Welfare states need reinforcement, not reinvention

Old ideas about welfare are not broken—but the politics sustaining them is in peril.

Do European welfare states need a post-pandemic reinvention? As cautious steps are taken towards reopening national economies, the answers to this question are increasingly polarised.

In one corner are calls to raise taxes and cut spending to pay for recent outlays. In another are appeals for a radical restructuring of support along the lines of a universal basic income.

Despite the claim that Covid-19 ‘changes everything’, one of the key lessons of the crisis is that expansive welfare states work. Defending existing systems of social protection may be less glamorous than calling for their reinvention. The task has however never been more urgent, as the politics sustaining these institutions is in peril.

Good institutions

No welfare and labour-market institutions can—or should—be constructed to withstand a mass halt of economic activity. Rather, good welfare institutions can do two things.

First, by investing in public services, and citizens’ health and skills, they can create a ‘stock’ of resources which allow citizens more capacity to weather shocks. Secondly, through social protection and redistribution, they can flexibly redeploy a ‘flow’ of resources to address needs in moments of crisis.

This crisis, as those before it, has exacerbated inequalities. European countries with strong labour-market and welfare institutions have been the most resilient, saving lives and jobs. By contrast, the most severe distress from the lockdown has followed from the absence of effective social policies.

Nearly all middle-class professionals—outside the health sector—have spent months sheltering at home. By contrast, many manual workers have continued to work outside the home. While there is much we do not know about the nature of the virus, there is evidence that these workers have faced far greater health risks. In the UK, work by the Office for National Statistics shows that, among the working population, members of ethnic minorities and men in manual occupations have had a greater risk of dying from Covid-19.

These same workers have also faced more economic risks, especially in countries with less social support. Data from Eurostat show that, on the eve of the crisis, only one-fifth of Danish respondents reported they would be unable to face unexpected financial expenses, compared with one-third of UK respondents and close to half of Greeks.

Economic insecurity

These pre-pandemic differences have shaped the resilience of workers during it. Abigail Adams-Prassl and colleagues have found that the gap in economic insecurity between manual and non-manual workers is larger in the US and the UK, with their limited welfare states, than in Germany.

Not only workers have experienced stark divides in welfare policy. For the elderly, care homes with unsafe working conditions have been particularly risky. This vulnerability is exacerbated in those countries with limited investments in the care workforce and weak links between the health and care systems.

For children, the shock of school closures has revealed unequal safety nets for everyday needs. In countries such as the UK, the crisis has led governments to extend emergency food policies. Such need is less extensive where other mechanisms exist to address child poverty.

Social support

Countries with more extensive social protection have also been better able to redirect the flow of resources to meet new needs. Crucially, this has involved social support linked to the labour force.

The long-established short-time work schemes in Denmark and Germany, among others, have cushioned the blow of large-scale economic shocks. By contrast, countries with weak unemployment benefits or large groups of temporary or informal workers have had to create new benefits rapidly.

‘Gig’ workers and the self-employed have been particularly vulnerable. These workers often do not pay for, or receive, benefits, leaving governments scrambling to cover them. Yet they are more prevalent in the countries with weak unemployment systems.

Where governments have had to invent programmes to fill the most pressing ‘holes’ in existing protection, they have often lacked the state capacity to deploy them effectively—short-term work schemes and social assistance in southern Europe have been slow to reach workers. And while new minimum-income schemes in more limited welfare states are welcome, where strong unemployment and labour-market institutions already exist, governments have not needed to create them.

Undermining success

Jettisoning traditional welfare, either through austerity or severing the link between welfare and the labour market through a universal basic income, would undermine these successes. The task post-Covid-19 is to strengthen—not reinvent—inclusive social policies. This sounds like a moderate battle cry for future welfare politics—but only at first glance.

The lessons of past crises suggest that these same institutions may be deeply vulnerable to backlash in gloomy economic times. During crises, economic grievances and fear tend to reduce solidarity, particularly towards vulnerable groups: minorities, immigrants and precarious workers.

In a context of fiscal constraint, European publics may push governments towards prioritising the needs of the louder, well-organised and powerful voices. This push can lead towards precisely the porous and fragmented welfare states, with limited labour-market links, which have faced the greatest challenges.

Quickly crushed

The good news is that there is no need to reinvent the welfare state around revolutionary concepts such as a universal basic income. Beyond the inefficiency of this instrument, any such initiative would be crushed quickly in a context of exacerbated austerity.

The less good news, however, is that defending the ‘old’ policies creating stock and enabling flow may be difficult politically. If the politicisation of welfare follows the now entrenched divisions of European politics—minorities versus workers, ‘cosmopolitan elites’ versus ‘nationalist people’, highly-skilled professionals versus those in routine jobs—not much improvement is to be expected.

But if the experiences of the crisis heighten collective awareness of how effective inclusive welfare institutions can be, there may be cause for optimism.