How can we take care of economic development and worker’s rights at the same time? Well, welfare capitalism is considered a leading idea and one of the possible solutions to deal with worker’s rights and economic development. It is an important yet controversial phase of today’s economic policies. Primarily, welfare capitalism is explained as a business-favored policy where the private sector is more effective in providing social welfare programs than the federal government.
Characterized by a concern for the welfare of various social groupings, practiced usually through social-security programs, collective bargaining agreements, state industrial codes and other guarantees against insecurity; Companies providing these services have a two-fold interest in mind. Firstly, companies act in a paternalistic manner wherein they give employees what managers think is best suited for them. Secondly, the companies perceive that providing workers with some benefits can help them stop receiving complaints about larger structural issues such as unsafe conditions and long hours.

Welfare capitalism started in the United Kingdom along with other European countries, including France and Germany during the late 19th century. It began at the height of the Industrial Revolution during 1880 to 1900 which was marked by labor disputes and strikes. Some companies, which were mostly manufacturers, began offering new benefits for their employees. Private sector employers provided social welfare incentives that increased worker production. Incentives included sponsored sports teams, established social clubs and providing educational and cultural activities for workers. Some even offered housing facilities. Welfare capitalism gave birth to employee pensions that encouraged workers to stay loyal to a company through retirement benefits.
First attempt at offering philanthropic welfare to workers started at the New Lanark mills in Scotland by the social reformer Robert Owen. He started as a manager and became owner of the mills in 1810. Encouraged by huge success, Owen planned to conduct mills on higher principles and focus less on commercial profit. Many of the workers were into theft and drunkenness. Education and sanitation were neglected. Employers even operated the truck system where payment to the workers was made in tokens that had no value outside the “truck shop”. Later, a series of “Truck Acts” (1831–1887) stopped this abuse and was marked as an offence not to pay employees in common currency.
Owen opened a store for people to buy goods of sound quality at reasonable cost and placed alcohol under strict supervision. He even passed on the savings from the bulk purchase of goods to the workers. Even though Owen’s philosophy contradicted contemporary thinking, he was able to highlight the fact that it was not necessary for an industrial enterprise to treat its workers badly to be profitable. Village’s excellent housing and amenities and the accounts showing the profitability of the mills was proof.
Owen and the French socialist Henri de Saint-Simon (fathers of the utopian socialist movement) believed that the establishment of small cooperative communities could remove the ills of industrial work relations. For this, boarding houses were built near the factories for the workers’ accommodation which were seen as a self-contained community for the factory workers. However, employers who provided housing in company towns often faced resentment. Pullman, Illinois—a site of a strike that destroyed the town in 1894 is a notable example. Disputes between employers and workers in these years often turned violent which led to government intervention.
In the early years of the 20th century, business leaders started practicing a different approach. The Cadbury family of philanthropists and business entrepreneurs set up the model village at Bournville, England in 1879 for their chocolate making factory. Loyal and hard-working workers gained respect and were rewarded with high wages and good working conditions. Not only this, they also introduced pension schemes, joint works committees and a full staff medical service. The Lever Brothers built a Port Sunlight in Wirral, England to accommodate workers in its soap factory in 1888. The idea behind was to invest profits in the village rather than sharing profits directly. American businessmen George F. Johnson and Henry B. Endicott wanted to increase productivity by offering the workers wage incentives and creating goodwill with employees. With introducing a $5-a-day pay rate in 1914 (when most workers made $11 a week), Henry’s goal was to reduce turnover and build a long-term loyal labor force that would have higher productivity. Intending to encourage good attendance and loyalty, reduce turnover and improve productivity, wage incentives and internal promotion opportunities were also provided.

In contrast to other industrialized countries, European welfare states provided universal services that benefit all citizens as opposed to those which only cater to the needs of the poor. Northern European countries aimed at balancing the power between labor and business. Welfare capitalism in such countries is often combined with social corporatism and national-level collective bargaining arrangements. The most prominent example of this system is the Nordic model.
In the United States, welfare capitalism first developed in the 1880s and gained importance in the 1920s. 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. Such benefits were provided to encourage worker loyalty, productivity and dedication. Starting with minimal benefits such as cafeteria plans, company-sponsored sports teams, lunchrooms, and company newsletters/magazines, workers were also provided more extensive plans such as retirement benefits, health care, and employee profit-sharing. Kodak, Sears, and IBM are some companies that have practiced welfare capitalism. Employment systems in these companies included permanent employment, internal labor markets, extensive security, fringe benefits, sophisticated communications and employee involvement.

Welfare capitalism programs did not work as intended. Company unions could only enhance the authority of management over the terms of employment. At the end it was noticed that welfare capitalism programs were beneficial to white-collar workers far more than those working on the factory floor in the early 20th century. Long hours in unsafe conditions continued to be a norm even though real wages for unskilled and low-skilled workers grew little in the 1920s.
Looking towards the positive side, incentives in terms of merit raises and bonuses often acted as a catalyst in speedy production for factory lines. Employees did get motivated and wanted new opportunities to improve their pay with good work and attendance and to gain benefits like medical care. Welfare programs meant to encourage loyalty to the company but this effort was often undermined by continued layoffs and frustrations with working conditions. The post-WWII era saw an expansion of these programs for all workers, and such benefits remain part of employment relations in many countries. However, corporations have reduced the portion of compensation paid for health care; they have shifted from defined benefit pensions to employee-funded defined contribution plans.

The processes of change – globalization, destandardization, deindustrialization, the second demographic transition, the neoliberal wave – have eroded the institutional foundations of the welfare capitalist regimes. The countries with emerging economies of China, India, Brazil, South Africa, and many other countries are now facing a transition where individualization, commodification, and urbanization are eroding traditional social bonds. This transformation calls for the development of new forms of welfare, to substitute familial and community forms of support that are no longer working and to confront growing inequalities, poverty, unemployment, and precarious jobs. Today, the government provides minimum wage standards by which every employer must abide. Anything above the minimum requirement by the government is at the employer’s discretion. Recently, companies have begun to invest even more in the perks provided by the business in order to satisfy employees. Companies have realized that employees make fewer demands and are more productive when they are happier! Google is one such company that has spent millions of dollars making their businesses enjoyable places to work.

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