The Status of the Welfare State in a Free-Market Society: A Review of Intellectual Controversies since World War Ⅱ

Thursday, August 29, 2019
Cyril Benoît

In the Western world, it is widely acknowledged that the Welfare state has gradually eroded since the end of the 1970s due to a range of liberalization and deregulation policies, such as the privatization of social insurance schemes, the decentralization of Welfare services, or increases in competition between Welfare providers. Certainly, the pathways taken by such a large-scale transformation has varied from by country and by sector—overall, it has been more pronounced in Anglo-Saxon democracies than in Continental Europe, and more perceptible for pensions than for healthcare. It is also true that a number of post-war Welfare institutions have proven to be very resilient or particularly difficult to remove (think of America’s Medicare or the National Health Service (NHS) in the United Kingdom). Still, the creation of countrywide Welfare institutions is no longer seen as the sole nor the dominant way through which the nation-state envisions its intervention upon social and economic life. Indeed, recent events suggest that when present-day politicians try to promote large-scale program change, they face far greater opposition than their post-war predecessors—as recently exemplified by the conflictual adoption of the Patient Protection and Affordable Care Act in the US.

Political economists have advanced a number of explanations to account for what they label as a Welfare State ‘crisis.’ They have notably emphasized the role of economic ideas in such transformation. The rise of Welfare institutions was indeed supported by common understandings of the economy—drawing on Keynesianist principles and seeing the achievement of full employment and growth through redistribution as key. In this context, the Welfare State crisis is seen as an outcome of an essentially symmetrical development of competing economic principles. It has notably been argued that the critique of Welfare institutions by free-market scholars (ranging from Milton Friedman to Fredrich von Hayek) their schools of thought (the Public Choice School or the Chicago School), and learned societies (such as the Mont Pèlerin Society) was instrumental in bringing about the Welfare State crisis. Through this lens, what has happened resembles a crisis of economic legitimacy. First developed in the world of ideas, these conceptions are seen as having gradually diffused throughout a number of spaces, such as universities and think-tanks, then endorsed by Conservative politicians in the Western world and beyond from the 1970s onwards.  

Yet, a careful examination of several Hoover Institution collections—including the Milton Friedman and Fredrich von Hayek papers, Mont Pèlerin Society, Institute of Economic Affairs (IEA) and the Institute for Humane Studies (IHS)—suggest a different pathway. Up to the 1960s, intellectual debates amongst free-market scholars rarely actually occurred and were vague when it came to the Welfare State, all of which seems surprising. At the time, there were already long-established Welfare programs in many Western countries, including German and Austrian social insurance schemes and US Social Security. In the intellectual circles examined here, however, these developments were less seen as conflicting with free-market doctrines than Socialism in its stricter sense was, the latter characterized as entailing nationalization of the means of production and central planning. Most of the discussions that did take place were also oriented towards general principles rather than solving the policy problems of the day—as testified by the fierce debates that occurred around themes such as “The Liberal Theory of Public Opinion” or “Liberalism and Christianity” at the 1947 Mont Pèlerin Society meeting.

This finding does not nullify the political power of economic ideas, and the Hoover Institution’s archival holdings are full of materials that support this thesis—for instance Milton Friedman’s influential work on pensions or James Buchanan and Colin Campbell’s papers on Voluntary Social Security in 1966. But they depict a different narrative. Indeed, the 1960s saw the development of a number of think-tanks on both sides of the Atlantic. It was also a period where Conservative political parties sought alternatives to the policy programs pre-eminently developed by the Left. What my research at Hoover Institution reveals is that these latter actors played an instrumental role in shaping, and sometimes directly participating in, the highly academic debates related to the Welfare State. By attending academic conferences, by developing a number of personal and professional connexions with academia, representatives of think-tanks and parties contributed to setting discussion on the Welfare State on the agenda of intellectual debates of free-market scholars. Specifically, as the relations between think-tanks, political parties, and academia became less porous, scholarly debates became more policy-like, focused on more specific issues and aimed at offering concrete alternatives to particular Welfare programs. In their discourses, free-market scholars progressively abandoned references to nationalization and planning and gradually equated Socialism to taxation through redistribution. This, in turn, contributed to considerably shifting their conception of free-market principles from their post-war basis. As such, this finding not only contributes to our understanding of the intellectual sources of the so-called Welfare ‘crisis.’ It also sheds light on the transformation of free-market principles, under the influence of the growing politicization of thought.

I gratefully acknowledge the support of the Hoover Institution. I also would like to thank the entire Hoover staff for their availability and for their help during the fruitful time spent at the Library & Archives.

Cyril Benoît

Researcher at the Centre for European Studies and Comparative Politics at Sciences Po, Paris.

Cyril Benoît, 2018 Silas Palmer Fellowship Recipient and CNRS Researcher at the Centre for European Studies and Comparative Politics at Sciences Po, Paris. A Political Scientist by training, he specializes in Comparative Political Economy, Public Policy and Legislative Studies.