Book Review of Claus Offe, “Contradictions of the Welfare State” (1984)

Claus Offe, “Contradictions of the Welfare State” (1984; Cambridge, MA: MIT Press)

One of the things I absolutely enjoy when reading a certain group of German social scientists is that they are (1) interested in studying contemporary issues affecting global economy, society and polity, (2) strong in formally setting up theories, and (3) are often straightforward to follow. Claus Offe’s book “Contradiction of the Welfare State”, which is really an assembly of 11 of his essays plus an interview with the editors, is just one such example. So what is he saying that is of such great relevance to most of us, studying social policy, income inequality, welfare states, the crisis of capitalism, labor markets and class power?

To explain his thesis it would make sense to reveal the usual portrayal of welfare states as we understand it in public and occasionally scholarly discourse. Traditionally, neoliberals think that welfare states are too big, that they have served their function a long while ago, and that they have become unsustainable. The welfare state was originally seen as a social insurance policy against life risks associated with modern capitalist societies. All of the industrialized countries have accepted some modicum of welfare state to insure their workers against disability, unemployment, old age, sickness, child-bearing and other related issues.

But the issue with the welfare state is that they also reduce the attachment of the workers to the labor market. By allowing people to opt out of the labor market, and collect welfare payments, the disciplining mechanisms of the welfare state are weakened, such that it becomes possible for the remaining workers to endlessly bid up wages in an unnecessarily tight labor market, such that profits are squeezed, and price-wage inflation erodes investor confidence and economic growth.

Growth is, of course, the essential lubricant in our capitalist economy, and how dare the workers have such a great life and endanger wholesale the capital accumulation model on which all of our livelihoods depend on? Down with organized labor; down with labor market “rigidities” (i.e. make it easier to fire workers and cut benefits); down with the welfare state, and capital accumulation will return. And even if those on the left want to hold on to their cherished welfare state, without capital accumulation out of which state taxes are paid, the welfare state can no longer be financed. Let us not forget how the US presidential candidate Jeb Bush wants to restore 4% economic growth to the US economy, and cut Medicare benefits. He is certainly using the neoliberal paradigm to justify his policy ideas!

Leftists are, of course, instinctively uncomfortable with the neoliberal take on the welfare state, but surprisingly the neo-Marxist theoretician, Claus Offe, agrees partly with the neoliberal critique of the welfare state (consider especially chapter 6, pp.147-61). Yes, the welfare state will result in disincentives for labor market attachment. Yes, higher wages will diminish profits. Yes, investors have the power to withhold their investment, resulting in the self-fulfilling prophecy that if investors think the welfare state leads to an undue burden on capital accumulation justifying their lack of confidence in further sustaining necessary investments, it will yield in less capital accumulation. Yes, the continuing existence of the welfare state is premised on economic growth, which results in inevitable welfare state retrenchment resulting from lower growth.

So, how is Offe’s biting critique of the welfare state any different than those of the neoliberals? Offe states that the “basic fault I see in this [neoliberal] analysis has less to do with what it explicitly states than with what it leaves out of consideration” (p.152). Offe says that it is politically not possible to get rid of the welfare state, and that advanced capitalist countries without the welfare states would not work. This results in his crucial insight that the welfare state poses a contradiction in the contemporary political economy because “while capitalism cannot exist with, neither can it exist without, the welfare state” (p.153).

The neoliberal response to such depiction would simply be, why should they believe him? How does he know that capitalism would collapse if there is no welfare state? Let us think about this question carefully and deconstruct the origin of the welfare state. The reason why welfare states arose was because the old forms of social support systems (family and church) could no longer provide for the needs of an urbanizing and proletarianizing population. (Churches become weaker as the urban population is becoming more secular, and families become weaker as wage labor reduces common family activity and slightly greater wealth lead to a proliferation of nuclear families to the detriment of extended families.)

Wise leaders like Otto von Bismarck realized these monumental social changes, and gave workers social protection against unemployment, old age, disability and sickness. The proletariat rewarded Bismarck and his successive leaders with electoral support and political docility. Karl Polanyi, recognizing the social tensions that arise from the proletarianization and the development of insecurity for the working class, theorized that for every liberalizing, market-friendly move, there would have to be a ‘double movement’, or a socially protective counter-movement, which is the state-provided welfare state. If today the welfare state would disappear, how are people going to survive if no employer hires them and pays them a wage? There would be social chaos.

For the capitalists this situation is not necessarily the same thing as paradise. Yes, in the absence of the welfare state, wages would collapse, but it is questionable whether the workforce will be available as desired. Every capitalist needs workers, who are reasonably healthy, so not investing in workers’ health means a sicker and less productive workforce. Every capitalist needs to have the maximum amount of labor available, which requires some state-funded child care facilities to allow women to work. Every capitalist needs to have a literate, educated and trained workforce, and without these state investments, which are included in the welfare state, he would not have those skilled workers.

