Peter Hammerschmidt. Finanzierung und Management von Wohlfahrtsanstalten 1920 bis 1936. Stuttgart: Franz Steiner Verlag, 2003. 460 pp. EUR 55.00 (paper), ISBN 978-3-515-08394-2.

Reviewed by Tania Maync (Department of History, University of Chicago)
Published on H-German (November, 2004)

In Defense of the German Wohlfahrtsstaat

A book on the financing and management of welfare institutions in Germany during the Weimar and early Nazi period could not have come at a better time. The debate over the Hartz reforms and the current administration's 2010 reform agenda has produced widespread anxiety and threatened to split the SPD for the first time since 1917. Chancellor Schroeder and the other reformers in the SPD, like party chairman Franz Muentefering, claim that "pressure[s] of economic realities" are forcing an economic course that encroaches on traditional German social and welfare politics.[1] The solution to the longest period of economic stagnation in BRD history, claim reformers, is gradual privatization, the creation of economic incentives in traditional state run programs and, in short, the continuation and intensification of the neo-liberal course initiated by the Kohl government in the 1980s. The result of this threat to the traditional German Sozialstaat and the disappearance of a left that supports it has been the source of the recent electoral vigor of the post-communist PDS and threats by former SPD party chairman Oskar Lafontaine to split from the SPD and create a new left-oriented party.

Peter Hammerschmidt's agenda in writing this book is to describe and explain the functioning and financing of welfare institutions in the interwar period, which he believes to be the matrix of the modern German Sozialstaat currently being dismantled. His overarching argument contends that the "dualistic" welfare system, which developed and was stabilized during the interwar period, is not only flexible but extremely durable and has survived crises of much greater magnitude than the current stagnation faced by the German economy. In the conclusion, he argues that the Wohlfahrtsstaat is in no way a fixed, but rather an extremely flexible and manageable principle, that, in addition to existing under "different conjunctures within a society like the Weimar Republic, functions under different societal systems like the Weimar Republic, the National Socialist state and the Federal Republic" (p. 351). But the system, which has proven itself so lasting and adaptive, does have its limits: namely, it cannot survive the profit motive and the free market. Hammerschmidt thus believes that the "GmbHisierung" of welfare and charitable institutions is threatening to dissolve the entire social sector despite the fact that the "invisible hand of the market" does not seem to ensure a more optimal allocation of resources. In short, Hammerschmidt believes that the current trend in German social and welfare politics represents a disastrous rejection of the security of a system that has proven its longevity in favor of a gamble.

Were one to read Hammerschmidt's entire book with the exception of the conclusion, his political agenda would be implicit at best. In fact, except for the last two pages of the conclusion, Hammerschmidt makes his case for the German Wohlfahrtsstaat by extolling its successes, especially the manner in which it was able to survive economic crises like the inflation of the early 1920s and the depression of the early 1930s, rather than explicitly arguing against its alternatives. As such the book is an extremely detailed exposition of the development, financing and management of institutionalized welfare programs in Germany, Prussia and the Rheinland from their beginnings in the early-nineteenth century to stabilization around 1936.

The book is arranged in six major sections that run chronologically through the nineteenth-century origins of the Wohlfahrtsstaat, the crisis period during the early to mid-1920s, the stabilization period thereafter, the renewed crisis period following the beginning of the 1930s and, finally, the early Nazi period, which also represented a period of stabilization for institutionalized welfare. Each section begins at the Reich level and becomes increasingly more focused, covering the Prussian and Rhenish provincial levels, and then moving to case studies of single institutions. Hammerschmidt's rationale for choosing the Rhenish province is due to Prussia's leading role in welfare politics and the religious and cultural peculiarities of the Rheinland, which provided for a higher than average engagement with questions and problems of welfare (p. 11). The areas of welfare that Hammerschmidt concentrates on include education and health care, nursing homes for the mentally ill, mentally challenged and epileptics, and more general hospital care for the handicapped. The book is meticulously researched and the author certainly succeeds in his self-proclaimed, ambitious attempt to create an "extensive reconstruction" of the entire period from 1920 to 1936 (p. 14).

