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SOCIAL WELFARE REFORM: COMPARATIVE

PERSPECTIVES ON EUROPE AND THE UNITED STATES
Maria Bordas

Department of Public Administration, National School of Public Administration, 1118

Budapest, Menesi u.5, Hungary
Version of record first published: 17 Aug 2006

To cite this article: Maria Bordas (2001): SOCIAL WELFARE REFORM: COMPARATIVE PERSPECTIVES ON EUROPE AND THE
UNITED STATES, International Journal of Public Administration, 24:2, 225-233
To link to this article: http://dx.doi.org/10.1081/PAD-100000553

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INTL. J. OF PUBLIC ADMIN., 24(2), 225233 (2001)

SOCIAL WELFARE REFORM:

COMPARATIVE PERSPECTIVES ON
EUROPE AND THE UNITED STATES
Maria Bordas
National School of Public Administration, Department
of Public Administration, 1118 Budapest,
Menesi u.5, Hungary

ABSTRACT
This paper compares the effects of American approaches to
welfare with the effects of privatization and other recent changes
in European welfare systems. European theories traditionally have
held that the provision of welfare services is a state responsibility.
While European governments continue to protect welfare services
from economic forces, recent U.S. approaches have emphasized
incorporating market principles in welfare programs.
There is an on-going debate in the European political literature on whether American public administration has established
a new relationship between public and private sectors and whether
such an approach can be applied to law-governed, Continental
European systems. This question is especially important in the field
of welfare, because in Europe the welfare responsibilities of the
state are based on public law.
While the U.S. approach emphasizes economic efficiency as
a central value of privatization, the pressing question in Western
Europe is whether law-governed European public administration
can provide adequate welfare services and whether legal regulations
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can guarantee that such services will be maintained in the manner

outlined by law. The paper also proposes to shed light on whether
welfare systems in post-Communist Eastern Europe are following
American or European traditions.

INTRODUCTION
This paper has two aims. First, it compares the effects of American, noninterventionalist policy with the effects of privatization in European systems.
Welfare is broadly defined in this essay to include governmental services to the unemployed, homeless, disabled, elderly, and children. To what extent should welfare
be the responsibility of the state?
The provision of welfare services as a task for the state has been strongly
influenced by the European welfare traditions. European governments continue to
treat welfare services as activities that cannot be adequately supplied by the market
alone and that must receive state subsidies. In recent years, however, U.S. policies
have increasingly been based on the idea that only the market can assure the quality
of welfare services and that the state therefore should incorporate market principles
in welfare policy.
There is a persistent debate in the Continental European political literature
on the question of whether American public administration, which is based on
a public management approach, has established a new relationship between the
public and private sectors and whether such approaches can be applied to lawgoverned European systems (1). This question is especially important in the field
of welfare, because in Europe the welfare rights of citizens are specified in national
constitutions and the welfare responsibilities of the state are detailed in public law.
Other pressing questions include whether the law-governed character of
European public administration can provide adequate welfare services and whether
such services will be maintained in the manner intended by law.
Western European theories traditionally have stressed that the public interest
is better served when providing welfare services is accepted as a state responsibility.
However, this has become somewhat muddy as a result of the neoliberal tendencies
of the 1980s. In Eastern Europe since the demise of Communism, welfare has been
provided by both the public and the private sector. In many countries there is a
tangible movement toward withdrawal of the state from welfare services. But this
drawback is occurring without benefit of either well-defined political concepts or
elaborated theory. The public interest in welfare must be redefined in Eastern
Europe.
A second purpose of this paper is to shed light on whether change in the
welfare systems in post-Communist Eastern European countries since the transitions are more heavily influenced by American or Western European traditions. Is

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the central challenge to welfare systems in the post-Communist countries meeting

legal requirements, or is it to provide a loose safety net? Moreover, with constitutional and administrative regulations emphasizing that the state has a high-level
responsibility to support welfare, how can the withdrawal of political support and
funding for welfare be justified from a legal standpoint?

