Column  Finance and the Social Security System  2012.09.21

The Welfare State in the 21st Century

A long time has passed since the so-called collapse of the welfare state. The welfare state in the 20th century may simply be phrased as an "income redistribution state system in an industrial society." During the 70-year period following WWII, the modern welfare state has become a state system which competes and collaborates with other states in terms of (i) contributing to international security and economic partnerships (solidarity and cooperation), (ii) achieving domestic welfare and (iii) providing domestic support for global corporations in a post-industrial society (i.e. consumer society). Facing a contradiction between the free movement of capital (wealth) and the immobility of human resources, modern states have to achieve both economic growth and welfare, which require a multiplicity of measures that may often be inconsistent with one another.

While the welfare state in the 20th century was generally called the "Welfare State," today's welfare state is defined as an "Enabling State." Originally, the welfare state was said to have been born in the industrial society at the end of the 19th century and aimed to achieve "full employment and social security" in order to reduce friction between capitalists and workers. Capitalists at that time could not leave their own land, which could be one of the reasons behind the emergence of the Ford model of mass production and mass consumption, and why the state and capitalists were interdependent. However, in the recent money capitalist economy, capitalists can leave their own land and manage their activities remotely thanks to globalization and information technology. The ability to transfer wealth in the blink of an eye from one country to another has brought the honeymoon between the state and capitalists to an end. The state must increasingly compete with other states by committing to policies which attract capitalists to stay in their country. The state must adopt policies such as tax incentives, security enforcement, infrastructural development and social security to minimize business risks.

In terms of international security, thanks to adequate protection provided by the United States since the end of WWII, capitalist states have been able to save on military expenses and spend them instead on public welfare, thus ensuring domestic stability and allowing welfare states to confront communist states. The structure of welfare states, suitable even in the post-Cold War environment, has not changed and is not likely to change drastically. Insofar as the United States continues to lead the world, other states will likely remain welfare states.

The definition of a citizen has also changed. In the industrial era, citizens were workers (or producers) and all unemployed citizens were reserve workers (or reserve producers). They were essential national resources, so it was of considerable importance for states to provide them with social security in order to let them work without worrying about diseases or problems in their old age. Conversely, in modern consumer society where citizens are consumers, states have difficulty finding reasons to continue providing social security as it does not necessarily lead to an increase in citizens' consumption. Nonetheless, states will need to continue providing social security as welfare states because citizens are unlikely to give up the social security that they have obtained through the course of history.

Summarizing the above, the modern state, while placed in an economically shaky situation in which wealth can easily be transferred to other countries and new wealth is anything but easy to generate, cannot act only out of domestic interests due to increased international responsibilities. It is thus obliged not only to respond to the rising demands of citizens who retain the right to social security but also to pay the cost of mitigating possible global economic turmoil. Thus, the modern state is in a difficult position. In order to run the welfare state as an income redistribution state, it would be appropriate to obtain financial resources from a progressive income tax best collected though a centralized system. Based on today's consumer society and citizens' needs for order-made welfare, a consumption tax and properly decentralized collection system would be more suitable. In other words, the trend of the times demands that the state be structured opposite to the welfare state, and thus the operation of the welfare state in the modern age is not easy. Nonetheless, as mentioned above, the welfare state is not likely to collapse anytime soon. Given this, it is natural that the "Welfare State" which provides social security will develop into an "Enabling State" which supports its citizens. In a state which supports its citizens, relatively new players, such as socially- responsible corporations and non-profit organizations, will join citizens in undertaking the burden of running the state while private companies - one of the traditional players - will continue to pay albeit reduced social security premiums and other costs. Citizens will increasingly be required to be self-supporting and self-accountable.

The people are the ones responsible of the transformation of the shape of the state into what it is today. It is also up to the people and their ideas as to what society will be like for the next generation and how we move forward from today's unstable and liquid modern society. Considering the transitions that modern societies have undergone since medieval times, we notice that philosophy and thought have played an important role. The ideas and imagination of great thinkers such as Jean-Jacques Rousseau, Georg Wilhelm Friedrich Hegel, Sigmund Freud and Adam Smith have had a great impact on the shape of the state hundreds of years after their death. The philosophy, thought and psychology of a particular age in history reflect the collective consciousness of the people at that time, the collective desires of whom are realized in future societies. Thinking about it in this way, we understand that what we wish for now will determine the shape of the society to come and that we have a very important role in the future society. We do not know whether the present welfare state will remain while undergoing change, or whether states or society will be created based on new systems. If new systems are created, we would like to avoid the type of bloody revolutions and riots that human beings have gone through in key stages in the past. Regardless of whether the present state will continue or a new society is born, we would like to build a society with even greater welfare and utility.