Dan Bailey
Colin Hay’s article in the latest issue of Renewal draws our attention to a new emerging phase in the historical development of the welfare state, and evaluates the prospects of welfare as a form of social insurance in an increasingly unstable geological era. The manifestations of ecological breakdown are not only risks but systemic risks, of the type that can overwhelm insurance companies, governmental budgets and financial systems as well entire communities. For those such as Adam Tooze who see the Covid-19 pandemic as the ‘first crisis of the Anthropocene’ – given its origins in the inimical relationship between markets and natural ecosystems – it could be argued that the economic and financial backlashes of unsustainable capitalist development have already begun.
The analysis is as insightful as it is alarming. Hay charts the rising costs to governments of providing emergency support (and the projection of 20% of US GDP by the mid-2030s is a truly arresting figure) and notes the ominous parallel impacts of the ecological crisis on growth levels and the tax revenue of those governments. As Hay notes, this situation “does not seem credibly sustainable; and that it does not is likely to have very grave implications”. Even as the provision of social insurance become even more vital, governments in the Anthropocene will be simultaneously faced with profound questions about the sustainability of the welfare state.
The extent to which the ‘emergency reflex’ of the state in crisis situations is mediated by strategic economic and electoral considerations is perhaps downplayed in this analysis. For instance, it is difficult to escape the conclusion that the strength and competitiveness of the national economy was significant in determining the variegated financial support offered by states in the wake of the global financial crisis and Covid-19 pandemic. Yet undoubtedly the state has long been institutionally equipped to provide public goods to citizens in the face of the uninsurable risks pertaining to extraordinarily adverse circumstances. How this can be managed and financed by states in an era of ‘environmental catastrophism’ is a pertinent political question.
The strain on the welfare state could, in fact, be even worse than Hay’s analysis suggests. Welfare budgets will not only be strained by extreme weather events, such as the horrifying events in New Orleans in 2005, but could well be exacerbated by the socio-economic consequences of the emerging low-carbon transitions in various sectors of the global economy. The systemic changes to production currently unfolding in multiple sectors within the global economy – toward the production of electric vehicles, solar and wind energy, green hydrogen, etc – may well mitigate climate risks but will also require alternative facilities, infrastructure, supply chains, energy usage, and expertise and consequently result in relocations of production and a reconfiguration of the global division of labour (see research by Erick Lachapelle et al, and Aidan While and Will Eadson. It is already the case, for example, that cheaper labour and technical knowledge for the construction of solar PV and electric vehicles is abundant in industrial sites in China and that the manufacturing of green hydrogen is being pioneered in areas where labour regulations and costs are less onerous. Although there is nothing predetermined about these trends, industrial decarbonisation could well be a turbulent transition. It is plausible that the systemic changes comprising industrial decarbonisation results in ‘green structural unemployment’ in some regions and thereby add further strain to welfare budgets whilst constricting tax revenues.
These emerging trends could be compounded by the aggressive global ‘arms race’ on subsidies for low-carbon production. The $369bn mobilised by the Biden government as part of the Inflation Reduction Act, for the purposes of competing with China for a share of the profits to be made in low-carbon technologies and production, threatens to accelerate the relocation of production and employment as firms seek to capture subsidies to invest in green hydrogen, electric batteries, carbon capture and storage, renewable energy industries, and other products perceived to be central to the putative ‘low carbon economy’. Volkswagen and Tesla have already paused plans to develop battery cells in Europe due to the offer of subsidies in the US, and other major employers are also likely to be reassessing corporate strategies. This represents a form of capitalist restructuring with geographically uneven effects and presents a further issue for a host of governments hoping to maintain models of welfare capitalism in the age of ecological crisis. The anxiety over these trends in Europe is already palpable, and threaten to compound pre-existing crisis tendencies, regional stagnation and inequalities in the continent’s economies. This capitalist restructuring will shape the geopolitical and economic landscape in which states respond to geological instability and is another important part of the story of welfare capitalism in the next decade.
As central banks often conceive of this issue, there are physical risks of climate change (e.g. extreme weather events, damage to infrastructure, sea level rises, etc) and transition risks (including the financial instability caused by political and corporate actions intended to accomplish decarbonisation). Both present serious issues for the stability and prosperity of communities and economies across the world in the early onset of the Anthropocene. This necessitates multifaceted government responses, which includes strengthening welfare systems as well as industrial strategies to offset these economic trends, and doing so whilst GDP growth levels falter or decline. This will test the fiscal capacity and debt management techniques of governments, and indeed the constitutional rules surrounding fiscal expenditure in some countries, upon which the sustainability of the welfare state rests. These dual climate-related risks will amplify the calls on welfare budgets (or de facto welfare budgets, such as disaster relief funds) in the decades to come, and ultimately may do so in a far less cyclical way than we have become accustomed to in the age of periodic crises, ramping up the threat that the ‘water begins to run out’ (to use Hay’s metaphor). The conflicts this context creates between managing budgetary tensions, public welfare and the state’s democratic legitimacy will be very difficult to reconcile.
Once the scale of this problem is fully realised, it raises not only questions of welfare institutions but of the broader political and economic structures in which they are enmeshed. Indeed, it points towards the need to intellectually engage with, re-imagine, and ultimately transform the political and economic structures and the entrenched governance traditions which make the sustainability of the welfare state so problematic.
For welfare state scholars, this may entail revising existing analytical parameters and re-conceiving the welfare state to account for not only a specific set of institutions or services but also the broader matrix of economic relations that shape public welfare; a re-definition which would actually take us closer to the definition of the welfare state given by Gøsta Esping-Andersen. This would re-connect discussions of welfare state sustainability to broader political economy discussions economic governance strategies and public policies (including tax coordination, labour market regulations, industrial policies and monetary policies) at national, local and global levels that are conducive to public welfare and a just transition.
More practically, re-imagining the global governance arrangements that oversee international tax competition and the financial dynamics that shape and constrain the fiscal conditions of modern states may alleviate the fiscal predicament of the welfare state in this scenario. Hay’s suggestion that we establish and enshrine in international law a distinction between a sovereign debt default arising from fiscal irresponsibility and one arising from shielding citizens from uninsurable risk is a fascinating angle on that issue.
An even more radical transformation of the global economy and its governance – which let us not forget is necessitated anyway by the ecological crisis generated by the economic status quo – could also re-invent the social contract in ways which profoundly re-cast conceptions of public welfare and the means and strategies through which it is secured. Perhaps it is only a re-imagining of progressive politics on this scale that can offer hope of ensuring public welfare in the contexts presented by the Anthropocene.
Short of such a bold reimagining of welfare capitalism, the ecological crisis places the welfare state in great peril. Future political decisions on its fiscal sustainability will be repeatedly challenged and compromised by a variety of escalating ecological and socio-economic events, which will intersect with the political challenges to its affordability today.
As Hay notes, the scholarship on welfare capitalism has for the most part neglected the ecological conditions in which economies are embedded and the consequences of the escalating ecological crisis. It is thus a vital intervention, as a leading figure in the field, that Hay argues that it must be ‘endogenised’ in order to challenge the analytical limits of indefinite institutional path-dependent incrementalism in the midst of real-world ecological, economic and political instability and indeterminacy. To be equipped to analyse such developments, we must develop analytical approaches to political economy that are “more amenable to acknowledging theoretically the interdependence of political ecological and political economic dynamics”. Hay’s contribution to “gaining greater analytic traction on the problem” and questioning what the climate crisis means for welfare provision and public debt represents an extremely welcome, if preliminary, step forward.
Dan Bailey is a Senior Lecturer in International Political Economy at Manchester Metropolitan University