Expansion of the Welfare State

When the church was demoted from a state church to a private organization, the state administration took over its wealth and social responsibilities. When Otto von Bismarck introduced universal mandatory health, retirement and unemployment insurance in the 1870es, the state accepted this responsibility. After World War I, most democratic European governments established a framework of regulations insuring that employment contracts assured workers a decent standard of living. The foundation of a welfare state was laid.
The 1950es and 1960es saw a period of unprecedented economic growth; further steps in the direction of the welfare state were taken, at a time when governments daw little problems in financing the programs; the governments did not have the revenue to finance these programs, but state revenues were ever-increasing and banks were all too willing to lend money to governments.

The year 1968 had seen political unrest at a critical level, in France the demonstrating students having been joined by dissatisfied factory workers. A major problem which had caused the students to take to the streets had been outdated, overcrowded universities - and the baby boom generation was still to enter the universities. The students had emphasized equal opportunities for students from any social background.
The universities of continental Europe were already almost exclusively public; the states did not charge any tuition fees. After 1968 the FRG entered in a massive program of building new universities and extending existing ones; also a scholarship fund was introduced, intended to cover the costs of living of students whose parents could not afford to pay for him/her during his/her university years. As there are no university entrance examinations, the number of students ballooned; as the duration of the study was not fixed, many students postponed their graduation.
Every government pursued a different policy in expanding its own type of welfare state, and its own way to finance the program. The welfare measures were paid in part by the state taking on additional bank loans (on a continual basis), in part by raising the taxes, both the direct ones - income taxes for top taxpayers reached 96 3/4 % in Britain, a whopping 102 % in Sweden - and indirect taxes (Value Added Tac or VAT 33 % in France), and/or ordered the Government Printing Bureau to print more money.

Consequences were numerous. Workers without qualification often hardly earned more than people without employment were given in welfare handouts; there was thus rather limited incentive to take on jobs which were often strenuous, in some cases unpleasant and even dangerous.
Among the rich, trying to evade taxation, at least in part, now had become a strategy for survival. In this situation, TAX HAVENS such as Monaco, Liechtenstein etc. found a niche in the international economy. The elite of Sweden's tennis players, on paper, emigrated to Monaco; British singer John Lennon emigrated to the USA.
Europe's industries, suffering from sharply increasing wages and indirect labour costs (the employers' share in the mandatory insurance fees) pursued policies intending to reduce labour costs - RATIONALIZATION and the relocation of factories into regions/countries with lower labour costs. Industries which were less dependent on skilled labour and produced low-price items, such as textile and toy producers, were among the first to relocate. Another trick would be to move the business headquarters to a Tax Haven, of which there were quite a number. The Channel Islands (Guernsey, Jersey) for instance are not part of England and represented by the government of the United Kingdom only in foreign affairs and defense; a remnant of the historical Duchy of Normandy and Kingdom of France, the island parliaments are free to establish their own tax rates. Low rates for taxes on businesses attracted numerous enterprises to rent mailboxes on the islands, declaring them as their headquarters (that is where they have to pay their taxes). The number of such mailbox addresses on Jersey exceeds that of the island's inhabitants.

The OIL CRISIS of 1973-1978 marked the end of decades of strong economic growth; social problems such as unemployment and an aging society became more severe. A number of industries had lost international competitiveness and were government-subsidized in order to keep them going. In the 1970es the ideological systems were still competing with each other, and western social reformers often pointed out that the communist east would provide better for women with children, for instance.
In the 1980es it became apparent that the welfare state, in many countries, had been overly expanded, was too expensive and could not be afforded on the long term; business complained about too high a burden, national debt was ever-increasing.
Many political parties, the Socialists, Social Democrats, Labour Parties as well as the Christian parties, regarded wekfare as a state responsibility and many of the welfare institutions as historical accomplishments. And there were still areas where social justice was not yet accomplished; in Western Germany the NURSING CARE INSURANCE was introduced in the late 1980es.

The United Kingdom, under MARGARET THATCHER realized the danger of a continued policy to uphold a welfare state that could not be financed on the long term. She introduced a policy of cutting down welfare expenses - the National Health Service is still existing, but has to arrange with a limited budget. State subsidies to incompetitive industries were scrapped, leading to the closure of most of Britain's coal mines and shipyards. A programm of PRIVATIZATION transferred state-owned businesses into private management. In the end, the United Kingdom became the only country in Europe which was able to reduce its national debt. At the expense of social problems, especially in England's north.
Soon, most governments of Europe also pursued the policy of privatization; the NETHERLANDS and SWEDEN entered the course of severely cutting the costs of the welfare state, by limiting the welfare payments, redefining the recipient groups etc.
As the welfare state differs considerably from country to country, the policy to limit its costs also differed greatly from country to country.

DECOLONIZATION has brought an economic problem - the immigration of inhabitants of the ex-colonies holding dual citizenship - Surinamers who arrived in large numbers in the Netherlands when Suriname became independent in 1975, Jamaicans in Britain etc. Many of the Surinamers did not speak Dutch, had no qualifications and lived on welfare.
In the 1970es and 1980es the numbers of ASYLUM SEEKERS increased considerably, the seekers more and more coming from third world countries. The asylum laws had been intended for Europeans fleeing oppressive governments such as Franco's Spain or communist Poland; now asylum seekers came increasingly from countries like Chile, Sri Lanka, Angola. When the IRON CURTAIN was torn down, new roads were opened for asylum seekers. European states began to treat most of the applicants as ECONOMIC REFUGEES (which are denied asylum); Germany's acceptance rate of asylum seekers is about 3 %. Lodging and feeding asylum applicants is a heavy burden on the communities.


This page is part of World History at KMLA
First posted on August 2nd 2001, last revised on November 11th 2004

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