Topic 4. Welfare Capitalism

Read: Kulikov, Volodymyr. “Necessity or Luxury? Welfare Work in the Company Towns of the Russian Empire.” Jahrbuch für Wirtschaftsgeschichte/Economic History Yearbook 60, no. 2 (2019): 449-472.

Based on research into company towns in late imperial Russia, the author investigates the reasons why businesses financed welfare work. He argues that companies targeted different social layers in their towns with various programs offered as fringe benefits to retain their competitive edge for skilled employees on the labor market. Corporate money was also spent on luxuries such as theatres, social clubs, and similar provisions. All these were designed to attract managers and other salaried professionals whose economic and social weight increased dramatically after the managerial revolution in the late nineteenth century. However, the so-called “principal-agent problem” meant that some salaried managers spent corporate money on their own benefit, effectively turning welfare work into their own privilege. To prevent the misuse of welfare work, business owners had to control and incentivize their salaried managers (agents) to act in accordance with the company stockholders’ (the principals) best interests.

Questions for preparation:

1. What was the purpose of welfare capitalism? Why did it emerge in rapidly industrialized countries?
2. How did welfare capitalism affect the lives of workers in Eastern Europe in the late nineteenth century? What was the dark side of welfare capitalism?
3. How did welfare capitalism change the townscape of industrial settlements?
4. Put yourself in the place of a company owner (The Dnieper Co.); how would you solve the agency problem?
5. Which present-day social issues can, and which cannot be solved by business? Can a city be run like a business enterprise?