With the crisis of the welfare state, philantropical organisations and corporations are entering the provision of welfare. And creating a new institution.

“The historiography of welfare states has tended to focus almost exclusively on the role of the state and to stress the eventual triumph of collectivism over individualism,” comments Lewis (1999: 10). In this manner, societies are portrayed “as emerging from the darkness of the nineteenth-century poor law into the light” (Lewis, 1999: 10). However, argues Lewis (1999: 10), “rather than seeing the story of the modern welfare state in terms of ever increasing amounts of state intervention, it is more accurate to see modern states as always having had a mixed economy of welfare, in which the state, the voluntary sector, the family and the market have played different parts at different points in time.”

There are several explanations and reasons for the emergence of the welfare state at the end of 19th century – one of them is Salamon’s (1987) theory of voluntary sector failure which tries to explain the shift from provision of social services by voluntary organisations (mutual funds, charities, trusts…) to that by the state. Salamon (1987) argues that “voluntary organisations were perceived in most western countries as the first line of defence, but their weaknesses—insufficiency, particularism, paternalism and amateurism – rendered increasing co-operation with the state inevitable.” The first social security system was established by Bismarck in 1881 as an important continuation of the foundation of the German Reich ten years earlier and was – just like the unification of Germany – “born under the pressure of what we can define a ‘middle class’, including influential industrial unions, narrow industrialized groups, politically important blue-collar, but not the poor” (Conde-Ruiz and Profeta, 2003: 6). Insurance schemes (old-age, sickness, accident, disability) were supposed to “combat dissent and cement the alliance of these social groups with the Reich, in opposition to the socialist forces” (Conde-Ruiz and Profeta, 2003: 6). Out of a different political-economical constellation emerged a different type of welfare system – when in 1942 Beveridge report introduced the idea of a minimum system in United Kingdom, Britain was “characterized by a liberal and democratic tradition, influenced by the individualistic ideology developed by leading political economists from Adam Smith to Ricardo, the lack of collectivist political movements, the expansion of private and voluntary collective welfare, the lack of notion of supremacy of the state responsibility, collective good and bureaucracy” (Conde-Ruiz and Profeta, 2003: 6). The Beveridgian system thus had the purpose of reducing poverty, but additional needs had to be taken care of by individuals themselves, leaving “the maximum scope for private provision above minimum” (Hills et al., 1994).

Thus a “welfare state” is “a label for a certain class of democratic industrial capitalist societies, characterized by certain properties (i.e. social citizenship or the fact that more or less extensive welfare provisions are legally provided, or, in yet other words, the fact that the state plays a principal part in the welfare mix alongside the market, civil society, and the family)” (von Kempski, 1972). However, a welfare state is not merely the sum total of a nation’s social policy repertoire (Esping-Andersen, 1994: 712) – it is a regime in the relation between the state and economy, where this complex of legal and organizational features is systematically interwoven (Arts and Gelissen, 2002). At this point, we cannot avoid the connection between Fordism as a labour process (discussed in other chapters) and a social mode of economic regulation, also often described as Fordism or Keynesianism. The Keynesian welfare state is thus “an ensemble of norms, institutions, organizational forms, social networks, and patterns of conduct that sustain and ‘guide’ the Fordist accumulation regime and promote compatibility among the decentralized decisions of economic agents despite the conflictual character of capitalist social relations” (Jessop, 2013). This state has two key functions: “managing of aggregate demand so that the relatively rigid, capital-intensive investments of Fordist firms are worked close to capacity and firms have enough confidence to undertake the extended and expensive R&D as well as the subsequent heavy capital investment involved in complex mass production” and “generalising mass consumption norms so that most citizens can share in the prosperity generated by rising economies of scale” (Jessop, 2013)

The three worlds of welfare capitalism

Nevertheless, constellations between state, market, and family took different shapes in different countries – they have been conceptualised by Esping-Andersen (1990) in his seminal book Three Worlds of Welfare Capitalism. For Esping-Andersen the three types spring from a deep tradition in political philosophy (conservativism, liberalism and socialism) and historical characteristics of political class coalitions (Arts and Gelissen, 2002: 141).

