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Industrial paternalism

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Industrial paternalism

For the economic models in Western and Northern Europe commonly described as welfare capitalism, see Rhine capitalism and Nordic model.

Welfare capitalism refers to capitalist economies that include comprehensive social welfare policies.[1] Alternatively, welfare capitalism refers to the practice of businesses providing welfare services to their employees. Welfare capitalism in this second sense, or industrial paternalism, was centered in industries that employed skilled labor and peaked in the mid-20th century.

Although European welfare capitalism is often associated with mixed economies, welfare states can and do exist independently of the economic policies associated with mixed economies, such as state interventionism, regulation and macroeconomic stabilization policies.

Esping-Andersen provided a conceptual distinction between the three major forms of welfare capitalism in his book The Three Worlds of Welfare Capitalism. Esping-Andersen (1990) constructed the welfare regime typology acknowledging the importance and power of the three dominant political movements of the long 20th century in Western Europe and North America: Social Democracy, Christian Democracy (conservatism) and Liberalism.

Modern welfare capitalism

The original definition of welfare capitalism, as used by the 19th century German economist, Gustav von Schmoller, called for government to provide for the welfare of workers and the public, via social legislation, among other means. (And not to rely on business to do this.) While Schmoller's work is little available in English, his influence can be seen in the modern European welfare states.

Western Europe, Scandinavia, Canada and Australasia are regions noted for their welfare state provisions, though other countries have publicly financed universal healthcare and other elements of the welfare state as well. The United States, despite its Medicare, Medicaid and Social Security provisions, is not generally considered to have enough of a social safety net to properly be called a welfare-state; businesses provide more of these services.

Esping-Andersen categorised three different types of welfare states in the 1990 book 'The Three Worlds of Welfare Capitalism'. Though increasingly criticised, these classifications remain the most commonly used in distinguishing types of modern welfare states, and offer a solid starting point in such analysis. It has been argued that these typologies remain a fundamental heuristic tool for welfare state scholars, even for those who claim that in-depth analysis of a single case is more suited to capture the complexity of different social policy arrangements. Welfare typologies have the function to provide a comparative lens and place even the single case into a comparative perspective (Ferragina and Seeleib-Kaiser 2011).[2]

Esping-Andersen (1990) constructed the welfare regime typology acknowledging the ideational importance and power of the three dominant political movements of the long 20th century in Western Europe and North America, that is Social Democracy, Christian Democracy(conservatism) and Liberalism (Stephens 1979; Korpi 1983; Van Kersbergen 1995; Ferragina and Seeleib-Kaiser 2011). The ideal Social-Democratic welfare state is based on the principle of universalism granting access to benefits and services based on citizenship. Such a welfare state is said to provide a relatively high degree of autonomy, limiting the reliance of family and market (Ferragina and Seeleib-Kaiser 2011).[3] In this context, social policies are perceived as 'politics against the market' (Esping-Andersen 1985). Christian-democratic welfare states are based on the principle of subsidiarity and the dominance of social insurance schemes, offering a medium level of decommodification and a high degree of social stratification. The liberal regime is based on the notion of market dominance and private provision; ideally, the state only interferes to ameliorate poverty and provide for basic needs, largely on a means-tested basis. Hence, the decommodification potential of state benefits is assumed to be low and social stratification high (Ferragina and Seeleib-Kaiser 2011).[3]

Based on the decommodification index Esping-Andersen divided into the following regimes 18 OECD countries (Esping-Andersen 1990: 71):

1. Liberal: Australia, Canada, Japan, Switzerland and the US;

2. Christian democratic: Austria, Belgium, France, Germany and Italy;

3. Social Democratic: Denmark, Finland, the Netherlands, Norway and Sweden

4. Not clearly classified: Ireland, New Zealand and the United Kingdom.

These 18 countries can be placed on a continuum from the most purely social-democratic, Sweden, to the most liberal country, the United States (Ferragina and Seeleib-Kaiser 2011).[4]

Welfare capitalism in the United States

Welfare capitalism in the United States refers to the policies of large, usually non-unionised, companies that have developed internal welfare systems for their employees.[5] Welfare capitalism first developed in the United States in the 1880s and gained prominence in the 1920s.[6]

Promoted by business leaders during a period marked by widespread economic insecurity, social reform activism, and labor unrest, it was based on the idea that Americans should look not to the government or to labor unions but to the workplace benefits provided by private-sector employers for protection against the fluctuations of the market economy.[7] Companies employed these types of welfare policies to encourage worker loyalty, productivity and dedication. Owners feared government intrusion in the Progressive Era, and labor uprisings from 1917 to 1919—including strikes against "benevolent" employers—showed the limits of paternalistic efforts.[8] For owners, the corporation was the most responsible social institution and it was better suited, in their minds, to promoting the welfare of employees than government.[9] Welfare capitalism was their way of heading off radicalism and regulation then.

