Chapter 16

The Decline of the Canadian Welfare State:

Policies and Implications of Retrenchment

By: Gary Teeple

Thursday, March 22, 2007

Presented By:

Charlene, Lily, Josie, & Melissa

Introduction

Hardly any aspect of life in the modern industrial nation is not affected by the welfare state.

Since the 1970s, in every country that claims to have extensive social reforms, governments have made conscious efforts to undermine, retrench, or eliminate them.

Neo-liberalism has created a new morality. Neo-liberalism is a set of policies, being adopted by

governments around the world, that seeks to change every aspect of state intervention in society with the goal of privatizing all forms of property that embrace collective or co-operative elements.

What is the Welfare State?The Welfare State

The welfare state refers to a capitalist society in which the state has intervened in the form of social politics, programs, standards, and regulations in order to mitigate class conflict and to provide for, answer, or accommodate certain social needs for which the capitalist mode of production in itself has no solution or provision.

When State Intervention Becomes ‘The Welfare State’

When class conflict, reduced to the contest between workers and the representatives of capital, presents a chronic threat to the stability of the system and has to be institutionalized and when the majority of social needs pertaining to the reproduction of the working classes are addressed formally, rather than informally, the welfare state has arrived.

Why and How the Welfare State Comes About One cannot identify all the specific reasons and how they

contribute to each coming of the welfare state. The shared premise of national reform programs was the

development and rise to pre-eminence of industrial capitalism within the nation-state.

The fundamental outcome of pre-capitalist modes of production was twofold: The creation of a capitalist labour market and working class, or

the ‘freeing’ of labour from its means of production and existing forms of bondage; and

The breakdown of social institutions, labour processes, and communities that embodied to a considerable degree an integrated social, political, and economic life.

The significance of this transformation was that it gave rise to objective needs that had formerly been integral to a way of life.

It created new needs and new problems, which arose from and were associated with the capitalist labour market, the ‘freedom’ of the worker, and new labour processes.

In itself, capitalism had no answers for these needs and problems; the answers were to come as imposed reforms.

Examples: trade unions, new political parties, socialist alternatives.

As capital accumulation expanded, sufficient revenues allowed the creation of a social wage. Social wage – state-sponsored partial socialization of income

from wages and salaries by means of premiums, taxes, and deferred incomes. The funds so created are used for redistribution from one class to another through transfers such as pensions, income supplements, or social insurance schemes.

By the late 19th century, new technology increased productivity, and expanded markets had begun to increase the segmentation, stratification, and social mobility of the labour force.

The conditions that underlie the modern welfare state fell into place in the aftermath of World War 2.

The Modern Welfare State

The welfare state became a political and economic necessity.

The modern welfare state also known as the Keynesian welfare state. Derived in part from John Maynard Keynes. Intended to offset the business

cycles of capitalism. This would be done by deficit spending in recessionary periods to promote public works, offset corporate expenses, and provide unemployment insurance.

Redistribution

The welfare state represents 2 forms of redistribution. The general redistribution of deductions from wages

and salaries to pay for schemes that assist the working class to reproduce itself.

A certain redistribution of revenues upward in the social strata since the well-to-do make proportionally greater use of the more costly programs but contribute proportionally less income in their support because of the structure of tax regimes.

Social Citizenship and Decommodification

Social citizenship: notion that all members of society have an innate claim to certain social services and programs such as health care, education, senior’s pensions, unemployment insurance and so on

Concept of equality equal status in the social realm. The instable labour market and restrictive nature of wage

labour results in the demand for universal social security. A way to combat the commodification of labour power is to

organize trade unions or protest state-sponsored social and economic reform.

These efforts are referred to as a decommodification of labour power.

Decommodification and principles of capitalism are therefore situated in opposition to each other.

Existence of social net and union rights vs. competition, powerlessness, fear and poverty for the working class.

Social citizenship represents the highest development of the principle of welfarism/social reformism.

There are limits to social citizenship however gains have always been temporary.

Social and union rights often: do not apply to all categories universally; groups that

are marginal to the labour force. boundaries of application are continuously subject to a

fluctuating balance of class power. social citizenship is a response to demands of

marginalized classes compromise offered by the state and capitalist class.

does not result in economic equality and does not challenge existing power relations.

The Welfare State in Canada

Social reform in Canada prior to the 1940’s did not contain development of continuity.

1870’s ushered in an era in which educational reform was substantiated.

The Ontario Act (1871) introduced compulsory education state-sponsored primary-school education was a response to the Industrial Revolution and the need for the state to develop the working class.

Starting in the 1880’s, the efforts to provide workmen’s compensation was introduced.

Limit company liability .

Prior to 1930’s “public works’” and municipal relief payments were employed to combat high unemployment rates.

Unemployment insurance was introduced in the 1940s. With the advent of the Great Depression, the state

attempted to dissolve unions, arrest Communist party members and established “relief camps” (workfare for single, homeless and unemployed young men).

Present StructureModes of Financing This mode of delivery attempts to maintain national standards

across the country in distributing federal funding. Comprised of unconditional payments given to less well off

provinces on an unconditional basis (amount determined by a formula).

