The Welfare State in the Making
─ Beveridge and Keynes ─
Toshiaki Hirai*
The social system of the postwar
UK is often referred to as ‘Keynes=Beveridge System’1 after Keynes, who
brought on the ‘Keynesian Revolution’ in the field of economic theory and
policy with his General Theory, and Beveridge,
who laid the foundations of the social security system with the Beveridge Report. As will be seen,
Keynes and Beveridge endeavored in close collaboration to see their ideals implemented
in the 1940s2, earning the whole-hearted support of young economists
and officials.
In this paper we will examine the Beveridge
Report in the making and thereafter, paying special attention to how Keynes and
others contributed to the completion and realization of the Beveridge Plan.
The
paper runs as follows. Firstly, we briefly examine how Keynes evaluated the
market society. The direction in which anyone might hope to see the market
society transformed (if at all) will depend upon his/her social philosophy. Secondly,
we take a look at a number of social security acts passed in the inter-war
period that paved the way, after which, thirdly, we consider the Beveridge
Report in the making. Finally, we come to the Beveridge Report (December 1942),
and the [White Paper] on Social Security (September 1944) — a
modified version of the Beveridge Report.
1.
Social Philosophy
A. Keynes’s New Liberalism
Keynes’s view of the market society3
is referred to as the ‘New Liberalism’. This is a social philosophy which
maintains that the state can and must play a positive role in market economy
performance, in antithesis to (classical) liberalism, which insists on
laissez-faire, attributing poverty to individuals’ responsibility.
It should be noted that the New Liberalism
had not been advocated or entertained by Keynes alone: — indeed, it was prevalent among views of
the market economy, although Keynes was a leader of this current of thought in
the inter-war Britain
Confining our attention to the main
economists in Cambridge
It is widely known a heated controversy arose
over economic theory between Keynes and his fellow-economists, and in
particular Pigou, who came under fire as representative of the ‘classical
school’ in the General Theory, Robertson,
who increasingly showed theoretical antagonism towards Keynes after the Treatise, Hawtrey, famous for the ‘Treasury
View’ which Keynes attacked, Henderson, who crossed swords with Keynes over the
employment policy in the 1940s, and so forth.
Theoretically speaking, these differences
between the scholars concerned are clearly recognizable, although we should stress
at the same time how greatly Keynes was influenced by, among others, Robertson
and Hawtrey in the course of theoretical development from A Tract on Monetary Reform, through the Treatise, to the General
Theory.5
The ‘Keynesian Revolution’ left the theories
of Keynes’s contemporaries quite in the shade, and their social philosophies have
remained in virtual oblivion to this day.
The Keynesian Revolution opened the right path
to the development of macroeconomics, but it also caused two misunderstandings.
One is that Keynes’s contemporaries’ theories were regarded as pertaining to
classical economics, although in actual fact some of them such as Robertson and
Hawtrey, did pioneer a new way to macroeconomics. In this respect, in extending
our investigation beyond the Cambridge School we need to ascertain just how much
Wicksell’s theory of cumulative process influenced Keynes and his
contemporaries, including Mises, Hayek, Lindahl, Myrdal and others.6
The second misconception is that the social philosophies of Keynes’s
contemporaries were considered to be in contradiction to Keynes’s. This is far
from the truth. As far as theories of Keynes’s contemporaries are concerned, several,
if not many, studies have been continuously made. Social philosophies of Keynes’s
contemporaries have, however, been completely neglected, so it is hardly
surprising if it is widely but mistakenly believe that Keynes’s fellow-economists
held to the laissez-faire philosophy.
As for Keynes7, he was critical of
the view that the market society should be left to the market itself
(Laissez-Faire), although he appreciated the efficiency afforded by the market
society. He welcomed the growth of semi-autonomous organizations ─ those
occupying a position between individuals and the state ─ within the
market society, and allowing for state intervention, if necessary, to an extent
that does not sacrifice the freedom of individuals. His stance was a halfway house
between ‘a complete laissez-faire system’ and ‘a socialist system run by the
direction of the state’.
It should be noted that as compared with his
position in the 1920s, the 1930-40s saw Keynes showing more sympathy with the
ethical aspect of the market society, stressing the importance of social
security and social justice. Above all, Keynes was an economist who contributed
to the theoretical analysis of unemployment, and pursued an economic policy designed
to alleviate the problem.
B. Beveridge’s Changed Stance
As for Beveridge, his stance
changed several times throughout his life. In the 1900-1910s he was greatly
involved with the problem of poverty and unemployment, empirically analyzing
it, and greatly contributed, as will be seen below, to several social insurance
laws. At that time he considered the government as composed of ‘an impartial,
benevolent, educated élite’.
But in the 1920s he put less and less confidence on the ‘government-inspired
social reforms. Harris (1977) summed up Beveridge’s stance as follows:
“As
his faith in the processes of government waned, he turned more and more to …
economics … as the tool that would solve the problems of society, and for a
time in the late 1920s and early 1930s a belief in the laws of the ‘free market’
seems to have at least partially displaced his earlier belief in a benevolent
administrative state. This faith in free market economics was in turn shattered
by certain historical events of the 1930s, and Beveridge went through a period
of prolonged political uncertainty --- during which he once again began to
think in terms of central government planning for comprehensive social reform”
(pp.311-312).
