Five years analysis of the welfare state

First insertion on Heterodox Gazette Sam de Wolff: 15 february 2018

E.A. Bakkum is a blogger for the Sociaal Consultatiekantoor. He loves to reflect on the labour movement.

The industrialization creates so much wealth, that it leads to the welfare state, The welfare state has a large diversity of forms. The present column describes several models, which try to order the diversity. After a general introduction about group behaviour and the policy mix there is a presentation of: the inclusion model, the paradigm of the radical centre, the trust model, and the three-worlds model. Finally, reports of the CPB and the WRR are discussed.

Since five years the Gazette studies the economic functioning of the welfare state (also called Sozialstaat in German, and État providence in French). The present column is relevant, because until now the welfare state has been discussed merely indirectly. During the first years the focus was on the general economic models, and in the subsequent years the attention shifted to political economics. Only two years ago the welfare state obtained a prominent place, when several columns were dedicated to the radical centre. Here it became clear, that this political current can only be judged, when one disposes of some insight in the functioning of the welfare state itself.

The present column once more summarizes the already presented insights, and adds new ones. On the one hand, the tasks of the welfare state will be studied. On the other hand, the structures of the organization will be studied, which allow to execute these tasks well. It is already now remarked, that the welfare state must at least realize the social security and the redistribution of incomes. This fills the needs of the people, who by bad luck can insufficiently pay the expenses of living. The redistribution and the supply of benefits and support also guarantee, that the society functions well, that is to say, remains stable. It contributes to the legitimacy of the administration1.

Theoretical frame

The welfare state is constructed as a coherent set of institutions. Here institutions are interpreted as informal and formal rules of behaviour, which are prevalent in certain groups. The state is the group, which includes all others. Within the new institutional economics (in short NIE) the idea is propagated, that the social institutions develop in an evolutionary process. Only the most efficient institutions persevere, and therefore push out the unsound institutions. In this manner the NIE tries to explain the development of the economic system.

Theory of networks and groups

Institutions are always connected to the morals of the concerned group. Therefore institutionalism is based on the knowledge about group formation. The Gazette has studied group theory in two columns. It originates mainly from the social psychology. In economics the Dutchman P. Frijters has proposed the following interesting taxonomy of groups2. The origin of all groups is the network, which consists of a set of loose contacts between individuals and groups. Since Frijters mainly studies the economic system, he limits his analysis to networks within economic markets. Although the competition on the market often stimulates the efficiency, yet sometimes the (transaction-)costs can be reduced by cooperating in groups. The group has the advantage, that her institutions make the behaviour predictable, which stimulates investments.

Poster of DGB
Figure 1: Poster DGB

The taxonomy of Frijters separates the groups according to their size and reciprocity. In a small group the institutions are protected by informal social control. But in the large group there is anonimity, so that opportunistic behaviour can pay, and a formal maintenance becomes necessary. In the reciprocal group all members are equal, so that she is (more or less) democratic. The hierarchical group has a leader at the top, who has sufficient authority to make all decisions by himself. Thus there are 2x2=4 archetypes of groups, each with her own institutions. The circumstances determine, which archetype is most effective. Although institutions are rather durable, they adapt to the dynamics of the environment. For instance, in the end the absolutist state changed into a democratic state.

The theory of networks and groups is supported widely by sociologists. Typical is the view of the Dutch sociologist A.C Zijderveld3. Zijderveld distinguishes the groups according to the degree of bonding (cohesion). The hallmark of a thin network is the loose contacts, like those on the market. The personal interest is leading, and the relations are volatile. A thick network has some durability and cohesion, which is accompanied by common morals. There are also thin and thick institutions. The thick network actually disposes of thin institutions. Here the idea of Frijters emerges, that groups are born in the network4. Thick institutions can be found in the traditional group, and then they are rather coercive. In this situation the individual freedom is restricted to such an extent, that the group resembles a hierarchical structure. Consider again the absolutist state.

Zijderveld clashes with Frijters in his taxonomy, and your columnist believes that the categories of Zijderveld are slightly less fruitful. Zijderveld mainly wants to defend modernism against post-modernism5. Thick institutions create alienation in the individual, a term which was made popular by Marx. Moreover, they exclude outsiders. But without institutions people become morally adrift, which the sociologist Durkheim calls anomy. The reference-points disappear. The evident advantage of thin institutions is, that they give room to diversity. This makes possible a personal interpretation, so that the institution can be internalized better. With the rise of individualism the call for personal autonomy increases. One must again and again find the right mix of the market, state, and civil society. The welfare state itself is thin, because the bureaucracy values efficiency (organic solidarity).

Civil society, state and market

Immediately after the Second Worldwar some believed, that the welfare state is the rational consequence of industrialization. It would be a necessary instrument for making industrialization possible. But this idea is too simple. Since institutions are related to morals, they introduce value rationality in human actions. That is to say, the goal does not always justify the means. This plays down the importance of instrumental rationality (consequentialism, functionalism). Thanks to the shared morals there is a rudimentary will of the people. so that the state and its politics can define the general interest. The structure of the state is determined completely by the regional culture and morals. Precisely this fact is at the origin of the theme of the present column! The state legitimizes its existence by propagating and furthering the general interest6. Man can be only truly free by means of laws, first of all the Constitution.

The interest is a subjective utility, and can be related to morals. Therefore the elaboration of the general interest is always controversial. The same even holds for the so-called natural rights, such as the protection against violence. But the individual freedom of the market alone does not guarantee a distributing justice. Almost all people also include the social justice in the general interest. That is to say, it satisfies a need, and furthers the social cohesion. Thus the social rights can be defined. Interests can be translated into institutions, such as public goods. In the modern state the institutions must remain thin, fairly neutral, so that the unavoidable morals do not become unbearable. Yet the regional morals lead to specific institutions, so that the various states are globally quite different.

