The importance of the welfare state in a capitalist economy

A capitalist economy, as it grows, goes through a process of continuous structural change. Jobs in some sectors are lost, as jobs are created in others. In a recession, the job losses dominate. In a boom, the jobs created do so. This is part of a process that allows economy-wide productivity to grow in the long run. A huge number of people are therefore likely to be out of work at one time or another. For those who have earned a salary which allows them to save while they are in work, private spending can be sustained to some degree between jobs, depending on the individuals preferences, and on their willingness or determination to ‘cut back’. Such individuals may have no need of the welfare state.

However, for many towards the  bottom of the income scale, out of work benefits may be the only thing that can keep the unemployed from falling into poverty. Hence the importance of a social ‘safety net’ in the form of reasonably generous but conditional benefits. Without this, many would find themselves unable to sustain a reasonable standard of living.

Helping the unemployed to sustain a certain standard of living may also help them to find new work, which requires the ability to travel at the very least. For those whose benefits have come to an end, and have no other means of income, finding new work may become difficult and they could become trapped in poverty.

Much poverty and unemployment is therefore structural, and created in the normal operation of a capitalist economy. The welfare state should thus provide a social safety net, and aid and encourage those it is meant to support to find new work. This process will inevitably last longer during a recession as opposed to the later stages of a boom when new jobs are being created most rapidly. So while restricting ‘job-seekers allowance’ (as unemployment benefit is called in the UK) to six months may make sense at some points in the economic cycle, this will be less the case during others. Dependency should be discouraged and re-training and help finding new work should be provided to those who are out of work. Some abuse of the system is inevitable, but research shows that this is only a tiny percentage of the total paid out in benefits. The abuse of a very few should not become a reason for scrapping the entire system.

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