Many believe, in the absence of the welfare state, the lives of the poor would be doomed. Turning a blind eye to the miseries around them, the well-to-do would cherish in their riches while the less fortunate starve to death. This picture of life before the welfare state has been actively propagated by do-gooders in the west used to the idea of a safety net provided by the government. Thus, forceful extraction from the haves in the form of taxes to fund provisions to the have-nots through the welfare state is justified.

So much so that the welfare state is today considered a prerequisite to civilized living. But pre-20th century, when the welfare state had not taken root as today, it was not mass starvation, chaos and riots that marked the order of the day, contrary to most accounts of the era of industrial revolution. Instead, what the state, backed by majoritarian rule, replaced was an age of sustenance backed by voluntary cooperation. The period saw an emphasis on thrift and personal responsibility, and importantly, the evolution of institutions to deal with life’s uncertainties.

Particularly, mutual aid or fraternalism evolved to help the distressed through the principle of reciprocity in the market. Such arrangement was predominant in the US through much of the country’s history until the welfare state was massively expanded in early 20th century. As David T. Bieto documents in his work From Mutual Aid to the Welfare State, “The aid dispensed through governments and organized charities during the late 19th and early 20th centuries was not only minimal but carried great a stigma. In contrast to the hierarchical methods of public and private charity, fraternal aid rested on an ethical principle of reciprocity."

Fraternal societies served as a means for associations of individuals to voluntarily pool in resources to help members under distress, in return for reciprocal help during times of own personal distress. They were much different from the impersonal bureaucracies that welfare recipients deal with today that affects the chances of welfare reaching those in real need. Fraternal societies were based on mutual help and respect. Also, quite specifically, participants trying to free-ride were disallowed from further participation, which served as a huge disincentive for those engaging in bad behaviour, unlike the current system of need-based welfare that rewards freeloaders.

Mutual aid, in essence, served akin to commercial insurance agencies preventing clients from engaging in risky behaviour that would add to costs. Private charities played a considerable role as well. More importantly, unlike the bureaucracies of the welfare state that concentrate efforts to divert funds from its actual purpose, private donors had the direct incentive to look to it that their donations reached those in real need.

In places like New York City and Homestead, Pennsylvania more than 40% of those earning less than a living wage were part of such fraternal societies. While Britain witnessed the evolution of mutual aid societies similar to those in the US, other cultures possessed different institutions to meet the needs of local conditions. In India, for instance, it has been the traditional joint family system that has over many centuries taken the role of mitigating uncertainties and providing for the distressed.

Bieto also cites a study showing the extensive reach of private relief. “The precise magnitude of informal giving can never be known, but it was undeniably vast. A study of 200 wage-earning families in New York City conducted in 1905 revealed that almost ‘every family of small income received some help or other from friends or relatives in the form of clothing for the children, money for the rent, or occasional gifts to carry the family over a tight place. In the entire number investigated there were over 60 instances discovered of this fraternal helpfulness.’"

It is worth noting that the rise of the modern welfare state coincided with that of democratic politics, fuelled primarily by the demand for redistribution. So, for one, in the absence of the privilege of picking on neighbours’ pockets, that only later came to be guaranteed by the welfare state in the form of various positive rights, individuals had to resort to other means of dealing with economic distress. That solved, perhaps, the single largest problem with the welfare state system where relative poverty, or inequality in living standards, is considered enough reason to redistribute wealth.

The welfare payroll in Western economies, for instance, has continuously increased since the institution of the welfare state in the early 20th century. That is, despite the rapid eradication of poverty through the means of higher economic growth.

More significant is how such systems of voluntary private assistance came to be replaced by the modern welfare state. The welfare state, funded by compulsory taxes, crowded out institutions like the fraternal societies which were based on private help rather than plunder carried out in the name of social justice. As the state intervened to provide assistance to the distressed, the need for mutual aid societies gradually subsided. But this came about at a huge price. The state encouraged individuals to engage in frivolous behaviour by replacing help based on reciprocity with one based on need.

Under the influence of welfare debate in the West, many in the developing world have been led to support redistribution schemes. In India, in particular, voices in favour of an organized welfare state with pumped-up spending have grown louder, and the rural job guarantee scheme and direct transfer of benefits celebrated as achievements. Given the history of human survival through voluntary cooperation—after all, the welfare state is no more than a creature of the 20th century—it would be nothing less than paternalistic to assume that the poor when left to their means cannot fend for themselves.

Natural Order runs every Monday, with a libertarian take on the world of economics and finance.

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