Welfare reform

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Welfare reforms are changes in the operation of a given welfare system, with the goals of reducing the number of individuals dependent on government assistance, keeping the welfare systems affordable, and assisting recipients to become self-sufficient. Classical liberals and conservatives generally argue that welfare and other tax-funded services reduce incentives to work, exacerbate the free-rider problem, and intensify poverty. On the other hand, socialists generally criticize welfare reform because it usually minimizes the public safety net and strengthens the capitalist economic system. Welfare reform is constantly debated because of the varying opinions on the government's determined balance of providing guaranteed welfare benefits and promoting self-sufficiency.

Regional examples[edit]


Within the last two decades, welfare systems have been under extreme scrutiny around the world. Demographic changes like the post-war "baby boom" followed by the subsequent "baby bust", coupled with economic shifts such as the 1970 oil shocks, led to aging populations and a dwindling working force. In turn, there became an increased dependency on social welfare systems, which inevitably brought up the issue of welfare reform. U.S systems primarily focused on reducing poor single-parents need for welfare, through employment incentives. The U.K focused primarily on reducing general unemployment through the New Deal. The Netherlands emphasised reforming disability programs, and Latin America focused primarily on pension reforms.

German Chancellor Otto von Bismarck was one political leader who attempted to put an end to socialism by proposing government healthcare. He approved the 1883 Health Insurance Act which was the first to introduce compulsory government-monitored health insurance.[1] The German legislation ensured contributory retirement and disability benefits. Participation became mandatory.[2] Many historians trace the beginnings of contemporary welfare in Europe and America to Bismarck's Health Insurance law.[3] In the United States, the Great Depression and 1929 crash of the stock market contributed significantly to the formation of the concept of welfare as many Americans struggled economically during those times.

United States[edit]

In 1964, President Lyndon B. Johnson introduced a series of legislation known as the War on Poverty in response to a persistently high poverty rate around 20%.[4] He funded programs such as Social Security, and Welfare programs Food Stamps, Job Corps, and Head Start.[5] The War on Poverty included new federal programs such as Medicare and Medicaid, which provided seniors, low-income individuals, and other disadvantaged groups with health insurance coverage. Furthermore, the US Government began providing direct assistance to school districts, passed sweeping environmental protections, instituted urban renewal projects, furthered civil rights protections, and expanded funding for the arts and humanities.[4]

President Richard Nixon's administration proposed the 1969 Family Assistance Plan,[6] which instituted a work requirement for all welfare recipients except mothers with children under age three. This requirement was removed in 1972 amidst criticism from liberals that the plan provided too little support and having excessively stringent work requirements. Ultimately, the Nixon Administration presided over the continued expansion of major welfare programs.

In 1981, President Ronald Reagan cut Aid to Families with Dependent Children (AFDC) spending[7] and allowed states to require welfare recipients to participate in workfare programs. Charles Murray's book Losing Ground: American Social Policy, 1950–1980 (1984) argued that the welfare state actually harms the poor, especially single-parent families, by making them increasingly dependent on the government, and discouraging them from working.[8] Murray proposed that current welfare programs be replaced by short-term local programs.[9]

Overall decline in welfare monthly benefits (in 2006 dollars)[10]

In his 1992 campaign, Bill Clinton promised to “end welfare as we have come to know it.” Staying true to his promise, he instated one of the most well-known welfare reforms in U.S. history.[11] On August 22, 1996, President Bill Clinton signed the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA), which aligned closely with Murray's views.[12] PRWORA instituted the Temporary Assistance for Needy Families program (TANF) to replace the AFDC, the welfare program which had provided cash to poor families since 1935. TANF instated work restrictions for recipients to qualify for aid. The program's goals, according to the 1996 law, were to help low-income households, promote employment and marriage, minimise non - marital births, and facilitate the establishment and maintenance of two-parent families.TANF also shifted welfare spending to state governments. Each state was allotted a sum of money to be used for the program, provided that they instituted work requirements and allowed families to stay on the program for a maximum of five-years.[13] Conservatives wanted to stress the importance of employment and family development, while many liberals, though appreciating the focus on work, were still concerned about ensuring benefits and sufficient wages for low-income families.

