Welfare State

Abstract

The essence of the modern welfare state lies in its institutional commitment to reconcile equity issues with the efficient operation of economic markets in industrial and post‐industrial capitalist societies. As capitalism institutionally relies on the free competition of autonomous individual agents in exchange markets to achieve economic efficiency, but meets with real‐world economies exhibiting an unequal distribution of wealth holdings, economies of scale in production, significant transaction costs, and imperfect information regarding prices and preferences, the unfettered operation of economic forces is likely to result in anything but an egalitarian distribution of economic well‐being in a society. As an institutional antidote, modern welfare states have developed various policy instruments to realign the distributional outcomes of the market with broader social objectives of governments and their constituencies – and hence, the welfare state has rightly come to be seen as institutionally expressing and preserving social solidarity in highly complex societies made up of socially as well as economically highly heterogeneous populations.