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The welfare state: Is it past its prime?

Rob Mudge
February 10, 2018

The welfare states in Germany and the UK have been able to create a lot of legitimacy for governments. Politicians just had to promise to increase benefits and people would vote for them. But how do the systems compare?

Protest against welfare cuts in London
Image: Getty Images/J. Talyor

By now we've become accustomed to US President Donald Trump's twitter tirades against everybody and everything. Nonetheless, it did come as surprise — on two fronts — that he felt it necessary to tweet his displeasure at the state of the UK's welfare system mainstay, the National Health Service (NHS)

First of all there will probably have been mild astonishment that he's even heard of the NHS; secondly, consternation will have set in at his perspicacity of the situation.

For the NHS is, according to many observers, indeed "broke" and "not working" — witness its chronic underfunding, canceled operations and patients being treated in corridors or stuck in ambulances because beds aren't available.

Read moreThe NHS and Brexit: Don't get sick in the UK

NHS — the pride and joy of the welfare system

But it wasn't always thus. Established in 1948 by Health Minister Nye Bevan, who championed social justice and the rights of working people, the NHS was set up to be egalitarian and non-contributory, funded instead directly from taxation. But that approach is expensive as it covers everyone, not just the employed.

"In Britain it's a tripartite [system] made up of the individual, the employer and the state. And so there is a sense in which you either have to find a way to make changes to the tax base to pay for it within the economy that you've got, or you have to explore a separate way of paying for it via an insurance model. Or the alternative is that you move away from the idea that the NHS is a universal service model," says Chris Renwick, senior lecturer in Modern History at the University of York and author of Bread for All: The Origins of the Welfare State.

Infographic showing health spending in UK and Germany

Its success within the post-war welfare state, says Renwick, is largely attributed to the middle class demographic's buy-in of the system, which could explain a certain reluctance to tinker with it. "If you introduce a system in which middle-class people are expected to contribute in a kind of transactional way for health care, there is a concern that it represents a break down of the social contract around certain things."

Germany has a multi-payer, dual system that is mandatory for everyone living in the country. Depending on income and employment status, citizens choose between statutory health insurance provided by non-governmental "sickness funds," and private insurers. Contributions are based on a percentage of income (statutory) and age and risk (private). The state, in its various levels of government, plays next to no role in the financing of health care.

Read more: German hospitals 'carrying out unnecessary operations'

Renwick says that "historically speaking the German system is something of an important point of comparison. The Bismarckian structure of the late 1800s, which created the first universal health care, was in many ways the kind of inspiration for particular aspects of the British system in the late 19th and early 20th centuries."

The Economics of healthcare

Who's bigger on benefits?

Traditionally, Germany has always had a much more generous type of welfare benefit. This is especially true of unemployment benefits whereby if someone becomes unemployed that person gets a very high percentage of his or her last income for a year.

"So for example as a university lecturer I would get paid 80 percent of my current wage and I would be very well placed and it wouldn't be much of an incentive to get back into the workplace," says Patricia Hogwood, Reader in European Politics in the Department of Politics and International Relations at the University of Westminster, who specializes in German politics and the welfare system.

In 2003, the then German coalition government introduced so-called Hartz IV welfare reforms to toughen the conditions on unemployment benefits, which proved deeply unpopular.

Read more: German issues in a nutshell: Hartz IV

By contrast British workers had at the back of their minds that if they became unemployed, income would be cut radically, thus creating the incentive to find a job as quickly as possible.

Germany essentially served as a role model until the middle of the 20th century after which the systems diverged and Britain "opts for a kind of peculiar version of the contributory system of national insurance," as Renwick puts it. "So what Britain goes for is a flat rate system: So flat-rate contributions and flat-rate benefit payments out of the system. If you've paid in for 20 years you get the same amount as you do if you paid in for six months."

Hogwood says the Anglo-Irish model was always intended to provide emergency, all-inclusive coverage.

"It wasn't really ever thought to replace income in case of hardship. So if you become unemployed you would get a flat rate subsidy from the state. If you had been in well-paid employment it wouldn't nearly cover the expenses that you were used to. If you'd been in low-paid employment it would be fairly similar to what you were used to. And the payments were over a short duration because it was assumed that people would find a new job fairly quickly."

Read more: Debunking the myth of low German unemployment 

Whither the welfare state?

These days structural and economic changes are making it very expensive to run the welfare systems. And public policy makers, says Hogwood, are struggling to cope. "Governments think that they can't afford to maintain these old systems but they still want to retain that element of legitimacy that the welfare system generated for them because if you don't maintain that, you get a breakdown in social cohesion. You get a conflict between social groups which we're seeing now."

While successive governments in both the UK and Germany have tinkered with changes to the welfare state to make it more cost-efficient and effective, the consensus seems to be that whole-sale, root and branch reform is needed.

"I think the bottom line is that in spite of the different approaches that they've taken traditionally, both of these systems are going the same way because both of them are set on a neo-liberal course to prioritize flexibility of labor and competitiveness of the economy over welfare. They want to cut welfare benefits but both of them have got the challenge of how to prevent social conflict and how to maintain the legitimacy of government if people are so angry," says Hogwood.

"Gradually there is a class of people being left out because they just cannot pay supplementary costs."