V Encuentro Ibrico de Historia del Pensamiento Econmico

Madrid, 12-15 Diciembre 2007

Corporatism, welfare state and social justice

in the interwar period *

Jos Lus Cardoso

ISEG, Technical University of Lisbon

Preliminary and incomplete version, 27 September 2007.

Please do note quote. Comments are welcome

Address for correspondence: jcardoso@iseg.utl.pt

* This paper is a part of the research project Contributions to the History of the Welfare State in Portugal in the Period of Estado Novo, funded by the Foundation for Science and Technology, under the scope of the POCTI programme, co-financed by the European Research Development Fund (POCTI/HAR/48067/2002)

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Corporatism, welfare state and social justice in the interwar period

1. Motivation and scope

In its current use, the concept of corporatism is typically interpreted as an organised

response to or reaction against the economic and social problems of modern societies. It

basically represents a particular form of political negotiation between the government

institutions (state agencies and bureaucracies) and the economic interest groups of both

employers and workers.

Among the issues under discussion within the context of corporatism and its role in

policy-making are interest intermediation and collective bargaining aiming at wage and

social security agreements, labour regulations and redistribution policies.1 This implies

the acceptance of an ideology of social partnership and collaboration expressed at a

national level, as well as a relatively organised system of interest groups. Both features

are crucial for a voluntary and informal coordination of conflicting objectives through

continuous political bargaining and negotiation processes, culminating in the

implementation of public policies.

This current use of the term corporatism in present or recent times corresponds to the

appearance of a new variation of this conceptual structure generally labelled as

democratic, liberal, societal or simply neo- corporatism.2 This is by and large grounded

on the straightforward principle that sustainable economic development can be achieved

if society is organised and based upon an adequate notion of distributive, but not

necessarily egalitarian, justice. In this context, it is the mission of the State to oversee

the process of development and modernisation by maintaining an adequate

1 One of the most famous and seminal definitions of corporatism runs as follows: Corporatism can be defined as a system of interest representation in which the constituent units are organised into a limited number of singular, compulsory non-competitive, hierarchically ordered and functionally differentiated categories, recognised or licensed (if not created) by the state and granted a deliberate representational monopoly within their respective categories in exchange for observing certain controls on their selection of leaders and articulation of demands of supports (Schmitter 1974, p. 13). 2 For an overall acquaintance with the extensive literature available on corporatism, see the detailed bibliographical listings provided by Schmitter 1974; see also Pryor 1988. Relevant synthetic approaches are those of Cawson 1985, Grant 1985, and Newman 1981.

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organisational setting and by regulating inter-group relations and conflicts. According to

this line of reasoning, state intervention is fundamentally regulative and does not

impose itself as an excessive power in relation to civil society and the economy.

One of the main doctrinal implications of this view is that class and other social

conflicts cannot be regarded as the natural foundation of society, which is instead based

on cooperation and social integration arising from functional and vocational groupings.

Another important issue associated with this conceptual framework is the rejection of

the notion that liberal politics is based exclusively on a system of parties and universal

voting. Indeed, special emphasis is given to the moral dimensions of man and social

life, in keeping with the basic idea that an organic social whole is opposed to a mere

sum of utility-maximising individuals.

For the supporters of democratic neo-corporatism in contemporary society, there is a

close link between economic efficiency and political equality, which serves as an

illustration of the advantage of corporatism vis a vis the pluralist view of organised

interests in a competitive economic, as well as political, market system. In fact,

Corporatist authors are not only concerned with the representative, democratic

implications of group politics. They also devote considerable attention to the role that

corporatism can play in ensuring the maintenance of political stability, or governability,

in liberal democracies and in improving the effectiveness of interventionist policies

(Williamson 1989, p. 3).

To understand both the achievements and the potential results of neo-corporatist

theories, one also has to take into account one of its main difficulties, namely its

controversial acceptance in countries with a liberal political culture and tradition, where

corporatism is hardly differentiated from a conception of the social order as being

naturally hierarchical and receptive to authoritarian forms of political life. However,

those who try to draw a fundamental distinction between present-day democratic

corporatism and its authoritarian, non-democratic connotations cannot erase the traces

that were left by its original creators in several European countries in the interwar

period.

The aim of this paper is to provide new arguments showing the relevance of the

interwar corporatist experiments in Southern European countries, not only for a better

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understanding of the development and spread of economic ideas, analyses and policies

during that period, but also to explain how different political regimes may accommodate

and make use of notions and concepts with a much broader meaning and scope, as those

usually related to both the formation of the welfare state and the development of

principles and policies of social justice.3 Special attention will be given to the

corporatist experience in Portugal, serving here both as a model and as an example to

illustrate what has also occurred in other European countries.

