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Offe's Paradox

by Sunday, Nov. 23, 2008 at 7:17 AM

Klaus Offe, a left thinker, once proposed Offe's paradox, the idea that"while capitalism cannot coexist with, neither can it exist without the welfare state." Canada has done better than some countries in protecting social welfare. The welfare state is not dead; what is dead is econ security.

Offe's Paradox


[This article was first published 11/19/2008 on]

The welfare state is much misunderstood by left and right. Capitalism would not survive without it, yet the right denounces it and the left defends it.

There is still a lot of talk about the end of the ‘welfare state’. ‘Globalisation’ or ‘global capital’ is said to be making this inevitable. The current economic troubles will doubtless also be used to attack social provision in Canada and other developed countries. Everything up, down, or sideways gets used as a rationale for framing social provision as an extravagance which ‘we’ cannot afford anymore.

However, the welfare state has proved very resilient. The longer and more deeply it has been in place in a country, the more support it has. Canada has done better than some countries and worse than others in protecting social welfare and those whose well being and survival depend on it.

However, another reason for the resilience of the welfare state is that capitalism needs it. It cannot simply abolish all social provisions, despite what the more fanatical proponents of what is called ‘neoliberalism’ would like. Regardless of what many ‘left’ ideologues believe, the welfare state is a creation of capitalism and would not exist without it.

the paradox

One ‘left’ thinker, Klaus Offe, once proposed “Offe’s paradox”; the idea that “while capitalism cannot coexist with, neither can it exist without, the welfare state”. This seems to mean; eventually capitalism will go away and we will be left with the welfare state.

Capitalism needs the welfare state in order to regulate the ‘dangerous classes’; the people who will not be convinced that they are beneficiaries of the best possible system. Capitalism wants every live body which can be exploited for productive labour to be ‘attached to the labour market’. This is not because they are really needed, but in order to keep wages and inflation down as far as possible and to prevent these people from becoming politically active.

As well, those who are working know they will at some point get sick or old, and may lose their jobs. They would be disturbed if they felt they would not be looked after. So these people must be grouped as the ‘deserving poor’ and separated from the ‘undeserving poor’, those who could work but do not, because they cannot find work or are simply too hostile to being treated as cattle.

Keynes and Schumpeter

There has been much confusion about social policies in Canada over the past few decades. There is supposed to have been a ‘race to the bottom’ among provinces, ‘retrenchment of social programs’, ‘workfare’, and so on. But it does not seem that much has really happened.

We were supposedly in a ‘Keynesian Welfare State’ in the post war period; 1945 up until 1970. Keynes was the economist who proposed the solution for the great depression; more government spending, especially on giving working people a basic security, which led to rising wages and to increased consumption and prosperity. But the ‘welfare state’, as it is generally understood, was developed in Canada and in most other developed countries only in the 1960’s and 1970’s.

Now we are in what some call the ‘Schumpeterian’ age, after the economist who proposed that government should be limited to providing a framework for the free market to operate in. The market and the state should be in a partnership, a ‘metagovernment’, which comes together only to correct problems as they occur. It is also called the ‘workfare’ state because everybody must be forced into the labour market in order to keep productivity up and wages down.

Any type of welfare or workfare state is only viable if conditions close to full employment are maintained; otherwise it would increase taxes and reduce profits too much to be acceptable to capitalism. From this, many people are sure that the Schumpeterian workfare state will fail as did the welfare state, and be replaced by something else.

what did and did not happen

But reports of the death of the welfare state have been greatly exaggerated. The cost and caseload of provincial welfare systems began rising slightly in the 1980s. By the early 1990’s, this was seen as getting out of control.

Following an economic downturn and surge in welfare costs, there was a reaction against, and a restructuring of, welfare to insure that it continued to suit the needs of capital. Then things went on according to the long term trend.