Examples: Established Programs Financing . Worked to transfer federal funds to provinces to increase growth of

population and GNP. Canada Assistance Plan (CAP): cost sharing system in which

provinces meeting criteria would be reimbursed for half of the cost of social programs.

Premium payments (deductions from income).

The Nature of the Recipient 3 categories: universal programs apply to all individuals in a given

unit (public education, Old Age pension). social insurance programs provide benefits for making

contributions or premium payments (worker’s compensation, unemployment insurance, Canada Pension Plan).

social assistance programs based on needs or income assessment, provide income supplements to households whose income do not reach a certain level.

Categories are usually based upon income security systems (does not take in account education or healthcare).

Categories do not include any of the reform initiatives that deal with the labour market or point of production (minimum wages, employment standards, etc.).

Categories have no underlying rationale essentially descriptive, no explanation as to who gets what/why programs are implemented.

The Welfare State and the Capitalist Mode of Production

Historically, one of the earliest arenas of intervention was at the point of production, the most immediate sphere of class conflict between workers and the representatives of capital.

There are 2 main elements to this arena: Instituionalized in industrial relations acts or labour

codes, which set out the terms for collective bargaining.

Those standards and regulations that are imposed by government on capital because of the unmitigated power it holds in the workplace.

The Decline of the Welfare State

Economic reconstruction carried out with advanced Fordism in national economies, a consistent demand for labour, rising real wages, and expanding trade unions.

In 1970, advanced Fordism was now being replaced by computer-aided processes whose productive capabilities were far superior.

Changes in the labour market followed, not so much for the workers, who remained restricted by national boundaries, but for capital, which now began to search for ways to escape the high wages.

For Canada, as for all industrial countries, the coming of the global economy has meant relatively less corporate tax and declining wages and so a declining social wage.

North American Free Trade

Pressures arising from the Canada-United States Free Trade Agreement (FTA) and North American Free trade Agreement (NAFTA) are involved with global demands and policy reflections that are cutting back Canadian social programs.

These treaties, which are intended to create single continental economy, present two areas of threat to Canadian welfare state.

The Decline of the Welfare State in Canada

By the late 1970s, the attack on the welfare state in the United Kingdom, the United States, and Canada had become visible.

By 1980, it had become government policy in the U.S and in Canada.

Provincial wage restraint laws were also promulgated. By the early 1980s gradual improvements in employment

standards came to a halt and many began to cut back.

Of the welfare state, the principal component for preparing the working class for the labour market is the educational system.

The federal funding in 1996 opened the possibilities for a wider range of cutbacks at a quicker pace. (The introduction of the Canada Health and Social Transfer (CHST) combined the federal Canada Assistance Plan (CAP) and the established Programs Financing (EPF) into one fund).

Globalization, brought pressure to transform the entire sphere of public property into corporate property.

With the coming of the CHST in 1996, federal funding for health and post secondary education and the shared-cost social assistance programs would be combined in one block fund.

Tax concessions advanced to RRSP contributors each year nearly equals the total amount spent on welfare in Canada.

There is a different treatment of welfare receipts vs. RRSP contributors.

Unemployment system first promulgated in the 1940s and expanded in the 1960s has suffered from continuous tightening of the rules for eligibility and declining benefits relative to the cost of living.

Employment insurance (EI), as it is now called, is moving more or less rapidly toward a system of minimal income protection against unemployment.

The Canada Pension Plan has always been structured mainly as a pay-as-you-go system, relying on the premiums of present-day workers to finance the pensions of the retired.

In 1997, a law was passed to put the accumulating CPP fund more decisively into the hands of the corporate sector.

In 1998, an investment board was set up to take over this investment of a large and growing fund.

The pensionable earnings of the working class had been put at the disposal of the corporate sector, whose only morality is that of the marketplace.

What is Welfare?

Social assistance (welfare) is an income program in Canada.

It provides financial assistance to individuals who do not have the necessary means to provide for themselves.

Welfare was paid under the terms of the Canada Assistance Plan (CAP), but was recently replaced with Canada Health and Social Transfer in 1996.

There are twelve different welfare systems in Canada - one designated to each province and territory.

Despite the existence of twelve different national welfare systems, there are key commonalities between them all.

There are complex rules that regulate all aspects of the system, which include: Eligibility for assistance. Rates of assistance. Amounts recipients are allowed to keep from outside

earnings. The way applicants and recipients may question

decisions regarding their cases.

Eligibility Based on general administrative rules that vary

throughout the country. Applicants must be of certain age, usually 18-65. Full-time students with post-secondary education may

qualify in some provinces only if they meet strict conditions. In other provinces, they cannot apply without leaving their studies.

Single parents must obtain all court-ordered maintenance support that they are entitled to.

Individuals with disability require medical certification of their conditions.

