Introduction

Social protection and, more generally, the welfare state have wide-ranging objectives. It is not surprising that each should appear to be a patchwork of diverse sources of financing and manners of delivery. Yet, it is possible to focus on two specific kinds of objectives: efficiency and equity, keeping in mind that in a market economy the market is the norm, and that a case can be made for government intervention. When the markets don't function efficiently, public intervention is justified if it can be corrective.

Indeed, there are a number of market failures in the areas traditionally covered by the welfare state: education, health, retirement, disability. But increasingly, there is a sense that these failures of the market are less pervasive than they were several decades ago, when the framework of the welfare state was first developed. This is because they tend to be less severe than alternative government failures, or because they can be corrected through the legal process. Regardless of the reasons, the efficiency function of the welfare state is not as convincing today as it was in the past.

The equity failure, on the other hand, is a totally different matter. Even the most efficient market economy cannot achieve desirable distribution of resources – unless it be by chance – because that is not its objective. Here the case for government intervention is incontrovertible. The only question is the form that this intervention should take.