It should be noted, therefore, that
Beveridge lost his interest in social welfare, so the development of social
reform which has been made in the 1920s had nothing to do with Beveridge. This
is of crucial importance. What he tried to master was economics advocated by
Robbins who was greatly influenced by Hayek. Although it is Austrian economics
based on free market mechanism, it is difficult to regard it as orthodox
economics, for it was the most sophisticated economics based on Austrian theory
of roundabout production together with Wicksellian theory of cumulative process.
It was Beveridge as a believer in free market system who vehemently
opposed Keynes’s advocate for protectionism in 1932.
The catastrophic events which attacked the capitalist economy in the
1930s shattered Beveridge’s belief in free market system. “Beveridge’s
vacillation between rival systems persisted for several years.” He was greatly
influenced by the Webbs who insisted the superiority of the Soviet Russia over
the capitalistic systems, though he disliked its political system. “By 1935 Beveridge
had clearly moved a long way from the rather extreme free market position that
he had adopted some years before. Moreover, in purely economic terms he seemed
more inclined to favour a socialist model of planning than the mixture of state
control and free enterprise prescribed by Roosevelt and Keynes” (p.328).
The
publication both of Soviet Communism
and of the General Theory intensified
Beveridge’s sense of estrangement from current economic and political thought.
Politically he sympathized with the Keynesian liberals, but found their
economic policies not merely objectionable but virtually incomprehensible. …
Conversely, he was impressed by the economic policies favoured by the Webbs,
but found their politics totally unacceptable (331-332).
In 1937 Beveridge left LSE, and went to Oxford
Beveridge was unexpectedly able to enjoy a
happy life at Oxford
“Beveridge’s transformation from
critic of welfare capitalism in the mid-1930s to its most archetypal exponent
in the early 1940s must be directly related to the context of war” (p.365).
“From
the start of the war Beveridge hoped that he himself would be recalled to Whitehall
“In July
1940 Ernest Bevin asked him to carry out a brief survey of the government’s
wartime manpower requirements, and two months later Beveridge was appointed
chairman of the Manpower Requirements committee of the Production Council.
Neither of these posts was particularly important and neither of them carried
executive responsibility, but they gave Beveridge a foothold in his chosen area
of policy” (p.370).
Due to
personal conflicts with Bevin, however, Beveridge was driven out of the
Ministry of Labour, and was forced to accept to be “chairman to an
interdepartmental inquiry that was about to be set up on co-ordination of
social insurance” (p.376)
This
was a devastating thing for Beveridge.
“He
gradually became convinced that an inquiry into the social insurance system was
potentially far more significant thatn it had seemed at first sight” (p.377).
For several months, he was still concerned with a plan of allocating
manpower in the Army. “He put forward a system of ‘general enlistment’ by which
men would enter the Army and then be allotted to regiments that had a special
need for their skills” (p.377).
This plan met harsh criticism of the public and was finally dropped. “It
was not until this stage --- May 1942--- that Beveridge turned his undivided
attention to the problems of social insurance --- and, indirectly, to the much
wider question of post-war social reform” (p.377).
Looking at Beveridge’s changed stance, it is
very difficult to identify his social philosophy. But it is true that he, who
started his carrier as social reformer, and was converted to be free market
believer, again came to appear as a planner of the whole society. It is also
true that he, who aspired to become planner of allocating manpower in the
Central Government in the war economy, was forced to accept the post which he
did not want. It is absolutely true, then, that he was to put the whole energy
on drawing out the social insurance system in the committee he was to work as
chairman far beyond the authorities permitted to the committee.
Beveridge’s social philosophy around this
period is clearly expressed in “Reconstruction Problems: Five Giants on the Road”
(June 1942), which will be explained later as an important manuscript leading
up to the Beveridge Report.
Thus
Keynes and Beveridge came to share a keen awareness of the issues, responding
to the needs of the times and society. Working in close collaboration, they were
to make a great contribution to the shaping of post-war society.8
Having said as much, we must also recognize a
difference in the 1940s (it should be noted that Beveridge had been a free
market believer in the 1920s and early 1930s) between the two in their degree
of confidence in the market economy. This is clear from the difference in their
stances on [the White Paper on] Employment
Policy (1944), although both held it highly: Keynes thought it somewhat a
pity that the role which private firms should play was not emphasized, while
Beveridge complained that trust in the market economy was placed too much in
relation to the conquest of ‘Filthiness’ and ‘Idleness’.9
2. Social
Security Acts in the Inter-War Period
（Ch.14を読んでから、Beveridgeがどの程度関与していたのか[あるいは関与していなかったか、あるいは批判的であったのか]について、この節で言及すること。）
The Beveridge
Report as well as [the White Paper on] Employment
Policy (1944) played an epoch-making role in constructing the welfare state
system (or the Keynes=Beveridge system) in the post-war UK
Prior to the first world war, ‘the
Old Pension Act’ (1908) and ‘the National Insurance Act’ (1911, comprising health
insurance and unemployment insurance) were brought into effect. Beveridge, the
first director of the Labour Exchange (1909-1916), drafted the unemployment
insurance system. Under ‘the Unemployment Insurance Act’ implemented in 1920, the
number of insured persons increased from 3.75 to 11.10 million. The conditions rendering
eligible for benefits were as follows:
(i) contributions for, at least, twelve weeks.
(ii) one week’s benefits against
six weeks’ contributions.
(iii) fifteen weeks’ benefits, at most, in a year.