Crisis of welfare state

However, after the periods of emergence in the late 19th century until 1945, and growth in the golden age, mainly until the 1970s, welfare regimes encountered limits or even crisis in the 1980s, as they were confronted by several challenges (Palier, 2006: 6). These challenges were internal and external. Internally, “ageing populations, declining birth rates, changing gender roles in households as a result of the mass entry of women into the labour market, the shift from an industrial to the service economy, new technologies in the organization of work, engender sub-optimal employment levels, new inequalities and human capital-biased patterns of social exclusion” (Hemerijck and Eichhorst, 2009: 2-3) have all challenged the existing system based on employment. Externally, “international competition is challenging the redistributive scope and de-commodifying power of the national welfare state” (Hemerijck and Eichhorst, 2009: 2). As already discussed, rescaling has decreased the power and room for manoeuvre of national welfare states (Scharpf, 1999). As “economic internationalization constrains countercyclical macroeconomic management”, “increased openness exposes generous welfare states to trade competition and permits capital to move to the lowest-cost producer countries” (Hemerijck and Eichhorst, 2009: 2). As argued by Jessop (1993: 7), a shift was under way “from the Keynesian welfare state (wherever it was established) to the Schumpeterian workfare state,” which provides the best possible political shell for post-Fordism (discussed in the previous chapter). Jessop (1993: 8) summarizes the economic and social objectives of this workfare state as: “the promotion of product, process, organizational, and market innovation; the enhancement of the structural competitiveness of open economies mainly through supply-side intervention; and the subordination of social policy to the demands of labour market flexibility and structural competitiveness.”

Nevertheless, these trends do not affect all welfare states in the same way and the rather popular conception of retrenchment of the welfare state is misleading and over-simplified. Thus different welfare systems are changing differently and are being reformed differently (Ferrera and Rhodes, 2000; Leibfried, 2000; Stein, 2000). Hall (1993) distinguishes between three types of impacts reforms will have: no profound changes (change in the setting of instruments), substantial changes along the path-depended trajectory (introduction of new instruments), and paradigmatic changes (new instruments associated with new goals). With this latter change, Hall (in Palier, 2006: 10) refers to “the shift from Keynesian to monetarist policies; an equivalent in social policy might be the shift from unemployment compensation to activation policies.”

Pierson (2001: 455) proposes that a specific type of reform is predominantly pursued in each type of welfare regime: “re-commodification” in the liberal welfare states, “rationalising re-calibration” in the Nordic countries and “updating re-calibration” of the continental systems. Thus these reforms only reinforce the characteristics of each system. While “the liberal regime has adjusted in predictably liberal ways, rolling back already limited social protections” that resulted in “strong private sector job at the expense of a significant increase in inequality” (Levy, 1999: 242), “the social democratic has also stayed largely true to form, expanding public provision of health and social services in the 1970s and 1980s, thereby preserving full employment and incorporating women as full-time workers. Although this strategy reached its fiscal limits in the early 1990s and painful austerity measures became necessary, retrenchment has consisted principally of adjustments around the margins (less generous pension arrangements, lower reimbursement rates, and longer waiting periods for sick pay or unemployment insurance) rather than radical cutbacks” (Levy, 1999: 242).

To cope with these problems, “Bismarckian countries have created new benefit programs which follow new logics (means-tested benefits, private funded schemes in pension and health systems), have developed new modes of financing, partly replacing social contributions, and have implemented new management arrangements (privatisation of some administrative tasks, empowerment of the state at the expense of the social partners)” (Palier, 2006: 17). These developments show “a departure from the traditional ‘conservative corporatist’ way of thinking and doing welfare and a move towards a new world of welfare capitalism” (Palier, 2006: 17). This recombinant welfare state pragmatically combines elements of the three “worlds of welfare” and adds new variations within each policy and within each type of welfare state (Lamping and Rüb, 2010: 43), leading to a new era of hybridization (Schubert et al. in Lamping and Rüb, 2010).

Corporations take action

These reforms of welfare states are more and more coupled with a parallel development and interest in Corporate Social Responsibility (CSR), which arises from changing the already complex relationship between business, the state, and civil society (Burchell and Cook, 2006). As argued by Brammer et al. (2012), the corporation has always been a political creation, to which the state granted the benefit of limited liability in order to facilitate the accumulation of capital. But this freedom of limited liability places on the corporation also a set of responsibilities and expectations on the role of the corporation in the society.

