The Quest for a Divided Welfare State
European welfare states are becoming more divided. Here's why I think it's all about ideas and why it's not inevitable. Let me know what you think in the open thread.
European welfare states are becoming more divided. That and more in today’s podcast on the New Books Network here.
I spoke to John Lapidus last week about his book The Quest for a Divided Welfare State. He’s a research fellow at the University of Gothenburg, and his book charts a growing division within Sweden. The Swedish welfare state has traditionally been universal, with public services offered equally to all, but it now threatens to become one for the rich, subsidised by tax breaks and state sponsorship, and another for the poor, hamstrung by a lack of investment and resources.
This matters for the society we want to live in. For me, societies which fit this very negative image of division, where it feels like many are excluded from living a decent life, are undesirable. It’s impossible for people to feel empowered to improve their lives, and it’s impossible for them to feel like they belong. Divided welfare states matter for us all too. They push us towards a suspicious society with citizens that do not trust one another, a selfish society with citizens who do not support each other, and a cheapskate society that fails to invest properly in its people.
Though the book focuses on Sweden, our discussion is relevant much more broadly. We discussed the ways any country moves towards a divided welfare state, with lessons that apply regardless of where you’re reading from. Before we get stuck into the debate though, let’s clarify it. The welfare state is just one part of the welfare mix, since you get ‘welfare’ in other ways too, like by paying for it yourself as a private individual, or getting it via family, your local community, or from charity. And what exactly are we getting, when we ‘get’ welfare? The podcast focuses on healthcare, education, and social (elderly) care, but traditionally, welfare is much broader than this, stretching not least to include unemployment support, childcare, and housing.
Everybody agrees that people should have these sources of welfare; schooling, doctors, care homes, etc. But countries disagree on what the mix should look like. Sweden used to be emblematic of the view that the state should provide healthcare, education, and social care to everyone. By contrast, the USA used to be emblematic of private welfare, with all these services purchased via the market, instead of being provided by the public sector. That said, this does not necessarily mean that Americans have ‘less’ welfare. When you tell your citizens “healthcare is a commodity, not a right”, you’re not saying that they should have less of it, just that they should buy private health insurance (PHI) via the market, rather than receive public healthcare from the state.
So in this very simple view of the welfare mix, we have the public welfare state and the private market.1 It’s at this stage where we introduce the difference between provision and funding. Take healthcare again. You can have hospitals managed privately, by contractors, but paid for by the state to provide healthcare for free. Alternatively, you can have state-owned companies that sell to private individuals (like UK train operators). It’s with this distinction that we arrive at the crux of John’s book. In the 1970s, across Western Europe, the state paid for and provided most of these welfare services. Then in the 1980s and 1990s, everything started to change.
First, states began to privatise provision. In the UK, Margaret Thatcher’s Education Act (1980) revolutionised British schools by forcing them to compete with each other and letting them opt out of government control. Today, 78% of secondary school students (aged 11-18) and 39% of primary school students (aged 4-11) go to a school that isn’t run by the state (in Britain they’re called ‘academies’). In Sweden, the state began funding privately-managed schools in 1992, following the Free School Reform; they’re also called charter schools, particularly in the US, but also around the world.
Then came private funding. On one hand, this is partly a natural follow-on from the presence of private provision; an iteration of “if you build it, he will come”.2 But at the same time, the state plays an active role in abdicating the responsibility to fund welfare itself and encouraging individuals to purchase private health insurance instead. France is amongst Europe’s biggest advocates in this respect: France introduced vouchers for PHI in 2000, followed up by a tax subsidy in 2005, before making employer-funded health insurance mandatory for every employee in 2013. All in all, half of Europe’s governments use tax incentives to promote private insurance, including each of the five largest economies in the EU.3 4 Today, 60% of French adults have some form of private health insurance, whilst in Sweden, the portion has rocketed seven-fold since 2000, albeit from a low base, to a full 10% of the population, similar to the UK and Germany.5
Private provision and private funding complement each other: when we have them together, they are mutually self-reinforcing, spiralling until they become dominant.
John’s book starts with private provision and explores how it changes the game when it comes to private funding. Essentially, these two things are dependent on one another. First, you can’t really have private funding if you don’t have private providers: if you only had state-run hospitals to go to, why would you pay for private insurance when you already pay your taxes? Private funding only makes sense if you have private providers to cater to you. I think of it like a locked door, where private provision is the key that unlocks private funding.
That said, when you do have private funding, private providers quickly become dependent on that, rather than public money. That’s because the average person who gets their healthcare from the state is a lot poorer and has a lot less to spend than the average person insured privately. Therefore, private insurance costs more and is more profitable, so providers naturally want to serve the high-profit private clients instead of the low-profit public citizens who they catered to before.6 Private provision and private funding complement each other: when we have them together, they are mutually self-reinforcing, spiralling until they become dominant.
But there’s a big question here: what gets the spiral going, what pushes opens the unlocked door? The answer: it’s the state. Private providers exist, but whilst some people will go for them, most won’t find it worth their while and won’t care if their employer offers it to them. And why would you, when you already pay your taxes and benefit from free public healthcare and education? The benefits of getting a quicker and slightly more tailored service aren’t that valuable for most people; private welfare isn’t a great option on its own. It needs a leg-up to get the spiral going, and that leg-up comes from the state. By offering the subsidies discussed above, or being a major ‘anchor’ client and contracting out public sector work, the state sponsors the growth of private funding and private provision to catalyse a spiral of privatisation. With this kick-start, it’s easy to get into a spiral that ends with welfare as a commodity for consumers, rather than a right for citizens.
