capitalism, welfare

DEFINITION: The concept of “capitalism” refers to a set of social and economic institutions which permit independent economic actors to own property, to participate freely in market exchanges, and to accumulate wealth in an unlimited fashion.

The concept of “welfare capitalism” designates a form of capitalism in which the state supports the poor through direct subsidies, as opposed to fiscal or regulatory measures.

ETYMOLOGY: For the etymology of “capitalism,” see the Glossary article on “capitalism.”

The word “welfare” derives from the Middle English phrase wel faren, meaning “to fare well.”

USAGE: Welfare capitalism is sometimes discussed as though it were a form of “socialism.” This is a mistake.

Socialism is a doctrine about the relation between the state and the ownership of property generally, whereas welfare capitalism is a doctrine about the relation between the state and the physical well-being of the poorest members of society.

The confusion may perhaps arise due to the fact that all socialist states are necessarily welfare states. That is, when all property is owned by the state, all individuals must work for the state and receive their compensation from the state.

In contrast, there is no necessary connection between capitalism as a system and the concept of the welfare state.

Some capitalist states—in which, by definition, the means of production are privately owned—may provide for generous support for the poor by means of direct transfer payments and others may not.

Welfare capitalism may also be defined more broadly, in the following way.

In the terminology of the US federal budgetary process, direct transfer payments to the poor are known as “discretionary” spending, meaning that the legal authorization for the spending must be reauthorized by Congress on a regular basis.

In contrast, “non-discretionary” or “mandatory” spending refers to payments that have a permanent status, meaning that legislation would be required to cancel or change the level of this type of spending.

In the US, the two major categories of non-discretionary spending are Medicare (the American healthcare service for the elderly) and Social Security (old-age pension) payments.

In the broad sense, “welfare capitalism” may refer to an economic and political system which provides for both types of transfer payments.

This is of some interest and importance, because the political support for non-discretionary welfare payments is very broad, seeing that nearly the entire population receives such payments.

This fact, in turn, helps provide political support for the discretionary welfare spending on the poor.