[Militant No. 1252, 10 November 1995, p. 8 and 9]
„Politicians of all hues now agree we can no longer afford the welfare state,“ proclaimed a recent Guardian headline (18 September). The growth of the social security budget is „unsustainable“, claims Peter Lilley, Tory Social Security Secretary. Lynn Walsh looks at –
The Rise and Fall of the Welfare State
The Tories‘ strategy is to find money for tax cuts, and the right wing of the party is calling for a £7 billion handout in the November budget, which would mean more savage cuts in social spending.
Yet no one can deny that the position of the unemployed, single parents, the low-paid, the sick and retired workers becomes more desperate every day. The Labour leaders, for their part, no longer defend a comprehensive welfare state based on people’s needs rather than their means. They too support the idea of a „minimum safety net“ for the „underclass“, with the majority having access to education, health, pensions, etc., strictly in proportion to their level of contributions, with private insurance playing a much bigger role.
Commenting on the break-up of the cross-party „consensus” which upheld the welfare state, the economist Will Hutton writes: „We look set to abandon one of our great 20th century achievements for no good reason“.
But the assault on the welfare state, which brought massive gains in workers‘ living standards, is dictated by conditions of capitalist crisis. The flowering of the welfare state belonged to an exceptional expansionary phase of the capitalist system, a „golden age“ which has gone for ever. While the working-class must fight tooth and nail to defend all past gains, it would be pure utopianism to believe that the welfare state can be revived and developed further on the basis of crumbling capitalist foundations.
The rise of the welfare state
The rise of the welfare state dates from the end of the second world war in 1945. In earlier periods of economic upswing the capitalists, it is true, had conceded various social reforms. Leaders like Gladstone and Joseph Chamberlain in the 19th century and Lloyd George before the first world war bullied the capitalists into accepting that, far from threatening the system, social reform would give greater political stability and more favourable conditions for profit-making.
In the 20 years between the two world wars – the period of the Great Depression, of revolution and war – many of the earlier social reforms were clawed back by the capitalist class.
But at the end of world war two, the capitalists once again turned to the expansion of social welfare. In Britain, the Labour government, which won a landslide victory in 1945, carried through a massive programme of social reform. The NHS was set up and state education was enormously expanded. State pensions were made available to all workers, and the expansion of unemployment, social security, and other benefits provided an almost universal safety net. The Tory Party mostly supported these reforms, which had been planned by Churchill’s war-time Tory-Labour coalition. All the major capitalist countries followed very similar social policies, regardless of the complexion of their governments.
In their own interests, the capitalists were forced to recognise several new factors:
► The working class had largely recovered from its pre-war defeats, especially in Britain and the United States. In Europe, the working class, especially in France and Italy, was radicalised by a wave of revolutionary strikes and uprisings which followed the defeat of the fascist occupation.
► Although the Western powers defeated the fascist axis (Germany, Italy and Japan), they lost control of the countries in Eastern and Central Europe (East Germany, Poland, Hungary, Czechoslovakia, etc.). While Stalin imposed his own form of bureaucratic rule on these countries, the planned economy raised living standards and provided unprecedented social benefits. A British Foreign Office official stated bluntly that: „Failure of Europe to recover spells communism.“ This necessitated state-sponsored measures to eliminate „hunger, poverty, desperation and chaos“.
► As a result of the deep economic crisis of the 1930s, capitalism faced a mortal threat from revolution, the barbarous excesses of fascism, and war, and the challenge of the non-capitalist Stalinist system in the east. The strategists of Western capitalism, therefore, were determined to promote economic growth and stability.
The welfare state was much more than a package of social reform. Social welfare programmes were intertwined with economic policies which facilitated the great economic upswing of 1950-1973.
These economic policies were known as Keynesianism (after the liberal economist John Maynard Keynes). Government spending in the advanced capitalist, OECD countries rose from 27% of GDP in 1950 to 37% in 1973. Economic growth per capita for the 16 leading OECD economies averaged 3.8% a year – compared to only 1.2% a year between 1913-1950.
But once the upswing was exhausted and the capitalists saw a decline in their profits they moved to cut back social spending and dismantle the post-war social-economic framework. By trying to restore their profitability in this way, however, the capitalists have step by step destroyed the foundations of long-term growth – and are reinforcing the conditions of stagnation and decline.
