social welfare - ReviseSociology

Neoliberals dislike the welfare state and welfare spending for at least five main reasons:

The welfare state creates a dependency culture. People become dependent on benefits and less self-reliant.
Welfare spending is inefficient. Centralised systems can’t accurately assess what people’s needs are, only the free-market can.

Public spending on welfare requires taxation. This reduces money for investment and innovation in the private sector.
The welfare state interferes with market mechanisms. Public spending on health and housing can create monopolies. This prevents markets from functioning properly and prevents any supposed benefits from emerging.
Once established. the welfare state is difficult to get rid of. Millions of people end up working for it and reducing it in size is a political problem.

This post explores the context of neoliberal approaches to social welfare and then looks at some of the above critiques of the welfare state in more depth.

The Revival of Neoliberalism in the 1970s and 1980s

In the 1970s and 1980s, pro-market, anti-state ideologies experienced a significant revival, influencing political landscapes in the United Kingdom, the United States, and beyond. In the UK, this resurgence aligned with the policies of the Conservative governments under Margaret Thatcher.

This movement, often referred to as the New Right, marked the adaptation of classical 19th-century laissez-faire liberalism to meet the challenges of late-20th-century circumstances. The New Right is synonymous with neoliberalism or market liberalism, which centers on reducing state intervention and promoting market mechanisms.

Key Theorists: Hayek and Friedman

Neoliberal thought owes much to the work of Friedrich Hayek and Milton Friedman. Hayek consistently argued that there was an irreconcilable contradiction between market operations and state intervention. He believed that state involvement in economic or social policies would lead to market dysfunction, economic inefficiency, and even totalitarianism, ultimately eroding individual freedoms.

Milton Friedman shared Hayek’s preference for markets over state intervention. He emphasized that left to their own devices, markets would naturally protect individual interests. According to Friedman, consumer sovereignty ensures that producers adapt their services to meet consumer needs. He argued that state intervention distorts this natural balance, leading to inefficiencies and, ultimately, economic collapse that harms both the state and individuals.

The Role of Think Tanks in Promoting Neoliberal Ideas

In the UK, neoliberal ideas were championed by think tanks like the Institute of Economic Affairs (IEA). Although these ideas were initially a minority voice opposing the post-war welfare consensus, they gained traction during the economic crises of the 1970s. Rising inflation, unemployment, and the collapse of the global economy provided fertile ground for neoliberal critiques of state intervention.

The Centre for Policy Studies, founded by Margaret Thatcher and Keith Joseph, along with the Adam Smith Institute, amplified these arguments. These think tanks advanced the position that extensive state intervention, including in welfare services, was inherently flawed. They argued that state policies were economically inefficient, ideologically misguided, and politically unmanageable.

The Institute for Economic Affairs: at least it is open about its bias.

Economic Critiques of the Welfare State

Neoliberals view the welfare state as undesirable because it interferes with market mechanisms. This interference, referred to by Adam Smith as the “invisible hand,” disrupts the efficient functioning of markets. Critics argue that state monopolies, such as public housing, stifle competition and prevent the market’s claimed benefits from materializing.

Additionally, state intervention is said to drain private market wealth and reduce investment due to the fiscal demands of expanding welfare programs. According to neoliberal theorists, this dynamic leads to economic stagnation and recession. Stabilizing the economy, they argue, requires cutting public expenditure and reducing the scope of the state. These ideas influenced austerity policies implemented in the UK from 2011 to 2015 and continued under subsequent Conservative governments until 2018.

Dependency Culture and Perverse Incentives

Central to neoliberal critiques of the welfare state is the idea that it creates a dependency culture. This argument posits that state provision discourages individuals from taking responsibility for their welfare needs, trapping them in reliance on government support. Charles Murray popularized this concept in the 1980s, describing the issue as one of “perverse incentives.”

Murray argued that social security benefits guaranteed a basic standard of living, making reliance on welfare more attractive than employment. This issue is particularly pronounced with means-tested benefits, where individuals lose entitlement as their income increases, creating a poverty trap. This perspective has been echoed by figures like British MP Rhodes Boyson, who claimed that the welfare state “saps the collective moral fibre of our people as a nation.”

Political Critiques: Public Choice Theory and the Ratchet Effect

Neoliberals also criticize the welfare state through the lens of public choice theory, developed by the Virginia School of thought. This theory applies microeconomic principles to political behavior, assuming that all political actors are motivated by self-interest.

According to this theory, welfare states inevitably face pressure from various social groups and bureaucrats to expand benefits, as welfare expansion strengthens political power and bureaucratic influence. This dynamic leads to the “ratchet effect,” where welfare spending continually increases but cannot be reduced without significant political backlash. Consequently, welfare states are seen as financially unsustainable and politically uncontrollable.

Neoliberal Views on State Welfare: Impractical and Ineffective

Neoliberals argue that state welfare provision is impractical, as it assumes that politicians and bureaucrats can accurately assess and meet the diverse needs of society. They contend that such centralized systems often fail to address individual requirements, leading to inefficiencies and poorly tailored services.

Critics further argue that standardized welfare services do not meet the real needs of most people and often require recipients to rely on private adaptations. For neoliberals, the most effective solutions lie in minimizing state involvement and allowing markets to operate freely.

The Pragmatic Role of the Welfare State

Despite their criticisms, many neoliberals acknowledge that the complete elimination of the welfare state is neither practical nor politically feasible. Hayek, for example, accepted that the state might play a residual role in providing for individuals who cannot support themselves through the market. Similarly, Milton Friedman proposed an alternative approach, suggesting a universal annual grant to enable individuals to purchase welfare services independently.

For many New Right advocates, a minimal “safety net” remains necessary to address basic welfare needs. However, they stress that this should be designed to encourage self-reliance and reduce long-term dependency on state support.

Neoliberalism as a Global Economic Doctrine

Neoliberal economics has become a globally dominant ideology, often supported by organizations like the World Bank and the International Monetary Fund (IMF). However, its influence varies across nations. Scholars like Ellison (2006) and Deacon (2011) have highlighted the inconsistencies in its application and impact.

As Greer (2018) notes, neoliberal ideas often adapt to existing national political and economic contexts, creating hybrid models. In the UK, the New Right reflects this blending of free-market principles with the ideological positions of the Conservative Party.

The Thatcher Era: Ideological Tensions and Political Realities

During Margaret Thatcher’s tenure as Prime Minister, the Conservative government faced internal and external pressures to retain universal state services. As a result, reforms focused on restructuring welfare management and encouraging private sector involvement, rather than dismantling state services entirely.

This period underscores the the gap between ideological perspectives and political practices. It also highlights the ongoing presence of alternative ideological views, even when neoliberalism appears dominant.