Beveridge also played an
essential role in the constitution of this act. In February 1918, as chairperson
of the sub-committee of war-time civil workers, the Ministry of Reconstruction,
he recommended generalization of unemployment insurance, while in 1919, as a
member of a Ministry of Labor committee, he collaborated on a plan to generalize
unemployment insurance.
The
above conditions for benefits were not, in fact, fully implemented due to a
rapid increase in the number of unemployed persons as a result of deterioration
in the British economy from 1921 on, but were either were either waived or
mitigated up to 1931. A large amount of public financial aid to the unemployed
was given in the form of ‘prolonged’ unemployment benefits throughout the
1920s, as a result of which the ratio which the New Poor Law occupies was to
decrease rapidly.11
As unemployment rapidly increased the
unemployment insurance fund dwindled equally fast. The measures taken to deal
with this situation were the ‘Unemployment Insurance (National Thrift) Decree’
No.1 and No.2. In No.1 it was decided that the contributions should increase by
50 percent, while the benefits should decrease by 10 percent, and that the
benefits should be provided up to a maximum of 26 weeks. In No.2 ‘transitory
benefits’, to be provided by the State, were introduced with the aim of alleviating
the impact of No.1. Thus public pecuniary aid to the unemployed was made up of
the unemployment insurance benefits, transitory benefits, and the public
assistance (by the New Poor Law).
The ‘transitory benefits’, however, provided for
would-be beneficiaries to take a ‘need test’, which roused strong resistance from
the general public. In order to deal with this situation the ‘Unemployment Act’
was enacted in 1934. The Act is composed of Section 1, ‘Unemployment’ and Section
2, ‘Unemployment Assistance’. In Section 1, managerial regulations for the
Unemployment Fund by the ‘Unemployment Insurance Act Committee’ are stipulated
(Beveridge was appointed as a chairman), and the conditions rendering eligible for
benefits made somewhat less stringent. In Section 2, the ‘Unemployment
Assistance Committee’ is instituted. Unemployment assistance is provided by the
State, and requires the family applying for it to take a ‘family’ means test. This
increasing recourse to assessment in unemployment assistance, however, met with
a fiercely angry reaction from the public, and in 1935 the ‘Suspension Act’ −which allowed beneficiaries to
choose the higher between transitory benefits and unemployment assistance −came to be instituted. Furthermore
with the ‘Need Decision Act’ introduced in 1941 the ‘family’ means test gave
way to an ‘individual’ means test.
Such was
the background to the creation of the ‘Beveridge Committee’.
3. ‘The Beveridge Report’ in the Making12
― Support from
Keynes and His Circle
In June 1941 the Portfolio
Secretary Greenwood declared in the House of Commons that an inter-departmental
committee was to be set up, having Beveridge as a chairman (hereafter the
Beveridge Committee), in response to pressure from the TUC and a number of MPs.
The aim of the Beveridge Committee was to look into the situation of social
insurance and allied services in the UK
The Committee had finished its investigations
by September, and Beveridge, set about taking serious steps towards drawing up a
comprehensive social security plan. However, this put the civil servants brought
in from various departments to sit on the Committee in an awkward position, for
it meant going far beyond the task assigned them. The ultimate solution,
reached on the initiative of the Treasury, was to reorganize the Committee in
such a way that the final report should be signed only by the chairman while
the members should work cooperatively as technical advisers.
In December 1941 Beveridge drew up an outline
of the proposal, ‘Some Fundamental Problems of the Social Security’. He asked
the Economic Section for advice concerning its economic aspects, including,
among others, the employers’ contributions.
The Economic Section13 is an economic advisory department,
which came to play a leading role in the reconstruction of the post-war
economic system, with Meade playing the pivotal role.
In response to a request by Jukes, the (first) director of the Economic Section
in February 1941, Meade addressed four crucial problems ─
unemployment, social security, the industrial structure, and world trade and finance ─ which
the post-war Britain
Of the four problems mentioned above, it is the social security problem
that we are concerned with this paper. For this problematic area, and for unemployment,
Keynes, who had worked as an adviser to the Chancellor of Exchequer since 1940,
provided the Economic Section with economic theory and policy, together with
his committed support.
In March 1942 Beveridge sent Keynes two memoranda ‘outlining the heads of
a possible scheme and the problems it would solve and his list of principal
questions’ (JMK.XXVII, p.203), while
also asking for advice, especially on their financial aspect ─ and these, indeed, are the
first documents to show the backbone of the Beveridge Report: ‘Several
Fundamental Problems of the Social Security’ (11 Dec. 1941) and ‘The Social
Security Standard and the Poverty Problem’ (16 Jan. 1942).16
Keynes, as will be seen from a letter dated 17 March, earnestly endorsed
the Beveridge Plan from the outset.17
I have
read your Memoranda, which leave me in a state of wild enthusiasm for your
general scheme. I think it a vast constructive reform of real importance and am
relieved to find that it is so financially possible (JMK.27, p.204).18
Keynes had the opportunity to
read a document on the economic aspect of the Beveridge Plan by Meade of the Economic
Section. His comments in a letter (dated 8 May) to Meade can be summarized as
follows:
(1) Although I agree to your view
that the contributory system is theoretically inferior to the tax system, it is
still important, at this early stage of the Plan, as a method of avoiding a heavy
burden on the budget.
(2) I am doubtful of the effect of your policy of promoting consumption as a
means of conquering the depression.
(3) I am in complete agreement with the ‘dismissal tax’19 which Beveridge advocates.
(4) Although I recognize a theoretical advantage in your proposal to the
effect that contributions should be varied accordingly as the economic situation
changes, I am doubtful of its effect.
