Welfare states or welfare societies?

Abstract

One of the most relevant policy questions in the 1990s is the institutional choice between the welfare state or the welfare society. The welfare states honour the institutions of the market economy, but at the same time they are different from decentralised capitalism, as they involve large scale public ex­ penditures of an allocative or redistributive import. In the welfare societies the private sector remains much larger than the public sector, as these market economies do not constitute mixed economies. In welfare state regimes the public sector is 50 percent of GDP on an average, whereas in a welfare society it hovers around 35 percent of GDP. The regime problem of choosing between welfare states and welfare socie­ ties, which governments and the public are confronted with in the so-called capitalist democracies, is quite different from the old problem of democracy versus dictatorship or socialism versus capitalism. It concerns two basic alter­ native institutional configurations for countries which adhere to democracy and the market economy. Choosing a welfare state or a welfare society amounts to a macro institutional choice, but it has tremendous consequences for micro decisions about how service is to be provided to people as well as how far government should go in providing income maintenance. One may see the political conflicts in various West-European countries as expressions of the tension between these two regimes for a democracy with a market economy. Yet, the regime choice between the welfare state and the welfare society is relevant to all the so-called OECD countries, and perhaps also to Eastern Europe and the newly industrialised countries in South East Asia. Whereas the case for a welfare state used to be well stated within the framework of a Keynesian economic argument and a Rawlsian justice theory, the edge in the debate is today with the adherents of Chicago School Econom­ ics, favouring the welfare society model, which is strongly anchored in the market economy and not the mixed economy (Krugman, 1994). A choice between the welfare state and the welfare society is for many citi­ zens based on complex deliberations concerning advantages and disadvan­ tages for themselves as well as for fellow citizens. One should not assume that merely self-interests play a role, as choosing institutional arrangements in­ volves also altruistic considerations about what social justice requires.