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Erinda Selmani is a first year student at LSE whose interests include social inequality and global development. She’s also a keen linguist with a passion for French.
To what extent has the welfare state changed since 1970?
This essay aims to explore the extent to which the welfare state has changed since 1970. As well as taking into account the British welfare state, references will be made to German and Nordic welfare states. It will consider the impact of the OPEC oil crisis of 1973, the rise of neoliberalism and the effect of international economic recessions during the 1990s to determine the scope of change that welfare states have endured since 1970.
The OPEC oil crisis of 1973 sparked a series of international economic downturns and is considered the immediate reason for the changes in the UK’s welfare state (see Alcock, Haux, May, Wright 2016). This crisis forced the Labour government to abandon Keynesian formulas in order to battle the oncoming recession, despite their initial resistance (see Alcock, Haux, May, Wright 2016). Prior economic recessions had been tackled using Keynesian policies of increased public expenditures and decreased taxation thresholds to stimulate growth, however with the threat of inflationary pressures exceeding 20% in 1975 (see Garland 2016), coupled with rising unemployment, “spending our way out of a recession… was an option that no longer existed” remarked James Callaghan, Prime Minister in 1976. According to Powell and Hewitt (2002), this left government with “few answers to employment or inflation” other than changing the structure of the welfare state. It was alleged that welfare spending had become excessive in the face of the recession, making social provision unaffordable.
In 1979, the newly elected Conservative government under Thatcher began a series of cuts to social security benefits, most notably attempting to terminate SERPs (state earning related pensions), marking symbolic changes to the British welfare state as it had been recognised before the 1970’s. Furthermore, the abolition of maternity grants and death benefits under the Conservatives signified the end of the ‘cradle to grave’ welfare state argues Timmins (1996) . This demonstrates that cuts to public expenditure on social provision as a result of the 1973 OPEC oil crisis were used as social policies to combat the UK’s economic difficulties, leading to the inevitable retrenchment of the welfare state.
The extent to which the welfare state transformed since 1970 beyond the OPEC oil crisis can also be attributed to the rise of neoliberalism. The cuts to social security benefits and the restructure of the welfare state during the 1970’s are due as much to the unaffordability of these social provisions as to their underpinning by the political ideology of neoliberalism. Concerned with the increased role of market forces and limited provision by the state, the stark change in the welfare state was apparent from the very first sentence of the first White Paper published by the Conservative government in 1979. It read “[p]ublic expenditure is at the heart of Britain’s present economic difficulties”, positioning the welfare state as parasitic, (Powell and Hewitt).
Neoliberalism heavily adheres to the principles of the Washington consensus, including privatisation, liberalisation and deregulation, focusing on expanding the role of markets and the aggressive limitation of the state, of which there are many cases during Thatcher’s time in power. The introduction of the Right to Buy scheme of 1981 is one of these, termed by Timmins (1996) as “the biggest single privatisation of the Thatcher era, raising £28 billion over thirteen years.” Even though there was little mention of the NHS in the Conservative manifesto, it was widely perceived to have suffered a funding crisis in the attempt to reduce the size of the state in the name of neoliberalism. Free eye tests and dental checks were abolished as well as the introduction of tax concessions for the elderly to purchase health insurance privately (see Powell and Hewitt 2002). The NHS also underwent reorganisation in 1982 with compulsory competitive tendering policies for laundry, cleaning and catering. “In-house” workers were forced into competition with private companies in a bid to achieve efficiency, introducing private sector techniques into the public sector. Establishing market mechanisms, or quasi markets in this way, was seen to have “moved the NHS nearer to the private model” (see Sullivan 1996). It is undeniable that the trend towards these free market ideologies of neoliberalism meant a transformation of the classic welfare state, “a big government was a beast to be starved” in the eyes of Ronald Reagan and Margaret Thatcher.
