolutionary kind...
...3) Type your ms double-spaced, with wide margins...
...Yet within the successful Keynesian economies, workers shared the benefits of rising productivity, and citizens gained fundamental security through the welfare state...
...The German electorate would almost certainly reject either solution...
...inflation exported around the world by the United States as it tried to pay for the Vietnam War...
...some would work full time, others part time...
...Conservatives would holler that he meant to overthrow the economic laws of the universe...
...Without any income incentive, why would a sufficient number of people (or anyone, for that matter) scrub hotel bathrooms, resurface highways, or sell towels at Macy's—especially while others wrote poetry, painted landscapes, and picked up a regular paycheck...
...If they existed, one assumes hardpressed governments would already be using them to shore up the welfare state...
...Meetings, especially those deciding the economic fate of the world, take their toll...
...Global Thatcherism gave the right a new angle on demonizing the welfare state: not only do government handouts suck the energy out of a nation and eat away its moral fiber, they cripple its performance in the world market...
...But alone it can't save the welfare state...
...This means reestablishing a virtuous cycle of high employment, rising wages, economic growth, and welfare-state development in the context of liberalized world trade...
...A new virtuous cycle of economic growth, full employment, and rising wages would permit people who needed apartments, milk, overcoats, penicillin, math courses, child care, and refrigerators to make acquisitions in the market and fund the welfare state...
...it is a good idea...
...Seeing no solution to the problem, some radicals have given up on the traditional left goal of full employment...
...But in a world organized around the cost-cutting principle, good jobs aren't waiting for newly trained workers...
...Less than two years later, he died without realizing that he had secured enough to pave the way for a growth-oriented world order and, on the national level, the Keynesian welfare state...
...Given this most un-Keynesian context—call it global Thatcherism —progressives in elected office usually fail to upgrade or even protect the welfare state...
...as productivity rose, workers in a tight labor market won still higher wages...
...Their alternative is a welfare society that breaks the link between work and income...
...The project presupposes humans with radically different priorities, values, and psychological capacities for solidarity...
...So much for the less problematic arguments...
...For example, presidential candidate Clinton's conception of a new world order sounded nicely Keynesian...
...A new global Keynesianism will require at least a loose consensus among the economically powerful nations (the United States, Japan, and Germany) in favor of expansionary policies...
...The point is simple: in a global market where capital is 72 • DISSENT Welfare State hypermobile, regional charters without capital controls aren't sufficient to protect the welfare state...
...In reality, however, individual national governments bend to the will of financial markets...
...hegemony provided stability in a way that served Keynesianism more than Lord Keynes had expected—and more than conservative elites wanted...
...Courses and programs often become holding pens for the long-term unemployed...
...Perhaps this is just "boss talk" to intimidate workers...
...In addition to providing resources for growth, they would have to slow down and shrink capital flows, which means getting the largest of the genies back in the bottle...
...For many observers, this period bears a worrisome resemblance to the years after the First World War...
...In the best-case scenario, those investments would translate into jobs...
...Deregulate capital and allow exchange rates to float, Keynes warned, and the consequences for the welfare state would be grim...
...More than before, attitudes all across Europe are tinged with the apathy and antagonism that are an old story in the United States...
...Things fall apart...
...The composition of welfare-state expenditures poses another problem...
...Somehow—no one knows how— consensus for full employment and sustaining aggregate demand must grow strong enough to buck the markets...
...Some prominent European theorists believe the left should abandon the welfare state once and for all and escape the "logic of capital...
...Their welfare society is actually an immense expansion of the welfare state...
...At present, the EU provides modest subsidies to support its weakest members...
...Weak nations— for example, Portugal—would need much more help...
...Lindbeck recounted an incident of the September 1994 Swedish election campaign: The polls showed the Social Democratic party (SAP) at about 50 percent and headed for a big victory that would put them back into government...
...The definition of work would change, as would people's attitude toward it...
...Who would decide what's essential...