In response, on 12 May Robbins and Meade met
with Keynes for lengthy discussion of Beveridge’s Social Policy Plan. As a
result, the Economic Section’s Plan was revised. On reading it, Keynes now came
round to approving Meade’s idea of changing contributions20 with the
changing economic situation. Meade sent Keynes a letter (dated 17 June) together
with the final version of the Economic Section Document on the economic aspect
of the Social Security Plan, developing further his idea of variable contributions.
In June Beveridge wrote an
important document, ‘The Reconstruction Problems: Five Giants on the Road’,
which was submitted to Jowitt’s ‘Advisory Council on the Internal Problems’. Here
Beveridge argued that, of the Five Giants, ‘Pauperism’, ‘Disease’ and ‘Ignorance’
were now to be conquered, while ‘Filthiness’ and ‘Idleness’ could not be
conquered in the market economy context, so that ‘Planning by the State’ including
the nationalization of land and certain key industries, would be necessitated.21 Here the social philosophy peculiar to Beveridge emerges in all evidence.22
On 24 June the Beveridge
Committee discussed the final version of the Economic Section document. Meade
wrote a letter to Keynes, asking for comments. The main subject concerned the
budget, revealing the difference between Meade and the Treasury.
Meade’s main argument runs as follows:
(i)
While the Treasury is pessimistic on the prospective revenues and is
critical of the Meade plan from this point of view, its reasoning is not
entirely sound (among other things, the Treasury misses the point that an
increase in gross national expenditure brings about an autonomous increase in
indirect tax through the increase in individual consumption).
(ii)
There is a good case for highly progressive income tax and somewhat
modestly progressive capital levy.
(iii)
Priority should go to the ‘socialization of property’23 (e.g. the confiscation of
national debt, and the nationalization of the railways, the agricultural lands
and the public utilities) aimed at securing the revenues required for the
large-scale public expenditure.
In his letter to Hopkins (dated 30 June),
Keynes refers to an estimate of the postwar national income: on the optimistic
side Keynes=Stone, forecasted a national income of 6500 ∓200 million pounds for 1946 with
an increase of 100 million pounds every year subsequently,24 while Henderson, on the pessimistic side, estimated even 6300 million pounds to be too high.
The
estimated national income was thereafter a major divisive issue, for it made a
big difference to the estimated revenue and, therefore, to the resources available
to the social security area.
On the
Beveridge Plan Keynes commented as follows:
From among
the total budget of 680 million pounds, 310 million pounds comes from the
contributions of the employer and employed, 270 million pounds from the state
contribution (from which the family allowances are to be provided), so that, on
balance, 100 million pounds run short. Therefore, if pensions could be saved by
the same amount, the burden on the Revenue is confined only to the family
allowances, and the Beveridge Plan would find itself very persuasive.
As for the
variable contributions plan mentioned above, Meade worked out an even more
detailed version which he sent to Keynes together with his plan for using ‘deferred
income tax credits’ for the post-war period (this is also conceived as a demand-stabilizing
policy).25 Following Hopkins’ suggestion, however, the former plan came to be
separated from the Beveridge Plan.
On 30
June Hopkins Hopkins
(i)
Beveridge agrees
to set up an un-official committee on the ‘social security budget’ (which was
to be the fourth section of the Beveridge Report) with the purpose of making the
whole plan financially feasible.
(ii)
Beveridge does not
object to confining children allowances to those after the first child.
(iii) Beveridge does not object to making pensions (which
occupy two thirds of the Beveridge Plan) much lower.
(iv)
Beveridge agrees
to the ‘funding principle’, to the effect that pensions should not be provided to
those who have made no contributions, and/or need no pensions.
Beveridge
then wrote a letter to Hopkins saying that he would like to revise the fourth
section of his plan, and in fact he sent a revised version to various
ministries concerned.
At this
point, however, Hopkins
Responding to Hopkins ’ motion, on 20 July
Keynes tried to persuade Hopkins Hopkins
Keynes went
on to hammer out an idea, the ‘Extra-Budget Fund’ either managed or supported by
the State. He emphasized that the Fund should be financially self-sufficient
and would be needed accordingly as the socialization of the economy proceeded.26 He also put forward an idea that the budget should be divided into the ‘ordinary
budget’ which should be kept balanced, and the ‘capital budget’ which should be
variable depending on the employment situation, and that the social security
budget should pertain to one item in the capital budget.
In his letter to Hopkins
Surprised at Keynes’s income tax reform plan,
Hopkins eventually returned to the ‘contributory principle’.27
The above-mentioned un-official committee for discussion of the financial aspect of the
Beveridge Plan was to be composed of Keynes, Robbins and Epps (the director,
the Actuarial Statistical Bureau), and the letters conserved by Keynes show the
course the discussion took among the committee members for two weeks, the first meeting being held on
10 August.
For the
first meeting Keynes worked out the proposal, ‘the Social Security Plan’, the
purpose of which was to examine to what extent the Beveridge Plan could be split
so as to be financially feasible until net national income had sufficiently increased.
According to Keynes, it was possible to save 350 million pounds by: (a)
postponing immediate application to those who do not belong to the employed class;
(b) holding back immediate increase in insurance benefits and unemployment
benefits; (c) restraining immediate increase in pensions; and (d) reducing
children’s allowances. The contributions by the Treasury would then amount to
no more than 111 million pounds (or, adding 100 million pounds as the cost of
services for non-contributions [additional pensions, unemployment assistance
and children’s allowances], 211 million pounds).
