“Brunnenmarkt”, street market in Vienna’s 16th district

After the disasters of the first half of the 20th century, First World War, Great Depression, Second World War, disintegration of the Austro-Hungarian Empire, Austro-Fascism and Nazi regime, holocaust and ethnic cleansing, Vienna, the former 2-million multi-ethnic capital of a 50-million peoples’ empire, had turned into a provincial town, capital of a 7-million country, with a decreasing, rather homogenous population. Since the middle of the 1960s the lack of much needed workforce at the times of the economic boom years led to a change of attitude towards labour migration in Austria. The census of 1961 registered 7,074,000 inhabitants in Austria; 102,000 of them foreigners, most of them German citizens, the lowest number ever.

In 1961 the first recruitments abroad for the construction industry took place. Of the agreed 7,300 persons only 1,800 arrived, mostly from Italy. In 1962 a recruitment agreement with Spain under the fascist regime of Franco was unsuccessful. Between 1962 and 1964 37,000 “guest workers” were invited annually, but those numbers of migratory workers never arrived in Austria. Austria did not seem to be an attractive destination at that time. Finally in 1964 a recruitment agreement was signed with Turkey and an official Austrian recruitment office was opened in Istanbul, which was closed nearly 30 years later in 1993. In 1966 such a recruitment agreement was signed with Yugoslavia, too, together with a social agreement that regulated the claims of the workers with respect to health, accident and pension insurance. An official Austrian recruitment office was opened in Belgrade. In 1969 a similar social agreement was negotiated with Turkey. In general, recruitment offices were of minor importance because most migrants entered Austria via tourist visa and their stay was later legalised after they had worked here for some time. The status of these migratory workers was precarious, as the two following examples show: In 1965 Yugoslav workers at the company Iso-Span in Obertrum, Salzburg, went on strike because they received lower wages than agreed. As a consequence the strikers were taken in custody pending deportation. The same happened in 1966, when Yugoslav workers in a construction company in Admont, Styria, went on strike.

Political crises in neighbouring countries also had an effect on migratory movements in Austria. When the dissatisfaction of the Hungarian population with the Soviet domination culminated in the Hungarian revolution of 1956, approximately 180,000 Hungarians fled to Austria and took residence here temporarily. In 1968 160,000 Czech and Slovak refugees settled in Austria for some time due to the revolution in Prague that was crushed by the Soviets as well. After the military coup-d’état In Turkey in 1980 – one of several coup-d’ètats there – the Turkish refugees in Austria received “guest worker” status and that’s why their exact number is not known. When in 1980 martial law was imposed on Poland, more than 35,000 Polish refugees came to Austria, most of which remained here permanently. When in 1991 the war in Yugoslavia started Austria welcomed approximately 90,000 refugees from ex-Yugoslavia over the next four years.


Eger, Hungary

In 1942 William Beveridge, a British academic and civil servant, published his blueprint of a welfare state for Great Britain in his account of the “Five Giants”: disease, idleness, ignorance, squalor and want. He proposed new benefits for the retired, disabled and unemployed, a universal allowance for children and a nationwide health service. Polls found that majorities of all social classes backed these proposals. The blueprint was translated into 22 languages and the Royal Air Force dropped summaries on Allied troops and behind enemy lines. Such zeal for the welfare state is rare nowadays. Liberals such as Beveridge believed that people should take more responsibility for their own lives, but that government should support them. They did not see it as industrialised charity, but as a complement to free-market capitalism. In the second half of the 19th century the rise of unfettered markets brought demands for protection against its effects. Charity and churches were seen as failing to cope with poverty, as mass urbanisation weakened traditional bonds. Pressure came from socialists, but liberals responded, too. “New liberals” such as John Stuart Mill and Leonard Hobhouse argued that freedom meant ensuring that people had the health, education and security to lead the life they wanted. The development of welfare states was then hastened by the Great Depression and World War II. The war fostered a sense of unity and as middle classes shared the risks, their demands for support meant the welfare state became about more than just looking after the poor. The post-war government in Britain implemented most of Beveridge’s plan and similar reforms soon followed elsewhere in Europe. Welfare states have always differed from country to country, but from the 1970s on approaches diverged further. In the 1990s the Danish sociologist Esping-Anderson distinguished three varieties of “welfare capitalism”. First were the “social democratic” versions in Scandinavian countries with high public spending, strong trade unions, universal benefits and support for women to stay in the workplace. Second, “conservative” welfare states, such as Germany’s were built around the traditional family and had a strong contributory principle. Third, the “Anglo-American” welfare states, which put greater emphasis on guaranteed minimums than on universal benefits as in Britain.

Perhaps the most common charge against European mature welfare states is that they have created a culture of dependency. So policy makers have made programmes more “conditional”, forcing recipients to look for work, for example; and to help them, many countries expanded “active labour market policies”, such as retraining. The wide-spread notion that the welfare state is mainly about redistribution from rich to poor is a myth. Nowadays its role is more to allow people to smooth consumption over their lifetimes, in effect shifting money from their younger selves to their older selves. As countries become wealthier, public spending increases as a share of GDP. Spending on social protection, like pensions, health care and benefits, in OECD countries has increased from 5 per cent in 1960 to 15 per cent in 1980 to 21 per cent in 2016. Nevertheless, since 2000, some Scandinavian countries, for example, have combined high levels of public spending with high rates of economic growth. The effects of welfare depend not just on how much is spent, but how. Subsidised child care, which helps mostly women stay in the labour market, is more growth-friendly than pensions. The difficulties welfare states in rich European countries face are about more than just their size. The three main difficulties relate to demography, migration and changing labour markets. The fact of the ageing European population means that welfare spending is increasingly shifted towards the elderly. This threatens the implicit contract between generations. Meanwhile Denmark and Finland have linked state retirement ages to life expectancy, so will the Netherlands. In Germany, Portugal and Sweden pension levels are adjusted according to the ratios of workers to non-workers.