This played out differently in each Canadian province because Canada is a very loose federation. Each province acts in many ways like an independent country, with its own distinct culture. But there was clearly some sort of ‘metagovernment’ mediation or influence on this.

the bottom is never far

There was much hysterical talk in the 1990s about the provinces going on a ‘race to the bottom’. Provinces were assumed to be reducing their welfare client load and amount of welfare payments as low as possible. They dared not be seen as a ‘welfare magnet’, or as ‘high wage’ and high tax’, and thus scaring off ‘investment’.

But welfare recipients are generally not very mobile; they are the elderly, disabled, and women with children. Even for those considered employable, it is hard to go anywhere without any money. Business tax rates cannot be much of a disincentive, because by the 1990s businesses in Canada were paying few taxes anyway.

As for ‘workfare’; forcing those considered employable to work for free or lose their welfare benefits, that works mainly by fear. It would have been very expensive to actually create all these workfare placements. Workfare was really about redefining ‘employable’; for instance single mothers. Once they were left alone to raise their children to a reasonable age; now they are coerced to work when their kids are three, or one, and even six months.

For all that, the present welfare rates are still higher everywhere than they were in the early eighties, even after the ‘correction’ of the mid nineties. In fact, overall welfare levels are approximately what they have been at least since 1945, and probably earlier; before our present welfare system was even set up.

civil society

The degree of this ‘retrenchment of social programs’ varied greatly between provinces and looks more like a restructuring. Each province did it their own way according to their cultural inclinations but within some invisible guideline from some form of ‘metagovernment’. For example, Quebec is more disposed to shield its poor from the wrath of ‘globalisation’, neoliberal Alberta treats them viciously, and other provinces fall somewhere between.

Capitalism is still having regular crises of profitability, and the social welfare system will continue to be one of it’s tools. We are seeing outlines of the next step; moves to increase subsidisation of low wages. The ‘earned income tax credit’ is now being discussed.

That could finally make workfare workable; the ‘welfare bums’ would have to get a job to even get on welfare. Then, it will be paid for by a hidden tax on other taxpayers, which is what a tax credit always is. Corporations which benefit from subsidised labour will pay no taxes for it.

So it seems that the welfare state is something needed by capitalism to regulate its labour supply. As capitalism adapts, the welfare state is adapted to suit its needs. But civil societies can ameliorate the welfare state to try to protect their publics from the worst excesses of capital.

This should sufficiently resolve Offe’s paradox.

Survival of the Canadian Welfare State

tim rourke,

[This article was published 11/4/2008 on]

some academic reading on globalisation and the welfare state worldwide gives cause for optimism about the survival and even further expansion of social welfare in Canada

The welfare state has been under attack in Canada for a generation. The justifications have been the same "'globalisation' makes it necessary" line heard in all the world's developed countries.

Globalisation is a catchall term for changes that have been going on in the global economy for over a generation now. In some circles, it is almost a religion that 'globalisation' drives down wages in industrial countries, reduces productivity, and forces and rollbacks of social services.

People in underdeveloped countries will work far cheaper than what spoiled people in developed countries think they are entitled to. So, developed countries will have high unemployment and reduced productivity until their people are forced to work for what the world's lowest paid people get. Extravagant welfare states are being rolled back as they bankrupt their countries and make them economically "uncompetitive".

The reality of what has been going on for about thirty years is much more complicated. The cause of economic change in the developed countries, with decline in productivity and higher unemployment, is obscure. Talking about 'globalisation' does not explain anything.

There is a second part to this; why some countries have sharply cut back their 'welfare states', and others have not. The truth is, this largely depends on how well developed the welfare state was before the economic changes started, and the degree to which it has developed its own constituency.

multiple causes

If one looks at the "usual suspects" which are blamed for high unemployment and low productivity growth, one finds that none of them work well as an explanation for the supposed decline of the 'welfare state'.

The argument that global competition and technological advance causes this, does not explain anything. The international flow of Capital investment in recent years has mostly been between developed countries, not between rich and poor countries.

The job losses in developed countries have been mainly at the low end of the labour market. Wages in highly technical jobs are not reduced, though the number of such jobs is, and these jobs remain mostly in developed countries.

