Welfare State: Solidarity and Private Insurance

Liberal Welfare State

• Limits welfare to one-sided solidarity, covering only basic needs, resulting in low costs
• Provides less protection to the least-advantaged citizens
• Two-sided solidarity is organized outside of the welfare state, through private companies in the free market

Characteristics

• Draws a strict line between those who receive welfare and those who contribute to it
• Prevents costly circulation of funds between the same people
• Appeals to affective motives, such as community spirit or altruism, but not self-interest
• Problematic in countries with no strong affective motives, as people may not want to help without receiving anything in return

Challenges

• Processes of individualization and globalization may weaken affective motives
• Creates in-group and out-group dynamics, with the contributors and the poor
• Outsiders are kept out as much as possible
• The problem of adverse selection: only those who need specific support will want others to contribute to it

Conservative Welfare State

• Supports external misfortune insurances, such as sickness and disability
• Based on both one-sided and two-sided solidarity
• Provides high standard of public services to the middle classes and decent support to the least advantaged
• High taxes make it questionable if these states are sustainable long-term

Scandinavian Model

• Higher community spirit due to higher homogeneity
• Personal contact fosters affective ties and facilitates control of individual behavior
• Prevents opportunistic behavior and abuse
• Risks and benefits are more similar, thus no disproportionate benefit
• Everyone has the same chance to benefit from solidarity

Possible Issues

• Nullified solidarity between groups
• People with above-average risks can have difficulties accessing groups
• Insufficient risk spread (everyone experiences a downturn at the same time in the same industry, so no one can pay the unemployment benefits)
• Unclear optimal scale of organization

Supranational Welfare State

• Considered viable by very few people in the European context
• Large differences between current national welfare states
• Pre-conditions of two-sided solidarity are not met
• No direct payments from the EU to citizens
• Economic risks, such as unemployment, are not presented equally in Europe
• Most people do not consider themselves primarily European and trust fellow countrymen more

International Risk Pooling

• Can be beneficial and provide a more stable support
• Based on pure enlightened self-interest
• Already done by international corporations to avert risk