The political economy of welfare and economic policy

Abstract

This paper traces the systemic basis of welfare oriented policy in capitalist society, which is shown to be necessarily a ‘mixed economy’. For the, now ‘old’, ‘new welfare economics’ and the ‘new political economy’, as well as the main traditions of Marxist state theory, welfare policy is explained in instrumentalist or functionalist terms. It is indicated why such explanations are insufficient if not wrong. The paper reconsiders the abstract basis of welfare and economic policy in the state-economy relationship. The state is shown to be grounded in the upholding of Right (especially the rights to existence and property) and its legitimation in the will of citizens. Both the existence of the economy and the legitimation of the state require the state's separation from the economy. But it is also the case that the existence of the economy and the legitimation of the state require state intervention. This is obviously, in dialectical terms, a systemic contradiction. This contradiction is overcome in the state's ‘bridging’ of the state-economy separation. Economic policy then is the management of the unavoidable conflicts to which this gives rise. These conflicts are most acute in the case of welfare policy. It is then briefly shown how welfare macroeconomic and microeconomic policy are inter-connected, and how a theory of the political-economic business cycle could be developed from this inter-connection.