Welfare capitalism is the economic combination of traditional free market principles mixed with laws or practices from a welfare state. A welfare state helps individuals by offering minimum wage pay, short work days, restrictions on working ages, and unemployment benefits. In some countries, this type of economy involves the use of government regulation to force businesses to pay for these items in the form of taxes. Governments may require businesses to contribute a portion of their profits to funds that will help pay for workers who are injured on the job or receive termination form the company.
The bottom line is that this type of economy provides a safety net for the individuals living and working in a society. Traditional liberal economic theory states that workers are at a severe disadvantage compared to companies. They are unable to pay for the bare minimum lifestyle needs if unemployed, and therefore require help when hard times arise. Through the payouts of government programs or transfer payments from corporations, individuals can at least maintain their lifestyle until they can find other sources of income to sustain themselves. In some ways, this is a form of socialism where common ownership is available for capital generated by organizations.
Many countries in the world today operate under some form of welfare capitalism. The governments of these nations look to provide for individuals through the redistribution of wealth caused by corporate taxes. Companies can contribute voluntarily by providing funds or services for their employees on an as-needed basis. This allows the company to hopefully avoid government regulation that creates a forced welfare state on the economy. When engaging in these voluntary actions, organizations can also place money into services that their workers will find most valuable. For example, government programs may have specific restrictions for obtaining the funds, or regional programs may not be equal throughout the nation. This results in employees who cannot obtain desired benefits.
Welfare capitalism may sometimes be mistaken for free market capitalism. Companies that offer higher wages than the current market average may be seen as engaging in welfare state principles, but in reality, the company is looking to find and retain top talent by offering higher wages. This results in the best workers who can complete tasks and activities better than other individuals. Benefit packages, such as medical, dental, vacation time or other benefits, can also help avoid the forced creation of a welfare state by the government.