Beveridge’s response in the first meeting was as follows:
He opposed (a), arguing that immediate application should be made beyond the current insured persons. With
regard to (b), he agreed to a ceiling of 25 shillings. Coming to (c), he found
the Keynes proposal too low, but agreed to a reduction in pensions. Finally, in
response to (d), he agreed with excluding the first child, but opposed a reduction
in the rate of benefits, insisting, rather, on an increase.
Beveridge, furthermore, proposed the contributions of eight shillings rather
than Keynes’s proposal of six shillings. The unofficial committee argued that
the contributions of eight shillings would be extremely difficult to implement,
and cause political unpopularity. In response, Beveridge argued that higher
benefits should be made dependent on higher contributions, and that the rights
of those who have not so far contributed should be reasonably restricted.
Although the unofficial committee argued that excluding the first child
would bring about political instability, Beveridge insisted on the exclusion.
It was on the pensions plan that most of the
discussion. The unofficial committee judged that the Beveridge plan would mean
maximum expenditure and minimum national satisfaction: the plan made no
provision for those who did not pay contributions, which would create a sense of
unfairness between those who paid the contributions at present and those who would
be paying the contributions in the future. Thus it became an important point between
the two sides to examine what the future level of pensions for those who had paid
the contributions should be.
Taking
the above into account, Beveridge wrote ‘Several Problems of Pensions’ (19
August). This document is valued as showing ‘Beveridge’s idea of pensions,
which comes to occupy an essential place in the final report, is almost
established around this period.’28
On 21 August Keynes had a talk with Beveridge, who had added various changes
to his plan in order to lighten the initial financial cost. Keynes thought that
further revision would be required, but Beveridge would not change his mind as
to the following four points:
(1)
immediate incorporation of the whole population
(2)
a high level for children’s allowances
(3)
contractual rights to a level of pensions increasing with time
(4) a retirement clause29
24 August saw further talk
between the unofficial committee and Beveridge. Keynes judged the concessions
that had by now been made in modification of the initial Beveridge truly
appreciable, and anticipated no great difficulty in terms of finance.
Having made these points, Keynes’s
principal criticisms run as follows:
(i) The plan that a person who becomes eligible for pensions will get
the first year’s pension over his entire life is politically unstable.
(ii)Eight shillings was too much for children’s allowances: by reducing the
sum, they could also be applied to the first child.
The final discussion between Keynes and Beveridge with Robbins present
was held on 12 October, with three main points:
(i) Calculations were based on the lower forecast
price level (25 percent higher than that in 1938. Keynes estimates 35 percent
higher). 25 percent should not be emphasized.
(ii) The rate at which the pension
increases every two years should not be stated. (Beveridge agreed on this
point, remarking that “the essence of my proposal lies in clearly
distinguishing the benefits which comes from the contributions made so far and
the temporary benefits which do not”.
(iii) Eight
shillings were too much for children’s allowances.
Keynes
went on to make the following
comments on the additional cost which the Beveridge Plan incurred for the
Treasury. On the one hand, he observed, certain factors could help reduce it,
namely:
(i) An increase in the income tax.
(ii) Five-shillings children’s allowances.
(iii) Socialization of the medical
professionals, and the impossibility of the immediate implementation of the
health services for the whole population.
On the other hand,
the factors he saw as contributing to increase it were:
(iv) Restriction
of the Plan to the class who are currently making contributions, due to the
administrative and legislative reasons.
(iv) Deletion of the ‘retirement clause’.
Keynes’s
overall evaluation of the financial aspect of the Beveridge Plan ran thus: although
the finance of the Plan essentially depends on an increased rate of the
contributions as socially acceptable, the proposed rates (four shillings for
the employed, and three shillings and three pence for the employer) are very
reasonable, and make the Plan which covers such a wide area feasible with a
very modest financial burden to the Treasury.
Having remarked that the Beveridge Plan, covering such a vast wide area, was
so beautifully worked out that the public would be persuaded, Keynes recommended
the following practical measures:
It is desirable for the quite new characteristics of this Plan to be
postponed: (i) the benefits and contributions are extended not only the class
currently paying but to the whole nation; (ii) immediate socialization of the
medical professionals.
For the moment efforts had better be concentrated
on a wide-scale simplification of the ordinary business, which is the easier
option, and yet important.
On 14 October Keynes wrote to Beveridge in warmly approving tones:
After
reading this further installment of your Report, I feel confirmed in the
feeling I expressed the other day, that it is a grand document. You can
scarcely expect it will be adopted just as it stands, but is seems to me that
you have got it into an extremely workable shape, and I should hope that the
major and more essential parts of it might be adopted substantially as you have
conceived them (JMK.27,
p.255).
As is clear from the above,
Keynes appreciated the Beveridge Plan very highly, and spared no effort to persuade
the Treasury. He suggested various ideas to Beveridge that could help
implementation of the Plan on a stand-alone basis, and summed up the financial
aspect of the final version of the Plan thus: there is no other plan which can
be more cheaply run than the Beveridge Plan over the two decades from now on,
so that it is of great help to the government budget, which is placed under stringent
conditions. Although the cost of the Beveridge Plan will be on the increase
thereafter, it will not be so burdensome because the national economy will
certainly grow.
On 1 December 1942, after several
revisions through the above discussions, the Beveridge Report was announced.
