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The Social State Benefits All of Us

The social state can only fulfill expectations when financed on a broad and just basis. The social state must be adjusted to do justice to the pressing challenges like the separate development of poor and rich and the social and economic dislocations in the wake of the financial and economic crisis, Helmut Schmidt (German chancellor 1974-1982) said "The social state is the greatest cultural achievement in the otherwise terrible 20th century."

By Romana Brait and Adi Buxbaum

[This article published on June 20, 2016, is translated abridged from the German on the Internet,  http://blog.arbeit-wirtschaft.at.]

Experiences in the wake of the financial- and economic crisis show countries with a strong social state protection survived the crisis better than others. The advantage of a well-built social state is that it supports people in difficult situations and contributes to social and economic stability.


In Austria, all people profit from social state benefits according to their life- and income situation. This is especially true for situations in life where people are very vulnerable. During our childhood, we mostly attended the state school system. In the case of a sickness, we contacted a doctor who gave a diagnosis largely free of charge thanks to health insurance. If we lost our jobs, unemployment insurance offered us survival money. It is hard to imagine what our present life would look like without state infrastructure and social benefits.


The current WIFO distribution study shows that inequality between market incomes (incomes realized "on the market" - without state interventions) has clearly increased... One explanation refers to the different development of incomes. The highest 10% of wage-earners posted an 18% growth from 2005 to 2010 while the lowest 10% had income losses.

The social state counteracts this trend to inequality and strengthens the middle class and people with low incomes. Thanks to the positive redistribution effect, the lowest income third raised its share in the total income from 12.5% to 20%. The share of the middle third rose slightly from 29% to 31%. The share of the highest income third fell from 58.5% to 49.5%.


In industrial states, the economic differences between the different social groups in the last 30 years were never greater than today. The free traffic of goods and capital allows corporations to shift their production to where wages, labor- and social standards are lower. A power shift to the disadvantage of workers occurs. Transfer threats (or outsourcing) can lead to wage pressures and deteriorating working conditions.

Poor pay and sub-family incomes spread as job conditions, the basis for a "good life," emphasize part-time work and atypical jobs. Part-time work and atypical jobs have increased enormously. Unemployment, technical progress, and globalization have negative effects on the income of persons with lesser qualifications while this development benefits the highly trained. Liberalized financial markets and "tax havens" help in greatly expanding capital incomes far more than wage incomes.


The Austrian tax system altogether is not very progressive. Households in the lower third of primary income distribution gained 12% of all primary income and paid 10% of all taxes. Conversely, households in the top income third realized 60% of all primary income and paid 63% of all taxes and social fees. The share of taxes of the income groups in Austria is largely proportional to the share of their market income.

While redistribution hardly occurs on the revenue side, correction in income distribution in the Austrian social state happens on the spending side. One thing is clear: cuts in social spending strike households with low and medium incomes very hard, are problematic in social policy and delay the economic upswing.


The social state can only fulfill the expectations of people when financed on a broad and just basis. The social state must be adjusted and progressively developed to do justice to the pressing challenges like the separate development of poor and rich, demographic change or redressing the social and economic dislocations in the wake of the financial and economic crisis.

The motto for the further development of the Austrian social state is: rebuilding, not dismantling! This is obviously very important on the European plane where well-constructed and highly developed social systems have proven resilient against economic crises and social changes.

Helmut Schmidt (German chancellor 1974-1982) formulated in a sparkling and unsurpassable way: the social state is "the greatest cultural achievement in the otherwise terrible 20th century."


Marc Batko, "Alternative Economics: Reversing Stagnation," April 2016, Smashwords.com


By Matthias Schnetzer

[This article published on December 31, 2015, is translated from the German on the Internet,  http://blog.arbeit-wirtschaft.at.]

Distribution questions are still on the agenda. The New Year offers a good opportunity for a brief retrospective view of the most important events of the past year and prospects for meaningful debates in 2016. The most important question for distribution research and economic policy, in general, will be how a high prosperity can be produced in a more ecologically sustainable way and distributed in a more socially consistent way.


The most important 2015 milestone in Austrian distribution research was the founding of the new research institute "Economics of Inequality" at the University of Vienna. This represents a tremendous strengthening of academic research on social, ecological and economic inequality and an involvement of the university in socially relevant debates neglected in many areas. The establishment of this institute is an expression of the growing distribution disparity in the last decades and of the threatening intensification of distribution conflicts in the future.