THEORIES OF SOCIAL WELFARE

The American SystemWelfare as an Individual Responsibility
From a comparative viewpoint, the United States has provided only a minimum level of welfare service. The individualist tradition stresses equal opportunity.
It is the responsibility of individuals to improve their situation by their own efforts.
The Constitution declares political, not social or welfare, rights of citizens. The
provision of welfare has been a matter of public policy, based on the needs and
influence of different economic groups.
However, American culture has always had an aversion to centralized power.
This has encouraged the establishment of voluntary and charitable organizations.
In lieu of strict regulation, public policy often encourages private administration
of welfare services with public oversight.
Excluding the Great Depression, U.S. social policy never intended to provide
more than a few governmentally administered welfare programs. This follows the
belief of many that poverty is in many ways the fault of the individual, not the
result of social inequality. For this reason, social welfare allocations are provided
on a case-by-case basis for people in need. Awarding welfare is always based
on discretion. It is the duty of clients to prove their financial condition warrants
assistance. And provision of welfare allocations also depends on whether clients
observe behavioral rules established by public authorities. With unemployment in
the United States at relatively low levels in recent years, most Americans believe
they should no longer finance welfare services for poor people (2).

Western European Welfare? Welfare as a Constitutional Right

Europeans view the American welfare system as stigmatizing because it
does not focus on the social conditions that lead to poverty but instead emphasizes treatment of the symptoms of those conditions. In Continental Europe, the
public interest is the reason cited for the states responsibility to shoulder welfare
programs. Social rights are mandated in many national constitutions.
Distinctions between the welfare services of the public and private sectors are
reflected in the differences between applied public and private law. Under public

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law, welfare belongs to the public sector. It aims to promote the poor, and the
state must intervene to compensate for unequal market mechanisms. For this reason, European approaches regard the application of business principles in welfare
services as inconsistent with the public interest.
Absolute monarchies first established centralized public administration
systems. Later state intervention was limited by law, and public administration
had to work under refined regulations. These laws bound the activities of public administration so that intervention could be avoided in ostensibly private
affairs. With the emergence of liberal capitalism, public administration sought
more refined legal regulations in order to solve economic and social problems
(3).
The theory of the provident state meant that it was the responsibility of
the state to assure the welfare of citizens. In Europe, public authorities have the
responsibility to provide certain welfare services. But many feel exercise of this
responsibility serves the interest of the political elite. Hence, welfare regulations
may violate the principle of economic constitutionalism, the right of the government to determine economic policy. The simultaneous execution of social rights
is also considered to be an economic-political decision, because it determines the
level of redistribution of the state budget for welfare services.
When considering the current status of constitutional regulation and social
rights in European courts, a general conclusion can be offered: How public administration delivers welfare services is an issue to be determined by political
processes rather than through constitutionalism. In other words, the post-World
War II European judiciary sees redistribution of wealth as mainly a question of
economic-political decision making, outside of legal regulation (4).

EUROPEAN MODELS OF WELFARE

Western European Systems
In most Western European countries, the so-called welfare states developed after World War II. The theory of the welfare state held that it is the responsibility of government to assure the well-being of citizens regardless of the
economic consequence.
Despite this unifying principle, several different approaches have developed
in Western Europe. In the socialdemocratic systems of the Scandinavian states,
high-level welfare services provided by centralized, state-owned institutions have
assured the middle class a high standard of living. This state protects most individuals from the unequal effects of the market, while encouraging citizens to hold
jobs. Consequently, private welfare institutions or charitable foundations have not
developed in these social-democratic systems.

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The corporative-elitist welfare systems (e.g., Austria and Germany) emphasize social security. Welfare services in the corporative-elitist systems are always
based on work contracts and depend on participation in the labor market. These
systems attempt to assure a social right to welfare. Welfare services are even extended to family members of the worker. Services based on market principles are
not common in these systems.
Liberal welfare systems (e.g., in Great Britain) reflect a welfare service
philosophy in between the United States and other European welfare systems.
These systems assure welfare services on the basis of universality. However, only
low-level services and allocations are provided. The systems are centralized, and
state-owned institutions are dominant. Wealthy people do not regard services provided by the state system as adequate and have turned to private insurers and
services providers.

