Opinion – Samuel Pessôa: The history of the welfare state

Peter Lindert is a researcher in the Department of Economics at the University of California at Davis. He is an academic who married a subject. He is dedicated to unlocking the secrets of the evolution of the welfare state around the world.

He has just published “Making Social Spending Work”, a continuation of “Growing Public”, from 2004. The 2021 book investigates the evolution of the welfare state to date for a much larger set of societies than the 2004 volume.

The book is divided into three parts. In the first, it investigates the causes of growth and describes the long process of increasing the tax burden and the construction of basic public insurance, since the private programs in medieval England to combat poverty.

It elaborates on why education spending occurred relatively late in the 19th century and shows how the political power of the older population, “the gray power”, greatly increased public spending on pension benefits.

In the second part, the book deals with the consequences of the construction of the welfare state. It documents that the great increase in the tax burden did not generate a loss of economic efficiency and that there were great gains in the improvement of the quality of life, in life expectancy and in productivity, the latter being the result of the expansion of schooling.

In the third part, it deals with the current tensions of the Welfare State. In particular, the challenges for society to accept the incorporation of immigrants into the welfare state and the need to adjust social security systems to an aging society.

Of the three main areas of action of the State —health, education and welfare—, it appears that health is the one in which there is greater agreement. There are scale gains, and offering through a large public system seems to be the most efficient way. In this sense, the US is an exceptional and curious case.

The other two areas, education and pensions, present what seemed to me to be the main theme of the book. Although Lindert does not explicitly address the issue, it is very clear that there is a complex political economy and surprising distributional conflict. This is not the classic conflict between capital and labor. But the generational conflict: the young against the old.

In this sense, for us Brazilians, the highlight of the book is table 7.1 and figure 7.3 of the seventh chapter, which shows spending on pensions and education as a proportion of GDP. To eliminate differences due to demography, Lindert considers the average pension benefit as a proportion of the income of each active worker, and the public expenditure with each student also as a proportion of the income of each active worker.

There are countries that spend relatively a lot on the elderly, others on the education of children, and others, on average. For the sample of 106 countries in 2010 that Lindert considers, only 5 countries spend more on retirement than Brazil: Serbia, Turkey, Tunisia, Mongolia and Kuwait.

In other words, Brazil has made a clear choice to support the quality of life of the elderly. It has positive impacts on well-being, but no positive impacts on long-term growth. This pattern of privileging the elderly over children is recurrent in Latin America. This fact helps to explain the slowdown in Brazil’s growth over the last 40 years, as I documented in
last week’s column.

There are three lessons that follow from the international experience.

First, social security should not be linked to the employment contract. There must be a single, universal system for all workers, regardless of the nature of the employment contract.

Second, the experience of pension systems where people save in individual accounts, such as the Chilean model, has not been positive.

Third, a pay-as-you-go model, in which the contribution of assets finances the benefit of inactive, demands continuous reforms to ensure sustainability. The benefit has to grow below the growth of labor productivity, and the minimum age for claiming the benefit has to grow with the increase in life expectancy.

Professor Bresser-Pereira kindly sent me an email commenting on last week’s column that can be read on the Ibre Blog. I record my thanks to the teacher.