4. The Beveridge
Report and
Social Insurance (Cmd 6550. September 1944)
A. The
Beveridge Report
The main feature of the Beveridge Report is
evident from Paragraph 17, which deals with social insurance against the
discontinuity of earnings, and special expenditure on the occasions of birth,
weddings, and death. This social insurance is stated to be founded on the
following principles.
(i) equal minimum living cost
benefits
(ii) equal contribution
(iii) unification of administrative
responsibility
(iv) sufficient benefits (‘sufficiency
principle’)
(v) comprehensiveness (exhaustiveness
as to persons and necessity)
(vi) classification of the insured
The main
purpose of the Beveridge Report is to eradicate ‘Pauperism’ by means of this
social insurance as a principal tool, with ‘public assistance’ and ‘voluntary
insurance’ as subordinate means. Thus it aimed at securing the ‘national
minimum’ (the national minimum living standard) for the whole nation.30
The Beveridge Report’s main pillar is not relief by the State but ‘social
insurance’ based on the ‘contributory principle’ (an equal contribution and an
equal benefit). In fact ‘public assistance’ by the State is considered a
special case, concerning those who cannot help
themselves. In this case, therefore, the ‘Means Test’ based on the ‘inferior
treatment principle’ is required.
Turning to the administrative
organization, the Beveridge Plan is run on the stand-alone basis of the ‘Social
Security Budget’. Its revenues come from the contributions by the employed, the
employers and the State, while its expenditure is on various pensions and
benefits. This point is stipulated in detail in Section 4, ‘The Social Security
Budget’ and Appendix A, ‘The Finance of the Plan on the Social Insurance and
Security Benefits’ (Memorandum by Epps, the Actuarial Statistics Bureau).31
Stating that ‘freedom from poverty is no more than one of the essential
liberties of mankind and that any social security plan in the narrow meaning … takes for granted common social policies in many areas’ (Paragraph 409),
the Beveridge Report emphasizes, as a precondition of social security, the
implementation of children’s allowances, comprehensive health services and
rehabilitation services, and the maintenance of employment (= the prevention of
mass unemployment), the latter point receiving the greatest emphasis. The point
is detailed in Section 6, ‘Social Security and Social Policy’.
Children’s allowances are paid to
the parents for bringing up their children. The grounds for the necessity and
importance of children’s allowances are mentioned as follows:
(i) No national minimum is guaranteed by the wage system alone.
(ii) In
order to clarify the difference between the earnings got when a person is employed
and those got when unemployed, they should be paid irrespective of when the
parents are employed or unemployed.
(iii) They are important from the point of view of maintaining the
population.
The Report declares that children’s allowances should be
financed by tax, and 8 shillings should be provided for any child except for the
first child.
Coming to comprehensive health
services, a compulsory social insurance scheme that sets no limit on the income
level is proposed (Paragraph 431). As to rehabilitation services, they should
be provided until earning power be restored — at the maximum, from the medical
to the rehabilitation stage.
For the maintenance of
employment, Beveridge Report mentions the following reasons (Paragraph 440).
(i)The social security plan provides for
unemployment benefits for a short period only.
(ii)With mass unemployment there is no longer
any room for creating vacancies as the only satisfactory countermove against unemployment.
(iii)Labor accident, disease and the employment
of the disabled depend on the state of the labor market.
(iv) As the income guaranteed by the social
security plan is insufficient in amount, it is very important that the State
should endeavor to give its nation reasonable opportunities for employment.
(v) If ‘extravagance’ is added, there is a
danger that the cost of the social security plan will be too huge to sustain.
Unemployment is the worst form of ‘extravagance’.
Here it point (iv) that receives the major emphasis
in the Beveridge Report.
Finally, it should be noted that
Meade’s idea of the variable contribution rate aimed at maintaining employment
appears in Paragraph 442, and the ‘retirement clause’ in Paragraphs 244-249.
B. The White
Paper on Social Insurance (1944b)
The Beveridge Report was
enthusiastically welcomed by the public, as the sale of 100 thousand copies in
a month and 256 thousand copies in a year amply demonstrates. By contrast, however,
the government took a negative stance. The debate in the House of Commons on
16-18 February 1943 reached a high state of confusion as votes went both in
favor of the government and against it.
It was
in this state of affairs that Keynes wrote the draft for his speech in the House
of Lords on 24 February. He stated that the debate was going on in the House of
Commons without any alternative plan which did not put a heavier burden on the
State than did the Beveridge Plan being proposed, and stressed that for the
initial post-war period there existed no cheaper plan.
That the [Beveridge] Plan achieves its results
at a low budgetary cost follows from one of its fundamental principles, namely
that we collect to-day’s pension contributions from a working population larger
than corresponds to the number of today’s pensioners (JMK.27,
p.259).
On the
other hand, the Plan would entail heavy financial costs in the future. Here,
however, Keynes responded with his long-standing optimistic forecast: there was
no problem, for the national income would then be growing at several times the
rate of growth in the cost.32
Due to Treasury interference, however, the planned speech was never made.
An
important point to note here is that the discussions on the social security
system proceeded simultaneously and interactively with those on employment
policy.33
Over the two issues, controversy waxed strong between the two camps, with
Keynes, the Economic Section (Meade, Robbins, Stone, Chester), the cabinet
ministers and high officials who supported them (Morrison [the Home Office],
Dalton and Gaiteskill [the Board of Trade]) and Beveridge on one side, and the
Treasury ministers and high officials (Wood, Hopkins and Eady) and Henderson on
the other.
