The year 2025 began with a new POTUS (President of the United States) and is ending with Zohran Mamdani as the incoming new Mayor of New York City (NYC). It is a curious twist of fortunes, but all this while welfarism keeps returning centre stage. Politicians of the left and the right reach for it when inequality widens or when growth feels exclusive. Luiz Inácio Lula da Silva in Brazil, the Keir Starmer government in the United Kingdom, and in India, various Chief Ministers have built on welfare-led politics. Now, the Big Apple will have its “Mamdani moment”.
Mr. Mamdani will begin governing only from January 1, 2026, with an all-women Transition Team, but the headline promises — free buses, rent freezes, universal childcare — pose a basic question. What does sustainable welfarism look like in economies that still rely on markets to allocate most goods and services?
The two sides to welfare
The appeal is obvious. Welfare acts fast. It bypasses the slow grind of productivity reforms and delivers visible outcomes: children in school, workers in transit, families housed. Yet, there is a boundary condition that voters sense and economists formalise — quality often erodes, deadweight losses creep in with welfarism, and black markets flourish when prices are pushed below cost. Free buses without cost discipline can mean fewer buses or poorly maintained fleets. Rent freezes can protect tenants yet deter new construction, with “key money” resurfacing. Free childcare can expand access but strain quality if staffing and training are not funded.
Does this mean conventional economics is merely pinched lipped about compassion? Not quite. Incentives are not a moral preference; they describe behaviour. Set a price to zero, demand rises; if supply cannot scale, queues and side-payments follow. But economics also recognises distribution: policies aiding the worst-off can increase social welfare even with some inefficiency. Here, John Rawls matters — judge society by its least advantaged. If markets leave many out because they cannot pay (or sell) at the moment of need, the state can subsidise buyers and sellers to re-admit them on fair terms. It may well be what NYC voters are signalling.
So, should Rawls replace Pareto, or must a healthy polity oscillate? Economic and social history suggest the latter. Polanyi called it the “double movement”: overreach by markets sparks social protection; ossified protections trigger liberalisation. Bismarckian social insurance yielded to later liberalisations; post-war welfare states met Thatcher-Reagan retrenchment; Latin America shifted from price controls to stabilisation and targeted transfers; India has toggled between public provisioning (Public Distribution System, the National Rural Employment Guarantee Act) and market-complementing reforms (Direct Benefit Transfer, Goods and Services Tax). Each swing overcorrected somewhere and taught lessons.
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The dangers lie at the extremes. A “Pareto trap” prizes efficiency while tolerating exclusion: clinics that are “efficiently” empty of the poor, and buses that are on time but not where workers live. A “Rawls trap” suppresses prices across the board, undermining supply incentives; quality falls, the middle class exits, and coalitions fray.
What could work as a model
The more useful question for a Mamdani model is not Rawls or Pareto, but how to build a thermostat between them — automatic stabilisers that lean Rawlsian under stress and lean Pareto as capacity grows. In short: make welfarism fiscally honest and micro-economically careful.
How can one do this? Some simple steps could be helpful. First, one may want to subsidise outcomes, not inputs, and cap fares selectively, contracting for on-time kilometres and peak seat availability, publish open data audits, and keep a modest price signal with transparent provider compensation. Examples to borrow from are the 2016 Bus Contracting Model in Singapore and France’s Solidarité Transport discounts which protects access while preserving a non-zero fare. Second, one may want to replace blunt price controls with contingent buffers by using means-tested, automatic vouchers that scale in shocks, and pair them with zoning fast-tracks and tax incentives to expand supply and add sunset/trigger rules.
Finally, one may want to default to cash/e-vouchers that are backed by credible public options and hard quality budgets — fund staffing, accreditation and inspections. This way, services will not residualise, and public providers can set a quality floor that disciplines private prices. Other examples may be from Brazil’s Bolsa Família (conditional cash transfers) and Kenya’s Inua Jamii programme.
Where do mission-driven firms and socially minded entrepreneurs fit in this conversation? They are the connective tissue. If the state is Rawlsian and markets are Pareto, we need institutions that straddle both. A stakeholder-oriented bus operator can accept capped fares given long-term contracts, reciprocal data-sharing, and reputational gains. A childcare chain investing in staff development can align with public training subsidies. Indian health systems (Aravind Eye Care and L.V. Prasad Eye Institute) show how cross-subsidy models complemented with a “focused factories” orientation (in the McDonald’s sense) can deliver scale and quality, with the paying rich underwriting the poor. These are not acts of charity but of business model design.
Fiscal honesty is the other pillar. Welfarism fails not just by mispricing, but by underfunding. If Mamdani-style promises are to endure — in NYC or anywhere, wrestling with inequality amid Artificial Intelligence-led churn — they must be transparently costed and paired with growth measures: productivity compacts with industry, regulatory simplification to lower supply costs, and public investment that expands capacity (depots, fleets, childcare centres, housing stock). Welfare that crowds in supply lasts longer than welfare that waits for supply to appear or crowds it out.
There is also a social and geopolitics of dignity. A Rawls-Pareto thermostat is not merely technical; it signals respect. Users should be treated as customers with recourse — working grievance redress, real-time service information, and independent audits in plain language. Suppliers should be partners with obligations — service standards, open books for subsidised lines, and penalties for gaming.
Programmed oscillation
Economic history does not force a choice between kindness and competence; it teaches sequencing. In shocks and downturns, lean Rawlsian: insure households against ruin, subsidise access, keep systems intact. As capacity catches up, lean Pareto: restore prices that ration sensibly, move to cash and vouchers, foster provider competition, and invest in productivity so that tomorrow’s welfare is cheaper to deliver. The oscillation need not lurch; it can be programmed.
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If the Mamdani model is to mean anything durable in 2026 and beyond, it should stand for welfarism disciplined by design: promise access, protect quality, pay for it honestly, and build bridges for mission-driven firms to co-produce public value. That is not an abandonment of markets or justice. It recognises that a society secure enough to take risks — and productive enough to finance fairness — needs both. May his team and others inspired by these ideas looking at the Big Apple, focus less on the romance of “free” and more on the architecture that makes inclusion work at scale.
Chirantan Chatterjee is Professor of Development Economics, Innovation and Global Health at U-Sussex
Published – November 08, 2025 12:16 am IST