That’s not all; as this spiral grows, it co-opts more and more actors to support its growth. Think about those who might try to slow it down: Left politicians, trade unions, think tanks, and existing groups of incumbent providers. Over time, the spiral forces them to become less oppositional. Put yourself in the politician’s shoes for a start: as more and more voters take advantage of tax subsidies, you become more and more eager to increase them and win their votes. How about the trade union? It’s less attractive to oppose these policies when more and more of your members take advantage of them.7 As for the think tanks, when the health insurance landscape becomes more inhospitable to their goals, so does the debate. All of a sudden, they seem radical and out of touch; they’ve fallen out of the Overton window. Meanwhile, incumbent hospitals, schools, and care homes – all public providers – form sector-wide associations to promote their interests as care-givers and educators, and also as public providers. Yet as private providers become more common, they join these associations as fellow care-givers and educators, but undermine the message those associations can distribute promoting public provision.
Nonetheless, it’s important to stress that the story is not so one-sided. There is not an inevitable trend towards privatisation. First, this spiral does not necessarily subsume all its opponents, and we see this by looking at Swedish education. In 2007, the Swedish government introduced a tax subsidy for private tutoring. By 2015 it was gone. Why? Strong opposition and persistent campaigning by unions of teachers, headteachers, and schools served as steadfast advocates of public education who helped legitimise and win their argument. But aren’t unions and employees meant to be subsumed by the privatising spiral? I think there are some important points here:
First, unlike doctors who smoothly transition to the private sector, teachers were never going to turn into private tutors, meaning they had little incentive to support the privatisation trend. Lesson: if you want to prevent privatisation, limit private provision when it first appears, and definitely ensure that it doesn’t cannibalise the people who should advocate for you.
Second, Swedish education is pretty good: it took eight years to repeal the subsidy, but in this significant, multi-election period, parents did not flock to tutoring in the same way they flocked to health insurance, because Swedish schools were already doing a good enough job. Lesson: if you’re a government that provides welfare, provide it well and continue to innovate and improve.
Third, Swedish school associations helped repeal the subsidy, but only because they did not include private providers as members, who would have nullified their opposition. Lesson: make sure your public providers have a platform that allows them to promote themselves as public providers, not just as welfare providers.
There’s also a bigger reason that none of this inevitable: the spiral doesn’t have to start at all. This notion of a privatisation spiral comes down to one word: ideas. Over the past 50 years, the ‘big idea’ of neoliberalism has become default, and this is what starts everything off.8 We see it before the start of this story, in the initial decision to open up public welfare to private providers, and we see it in private funding too; the decision to subsidise this can only be understood as a state decision, which inevitably responds to the dominant ideas of the time. It also emerges as crucial in our tutoring example. We established that what matters is having actors in the political sphere who are steadfast advocates of the welfare state. But why? To legitimise and win the argument. It is in the battleground of ideas that the quest for a divided state will ebb and flow, but the battleground for ideas is never fully won or fully lost; as a consequence, the divided welfare state is not inevitable.
PS: John Lapidus is also a decent musician, which is pretty cool. You can find his Spotify here.
Of course, there’s also space on this spectrum in between these two points, and in the Western world, most academics researching the welfare state are agreed that there are Three Worlds (or types) in Western societies, rather than the dichotomy I’m working with, simplistically, here. And of course, there are other countries too, and my view is that it’s silly to try and squash them in to a European-specific set of typologies. (If you want to learn more about Western welfare states, then Esping-Andersen’s Three Worlds book is the best place to start.)
This is similar to Say’s Law, but not quite. Say’s Law states that ‘if you build it’, that generates demand for whatever it you’ve built. By contrast, in Field of Dreams, Shoeless Joe wanted to play baseball already, but had to wait until Ray Kinsella built the baseball diamond. Similarly, some people buy private healthcare simply because it fulfils a desire they already had. However, these people (usually) aren’t plentiful enough on their own to instigate the spiral.
Sagan, A. & Thomson, S. (2016): Voluntary health insurance in Europe: Role and regulation (European Observatory on Health Systems and Policies, 43: 106-109, https://www.euro.who.int/__data/assets/pdf_file/0005/310838/Voluntary-health-insurance-Europe-role-regulation.pdf)
Franc, C & Pierre, A. (2014). Compulsory private complementary health insurance offered by employers in France: Implications and current debate (Health Policy, 119(2015): 111-116, https://www.sciencedirect.com/science/article/pii/S0168851014003480)
Once more people have private insurance, it becomes less advantaged in this respect, but at this point, more people have private insurance, to the point where it is already dominant, and providers depend on it for that reason anyway.
This is particularly true for health insurance, which is often bought not by individuals signing policies directly, but via their employer. So for a union to oppose private healthcare, they’re going up against the employer whose employees they represent, and thus they need to reconcile their views on private health insurance with their broader negotiating goals.
Neoliberalism traces its roots back to the New Right, which was nurtured in post-war Anglo-American think tanks inspired by Friedrich Hayek’s The Road to Serfdom (published 1944). In the UK, the Institute for Economic Analysis (founded 1955), the Institute for Fiscal Studies (1969), and the Centre for Policy Studies (1974) set the stage for neoliberal ideas to dominate British discussion. Across the Atlantic, this role was performed by the National Review (1955) and the Heritage Foundation (1973). Both countries had their early-stage ideologues too: Barry Goldwater’s 1964 failed Presidential run galvanised the American New Right movement, which took centre stage following the election of Ronald Reagan in 1981; in Britain, it was Enoch Powell who captured the imagination of British conservatives in the 1960s, preceding Margaret Thatcher’s election as Prime Minister in 1979.