Thus a mixed economy is formed. The state reconciles the freedom of the market and the morals of the civil society. This idea has been propagated mainly by the sociologist K. Polanyi, who identifies the political system by the central redistribution, the economic market, and the social reciprocity7. Loyal readers of the Gazette are familiar with the theory of Polanyi as a consequence of the triangle-scheme of the German sociologist H. Ganßmann, which has become a frequent point of reference during the past five years8. Ganßmann believes, that the welfare state must mainly insure its citizens against risks. Risks can also be reduced by means of prevention and care. In his eyes the security is realized in the so-called K-game, the conflict of interests between labour and capital. However, this traditional conflict theory of the social-democracy does not do justice to the enormous diversity of national institutions.

Modern science more or less takes into account the national morals by distinguishing various categories of institutional systems in policy analysis. So an attempt is made to categorize the states in clusters, which each roughly belongs to a single category. Next for each category the performances of the states in the concerned cluster are analyzed, for instance with regard to economic growth. In this way it can be shown, that some systems of institutions indeed have an evolutionary lead over others. The better systems have a competitive advantage. Incidentally, the expectations of this scientific method must not be too high. It is already quite something, when it reveals some rough contours in the general chaos of the existing social activities.

The inclusion model

An interesting model has been proposed by the economists D. Acemoglu and J. Robinson, in their famous book Why nations fail9. It has already been mentioned many times in the Gazette. The authors mainly test their model with the huge political differences between North- and South-America. Of old the institutions in North-America are superior. Another example, somewhat less dramatic, is the difference between West- and East-Europe. Historically, Russia and the Habsburg Empire were ruled by absolutism until the nineteenth century. This is especially noticeable at the start of the industrialization. Only after 1990 the democracies in South-America are formed. Africa is also a continent with miserable institions. Worst is of course the situation, where a state hardly has any institutions (for instance at the moment Somalia or Libya). Then it is actually failed, because there is no centralization.

Poster of DGB
Figure 2: Poster DGB

Partly due to the interaction between politics and the economy, small differences between states can lead to totally different paths of development. Therefore the future of states is often determined by random incidents, which make an institutional revolution possible. The paths of development are called institutional drift, because the evolution occurs by means of vicious circles and upward spirals. Then the quality of the original institutions is very important10. The nasty implication is, that societies of weak states will increasingly lag behind in comparison with the modern states.

The hallmark of sound institutions is inclusion, both economically and politically. It protects the freedom rights. The legal system is neutral, so that the property rights are guaranteed. Such a system gives positive incentives. In inclusive institutions the entrepreneurs can gain by means of investments and innovations. Innovations are important for the social evolution, also in political respect. The people must be able to replace a failing regime by a better one. This explains why especially entrepreneurs benefit from the establishment of inclusive political institutions. When desired, they form coalitions with other interest groups (pluralism). The civil society establishes schools and independent news media. It is again stressed, that the political and economic freedoms are interwoven. For instance, a democracy, which prefers central planning, is no longer optimally inclusive! The economic incentives weaken11.

On the other hand, in South-America and Africa the extractive institutions dominate. That is to say, a small elite has all power, so that they can levy high taxes and appropriate the monopoly of profitable activities. The room for innovations is small, because these often harm the interests of the established elite. The elite promotes more her own interests than the general interest. The increasing wealth of the elite can be accompanied by increasing poverty of the population. Then the political change occurs by means of coup d'états, because only in this manner the competing elites get access to wealth. Therefore the social stability is less than in inclusive states12. The table 1 summarizes the categories of Acemogu and Robinson. In addition, several typical states are mentioned. The column with population numbers is a very rough estimate of the global presence per category.

Table 1: Various categories of the welfare state
sourcecategoryexampletotal population
(order of magnitude)
Acemoglu and
inclusive institutionsGreat Britain, United States of America1 billion
extractive institutionsCongo, Guatemala, North-Corea1 billion
hardly any central authoritySomalia, Sierra Leone, Libya100 million
Giddensconservative liberalismReagan, Thatcher 
social liberalismClinton, Blair, Schröder 
Fukuyamatrust in societyJapan, Germany1 billion
trust in familyChina, central Italy;1 billion
hardly any trustSouth Italy100 million
Esping-AndersenScandinavian regimeSweden10 million
continental regimeGermany, France100 million
Anglosaxon regimeGreat Britain, United States of America1 billion
mediterranean regimeItaly, Spain100 million

Of course lots of African state provide the best illustration of the disadvantage of extractive institutions. But also the Leninist (socialist) regimes are extractive. At first sight this is surprising, because they do realize a kind of welfare state. However, the survival of the Leninist party and its elite have the highest priority. The party combats pluralism, and stifles the natural human rights13. This discourages personal efforts, and stifles innovation. Here loyal readers recognize comparable conclusions in the Gazette. Although some welfare is realized, these do not automatically lead to inclusive institutions. This observation makes Acemoglu and Robinson pessimistic about the future of China, which actually also has a Leninist regime. This enormous state will remain economically dependent on innovations, which the free (inclusive, pluralistic) world has realized14.

The paradigm of the radical centre

The classification in categories according to Acemoglu and Robinson gives little information about the origins of the welfare state. For, states with extractive institutions or even without central authority are rarely a welfare state. Only the states in the category with inclusive institutions dispose of the means, which are needed for the maintenance of the welfare state. Conversely, the social security is only really required, when the state must legitimize itself democratically. The model is mainly instructive, because it stresses, that precisely the Anglosaxon states succeeded in the continuation of the upward spiral towards inclusive institutions15. During the same period for instance France and Germany are still stuck in absolutism. Apparently liberalism is needed in order to realize the welfare state. This is also the message of the radical centre, which has been mentioned in the introduction of the column.