Hammerschmidt claims that the early origins of institutionalized welfare are a "product of bourgeois society" and arose in response to the "unleashing" of market forces and industrialization, which had produced far-reaching social problems (p. 17). The first welfare agencies were by and large public institutions that arose in response to the Prussian statute of 1808, which obliged municipalities to provide for the urban poor. In addition, many confessional private charitable organizations surfaced, and both public and private institutions mushroomed when the social question became more pressing after the revolution of 1848. Though Hammerschmidt's larger argument asserts that the modern German welfare state is a product of the permanent crisis beginning with the end of the First World War, one major aspect of the welfare system developed before and during the Kaiserreich to became the characteristic feature of the German Wohlfahrtsstaat: its dual character and the generally harmonious cooperation and exchange between public and private welfare institutions and the financing of welfare institutions by both public and private money. During the Kaiserreich, there was a process of gradual publicization of charitable institutions, in that the Prussian state began to promulgate social legislation and to provide financial assistance to private welfare organizations at the cost of obliging them to do what had hitherto been voluntary (p. 35). The official poor relief authorities sometimes delegated the implementation of the services to private welfare organizations and guaranteed pro-client yearly flat rate fees (Kostgelder) as well as an annual one-time contribution. The amount of the fee and contribution were directed at the financial performance capacity of the public authority under the observance of the possibilities of the transferred private institutions. There was no specific term for this practice of public financing of charitable organizations and it was simply called the Zuwendungsprinzip or contribution principle. The private institutional authorities received, along with the public contributions, a similar, more certain, wider basis of financing. After the relatively prosperous period of welfare institutional expansion preceding the war, the early postwar period represented a period of crisis and the Zuwendungsprinzip began to break down because of the lasting and drastic decrease of the income of private welfare institutions after the war.

One of the author's major claims is that the history of the development of welfare institutions is "the history of crisis in permanence," and it is this background that gave the welfare institutional framework its malleability (p. 14). The Weimar Constitution, of course, institutionalized the welfare principle by labeling the new German republic a Wohlfahrtsstaat and the state obligated itself to care for the "new welfare clientele" resulting from the war and mass proletarianization (pp. 55 ff.). Hammerschmidt argues that welfare reached a new dimension, qualitatively and quantitatively, during this period, despite the financial crisis public and private welfare organizations found themselves in around 1920 (p. 62). The crisis was overcome, in large part, by a growing engagement and intervention of the state, which granted financial assistance to private welfare institutions rather than allowing them to close down. In the face of the impending collapse of many welfare organizations, the Reich intervened and guaranteed Milliardenspenden at the end of 1922, which were mainly distributed to private charitable organizations and, to a lesser extent, to public welfare institutions. Their numbers reached the billions by 1923. The maintenance of institutionalized welfare during this period was financed in large part by state credit. A credit bank (Hilfskasse) was created that loaned money to private welfare institutions at a favorable interest rate. Paradoxically, the hyperinflation did not add to the impoverishment of charity organizations, but rather exercised a leveling effect between "rich" and "poor" institutions (p. 341). The "rich" ones lost money (assets) while the poor institutions' credit was dissolved (especially since many had been financed through credit after 1921-22). Furthermore, the hyperinflation led to a situation in which all welfare institutions were equally dependent on the care allowance coming from above, since their liquid assets were wiped out (p. 345).

Though public subsidies and financial assistance had, for a long time, been funneled into private welfare organization, the novelty was that now state money (Reichsgelder) rather than provincial funding was the source of financing. These arrangements allowed for the erection and extension of centralized Reichsspitzenverbände of private welfare institutions with qualified powerful administrative apparata that could act as lobbyists. According to Hammerschmidt: "It is here that the basis of the German 'dual Wohlfahrtsstaat' with highly centralized organizations was laid" (p. 339). What followed was the phase of stabilization and economic recovery in which financing reverted to the municipal self-governments, whose income had increased following the prosperity, thus allowing for the extension of the public institutional structure. Thus this phase entailed not just consolidation but extension and led to an Anstaltsboom and Bettenboom. The Weimar welfare legislation anchored the subsidiary principle, stating that as long as private institutions had adequate capacities at their disposal, the public authorities were supposed to use them and not create their own superfluous public ones, ensuring the optimal utilization of resources on the macro level. The Reich provided permanent subsidies and low-interest credit to private institutions to help with expansion and modernization, and, thus, it truly provided incentive for the "bed boom." The system of finance that gradually replaced the Zuwendungsprinzip during the stabilization period as the basis for measuring institutional charges (Pflegesätze), is called the Selbstkostendeckungsprinzip by Hammerschmidt; it used public institutional costs as the basis of the measurement and then granted this per patient amount to private welfare institutions. Yet unified institutional charges were only possible in theory and not practice, and this principle, Hammerschmidt contends, can only function well in a period of economic growth and prosperity.

This boom, following such difficult years, did not last long as a new crisis period set in with the depression. Due to rising costs, measures attempted to decrease institutional confinement, which in turn meant less money was given to institutions (per patient capita) and more patients went into private institutions, in order to get costs under control. Welfare institutions were forced to make drastic personnel cuts and even reduce the standard of living of their patients and residents. Even these measures were not sufficient during the depression. As a result, many highly indebted private welfare institutions, particularly smaller ones, were forced to close their doors--their losses (bankruptcies) had to be covered by credit, mostly short-term, with the hope of better times ahead. The standardization of the Selbstkostendeckungsprinzip eventually led to their costs being dictated from above and, instead of making the state adapt to rising costs of welfare, welfare was forced to adapt to the sinking charges (p. 346). As hospital and institutional charges decreased, institutions were forced to sink costs. This time the Reich was less ready than before to bail out failing welfare institutions through subsidies or credit with favorable interest rates. Basically, there was no practical solution due to the fiscal conservativism of the Reich: "The central organizations stood paralyzed before the dilemma of taking the unattractive spectator role of watching the vagaries of the market destroy the private welfare institutions and waiting for more propitious conditions which left them almost without alternatives" (p. 342).

