16.1H: Welfare State Capitalism

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Welfare capitalism refers to a welfare state in a capitalist economic system or to businesses providing welfare-like services to employees.

Learning Objectives

Discuss how welfare capitalism impacts the worker and the business, in terms of costs and benefits for both

Key Points

In the United States, the mid-twentieth century marked the height of business provisions for employees, including benefits such as more generous retirement packages and health care.
Not all companies provided good benefits, so workers appealed to government, which imposed minimum labor standards (e.g., the minimum wage) to protect workers.
Welfare capitalism still operates in the United States, where the government ensures minimum labor standards; some companies continue to offer benefits.

Key Terms

Progressive Era: The Progressive Era in the United States was a period of social activism and political reform that flourished from the 1890s to the 1920s.
industrial paternalism: Industrial paternalism is a form of welfare capitalism especially common in the United States. It refers to the practice of businesses providing welfare-like services to employees.
welfare capitalism: Welfare capitalism refers either to the combination of a capitalist economic system with a welfare state or, in the American context, to the practice of businesses providing welfare-like services to employees.

Welfare capitalism refers either to the combination of a capitalist economic system with a welfare state or, in the American context, to the practice of private businesses providing welfare-like services to employees. In this second form of welfare capitalism, also known as industrial paternalism, companies have a two-fold interest in providing these services. First, the companies act in a paternalistic manner, giving employees what managers think is best for them. Second, the companies recognize that providing workers with some minor benefits can forestall complaints about larger structural issues, such as unsafe conditions and long hours.

Following this logic, in the nineteenth century, some manufacturing companies began offering new benefits for their employees. Companies sponsored sports teams, established social clubs, and provided educational and cultural activities for workers. Some companies even provided housing, such as the boarding houses provided for female employees of textile manufacturers in Lowell, Massachusetts. The mid-twentieth century marked the height of business provisions for employees, including benefits such as more generous retirement packages and health care.

However, even at the peak of this form of welfare capitalism, not all workers enjoyed the same benefits. Business-led welfare capitalism was only common in American industries that employed skilled labor. Not all companies freely choose to provide even minor benefits to workers. As workers became frustrated with meager or nonexistent benefits, they appealed to government for help, giving rise to the first form of welfare capitalism: welfare provisions provided by the state within the context of a capitalist economy. In the United States, workers formed labor unions to gain greater collective bargaining power. In addition to directly challenging businesses, they lobbied the government to enact basic standards of labor. In the United States, the first two decades of the twentieth century—the Progressive Era—saw an increase in the number of protections the government was able to extend to workers. Yet by mid-century, many of these protections had been pushed back through the court system.

Today, the government provides very basic standards by which employers must abide, such as minimum wage standards. Anything above the minimum required by the government is at the employer’s discretion. Recently, companies have begun to invest even more in the perks provided by the business in an effort to satisfy employees. Companies have found that employees make fewer demands and are more productive when they are happier, so companies such as Google have spent millions of dollars making their businesses enjoyable places to work.

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