The benefits offered by welfare capitalist employers were often inconsistent and varied widely from firm to firm. They included minimal benefits such as cafeteria plans, company-sponsored sports teams, lunchrooms and water fountains in plants, and company newsletters/magazines—as well as more extensive plans providing retirement benefits, health care, and employee profit-sharing.[10] Examples of companies that have practiced welfare capitalism include Kodak, Sears, and IBM, with the main elements of the employment system in these companies including permanent employment, internal labor markets, extensive security and fringe benefits, and sophisticated communications and employee involvement.[5]

Welfare capitalism in Europe

In Northern European countries, welfare capitalism is often combined with social corporatism and national-level collective-bargaining arrangements to balance the power between labor and business. The prominent example of this type of capitalism is the Nordic model, where businesses are mainly privately owned and operate in free and open markets, and the state provides for generous welfare benefits financed through taxation.

An alternative model exists in Continental European countries, known as the Social market economy or German model, which includes a greater role for government interventionism into the macro-economy but a less generous welfare state.

European welfare capitalism is typically endorsed by and supported by Christian democrats and Social democrats. In contrast to social welfare provisions in other countries, European welfare states tend to provide universal services and programs to benefit everyone (social democratic welfare state) as opposed to a minimalist model that only caters to the needs of the poor (as in the United States).


In the 19th century, some companies—mostly manufacturers—began offering new benefits for their employees. This happened mostly in Great Britain, France, even Canada. They sponsored sports teams, established social clubs, and provided educational and cultural activities for workers. Some offered housing as well. Prime examples of this were the boarding houses built by textile manufacturers in Lowell, Massachusetts for their single female employees in the 1820s.[11] The motive behind these offerings was paternalistic—owners were providing for workers in ways they felt was good for them. These programs did not address the problems of long work hours, unsafe conditions, and employment insecurity that plagued industrial workers during that period, however. Indeed, employers who provided housing in company towns (communities established by employers where stores and housing were run by companies) often faced resentment from workers who chafed at the control owners had over their housing and commercial opportunities. A noted example was Pullman, Illinois—site of a strike that destroyed the town in 1894. During these years, disputes between employers and workers often turned violent and led to government intervention.

In the early years of the 20th century, however, business leaders began embracing a different approach. Pioneered by George F. Johnson and Henry B. Endicott, these leaders sought new relations with labor. Their "enlightened selfishness" prompted them to offer wage incentives and other benefits. The point was to increase productivity by creating good will with employees. When Henry Ford introduced his $5-a-day pay rate in 1914 (when most workers made $11 a week), his goal was to reduce turnover and build a long-term loyal labor force that would have higher productivity.[12] Turnover in manufacturing plants in the U.S. from 1910 to 1919 averaged 100%. Wage incentives and internal promotion opportunities were intended to encourage good attendance and loyalty.[13] This would reduce turnover and improve productivity. The combination of high pay, high efficiency and cheap consumer goods was known as Fordism, and was widely discussed throughout the world.

Led by the railroads and the largest industrial corporations such as the Pullman Car Company, Standard Oil, International Harvester, Ford Motor Company and United States Steel, businesses provided numerous services to its employees, including paid vacations, medical benefits, pensions, recreational facilities, sex education and the like. (Brandes 1976) The Seaside Institute is an example of a social club built for the particular benefit of women workers.[14] Most of these programs proliferated after World War I -- in the 1920s.[15]

The economic upheaval of the Great Depression in the 1930s brought many of these programs to a halt. Employers cut cultural activities and stopped building recreational facilities as they struggled to stay solvent. It wasn't until after World War II that many of these programs reappeared—and expanded to include more blue-collar workers. Since this time, programs like on-site child care and substance abuse treatment have waxed and waned in use/popularity, but other welfare capitalism components remain. Indeed, in the U.S., the health care system is largely built around employer-sponsored plans.

