Welfare Capitalism Essay

Welfare capitalism is a term that social scientists employ to define a specific form of regulating industrial relations and of controlling class struggles. With the onset of industrialization, advanced economies faced several problems and restrictions. At a more general level, constant revolutionizing of production and increasing degrees of urbanization and proletarianization undermined the previous socioeconomic foundations of these societies and led to social unrest, uncertainty, and poverty. Proletarianization refers to a social process by which an increasing number of the population, who were previously small producers or self-employed, lose their control over the means of production and become absorbed into the working class; that is, they have to sell their labor power to an employer. Deteriorating work conditions, increasing exploitation, and alienation caused dissatisfaction at work; these things in turn resulted in high turnover rates, absenteeism, indifference, drunkenness, violence, strikes, militancy among workers, and unionization, followed by a significant decline in productivity. While the Western European response to these consequences of industrialization was to develop government-operated welfare programs and to establish a corporatist form of collective bargaining, in the United States the private sector took the lead. The main motive behind the American approach was to regulate social problems, and thus industrial conflict, without any state intervention and without the mediation of trade unions. In this regard, welfare capitalism evolved as a generic label for the liberal U.S. welfare system; more concretely, it refers to a collection of ideas and methods designed to improve capital-labor relations in the United States at a particular period, extending from the 1880s until the 1930s.

Welfare capitalism had five main components. At first, it aimed at maximizing surplus value production through reducing the reproduction cost of labor power. During a period when reproduction conditions were scarce, welfare capitalists employed various tools, ranging from company-sponsored housing, well-lit cafeterias, and company stores to schools, theaters, churches, libraries, recreational facilities, and musical groups; from profit sharing and stock ownership plans, to insurance programs, medical care, pensions, and social work. Companies also supported interaction between workers and village-level administrators (i.e., teachers, welfare workers, medical personnel) and encouraged religious ties in worker communities. The classic example of this is the first company-town led by Pullman Palace Car Company. Built within the city limits of Chicago in 1880, Pullman Village hosted 6,000 company employees and their dependents. The residents were required to live along the lines set by the company, which rested on thrift, neatness, cleanliness, family values, sobriety, good morals, and the like. This model town survived until 1894 when a bitter strike ended its existence.

On the other hand, company-led residences also facilitated the transformation of a rural population into an urban industrial workforce. In this relation, the existence of a high number of agrarian and craft-oriented workers within the labor force allowed employers to utilize various motifs such as noblesse oblige, paternalism, and moral individualism. In other words, they emphasized that every individual has a responsibility toward the needy and the poor, so that the large corporation could become a home of solidarity. Then, it was the moral duty of employers to share some of the profits with workers in the pursuit of common goals. Stripped of its dominant paternalistic veneer, these provisions extensively addressed the organization of the workers’ lives outside as well as inside the workplace. These measures also dealt with the second and third problems; that is, how to bind workers to the jobs in order to increase efficiency and how to socialize and integrate foreign workers— many of whom had only recently immigrated from Southern and Eastern Europe—into the disciplined and Americanized labor force.

The problem of underconsumption in the U.S. economy at that period led to the fourth concern. In response to this, Henry Ford (Ford Motor Company) announced a Five Dollar a Day program in 1914. The program was a combination of a cut in the workweek from 6 to 5 days, a reduction in the length of the workday from 9 to 8 hours, and a raise in minimum daily pay from $2.34 to $5. To be eligible for this program, however, workers had to meet certain conditions. To control and direct the needs and habits of workers, Ford set up a “social department” in his company. Indeed, inspectors went to workers’ houses to observe how they conducted their lives and to teach them how to budget their money. For the latter, a special Ford bank was set up to encourage savings and loans for workers. Ford assumed that higher wages and cheapening of wage goods would raise the standards of living of the industrial worker and, in turn, would increase the levels of social consumption. The company recorded a success. Indeed, the rate of turnover fell down, absenteeism and incidents of disease decreased, and productivity increased. Although the program was cancelled after a few years, its basic principles became a part of a macro-social regime of accumulation usually called Fordism. This involved specific forms of production, as well as social consumption norms, and became a dominant paradigm for social and economic development in Western industrial countries at a later period.