Caroll (1999, 2008) identifies two distinct stages in the evolution of CSR, starting with the 1950s when its focus was on altruistic corporate philanthropy (Bowen and Johnson, 1953), uncoupled with the overall business strategy of the company (Vogel, 2005). In the second stage, starting from the 1980s, philanthropy becomes integrated with internal strategic objectives and was redefined as an economic tool to gain competitive advantage and social capital (Nahapiet and Ghoshal, 1998), conceptualising it as a method for global companies to develop strong links with the local communities, a method for alleviating risk and the threat of damaging publicity (Cannon, 1994; Carroll, 1993; Solomon, 1997) but also as a method of synergistic value creation by potentially tapping into unseen commercial opportunities.

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For this new post-Fordist corporation the “driver for successful business is entrepreneurialism, opportunity and the competitive instinct … a willingness to look for creativity and innovation from non-traditional areas – including CSR” (Grayson and Hodges, 2004). In this context Zwetsloot (2003) goes further to suggest that “continuous improvement and innovation should be one of the basic business principles for CSR” and that CSR should be used as a tool for innovation in products and services (see figure on page 41), to uncover unserved markets and build new business models around social innovation (Grayson and Hodges, 2004).

Despite being criticized as an oxymoron, strategic philanthropy represents a “useful paradox that goes to the heart of the role of business in society. The business organization as a legitimate societal institution has a critical role to play in the maintenance of societal infrastructure; yet, it must also respect the fiduciary responsibility it has to investors” (Buchholtz et al., 2003).

But while all forms of CSR have mainly focused on providing a strategic management tool for mostly negative externalities, it is corporate citizenship (CC) that adds another layer of understanding of the relationship between firms and society by connecting CSR with an enlarged understanding of “stakeholder management” beyond the traditional confines of shareholders and employees (see Blair, 1998; Donaldson and Preston, 1995) through Freeman’s definition of stakeholders as “any group of individuals who can affect or is affected by the achievement of the organization’s objectives” (Freeman, 1984).

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Under the umbrella of corporate citizenship, a firm can be classified either as a citizen of the state and is in this sense equivalent to the definition of CSR where “the social responsibility of business encompasses the economic, legal, ethical and discretionary expectations that society has of an organization at a given point in time” (Caroll, 1979) but it can also be understood as “taking the different stakeholder groups as citizens of the corporation, held to be an analogue of the state” (Sison, 2011). This second reading transforms the corporation into a “corporate polity whose flourishing is reciprocally dependent on the flourishing of its various stakeholder-constituents. In this regard, every stakeholder-constituent is admonished to actively take part in the deliberation and execution of the corporate common good” (Sison, 2011).

Birth of a new type of institution

This signals the beginning of a new type of institution (Palier, 2005) that plays an increasingly important role in the provision of services in the times of neoliberal economic policies of deregulation and privatisation (Kinderman, 2012). Matten and Crane (2003: 10) argue that “at the point where traditional governmental actors fail to be the ‘counterpart’ of citizenship”, corporations enter the arena of citizenship and “partly take over certain functions with regard to the protection, facilitation and enabling of citizen’s rights – formerly an expectation placed solely on the government” (Matten and Crane, 2003: 10-11). Within this domain of corporate citizenship (CC), a corporation administers certain, but not all, aspect of citizenship to individuals and takes over considerate responsibility for such administration from governments. Matten and Crane (2003) distinguish between three roles a company can take with regard to the different rights: the providing role by supplying or not supplying individuals with social services; the enabling role by capacitating or constraining citizens’ civil rights; or the channelling role by being an additional conduit for the exercise of individuals’ political rights.

This implies a much broader conceptualization of CSR in connection with politics (Moon, 2002; Crouch, 2009), economics (van Oosterhout and Heugens, 2008), law (Mullerat, 2005) and sociology (Brooks, 2010; Brammer et al., 2012) rooted into a new holistic understanding of a company’s business model which includes both economic and non-economic contributions which provide new paths towards financial performance (see figure on page 42).

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