By contrast to the experience in the United States, Europe built government operated welfare systems i.e. welfare capitalism in the sense the term is generally understood today. In the late 19th and early 20th centuries, Germany and Britain created "safety nets" for the citizens, including public welfare and unemployment insurance. It is true, however, that prior to providing government safety nets, many nineteenth century employers in Britain and on the continent provided welfare institutions much like those in the United States. Examples include worker housing assistance provided by the Fried Krupp firm in Germany, including a loan fund established in 1889 and free architect service; free housing provided to coal miners in France by Jules Chagot et Cie; and subsidized worker housing provided by Lever Brothers in Britain.[14]


Welfare capitalism was also used as a way to resist government regulation of markets, independent labor union organizing, and the emergence of a welfare state. Welfare capitalists went to great lengths to quash independent union organizing, strikes, and other expressions of labor collectivism—through a combination of violent suppression, worker sanctions, and benefits in exchange for loyalty.[7] Also, employee stock-ownership programs meant to tie workers to the success of companies (and accordingly to management). Workers would then be actual partners with owners—and capitalists themselves. Owners intended these programs to ward off the threat of "Bolshevism" and undermine the appeal of unions.[16]

The least popular of the welfare capitalism programs were the company unions created to stave off labor activism. By offering employees a say in company policies and practices and a means for appealing disputes internally, employers hoped to reduce the lure of unions. They dubbed these employee representation plans "industrial democracy."[17]


In the end, welfare capitalism programs benefitted white-collar workers far more than those on the factory floor in the early 20th century. Average annual bonus payouts at U.S. Steel Corporation from 1929 to 1931 were approximately $2,500,000; however, in 1929, $1,623,753 of that went to the President of the company.[18] Similarly, in 1934, 400 company employees inhabited Kohler, Wisconsin (a company town), but 150 of them were single men living in dormitories. Those living in homes with their families were exclusively executives and managers.[19] Real wages for unskilled and low-skilled workers grew little in the 1920s, while long hours in unsafe conditions continued to be the norm. Further, employment instability due to layoffs remained a reality of work life. Welfare capitalism programs didn't often work as intended and company unions really just reinforced the authority of management over terms of employment.[20] Wage incentives (merit raises and bonuses) often led to a speed-up in production for factory lines.[21] As much as these programs meant to encourage loyalty to the company, this effort was often undermined by continued layoffs and frustrations with working conditions. Employees soured on employee representation plans and cultural activities, but they were eager for opportunities to improve their pay with good work and attendance and to gain benefits like medical care. These programs gave workers new expectations for their employers. They were often disappointed in the execution of them but supported their aims.[22] The post-World War II era saw an expansion of these programs for all workers, and today, these benefits remain part of employment relations in the U.S. Recently, however, there has been a trend away from the form of welfare capitalism, as corporations have reduced the portion of compensation paid with health care, and shifted from defined benefit pensions to employee-funded defined contribution plans such as 401(k)s.

See also



  • Arts, Wil and Gelissen John; "Three Worlds of Welfare Capitalism or More? A State-of-the-art report"; Journal of European Social Policy, vol. 12 (2), pp. 137–158 (2002).
  • Brandes, Stuart D. American Welfare Capitalism, 1880-1940 (University of Chicago Press, 1976)
  • Crawford, Margaret. Building the Workingman's Paradise: The Design of American Company Towns (1996)
  • Dixon, John, and Robert P. Scheurell, eds. The State of Social Welfare: The Twentieth Century in Cross-National Review Praeger. 2002.
  • Ebbinghaus, Bernhard, and Philip Manow; Comparing Welfare Capitalism: Social Policy and Political Economy in Europe, Japan and the USA Routledge, 2001
  • Esping-Andersen, Gosta; Politics against markets, Princeton, NJ: Princeton University Press (1985).
  • Esping-Andersen, Gosta; "The Three Worlds of Welfare Capitalism", Princeton NJ: Princeton University Press (1990).
  • Ferragina, Emanuele and Seeleib-Kaiser, Martin; Welfare Regime Debate: Past, Present, Futures?; Policy & Politics, Vol. 39 (4), pp. 583–611 (2011).
  • Fraser, Derek. The Evolution of the British Welfare State: A History of the British Welfare State (2003)
  • Hicks, Alexander. Social Democracy & Welfare Capitalism (1999)
  • Jacoby, Sanford M. Modern Manors: Welfare Capitalism since the New Deal (1997)
  • Korpi, Walter; "The Democratic Class Struggle"; London: Routledge (1983).
  • O'Connor, Alice. "Welfare Capitalism." Dictionary of American History. The Gale Group Inc. 2003. 3 Oct. 2009
  • M. Ramesh; "Welfare Capitalism in East Asia: Social Policy in the Tiger Economies" in Journal of Contemporary Asia, Vol. 35, 2005
  • Stein Kuhnle, ed, Survival of the European Welfare State Routledge 2000.
  • Stephens, John D. "The Transition from Capitalism to Socialism"; Urbana, IL: University of Illinois Press (1979).
  • Tone, Andrea. The Business of Benevolence: Industrial Paternalism in Progressive America (1997)
  • Tratter, Walter I. From Poor Law to Welfare State: A History of Social Welfare in America (1994)
  • Van Kesbergen "Social Capitalism"; London: Routledge (1995).
  • Oxford Reference Online
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