On the international plane, the distribution debate in 2015 was marked by new books for a general public beyond the universities. The big name in distribution theory Tony Atkinson wrote a detailed guide on reducing inequality with "Inequality: What Can Be Done?" While Atkinson's student Thomas Piketty created a greater sensation with his "Capital in the 21st Century," Atkinson offers a far more comprehensive and detailed package of measures on fighting inequality than Piketty.

Nobel Prize winner Joseph Stiglitz ("Rich and Poor: The Growing Inequality in our Society") and the former US Labor secretary Robert Reich ("Saving Capitalism: For the Many, Not the Few") published 2015 books that offer solutions to the distribution problem. The proposals extend from investments in education, science, and infrastructure and strengthening unions to full employment policy. According to Reich, these measures
Should include welfare state redistribution, namely in the distribution of market incomes. This involves "pre-distribution" instead of "redistribution."


In 2016 distribution questions will remain a crucial theme. Two important fields may be central: distribution and economic growth and distribution and technological progress.

Economic growth as a core idea for progress and prosperity has been rightly controversial for a long while. Ecological limits and weaknesses in evaluating social criteria are two reasons why prosperity should not only be measured by the gross domestic product. The fact is: distribution possibilities become narrower when the production of goods and services grows slower than the population and its claims.

In an independent annual growth report, we recently thematized the interplay between distribution and growth. Unequal income- and wealth distribution reduce economic growth through deficient demand. A shriveling economy has a bad effect on the distribution situation over many channels. The analysis of long-term OECD data also demonstrates this. The rise of income inequality between 1985 and 2005 narrowed the cumulative economic growth from 1990 to 2010 nearly 5 percentage points.

The connection between digital change, modern production processes and distribution questions may be a second great debate. The extent to which machines will reduce the necessary amount of human output in the future is obviously wild speculation. The distribution of labor or the problem of unemployment is already the most urgent question of European economic policy. As we explain in AGS 2016, the number of underemployed and the "discouraged" who already withdrew from their unsuccessful job-hunting are increasing in the eurozone, not only the official unemployment.

Opposing a vision of technical change to the threatening pressure on jobs, wages and financing the welfare state is vital. Possible points of departure from a distribution perspective could be mobilizing productivity advances as a basis for a massive reduction of working hours, a shift in financing the welfare state from wages to a capital basis or questioning the dominant conditions of production - as Tony Atkinson asks in his new book "Who Owns the Robots?"


The production of material prosperity automatically implies the question who can claim what share. The distribution between entrepreneurs and workers is the most striking conflict that occurs in annual wage negotiations in many countries. In an economy subject to profit logic, the capital side seeks to realize as much profit as possible from the production process while workers demand their share of the cake as their pay. The Damascenes sword of economic stagnation may lead to severe confrontations in future wage negotiations between capital and labor and not a sharper rhetoric.

The empirical findings of distribution research show the conflicts of interest between capital and labor were deactivated in the special phase of the postwar era. The so-called Fordist accumulation regime was based on industrial mass production and mass consumption driven by productivity-oriented wage policy. Social partnership as an organ of balancing interests had a boom season. The economic reconstruction brought prosperity gains on both sides. Today the cake is bigger than at that time but the economy is more crisis-prone and does not grow as fast so distribution compromises between capital and labor are harder and harder to find. The capitalism of the 21st century marked by neoliberal thought patterns and finance market orientation is different than the capitalism of the postwar time.

Since Piketty in his bestseller addressed the system-immanent roots of inequality in capitalism, a fundamental system criticism on the basis of the distribution question is conceivable again since market forces are not infallible in the distribution of prosperity as often represented. Therefore the most important question for the distribution of income and wealth is structural from my view. Can capitalism succeed in a phase similar to the Fordist accumulation regime of the postwar era? There are convincing objections that the foreseeable future of a profit-oriented production method will not deactivate the distribution question.

Under what new framing conditions - under the discussed technical change - can an ecologically sustainable and socially consistent prosperity are produced? The current radical crisis demands a critical confrontation with the hegemonies of finance-dominated capitalism. Such a farsighted vision of a more just society was a historical strength of the workers movement.


Matthew Schnetzer, "Economic Inequality Divides Economics and Society," 1/13/16

Matthew Schnetzer, "The Rebirth of the One-Thousandth Society," 1/26/15

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