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2013-11-25 The Rise of the Welfare State.docx

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Political Science
Political Science 2211E
Adam Harmes

The Rise of the Welfare State November 25, 2013 Today’s Topics 1. The Political Implications of the Great Depression 2. The Postwar International Economy 3. The Postwar Growth of the Welfare State Great Depression -Raised interest rates to defend currencies -didn’t lower it – this made the recession become the Great Depression -governments defending the gold standard system of fixed exchange rates that existed at that time -No bank bailouts -banks loaned money -loans didn’t get repaid -create credit crisis -self-fulfilling prophecy -Austerity not auto stabilizers or stimulus -no EI, welfare to offset people losing their jobs -austerity: cutting spending -once you are in recession/Depression: tax revenue going down -take in less moneygovernment have to borrow money -they cut spending on top of raising interest rates -balance budget by making spending cuts -Trade protectionism -more nationalistic economy -e.g. BuyAmerica (putting country first) -protect our industry -free trade collapsed -Led to massive unemployment -unemployment went over to 25% -created huge amount of social hardship Political Implications of the Great Depression -Undermined support for free market ideas -Undermined trade and globalization -Led to economic nationalism -Tariffs -Capital controls -Controls on immigration -people perceived that the free market ideas failed 1 -led to rise of economic nationalism – take care of ourselves first -U.S. increased massive tariffs in 1930s (Smoot-HawleyAct) -protect domestic industries -free trade collapsed -affected immigration as well -Canada: Prime Minister R.B. Bennett -Conservative Party elected on “Canada’s First platform” -adopting economically nationalistic policies (“Canada First”) -capital controls: financial equivalent of tariffs -rules and regulations that prevent investors from bringing money across the borders -gets rid of free trade by implementing protectionism and gets rid financial globalization by implementing capital control -greater controls on immigration -nationalism: not letting new people coming into the country and taking our jobs -investment capital not flowing across borders, goods not going across the borders, people not going across the borders -ended original period of economic globalization Political Implications of the Great Depression -Growing demands for government intervention -people want government do something about unemployment -wanted welfare for unemployed and job creation programs -Workers mobilize through growth of unions and socialist parties -led to political mobilization of workers -workers start to mobilize through unions -forerunner of modern left: unions, left-of-centre political parties created -emergence of socialist political parties (CCF – forerunner of today’s NDP) -Mainstream parties and businesses began to support more intervention -not just creation, mobilization of unions -even businesspeople supported government intervention to prevent socialist revolution -this was 1930s; 1919 was the year of Russian Revolution -rich people willing to compromise to prevent same thing from happening The Welfare State -Began with Roosevelt’s “New Deal” in 1930s -Interventionist policies -Business regulation -Labour regulation -Social Programs -Job stimulus -New Deal: stimulus program and package of interventionist policies -economic nationalism rose and got rid of economic financial globalization, trade 2 -in domestic level, we see undermining free market approach and greater support for greater government intervention 1. Regulation on Business -“Alphabet soup” of new government agencies -FDR created so many government regulatory agencies -huge number of acronyms for these various agencies -Financial regulation through SEC (Securities and Exchange Commission) -Deposit insurance through FDIC (Federal Deposit Insurance Corporation) -provide insurance for banks -part of reason that banks run limited today – you deposit money in bank and you’re insured up to a certain amount -Working conditions -Health and safety -product regulation -businesses going from free market situation to more regulation 2. Labour Regulation -1935 National LabourAct in US -increase power and legitimacy of trade unions in the economic relationship -pro-union labour regulation -gave unions more strength -forcing companies to officially recognize unions and the right to collective bargaining and right to strike -collective bargaining: right to bargain with employer collectively as a group (rather than individually) -PC 1003 in Canada -Canada signed a similar act in 1944 -forced companies to recognize trade unions, negotiate binding contracts with union representatives -created technical rules on how to be certified -what constitutes legal/illegal strike, etc. -Recognized