Economic and political causes for transformations of social policy in the 20th century

Podolskiy Vadim PhD in Politics Associate Professor, Department of Political Science, State Academic University for the Humanities 119049, Russia, Moscow, lane. Maronovsky, 26 deomniscibili@yandex.ru Other publications by this author

The article was prepared with financial support within the framework of the implementation of the State Budget (state task) of the National Academy of Sciences on the topic "Modern Information Society and Digital Science: cognitive, economic, political and legal aspects" (FZNF-2020-0014).

Acknowledgements: The article is prepared with financial support as part of fulfillment of the SA (State Assignment) for the State Academic University for the Humanities on the subject “Contemporary information society and digital science: cognitive, economic, political and legal aspects” (FZNF-2020-0014).

The importance and scale of social policy have grown significantly in the 20th century. If at the beginning of the 20th century social expenditures accounted for only a small share in the economy, then in modern states amounts amounting to an average of about a third of GDP are allocated for social needs through insurance contribution mechanisms or from budgets ^{[21, p. 541]}. There are three periods in the development of social policy in the 20th century. The first period was the predominance of corporate social insurance schemes and limited assistance programs for the most needy, until the middle of the century. The second period was the formation of the welfare state, from the 1940s to the 1970s, when the coverage of social programs began to include the entire population of states. The third period is the reduction in the growth rate of social programs and the strengthening of the role of market elements, since the 1980s ^{[21, p. 113-160]}. The issues of subsidizing and ensuring the sustainability of social spending are becoming the subject of political bargaining, and limiting the availability and volume of social services, as well as increasing taxes or fees, leads to an increase in social tension. Due to the aging of the population in the 20th century, the problem of maintaining social spending has developed, and in the 21st century it has significantly worsened. Attempts to reduce social spending and change their logic in the 1980s only slowed down the growth of social spending for a while, but did not lead to a decrease in it. American political scientist Paul Pearson identified the problem of sustainability of social spending as a collision of an irresistible force and an immovable object: despite the challenges associated with maintaining social spending, their reduction is unacceptable from a political point of view and difficult to implement from the point of view of institutional inertia, the "rut effect" ^[19].

The comparative study of social policy is valuable for analyzing the adaptation of organizational principles and logic in this area depending on economic, demographic, political and social challenges. The content of social policy transformations includes scaling up or introducing new social security or insurance programs, benefits or allowances, or changing the administrative architecture and organizational principles in the social policy system. The term "welfare state" was introduced in the 19th century by the German economist Lorenz von Stein, and in the second half of the 20th century, the phrase "welfare state" spread in the literature, denoting a model of social policy in which the state assumes responsibility for the welfare of citizens ^{[2, pp. 171-172]}. Researchers of social policy have formed many approaches to its typologization. According to Giuliano Bonoli, approaches can be divided into those that distinguish types of social states depending on the volume of redistribution and those that distinguish the principles of their organization ^{[2, p. 332]}. The most common approach, which was developed by Wilensky and Lebeau, distinguishes between an "institutionalized" and a "residual" welfare state in terms of redistribution ^{[25, p. 138]}. From the point of view of sources of financing for social programs, a welfare state can be built according to fiscal principles or depend on employment ^{[21, p. 289]}. In the well-established typology of Gesta Esping–Andersen, three types of welfare state are distinguished - conservative, liberal and social democratic. These models embody three different political and philosophical principles: corporate solidarity, free action of market forces and equality. Esping-Andersen distinguishes the types according to the scale of state intervention, the degree of stratification, the level of social rights and decommodification measures as protection from the action of market forces. The goal of the conservative type is to maintain income, the liberal type is to help the poor, and the social democratic type is redistribution ^[9].

The conservative model is usually associated with the reforms of Chancellor Otto von Bismarck, who introduced compulsory insurance laws in the 1880s. Bismarck's social reforms and similar reforms in other states were associated with a number of economic and political prerequisites. Firstly, industrialization in the 19th and first half of the 20th century led to a significant increase in the dependence of economic participants on market fluctuations compared to the pre-industrial era and, consequently, necessitated the creation of mechanisms to amortize the negative consequences of market failures. Secondly, political and legal changes related to economic transformations have led to the formation of democratic mechanisms and an increase in the number of voters. One of the reasons for social reforms and the subsequent expansion of social support programs was the interest of participants in the political process in obtaining votes in elections, as well as paternalistic and religious ideas about caring for those in need ^{[5, p. 110]}. Thirdly, the socialist ideology in the 19th century and the communist ideology in the 20th century presupposed a radical revision of the principles of the organization of the economy and power. Many politicians and theorists have pointed out that the popularity of socialism is due to the fact that workers expected to increase their well-being due to the socialization of the means of production. In this context, insurance programs became a means of ensuring social stability and protecting property from revolutionary upheavals ^{[17, p. 178]}.