What were the main features of the post-war capitalist framework?
► In contrast to the inter-war years, big business conceded relatively high wage levels to the majority of workers. Virtually full employment, a high level of trade union organisation, and stable collective bargaining between the unions and the bosses ensured steadily rising living standards. Big business could afford to pay higher wages because of the rapid increase in productivity brought about by new technological systems of mass production and the large-scale organisation of industry. Relatively high wage levels provided a much bigger market for consumer goods – which made it worthwhile for the capitalists to invest heavily in new technology, new capacity, etc.
► The massive expansion of health, education, and public housing also meant that big business could draw on a healthier, better-educated workforce. Social security and pensions raised the purchasing power of the working class. High social spending also had a limited but significant effect in redistributing wealth and income. Public spending was financed mainly through taxes on big business, the middle class, and the better-off sections of the working class. The wealthy never stopped complaining about the burden of taxation, but the high profits of the upswing period partly derived from the high levels of state spending.
► The state also developed the infrastructure required by a modern economy. After 1945, the state in Britain and other countries developed road and rail transport and took over basic industries such as electricity, gas, water and steel, pumping in massive investment. Far from being a „socialist“ measure, these nationalised industries, run by thoroughly capitalist managers, were a vital ingredient of the post-war upswing.
The decline of the welfare state
So why are the Tories so hostile to the welfare state today? Are they simply motivated by hostility towards the working class?
In reality the assault on the welfare state arises from the insoluble contradictions of capitalism, not the motives of the Tories.
By the late 1960s the positive factors which stimulated the upswing began to disintegrate. The new technological systems and management techniques were no longer capable of producing more and more productivity improvements:
On the world markets, there was intensive competition between the big multinationals, which made it more difficult for them to push up prices. Above all, a long period of full employment, with mass trade union organisation and confident rank-and-file organisation in the workplaces, strengthened the workers‘ hand. These trends, together with a worldwide increase in the rate of inflation, led to a decline in the profitability of big business. The bosses began to demand a cut in the level of taxation, which inevitably meant cutting state expenditure.
Meanwhile, there was a „tax revolt“ in many countries, as the „middle class „, including sections of white-collar workers and skilled workers, were burdened with ever-increasing tax and national insurance deductions.
The slump of 1974-75 marked the end of the „golden age“. Initially, most governments found it impossible to cut back on social spending, despite the decline in tax revenues arising from low growth and the growing cost of unemployment benefits. The result was a spectacular acceleration of inflation. Fear of hyper-inflation provoked a sharp change in the outlook of capitalist politicians.
In Britain, this change was actually anticipated by the Labour leaders during the Wilson-Callaghan Labour governments of 1974-79. Callaghan implemented cuts which, at that time, were the sharpest ever made since 1945. Denis Healey was the first British chancellor to implement monetarist policies. „We cannot spend our way out of economic crisis,“ he told the Labour Party conference. And Tony Crosland, previously the foremost advocate of the welfare state, bluntly announced: „The party’s over”.
When Thatcher came to power in 1979. her primary aim was to roll back the welfare state. „The break with what has popularly come to be known as Keynesianism can rarely, if ever, been so categorically stated,” commented the Financial Times (2 November 1979):
During the next, even deeper, slump (1979- 81), the US government turned to policies variously described as „monetarist“ or „neo-liberal“ to cut the living standards of the working class in order to restore the profitability of big business.
The assault was on the whole structure of the post-war social-economic framework. The capitalists‘ primary economic weapon was unemployment. This arose fundamentally from the stagnation of growth, together with deindustrialisation in the advanced capitalist economies. In contrast to the past, the state no longer attempted to intervene to limit the rise of unemployment. Thatcher, Reagan, and other capitalist leaders also launched an attack on the trade unions. Anti-union laws were introduced, while the bosses turned to local wage bargaining, relocation to areas with weak union organisation, increasing use of temporary, part-time workers etc., which all undermined the living standards and bargaining power of the workers.
Right-wing capitalist governments began to cut back the intervention of the state in the economy. The privatisation of state industries at bargain-basement prices opened up new fields of profit-making for the capitalists.
