The Third Pillar: How Markets and the State Leave the Community Behind

by Raghuram G. Rajan

In the darkest days of the Second World War, economist William Beveridge was asked to chair a committee with the somewhat tedious task of examining the existing safety net and seeing how benefits could be better coordinated – perhaps more as a make-work assignment that would keep the radical economist at a safe distance from immediate policy.11 His report in 1942 was, however, an instant bestseller, extraordinary for a work that contained 461 numbered paragraphs and appendices filled with detailed calculations. Final sales figures were over half a million, including fifty thousand in the United States. A cheap edition was even printed and circulated to troops at the front, explaining what they were fighting for. Beveridge proposed a single system of insurance against the important risks faced by a working-class family: childbirth, sickness, disability, unemployment, and old age. He outlined a contributory system where every working person paid into the system at the same rate, and anyone hit by one of these risks was helped with the same subsistence level of assistance. The idea was one contributory rate for one level of benefit for everyone, without any screens, such as whether the individual earned too much. Beveridge emphasised the principle that everyone would contribute, though employers and the state would also chip in. His aim was not to redistribute income between classes, though some redistribution was unavoidable, but to move an individual’s income ‘between times...

uk's social security system enhanced post world war 2