Economic Foundations of Welfare State Systems

In the postwar period almost all countries of the world adopted the welfare state system in various forms, and as a result there is no uniformity in the welfare state objectives pursued by governments. The basic principle behind the welfare state, however, is to bring about economic and social equality through income transfers, but there is wide divergence among countries in the ways in which income redistribution policies are adopted and implemented. The two crucial elements in income redistribution are the role of the state and dependence on markets in respect of which the countries differ to a great extent. In Western Europe, for instance, the state tends to go beyond the three economic objectives – namely full employment, price stability and an equitable distribution of income – with the state taking an active part in pursuing these objectives. Daniel Bell (1974)1 represents one extreme position on the extent to which the welfare state is expected to intervene in the market. What he refers to as ‘the revolution of the rising entitlements’ is not just the claim of the minorities, the poor or the disadvantaged for a better future, but the claims of all groups in society for protection of rights. On the other hand, many observers would put North America in the category of those countries that use market instruments more often than an active intervention of the state in trying to achieve the liberal welfare state objectives.