Welfare in Post-Communist Societies

During the Communist era, welfare in Eastern European countries served
as part of the wealth redistribution system of the state-controlled economy. The
Communist state assured the welfare of citizens by dictating how certain goods and
services were provided to the general population. Not only were welfare services
provided free of charge, but below-market prices for goods such as flats, foods,
and utility services were established and subsidized by the central government.
Communist budgets served the interests of production more directly than
the interest of welfare. For example, they often subsidize money-losing stateowned enterprises. Until the 1960s, the so-called bureaucratic redistribution
based on a macroeconomic plan meant that markets existed only on the periphery
of the economy. Central planning, state investments, and bureaucratic allocations
prevailed. Starting in the 1960s, however, market allocations gained precedence.
When that system disintegrated after the 1990 transition, a small portion of the
society became wealthy but most became poorer and poorer. This special market
produced a new entrepreneurial class that have obtained great wealth and a political
elite that has achieved great power. The interests of these two elites are often able
to suppress what remains of the bureaucratic state redistribution system.
Recently, groups whose incomes were provided historically by the state
bureaucracy have found themselves at tremendous economic disadvantage. The
guarantee of low incomes and subsidized basic goods and services, such as food,
homes, and utilities, under Communism has disappeared.
With the privatization of state-owned enterprises and creation of open-market
institutions in the post-Communist era, a gray economy prevails and the state
budget is under great pressure. The percentage of the state budget devoted to welfare is higher in post-Communist countries than in developed Western nations. The

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political elite and new rich argue that welfare costs shouldered by the state in
the former Communist regimes are far beyond the states ability to pay for them.
These circumstances have forced the state to further withdraw from many welfare
services. As a result, the current system can be viewed as a mechanism for
maintaining a permanent economic underclass. Social policy continues to reflect the interests of the new political and entrepreneurial elite, whose members
are economically independent from the state welfare system and are not interested in addressing the growing poverty that could eventually jeopardize their own
economic success (5).
In post-Communist economies there is a pronounced pattern among the
entrepreneurial class of successfully avoiding the payment of taxes and social
insurance. As a result, the state budget is further depressed. The reaction of the
government is to further increase fees and taxes, which, ironically, further encourages people to avoid paying them.
The consequences of fiscal duress are well illustrated in Hungary, where
the contradiction between, on one hand, the constitutional requirements regarding
social rights and, on the other, major reductions in welfare services has resulted
in legal challenges in the Constitutional Court. The court has been forced to interpret welfare rights within the framework of todays more restrictive financial
reality. As a result, it has enabled the legal reduction of welfare services. There
was an attempt to amend the Constitution to eliminate some mandated welfare
requirements. However, this attempt failed.
Although laws in the post-Communist countries still emphasize the states
responsibility, this tendency by the state to withdraw from welfare services is
increasing. The sharp difference between legal requirements and reality in Hungary
and other post-Communist countries would be better served by administrative
innovation and adaptation rather than intervention by the court.

U.S. VERSUS EUROPEAN APPROACHES

Privatization
Conservative U.S. economic theory holds that because of the New Deal,
public administration began shouldering more public tasks than it could effectively
manage, thus interfering with economic development. In this view the principle of
free choice is violated, because welfare services are provided by the state and not
the marketplace.
This theory of privatization often is criticized in Europe, where it is widely
held that providing welfare is fundamental to the public interest. In contrast to the
United States, European theories claim that there is justice in providing welfare
services because these services are based on fair redistribution. In the European

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way of thinking, freedom means recognition of social citizenship, including the

