This blog post introduces a viewpoint that sees welfare not merely as income distribution, but as a productive system underpinning capitalism.
Welfare is collective purchasing
There’s a reason many scholars argue for reforming capitalism rather than abandoning it. It’s precisely because capitalism possesses extremely powerful advantages. It’s no exaggeration to say capitalism has survived until now because of these strengths. Focusing solely on its strengths isn’t about adopting a simplistic, two-sided view of capitalism. It’s not about saying, ‘Capitalism has good points and bad points, so let’s just patch it up and keep using it.’ Rather, understanding capitalism’s strengths is essential to devising the most reliable way to compensate for its weaknesses and develop its strengths.
First, capitalism is the most effective system for generating increased wealth and income. Consider the words of Robert Skidelsky, a British peer and emeritus professor at the University of Warwick.
“Capitalism produces wealth. It produces wealth continuously. And through that wealth, it alleviates poverty. The problem is, ‘wealth for whom?’”
Capitalism can be seen as the optimal system for humanity to produce wealth. This is precisely why Adam Smith advocated for a completely free market system. Adam Smith truly recognized the remarkable wealth-producing capacity inherent in the free market. So, what methods can we employ to preserve these advantages of capitalism while also correcting the income inequality it creates? First, we can consider a social safety net for those suffering from income inequality. This could protect those left behind by FTAs, as previously noted, and ensure they can live securely. Let’s hear from the experts.
“When the economy falters, many people lose their jobs. Welfare is about sharing the burden of those who have fallen into hardship. It’s a kind of insurance. You can’t have capitalism without insurance. No one would send a ship out to sea without insurance.“ (David Kay Johnston, American Journalist)
“We must account for the possibility of error. We must acknowledge misfortune. Every civilized society requires a minimum safety net.” (Raghuram Rajan, Professor, University of Chicago Booth School of Business)
“Welfare is the insurance we provide for each other.” (Richard Thaler, Professor of Economics, University of Chicago)
“Welfare is a social safety net designed to protect society’s most vulnerable.” (Eric Maskin, Professor of Social Sciences, Princeton University)
Therefore, to fix broken capitalism, we must focus on welfare for the people. We must build a society where the people, not the government or the market, are the masters. The people must become the masters, driving the market and moving capitalism. This is the argument that ‘welfare capitalism’ is necessary to resolve the polarization, inequality, and wealth gap created by modern capitalism. It proposes transforming capitalism from one where most people are unhappy to one where most people are happy. Welfare can be seen as a kind of insurance against an uncertain future under capitalism. It’s like us paying taxes to collectively purchase insurance at a lower cost.
Productive welfare that creates jobs
Some people argue that excessive welfare will hinder economic growth. But is that really the case? To address this question, let’s first ask: Which of the following two options helps increase consumption?
1. Consumption by the high-income class
2. Consumption by the low-income class
The answer is option 2. The reason is that not only are there far more poor people than rich, but even the wealthiest don’t eat ten meals a day. This rationale can be found in Malthus’s ‘Principles of Political Economy,’ specifically his ‘underconsumption theory.’
For economic development, demand must increase as supply grows. However, if the fruits of economic growth are not distributed evenly among society’s members, consumption growth cannot keep pace with increased production. This leads to overproduction and ultimately, a crisis. In short, crises arise from ‘imbalances in distribution’. Conversely, this also means that economic growth can only be achieved through proper distribution.
Malthus stated:
‘Fill the pockets of the poor. Then consumption will be stimulated.’
Having many poor people means higher social costs; neglecting them will only create a bigger boomerang effect, making life harder for everyone. Therefore, providing welfare can be more economical. Yet, whenever welfare is discussed, we tend to resort to moralizing and conclude with appeals to compassion. How can we just leave the poor behind? Shouldn’t we live together? Isn’t that the very essence of a just society? But in reality, welfare is not a problem to be solved by relying on sympathy alone. Rather, it is precisely because welfare must be provided that capitalism does not collapse.
This is the perspective of American journalist David Kay Johnston.
“Poverty is a free good, but it’s very expensive. Having poor people costs a lot of money. They don’t pay taxes; they only receive them. The purpose of welfare should be to help people get through tough times and become productive. To do that, there must be jobs.”
The welfare we need is not ‘handout-style welfare’. It is productive welfare that creates jobs and healthy welfare that helps the vulnerable become self-reliant. Through this approach, consumption is stimulated, and capitalism can regain its vitality. It is a misconception to view welfare and growth as mutually exclusive concepts. To fully preserve the wealth created by capitalism and its tremendous growth potential, we have no choice but to consider welfare as an alternative.
