Hi again, it’s Adam King, here with your final instalment of my course on the welfare state in Canada.
To summarize what we’ve covered so far: In the first lesson, we reviewed some of the history of social democracy and then outlined various welfare state models. In lesson two, we traced the history and contours of Canada’s liberal welfare state and considered how federalism and neoliberalism have shaped it. In the previous lesson, I suggested ways to improve on what remains of Canada’s existing welfare state.
In this final lesson, we're going to expand our horizons. First, we’ll briefly recap the major expansions to social welfare that we currently need. Then, I’ll suggest how we might transform the funding basis of the welfare state, as well as the design of its programs. We want to consider what a democratic socialist welfare state could look like, and what it could take for us to get there.
Expanding The Welfare State
Let’s first review the public services and income transfer programs that we need to expand in order to meet the pressing needs of workers and their families.
Starting with healthcare, aside from restoring federal transfer payment levels and raising overall funding, we need to fill the holes in coverage. As I said in the last lesson, a truly universal health insurance model would cover dental and eye care, pharmacare, physical therapy and mental health and addiction treatment services.
In the realm of public education — again, aside from bringing funding levels back to where they were in the '70s — the primary welfare state expansion should be the creation of tuition-free university, college and job training.
We could follow the example of Norway, which spends around 30 per cent of its GDP per capita on education, when primary, secondary and tertiary education are combined. With this above-average level of expenditure, the country is able to provide tuition-free higher education, as well as favourable loans — as much as 40 per cent of which can be converted to grants — for other student living expenses. As a result, 44 per cent of Norwegians have tertiary degrees, compared with an OECD average of 39 per cent.
Alongside this, we need student debt cancellation, and an end to a system that profits from students who are increasingly forced to cover the costs of education through debt.
As well, creating tuition-free higher education would allow governments to reduce reliance on various tax credit and incentive programs, such as Registered Education Savings Plans, which encourage families to “save” for their children’s education. These programs are highly regressive, as they largely benefit those with greater disposable income while doing little to reduce the cost of higher education or increase access to post-secondary education among those from low-income backgrounds.
There’s an adage on the left, attributed to the Polish economist Michal Kalecki, that “workers spend what they get and capitalists get what they spend.” Any public program that tries to encourage “saving” among the working class through tax credits is bound to be highly regressive. It should be the welfare state’s job to provide public services and redistribute income, not compel individuals to “save.”
In addition to tuition-free higher education and job training, students and new workers could benefit from a student/trainee stipend to provide them with temporary income while they pursue either education or job training, or when they first enter the labour market. Finland, for example, has a modest version of a student stipend, which could serve as a model alongside the elimination of tuition. Ideally, such a benefit would have as few eligibility criteria as possible to reduce means-testing while providing adequate income support to all students and trainees.
In Canada, trainee support typically comes in the form of tax credits for various expenses related to skills retraining, particularly in the wake of economic downturns. However, providing such support as a tax credit is convoluted and exclusionary, while also failing to generate political buy-in among voters.
Whether someone will be eligible for a particular tax credit is usually only determinable at the end of the tax year, i.e. when a person’s total tax liability is known. In this sense, tax credits don’t seem to be a strong incentive for people to pursue education or training. Furthermore, many people don’t realize they are eligible for the credit, while others don’t see tax credits as direct government support but rather (reasonably) as the state giving them back what they already paid. On the other hand, governments prefer tax credits because these provide them with the ideological cover to say they haven’t introduced new spending.
A democratic socialist welfare state would instead champion direct government support as a means to build a foundation for all workers.
Of the various welfare state expansions I’ve advocated in this course, we’re closest to achieving public childcare. This would be a huge political victory for working-class families. But as I’ve argued, its implementation still requires pressure from the left, electorally and in the labour and social movements.
When it comes to income transfer programs, the major three in need of reform are Employment Insurance (EI), provincial social assistance (including disability support) and senior benefits — the Canada Pension Plan (CPP) and Old Age Security (OAS).
As I argued in the last lesson, we need to expand EI coverage and increase benefit levels.
The most far-reaching social welfare expansions we need are significantly increased provincial social assistance programs indexed to inflation. The gap between social assistance benefits and the low-income poverty cut-off are significant, in addition to being morally reprehensible.
Making retirement more secure in an era of declining employer pension coverage necessarily involves an expanded role for the CPP and OAS. That we are in this situation is the result of relying far too heavily on workplace pensions in the first place.
As in the Nordic countries, socializing pension coverage entirely through a comprehensive retirement benefit program with a generous base benefit supplemented by earnings-related top-ups is far more egalitarian. Short of this, benefit enhancements, which in the case of CPP unfortunately involves a slightly higher payroll tax, are the next best, though clearly inferior, solution.
In some quarters, universal basic income (UBI) and a job guarantee (JG) program are floated as possible revolutionary welfare state expansions. As I’ve written previously, in Passage as well as in Studies in Political Economy, I strongly disagree. Both ideas have major conceptual and practical problems. UBI poses the threat of marketizing further reaches of social life, while there is no conceivable way — in my estimation as well as that of others — that a JG won’t wind up as workfare (basically, an unemployment benefit with a strict work or community service requirement).