Although this political current is diverse, yet Anthony Giddens can be called its most prominent ideologist16. Giddens is not interested in extractive regimes. He uses roughly two categories, namely conservative liberalism and social liberalism. Conservative liberalism is generally called neo-liberalism. Giddens connects this with the then policies of Reagan and Thatcher. They preferred free economic markets, combined with a traditional (thick) society. Social liberalism is propagated by the current of the radical centre, which emerges from the social-democracy. It values free markets, and besides wants a liberal society. This implies, that the citizens can claim social rights. Thomas Meyer, a German congenial of Giddens, even places these rights at the centre of his arguments.

The paradigm of the radical centre is related to the inclusion model, but it is more radical in the promotion of inclusion. Contrary to the inclusion model, there are no states, which personify the radical centre. The two categories of Giddens intend to evaluate the current policies, and these are different for each government (see table 1). For instance, in Great-Britain the liberal policy under Thatcher was conservative, whereas under Blair it was social. The same change is observed in the United States of America, with on the one hand Reagan and G.W. Bush, and on the other hand B. Clinton. Dependent on the currently ruling government, the liberal welfare state develops in a conservative or liberal direction. So the paradigm of Giddens is dynamic. In each category the policy goals are independent of the evolutionary path, although the policy instruments do follow paths17.

The trust-model

The inclusion model and the paradigm of the radical centre make clear, that the actions of the political elite determine whether the welfare state will emerge. Besides it has been explained, that the value-rationality of the ruling elite affects the formulation of the general interest. She defines the social rights, including the social security. Therefore the sociologist F. Fukuyama has studied the cultural differences between states. The present paragraph consults his book Trust (in short Tr)18. Fukuyama indeed believes, that a national culture of mutual trust among the people has a positive influence on the economy. Just liberalism is not yet a guarantee for a high economic growth19. Trust is a part of the social capital (Cs, with s of social), because it stimulates the mutual cooperation. This reduces the transaction-costs.

Poster of Abvakabo FNV
Figure 3: Poster Abvakabo FNV

However, Fukuyama analyzes a different part of Cs, namely the cultural skill to form groups. He calls this type of capital the spontaneous sociability (in short Co)20. In fact Co also measures the degree of inclusion. The national inclination to be spontaneously social Co partly determines the socio-economic structure of the state. For, group formation is indispensable for establishing the institutions of the welfare state. When the citizens themselves realize the social security, by means of the civil society or the market, then costly state coercion is avoided. Groups with a very low Co are rare. Fukuyama mentions as an example South-Italy, and the black ghetto's in American towns (chapters 10 and 25, and p.337 in Tr; see the table 1). They are the breeding ground for criminality. The state itself must maintain order. Even family life is poorly developed.

The family as an institution has a smaller size than for instance the church or the state. In almost all cultures Co in the family is naturally large. The family is essential. Enterprises commonly begin their existence as a family activity. Then the family itself can take care of social security and redistribution. However, in modernism the social security becomes an affair of very large collectives (organic solidarity). In many cultures a high Co also exists beyond the family, so that large private organizations can be established for regulating the social security. These organizations are a part of the civil society. Fukuyama praises the advantages of such cultures. He mentions as the classic example of this type of state Germany and Japan (see the table 1). In cultures where the private initiative fails, the state itself must organize the social security. Here France and Taiwan (or China) are examples21.

Incidentally, Fukuyama is primarily interested in the economic structure, and not in the social security. But these two are naturally intimately intertwined. He limits his analysis to democracies, so to inclusive systems. Leninist systems, such as in China, are extractive: they stifle the civil society, and thus destroy Co (p.54). He states, that democratic systems with a tradition of central absolutism, such as Taiwan, France and South-Italy, also have difficulty in increasing Co. However, it is indispensable, when one wants to engage in reciprocal obligations for the long term. Therefore Fukuyama pays much (positive) attention to the Japanese culture. The high Japanese Co creates an atmosphere, where the family enterprise can be transformed in shareholder companies. There is sufficient willingness to appoint skilled workers from beyond the family in leading positions (inclusion). This furthers the continuity of the enterprise.

The high Japanese Co is also very beneficial for forming hybrid economic organizations, which are neither a market, nor an enterprise. These are thick networks, which are called keiretsu (p.162, chapter 17 in Tr). The enterprises in the network mutually engage in durable relations. For instance, the Sumimoto and Mitsubishi have such a structure. The participants in the group benefit from the advantages of scale in the production, and reduce their own entrepreneurial risk. The workers also benefit from the reciprocal solidarity. Thus the social security is to a significant degree realized within the group of enterprises (p.218). Notably the larger enterprises are prepared to invest in their workers22. Thus the public sector can remain small! Fukuyama believes, that the German corporatism is based on the same principles as the keiretsu, although it is more formal and therefore less flexible.

Apparently the welfare state can be quite diverse. A part of the security and facilities can be supplied in an informal manner, within the private market. Furthermore, Fukuyama believes, that a high Co is essential for establishing big industries. In states such as France an Taiwan merely the shopkeepers and small entrepreneurs emerge spontaneoulsy. The absence of big industries makes the economy one-sided, and therefore vulnerable to global developments. The state can try to energetically stimulate the big industries, such as in South-Corea. But then there is the danger of a lack of efficiency and sometimes of corruption. Fukuyama believes, that traditionally also the United States of America dispose of much Co23. However, it has been negatively affected since the sixties of the last century, also as a result of the counter culture movement. The individual obligations and rights become unbalanced (p.314). See also the analyses of the sociologist Putnam.

All in all, Fukuyama rightly points to the advantages of self-organization, such as security and efficiency. Moreover, then the solidarity is truly personal. Japanese ideas, such as lean production, quality circles, and self-managing teams have now been diffused all over the world. Incidentally, Co can not be organized rationally. For, it is transferred by means of culture. But Fukuyama also warns against the harmful side-effects of a high Co, such as the isolation of outsiders (p.252). This slows down innovation. Therefore critics sometimes condescendingly talk about nepotism (with respect to close families) or about crony capitalism (with respect to nationalistic states, or close circles of enterprises). In such situations the thick institutions are naturally dominant.