The proceeds from the sale of state assets gave governments scope for tax cuts which mainly benefited the wealthy. As a bonus, the dismantling of state industries also weakened the trade unions, which were particularly strong in the public sector.
The post-war tendency towards a relative reduction of inequalities has been reversed, with an ever sharpening polarisation between the rich and the poor.
The profits of big business have now been restored to the peak levels of the 1960s. But this has not been accompanied by a new investment boom or an expansion of productive capacity. The reason is simple. Mass unemployment and reduced living standards have severely cut the market for capitalist goods.
A return to Keynesianism?
If high unemployment and depressed living standards undermine capitalist growth is it possible that the capitalists will turn back to Keynesianism and higher welfare spending?
There is no sign of a shift in this direction amongst the leaders of the major capitalist parties. Even a majority of the reformist leaders no longer advocate reformism. However, some on the left of the Labour and Social Democratic parties, without challenging the existence of capitalism, argue for a return to Keynesianism.
But any attempt to return to Keynesian social spending would confront a major obstacle: the enormous accumulation of state debt.
Despite the savage cuts which have been made, public spending gained a momentum which was hard to slow. Even if the capitalists‘ spending on health is reduced, for instance, the ageing of the population creates greater demand. Similarly with pensions. The real level of unemployment benefit has been reduced, but the persistence of mass unemployment means that overall expenditure has actually increased. Meanwhile, consistently low levels of economic growth have squeezed the tax revenues coming into the state’s coffers.
In Britain, government spending rose from 42.6% of gross domestic product (GDP) in 1979 to 47% in 1993.
The overall accumulated debt has risen astronomically. For the OECD countries as a whole gross government debt rose from about 40% in 1979 to 70% in 1994, and is projected to reach about 74% by 1996. In Britain, which is an exception. the gross debt in 1994 (51.6%) was actually lower than in 1979 (54.9%). However, in Italy the gross debt reached 122.6% of GDP in 1994 (compared with 61.5% in 1979).
These debts, of course, mean massive annual interest payments by the state to the money lenders. In Britain the level of debt repayments has been reduced back to the 1979 level (after peaking at 3.4% of GDP in 1985), mainly as a result of cuts in spending and the sale of nationalised industries. But Italy’s debt repayments currently amount to about 10% of GDP, while Greece’s repayments are an astounding 14.7% of GDP.
These figures show that state spending has generally reached its limits. In a time of acute political crisis, if the survival of the capitalist system was threatened, there is no doubt that capitalist governments would make temporary concessions in order to buy time, even if this led to higher spending and higher debt.
However, except for such short-term, crisis tactics, the capitalists will not contemplate a systematic return to Keynesianism and the „social“ market. Given the state that world capitalism is in, and with growing structural unemployment and the stagnation of the productive forces, it is entirely utopian to believe that there can be a return to the welfare state of the „golden age“ of 1950-73.
For a fighting policy
There is no doubt that socialists should defend all the past concessions made to the working class, in the form of health, education, social benefits, etc. These were important gains, a vital component of workers‘ living standards. That is why we have a programme to reverse cuts in the NHS, the reduction of education spending, the introduction of the „Job Seekers‘ Allowance“ , etc.
Nevertheless, our programme has to be linked to a programme for socialism. The social welfare gains of the past cannot be preserved by increasing taxation on the working class, which already suffers from an unprecedented burden of taxation. While we have no objection at all to heavier taxation on big business and the wealthy, who have benefitted from massive tax concessions from the Tories, that would not provide a way out. In a period of stagnation the capitalists will implacably resist any attempt to limit their profits through increased taxes.
While the economy is dominated by a tiny class of profit-seekers, operating through huge monopoly corporations, the social needs of the vast majority will never be a priority. Only when the key productive resources are socialised, owned and democratically run by the majority of working people, will there be a real possibility of meeting the needs of everyone, with full employment and adequate financial support for the sick and aged, for those who want to study, and so on.
The „welfare state“ represented a limited and essentially temporary gain for the working class. In the future, comprehensive social welfare, based on a radical movement towards economic and social equality, will mean a socialist society cleansed of wealthy exploiters and run by those who produce the material means of life.
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