unions, collective bargaining and right to strike -Boosted union power and pressure for more intervention -feedback effects: stronger in their ability to negotiate wages, benefits, etc. -created interest groups that try to influence politics -unions donate money to political parties, run advertising for or against issues 3. Social Programs and Job Stimulus -1935 Social SecurityAct in US -entitlement programs -Pensions 3 -Employment insurance -Welfare -Disability support -workers compensation; if you get hurt on the job, government will provide support for you -Created of WPA: Works ProjectAdministration -no longer around -it was established to create more jobs -was temporary The New Deal in Canada -PM Bennett’s “new deal” in Canada -Bennett pressured to make a “new Deal; was reluctant at first -later, government was forced to act after what happened in US -introduced Canadian version of New Deal -involved unprecedented level of spending (stimulus) and government intervention in the economy -enacted aggressive income tax, minimum wage, maximum number of working hours per week, unemployment insurance, health insurance, government pension, grants to farmers -provinces said federal government have no jurisdiction according to Constitution -social welfare is in provincial jurisdiction -Struck down by courts for treading on provincial jurisdiction -social welfare in provincial jurisdiction, according to provinces -struck down all of Bennett’s legislation -Eventually Canada followed by US lead – mainly after WWII -Great Depression led to economic nationalism (country first, collapse of free trade and financial globalization, massive controls on immigration) on one hand and government intervention (more social programs, more support for unions, more regulations on businesses) on the other hand -both of these reactions to Great Depression went way farther Political Implications of the Great Depression -Economic nationalism became political nationalism -in Germany and Italy back then, there was racism (biased against a particular race) and xenophobia (fear and biased against foreigners) -capital controls started in Germany (other countries adopted it later) -back then in Germany, many Jewish people worked in the financial sector -financial sector took a lot of heat (conflated with Jewish people working in financial sector) -it was massively amplifying it -we start to see early beginnings of Holocaust -Government intervention became state socialism -government ownership of industry 4 -National socialism -combine Political Nationalism + State Socialism = National Socialism -Nazi Party (National Socialist Party) -right-wing movement -it’s more government ownership, government authoritarian state, not left-side socialism Political Implications of the Great Depression -Economic nationalism became political nationalism -Government intervention became state socialism -National socialism -it’s fascism -Great Depression feeds into these changes -some countries go way father: e.g. Germany, Italy Similarities to Present -Rise of extreme parties in Greece and Euro countries -neo-Nazi parties getting votes and seats -Greece: Golden Dawn Party -you see similar themes when economic hardship ramps up -political nationalism getting a bit more attention -it’s about demonizing a group and placing blame on them -people open to more extreme solutions when they are unemployed and starving Political Implications of the Great Depression -Undermined free market economics -Boosted Keynesian economics -wrote general theory in 1936 -Austerity had made things worse -cut spending and it made worse -market didn’t self-correct -Unemployment failed to self-correct -lowering wages didn’t happen (according to “market self-correction”) -Great Depression was perceived failure of free market approach -people turn to other direction (Keynesian approach) WWII and End of Depression -Governments abandon Gold Standard to stimulate their economies -in order to lower interest rates and stimulate their economy -monetary stimulus was not enough -Keynesian: need fiscal stimulus; need to borrow money and spend it 5 -only way to jump-start economy and get rid of vicious cycle of falling spending, companies not selling, etc. -Took WWII production to end Depression -Keynesian economist: WWII was one of the biggest government stimulus packages of all time -created a good reason that goes beyond ideology to borrow a lot of money, spend it, have young men to fight in Europe and build technology (tanks, planes) stimulated economy enormously -Equivalent to a massive stimulus program -WWII was one of the biggest stimulus programs -Great Depression led to huge shift towards Keynesian and interventionist ideas -provided blueprint for growth of Welfare State after WWII International Aspects of Welfare State The Bretton WoodsAgreement -1944 agreement among the allied powers on how to manage economy after WWI
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