Review: Asbjørn Wahl The Rise and Fall of the Welfare State (Pluto Press, 2011)

256 pp. paperback £17.00; hardback £54

This is a well researched and thorough explanation of the development of social democracy and welfare states in the twentieth century and the subsequent decline of this model in the three decades leading to the present day. It is a “must read” for students of social and economic history, trade unionists, social democratic politicians, and socialists. The author is a Norwegian trade unionist with vast experience in the Scandinavian labour movement, pan European trade union organisations, and worldwide forums. Because of this experience he is able to cite specific and detailed evidence to support his general theses; this is often Scandinavian in origin. As the Nordic social model is widely regarded as the most developed form of the welfare state, this enhances the authenticity and relevance of the book.

His concept of the welfare state is widely drawn and inclusive, so he defines public education, social housing, health provision, and public transport as part of welfare as well as pensions, social benefits and sickness benefits. On this basis he postulates three “ideal types” of existing welfare states: the American - which is minimalist; the German - which relies heavily on employers; and the Nordic - which is the most highly developed across all aspects. All other welfare states fall somewhere along this continuum and their specifics are a mixture of the three main types, depending on the particular history of the countries concerned and the balance of power between the social classes in those countries.

The concept of the balance of power between the classes, workers and employers,is pivotal to his analysis, and recurs time and again throughout his historical narrative. This is a Marxist analysis of social and economic history. He traces the development of the modern welfare state from a late 19C/early 20C fear of social revolution in western Europe and cites Bismarck in Germany and Arthur Balfour in Britain as evidence for this assertion. This fear of revolution was exacerbated by the Russian revolution of 1917 and the establishment of the Soviet Union. Roosevelt’s reforms in the USA of the 1930s were, in part, conditioned by the strength of socialist and communist parties and their electoral performance at that time. The Second World War was,  however, a watershed in the development of welfare states. Europe was in desperate need of reconstruction and the scarcity of labour put trade unions in a unique position of power. Coupled with that, a strengthened Soviet Union offered an alternative economic system to the working class. It is in that context that an historic compromise was forged between workers and employers in western Europe whereby, in return for giving up their socialist ambitions, the workers were given higher wages, better working conditions, pensions, sickness and unemployment benefits, a health service, and nationalisation of public transport and housing provision; indeed the foundations of what we now consider the developed welfare state. This compromise was largely worked out between the trade unions, their political representatives the social democratic political parties, and representatives of the national bourgeoisie in the western European nation states. In order to deliver on their side of the compromise and to regenerate their post-war economies, western European governments accepted that heavy restrictions on the movement of capital and effective regulation of the economy were essential so that capitalists could not easily move their investments to countries with a lower cost base. The author correctly identifies this restriction on movement of capital and implementation of regulation as crucial to the relative bargaining power of capital and labour which underpinned the welfare states, the removal of such controls and regulations later on signalled the undermining of the welfare states.

I strongly agree with the main thrust of this historical analysis, but I feel that the author underestimates the importance of ideology in the development of the welfare state. It wasn’t only fear of revolution that gave impetus to these social changes. As well as Marxian socialism and classical economics, the 18th and 19th Centuries gave rise to utilitarian philosophy, self-help ideology, and the “human rights” notions of the Enlightenment. These ideological beliefs and movements won adherents across the social classes and, perhaps more importantly, informed the work of progressives such as Keynes. In the struggle between classes the possession of the moral high ground is very important, not least because it has the potential to divide the opposition. The capitalist class was divided in this way in the years after the Second World War. There was a genuine revulsion at the horrors of the 1930s and 1940s, which led many in both classes to a position where they enthusiastically embraced a compromise along social democratic lines. The working class was heavily influenced by the horror stories which were slowly leaking out concerning the Stalinist atrocities in the Soviet Union. Capitalism with a human face seemed like a reasonable solution in this context.