So, a competition between developed countries, not one between developed versus undeveloped countries, caused most reduction in high technical skill employment. This speaks against technology by itself as a cause of unemployment, reduced productivity, reduced government revenues, and thus of reduced welfare benefits.

The 'capital flows' argument is that money simply goes away from countries where high welfare costs lead to high taxes and high labour costs, and thus to reduced profits. But there is no connection between money flows and the economic shocks that are often a cause for welfare state cut backs. The claimed 'convergence' of the monetary policies of countries, to satisfy the demands of international capital, does not seem to be happening.

Internal economic explanations are also dubious; the idea of the need to control inflation by keeping unemployment high to keep wages down, which leads to declining productivity and reduced government revenues, all of which lead again to roll backs of the welfare state. All this amounts to a fallacy of single cause; trying to create a simple, pat explanation for something the cause of which is complicated or obscure.

Some say that ageing populations in the developed countries are a cause of declining productivity and rising social welfare expenses. The rising number of people needing welfare benefits is thought to force a reduction in benefits per person, and to less personal security. But the problem has not happened yet; the boom generation has not started to retire, so this cannot be the cause of present economic productivity and social security decline.

rights and security

Internal political explanations are more useful. In free market economies, most politics is about rights, especially property rights. Property rights really mean, a right to an income or a particular revenue stream. Thus a waged job could be a property, an entitlement. A 'welfare' entitlement could be thought of as a property.

Politics is about people forming coalitions or alliances, seeking to protect their own income or revenue streams. This leads many political scientists to argue that the welfare state is not dead because of globalisation; what is dead is people's economic security.

There is now intense conflict over the only remaining security governments provide; the 'welfare' system. This includes 'corporate welfare'; subsidies and tax breaks of various kinds. Businesses struggle to recreate sheltered income streams, demanding deregulation and removal of everybody else's protections in order to lower their own taxes.

the shrinking pool

Some theorisers talk of a "self-limiting immoderation"; the over use of welfare entitlements has resulted in their rollbacks. Immoderation by who, is unclear. It seems odd to look only at supposed abuses by recipients of social welfare, when we can see such egregious examples of abuse of corporate welfare at the moment.

Other theorisers in political sciences are more sceptical about the globalisation idea, and believe that what is going on in these different countries needs to be looked into more closely and with less ideology. Some say that the effects of this 'globalisation' are small and as often act to push up welfare benefits as to drive them down.

Some say the predominance of right wing parties is a stronger factor in welfare rollbacks than globalisation. If welfare rollbacks are more about a competition for a shrinking pool of resources, then looking into the political processes of countries would be more informative.

too dug in to root out

Once a social welfare state is established, it develops its own constituency and can endure even if the unions and political parties which put it in place decline in power. Thus, examples of really radical retrenchment of advanced welfare states are scarce.

A statistical study of eighteen developed countries for political as well as economic correlations with welfare retrenchment showed that the greatest risk factors for welfare cuts were; lack of constitutional 'veto points' where such cuts could be blocked, such as a federal system or bicameral legislature. High dependancy on international trade was a risk factor, as were frequently having 'centre-right' governments in office.

It is very interesting that there was much less risk of welfare cutbacks when the benefits were high than when they were already low. This strongly refutes "self limiting immoderation" and supports the "conflict for scarce resources" theory.


The upshot is that in recent times something has been going on with national economies on a global scale. A lot of people think they know what is going on, but nobody really does. The effect is that different social classes do not have the security they had before, and they fight each other to try to regain it.

The tendency of right wing political forces is to scapegoat the welfare state and those who depend upon it, and demand retrenchment. The left tends to try to preserve the welfare state, which is proving very durable where it is already well developed.

The Canadian social welfare state is moderately well dug in; it is weathering the storm better than some and worse than others. Presently institutions connected with 'globalisation' are suffering a breakdown. The result will likely be greater demands on the existing system, but also a weakening of resistance to its existence and to its expansion.


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