State Socialism

State Socialism was a term introduced to describe Otto von Bismarck's social welfare policies. The term was actually coined by Bismarck's liberal opposition but later accepted by Bismarck. They refer to a set of social programs implemented between 1884 to 1889 as remedial measures to appease the working class and detract support for socialism and the Social Democratic Party of Germany following earlier attempts to achieve the same objective through Bismarck's anti-socialist laws.
Intellectual predecessors and heirs
The Prussian welfare state was developed by the German academic Sozialpolitiker (Social Policy Supporter) group, intellectually associated with the historical school of economics.
At the time, they influenced social liberalism in the United Kingdom and Progressivism in the United States, and the current (Post-World War II) German economy, the social market economy, is a continuation of similar policies.
Bismarck's social legislation
The 1880s were a period when Germany started on its long road towards the welfare state it is today. The Social Democratic, National Liberal and Centre Parties were all involved in the beginnings of social legislation, but it was Bismarck who established the first practical aspects of this program. The program of the Social Democrats included all of the programs that Bismarck eventually implemented, but also included programs designed to preempt the programs championed by Karl Marx and Friedrich Engels. Bismarck's idea was to implement the minimum aspects of these programs that were acceptable to the German government without any of the overtly socialistic aspects.
Bismarck opened debate on the subject on 17 November 1881 in the Imperial Message to the Reichstag, using the term practical Christianity to describe his program. In 1881 Bismarck had also referred to this program as Staatssozialismus, when he made the following accurate prediction to a colleague:
:"It is possible that all our politics will come to nothing when I am dead but state socialism will drub itself in. (Der Staatssozialismus paukt sich durch.)"
Bismarck's program centered squarely on insurance programs designed to increase productivity and focus the political attentions of German workers on supporting the Junker's government. The program included Health insurance, accident insurance (workman's compensation); disability insurance; and an old-age retirement Pension, none of which then in existence to any great degree.
Based on Bismarck's message, the Reichstag filed three bills designed to deal with the concept of Accident insurance, and one for Health Insurance. Retirement pensions and disability insurance were placed on the back burner for the time being.
Health Insurance Bill of 1883
The first bill that had success was the Health Insurance bill, which was passed in 1883. The program was considered the least important from Bismarck's point of view and the least politically troublesome. The program was established to provide health care for the largest segment of the German workers. The health service was established on a local basis, with the cost divided between employers and the employed. The employers contributed one-third, the workers the rest. The minimum payments for medical treatment and sick pay for up to 13 weeks were legally fixed. The individual local health bureaus were administered by a committee elected by the members of each bureau, and this move had the unintended effect of establishing a majority representation for the workers on account of their large financial contribution. This worked to the advantage of the Social Democrats who, through heavy worker membership, achieved their first small foothold in public administration.<ref name="GERMAN HISTORY"/>
Accident Insurance Bill of 1884
Bismarck's government had to submit three draft bills before it could get one passed by the Reichstag in 1884. Bismarck had originally proposed that the Federal Government should pay a portion of the accident insurance contribution to show the willingness of the German government to lessen the hardship experienced by the German workers as a means of weaning them away from the various left-wing parties, most importantly the Social Democrats. The National Liberals took this program to be an expression of State Socialism, which they were strongly against. The Centre Party was afraid of the expansion of federal power at the expense of states' rights. As a result, the only way the program could be passed at all was for the entire expense to be underwritten by the employers. To facilitate this, Bismarck arranged for the administration of this program to be placed in the hands of “Der Arbeitgeberverband in den beruflichen Korporationen”, “the organization of employers in occupational corporations”. This organization established central and bureaucratic insurance offices on the federal, and in some cases the state, level to perform the actual administration. The program kicked in to replace the health insurance program as of the 14th week. It paid for medical treatment and a Pension of up to two-thirds of earned wages if the worker was fully disabled. This program was expanded in 1886 to include agricultural workers.<ref name="GERMAN HISTORY"/>
Old Age and Disability Insurance Bill of 1889
The old-age pension program, financed by a tax on workers, was designed to provide a pension annuity for workers who reached the age of 70. At the time, the life expectancy for the average Prussian was 45. Unlike accident insurance and health insurance, this program covered industrial, agrarian, artisans and servants from the start. Also, unlike the other two programs, the principle that the federal government should contribute a portion of the underwriting cost, with the other two portions prorated accordingly, was accepted without question. The disability insurance program was intended to be used by those permanently disabled. This time, the state supervised the programs directly.<ref name="GERMAN HISTORY"/>
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