Strikers are not eligible in most provinces. Immigrants must try to obtain financial assistance from

their sponsors. Once applicants meet these administrative conditions they

must take a “needs test.” This test compares the budgetary needs and any

dependents with assets and income of the household. Welfare is granted to applicants whose non-exempted

financial resources are less than the cost of basic needs, such as food, shelter, household and personal needs (and sometimes special needs).

Official Alternatives

As a result of the cutbacks to the public-sector provisions of social welfare, there has been effective support of private-sector provision in the form of charitable donations or volunteer services and through privatization.

The Rise of Charities

There are hundreds of charities in Canada with many more added each year, including educational facilities, hospitals and social services previously funded by the state.

The size and role of organizations such as the United Way has immensely grown since the late 1970’s.

There are several important trends that account for this vast growth, which entail,

The rapid increase in social needs like long-term structural unemployment, among other forms of social deterioration.

Growing limits on further expansion of social wage The planned reduction of services of the welfare state.

As these trends increase, the area of social reproduction involving aspects of health, education and social services, will be moved into the private market sector.

The promotion of such institutions and agencies is a method of “privatizing” public facilities, in an attempt to shift the responsibility for the human cost of an inhuman system from the state to the individual, and to shift the method of restoration from the “social wage” to private “gifts.”

Charitable donations act as a central function in society as it will eventually replace state provisions which evidently illustrates society as a marketplace does not provide basic needs of life, such as employment, housing, food, health care, etc., for all of its members.

With the decline of the welfare state and the growth of charities, the marginalized will become increasingly more dependent on the good will of others.

In the form of charity, social redistribution becomes a voluntary matter and a tax deductible, which means that the more that is given to charities, the less that goes to the state for redistribution.

With charitable organizations becoming fundamental forms of social redistribution, the existing “social rights” and universal entitlements to state-funded social services will be lessened.

Systematic Privatization

Policies of systemic privatization are becoming more common aside from charitable organizations.

One process of privatization is the policy of incremental degradation of benefits and services.

Public services are increasingly restricted by rising eligibility criteria, cancellation, disentitlement, contracting out, redefinition, transferred responsibility or declining quality.

Income benefits are taxed back or allowed to fall behind the rate of inflation.

The objective of such policies is that, over time, pressure to meet minimum standards will be met by the private sector.

One example is that universities have experienced restrictions on grant increases, causing a rise in student fees, larger classes, declining facilities and the need to pursue private enterprises.

The government also make use of incentive policies. The use of tax deductions is a widely employed form of

inducement to move to the private provisions of benefits, as well as the privatization of pension plans and medical insurance.

These incentives involve a form of subsidy to those who can afford private provision at the expense of those who are and will be completely reliant on state provision.

The Poor and Transfer Payments Excerpt.

Implications

In general, the three levels of government are moving away from state provision of social services and programs, especially those characterized as social rights.

Canada is increasingly illustrating a re-enactment of the concept of the “deserving” v.s. the “undeserving” poor and “targeting the needy.”

The more these principles are practiced the more universal and social rights will be undermined, as well as the shift in responsibility of the individual rather than the state or corporation.

Reasons for changes in policy and the encouragement of charities and privatization of social services and benefits, are as follows: To downsize the role of the government by reducing

state responsibilities and the number of employees. To “open up” state sectors to private accumulation. To divert the revenues spent on health, education and

welfare. To attempt to “discipline” working classes by

undermining union achievements and eroding their social security with rising permanent unemployment.

There are material causes, of course, behind these changes as well. The decline in state revenue. The shift in tax burden. The greater demand for capital.

The global context of these changes is the economic necessity to “harmonize” national social security reforms, which constitute barriers of varying degrees to the needs of the international market.

An apparent visible consequence for our society not providing for those without work is the high rate of unemployment (10% of the population – much higher in the Maritimes and Quebec).

Due to free trade, new technology and global production the unemployment rate will not decrease.

Currently, over two million Canadians receive social assistance payments (8% of the population), not including the homeless and working poor.

Social assistance is not granted to everyone and does not even provide the basic cost of living, and for that reason food banks emerged.

The rise in food banks were developed to supplement welfare and provide to those who have no other means of income.

In 1991 there were two million individuals that received food, while 600,000 were regular monthly recipients – the number increases every year.

Another issue is the high rate of homelessness that has enormously risen in the past decade.

With attempts to make matters worse, the federal government continues to cut back affordable housing.

Unemployment, welfare retrenchment, abolished social programs and privatized social services, just to name a few, have contributed to social disintegration.

Conclusions

The development of privatization and the shifting of social services and income security programs to charitable organizations undermine the principle that the state has social obligations to its citizens, and avoids the existence and fulfillment of state social responsibilities.

This is the primary achievement in the long attempt to improve capitalism.

These developments represent the systematic abolition of the forms of collective property represented by the welfare state and its limited achievement of social citizenship, replacing these with the principles and practice of private property.

Aside from global capitalism, there are alternative modes of production and new forms of resistance to capitalist expansion have begun to develop around the world.

Resistance and co-operative alternatives will necessarily grow as economic inequality deepens and the ability of capitalism to provide for the material, let alone the human, needs of the populace declines and the experience and recognition of this inability expands.