The purpose is not to shield the politically incorrect outcome of some fascist and other

kinds of authoritarian regimes, nor to veil the close relationship that corporatism has

traditionally maintained with them; it is instead to explain how it was possible, in the

historical context of authoritarian regimes, to accept and even enhance the universal

relevance of certain notions of social justice put forward with the twofold objective of

avoiding social conflict and achieving social harmony. The underlying interpretative

framework of this paper seeks to provide an explanation of the significance of welfare

ideas within the historical and political context of their own emergence and

development.4

Among such founding ideas incorporated into the corporatist discourse, one can find a

number of notions and moral precepts that were to become central tenets of 20th-

century corporatism, namely organic harmony and cohesion, social regeneration,

mutuality, solidarity, justice, willing consent, spontaneous fellowship, etc. The

implementation of these principles has required the creation, restoration and

strengthening of those institutions considered crucial for generating the spirit of social

homogeneity, loyalty and national pride, such as the family unit, the school, local

associations, corporate groupings, the workplace, the church and the State (the latter

being recognised as the general guardian of the corporatist social order).

On the whole, these principles and institutions may be considered as the pillars of a

model of social organisation and social justice, different from both liberalism and

socialism, which represented the main target in the battle waged by corporatist

supporters in the interwar period in order to build up a distinct type of welfare state.

3 As Jose Harris puts it: [this kind of studies] have made historians aware that ideas about social welfare can migrate unexpectedly across the political spectrum, and that preconceived assumptions about the left/right implications of particular policies are often false (Harris 1999, 46). 4 On the different ways of pursuing the history of social policy and welfare, see Fraser 2003, forward.

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2. Corporatism defined

In most European countries the interwar period witnessed a clear change in social and

political structures, as well as an increasing disproof of liberal ideas and growing doubts

and uncertainty concerning the neoclassical belief in the self-regulating properties of a

purely spontaneous market mechanism. The emergence of a public opinion that was

favourable to confer a more significant role to government on national economic (and

social) regulation was also perceived. Such a context led to new economic strategies and

policies, to an increasing state interventionism, to the criticism of the prevailing

neoclassical paradigm, and to the tentative formulation of alternative ideas to that

paradigm, either adapting or replacing them by other theoretical approaches, seemingly

more adequate to the particulars of national environments.

Such was the case with corporatism. This new economic system should rest on moral,

religious and historical principles, but could not avoid a scientific legitimisation.

Economists were therefore expected to provide a rationale to the ongoing corporatist

experiences. The corporatist movement was especially important in Italy and Portugal,

though its historical significance and impact goes far beyond its original, fairly limited

geographical frontiers. Corporatism is indeed closely related to the indicative planning

movement in France, to aspects of the New Deal in the US and, generally speaking, to

any economic and social policy issues concerning the building up of the welfare state.

Its basic assumption was that the new economic and social system should be conceived

as an alternative both to capitalism and socialism. Therefore, an attempt was made to

develop an economic theory of a third system, one that should avoid either the evils of

socialist economics (lack of individual freedom) or the social errors of a mainstream

economic analysis founded on liberal ideas (extreme competition, poverty, waste of

resources). In this sense, the construction of a third way brings along a natural

concern with the issue of social justice that, according to the judgement offered by the

supporters of corporatism, could hardly be met in either capitalist or socialist societies.

The incentive for the creation of corporations embodied a sense of social and economic

organisation in which the realisation of the general interest was previously measured by

harmonising the interests of the different agents and groups of agents operating in a

market that was overseen by the state. The fixing of prices, the entry of new firms into

the market, the regulation of working conditions, the determination of wage levels, the

analysis of production costs and, generally speaking, all operations that involved the use

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of economic calculation, which, under a system of free competition, represent

elementary procedures in the choices that can be made within the context of scarcity of

available resources i.e. the typical framework for the decision-making of the homo

conomicus enshrined in the neoclassical economic literature all these features

would be the privileged area for the corporations and the employers federative

organisations (guilds) to decide upon.

The notion of homo corporativus proved to be of a considerable relevance in many

other aspects of the attempt to put forward an alternative economic theory, namely as

regards the replacement of the notion of individual utility by the notion of social utility

provided by the corporations and the acceptance of the concept of the corporative just

price as a normative alternative for subjective or speculative calculations of utility and

costs. It is also inherent to the defence of a controlled organisation of individual

interests in contrast to the unconditional acceptance of the search for self-interest.