In some instances, there’s no need to reinvent the wheel when it comes to the welfare state. We don’t need a UBI or a JG when the problems these ostensibly seek to address could be solved with generous unemployment benefits and more permanent, well-compensated public sector employment.
Funding a Democratic Socialist Welfare State
The various welfare state enhancements outlined above, when combined, could carry a fairly heavy price tag. There’s no sense downplaying their cost or the political reality that winning them would require much greater labour organization and class struggle.
However, neither cost nor political feasibility are insurmountable obstacles. Throughout this course, I have often used the social democratic Nordic states as counter-examples to Canada’s more stingy liberal welfare state. This is not to suggest that the Nordic countries are socialist utopias. Indeed, they have many of the same problems that capitalism generates the world over, and have experienced their own versions of neoliberal restructuring. They do, nevertheless, demonstrate that it’s possible to devote a much greater share of GDP to social spending, without destroying an economy or putting significant obstacles in the way of economic growth.
However, as we discussed in the first lesson, social democracy necessarily runs up against the structural limits of capitalism. Historically, we have understood these limits are fairly strict, particularly the threat of a “capital strike,” i.e. when employers withdraw investment in the face of rising taxes, greater public borrowing or growing levels of social spending.
Recently, the sociologist David Calnitsky has produced some compelling research questioning just how strict these spending limits actually are. In Calnitsky’s estimation, capitalism can and does tolerate much higher levels of social spending than the left has traditionally believed. Accordingly, there might well be a “policy road to socialism.”
Nevertheless, when thinking about the long-term project of reorienting the welfare state around democratic socialist principles and priorities, the primary consideration should ultimately be funding, which necessarily entails thinking about the political power of labour and the left.
There are two ideas that deserve a central place in this discussion: a wealth tax and a social wealth fund.
The Wealth Tax
Welfare states throughout history have drawn on various funding streams and arrangements. In a certain sense, workers have always paid for their own welfare states, through the payroll tax premiums on which most social insurance models function. Of course, progressive income taxation, which hits the wealthiest the hardest, is also a vital source of revenue for our public services.
Each year the Canadian Centre for Policy Alternatives (CCPA) creates its own “Alternative Federal Budget,” which sets out what a progressive, social democratic Canadian budget could accomplish. Progressive income taxation would be central to realizing a CCPA-style budget.
However, we could also help fund an expansive welfare state through a robust and smartly designed wealth tax.
As I mentioned in the last lesson, growing inequality is partly the result of the appreciation of assets held by a relatively small minority of people. The problem with income taxes alone is that they don’t touch this wealth.
During the pandemic, many people were outraged to see the fortunes of the likes of Jeff Bezos and Elon Musk grow by staggering amounts. Here in Canada, David Thomson — the wealthiest person in the country and the inheritor of a media empire — saw his fortune surge by 25 per cent or about $10.4 billion by October 2020 (it’s likely far higher now).
These fortunes didn’t skyrocket because Bezos, Musk and Thomson worked extra hard over the past couple of years. They rose because the value of assets (stocks, bonds and other investments) exploded.
As ProPublica revealed, the wealthiest Americans end up paying very little tax because the tax system targets income, not wealth. Billionaires can effectively claim very little income — and so pay little to no tax — while appreciating assets inflate their fortunes. A wealth tax would fix this by compelling them to disclose the value of their total accumulated wealth each year and pay tax on a percentage of it.
People who own a home already pay a version of a wealth tax each year through municipal property taxes on the home’s value. The ultra-wealthy, on the other hand, hold a very small portion of their total wealth in their primary real estate. To tax their wealth adequately, we have to target all of the assets they own.
There are various proposals for how to do this, most hinging on the level at which the tax kicks in and the degree to which it rises according to total wealth. For example, the French economist Thomas Picketty advocates a wealth tax of 90 per cent on assets over $1 billion. Bernie Sanders ran in the U.S. Democratic Primary on a plan that would have taxed 1 per cent of assets more than $32 million, with progressive increases of up to 8 per cent on wealth over $10 billion. The plan was estimated to raise approximately $4.35 trillion over a decade.
In November 2020, the federal NDP put forward a motion in Parliament for a 1 per cent tax on wealth over $20 million, which the Liberals, Conservatives and Bloc Québecois all rejected, despite the fact that nearly 80 per cent of Canadians support such a measure.
In general, we want a wealth tax that kicks in early (as “low” as $5 million, even), rises progressively according to wealth, targets a wide range of assets and, ultimately, works to eliminate private wealth holding above some socially acceptable level. A wealth tax with these features would begin to address rampant inequality, while providing new revenue for social welfare.
Social Wealth Fund
We don’t just want to tax accumulated private wealth; we ultimately want to socialize it. Toward this end, democratic socialists should fight for the creation of a social wealth fund (SWF).