The three-worlds model

The inclusion model and the trust model analyze the culture and the politics of the welfare state. However, the Swedish economist G. Esping-Andersen studies the instruments of the welfare state. For, he argues, that these instruments emerge logically from the path of political development of the concerned state. The present paragraph consults his book The three worlds of welfare capitalism (in short Twc)24. The book dates from over a quarter of a century ago, and therefore its contents is outdated, because since then the welfare state has evidently changed significantly. However, Esping-Andersen has proposed a classification in three categories, which nowadays are still popular. He distinguishes between the Scandinavian, continental and Anglosaxon regime of the welfare state. Others have added the mediterranean regime, in order to include and model in this scheme also South-Europe. See the table 1.

The table 1 illustrates, that the classification is peculiar. For, the Scandinavian states are insignificant on a global scale. But just like Fukuyama is fascinated by the Japanese state, so Esping-Andersen adores the Swedish state25. In reality Twc is mainly a comparative study of Sweden, West-Germany and the United States of America (in short USA). Central in Twc is the change, which the welfare state undergoes during the period 1960-1985. Then the industrial state enters its post-Fordistic phase. The relative share of the industries in the economy declines to the benefit of the expanding sector of services. According to Twc the path of this transformation depends on the social institutions, which are again the result of the structural distribution of political power. In Sweden the social-democracy dominates, in Germany the christian-democracy, and in the USA the liberalism26.

Sticker of IB FNV
Figure 4: Sticker IB FNV

Therefore these three states prefer a different policy mix. In Sweden the state determines the policies. Germany prefers (neo-)corporatism. And the policies of the USA are market-oriented. The path of the welfare state is notably determined by the arrangement of the labour market (p.221 in Twc). For, during the transition to the post-Fordism a policy intervention is needed with regard to the declining employment in the industries. In Sweden the public services are rigorously expanded, such as welfare activities, health care and education27. They are universal. This is paid by means of taxes, so that actually an artificial demand is created. In Germany the supply on the labour market has been reduced, by discouraging the participation of women and older workers. Therefore the society is split in insiders and outsiders. The outsiders are a financial burden. There is a class society (p.60).

The USA introduce free markets in the employment exchange. This indeed reduces the unemployment, but also leads to the establishment of a low-wage sector. Moreover, the supply of social services is partly private, so that their use by the lowest incomes is limited (as a result of free choice or not). The enterprises themselves create some social security, just like in Japan (p.203 and 225). Thus the three paths lead to three different regimes. This is not a new discovery. The merit of Esping-Andersen is, that he has developed a composite index of national peculiarities, which has clearly different values for the three regimes (p.54 in Twc). The index value is 39.1 for Sweden, 27.7 for Germany, and 13.8 for the USA (p.52). In Twc the index has been calculated for 18 western industrial states, for the year 1980. According to Esping-Andersen these states form clusters around index-values of roughly 18, 27 and 35.

According to Twc this means, that the diversity of welfare states can be reduced to the Scandinavian, continental and Anglosaxon regime. The clustering is even more apparent, when the states are ordered by means of seven political indices for the typical social-democratic, conservative and liberal hallmarks (p.74). This looks like a sound approach. However, here the problem is, that al these indices have been defined in a rather peculiar manner. Moreover, the results are sometimes strange. For instance, Japan has almost the same composite index as France (respectively 27.1 and 27.5). Then when the political indices are dissected it turns out that Japan is more liberal, whereas France is more conservative. Apparently most regimes are yet a mix of the three categories. Therefore your columnist is not very impressed by the findings of Esping-Andersen28.

Two Dutch reports about the welfare state

The column ends with a reference to two reports of Dutch institutes for policy analysis, namely the Centraal Planbureau (CPB) and the Wetenschappelijke Raad voor het Regeringsbeleid (WRR, scientific council). The reports both use the three-worlds model, although they each have their own interpretation. It is instructive to see how such a model is applied in practice. Besides, their arguments can be compared with the insights of the present column.

CPB: Uitdagingen en beleidsrichtingen voor de Nederlandse welvaartsstaat

In 2016 the CPB published the report Uitdagingen en beleidsrichtingen voor de Nederlandse welvaartsstaat (Challenges and policy directions ...). The report states that the categories in the three-worlds model are merely ideal types. Therefore it is mainly applied to the policy instruments, which can be corporative, means-tested or universal. The report merely wants to transfer knowledge, and therefore does not express a preference for a certain category. The welfare state has three tasks, namely insurance, redistribution and protection. So the report emphasizes the economic function of the welfare state. Here the protection is mainly studied for the labour market, where in general the factor capital is more powerful than the workers.

The report states, that the power is unevenly distributed among the workers, which makes the Dutch labour market dual. The position of workers with little education is so weak, that they get less social rights than the others. This is incompatible with the principle of justice of the welfare state. The inequality of the rights can be reduced by means of a corporative, means-tested or univeral policy. In corporatism a strong regulation is preferred. However, it wants to realize policies made to measure in each sector, and therefore accepts some inequality among the workers. The regulation is partly executed by the associations of enterprises and workers, so that the state intervention is limited29.

In the means-tested policy the rights of the more powerful workers are reduced. For, they can meet their own needs by means of private arrangements. This remedies the injustice. The austerity of the arrangements incites the workers to perform better. It is obvious that not everybody can cope with this pressure. But the security of the poorest is guaranteed by means-tested instruments. In the universal policy everybody also has the same rights, but now at a higher level. Therefore such a system requires centralism. The payment of the costs leads to a high burden on labour, which affects the employment. Also the individual freedom to consume is curtailed. Besides, generous rights invite to engage in free riding and moral hazards. The supervision on the use increases the costs of execution30.

Politics must make a choice from the policy alternatives. Your columnist concludes, that the means-tested policy is attractive. However, there are limits on the human capacity to bear insecurity and personal responsibility. Therefore, in practice a policy mix is needed. According to the report the Dutch regime is at present still characterized by a mix of corporative and universal instruments.