Finally, it fits perfectly with the primacy given to the ideals of cooperation and

solidarity that make it difficult for the market to operate according to the self-regulatory

system of free competition.

The corporatist solution benefited from a social and political atmosphere that was

generically favourable to the admission of new solutions for contemporary pressing

problems. Furthermore, it has considerably gained from a meaningful cluster of

previously developed arguments against both socialism and liberalism. In fact, for the

development of their system of thought, corporatist authors borrowed from a variety of

sources, which include the ideas and political motivations usually associated to the

emergence and development of authoritarian and fascist movements in interwar Europe,

as well as the political arguments put forward by all those who thought that democracy

and mass political participation was one of the major causes of contemporary social

unrest and political anarchy. The nationalist and historicist revival fostered by the

German historical school and the arguments around the existence of a new economic

reality that could no longer be explained by orthodox economics, were also of crucial

relevance.5

However, a central place should also be given to less obvious sources, such as the

intellectual framework provided by Emile Durkheims work, especially his notion of

5 These considerations, though relevant to other historical experiences, are particularly valid in the Portuguese case. See Bastien and Cardoso 2007.

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organic solidarity, which presents a blueprint for a social order based upon the

principles of corporatism, considering the corporations as functional units which form

the basis of economic, social and political organisation. Of a similar importance is the

role of Catholic social thought namely the message expressed in the papal encyclicals

Rerum Novarum and Quadragesimo Anno and its concern with the idea of conciliation

between social groups and the search for spiritual and institutional change as a solution

designed to bring harmony and stability and to replace social chaos and dissension.

[further references to be added here]

Such is the broad doctrinal background that was supposed to provide a consistent

framework for the design of economic and social policies. As far as economic analysis

is concerned, there is general agreement as to the relatively poor theoretical

performance of corporatist authors. Their scarce attempts to build up an original

corporatist theory of prices and wages, or even of the firm, were doomed to failure.6 On

the contrary, they showed a very great propensity for doctrinal and ideological creation.

In this context, it is worth highlighting the corporatists own claim that corporatism

represents a third way, between liberalism and socialism, for coming to grips with the

problems of economic development and modernisation in a supposedly humanistic

manner.

3. Welfare state and social policy

According to the corporatist ideology at least as it evolved in Portugal during the

1930s the corporations are conceived as a suitable environment for a fruitful

collaboration and harmony between capital and labour, a kind of a living proof that

institutions and society are not moved by the antagonism and struggle between social

classes.7

A comprehensive doctrine of the functional organisation of society would therefore

comprise both a set of appropriate hierarchical relationships between the whole and its

constituent parts (corporations) and an ideal balance between individual freedom and

6 See Bastien and Cardoso 2004. 7 The most relevant Portuguese sources for the study of the corporatist doctrine are Caetano 1938, Lumbrales 1936 and Ribeiro 1939. Portuguese authors were nevertheless influenced by other southern European authors, namely Manoilescu 1936 and Spirito 1934.

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national aims, since the prevalence of the general over the particular did not imply that

man had to be entirely absorbed or annulled by society.

Functional representation through corporations and the integration of labour and capital

into a vast web of hierarchically ordered units are two of the most basic features of the

institutional framework of corporatism. However, the corporatist experiments that took

place in European countries such as Italy, Portugal, France, Germany and Austria

provide historical evidence for the limited scope of this intensive ideological

programme and allow us to understand the gap between the abundant propaganda and

doctrinal literature and the meagre practical implementation of the project across

nations.

The basic principle followed by corporatism was that there would be a spontaneous

achievement of social justice and welfare goals, provided that the main tenets and the

ethical imperatives of the corporatist ideology would not be denied, i.e. the subjection

of the individual to the superior interests of the nation and the defence of the states

permanent moral and spiritual integrity. In practical terms, this would imply the creation

of a self-governing welfare system based on the voluntary initiative and active

contribution of those who would benefit from it, as well as of those who would provide

additional funds for its maintenance. In this context, the state was entrusted with the

fundamental task of leading and monitoring the whole process, with a view to

establishing and spreading it throughout the various sectors of the nations social and

economic life, not to pay for it, but rather to taking account of the supreme interests of

maintaining law and order and social stability.

But the failure of this ideological programme has determined a much more pragmatic

attitude towards state intervention, given the practical necessity of taking decisions

concerning the solving of social problems and distress. The state has therefore

considerably enlarged its oversight mission and became a key player and agent

responsible for the design and implementation of policies, not only related to the

economic performance of the corporatist system and its units, but also connected with

the achievement of social justice and welfare.8 The voluntarist model was replaced by a

centralized, bureaucratic system of provision of social welfare.