A SWF would consist of the government creating an investment fund that gradually buys assets, such as stocks, bonds and real estate. Over time, the number of assets held by the fund will grow, which will increase the value of the fund, reduce overall wealth inequality and provide a consistent source of funding for social welfare.
In the version proposed by the People’s Policy Project in the U.S., the SWF would also issue equal shares to every citizen. People would not be permitted to sell their shares but would be issued a yearly dividend. To avoid dividend fluctuations — important if we imagine that this would come to represent a portion of many people’s yearly incomes — an equalization formula could be used to smooth out the ups and downs of the fund’s annual performance.
The Democracy in Europe Movement (DiEM25) also included a SWF and “Universal Basic Dividend” in its “European New Deal.”
Determining whether we ultimately choose to use the SWF to pay out dividends to citizens and permanent residents in Canada or instead use it entirely for social welfare funding would involve debating technical and political questions. In its earliest stages, I think it would likely be frugal to not pay dividends and instead allow the fund to grow.
Additionally, the SWF dividend is, more or less, a form of basic income. As I argued above, I don’t think UBI is a terribly social democratic proposal, even with its revenue generated by a SWF instead of income taxes. The far better approach, in my calculation, is to treat the SWF as a mechanism to fund the overall welfare state and to reduce the wealth and power of capitalists and large asset holders.
Perhaps the most famous historical example of a SWF is the Swedish Meidner Plan, although this involved the trade union federation in Sweden (the LO), not the state, using “wage-earner funds” to slowly accumulate corporate shares. The objective was for the unions to eventually become majority share owners.
As Mio Tastas Viktorsson and Saoirse Gowan point out in Jacobin, the Meidner Plan failed because employers defeated it, not because the specifics of the plan were unsound. This should alert us to the fact that, when it comes to pushing the welfare state toward democratic socialism — particularly when that involves attempting to socialize capital — we are wading into considerable political conflict.
However, the necessity of this battle with capital is in no way eclipsed by the difficulty we will inevitably face.
As I argued in the previous lesson, the left has traditionally been focused on shifting a greater share of income from capital to labour through unionization and collective bargaining. Obviously, this will continue to be part of the socialist project. But, alone, it’s not enough — especially when it comes to addressing the contemporary sources of wealth inequality and funding an expansive welfare state.
Building Our Political Constituency
We’ve covered a lot of ground in this relatively brief course on the welfare state in Canada and beyond. In these past two lessons, I hope I’ve given you some ideas about what a more just and progressive welfare state could and should do.
But if we ever want to see a democratic socialist welfare state in practice, we’ll have to build a political constituency with the social power to achieve it. Recall from our first lesson that the much stronger Nordic welfare states were and are the result of high levels of trade union organization and a willingness to strike and fight for social welfare. The story will be no different here. Labour must be the central institution through which we struggle for an expanded welfare state.
To orient labour toward the goal of building out a democratic socialist welfare state, we need to address the fragmentation that so often characterizes the labour movement in this country. Winning social welfare expansion requires a level of political coordination that is not typical of the Canadian labour movement. Although the Canadian Labour Congress, the various provincial labour federations and local and district labour councils do plenty of policy advocacy and movement support, this is frequently not coordinated at high enough levels. That simply won’t do.
Building labour’s support for expanding the welfare state also involves confronting what Marxist geographer David Harvey refers to as “militant particularism.” The latter is the idea that workers under capitalism often have narrow class interests, focused on protecting their particular jobs and benefits. Although militancy at the workplace is important to building strong unions, this can at times come at the expense of the broader project of ensuring social welfare for all. Labour can’t simply be focused on winning better health benefits and pensions for certain union members through collective bargaining with a single employer; the movement has to be thinking about how to extend those gains to all workers through the social welfare state.
As well, we should also be considering ways to democratize the social welfare institutions and programs we do have, as well as those we want to implement. A democratic socialist welfare state could move beyond programs that simply “give” or provide services to workers, and instead actively involve service users in the design and operation of the welfare state.
Public sector unions who have adopted “bargaining for the common good” strategies to include community needs alongside collective bargaining objectives offer an example of how this can work in practice. Involving service users in these ways also helps build a political constituency that has a stake in welfare state programs and services — a base of workers who can be called into action should the welfare state come under attack from political opponents.
That concludes our course on the welfare state. I hope you found it useful and informative. But, most of all, I hope it encourages you to get involved in the struggle for expanded social welfare in this country.
For those who are interested in learning more, I encourage you to read Gøsta Esping-Andersen’s classic Three Worlds of Welfare Capitalism, which I mentioned in the first lesson, as well as his more recent Why We Need a New Welfare State. As well, follow the work of Matt Bruenig and the People’s Policy Project in the United States, which produces great primary research on social welfare issues.
If you aren’t already, be sure to sign up for my Class Struggle newsletter at Passage, check out my academic research at my website and follow me on Twitter @AdamDKKing1.
Thanks for reading,
Adam.