The insurance, corporate approach, in which the level of social security depended on the place of work and payments were supposed for family members of the employee, spread in Europe in the late XIX-early XX century, was adopted in Russia and Japan. In such systems, corporate insurance programs were divided, which were financed from employee contributions to insurance funds depending on the region or profession, and social assistance mechanisms that were heirs of charitable practices. The conservative approach assumes stable employment and late retirement: when Bismarck introduced insurance laws, the retirement age was set at 70 years ^{[17, p. 192]} with a life expectancy of 40 years. Also, the conservative approach assumed the participation of many actors, self-regulation and horizontal communication between insurance companies and service providers in providing social support.

Pension schemes created at the end of the XIX-beginning of the XX century could take the form of mutual aid societies or insurance funds at enterprises where contributions to the funds were divided between employees and employers. As in Germany, mandatory pension insurance was introduced in other European countries, for example, in France in 1910, although its spread was rather slow due to the limited number of professions covered by laws, workers' distrust and employers' unwillingness to raise costs ^{[15, p. 202]}. In Britain, in 1908, a tax-funded pension for senior citizens was introduced ^{[14, p. 159-160]}. Compulsory accident insurance was extended. In continuation of charitable practices, payments or benefits were offered to low-income citizens, usually at the expense of municipal budgets. Benefits were introduced for families with children, which were financed from employees' insurance premiums ^{[6, p. 27-28]}. In 1911, the world's first compulsory unemployment insurance was introduced in Britain ^{[14, p. 163]}, in 1927 in Germany ^{[17, p. 202]}.

A liberal welfare state differs from a conservative one by a lower level of coordination of subjects of social services, stricter requirements of social support programs in the form of a need check and the principle of "minimum acceptability", when any job should bring more income than receiving benefits, as well as the predominance of tax benefits as instruments of social policy. A liberal welfare state was formed in the United States and, partly, in Britain, but some elements were embodied in other states. Within the framework of a liberal approach, the meaning of social policy is to protect the conditions for the functioning of the market ^{[11, p. 29]}

The crisis of the 1930s became a significant impetus for the revision of social policy, especially in America. In the USA, pension and medical insurance and social support programs operated at the level of individual states or enterprises, and professional associations were also formed, such as the Blue Shield projects, which combined prepaid medical services, and the Blue Cross, which combined prepaid hospital care programs ^{[22, p. 534]}. Due to the large-scale economic downturn in the country in the 1930s, a number of decisions were made on the basis of which federal social protection measures were created, the most famous of them being the Social Insurance Law of 1935. From an economic point of view, the purpose of social support programs, pension insurance, assistance to families with children, as well as programs to increase government spending and public works, was to stimulate consumption. From the social and political point of view – reducing tensions due to high unemployment, eliminating the threat of the spread of radical ideologies ^{[16, p. 38-40]}.

Concerns about the popularity of communism have become one of the reasons for the expansion of social programs in Europe. The most extensive reforms took place in Britain, where a system of universal health care and universal pension provision was introduced. Although some elements of the universalist approach were used in Britain before, the system of employment-independent universal social programs became known by the name of the author of the report to the British Parliament, economist William Beveridge, and is usually contrasted with the "Bismarck system" ^{[7, p. 522-523]}. In addition to the introduction of social insurance, mass housing construction began in Britain in the 1940s, disability benefits and benefits for the poor were established, and fees for high school education were abolished. The general logic of the reforms was associated with the implementation of the Keynesian paradigm of stimulating demand by increasing state redistribution, and ensuring universal employment was also assumed ^{[10, p. 245-286]}.