As for
the employment policy, the former camp eventually won the battle in terms of
Employment Policy.34
With
regard to social security policy, the Treasury, which continually complained of
the proceedings of the Beveridge Committee, was naturally critical of the
Beveridge Report.35
The Treasury
tried to conceal the Beveridge Committee discussions from the outset, and
sought to postpone announcement of the Beveridge Report until the end of the
war. It is even said that the first draft of the Beveridge Report (July 1942)
caused a kind of panic within the Treasury. It is also well-known that
publication of the Beveridge Report, which was completed in September, was
postponed until December because of the antagonism of a number of Conservative
cabinet members who regarded it as ‘too revolutionary’ (Mouri, 1990, p.239).36
From this confusion, however, there emerged a
government committee, constituted to examine the Beveridge Report with T. Phillips
as a chairperson (hereafter the Phillips Committee), which was eventually to announce
the White Paper on Social Insurance (1944b). Let us take a look at the
proceedings of the Committee.
Most members of the Phillips
Committee opposed ‘the minimum living cost insurance principle’, and the
estimated cost given in the White Paper on Social Insurance came to 25 percent
above the cost anticipated in the Beveridge Report. It was Chester
The Economic Section tried to give preference to
the young over the pensioners. The majority of the members in the Committee,
however, opposed this stance, as a result of which the White Paper on Social
Insurance proposed a lower figure for children’s allowances (5 shillings),
while higher pensions were recommended for those who had not paid sufficient
contributions than in the Beveridge Report. Moreover, the ‘maintenance of
employment’, which was emphasized in the Beveridge Report, was overlooked in
the Committee.37
Nevertheless, the Phillips
Committee adopted many other principles contained in the Beveridge Report (‘universalism’,
‘equal contribution principle’, ‘equal benefits principle’, ‘the establishment
of the Social Security Ministry’, to mention but a few), which were to be incorporated
in the White Paper on Social Insurance.
In the
process of drafting Social Insurance (1944b), the above-mentioned choices ― rejection of the contributory
principle, generous pension benefits, low children’s allowances, and so forth) ― were repeated. This is
clear from Keynes’s letter to Gilbert and Hopkins
(dated 15 May 1944), in which Keynes referred to a conversation with Chester
My own
feeling is that so great a concession on pensions is lamentable. But I do not
think it would prove easy for Beveridge or anyone else to criticise them on the
ground that they go beyond the original Beveridge proposals. On the other hand
I do feel that the inconsistency between the lavishness on pensions and the
meanness on children’s allowances would prove very difficult indeed to defend.
I also agree with him [Chester
1) It is also referred to as the ‘Postwar Consensus’ or ‘Butskellism’,
after Butler (the Conservative Party) and Gaitskell (the Labor Party) who made
great efforts to implement the ‘Keynes=Beveridge Sytem’. See Kavanagh, D. and
Morris, P. (1994).
2) Prior to this period, however, they were hostile on three points: an
overpopulation debate; a tariff problem; and the General Theory. See Dimand (1999).
3) See Hirai(1997-1999, Chapter 5).
4) This is the main theme of Hirai
(2004). It should be noted that Robertson and
Henderson, both of whom took part in the Liberal Summer School and the writing
of Britain’s Industrial Future
(1928), were in the same camp as Keynes as far as social or political
philosophy is concerned. For this, see Freeden (1986, pp. 172-173).
Furthermore, Hawtrey’s social philosophy is to a considerable degree similar to
Keynes’s. For this, see Hawtrey (1926, p.216; 1944, pp. v-vi).
4) I
dealt with this in Hirai (1997-1999, Chs.6-16).
5) Prior
to Beveridge (1944), he regarded unemployment as a frictional and structural
problem. He was recognized as an authority on it in pre-Keynesian British
academic, popular and policy thinking. See Dimand (1999, p.236).
6) This
is the main theme of Hirai (1997-1999, Ch.3).
7) On Keynes’s New Liberalism, see Clarke
(1988, pp. 13-14, 78-80) who takes Keynes as a New Liberalist succeeding the
New Liberalism of the Edwardian period; Freeden (1986) and Cranston (in
Thirlwall ed., 1978) both of whom see Keynes as a ‘Centrist Liberalist’ who, differing
from a New (or Left) Liberalist as placing no great faith in the State as the
disinterested agent of the community, emphasizes the ideological difference
between liberalism socialist/trade-unionist Labor party, and has less
reflective, philosophical and synthetic mind’ (see Freeden, 1986, pp. 128-129,
12-14, and 171-172); and Skidelsky (1992, Chapter 7) who supports Freeden and Cranston
Concerning the New Liberalists of the Edwardian Period
such as Hobson and Hobhouse, see Hobson(1938), Mouri(1990, Ch.2).
8) V. George refers to Keynes
and Beveridge as ‘reluctant collectivists’. See Mouri (1990, p.219).
9) Robbins’ criticism of Beveridge
(1944) has something to do with this point. Interestingly enough, Robbins
worked as a research assistant for Beveridge (1909), and was later was one of
several supervisors and examiners of Beveridge’s thesis (1930).
In terms of the political spectrum, we can array Beveridge, Keynes and
Robbins from the left to the right. It should be noted that Robbins, too, was
no traditional liberalist. See Robbins (1954) and Hirai (2003, note 21).
