State, market and civil society

Lecture 3

Welfare Triangle

State

Market Civil socitey

Roles?

• Financing• Delivery• Impact on degree of solidarity• Logics and rationality behind

Change in welfare mix, the combination of state, market and civil society, over time – not a static issue. Care of children as an example – historically civil society – today often either market and/or state

Routes to welfare

• Public• Fiscal• Occupational

They can be used independently or in various combinationsAnalysis often looks at one aspect – and data often mainly public welfare through direct public sector spendingIn most welfare state public spending also imply sales of goods and services from the private sector and employment of people

Two case examples: Housing and pension

Housing: Public support for construction and/or renovation of building, housing benefit, tax-rebate on housing loansPension: State pension, indirect support through the tax-system (lower payment of tax) for savings to pension purposes

From gross to net social spendingF

ran

ce

Be

lgiu

m

Ge

rma

ny

Sw

ed

en

Un

ited

Sta

tes

Un

ited

Kin

gd

om

Italy

Au

stri

a

De

nm

ark

Ne

the

rla

nd

s

Po

rtu

ga

l

Ca

na

da

Jap

an

Fin

lan

d

Sp

ain

Au

stra

lia

No

rwa

y

Ice

lan

d

Lu

xem

bo

urg

Cze

ch R

ep

ub

lic

Ne

w Z

ea

lan

d

Po

lan

d

Ire

lan

d

Slo

vak

Re

pu

blic

1

4

7

2

23

12

65

3

15

9

1918

8

10

21

11

22

13

1716

14

20

24

12

34

56

78

910

1112

1314

1516

1718

1920

2122

2324

Gross public social expenditure Net total social expenditure (↘)

Market-failure

• Monopoly/duopoly• Risk of a limited supply if limited demand ( for example,

services to people with disabilities)• Unemployment – and historically inflation• Externalities – pollution (negative), vaccination (positive)Market failure is an argument for public sector intervention, but not necessarily public sector deliveryIntervention also in order to ensure efficiency – care of elderly as an exampleMoral limits to what a market can provide – for example organs

Types of regulations

• Public delivery• Use of taxes and duties• Ministerial order • Other types of regulation • Recommendation, best practices • Control

Marketization of welfare states

• Different degree in the different welfare regimes – highest in Liberal, least in Nordic welfare states

• When can market be used to provide welfare without negative implications for users?:

• Many providers – be able to reduce or avoid cream-skimming

• Reduced transaction costs• Complete transparence and full information

When is private market solutions cheaper than state solutions?

This might be due to one or several of the following reasons:• Wage level for the employed are lower than in the

public sector• More effective ways of working• Management is better• Quality of services is reduced• Working environment with more worn-out employees

– implies a risk for higher public sector spending at a later time

Government -failure

• If the size of the public sector is greater than what is from a welfare perspective is efficient

• Bureaucracy• Interest, pressure or lobby groups influence• The difficulty in steering and managing the

public sector – the principal-agent problem

Relation between the public and private sector

• Private sector delivers goods and services to the public sector

• Income transfers are often used to buy products in the private sector

• Demand from public sector helps to develops new products –for example – welfare technology

• Delimitation public private is therefore not simple and clear

Civil society – and the risk of Voluntary failure

• A question being: Is voluntary work supplementary or areplacement for public welfare

• Risk in differences in who has access to and options for receiving welfare services if provided by civil society

• Supply might be limited – and can quickly vanish• Transaction cost might arise• Welfare states demand for documentation – implies a

conflict between professionals and voluntary workers• A need therefore to define where possible and where it is

not• Number of voluntary people differs among welfare states

Role of the family

• Supply care and economy among a group of people• Historically many welfare issues regarding care and

income transfers has been solved in the family• A new risk being the splitting up of families – and

also that some might be in risk of not having anyone to discuss intimate matters with – especially for elderly people loneliness might also be a problem

Labour market

• Has a special role and function in welfare societies • They often are the main access to income and

consumption possibilities• Social contact and relations can also be influenced hereby• Work is seen as an important element in order to have a

high level of welfare (measured by GDP) in many countries

• There is many and different types of labour market, divided due to geography, education and experience, and also different types of unemployment ( for example: season, business cycle, search)

Relation between unemployment and growth in GDP in the EU27 since 2000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Unemployment level Growth GDP EU27

Nordic welfare states and labour market

• High employment rate - also for women• Historical a focus on reduction of unemployment –

including through a reduction in unemployment also by public sector intervention

• Women are to a larger degree than men working part-time

• Gender divided labour market – and difference in wage income

• Focus on active labour market policy – but to a larger degree than earlier on work-first

Labour market and welfare regimes – a comparison

Labour Market Policy / Welfare Regime

Coverage unemployment benefit

Focus on ALMP Goal of labour market policy

Ideological approach

Nordic Comprehensive –although replacement rate has been reduced

Yes - central Integration, full employment

Equality, Keynesian intervention, however increased focus on work-first

Corporatist/Continental European

Less Strong – lower replacement rate

Relatively important Reduce pressure public sector spending

State with corporatist inclusion labour market partner

Liberal Weak Only limited If, then focus on business

Efficiency, liberal non-intervention

Southern/Eastern Europe

Very incomplete Only weak developed

To reduce use of benefit system

Emphasis on civil society

High replacement in Nordic – low in Liberal – also some convergence

Country Single Two earner married couple

Czech Republic 65 84

Denmark 57 74

France 66 80

Germany 59 83

Hungary 54 73

Italy 55 74

Spain 58 75

Sweden 46 68

UK 13 49

Public welfare and the labour market

• Day –care for children• Maternity and paternity leave• Education

However, also often either at the work place or in collective agreements possibilities and discussion on how to combine work and family life

Summing -up

• State, market and civil society has different and changing roles and it differs among the different welfare state regimes

• Consequences hereof can be difficult – and needs to be analysed empirical in the different countries

• The balance between the three sectors can influence the degree of equality in a society – including inequality in access to welfare