Since then, other welfare programs have transitioned to the shared model established by TANF. The Federal Government gives money to the states in the form of block grants, which allows states to make decisions on how to allocate welfare.[14]

United Kingdom[edit]

New Deal[edit]

In recent years reform of the welfare system in Britain began with the introduction of the New Deal programme [15] introduced by the Labour government in 1997. The aim of this programme was to increase employment through requiring that recipients make serious efforts to seek employment. The Labour Party also introduced a system of tax credits for low-income workers.[16]

Welfare Reform Act 2007[edit]

The Welfare Reform Act 2007 provides for "an employment and support allowance, a contributory allowance, [and] an income-based allowance.".[17] The objectives of the Welfare Reform Act of 2007 were to increase the employment rate to 80% from 75%, to assist 300,000 single parents find employment, to increase the number of workers over 50 by 1 million, and to reduce the number of people claiming incapacity benefits by 2 million

Welfare Reform Act 2009[edit]

This welfare reform proposed an increase of personal responsibility within the welfare system. The reform eliminated Income support, and allocated funds over to the Jobseeker's allowance, to encourage employment. It also encouraged increased parental responsibility by amending child support laws, and requiring births be registered jointly by both parents.[18]

Welfare Reform Act 2012[edit]

This welfare reform proposed changes to the Housing Benefit, which reduced the benefit paid to recipients depending on the size of their living space. This act got the nickname of the “Bedroom Tax.” from the media.[19] It was stated that similarly to other welfare reforms, this act would reduce welfare dependency.[20]


Beginning in the mid-1970s, a deficit in the social insurance program began to appear. The deficit saw peaks at 27.75% of the social insurance budget in 1992. This led to a major push by the government to cut back spending in the welfare program. By the end of the 1990s the deficit had been almost completely eradicated. The often large deficits that the program has endured has led to a tremendous amount of opposition to the program as it stands.

In February 2020, a pension overhaul was adopted by decree using Article 49 of the French constitution.[21]


During the 2015–2018 Brazilian economic crisis, there has been both economic and political turmoil. President Dilma Rousseff, who was later impeached and replaced by President Michel Temer, strived to expand the social welfare program Bolsa Família instated by her predecessor Luiz Inácio Lula da Silva. As a social-democrat, Rousseff pledged that "Brazil will continue to grow, with social inclusion and mobility."[22] When Michel Temer took office, to cope with the severe economic recession, he proposed social welfare reforms to change labor rules and the social security pension system. Temer's plan included limiting pension benefits and raising the retirement age in order to save money and fix the economy. Additionally, under his reform, companies have greater power to require longer work days and use part-time workers. In response to this reform, labor unions, rural workers, and government employees held protests all over Brazil.[23] The vote to approve the pension reform was first suspended until February 2018, and now has been further postponed as a campaign issue in this year's election. Temer's critics believe that the reason for the postponed reform is its vast public disapproval.[24]


India has taken substantial strides toward dramatically reforming its welfare architecture over the last five years especially, ranging from direct benefit transfers (DBT), Ayushman Bharat, income support (PM-Kisan), and the implementation of the 14th Finance Commission recommendations. However, crucial unanswered and hotly debated concerns regarding the welfare state's architecture lie under these changes.[25] The issues are concentrated on centralisation and the ability of different levels of government to deliver. The new government's welfare policy would inevitably have to address these issues, as well as the opportunities and threats they raise. The new government's ability to manage this complexity would decide its ability to provide high-quality public services to India's poorest citizens. But the trend of introducing welfare reforms has not been introduced lately as some schemes were brought into action since the 1960's. Hence, giving an insight in India's historical background of welfare schemes is essential to form the base layer for further examples.

India’s Banks Nationalised[edit]

Indira Gandhi, who was both Prime Minister and Finance Minister in charge, agreed to nationalise 14 of the country's largest private banks on July 19, 1969. In 1955, with Imperial Bank having already been nationalised and renamed State Bank of India, this decision in 1969, effectively placed 80 percent of banking assets under state control. Nationalization of banks was defined as the "single most significant economic decision taken by any government since 1947" in the third volume of the Reserve Bank of India's history. The aim of nationalising banks was to align the banking sector with the Indian government's post-independence socialist goals. According to the RBI's records, the proposal to nationalise banks and insurance companies was first proposed in a report by the All India Congress Committee in 1948.[26]

Nationalization of banks is perhaps the most significant systemic change in the financial sector in India's post-independence period. Bank nationalisation, according to the second volume of the Reserve Bank of India's official history, after 1947, was the single most critical economic policy decision made by any government. After 1967, banks were not lending to agriculture nor lending enough to industries making these sectors face heavy crisis. There has long been a perception that Indian banks are unwilling to lend money especially to agriculture sector.  Furthermore, since private banks were controlled by large industrialists, they often ended up lending to themselves. The top bank directors have held directorships in a variety of other sectors, creating a conflict of interest.

