The Progressive Post

The Welfare State Revisited

More than ever, there is a need for strong welfare states.


Since the 1980s, two troublesome trends have affected the world economy. The first is the fairly widespread increase in income inequality. This includes the two major economies of the world (the United States and China) but also several European countries, not to say the former communist countries, which have experienced the worst trend of all. There are a few exceptions, the most important being the improvements that took place in most Latin American countries in the early twenty-first century, which still left this region as one of the most unequal in the world.


The second trend is the attack on, and the resulting weakening of the welfare state. This reflects the ideological political shifts since the Thatcher-Reagan era, which argue that the welfare state weakens market incentives and creates a culture of dependency that blocks change. This has been enhanced during periods of crisis, when the reduction of welfare spending is part of the austerity policies put in place to manage the crises. This is the experience of several European countries after the 2008 crisis and of developing countries on several occasions.

These challenges are, of course, interrelated, because the welfare state was historically the major institutional framework to manage the inequalities generated by the functioning of markets. Both reflect the weakening of labor, and particularly of its bargaining power, no doubt associated with globalization. In the case of developing countries, the still large labor market informality is also an essential part of the problem. The rise of precarious forms of work (e.g., digital employment) may be behind rising informality even in advanced countries.

In the book The Welfare State Revisited, edited by Joseph Stiglitz and myself, and published by Columbia University Press, we argue that, more than ever, there is a need for strong welfare states. Contributors look at the challenges that the welfare states face today, and then at the experience of specific regions or countries. They include the European Union, Scandinavia, the United States, Latin America, and India.

The welfare state’s major defense is, of course, ethical: a desire for social justice, based on a sense of solidarity that must be at the center of adequate social arrangements. Underlying the welfare state is, therefore, the question of what kind of society we want to belong to and create. The basic idea that underlies the development of the welfare state, since its launch of the social security program under Bismarck, is that the state has a responsibility for social protection, which is essential to solidify social cohesion.

But beyond these ethical and social cohesion arguments, well-designed welfare states also improve economic performance. They generate short-term economic benefits, the most obvious of which is that they act as automatic macroeconomic stabilizers during crises. In contrast, the weakening of social welfare systems as a result of short-term austerity programs lead to poor social and economic performance –not to say, to the more polarized and less tolerant societies that are behind the rise of different forms of populism in several countries over the past decade.

On top of that, there is a growing body of theory and evidence showing that societies that are more equal have better stronger and more resilient economic growth –a point that, interestingly, has been underscored in recent research by the International Monetary Fund. In particular, the social insurance provided by the welfare states results in more innovative societies and economies where individuals are more willing to accept change and its associated risks. These features are key to faster productivity and economic growth.

Work-based welfarism of the mid-twentieth-century variety—where much of the burden of social protection was imposed on individual employers—will not work today.

However, twenty-first-century welfare states will have to be different from those of the nineteenth and twentieth centuries. They must respond to the demands generated by demographic changes, new features of labor markets, technological change, and the fiscal constraints created by tax competition in the globalized world. Work-based welfarism of the mid-twentieth-century variety—where much of the burden of social protection was imposed on individual employers—will not work today. And changes in social structures imply that social institutions, like the family, may not be able to play the role that they did in the past.

Some conceptual debates cut across the volume. A particularly important one relates to the role of universalism versus targeting in the design of social policies. We come definitely in favor of the universal character that welfare states must have to meet their broader societal goals, but also generate its full expected economic benefits. In this light, novel policies may be part of the new policy packages, including the design of universal basic income schemes.

A second conceptual debate relates to what Stiglitz calls “income fetishism”: the belief that well-being is enhanced by cashing out benefits and allowing individuals to make choices of their own. This leads to the substitution of market instruments for public sector arrangements—in pensions, but also health and education. This is not the way to go, given the pervasiveness of market failures. In fact, the introduction of individual accounts, privatization, and other reforms of pension systems in a number of countries. weakened its redistributive components.

The welfare state is, therefore, part of the solution to increasing inequality and more polarized societies. Its economic benefits are also substantial. It should be clearly part of the agenda of the twenty-first century.

The Welfare State Revisited, co-edited by José Antonio Ocampo and Joseph E. Stiglitz, has been published by Columbia University Press.

Find all related publications

A European feminist foreign policy?

The need for a progressive and transformative approach

The transformation of the mainstream right in Western Europe

Implications for social democracy

Next Left Vol. 15

Progressive Ambition: How to shape Europe in the next decade

Expected labour market effects of the Green Deal Industrial Plan

The potential of labour policy for Just Transition regions
Find all related news

FEPS supports the declaration of Portimão calling for affordable housing in the EU

Affordable housing needs Europe, Europe needs affordable housing

FEPS stands with Zita Gurmai against persecution from Orban regime


Interview with Maria João Rodrigues on the need for EU treaty changes with Euronews


FEPS President on Euronews talk-show ‘Brussels, my love?’

NATO extension, Portuguese elections, far-right and gender equality were the topics of the debate
Find all related in the media
In the media

Jetzt oder nie: Österreichs digitales Schicksal entscheidet sich (auch) im Klassenzimmer!

by Börse Express 14/04/2024
'Now or never: Austria's digital fate will (also) be decided in the classroom!' Börse Express's article mentions FEPS policy brief 'Europe needs high-tech talent'

EU-VÍZIÓ, Dull Szabolcs újságíró Andor Lászlóval beszélget

by MÚOSZ Magyar Újságírók Országos Szövetsége 11/04/2024
On the occasion of the 20th anniversary of the EU great Eastern enlargement, FEPS Secretary General László Andor talks, in this video interview to the Hungarian Journalists' Association, the functioning of the Commission and its further development.

Sustainable democracies need a sustainable media sector, says Jourová

by EURACTIV 02/04/2024
FEPS President Maria João Rodrigues discusses AI and journalism at Stars4Media event

Does the European Union have the resources to match its ambitions?

by Euronews 02/04/2024
Maria João Rodrigues discusses reforming EU institutions. Available in ES, PT, & FR