WRR: De verzorgingsstaat herwogen

In 2006 the WRR published the report De verzorgingsstaat herwogen (Regauging the welfare state). In this report the three-worlds model is used for a comparison of the European welfare states. Moreover, this model is extended with the mediterranean category, which is found in South-Europe. This category resembles the continental regime, but the benefits are less generous. Therefore the family remains important as a source of support. See the table 1. But all in all the report rejects the analysis in terms of pure regimes (see p.75, 92 and 262). Each state has its own evolutionary path, and a successful policy can not be transfered from one state to another without problems. Besides, the report concludes, that partly due to the European Union the various regimes converge to a single standard.

The report defines the welfare state in an original and therefore deviating manner. It identifies as tasks the insurance, caring, bonding and emancipation. So here it prefers a broad definition of the welfare state. The bonding must create a social cohesion. Since the bonding must also occur in material affairs (see p.37 amd 50), this concept includes the task of redistribution. Chapter 8 contains a plea to bond poor and rich, young and old, and natives and migrants. In each of these three cases work and income are essential31. The emancipation must take place in education and on the labour market (chapter 7). Thus the foundation is laid for a kind meritocracy (p.183)32. The report is fairly satisfied about the present insurance and caring. However, the policy of bonding and emancipation allows for much improvement (p.53)33.

According to the trust model the institutions of the welfare state depend on the national culture. The report takes as the starting point, that Dutchmen want to live in a kind meritocracy (p.183). They accept the human limitations (p.259). The aim is self-unfolding in the context of the community (p.73)34. Therefore the economic competition and the social justice must be reconciled. This is indeed possible, although it would be an exaggeration to call the social justice a production factor (p.90). For, it turns out that both the Scandinavian ("socialist") and the Anglosaxon ("liberal") welfare state are durable (p.91)35.

The report is extensive and makes many proposals for more effective policies. The reader is encouraged to form his own opinion. As an illustration, your columnist makes some comments about the fascinating part, where an increase of the expenditures on education is advocated. It is desirable to have pre-school day nursery, combined with education, where the expensive Scandinavian regime of a universal supply is preferred (p.175 and 211). The formation of new generations is (partly) a public responsibility (p.212). Children must get an offer of a wide pallet of social, cultural, sport- and cognivite opportunities (p.254). Besides, there is a plea for higher expenditures also elsewhere in education. On p.196 it is stated, that more education is better than less. This all fits well with a welfare state, which invests in human capital (p.259).

It would be great, when indeed the social problems could be solved so easily. The expertise of the report is naturally beyond doubt. Yet your columnist has the impression, that this argument is very doctrinal. Gigantic policy programs and radical reforms rarely solve the practical problems36. The universal regime in Sweden is not really an ideal state, with its large public sector and high taxes. Neither could the extensive educational system in the former Leninist states solve the social misery. It is wrong to expect from the state, that it can form its citizens at will. Self-organization is principally preferable, because it reinforces the autonomy. Your columnist hopes to further elaborate on these problems in future contributions!37.

