How Does the Welfare State Regulate Capital and Market Development.

Initially it was proposed that the mechanism of regulation of the effect of the free market by the welfare state could be explained on the basis of a procedural relationship. Two procedural relations were proposed, Parliamentarism and Corporatism (Jessop B 1996;Therbom G 1992).

A. Parliamentarism

Parliamentarism controls welfare development and regulation by rule of law. The regulation of state provision by rule of law defines the rights and obligations of citizens in accordance with legally binding statutory instruments. It therefore represents state provision at the highest level. However in relation to welfare, and

particularly health-care service provision, it is very hard to determine the levels of care that should be provided and guarantee these on a legal basis. Witness for example the deliberations of the Dekker committee in Holland, which has failed to define a legally sound suitable minimum standard of care due to the complexity of health care provisions (Honigsbaum F Calltrop J Ham C Holmstrom 1995). Therefore Parliamentarism alone cannot define the boundaries of care (Teulings C and Hartog J

1998) and so Parliamentarism can not define the regulatory mechanism.

B. Corporatism.

Corporatism relies on the representation of workers and employers by structural bodies, e.g. Trade Unions, within a state framework, e.g. the Confederation of British Industry (CBI). In this explanation welfare state developments are procedurally determined by the state in accordance with the rules within the state framework. However, this explanation suffers from similar problems to Parliamentarism in that the boundaries of care cannot be defined by the state alone (Teulings C and Hartog J

1998).

In face of these failings it appears that the regulatory mechanisms of the welfare state do not have a basis on procedural rules and therefore the effects must be achieved by the organisations involved in the welfare state taking a dynamic, active, role in market development (Torfing J 1998).

Initial efforts to explain the dynamic regulatory function of the welfare state in controlling the effects of markets focussed on the state. In particular these efforts

looked at the welfare state in terms of regulating economic exchange within the market. This analysis - performed by Wilensky (Wilensky HL 1975) - found that welfare expenditure is influenced by state ideology, but found that rich countries relatively spend more than poor ones. This argues that it is the market that drives welfare provision, not the state driving the market as suggested by the hypothesis and so this analysis route was stopped (Torfing J 1998).

Flora and Alper proposed an alternative explanation in the early 1980’s (Flora P and Alper J 1982). This account focused on welfare developments as a result of social and economic exchanges relating to the acquisition of workers rights, i.e. regulation of market effects by the state and citizens. In a regression analysis Flora and Alper demonstrated a correlation between economic regulation and social change - as would be predicted from this hypothesis. However, the model would also predict a threshold of state expenditure over which welfare services would develop, as a result of the civil society gaining economic power. Empirically no such threshold has been demonstrated. In addition it is apparent that socialist governments have not introduced welfare states earlier than more liberal regimes - a factor that also weakens the hypothesis (Jessop B 1996).

The failure of the analysis based on the direct intervention by the state and citizens of a country, the so-called structuralist approaches, led investigators to focus on the role of the economy in regulating the supply of welfare. In particular the emphasis was shifted onto market regulation by employers, with the state acting as an agent to assure future market development. These can be summarised as the agency based approaches stemming from the Marxist perspective (Jessop B 1996).

The agency-based perspective assumes the state assures monopoly of capital by the dominant social order in order to maximise the value of the economy (Jessop B 1996). The government achieves this by interaction or intervention to maintain a balance in order to achieve stability. O’Connor proposes that the state can achieve this by providing a positive feedback loop to the accumulation of capital (O'Connor 1973). This position has been critiqued as being simplistic in the role of the state - as it has been demonstrated that the state plays a more active role, for example the fiscal support given to the currency during the sterling crisis in 1990 (Torfing 1998). An alternative approach to the agency hypothesis of welfare state development is more firmly based in the capital theory of Marxism (Kolakowski L 1978).

In classical Marxist capital theory - 3 modes of capitalism operation are recognised. 1. Laissez-faire

2. Monopoly capitalism

3. State monopoly capitalism.

These three modes of operation represent a natural evolution in capitalism. The laissez-faire mode, with minimal state intervention has the effect of concentrating or monopolising capital such that a few hold the majority of capital. This leads naturally on to the stage of monopoly capitalism. This in turn leads to a breakdown of the profit cycle and the stagnation of the economy. Therefore the state intervenes to ensure the continuation of capital accumulation (Jessop B 1996). As part of this state intervention, welfare services are provided in order to provide a deal with the labour force so that capital can continue to circulate (George V and Wilding P 1996).

Marxist capital theory has been criticised because of the inconsistencies about the role of the state (Laclau E and Mouffe C 1985). The evolution of capitalism from laissez-faire to state monopoly capitalism calls for the state to introduce changes, such as the welfare state, in order to maintain the ideology of capitalism based on internal demands. In practice this has not been shown to occur and any new bargain with the labour movement has been the result of external pressure such as war, rather than internal ones (Laclau E and Mouffe C 1985; George V and Wilding P 1996).

The failure of the structuralist and agency perspectives of the regulatory actions of the welfare state led investigators to concentrate their efforts in a combination of both the structuralist and agency approaches, i.e. regulation of market effects by a combination of state, economy and civil society. These efforts initially focused on interactions based around the state provision of social benefits and the state regulation of private and public bodies to regulate market effects (Gough I 1979). The interactions were initially explained on the basis of social class development (Esping-Andersen G

1990). The hypothesis of Esping-Andersen has been criticised by studies that have shown that welfare development cannot be explained on the basis of a class-labour struggle alone. The United States of America (USA) & UK at the turn of the century had identical market and class structures. However, state health care development - along with many other welfare developments - in the USA lagged behind the UK. This difference between the USA and UK cannot be explained by capital structures, government ideology, Trade Union practices or the labour pool structure (Orloff AS and Skocpol T 1984).