...Another argument for the welfare state is the link between equality and growth...
...But suppose the Union set up a rigorous charter that required all members to meet fairly high welfare and labor standards...
...Would everyone receive the same income...
...As many experts point out, the process is likely to generate new technology and jobs...
...In addition, a new Keynesian order will require wages to rise significantly in the second and third worlds where labor unions are often unfree or suppressed...
...Suppose someone refused essential work...
...money would be shipped abroad to avoid taxes...
...Yet absentee rates in a Volvo plant in Goteborg dropped from 15 percent a few years ago to less than 5 percent after the sick-pay system was adjusted (New York Times, October 4, 1994...
...This makes it easy to stake out a position, but it won't protect the welfare state for long...
...To deal with a gargantuan budget deficit accumulated during the recession (under the conservative government), the SAP proposed a benefits adjustment...
...weakening of the U.S...
...The title of this article turns out to be an antinomy—the old welfare state has no place in the new age of competition...
...There's no news here...
...The scheme looks like this: the government would guarantee everyone an income...
...better wages boosted aggregate demand that in turn sustained employment...
...For example, public education, worker retraining, and apprenticeship programs improve skills...
...Since labor unions have been powerful advocates of the welfare state, the spreading antagonism toward them undermines the welfare state's prospects...
...Recent studies of the Asian economic "miracles" show that reducing the gap between rich and poor produces faster per capita income growth nationwide...
...The left can't defend the welfare state by arguing only that it produces social justice that, in turn, makes democracy meaningful...
...markets are glutted...
...No dot matrix submissions, please...
...The welfare society seems to require extensive planning of the kind that has already been a historic flop...
...Look at our last few issues to see if your idea fits in...
...In general, Keynes could have his way if the U.S., Japanese, and German governments committed themselves to worldwide growth while jostling other governments to do the same...
...But other leftists see any reduction of benefits as a class-biased attack on welfare-state redistribution...
...tax revenues would increase to pay for a better welfare state...
...Thus unions figured prominently in the Keynesian equation...
...Global Keynesianism will also require either new international institutions or revised mandates for the International Monetary Fund and the World Bank...
...A few years ago, many leftists thought regional markets governed by social charters would solve the autonomy problem...
...Without controls on the movement of capital and a stable system of pegged exchange rates, Keynes believed national governments would not have enough autonomy to pursue full employment and welfare-state policies...
...Sufficient income for society would come from some highly productive sectors that competed successfully in the global market...
...Everything Keynes warned would happen did happen...
...They squeezed second and third world economies, constricting global demand...
...As growth slows around the world, international competition intensifies...
...If there is a pattern here, perhaps a Keynesian world order lies somewhere up ahead...
...Most commentators agree on the list of factors that pulled - the system down: export rivalry from newly industrialized nations where labor unions were weak or outlawed...
...The welfare state comes under permanent siege...
...The aid would have to come from wealthier members—let's say, Germany...
...trade barriers go up...
...Since about 85 percent of the work force belongs to unions, the criticism comes in part from members...
...2) Please don't write to ask whether we're interested in such and such an article—it makes for useless correspondence...
...The agreements incorporated fixed exchange rates pegged to the dollar and some capital controls...
...The model conjures up a vision not of greater freedom but of bureaucracy, stagnation, and state intrusion...
...Working parents, who get sixty days sick-child leave per child each year with compensation, would not be paid for the first day missed...
...In a globalized economy, labor standards converge, but now they converge downward...
...In Italy, unions have not only lost membership, they've become more fragmented as independent local organizations draw employees away from the established confederations...
...As markets shifted, the welfare society would need new income-producing sectors...
...The virtuous cycle wouldn't require an elaborate economic apparatus...
...Some leftists (this writer included) would agree as long as deductibles remain small enough for lower-income people to manage without hardship...
...He might well reply that he wanted only this: to translate need into demand...