right of individuals to be protected from inequality brought about by the market.
Welfare services based on market principles are regarded as being inconsistent
with state responsibility.
However, American-style privatization may not mean transferring welfare
services entirely to the private sector. Instead it may mean shifting to a so-called
regulated market where government maintains the responsibility but it can assign the operation of welfare services to private enterprise. Social policy is also
expressed in the United States by other means, such as subsidies and vouchers. In
American government redistribution of wealth is contrary to market mechanisms.
Rather, individuals in society should accept responsibility for their own welfare.
Free choice and efficiency due to competition reduces costs and encourages partnerships between the private and public sectors (6).
The European approach attempts to maintain a boundary between the two
sectors. But once privatization emerges, the dichotomy of public-private law was
no longer clear. The public interest that earlier determined what kinds of welfare
services the state should provide has now become a vague, intractably political
principle.
Under U.S. policy, public administrations role is to maintain the quality of
welfare services. When noncompetition is unavoidable, government must regulate
the price of services. For example, institutions for the homeless cannot be easily
shifted to a competitive environment or performed on a fee basis. Government
must exercise near or at least distant control over quality and costs.
In the United States, some welfare services have been privatized by contracting out. When a fee cannot be charged for a particular welfare service (as is
the case for services for drug addicts), the public authority often assists nonprofit
enterprises in providing services. While competition is often not possible in these
fields, costs can be reduced by contracting for the best-quality service at the lowest
cost.
U.S. privatization occurs if the enterprise providing the welfare service is a
profit or nonprofit organization operating under market conditions. Free-of-charge
services are regarded as impractical, because only fees can assure reasonable consumption. Direct assistance to the needy provided by vouchers enable the exercise
of choice and at the same time provides benefits to individuals who are in need.
Typically, European approaches do not embrace this form of privatization.
Vouchers are issued directly by public authorities. Privatization of welfare to nonprofit (and for-profit) organizations is rare. Moreover, this approach is not likely
to displace centralized state systems.
Many Americans consider nonprofit organizations to be more reliable than
for-profit businesses, especially when customers cannot judge and choose the
quality of service. Furthermore, where these organizations operate in a competitive
environment, public authorities can reduce price supervision over them (7).

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Consumers of nonprofit services can benefit from advantages such as flexibility, autonomy, customer-oriented services, and satisfaction of special needs.
These public-nonprofit partnerships meet the requirements of the American public. But there are those in the United States who fear that nonprofit organizations
risk losing their identities as their quasi-state role expands.
The U.S. practice of incorporating competition in providing welfare services
could well serve as a model for Europe. The states role in providing welfare
services continues to be dominated by a monopolistic, centralized system.

CONCLUSION
Reflecting the policy of developed Western countries, former political elites
in post-Communist countries have attempted to develop a so-called premature
welfare state theory. However, the premature welfare state theory misinterprets
nonintervention. Nonintervention does not mean the radical withdrawal of the
state from welfare.
Some post-Communist authorities have attempted to decentralize and privatize social welfare services in order to modernize the system. But replacement of
state-welfare services by so-called self-organizing institutions has not taken place;
instead, serious deterioration of welfare services has occurred (8).
Welfare privatization in the post-Communist countries has been fairly limited. The private sector is not sufficiently developed to allow the state to withdraw
from providing welfare services. Due to a lack of state funding, few, if any, welfare services have been shifted to nonprofit organizations. Market conditions have
been created, but there are relatively few private initiatives in the field of welfare,
since the majority of citizens do not earn enough to pay for welfare services. In
the wake of transition, social policy depending on privatization is not an attractive
proposition for the near future.

REFERENCES
1. Konig, K. Post-Industrial, Post-Modern, and Post-Bureaucratic. In EGPA Conference, Budapest, 1996; 34. By law-governed, I mean that European public
law determines the scope and tasks of government in great detail. Authorities
can act only when a law entitles them to do so, and they are obligated to operate
within the framework of regulations specified in law.
2. Volgyes, I. A Classthe Underclass. Vilagossag 1993, 5, 6873.
3. Loricz, L. Public Administration Yesterday, Today and Tomorrow. Tarsadalmi
Szemle 1998, 7, 2630.

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4. Juhasz, G. Some Ideas about the Nature of the Social Rights; Hans Seidel
Alapitvany: Budapest, 1994; 3842.
We Do Not Need a Residuary Welfare State. Esely 1992, 5, 25.
5. Ferge, Z.N.
6. Savas, E.S. PrivatizationThe Key to Better Government; Chatham House
Publishers: Chatham, NJ, 1987.
7. Hansmann, H. The Nonprofit Sector: Economic Theories of Nonprofit
Organizations; Nonprofit Kutatocsoport: Budapest, 1991.
8. Szeman, K. Decentralization and Problems of Social Welfare Policy. Esely
1991, 6, 3040.

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