On November 17, 1881, Emperor Wilhelm I of Germany announced – as would become clear in retrospect – the birth of the modern welfare state. In a Royal Proclamation, the emperor declared his government's intention to legislate the world's first comprehensive package of social insurance for manual workers. Covering the risks of accident, sickness, disability, and old age, this edifice of income and health security would be built, piece by piece, over the following eight years. In initiating this project of social protection, Germany's Chancellor, Otto von Bismarck, was not primarily motivated by a humanitarian desire to relieve the miserable social and economic conditions of the working class. As the preamble to the accident insurance bill made explicit, this endeavor did not just represent an “obligation of humanity and Christianity” to the propertyless classes: it was, the government explained, “a policy of state-preservation.”

The main threat to the state that Bismarck saw looming on the horizon was the rapid growth of the workers' movement and the Socialist Party. The socialists, in his view, threatened the unity of the German Reich, still a recent and fragile constitutional achievement. In 1878, Bismarck convinced a conservative-dominated parliament to pass a harshly repressive antisocialist law intended to debilitate the movement organizationally and electorally (Craig 1981). Yet this crackdown was only the first prong of the iron chancellor's defense of the social and political status quo. Bismarck aimed to complement the stick of suppression with the carrot of state beneficence.