Aside from political and economic considerations, there were also banking considerations. Some included, examining the escalating economic crisis that afflicted the 1960s. Removing the few's monopoly in the banking sector. Ensuring adequate credit for agriculture, small businesses, and exports. Professionalizing the banking sector's management. Encouraging new business owners and enhancing and developing India's rural areas.[27] This action resulted in a significant rise in bank deposits and investment and this transition had a long-term effect on the success of small-scale industries and agriculture. It has also resulted in increased bank penetration in rural India.

Pradhan Mantri Jan Dhan Yojana (PMJDY)[edit]

Prime Minister Narendra Modi launched this financial inclusion programme in the year 2014 as his welcome move. It aims at laying the groundwork for the construction of the infrastructure needed to implement direct cash transfers across the region.[28] The Jan Dhan Yojana, which pledges each Indian household a bank account, insurance coverage, and overdraft facility over the next two years, would finally give the government the opportunity to implement a universal basic income transfer to all people, reshaping the country's leaky affluent economy and even the dysfunctional welfare system. Until now, the scheme hasn't proved much beneficial in organising the welfare system of India and the country still awaits it advantages.

Technology, income support, citizens and bureaucracy[edit]

For the last decade, technology has been at the forefront of the welfare reform project. When the National Democratic Alliance (NDA) first came to power in 2014, it adopted Aadhar (national document) and DBT (direct benefit transfers) systems (effort and rapid progress) and just 28 schemes used DBT to pass funds in March 2014 but by May 2019, it has risen to over 400. With the introduction of PM-Kisan in January 2019, India made its first national attempt to implement a basic income support programme using the DBT architecture. However, putting too much emphasis on technology to enforce DBT has revealed three major flaws in the system: the last-mile challenge, a lack of reliable data to identify beneficiaries, and citizen alienation.

The desire to reduce payment leakage and increase performance is a key reason for scaling DBT and shifting toward direct cash transfers by income support programmes. In arguing for a Universal Basic Income (UBI), the 2017 Economic Survey claimed that income transfers have the ability to reduce bureaucratic layers by transferring money directly into beneficiary accounts. This will minimise corruption by reducing discretion and simplifying monitoring.[25] Recent research, however, show that having the DBT architecture correct necessitates substantial bureaucratic interference, rather than reducing it. Local bureaucrats are important to DBT, from opening accounts to fostering financial literacy and facilitating bank transactions.

Recent research, however, show that having the DBT architecture correct necessitates substantial bureaucratic interference, rather than reducing it. Local bureaucrats are important to DBT, from opening accounts to fostering financial literacy and facilitating bank transactions. Muralidharan et al. recently completed a Niti Aayog-commissioned process monitoring exercise by using DBT to access the Public Distribution System scheme in three Union Territories (Chandigarh, Dadra & Nagar Haveli, and Puducherry). Muralidharan et al. discovered that 20% of beneficiaries acknowledged not receiving payment, despite official records indicating a transfer rate of failure of less than 1%. The study attributes the difference to a lack of beneficiary awareness and knowledge of transactions, as well as administrative problems such as amount paid into bank accounts that recipients may not have access to, or processing errors.[25]

However, once a new welfare reform system in inculcated into the system, it faces a lot of challenges and as by its very nature, technology produces centralised networks that are distant and perplexing for average people, in ways similar to the unpleasant daily interactions readers of this document have had with call centre agents. When citizens' rights are denied, digital welfare programmes run the risk of closing off spaces for citizens to petition, protest, and seek transparency and the point being made here is not to argue against efficiency of administration. Therefore, a balance must be struck between centralised power for performance and decentralised, citizen-centric governance for responsiveness.