  1. These remarks may seem almost trivial to many readers. An arbitrary sample from the literature, where they van be found: chapter 3 in Onze welvaartsstaat (1969, Het Spectrum) by F. Hartog, or p.474-475 in Neue Institutionen-ökonomik (2007, Schäffer-Poeschel Verlag) by M. Erlei, M. Leschke and D. Sauerland. Note that the social security is itself a redistribution. The converse is not true. On p.671 in Économie, sociologie et histoire du monde contemporain (2013, Armand Colin), edited by Alain Beitone, the welfare state is coupled to solidarity among the workers or even among the entire population. Moreover, as an alternative a wide definition is presented there, namely the total of state interventions, which surpass the minimal state. Your columnist is not enthusiastic about the wide definition. For, then for instance the state support of religions would be a hallmark of the welfare state. Hartog indeed states on p.11 in his book, that the mental well-being does not belong to the domain of the welfare state. He also makes the just remark on p.56 and 66, that the contribution to the social security is obliged, so that the word solidarity is misplaced. Therefore he uses on p.108 the term state paternalism. Hartog belongs to the same generation of people's educators as J. Tinbergen, J. Pen and A. Heertje. He appreciates liberalism somewhat more than the other three. (back)
  2. See his book An economic theory of greed, love, groups and networks (2013, Cambridge University Press), which Frijters wrote together with J. Foster. (back)
  3. See The institutional imperative (2000, Amsterdam University Press) by A.C. Zijderveld. (back)
  4. Strictly speaking this statement is incomplete, because it is only valid for the modern society. For, by nature man is not a solitarily living creature. During his evolution he must originally have lived in a family, which changed into the tribe, when the population density increased. This offers little room for egocentric networks. In this sense the group is precisely the origin of the network. Similarly, of course the nation states have actually not emerged by the conclusion of a social contract between individuals. See further on in the column. Frijters ignores this, because he focuses on the modern economy. But Zijderveld indeed stresses, that networks emerge only in modernism. He refers to the German sociologist Simmel as the initiator of the network theory. (back)
  5. Zijderveld is a confessing christian, and an ideologist of the CDA. He distinguishes in his argument two extremes, namely the German fascist A. Gehlen, who propagates rigid state morals, and post-modernism, which really rejects the institutions. The latter is called subjectivism, and includes currents from the late sixties of the last century, such as existentialism and the critical theory. Zijderveld is sometimes peculiar in his views. Thus he states on p.142 in The institutional imperative, that only the priests know the goal of life and death. On p.180 he states, that religion will survive as an institution. People hardly visit the church, but roughly half of all Dutchmen remains a symphatizer. On p.182 he states, that the decline of the churches can be positive, because the remaining group becomes dedicated to the doctrine. And he is irritated by the modernized religious liturgy (the priest in jeans, who sings songs with gitar music). Zijderveld even reproaches the politics of the Third Way, that it insufficiently propagates morals. Apparently he is discontented with constitutional patriottism. (back)
  6. This is explained excellently in Het politiek belang (1994, Boom) by H. van Erp. Your columnist read this book almost a quarter of a century ago for the first time. (back)
  7. See p.29-35 in Économie et sociologie (2004, Presses universitaires de France) by F. Cusin and D. Benamouzig. On p.65-69 it is explained, that Polanyi worries about the increasing dominance of the market in the mix. The economy threatens to become detached from its social environment. This statement of Polanyi is naturally controversial. For, during the decades after the Second Worldwar the state begins to intervene more and more. This is overdone to such an extent, that nowadays the state deliberately allows for more free markets. French publications supply much information about such developments. For instance, J.-L. Laville on p.441-4478 of Traité de sociologie économique (2013, Presses Universitaires de France), edited by P. Steiner and F. Vatin, applies the model of Polanyi to the supply of health care in the welfare state. He analyzes this supply, by means of the new institutional economics. He notably emphasizes the role of non-profit organizations. (back)
  8. See Politische Ökonomie des Sozialstaats (2009, Verlag Westfälisches Dampfboot) by H. Ganßmann. The argument of Ganßmann is indeniably left-wing oriented. He emphasizes the struggle between the democracy, the plutocracy (private capital), and the autocracy (state). Furthermore this book contains the common description of the economic developments of the western welfare states after the Second Worldwar. (back)
  9. See Waarom sommige landen rijk zijn en andere arm (2012, Nieuw Amsterdam Uitgevers) by D. Acemoglu and J. Robinson (i.e. Why nations fail). The book is mainly filled with descriptions of the national histories of states everywhere in the world. This is fascinating literature. One does need to understand, that the texts are incomplete. For, the authors meticulously select events, which support their model of development. (back)
  10. Chapter 15 of Waarom sommige landen rijk zijn en andere arm contains a useful summary of the model of Acemoglu and Robinson. (back)
  11. This important conclusion is somewhat hidden on p.430 in Waarom sommige landen rijk zijn en andere arm: "Many relatively prosperous states have succumbed to repressive dictatorships. ... During the first half of the twentieth century both Germany and Japan had relatively well educated citizens. ... Even democratically elected leaders behaved like rapacious dictators". The economic inclusion is a dam against such political degenerations. Conversely, the positive role of political inclusion is less evident (p.305): "The masses did not want universal suffrage for the universal suffrage, but they wanted a voice in order to defend their interests". And even under census suffrage groups without the right to vote can exert influence by offering petitions (p.191) or by socially joining a certain group in parliament (p.208). On p.306 it is stated, that the universal suffrage emerges spontaneously from the census suffrage, due to the upward spiral. Also consider the suffrage of women. (back)
  12. It has just been stated, that Acemoglu and Robinson propagate a doctrinal model. Therefore the reader can be confronted with unexpected surprises. For instance, twelve years ago your columnist read the book The globalization of poverty and the new world order (2003, Global research) by the economist M. Chossudovsky. There the Washington consensus, the IMF and the Worldbank are called the culprits of the vicious circle in the weak states. These global institutions impose structural adaptation programs (in short SAP) to states, which ask for help and support. The SAP has the aim to establish inclusive institutions, on a liberal basis, just like Acemoglu and Robinson propagate. According to Chossudovsky this undermines the native institutions, which leads to instability. His resentment against the SAP is so strong (p.xxii: "the IMF's deadly economic descriptions"; p.xxiii: "millions of people had been driven into starvation, directly resulting from the IMF reforms"; p.xxv: "the role of the IMF in destroying the real economy"; p.xxvi: "the complicity of the IMF in furthering the interests of currency and stock market speculators", and this continues for 350 pages), that it undermines his credibility. On p.433 in Waarom sommige landen rijk zijn en andere arm Acemoglu and Robinson state, that the reforms of the Washington consensus are useful, but not sufficiently executed by the weak states. So the state itself yet is the culprit. Both books are doctrinal to such an extent, that the truth probably lies between these two standpoints. So, reader, be warned! In any case the studies of Putnam about social capital had the result, that nowadays the Washington consensus has been replaced by less-liberal SAP's. (back)