See also Dimand (Pasinetti and Shefold, 1999, p.232):“Where Beveridge
chiefly differed from the Webbs was in his belief that full employment could be
maintained without massive coercion; where he differed from [G.D.H.] Cole was
in his rejection of the view that it would require no coercion at all.”
Although ‘the maintenance of employment’ was a point Beveridge held to
for many years, he expressed his allegiance to Keynes’s theory in Beveridge
(1944) ─ which was greatly assisted by Kaldor. It is acknowledged that his conversion to Keynesianism can be found in
the memorandum dated 8 September 1943, which was minuted by E.
Shumacher (see Mouri (1990, p.279)). This should be a sudden
change, judging from the fact that Beveridge (1909; 1930; 1937) had maintained
that unemployment is, for the most part, frictional, seasonal and structural.
Incidentally, Hayek (1994) said that Beveridge was an amateur economist,
always asking Robins and Hayek for advice on economic problems.
10) For the related description in the
inter-war period, see Ohsawa(1990, the final chapter).
11) In passing, the ‘Contributory Pension Act’
was enacted in 1925.
12) This section is exclusively based on the
material contained in JMK.27, Chapter
4, ‘The Beveridge Report’.
13) It was set up in December 1939. The ‘Stamp
Survey’ (the principal members were Stamp, Henderson Watts (1989).
14) Robbins described his duty in the Economic Section as showing a diplomatic
presentation to the public, ministers and bureaucrats, and as expiating his
wrong recommendations which he had made [this might indicate Robbins (1934)].
See Robbins (1971, pp.186-188).
15) To mention a
few examples, Meade’s plan for employment policy was to occupy a central place in
the White Paper on Employment Policy (1944), for which see Hirai (2003,
Appendix 2); and his plan for commercial policy was to be adopted as an official
plan of the Board of Trade in the fall of 1941. Meade was, moreover, a leading
promoter of the ‘World Trade Organization’.
16) For the two memoranda, see
Mouri (1990, pp.202-203) and Moggridge (1992, p.706).
17) As will be seen
from the argument in How to Pay for the
War (Keynes, 1940), Keynes was beginning to think of
this point in time as a good opportunity for social reform (improvement in
social justice). His proposal, under the principle of the ‘maintenance of
sufficient minimum standard’, was the provision of ‘family allowances’ (5
shillings per week per child) and ‘a rationing of necessaries. This consideration
was shared by Beveridge. For Keynes (1944), see Hirai (2003, Section 1 of
Appendix 2).
A
similar view can be recognized in ‘Prof. Keynes’s Memorandum on War Purpose’ (dated
13 January 1941), in which social security is mentioned as a top priority, and ‘Note
on the Budget’ (JMK.27, pp.355-367) written in November
1941, in which Keynes expressed the view that the 1942 Budget should be compiled
so that it could be termed the ‘Social Policy Budget’.
18) In this letter Keynes said that
industrial insurance should be owed by the State (Beveridge, in contrast,
maintained that it should be voluntary insurance).
19) Contributions
charged to an employer who fired an employee. See JMK.27, p.205.
20) See Meade, “Variations in the Rate of
Social Security Contributions as a Means of Stabilising the Demand for Labour”
(Howson=Moggridge eds., 1988, pp.184-192) and “The Effect on Employment of a
Change in the Employer’s Social Security Contribution (op. cit., pp.193-198).
21) See Mouri(1990, pp.204-205).
22) Beveridge valued the White Paper
on Employment Policy highly, describing it as an epoch-making event in economic
and political history. He showed some dissatisfaction, however, complaining that
it underrated the pathology of unemployment caused by the ‘unplanned market
economy’. This underestimation, said Beveridge, derived from an erroneous value
judgment, regarding private firms as saintly, and from adherence to a balanced
budget.
23) Although we see no reply from Keynes concerning this, he is surely
critical of it. He recognized the significance of trusts and cartels, but
clearly opposed nationalization per se. See Hirai (2003, pp.181-183).
24) For these
estimates, see JMK.27, pp.280-298.
Thereafter Keynes made an even more optimistic estimate. See JMK.27, pp.334-345.
25) This is an idea similar to the ‘deferred payments’ in
Keynes (1940). See Hirai (2003, Section 1, Appendix 2).
26) Social Security together with the transport system and the Central
Electricity Agency and so forth are considered among the experiments for the ‘socialisation
of the economy’. Keynes had cherished the ‘socialisation of the economy’ and
the necessity of its promotion since, at the latest, the 1920s.
27) The above
correspondence between Hopkins and Keynes is also described in Cairncross=Watts (1989,
p.90).
28) See Mouri(1990, p.206).
29) This is the
rule to the effect that if a person who reaches the age eligible for pensions
retires, a half of the pension which will increase thereafter should be
deducted, while if he postpones retirement, he will get the amount in full.
30) The Beveridge Report mentions 23 items in
Section 2, ‘Principal Points of Change Proposed and Their Reasons’.
31) As is evident from the argument in the
previous section, this is where Keynes was most involved.
32) The manuscript of this speech concludes by
pointing out ‘the deep moral and social
problem of how we should organize the material affluence for yielding the
fruits of good life’ (my italics).
33) On this, see Hirai (2003, Appendix 2).
34) The policy of varying social security
contributions is approved there. Incidentally the former camp is on the Labor
Party side, the latter on that of the Conservative
Party.
35) Henderson
36) This is a statement by Harris.
37) This is pointed out in Mouri (1990,
p.248).
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* Faculty of Economics, Sophia
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of Strathclyde
