Review of Francis Castles, The Future of the Welfare State: Crisis Myths and Crisis Realities

Francis, or as he is better known in Australia, Frank Castles spent many years as a researcher at the Australian National University. He has recently moved to the University of Edinburgh. He popularised the phrase “workers welfare state” to describe the Australian welfare state in 1985. In an article published in the Australian Journal of Social Issues in 1994, he revisited his earlier work and revised somewhat his conclusions. Just as he was leaving for Edinburgh in 2001, he wrote a brief article which was scathing of the Howard Government’s cutbacks in social security provision which the Government continues to market under the misleading label of ‘welfare reform’.

Castles’ new book, The Future of the Welfare State, is a review of changes which have occurred in the structure, size and composition of the welfare states of the 21 nations which comprise the Organisation for Economic Cooperation and Development (OECD). He undertakes this task in order to test a number of claims about ‘crises’ facing welfare states in the developed world.

The first of the claims he tests is the suggestion that as a result of globalisation welfare states are being cut by governments wanting to ensure that their welfare systems are not disproportionately generous (costly) compared with other nations with whom they are competing for investment income. The second major claim he investigates is the assertion that welfare is going to be unaffordable because of the disproportionate aging of their workforces. The data he interrogates is the “OECD Social Expenditure Database, otherwise known as SOCX which provides data on the social expenditure of all OECD member countries from 1980 to 1998 (p. 9)”.

Castles recalls that the welfare state crises of the 1970s in the wake of the first world oil shock (that the rapidity of social expenditure growth was unsustainable) and 1980s (that big social expenditure meant poor economic performance) proved to be unfounded (pp. 1-8). Castles explains that he conducted this research to investigate if the assertion that welfare states had been pruned to facilitate the flow of foreign investment was a myth or reality. He points out that if the myth about the need for cutbacks was given credence then this myth, of itself, could provide pressure on national governments to reduce welfare state expenditure (p. 46).

Castles’ review of the first major claim leads him to conclude that the ‘race to the bottom’ crisis of welfare spending is not occurring (Ch.2). He found that “The only evidence of a significant globalization effect to emerge anywhere in the analysis is an apparent relationship between the growth of foreign direct investment and cutbacks in existing programme spending. However, this is an effect that proves not to be statistically robust (p.17).”

The component nations of the OECD are not an undifferentiated collection of countries but present considerable variation in how they structure their welfare spending. In Chapter 3, Castles revisits Richard Titmuss’ (1974) ‘residual’, ‘industrial redistributive’ and ‘institutional redistributive’ models of welfare states and Esping- Andersen’s 1990 model of ‘liberal’, ‘conservative’ and ‘social democratic’ welfare states before going on to propose his own model. He distinguishes Scandinavian, Southern European, Continental Western European and English-speaking welfare states. Australia is assigned to the last of these categories. He found that countries assigned to these categories have considerable similarities with others in their grouping which remain over the entire period under study. In Chapter 4 Castles find little evidence for the idea that there is a convergence in welfare states in European countries and argues that an even wider variation will result when the European Union is expanded. He concludes in Chapter 8 that rather than a crisis of spending in the OECD welfare states there will be for the foreseeable future a “steady state welfare state”, albeit one with considerable variation amongst the OECD countries.

In Chapters 6 and 7, Castles investigates the suggestion that welfare states are in crisis because of low fertility and an ageing population. Australians are frequently told that this is the case. Castles’ review of the available data demonstrates that with the exception of Southern Europe most countries will easily cope with demographic change. In countries like Australia, the degree of adaptation necessary is small. Scandinavian countries have turned around the readiness for couples to have more children with family friendly policies. Continental Western European countries, with far more generous pension schemes than Australia, have moved to handle the problem by reducing the generosity of pensions. This is hardly an option for Australia. “The primary problem confronting the English-speaking welfare states is the well known tendency for these countries to manifest higher levels of poverty and inequality than most other countries in the OECD (p. 178.)”

The Future of the Welfare State is a tightly written book. It is jam-packed with statistical analysis and detailed argument probably more suited to post graduate than undergraduate study. It provides some grounds for optimism – Castles says the glass is half full but as I sit in Australia and reflect on our Government it seems to me that the glass is half empty. Castles warns that it is academics from countries like Britain, the United States and Australia who generate the crises of the welfare state propaganda. He says “It is not accidental that the most strenuous claims that ‘there is no alternative’ but to cut back welfare state spending because of international economic and demographic pressures originate in the countries that are least generous to the poor (p. 179).”