Patterns of structural reform of welfare states were also evident in continental European countries such as Germany and in the Nordic states. In Germany, “unprecedented structural reform” (see Palier 2010) was observed to have taken place since 1970. With the approach of an economic downturn during this period, much like the UK, Germany was forced to restructure its welfare state in order to finance the oncoming recession. First in line to receive the most considerable cuts were pensions. Extensive reforms began in 1989, where combined contribution rates to social insurance schemes rose 9.7% within a period of 18 years from 1980 to 1998 (see Palier 2010). There was also a stronger reliance on means-tested benefits, a move described by Palier (2010) as a shift from Bismarck’s conservative-corporatist state which emphasised status maintenance to a liberal regime. Pension reforms to include elements of means testing (see Kuhnle 2000) were also evident in Nordic countries such as Sweden. International recessions in the 1990s had resulted in a “less generous welfare state” as put by Kuhnle (2000). Social programmes had been rolled back in Sweden to include tightened conditionalities for unemployment and sickness insurance. A reduced income replacement rate (see Kuhnle 2000) coupled with the expansion of waiting days are clear examples of the retrenchment Nordic welfare states have endured since the 1990s.
Despite arguments that the British welfare state had transformed dramatically since 1970, Powell and Hewitt (2002) argue that the “aims of the restructured welfare state are not radically different from those of the classical welfare state”. It is unquestionable that core institutions established by the classic welfare state remain today (see Garland 2016). Neoliberalism has failed to diminish the popularity of the welfare state, with 56% of the present day electorate considering the NHS a top political priority (see Crouch 2015). Arguably, the desire to protect the British welfare state was thriving even in the face of the most aggressive days of neoliberalism. In the period of 1979-1983, spending on the NHS increased from 4.2% of GDP to 4.8% (see Institute for Fiscal Studies 2015). Furthermore, the radical merger of private techniques into public sectors through the introduction of quasi markets into healthcare and education by Thatcher was seen as a political step too far (see Alcock, Haux, May, Wright 2016). Even though the political landscape may have been challenged during the era of Thatcher, the welfare state remained remarkably durable in the face of opposition (see Garland 2016), it “reduced not in scale, but in scope” according to Powell and Hewitt (2002).
Similarly, the trend of maintained welfare states can be established in earlier examined Nordic states such as Sweden. Social expenditure in Sweden has increased more as a proportion of GDP relative to any other continental European state since 1970 (see Kuhnle 2000), suggesting that welfare states among Scandinavian countries have been strengthened despite evidence suggesting otherwise. Nordic states have seen “widespread political consensus for continued political responsibility for welfare provision” according to Kuhnle (2000). Voters tend to favour increased taxes in order to finance these increased public expenditures, leaving evidence to point to the fundamental ideological sentiments of Nordic welfare states that prevent them from suffering profound changes. Social democratic regimes, such as the Swedish welfare state, are built on the functioning principle of universalism, which means that “no political party favours a deconstructed welfare state”, allowing Nordic welfare states to have stood the test of time, according to Kuhnle (2000).
Having drawn on all the arguments raised throughout the course of this essay, it is undeniable that the welfare state in the UK has been transformed into a night watchman state since 1970 in the name of neoliberalism. With the OPEC oil crisis of 1973 causing a bout of inflation exceeding 20% and rising unemployment in Britain, social provision was deemed unaffordable by New Right politicians such as Margaret Thatcher, leading to aggressive reforms aimed at health and social care by the Conservative government. Cuts and redistributions of public expenditures were steered by promarket policies aiming to eradicate the “dependency culture” (see Murray 1984) that the welfare state had fostered.
This essay has also drawn parallels between the European welfare states of Germany and Sweden during this time. The international recessions of the 1990s meant that welfare states in these nations had also come under attack in order to survive the economic downturns – this included pension reforms in Germany and trimmed social care programmes in Sweden. Even though it can be argued that the British, German and Swedish welfare states remained unscathed in the face of recessions and neoliberalism to some extent, it is clear, by referring to the evidence presented, that these states underwent severe dismantling during this time and that the welfare state had fallen victim to promarket ideologies.
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