  13. This is explained in chapter 5 of Waarom sommige landen rijk zijn en andere arm. (back)
  14. See p.424-429 in Waarom sommige landen rijk zijn en andere arm. Incidentally, the authors acknowledge on p.407-413, that since 1977 the institutions of China have become much more inclusive. However, since 1990 the Chinese reforms stagnate. For instance, China does not have sound property rights. (back)
  15. Acemoglu and Robinson give many examples, where inclusive institutions emerge and after some time decay again. So the upward spiral can stagnate. For instance, Venice between 1000 and 1300 passes through such phases of prosperity and decline. See p.153-157 in Waarom sommige landen rijk zijn en andere arm. A similar process happens in Aragon en Castilla during the sixteenth century (p.214-217), and in the Roman Republic between 500 and 50 before Christ (p.159-166). (back)
  16. See Third way reforms: social democracy after the Golden Age (2009, Cambridge University Press) by J. Huo for a summary of the various national variants of the radical centre. The book The third way (1998, Polity Press) by A. Giddens is the actual manifesto of the Third Way. (back)
  17. In The third way various policy goals are summed up. The hallmark of conservative liberalism are the thick institutions of the traditional society, which limit the political inclusion (p.8). Social liberalism appreciates an active civil society, and an activating social security (p.70). Giddens calls this latter hallmark positive welfare, because the needy are supported by means of investments in human capital (p.117). Activation is the best way towards economic and political inclusion (p.105). The traditional social-democracy differs from both liberalisms, because it propagates a dominant state (p.7). Moreover, it merely offers a passive income support, contrary to social liberalism. (back)
  18. See Trust (1995, The Free Press) by F. Fukuyama. (back)
  19. See p.150 en 356 in Trust. On the other hand, Frijters states on p.286-288 in An economic theory of greed, love, groups and networks, that the pluralistic democracy emerges from the economic system. Then the causality is the reverse of the causality according to Fukuyama. Here your columnist prefers the view of Fukuyama. Furthermore, note that Frijters explains bonding from the individual love in the group or circle, and not per se from a cultural tradition. (back)
  20. See p.27 in Trust for the definition of the spontaneous sociability. Loyal readers may remember, that the economist P. Frijters also interprets business relations as a growth factor. Your columnist believes that the difference between Cs and Co is rather vague and elusive. The column yet uses the concept Co, in order to conserve the arguments of Fukuyama. Furthermore, note that because of the influence of culture Fukuyama criticizes the classical model of the homo economicus (p.19). Interesting is also p.62 in La capital social (2006, Éditions La Découverte), where S. Ponthieux points to a difference between Fukuyama and the political scientist R. Putnam. According to Putnam people must first unite in networks, before they can build up trust. In other words, according to Putnam trust is not determined by culture. This again illustrates the many vaguenesses and pitfalls in concepts such as Cs and Co. Therefore Ponthieux has doubts about their practical applicability. (back)
  21. Note that christianity has always propagated morals of private solidarity. The institutions of mutual support must grow organically. Decentral regulations are preferred. In protestantism this is called sovereignty in the personal circle, and in catholicism the principle of subsidiarity. For instance, the Dutch organization Patrimonium tried to create Co in the industries. Such private initiatives require the official apparatus of the church. (back)
  22. The small ancillary suppliers are commonly also included in the keiretsu network. This reduces the risks. For instance, long-term price argeements can be made. And there is a willingness to mutually exchange information. However, economic disappointments are mainly shifted to these suppliers. Therefore their workers still have a rather insecure existence. See p.206 in Trust. Hartog on p.70 and 286 in De economie, de macht en de mensen (1982, Dick Coutinho) also complains, that the Japanese trust merely holds for the big industries. Moreover, the Japanese workers accept long working days (p.284). Acording to Hartog another weak point is the under-developed Japanese stock market (p.286; according to Fukuyama this is a consequence of the mutual trust). Apparently the keiretsu system is notably durable during a long period of economic growth. The argument of Fukuyama would naturally be less credible, when it would turn out, that the mutual solidarity disappears during times of crisis and decline. (back)
  23. On p.277-278 in Trust there is a reference to IBM and AT&T, who wanted to offer their workers a life-long employment. (back)
  24. See The three worlds of welfare capitalism (1997, Polity Press) by G. Esping-Andersen. Esping-Andersen clearly sympathizes with the social-democracy, and this affects the tone of his book. Moreover, the first edition already appeared in 1990, when the Leninist block still existed in Eastern Europe. This explains why the book often refers to Marx, and assumes a class society. It requires some intellectual pliancy to filter such rhetorics from the argument. Your columnist does not know, to what extent the Swedish regime has changed since 1990. (back)
  25. Esping-Andersen is convinced, that the social justice is served by the so-called decommodification. This term is derived from marxism, which complains about the commodity character of labour. Esping-Andersen argues, that people are only free, when their existence is independent of their wage (p.22 in Twc). On p.23 it says: "Citizens can freely, and without loss of income, opt out of work when they themselves consider it necessary". Socialism demands "emancipation from market dependency" (p.47), and "A highly advanced case [? EB] would be where a social wage is paid to citizens regardless of cause". Apparently his view is related to the propagandists for the unconditional basis-income. He interprets the social wage as a delayed labour income. People have a claim on a social wage, provided that they demand a modest labour wage (high taxes). Actually the freedom of consumption is curbed here. At least as problematic is, that the beneficiaries of the "social wage" actually become dependent on state support. The regime of the welfare state is enforced in a struggle for power. The labour movement is the driving force behind the decommodification, which consists of social rights (p.16-17 and 21 in Twc). Here your columnist wants to mention as an anecdote, that the WRR-report De verzorgingsstaat herwogen (2006) gives a wrong definition on p.150. For, there the decommodification is equated to the payment of money, as distinguished from the payment in kind. Considering the available expertise, this could be a deliberate "mistake", so sarcasm. In such diverse WRR-commissions the frustrations flourish. (back)
  26. This political classification is schematic, and does not really do justice to reality. The Swedish Social-democratic Labour Party is not the standard bearer of the social-democracy. This role belongs to the SPD, at least when the English Labour Party is ignored. Yet Esping-Andersen calls the German regime conservative. And Fukuyama points to the leading role, which protestantism has played in the USA. (back)
  27. Some will find this sympathetic. Yet in reality there appears to be much waste. Thus on p.156 in The three worlds of welfare capitalism it is mentioned, that daily 30% (so almost 1 in three) of the women, who work in the public sector, are absent at work due to sick-leave! Your columnist believes, that this is bizarre, but Esping-Andersen values this positively as an example of decommodification! (back)