Every capitalist needs to have social peace and stable industrial relations, which a society where workers are facing the brink of starvation (without the welfare state) can not supply, as these workers are more than ready to disrupt their work and protest for their rights, while putting the factory on fire and occupying the capitalists’ home. Industrial relations, on the other hand, can remain stable if during times of economic and employment crisis, older and sicker workers can be sent into early retirement or disability, which is what happened in many of the richer European countries. The welfare state is thus not only a hindrance toward capital accumulation but also the foundation of it.

The reproductive and regenerative function of the welfare state is a classic responsibility of the state, because of the collective action problem. Every capitalist would surely benefit from having a strong welfare state, but no single capitalist will voluntarily make that investment, because it would bring them a competitive disadvantage against other firms, who are more than eager to freeload on the capitalists’ workers, who were so generously provided for. The state can cut through the collective action problem by imposing taxes on all businesses to help pay for the welfare provisions. To make it palatable to the capitalists, governments usually promise the capitalists that only taxes on wages (i.e. payroll tax) will be used to finance the welfare state, while taxes on capital remain low to allow for a smaller burden on capital accumulation.

We know that the tax structure has become increasingly less progressive, as the payroll tax burden increased, while the corporate and capital tax burden decreased. Capital accumulation works splendidly, but only for a limited amount of time. As these strategies are by necessity time-limited, neoliberals want to dismantle the welfare state and free greater amounts of money to re-direct it toward capital accumulation. But, as we said, by destroying the welfare state, the social framework conditions would not exist, which allows labor to be exploited in the first place. And labor, as per Marx, is what creates value and is the basis for future capital accumulation.

The most fascinating part about Offe’s work is his unmistakably clear depiction of the contradictions of the contemporary political economy. The conclusion on the welfare state is damned-if-you-do-damned-if-you-don’t. And there are several contradictions, which I have listed on the inside flap of the book, where I usually make running notes on what I read. I have reproduced them below:

  1. Welfare state produces commodification and de-commodification of the workers (p.14; p.140, 142)
  2. Welfare state reproduces exploitative employment relations and increases the ability of workers to resist such exploitation via withdrawal from the labor market (p.152)
  3. Welfare state strengthens and weakens capitalism (p.16)
  4. Capitalism needs the welfare state and can’t coexist with it (p.153)
  5. State socializes infrastructure costs to the benefit of capitalists and creates greater taxing and borrowing costs for the private sector to the detriment of capitalists (p.19)
  6. State budgets maintain conditions for capital accumulation and are an “unproductive” waste crowding out the private sector accumulation (p.57)
  7. Capitalism is about the privatization of production and the socialization of costs (welfare state, infrastructure spending etc.) (p.83)
  8. State helps capital capital accumulation but is not in control of capital itself (p.120)
  9. The state in its institutional form is a democracy, while in its material form privileges private capital accumulation (p.121)
  10. To create effective administration bureaucracies are created, which in turn reduce effectiveness because of goal displacement (p.184)
  11. By solving the demand/realization problem, one exacerbates the production/exploitation problem and vice versa (p.196)- i.e. higher effective demand (and realization of profits) are only possible if workers have high incomes, but high incomes weakens the exploitative power of capitalists; exploitative power can be restored with lower wages, which results in lower effective demand.

Contradiction over contradiction is what makes Offe’s work so theoretically powerful, and so popular among Marxist theoreticians, who recognize the complexities and contradictions of social life, and ironically enough, see the contradictions as the basis for the desirable utopian society which they seek to create. Offe is no exception to this line of thinkers, and noted in the interview (chapter 12) that he is a democratic socialist, who wants to exploit any opening to transform the society away from capital accumulation and toward an ecologically and socially more sustainable order (p.296-9). But as so often with Marxist theorists, the theory of capitalism is strong, but the theory of revolution is weak. How is the utopian and idealized order to emerge out of the current ruins?

Offe blocks the Keynesian solution, which is essentially the restoration of amicable capital-labor relations with high profits, high wages and strong unions. That only works if there is huge economic growth, which is becoming increasingly unrealistic because of demand saturation in developed countries and the undesirable climate and environmental effects of the growth machine.

In the absence of good solutions we are left satisfied and unsatisfied, which seems to be one final contradiction. We are satisfied as social theorists having done our duty to ‘demistify’ (p.260) the neoliberal lies that pervert present discourse and shedding light on what has long been ignored by mainstream analysts, and we are dissatisfied because we feel more hopeless than ever about our prospects for changing society. At least, neoliberals think that if they could dismantle the welfare state, increase labor market competition, drive down wages and reward private-sector capitalists more, they can restore high economic growth, peace, prosperity and a good society. On the left-wing end of the spectrum, the human-rights activists, labor organizers and women’s rights activists are dreaming up their social change with their petition drives, demonstrations, and picket lines- doing something!

The message of hope is what explains their credibility, mobilization for mass support and eventually political action, not the message of despair, falling in the realms of social theorists and philosophers.

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4 Responses to Book Review of Claus Offe, “Contradictions of the Welfare State” (1984)

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