I was responding more to Pippa, really.
I was only trying to show what an unholy mess various parts of our government is in and how difficult it is to decide what is a good and reasonable way to solve them. It may indeed be edging on to your citizen and state discussion but I think my question was more "what (or which) capitalism is it reasonable for a left-of-centre government/person to approve of. Fairly obviously the reason the new Australian pension system looks as if it will work is because of compound interest rather than a direct government payment (without going into any detail).
You may find something of interest in An Essay on Citizenship.
This means the purpose of the welfare state is to ensure each individual within society can live as a citizen. On this analysis the welfare state’s services, benefts and taxes should be measured by their effectiveness at extending citizenship to all. If we are more divided, with some groups stigmatised or excluded, then the welfare state is failing. If we are more united, able to recognise the value that diverse people and groups bring to the whole of society, then the welfare state is succeeding.