  28. It would take too much time to judge fairly about the composite index of Esping-Andersen. The composite index is the sum of sub-indices, which are a measure of the benefits for pensioners, sick and unemployed people. But Esping-Andersen transforms the calculated partial indices to the scores 1, 2 and 3. Thus the states are clustered artificially, as it were. Esping-Andersen applies a similar transformation for the seven political indices of the typically social-democratic, conservative and liberal hallmarks. Each index is transformed to the score 0, 2 or 4. Furthermore it is odd, that the classification identifies both Germany and France as continental states. However, France has always had a much larger state sector than Germany. For a long time, France even had a planned economy. In this respect France is similar to Sweden. Furthermore, it is unclear why the Swedish regime is so prominent in the discussion, because this state is small and does not excel. In the former Leninist states, such as the GDR, it turned out that the large state sector mainly had corrupting and perverting effects. Due to such weaknesses your columnist is not yet convinced, that the three-world model is valuable. (back)
  29. The report does not make a socio-cultural analysis. According to the trust model corporatism is characterized by strong relations, so that the quality of life increases. The cohesion and trust reduce the transaction costs. They create additional opportunities, such as building the big industries. (back)
  30. Also here it can be remarked, that behaviour is determined culturally. According to the trust model some cultures are characterized by reciprocity and trust, so that the inclination of abuse diminishes. Unfortunately, under centralism the inclination to reciprocate is discouraged. Thus the trust model questions, whether the universal regime can be durable. In the inclusion model the use of generous rights can be interpreted as a form of extraction. The pressure and interest groups are rent seeking. (back)
  31. The theoretical frame at the beginning of this column states, that the welfare state has thin institutions. This is actually rather optimistic, because the citizen in the welfare state is almost anonymous. Therefore the redistribution is more a matter of justice than of bonding. Bonding must occur at a smaller scale, in the civil society. But here the problem is, that the churches as a bonding factor have declined, In the past the churches were a kind of private state: they had many tasks, which are how done by the real state. The self-organization occurred within the churches, which had the trust of their members. This certainly had advantages. Unfortunately your columnist does not yet see clearly, which groups nowadays could realize the self-organization. (back)
  32. Elevation (emancipation) can be done as an individual or as a group. The individual elevation requires the passing of the individual limits, and then preferably occurs by means of weak (thin) ties (the so-called bridging). Education can offer new knowledgde. Work stimulates the individual elevation, because it occurs within a network, and increases independency. In chapter 7 of Onze welvaartsstaat Hartog investigates, whether the participation of the workers is a part of the welfare state. He concludes, that the owners must remain responsible for the commercial course. He does reject nepotism in family enterprises. The appointments must be meritocratic. He calls this a fundamental democratization. See also p.75-80 and p.128-130 in De economie, de macht en de mensen. This is a volume of articles from Management Team, Bedrijfsdocumentaire and Elseviers Magazine. Hartog has rewritten them in such a manner, that they are coherent. (back)
  33. On p.237 in Onze welvaartsstaat it is remarked, that the welfare state must continuously be reformed. For, after some time the welfare state makes some of its own provisions superfluous. Consider the rising wealth, so that citizens can henceforth insure themselves privately. Also there is sometimes the inclination to offer provisions too abundantly. Mentioned are among others the subsidies for agriculture and rent. Now, half a century later, these are still discussed! (back)
  34. This use of language illustrates, that the report has been written be a diversely composed commission! The text is a compromise. So the reader can draw his own conclusions. For instance, on p.183 "a society where differences in outcome are no longer corrected because they are deserved" is called "cruel". Your columnist believes that this is a problematic statement. For, the social psychology shows, that people are indeed prepared to accept differences, which are deserved. The principle of reciprocity is satisfied. On p.137 in Onze welvaartsstaat the relation between marginal increases of the income and the willingness to make an extra effort is emphasized. Egalitarianism can discourage efforts. When the policy aims at the equality of opportunities, then also scarce talents are rewarded, like Johan Cruijff or André Hazes (p.126). See also p.143 in De economie, de macht en de mensen. (back)
  35. The report Uitdagingen en beleidsrichtingen voor de Nederlandse welvaartsstaat of the CPB has a different opinion, on p.7: "Although the policy of social security and the labour market institutions have useful economic functions, the corrections of free markets often affect the employment and productivity". This is indeed the common view, so that the WRR is probably too optimistic about the effect of provisions. The truth can only be discovered by meticulous empirical comparisons. The statistical data in the WRR report are rather scanty. Moreover, merely the European states are compared, so that for instance the North-American and Japanese regimes are ignored. Your columnist plans for the future to present detailed studies in the Gazette. A first attempt can be found in the column about economic statistics and the recent column about the Dutch economy. (back)
  36. The loyal reader will remember the failing of the public branch organization (PBO). Hartog calls on p.147 in Onze welvaartsstaat the PBO-idea "romantic", and this is a harsh but right judgement. (back)
  37. Many factors must be considered here. First, there is the moral problem. The christian-democracy has always argued, that the formation and education are primarily the task of the parents. The state can not simply curb the freedom of the family. On the contrary, it is preferable to encourage the self-organization of people. This idea is also found with some social-liberals. For instance, the writer P. Hilhorst advocates together-handyness. This gives the people more freedom of choice. An important factor is naturally the cost effectiveness. The report mentions this only in passing. Hartog points in Onze welvaartsstaat to the resistence of interest groups, when within the existing budget one wants to spend the means differently. Thirteen years (and a deep recession) later he repeats his warning (p.218-220 in De economie, de macht en de mensen). For, pressure groups want to extract rent from the state. Furthermore, your columnist wonders, whether education (as the creator of human capital) indeed increases employment. When unemployment is caused by ousting the less-educated, then more education does not solve the social problem. Such a crowding out can be caused by business cycles, but it can also be structural (see p.39 in Onze welvaartsstaat). And finally your columnist can imagine, that a too long compulsory education or a diploma culture can hinder certain individuals. At the moment they have the introductory professional education (VMBO), but this has a low status (p.193 in the WRR report). On p.195 it is acknowledged, that perhaps the present start qualification is indeed too high. Here the report questions its own ideology of "more is better than less". Such individuals benefit perhaps more from a second-chance education for adults. For, talent such as entrepreneurship, can hardly be transferred or reinforced by regular education. The economist C. Mantzavinos calls such talent on p.30-33 in Individuals, institutions and markets (2001, Cambridge University Press) practical knowledge, which consists of know-how. It can not be transmitted verbally, but must be learned by imitation. It develops by experience. As an anecdote it can be mentioned, that Esping-Andersen describes some employment as "junk-jobs", although they offer opportunities for migrants. Your columnist does not like such doctrinal arrogance. Hartog rightly states on p.324-327 in De economie, de macht en de mensen, that the burden of proof for new reforms must be placed on those, who propose them ("do not reform, unless ..."). (back)