See also[edit]


  1. ^ "Social Security History". www.ssa.gov. Retrieved 2018-06-16.
  2. ^ "Germany - Social Insurance and Welfare Programs". countrystudies.us. Retrieved 2018-06-16.
  3. ^ Boissoneault, Lorraine. "Bismarck Tried to End Socialism's Grip—By Offering Government Healthcare". Smithsonian. Retrieved 2018-06-16.
  4. ^ a b "Lyndon Johnson on Welfare & Poverty". www.ontheissues.org. Retrieved 2018-06-16.
  5. ^ Cox, Ana Marie (2014-01-08). "President Johnson's war on poverty was about more than feeding and housing the poor | Ana Marie Cox". the Guardian. Retrieved 2018-06-16.
  6. ^ "#FamiliesSucceed: President Nixon's Family Assistance Plan » Richard Nixon Foundation". Richard Nixon Foundation. 2014-06-23. Retrieved 2018-06-16.
  7. ^ "Social Welfare Under Reagan". CQ Researcher by CQ Press. ISSN 1942-5635.
  8. ^ Times, Robert Pear and Special To the New York. "Q&A: Charles Murray; Of Babies And Stick". Retrieved 2018-06-16.
  9. ^ "Welfare." West's Encyclopedia of American Law. . Encyclopedia.com. 6 Mar. 2018 <http://www.encyclopedia.com>.
  10. ^ 2008 Indicators of Welfare Dependence Figure TANF 2.
  11. ^ [Clinton, Bill (October 23, 1991). "The New Covenant: Responsibility and Rebuilding the American Community. Remarks to Students at Georgetown University".Democratic Leadership Council. Retrieved 2018-03-08.]
  12. ^ "How Bill Clinton's Welfare Reform Changed America". HISTORY. Retrieved 2018-06-16.
  13. ^ [Schott, Liz. 2011. Policy Basics: An Introduction to TANF. Center on Budget and Policy Priorities. Accessed 03/07/2018 from http://www.cbpp.org/cms/index.cfm?fa=view&id=936]
  14. ^ "Welfare Reform in the United States". ThoughtCo. Retrieved 2018-06-16.
  15. ^ "[ARCHIVED CONTENT] Press: 1997-145". Hm-treasury.gov.uk. Retrieved 2011-10-05.
  16. ^ Wickham, Sophie; Bentley, Lee; Rose, Tanith; Whitehead, Margaret; Taylor-Robinson, David; Barr, Ben (2020-03-01). "Effects on mental health of a UK welfare reform, Universal Credit: a longitudinal controlled study". The Lancet Public Health. 5 (3): e157–e164. doi:10.1016/S2468-2667(20)30026-8. ISSN 2468-2667. PMID 32113519.
  17. ^ "Welfare Reform Act 2007". Statutelaw.gov.uk. Retrieved 2011-10-05.
  18. ^ “Welfare Reform Act 2009.” Welfare Reform Act 2009 - UK Parliament, services.parliament.uk/bills/2008-09/welfarereform.html.
  19. ^ O'Hagan, Ellie Mae (1 April 2013). "The bedroom tax's authors were either careless or cruel – it must be fought". The Guardian. Retrieved 6 March 2018.
  20. ^ Engl, Caxton House Tothill Street London SW1H 9NA London Press Office020 3267 5144 Out-of-hours07623 928 975; Scotl, Wales029 20 586 then 097 or 098 or 099; 0131 310 1122. "Welfare reforms and £330 million employment package start from April 2017". GOV.UK. Retrieved 2020-03-13.CS1 maint: numeric names: authors list (link)
  21. ^ "French government adopts pension reform by decree". Financial Times. Retrieved 29 February 2020.
  22. ^ AFP. "Nos EUA, Dilma se manifesta contra privatização de empresas do setor elétrico e da Petrobras". Zero Hora. 6 March 2018.
  23. ^ Voa. “Brazilians Protest against President's Reform Plan.” VOA, VOA, 17 Mar. 2017, learningenglish.voanews.com/a/brazilians-protest-against-presidents-reform-plan/3769485.html.
  24. ^ Boadle, Anthony (19 February 2018). "Brazil Government Acknowledges Pension Bill Going Nowhere". U.S. News & World Report. Retrieved 30 November 2019.
  25. ^ a b c "The Opportunities and Challenges confronting India's welfare architecture | Centre for Policy Research". www.cprindia.org. Retrieved 2021-04-26.
  26. ^ "Why Indira Gandhi Nationalised India's Banks". BloombergQuint. Retrieved 2021-04-26.
  27. ^ Karishma (2019-10-14). "Nationalisation of Banks in India: What, Why, How, Pros & Cons". IAS EXPRESS. Retrieved 2021-04-26.
  28. ^ PTI (2014-08-26). "Jan Dhan Yojana targets 1 crore bank accounts on day 1". mint. Retrieved 2021-04-26.