Orloff and Skocpol proposed that the developmental differences in welfare services in the USA and UK could be explained on the basis of the state management of welfare benefits via the actions of a civil service. In an analysis of the US and UK welfare systems the differences between the countries could be explained on the basis of the presence of a professional civil service in the UK. However this analysis was not able to explain how the regulatory system might work (Allum P 1995) (Orloff AS and Skocpol T 1984). Torfing extended the explanation of Orloff and Skocpol by looking at the political and economic environments that surrounded the welfare state. He realised that the regulatory mechanisms that surround the welfare state could not be static. As the external economic and political environments changed, due to technological change and the globalisation of the world economy, the regulatory mechanisms of market effects would also have to change. This would give the regulatory mechanisms the characteristic of rationalising the welfare state in the face of market change. Torfing hypothesised that the basis for this ability to rationalise the regulatory process within the welfare state must be the introduction of ambiguity and strategy into the decision making process by allowing the population and economy to interact with the management of the welfare state. By allowing ambiguity and strategy Torfing was able to accommodate the uncertainty of economic and political developments into the regulation of market development by the welfare state while the state remains the driver of welfare development (Torfing J 1998)

The foundation of Torfing's view of the welfare state as a rationalising - regulatory instrument was been laid in the post Second World War development of welfare services. The stated aim of welfare development post war was to ensure economic prosperity while providing for social justice in the form of redistribution (Gough I

1979). These aims defined that the distribution of welfare benefits was to be dependent on the state’s role in promoting stability, the economic corporation’s role in ensuring capital development and the civil society’s role in providing the labour force. Therefore the welfare state can be seen as the product of three interactions (Janoski T 1998)

1. The interaction between civil society and corporations - the so-called labour compromise under which the workers agree to swap their efforts for wages.

2. The interaction resulting from economic intervention between the economic corporations and the government, under which the government agrees to support the efforts of commerce in exchange for taxation and other support. In most modem societies this takes the form of Keynesian economic intervention.

3. The interaction between civil society and the government, resulting in the provision of welfare benefit.

These interactions are often graphically depicted, Figure 1.1

FIGURE 1.1 THE TRIAD OF HEALTH CARE PROVISION.

It is important to note that in this model ‘the state’ includes the bodies involved in administering the local state - for example local health authorities - as well as governmental agencies and the civil service. Likewise the definitions of civil society and corporations are equally broad. Civil society is defined as the class structures and other organisations that define society, and corporations include not just the free market bodies that are centred on profits, but other private sphere bodies - including churches, hospitals and Trade Unions (Torfing J 1996;Aglietta M 1979).

Torfing postulated that for the welfare state to function effectively in mitigating the effect of the market, the interactions of the state, economy and civil society must be in balance, i.e. the demands of one party in the interaction must not unnecessarily outweigh the others. If one party were to be dominant then the benefits of the welfare state would be skewed and the welfare state would cease to have a regulatory role. The balance of state economy and civil society, however, is dynamic, and achieving a balance results from the development of the interactions in the face of changing economic and social environments, this balance he termed the tripartite regulatory relationship. The tripartite regulatory relationship, in Torfing’s hypothesis, serves to explain both the development of welfare services and to whom the services are delivered (Torfing J 1996)

Torfing’s believed that the tripartite regulatory relationship was a result of the strategic compromise in setting up the welfare state. In order that economic and political uncertainty could be accommodated within the system the state management of the welfare state, via a civil service, of a dynamic relationship of state economy

and civil society was in effect mandatory as a mechanism. Without the presence of this mechanism the structure of the welfare state would require revisiting with every economic, political and technical development (Torfing J 1998).

Torfing looked to the Danish Welfare system to confirm his hypothesis. The Danish system is based on the Fordist Scandinavian system. The Scandinavian system also draws heavily on a home grown version of Keynesian economic exchange and Beveridge style social benefits. These influences led to a partially state funded system of social and health care benefits in a highly institutionalised framework that supports the principles of mass production. However, the elements of mass production are small in Denmark and the welfare system has a fairly large element of non­ manufacturing elements, like the protection of rural workers. Therefore the development of the Danish welfare state can be seen as a product of political strategy, partly based on Keynesian economics with a commitment to universal benefits and full employment (Torfing J 1998).

Torfing’s research confirmed that many of the decisions made in the Danish welfare state were the products of a welfare state regulating market developments but incorporating in its structure elements of strategy and ambiguity that can accommodate uncertainty in the political, social and economic environments. Torfing’s analysis of Denmark also provides evidence that the major mechanism by which regulatory control be the welfare state is achieved is by a tripartite relationship in which the organisations involved have adopted specific roles (Torfing J 1998).

Torfing’s view of the welfare state provides the link between policy, policy implementation and the failure of the welfare state to achieve objectives. If the

tripartite regulatory relationship can be shown to exist in a welfare system, then the failure of the welfare state to meet objectives should be reflected in an imbalance in the tripartite regulatory relationship. This imbalance in turn must be reflected by an imbalance in the policy and implementation processes that underlies the welfare state, as the tripartite relationship is a direct product of state policy modified for political, social and economic circumstance. Therefore the key to proving the hypothesis introduced in section 1.4 is the demonstration that

1. The NHS can be viewed as a tripartite relationship

2. The tripartite relationship that surrounds the NHS is not in balance

3. The imbalance in the tripartite relationship causes the failure to meet objectives 4. The imbalance in the tripartite relationship is a function of policy and policy

implementation.