Many countries are implementing austere fiscal polices to rise to the challenge of financial crises. Welfare reform has been a debate topic for people and different political interests in the West. As a social policy system, the reform of welfare states involves the fields of politics, economy and society. Reforming social-welfare systems involves reforms in many other fields, says an editorial in People's Daily. Excerpts:

First, what role should the government play? Historical experience indicates the governments' active roles are the prerequisite conditions for welfare states. The efficiency of a welfare system lies in the efficiency of the government's operation. The government needs to make good use of the market. How the government should play its leading role is decided by the political and cultural environment of a given country.

Second, the social welfare level should match the economic growth. The efficiency of the welfare system is decided by the consumption level, population and employment structures. Traditionally, the welfare states must support their welfare system with a high employment rate. But the financial crisis makes it difficult to maintain one.

In terms of economic policies, the neo-liberalism policies adapt to market changes quickly. But the public cannot enjoy the real fruits of economic growth. If the welfare states' reform cannot guarantee effective social demands, their welfare systems cannot be sustained for long.

Third, the welfare states must consider the balance between labor and capital. The welfare states are built on the compromises of different interest groups and preconditioned on the balance between labor and capital. So the level of a welfare system is only a comparative variable quantity.

The most important issue is whether relevant interest groups agree with the policies or reforms. Under neo-liberalism policies, power is more inclined to capital, creating new social unrest. After the capital owners have bigger rooms, it becomes more difficult to regain the balance between labor and capital.

The problems of welfare systems are not purely economic issues but social policy issues. Neo-liberalism cannot help the developed countries solve these problems because it cannot approach these challenges from various angles of politics, economy and society. The emerging economies, which are striving to build modern welfare systems, should draw lessons from the developed countries.