Immigration poses another challenge to the welfare state. In 1978 Milton Friedman argued that you could have open borders or generous welfare states open to all, but not both, without swamping the welfare system. Moreover, taxpayers are more tolerant of benefits that are seen to look after “people like them”. A study published in 2017 using survey data from 114 European regions found a correlation between areas with higher shares of migrants and a lack of support for a generous welfare state. Another survey of changing attitudes in European countries between 2002 and 2012 found both rising support for redistribution for “natives” and sharp opposition to migration and automatic access to benefits for new arrivals. Such popular views form a core part of the appeal of populists in Europe such as the Front National in France, the Sweden Democrats or the Danish People’s Party. The nature of the benefits influences attitudes as well. Immediate access to health care and public education for immigrants is widely supported by European populations, but benefits should not extend to unemployment or child benefit. Moreover, attitudes towards immigrants are volatile and swayed by the political climate. In 2011, for example, 40 per cent of Britons said immigrants “undermined” the country’s cultural life, and just 26 per cent believed they enriched it. By 2017, in the wake of the Brexit vote, only 23 per cent believed immigrants undermined British culture, compared to 44 per cent who believed they enriched British culture. Immigration might offer a partial solution to the first problem of ageing because since at least 2002 EU migrants have contributed much more in taxes than they have cost in public services, as economic research in Britain and Denmark has found out.

The third issue is adapting to changing labour markets. The welfare state developed at a time of powerful government, powerful companies and powerful trade unions. The economic aim after World War II was full male employment. Recent research by the OECD in seven of its member countries estimated that 60 per cent of the working-age population had stable full-time work. Of the other 40 per cent, no more than a quarter met the typical definition of unemployed, namely out of a job, but looking for one. Most had dropped out of the labour market completely or worked volatile hours. The causes are complex and overlapping, but hey include the incentives and disincentives to work that complex benefits systems produce. Universal basic income (UBI) may be one way to avoid such problems. It may take many different forms, but basically replaces a wide range of means-tested benefits with a single unconditional one, paid to everyone. Scotland and the Netherlands are running experiments involving UBI, but in no country is it yet the foundation of the benefits system of working-age adults. The OECD recently modelled two forms of basic income. Under the first one, a country’s spending in benefits is divided equally among everyone – a revenue-neutral form. Under the second one, everyone would receive benefits equal to the current minimum-income guarantee, and taxes would rise to pay for it, if necessary.


Trieste, Italy

Britain’s current decline is relative rather than absolute. The average citizen of today’s Britain is far richer than was the average citizen at the time of the British Empire. Other advanced economies have suffered from years of slow growth while Britain’s science and medical research boom. But the evidence of decline is too evident to ignore. Britain’s core political institutions are in a state of decay. In the past, big crises have produced great leaders, such as Lloyd George during World War I and Winston Churchill during World War II, but today’s politicians range among the mediocre. In a recent survey a quarter of Britons say they would vote for a far-right party because the mainstream parties have let them down. Economic growth has been slow since 2015 despite low interest rates and a fall in the value of the pound. Productivity growth has been marginal and real wages have been falling for a decade. A growing proportion of the population is trapped in a cut-throat economy, in which the young fear to be much worse off in future than their baby-boomer parents.

This is not the first time Britons have been gripped by fears about decline. In the 1890s they worried that America and Germany were replacing Britain as the workshop of the world. In the 1950s they worried that an old-fashioned establishment was strangling the forces of progress. The 1970s saw a particularly fierce debate, as the country was plagued by strikes and three-day weeks. But three aspects make today’s worries especially troublesome. The first is disappointment. For the past 40 years Britain felt that it had put decline behind it. Margret Thatcher, John Major, Tony Blair and David Cameron cemented the new consensus that economic growth, deregulation and privatisation were the key to permanent wealth increase. This was a huge benefit to the new elite that could pride itself that it was more progressive than the old one while stuffing its pockets with gold. But this new consensus also suffered from mounting problems. There was the problem of one-off windfalls: selling off council houses was wonderful for the tenants and the Treasury, but left Britain short of social housing. There was the problem of regional imbalance. The boom in financial services poured money into the south-east while the north remained in economic trouble. This Thatcher-Blair consensus finally ended with the financial crisis of 2008 and the Brexit vote of 2016.

The second problem Britain is facing is the lack of collective agreement in deciding to leave the European Union. Brexit was driven by a particular combination of despair about the way the old consensus had left so many people behind and of optimism that by freeing itself from the EU Britain would be able to reignite its growth engine. The despair was probably justified, but the optimism definitely not because most of Britain’s problems are internally generated. There is nothing about membership in the EU that prevents British entrepreneurs from trading with the rest of the world. Indeed the EU has just signed a trade deal with Japan and is negotiating with the USA about lowering trade barriers. Most economists predict that any version of Brexit – hard or soft – will depress Britain’s growth rate. If Britain leaves without a deal, the consequences will be dramatic. The Brexit secretariat is already drawing up contingency plans to stockpile medicine and food and put electricity generators on barges in the Irish Sea. The third problem is that of compounded error. Irresponsible politicians may well feed the people’s appetites for populist and nationalistic decisions. The Brexit debacle has already injected the poisonous charge of betrayal into the heart of politics. Tony Blair said that politics at the moment is about either riding the anger of finding the answer. The trouble is that fresh answers are hard to find and the anger is mounting daily.