Last but not least, welfare capitalists were strongly intent on keeping workers away from unionization. To this end, they established company unions and distributed most welfare programs through them. Hence, the employee representation system became a core mechanism for airing workers’ grievances and negotiating labor contracts. In spite of a relatively union-free environment, however, spy networks, blacklists, and strikebreakers prevailed, even in the heyday of welfare capitalism. Controlled unionism helped employers to build employee loyalty and inhibited the right of workers to organize and strike and to demand higher wages, shorter hours, and better working conditions. Moreover, despite its all-encompassing discourse, welfare capitalism widened the gap between the skilled and the unskilled worker. To illustrate, in company towns while mass workers contended with mean row houses, skilled employees benefited with better residential conditions. Far from alleviating racial, ethnic, and/or gender inequalities, those programs actually aggravated them. Studies of Pullman and some other industries showed that allocation of jobs on the basis of these differences during the period strategically undermined the collective strength of labor.

During the interwar period, welfare capitalism took hold as the railroads and the largest industrial corporations such as Standard Oil, International Harvester, United States Steel, and Western Electric Company adopted it, in addition to Pullman and Ford. A 1926 survey revealed that 80 percent of the 1,500 largest companies had adopted at least one type of welfarism, and almost 50 percent of them established comprehensive welfare schemes. Some corporations even considered providing unemployment benefits. Nevertheless, it was still a practice limited to a number of large corporations and, at most, 14 percent of workers were covered by these pension plans according to a 1929 survey. More importantly, these programs, once adopted, were not implemented without interruptions. During crisis periods such as 1893-94 and 1921, most companies cut back or postponed their welfare schemes, although the U.S. Bureau of Labor statistics recorded that the total cost of these programs never went beyond 2 percent of the total wage costs of these companies.

Despite widespread agreement that the Great Depression led to the end of welfare capitalism, some analysts state otherwise. One argument is that the New Deal of the 1930s did not replace welfarism, but instead welfarism evolved and survived in the post-depression era. The explosive growth of private pensions or health and disability insurance program in the United States is simply the continuation of private welfarism. Furthermore, studies also differ in their interpretation of its decline. Whereas some argue that welfarism was waning even before the Great Depression, others hold the Great Depression as mainly responsible for the demise of welfarism.

Another perspective is that its collapse was due to its inability to include workers successfully in the decision-making process; that is, the terms of industrial relations. Broader analysis, however, focuses on economic, political, and social developments that irrevocably altered the relationship between capital and labor in the late 1920s. On the one hand, destruction of craft work and increasing mechanization altered the patterns of labor control over the production process. On the other hand, the end of the overinvestment boom, unused industrial capacity, and debt obligations led to insecurity, uncertainty, and high unemployment. As a result, workers turned to trade unions in search for solidarity and to the government for a different paradigm that would go beyond company-level solutions. Hence, transformation from competitive to monopoly capitalism gave life to a new stable system of industrial relations in the United States. The New Deal, in general, and the Wagner Act (National Labor Relations Act) of 1935, in particular, brought a virtual end to welfare capitalism and laid down the foundations for unionization, collective bargaining, and the right to strike.


  1. Brandes, Stuart D. 1984. American Welfare Capitalism, 1880-1940. Chicago: University of Chicago Press.
  2. Brody, David. 1993. Workers in Industrial America: Essays on the Twentieth-Century Struggle. 2nd ed. New York: Oxford University Press.
  3. Burawoy, Michael. 1979. “The Anthropology of Industrial Work.” Annual Review of Anthropology 8:231-66.
  4. Jacoby, Sanford M. 1997. Modern Manors: Welfare Capitalism since the New Deal. Princeton, NJ: Princeton University Press.

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