The crisis was overcome around 1936, the end point of this monograph. The National Socialist government's rejection of the deflationary politics of the last few Weimar cabinets and the successful use of credit to finance the overcoming of the economic crisis with corresponding positive financial effects for the treasury and public social organization resembled the policies of the first crisis period (p. 343). The National Socialist regime, however, used welfare for its own purposes, and once the crisis was overcome a return to Weimar Wohlfahrtsstaatlichkeit was not its goal. National Socialist officials differentiated between those patients deserving of welfare and those, like the terminally ill or mentally retarded, unworthy of being welfare recipients. During this period, welfare was increasingly financed by private donations to the National Socialist centralized welfare organization, the Winterhilfswerk. Through consolidation and "de-municipalization," the Nazis replaced public with private welfare institutions to save money; thus, the support of private institutions by the Reich declined in comparison to that of the Weimar Republic. Some private institutions survived due to help from abroad and the general upturn of economy. But in summary, the austere saving measures starting during the depression were continued and extended during the National Socialist period. Yet, despite the eugenic pretensions of National Socialist welfare, "the anchored dual welfare state and the notion of the right to welfare which originated in Weimar remained in place" (p. 260).

For anyone looking for statistics or specific data on the development of institutionalized welfare, this book is a gold mine. Seventy-five pages of exhaustive tables and graphs in the back depict trends chronologically, topically, and regionally, covering matters from the budgets of single welfare institutions to the number of patients treated in Prussia in a certain year. However, the thoroughness of Hammerschmidt's research represents a bit of a problem in the body of the text. Each chapter is a laundry list of investment trends and budgets, from the state to the municipal level, spread out over diverse levels of administration and region, which can be so extensive that the reader easily gets lost in the details. It is very hard to see the forest for the trees and discern the larger argument until the conclusion. The minutiae of donations and finances are discussed at great length and, due to the large number of variables (administrative levels, regions, single institutions, and so on), it is difficult keep up with Hammerschmidt's exposition. In addition, the book is, by and large, directed at specialists of administrative social history and the history of finance. The technical jargon and detailed categorizations may become prohibitive for the non-specialist reader as the larger argument is buried in the details. Furthermore, the glossary of technical terms is too general, with only fifteen definitions to help the reader navigate the waters of finance economics.

One gap that seems present in Hammerschmidt's monograph is the matter of political motivations behind the development and changes in institutionalized welfare. In the background chapter, on the origins of welfare institutions, Hammerschmidt does suggest the ideological and political motivations behind the system he describes in the interwar period. The political and racial hygienic motivations of the National Socialists are also covered well in the penultimate chapter. However, this rationale is missing in the intermediate chapters covering the period from 1920 to 1930. Furthermore, the lack of discussion of the SPD and German social democracy, in general, is a serious omission considering that the mere pressure of its existence during the Kaiserreich was a large impetus for the social legislation promulgated on the Reich and Prussian levels. Though Hammerschmidt is correct in drawing attention to the importance of confessional organizations and the Center Party, especially in the Rheinland, he glosses over the crucial importance of the SPD on the Prussian and, indeed, Reich levels of administration and politics (p. 71). The SPD, despite its insistence on maintaining the label of class party, was, in reality, a Volkspartei during the Weimar period and saw itself as the representative of the Volk. As it was no longer a revolutionary party, a gradual process that culminated with the outbreak of war, the SPD, along with the free trade unions, focused its attention on the Gegenwartarbeit, as stressed by Eduard Bernstein during the revisionist controversy. It was the KPD, created in December 1918, that took the stance against the republic and, thus, saw it as fruitless to work towards the extension of welfare. In the few instances when Hammerschmidt mentions the socialist and communist parties at all, he conflates the two under the general rubric of "the left" (p. 62).

Hammerschmidt succeeds in bringing to the reader's attention to the role of the German Reich in financing private welfare across the period, an observation he feels has been overlooked and undermined in the literature (p. 349). His subtle neo-Keynesianism and opposition to neo-liberalism is supported by the story that unfolds from his meticulous research. In the end, the case he makes for the maintenance and support of the traditional German Wohlfahrtsstaat is strong and convincing. The one time that welfare was handled "purely economically," during the world economic crisis under the Brüning government, the comfort and standard of living of residents and patients went down, while the death rate went up (p. 254). Hammerschmidt's subtle method of argument is quite convincing, if at times wearying.

Note

[1]. Der Spiegel 33 (August 9, 2004): p. 36.

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Citation: Tania Maync. Review of Hammerschmidt, Peter, Finanzierung und Management von Wohlfahrtsanstalten 1920 bis 1936. H-German, H-Net Reviews. November, 2004.
URL: http://www.h-net.org/reviews/showrev.php?id=9982

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