Abstract
The modern welfare state was created in the boom of the post-World War II era, as rising productivity and robust economic growth made it possible for nations to fund an array of benefits that reduced economic insecurity, alleviated poverty, and promoted social stability. Social scientists initially argued that the phenomenal post-war growth of the welfare state was the inevitable outcome of the process of modernization and that all nations would converge along a similar trend line. Yet despite the common trends, welfare states varied significantly in generosity and structure, even in nations with comparable levels of economic development. That posed a puzzle: how could variation be explained? One answer emphasized the power resources of the working class. According to this theory, the most generous welfare states occur in nations where trade unions formed a political party, created cross-class coalitions with other groups and then used their numerical superiority to enact programs that protected the working class against the vagaries of the market (Korpi and Palme 1998). Thus, according to power resource theory, variations across nations in public benefits can be explained by the strength of trade unions and degree of working class solidarity.
Although a lively debate ensued as to whether trade union strength was the most important indicator of welfare state generosity or whether the causal sequence accurately reflected the historical record, nearly everyone agreed that the American welfare state was a distinctive case. It was accepted wisdom that the United States was slower than other nations to develop national social programs, spent less generously and lacked benefits like health insurance and family allowances that were otherwise universal. In Wealth and Welfare States, three prominent poverty researchers, Irwin Garfinkel, Lee Rainwater, and Timothy Smeeding, take a fresh look at debates about the origins and functions of the welfare state and revisit the question of American exceptionalism.
In most wealthy nations social welfare expenditures make up 30 to 40 percent of the total value of goods and services produced. Given that welfare benefits consume such vast resources, it is important to understand what they contribute to overall well-being. Garfinkel, Rainwater, and Smeeding ask whether the welfare state is a drag on the economy, an issue that has been on the agenda since the 1970s and has become even more salient as population aging and expanding public budgets have strained the fiscal capacity of states. Consistent with most comparative research, they first analyze social insurance expenditures and conclude that early expansions increased growth and more recent increases have not harmed it. Overall, the net effect of social insurance on growth is zero. Yet, they convincingly argue, an analysis focused only on social insurance excludes alternative mechanisms nations use to achieve similar objectives and thus underestimates the full effect welfare states exert on economies. To remedy this problem, they add private employer benefits and tax expenditures, which are (less progressive) ways to achieve some of the same goals as direct spending. They also include education as part of the welfare state, a choice they justify on the basis of evidence showing that public education does as much or more than traditional benefits in promoting productivity and growth. By expanding the definition of the welfare state to include these other mechanisms for redistributing societal resources, they are able to assert that the welfare state’s net contribution is positive.
A second objective of Wealth and Welfare States is to challenge the main premise of arguments about American exceptionalism, that the welfare state in the United States is significantly smaller than that of other nations. The authors compare spending patterns in 14 rich nations and find that, according to the most commonly-used measure of size, total social welfare transfers as a share of GDP, the welfare state in the United States is indeed smaller. If a different measure of size is used, however, per capita expenditure, then spending in the United States is greater than in almost all other countries. The results also vary depending on how the parameters of the welfare state are defined. In terms of direct public spending, the English-speaking nations, and particularly Ireland and the United States, spend the least. When employer-provided benefits and tax expenditures are included, however, the picture changes considerably. Adding these benefits increases the U.S. welfare state by nearly 50 percent and substantially narrows the cross-national variation. Including education has even greater consequences. Education increases the American welfare state by another 38 percent and changes the status of the United States from a laggard to a leader. Thus, the overall point is that arguments about American exceptionalism depend on how benefits are measured and which benefits are included.
What is exceptional about the American welfare state is the preference for safety net programs for the poor and private benefits for the more affluent. As an example of the former, the authors discuss the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) of 1996, which required poor mothers to work in return for assistance and limited total federal lifetime eligibility to five years. In the first six years after PRWORA was enacted, welfare caseloads fell by 56 percent while the labor force participation rates of single mothers increased and poverty rates declined. The authors note, however, that these trends cannot be attributed solely or even primarily to welfare reform, for PRWORA was enacted around the same time as assistance outside welfare expanded. In 1993 Congress increased the earned income tax credit (EITC) and childcare funding substantially and enacted a new child health insurance program (SCHIP). Those benefits, coupled with a sustained period of economic prosperity, made it possible for low-income women to fare better from work than from welfare.
It would have been helpful for the authors to assess in greater detail whether the work incentives in PRWORA were largely punitive or whether they fit with international trends. Everywhere welfare states designed for an industrial economy and the male breadwinner family type that accompanied it are in the process of being retooled for service-oriented economies where dual-earner and female-headed households are becoming the norm (Esping-Andersen 2009). Was PROWRA the result of a right-wing power shift, as the authors assert, or rather part of a general restructuring of benefits to support the labor force participation of women?
The authors cite private health insurance in the United States as a prime example of a benefit tilted toward the more affluent. They argue that because the private market, left to itself, produces too little health insurance, the only way to make coverage affordable is to eliminate the element of choice, make insurance mandatory and spread the risk across a broad population. This book went to press before Congress passed the Patient Protection and Affordability Act of 2010, which contains several features that meet these objectives, including mandates on individuals and employers and subsidies to help low-income people purchase health plans (Quadagno 2010). It would be interesting to learn whether the authors believe that health care reform has transformed the American welfare state in any significant way or whether it merely represents business as usual.
Where Wealth and Welfare States falters a bit is in the authors’ theoretical analysis. This becomes especially apparent in their inclusion of education as part of the welfare state, which raises the question: how broad can the concept of the welfare state become before theories of welfare state development no longer apply? In their analysis of spending patterns, the authors group nations according to Esping-Andersen’s (1990) three regime types, liberal, conservative, and social democratic. They find that this typology is roughly consistent with social insurance expenditures but, not surprisingly, does not fit education. What better explains educational development, they argue, is the median voter model. According to this model, democratic nations find the most effective solutions to common problems, because universal suffrage maximizes the expression of diversity and restrains the power of elites. Thus, as the franchise is extended, public funding for education should increase, eventually becoming universal. That assertion raises the question of how the median voter model can explain variation in education spending across fully democratic nations. It would be more satisfying to focus on how political coalitions, not just voters, influence decision-making processes. The authors do suggest that declining strength of the left was responsible for the rightward turn in policy in the United States, but they do not elaborate this argument formally. Theory takes a back seat to data.
Despite these minor quibbles, Wealth and Welfare States is a major achievement and a welcome addition to the vast literature on the welfare state. It contains quantitative analyses on spending patterns in fuller detailthan any previous research and an insightful discussion of recent developments in welfare state trends. The focus on education is likely to generate a lively debate about how the welfare state should be defined and the inclusion of a broader range of benefits will cause many scholars to rethink their basic premises. As for me, this book will be first on my list when I prepare my syllabus for my graduate seminar on the welfare state.