Welfare Capitalism - History

History

In the 19th century, some companies—mostly manufacturers—began offering new benefits for their employees. This happened mostly in Great Britain, France, even Canada. They sponsored sports teams, established social clubs, and provided educational and cultural activities for workers. Some offered housing as well. Prime examples of this were the boarding houses built by textile manufacturers in Lowell, Massachusetts for their single female employees in the 1820s. The motive behind these offerings was paternalistic—owners were providing for workers in ways they felt was good for them. These programs did not address the problems of long work hours, unsafe conditions, and employment insecurity that plagued industrial workers during that period, however. Indeed, employers who provided housing in company towns (communities established by employers where stores and housing were run by companies) often faced resentment from workers who chafed at the control owners had over their housing and commercial opportunities. A noted example was Pullman, Illinois—site of a strike that destroyed the town in 1894. During these years, disputes between employers and workers often turned violent and led to government intervention.

In the early years of the 20th century, however, business leaders began embracing a different approach. Pioneered by George F. Johnson and Henry B. Endicott, these leaders sought new relations with labor. Their "enlightened selfishness" prompted them to offer wage incentives and other benefits. The point was to increase productivity by creating good will with employees. When Henry Ford introduced his $5 a day pay rate in 1914 (when most workers made $11 a week), his goal was to reduce turnover and build a long-term loyal labor force that would have higher productivity. Turnover in manufacturing plants in the U.S. from 1910-1919 averaged 100%. Wage incentives and internal promotion opportunities were intended to encourage good attendance and loyalty. This would reduce turnover and improve productivity. The combination of high pay, high efficiency and cheap consumer goods was known as Fordism, and was widely discussed throughout the world.

Led by the railroads and the largest industrial corporations such as the Pullman Car Company, Standard Oil, International Harvester, Ford Motor Company and United States Steel, businesses provided numerous services to its employees, including paid vacations, medical benefits, pensions, recreational facilities, sex education and the like. (Brandes 1976) The Seaside Institute is an example of a social club built for the particular benefit of women workers. Most of these programs proliferated after World War I -- in the 1920s.

The economic upheaval of the Great Depression in the 1930s brought many of these programs to a halt. Employers cut cultural activities and stopped building recreational facilities as they struggled to stay solvent. It wasn't until after World War II that many of these programs reappeared—and expanded to include more blue-collar workers. Since this time, programs like on-site child care and substance abuse treatment have waxed and waned in use/popularity, but other welfare capitalism components remain. Indeed, in the U.S., the health care system is largely built around employer-sponsored plans.

By contrast to the experience in the United States, Europe built government operated welfare systems i.e. welfare capitalism in the sense the term is generally understood today. In the late 19th and early 20th centuries, Germany and Britain created "safety nets" for the citizens, including public welfare and unemployment insurance. It is true, however, that prior to providing government safety nets, many nineteenth century employers in Britain and on the continent provided welfare institutions much like those in the United States. Examples include worker housing assistance provided by the Fried Krupp firm in Germany, including a loan fund established in 1889 and free architect service; free housing provided to coal miners in France by Jules Chagot et Cie; and subsidized worker housing provided by Lever Brothers in Britain.