...These latter now function as autocrats in a peculiarly anthropomorphized way ("the markets are jittery . . . the markets reacted badly . . . the markets want to see Unfortunately, the markets loathe Keynes...
...On what basis...
...The German government could either cut back its own welfare state to help pay for Portugal's or it could raise taxes on its own citizens...
...Europeans face structural unemployment of 10 percent or more in the most prosperous countries of the West...
...Leftists generally agree on what went right for twenty-five years after the war...
...If there's a delay, it's because a few editors are reading your article...
...Now many Swedes believe unions represent less constructive, narrow interests...
...some people would do traditional jobs, others would be busy with alternative activities...
...In the largely tragic sweep of human history, the postwar period stands out as a high point—seriously flawed, yes, but still a high point—of economic development, redistribution, and social justice in parts of the world...
...Would everyone take turns doing the grubby but essential jobs...
...To start, what are these hyperproductive sectors that will generate wealth for an entire society...
...this increases the need for government transfer payments but shrinks the tax base...
...It's an unsound foundation...
...74 • DISSENT Welfare State The welfare state also has to be defended as a structural mechanism promoting economic growth...
...Cost and efficiency can turn into impossible political dilemmas for responsible left parties...
...THE EDITORS 76 • DISSENT...
...demand falters...
...Labor movements are another problem...
...A word about growth: leftists usually recognize that growth must be "ecologically sensitive," that is, economic activity must integrate both repairing and protecting the WINTER • 1995 • 73 Welfare State environment...
...5) We're usually quick in giving editorial decisions...
...The reform, passed by a conservative government in December 1992, delayed the start of sick pay until the second day of missed work...
...What would insulate the decisions from political manipulation...
...The welfare society raises the same questions as older, discredited propositions...
...Social critics, of course, pointed to real problems: consumerism, alienation, vacuous mass culture, environmenWINTER • 1995 • 71 Welfare State tal degradation, persistent North/South inequality, neocolonialism, and U.S...
...The effort is understandable but unconvincing...
...We will not consider manuscripts submitted simultaneously to several publications...
...And please remember that we can't return articles unless they're accompanied by a stamped, self-addressed envelope...
...They've pushed economic measures such as the reduced work week and work sharing (today used as partial or stopgap responses to unemployment) to their logical limit...
...Swedish industrialists claim they open new plants abroad because absentee rates in Sweden are too high...
...This position is so sensible, so persuasive, so obvious, even, that one feels compelled to ferret out the difficulties...
...demand falls further...
...He won only some of the disputes at the Bretton Woods conference...
...slackened commitment to full employment because of that inflation...
...Narrow interests often do prevail, and public support for labor has declined...
...The studies happily contradict the standard doctrine that growth in developing nations and rising inequality were linked...
...Workers joined unions...
...Indeed, a stable system of pegged exchange rates, institutions to regulate international capital flows and curb risky banking practices, mechanisms to lighten the debt burden of third world nations, and democratic labor unions might suffice...
...WINTER • 1995 • 75 Welfare State John Maynard Keynes, living in 1995 and speaking on MacNeil/Lehrer, would propose nothing less than turning global Thatcherism upside down...
...Please use inclusive language so that we don't have to make adjustments during editing...
...The only thing Keynes couldn't predict was how fast computer-aided capital flows could be...
...The welfare society has as little political feasibility as economic potential...
...perhaps it's only a cover for an embarrassing lack of economic patriotism...
...Since global Thatcherism makes the rich richer, they need everyone else to believe that the system, like hurricane season, is beyond human control...
...health care reduces the waste of human resources...
...What makes the technology or skills required so exclusive and nonexportable that a society could count on keeping the jobs...
...young people can't find jobs...
...workers would organize and win higher wages...
...Briefly, the story goes like this: Keynes advocated liberalized international trade, but he opposed (even more vigorously, some say) an open financial order...
...To Our Contributors: A few suggestions: (1) Be sure to keep a copy of your manuscript...