The narrative continues to the economic crises of the 1970s which prompted the capitalist class to launch what Wahl calls an employers’ offensive which effectively broke their adherence to the compromise that had served the western democracies well for the previous twenty-five years. This break was ideologically underpinned by the Chicago School of economists which advocated a return to “free market” economics and the abolition of controls on capital and regulation. This strategy was lauded as the only way to break out of economic stagnation and return to dynamic growth. The social democratic political parties and trade unions were unable or unwilling to respond to this new challenge. Wahl describes their leadership as so wedded to the ideas of “partnership” and compromise that the new situation left them in a state of impotent shock. From the 1970s onwards the share in national wealth of the working class was progressively reduced in country after country and the welfare state was put under pressure. The author underemphasises the role of the USA in this process. America was not ravaged by the Second World War and the terms of the loan they gave to Britain (at a punishing interest rate) included unrestricted access to the markets of the British Empire for their goods and services. They were therefore in a position to build their own empire along with fighting “the Cold War” against the Soviet Union and China. Their commitment to compromise was at best weak and usually involved strategic considerations such as bolstering the economies of W.Germany and Japan to act as a bulwark against Communism. It is not surprising, therefore, that the likes of Hayek and Milton Friedman of the Chicago School achieved such hegemony for their free trade economic theories, as free trade always benefits the strongest empires, as it had the 19th Century British Empire. It is,therefore legitimate to view the employers’ offensive as part of the progress of American imperialism. In this view the regimes of Reagan in the USA, and Thatcher in Britain can be put into context.  To use a metaphor, Britain was a US aircraft carrier for the invasion of continental Europe. An invasion of neo-liberal economics.

The author describes the dilemma of the trade unions and social democratic governments in this period very well. With the removal of capital controls, international capital was in a position to threaten withdrawal of investment from any country that did not comply with its demands for lower taxes, decreased public expenditure and de-regulation. Such capital withdrawal (and re-location to countries who did comply) would inevitably lead to high unemployment and therefore diminish the power of the trade unions and make the social democratic parties unelectable. The balance of power had tipped decisively in favour of capital. Of course lower tax receipts and cuts in public expenditure meant that governments had less to spend on the welfare state, so inevitably it went into decline. In the meantime the “Cold War” with the Communists was going very well. Any socialist response from the working class in western Europe was still tainted with the horrors of Stalin and Mao and socialism was an electoral liability for the social democratic parties.

The sorry tale continues into the 1990s.Wahl describes how the European Union was used as an undemocratic vehicle to supersede European nation states and impose Chicago School economics throughout western Europe; privatization and de-regulation prevailed in the heartland of social democracy. He doesn’t emphasise that the Soviet Union had collapsed by this time and Chicago School economists were creating mass poverty in eastern Europe and Russia. Naomi Klein, in her book The Shock Doctrine, describes this period eloquently and Laszlo Andor and Martin Summers in their book Market Failure specifically detail the eastern European experience. It is therefore not surprising that in the absence of any threat from the east, western European states found themselves in the firing line for neo-liberal reform. However, Wahl expertly details the process whereby business models intended for the production of commodities were applied to education and the caring professions with the resultant demoralisation of workers and professionals throughout the institutions of the welfare state.

So was this truly, as Francis Fukuyama pronounced ‘the end of history’. It may have looked that way until the capitalist crisis of 2008. It turned out that the Chicago economists had created a huge credit bubble which burst across the developed economies and plunged them into the worst economic depression since the 1930s.Wahl puts great emphasis on the role of trade unions if the welfare state is to be protected and restored and further emphasises that this fight must be international. Without restrictions on the movement of capital it is difficult to see how even progressive governments can nurture the Welfare State. I agree; but I believe the trade unions must sever their ties to the Social Democrats who have failed their members in the last thirty years. They need to build a political wing that is firmly socialist and will take on the ideological fight with the Chicago School internationally. In this way an international socialist movement can be built which can demand capital controls and put on pressure by means of international industrial action. There are allies for this kind of movement in the agricultural and industrial cooperatives which have developed in many parts of the world. In many ways we are living through times of historic change and in order to win decent living conditions for the majority of people it is necessary to convince the world that free market capitalism is responsible for the economic problems that we face and that it must be brought to heel.

Francis E. Andrews is a retired welfare rights advisor from the North of England and a lifelong socialist.