Despite the general trends towards the expansion of social programs in the second half of the 20th century, country characteristics persisted. In Germany, the relaunch of the welfare state continued the trends laid down at the end of the XIX-beginning of the XX century, first of all, social programs performed the function of income replacement, not redistribution, that is, payments and services were earned by citizens rather than provided by the state. The coexistence of many participants in social programs, local authorities, charitable organizations and the church was maintained. In Germany, the collegial management principle characteristic of Germany was reproduced. For example, in the healthcare sector, the key regulatory body is the Joint Committee, which includes representatives of insurance companies, doctors and hospitals. Economic transformations in the second half of the 20th century in Germany took place according to the principles of ordoliberalism and a market-based social economy, in which the state protected the operation of market mechanisms and sought, according to L. Erhard's formula, to ensure "welfare for all" ^[4]. The role of pensions was changing – instead of benefits for the elderly, they received an income replacement function. The expansion of social programs, for example, the restoration of child benefits canceled in 1945 in the 1950s and an increase in pensions in 1957 ^{[17, p. 193-194]}, was aimed at strengthening public confidence in the state, and competition with the GDR was also a significant factor ^{[20, p. 203]}.

In France, the main mechanisms of the welfare state were created at the end of the XIX-beginning of the XX century, but the spread of pension and health insurance and family benefits was relatively slow, and accelerated in the second half of the XX century, when France quickly caught up and exceeded the figures of Britain and Germany. It was believed that social spending contributed to economic growth, and employment and redistribution through social insurance supported solidarity and social peace. France set universalist goals, as in the Beveridge system, using Bismarckian methods, that is, the link between social security and employment. On the one hand, combining schemes was politically difficult due to the weight of trade unions defending social insurance mechanisms in their industries. On the other hand, an important task was to prevent revolutionary sentiments against the background of the growing popularity of the Communist Party in the 1940s. There was a gradual consolidation of the extremely fragmented pension and health insurance system, the spread of social programs to all new professions with the inclusion of representatives of employees and employers in the management system. ^{[15, p. 203-204]}. In the 90s, experts and civil servants criticized representatives of employers and employees for increasing social spending. There was a question of reducing social contributions to maintain competitiveness, especially for low-paid workers. The solution was to create a general social contribution in the 90s, which was charged not from wages, like other contributions, but from all types of income. In order to reduce the growth rate of social spending, since 1996 the Parliament has been obliged to vote for the approval of the social budget ^{[15, p. 208]}.

Against the background of the development of the welfare state in Europe and in the USSR, in the USA in the 1960s, as part of a series of reforms united under the name of the "Great Society", state health insurance programs were introduced. The Medicare program was designed to provide insurance to citizens over the age of 65 if they paid contributions. The Medicaid program was designed to provide insurance to people in need and was funded by the states. The initiators of the expansion of social programs in the United States pointed out that despite economic growth, many citizens still suffered from financial need. It was assumed that increasing the availability of insurance mechanisms would contribute to social stability. But in the second half of the 1960s, protest behavior in the country only increased. In 1959, the federal poverty level began to be measured in the United States, which later became used to assess the well-being of citizens and provide them with social support. This level was gradually rising. Many politicians and theorists were unhappy that the increase in spending on social programs did not eliminate poverty and did not reduce protest behavior ^{[23, p. 328-373]}. This has led to an increase in the popularity of the market approach in solving social problems. In the USA, in the 1970s and 1990s, a number of reforms were carried out aimed at reducing government spending on social needs. Tax incentives were introduced, including for participants in private pension funds, and tax credits as incentives to maintain employment. Tax credits were provided to working citizens and allowed them to reduce the tax base down to negative values, that is, a citizen with an income level below a certain level did not pay taxes, but received money from the tax service. Temporary assistance to needy families took the place of assistance to families with children, which had existed since the 1930s ^{[16, p. 40-42]}. Britain carried out similar transformations at the end of the 20th century, trying to increase economic efficiency and reduce social spending after the crisis of the 1970s. Market elements in the work of the healthcare system, tax incentives were introduced in the country, and the rate of indexation of state pensions was reduced ^{[7, p. 532]}. Both in Britain and France, the privatization of state property was used to increase budget filling, and tasks were delegated to local authorities and private organizations to preserve the functionality of social programs ^[8].

If in many countries the end of the 20th century was a period when governments attempted to optimize spending on social needs, which grew in the middle of the century, then in some states the 1980s and 1990s were a time of strong political transformations and social programs rather expanded, but approaches and logic were sometimes borrowed from liberal decisions.