...What characterizes the current period is not so much the conservative assault on unions (that's happened before), but the lack of interest, even hostility, of many working people and progressives...
...imperialism...
...It's not too much to hope for, and yet a sober assessment must conclude that everything right now is moving in the opposite direction: the predatory search for markets, fierce competition, beggar-thy-neighbor policies, social strife within nations, restrictive trade practices, risky banking practices, and uncontrolled speculation...
...In theory, it makes sense to spend on labor market policies (worker education, skills training, job placement, relocation) that raise employment levels and productivity, rather than transfer payments (unemployment compensation, public assistance for the poor...
...If, for example, the European Union (EU) set high standards for welfare provision and labor relations, it would create the equivalent of a strong welfare state in a market large enough to sustain autonomous policies for growth...
...welfare state expenditures and government investments are cut...
...Use WordPerfect 5.1 if possible, and send us the disk...
...As world creditor, the United States underwrote the development of the West European welfare states...
...elites believed that given complete freedom in international finance, they could reestablish their hegemony...
...they can't maintain quality because they don't know who will show up for work...
...If not, who would decide income levels...
...The response was outrage...
...Instead they made instability a key characteristic of the period...
...citizens believed that the labor movement acted in society's general interest...
...U.S.-based transnational corporations now ship sophisticated software design jobs to India and Poland...
...The result in many countries was a virtuous cycle that funded the welfare state: greater employment, rising wages, and market competition spurred investments to increase productivity...
...The typical relationship between labor and the so-called new social movements (the feminist, environmental, gay rights, and cultural identity movements) has been neither consistently close nor highly productive...
...In office or trying to get there, the parties have less to offer labor...
...More difficult questions revolve around an issue that makes many leftists uncomfortable: efficiency...
...the next generation began to abuse the system...
...some would work for a few months or years, others would take over for them...
...Instead of carrying out a Keynesian mission to facilitate growth, the World Bank and International Monetary Fund became the international debt police...
...Their embittered radical supporters inevitably scream bad faith, cowardice, collusion with economic elites, and incompetence...
...hegemonic role as world creditor...
...In the past, workers benefited from rising productivity by organizing unions to win higher wages...
...A regional social charter sounded like a good idea...
...Michael Harrington often pointed out that the generation of Danes who fought for and won sick pay used the benefit only when they were sick...
...wages are held down everywhere, and in second and third world countries, wages don't reflect productivity gains...
...By redistributing wealth in the direction of greater equality, the welfare state can promote growth...
...More noteworthy is the growing distance since the early 1980s between unions in many countries and the left-of-center political parties that built the welfare state (consider Britain, the United States, Italy, and even Sweden...
...Or take a chance and send us your article...
...4) Notes and footnotes should also be typed double-spaced, on a separate sheet...
...The virtuous cycle that funded the welfare state has been replaced by a downward spiral: falling wages reduce aggregate demand, production slows down, unemployment rises...
...If workers there managed to organize and win more, the capital would move to Malaysia...
...The poor use additional resources to better themselves and their children economically, and this benefits society as a whole...
...Governments wouldn't be able to set the interest rates they needed...
...This places another burden on first world unions: they must hold themselves together and at the same time direct attention and resources to developing countries...
...high unemployment becomes chronic...
...economic elites would use the threat of a capital strike to manipulate legislation...
...Over the last decade or so, left support has grown for a more coherent idea: a Keynesian world order designed to fit the current globalized economy...
...The Bretton Woods accords did a fair job of limiting the problems...
...This unpromising scheme grows out of legitimate and pressing concerns...
...speculators would destabilize entire economies by shifting vast amounts of capital from one country to another in search of high interest rates and appreciating currencies...
...6) Please bear with us—we have accumulated quite a backlog of material, and you may have to wait for a few issues before you see your article in print...
...Reckless currency speculation, for example, would stop tomorrow morning if governments restabilized exchange rates...
Vol. 42 • January 1995 • No. 1