8 For an overall presentation of the changing role of the state in the doctrine of corporatism, and its relationship with other arguments favourable to state intervention, see Almodovar and Cardoso 2005.

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The abundant economic literature produced by the corporatist ideologues and mentors

allows for the identification of a few main objectives associated to state economic

intervention, namely:

to consolidate the spirit of co-operation and mutual help between producers, through the establishment of inter-corporative agreements with the capacity

to determine technical rules and standards, fix prices and wages, and reduce

production costs;

to discipline and exercise an effective control over the production process, through the arrangement of the various corporative plans, so as to prevent

excessive fluctuations of supply in relation to demand;

to lessen the negative effects of the system of free competition and fix the limits and barriers to the entry of new firms in certain sectors of economic

activity, which would thereby bring about the possibility of a certain

distortion in one of the fundamental bases of the capitalist system, i.e. the

determination of the market equilibrium price; and finally

to implement social policy measures, namely regarding social security, health care, family allowances, poor assistance and unemployment aid.

The concern with social welfare initiatives, within a broader economic and social

programme of governmental action, is a clear sign of recognition of the importance of

the states mission in order to protect vulnerable groups needing special protection, to

deliver social services and public goods, to fulfil basic common needs and to maintain a

secure flow of income to deprived individuals and communities. Notwithstanding the

political objectives of avoiding social turmoil and upholding social stability, one is

nevertheless inclined to admit that the corporatist regime was able to promote the

development of the institutional conditions and policy instruments required to fulfil

social welfare goals.

The study of the Portuguese history of social policy and welfare in the interwar period

and immediate years after World War II based on the analysis of both the specific

legislation produced and the activity of institutions and state departments associated to

the implementation of welfare measures and reforms shows that there are three major

phases to be considered.

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* * *

The main features of each of the phases will be dealt with in the remaining section of

the paper, still to be completed, bearing in mind a comparative approach with other

relevant European experiences on the development of the welfare state.9

What follows is a summary presentation of such three phases (for an overall discussion

of this topic see Cardoso and Rocha 2003).

a) The 1930s. This phase corresponds to the strengthening of the political authoritarian, fascist-like regime that was settled down in Portugal in 1926, and to

the critique of the previous Republican and democratic attempt in the early 1920

to build up a compulsory social insurance system. One of the instrumental and

normative documents of the new political regime, the so called Estado Novo, was

the 1933 National Labour Chart, inspired in the Italian Carta del Lavoro, which

put forward a social security system based on a voluntary contribution model that

was allegedly nourished by employers and employees. The corporatist institutions

were conceived as the ideal setting to provide assistance in the following main areas

of concern: sickness and prolonged disability; unemployment; old age problems;

housing conditions and social and cultural activities.

b) The early 1940s. The failure of the corporatist system to foster a rational programme of welfare provision was subject to critical scrutiny and called for a

stronger participation of government agencies and state institutions. This new

movement, which did not question the very nature of the paternalistic and

authoritarian political regime, found its most coherent expression through the

reading and adaptation of the 1942 Beveridge Report on Social Insurance and Allied

Services, namely as regards the notion that The organisation of social insurance

should be treated as one part only of comprehensive policy of social progress. Social

insurance fully developed may provide income security. (Beveridge report, 1942,

p. 6). A new attitude towards the contributory principle (enforced responsibility of

employers, employees and the state) would then serve as the basis for a wider

programme of social reform and welfare which should include the provision of

public goods in health and education, family and childrens allowances, work and

9 See e.g., Crew 1998, Dutton 2002 and Gladstone 1999.

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training benefits, housing projects, unemployment aid, retirement pensions and

redistribution of income.

c) The late 1940s and the 1950s. This last phase which prepared a major reform of the social security system in Portugal launched in 1962 corresponds to a further

development of the welfare ideology, provided that it could be accommodated

within the authoritarian nature of the political regime. The notion of social justice

comes to the forefront of the political debate, though the limitations imposed by the

dictatorial regime. The development of a sociological approach regarding labour

relations, together with the defence of a social service model that could contribute to

the betterment of work conditions, human relations and participation of employees

in decision processes, were the two main characteristics of this movement that

brought some fresh ideas for the future development of a modern welfare and social

security system in Portugal. This movement was by and large a sign of a new

academic culture, combining sociological theory with empirical studies and ethical

concerns, which formed a well-argued and informed opinion and was devoted to the

advancement of social research and to its use in social reform issues.

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