In Spain, social policy in the 20th century was formed according to conservative principles and included subsidizing social protection at enterprises by the state, a method adopted from Belgium, Italy and France ^{[6, p. 25-26]}. With the improvement of the economic situation in the second half of the 20th century, the state significantly increased the scale of social programs – pensions, health insurance, family benefits, but the corporatist logic persisted, since benefits depended on the place of work and income level. The purpose of the reforms was to strengthen the loyalty of the population and demonstrate the ability of the political system to function successfully in the new economic conditions. During the reforms of the 1980s, the country introduced universalist principles in healthcare and pensions, following the example of Britain. The change in social policy was intended to strengthen the popularity of the new structure of the country against the background of severe political instability. Liberal solutions have been implemented in Spain only to a limited extent, for example, in the form of tax benefits for pension funds ^{[18, p. 60-80]}. The Toledo Pact of 1995 linked pension payments to the economic situation, creating a flexible tool for adapting social spending ^{[12, p. 196]}.

In the Soviet Union, in the first decades of its existence, the development of social policy for some time took place on a corporate basis, as in the imperial period. The amount of social support depended on the place of work, and pensions were gradually introduced for different professions. In the 1920s, the world's first system of universal free healthcare was created ^[1]. In the 1950s and 1960s, pension programs were reformed, as a result of which pensions became universal, and the dependence of social support on employment was reduced, although the level of pension provision for collective farm employees remained lower for a long time. The largest housing construction program in the world at that time was launched ^{[3, pp. 18-20]}. In the post-Soviet period, there were noticeable changes in social policy, but attempts to introduce market elements did not lead to an increase in their role, and the predominance of universalist logic remained. Financing of social expenses was redirected from trade union organizations to extra-budgetary funds, which began to receive subsidies from budgets. A fragmented system of regional benefits was also formed, the general meaning of which was partial compensation for the availability of goods and services to the population, which decreased due to the departure from planned pricing ^[1].

In China, large-scale transformations of social policy were carried out twice in the 20th century. In the 1950s, a system was created that partially repeated the early Soviet one. With the help of contributions collected by trade unions, medical and pension provision, occupational injury insurance and insurance for women in labor were financed. Cooperative cash registers operated for rural residents, which provided financing for medical services, as well as welfare for poor, childless citizens and the disabled ^{[13, p. 10]}. Thanks to the "barefoot doctors" program, that is, mass training of doctors who completed basic training and often continued to work in rice fields, the country managed to double life expectancy, from 30 to 60 years ^{[24, p. 4]}. As a result of economic liberalization, cooperative schemes gradually disappeared in the 1980s, and at the end of the century, China began to rebuild the social security system, which had features of a liberal rather than a corporatist regime ^{[13, p. 217]}. The difference between urban and rural residents remained with the creation of new medical and pension insurance systems, which began to be implemented at the end of the 20th century ^{[13, p. 10]}. Also at the end of the XX century, unemployment insurance and insurance for women in labor were introduced in China ^{[24, p. 7-14]}.

The factors common to all countries that have determined the formation of social policy are urbanization, the atomization of society and the loss of traditional social assistance networks due to increased mobility of the population. In China, this process was slower, so social protection methods were introduced later. The creation or modification of social protection mechanisms took place especially intensively during periods of political transformation, for example, in Spain, China and Russia at the end of the 20th century.

The main prerequisites for the transformation of social policy are related to political expediency and economic challenges. Political factors may include the spread of socialism and communism, the example of other States, the transition to universal suffrage in the twentieth century, and the strength of the trade union movement. All these factors prompted the expansion of social programs to preserve social stability and electoral success, public loyalty and social solidarity. Economic factors include the problem of demand, which was stimulated by the redistributive effect of social programs and tax incentives, and the problem of the labor market, in relation to which two approaches developed in the social policy of the twentieth century: in one case, employment was stimulated, including through stricter rules for providing social assistance, as in Britain and the United States, in another case, the stability of labor relations was maintained, as in continental Europe. In the 20th century, some countries – Britain, the USSR, Spain – introduced either elements of universalist systems or restructured their social policies according to the universalist principle. Also at the end of the 20th century, many countries adopted some schemes from a liberal approach, namely tax incentives, stricter conditions for granting benefits, and benefits for private pension funds. Limitations in the implementation of reforms are associated with the "rut effect" and institutional inertia. Despite the borrowing of organizational principles and a certain convergence of approaches, as well as similar challenges associated with the aging of the population, the features of social policy models that developed in the 20th century remain in the countries.