Understanding the Welfare State and Its History

Will Kenton is an expert on the economy and investing laws and regulations. He previously held senior editorial roles at Investopedia and Kapitall Wire and holds a MA in Economics from The New School for Social Research and Doctor of Philosophy in English literature from NYU.

Toby Walters is a financial writer, investor, and lifelong learner. He has a passion for analyzing economic and financial data and sharing it with others.

Vikki Velasquez is a researcher and writer who has managed, coordinated, and directed various community and nonprofit organizations. She has conducted in-depth research on social and economic issues and has also revised and edited educational materials for the Greater Richmond area.

What Is a Welfare State?

The term "welfare state" refers to a type of governing in which the national government plays a key role in the protection and promotion of the economic and social well-being of its citizens. A welfare state is based on the principles of equality of opportunity, equitable distribution of wealth, and public responsibility for those unable to avail themselves of the minimal provisions of a good life. Social Security, federally mandated unemployment insurance programs, and welfare payments to people unable to work are all examples of the welfare state.

Most modern countries practice some elements of what is considered the welfare state. That said, the term is frequently used in a derogatory sense to describe a state of affairs where the government in question creates incentives that are beyond reason, resulting in an unemployed person on welfare payments earning more than a struggling worker. The welfare state is sometimes criticized as being a "nanny state" in which adults are coddled and treated like children.

Key Takeaways

• The welfare state is a way of governing in which the state or an established group of social institutions provides basic economic security for its citizens.
• By definition, in a welfare state, the government is responsible for the individual and social welfare of its citizens.
• Most modern countries have programs that are reflective of a welfare state, such as unemployment insurance and welfare payments.
• However, the term "welfare state" is a charged one, as critics of such a system say it involves too much government involvement in the lives and well-being of citizens.

Understanding the Welfare State

The welfare state has become a target of derision. Under this system, the welfare of its citizens is the responsibility of the state. Some countries take this to mean offering unemployment benefits and base level welfare payments, while others take it much further with universal healthcare, free college, and so on. Despite most nations falling on a spectrum of welfare state activity, with few holdouts among the most developed nations, there is a lot of charged rhetoric when the term comes up in conversation. A lot of this owes to the history of the welfare state.

The History of the Welfare State

Although fair treatment of citizens and a state-provided standard of living for the poor dates back further than the Roman Empire, the modern welfare states that best exemplify the historical rise and fall of this concept are the U.K. and the United States. From the 1940s to the 1970s, the welfare state in the U.K.—based on the Beveridge Report—took hold, leading to a growth in the government to replace the services that were once provided by charities, trade unions, and the church. In the U.S., the groundwork for the welfare state grew out of the Great Depression and the massive price paid by the poor and the working poor during this period.

The U.K.'s system grew despite some spirited opposition by Margaret Thatcher in the 1980s, and it continues today although it frequently needs restructuring and adjustments to keep it from getting too unwieldily. The U.S. never went to the extent of the U.K., let alone somewhere like Germany or Denmark, and Ronald Reagan had much more success than Thatcher in shrinking government. Many people look at the differing economic growth rates of the U.S. and the U.K. throughout periods where the welfare state flourished and floundered to make conclusions on whether it is good or bad for a nation as a whole.

Special Considerations

While it is true that the government is rarely the most cost-effective agent to deliver a program, it is also true that the government is the only organization that can potentially care for all its citizens without being driven to do so as part of another agenda. Running a welfare state is fraught with difficulties, but it is also difficult to run a nation where large swaths of the population struggle to get the food, education, and care needed to better their personal situation.