Does capitalism “need” a welfare state to survive? So maintains The Economist. I find this a questionable contention.
They write:
As countries become richer they tend to spend higher shares of national income on public services and benefits. Spending on “social protection”, such as pensions, unemployment insurance and assistance for the hard-up, has risen from an average of about 5% of GDP in rich countries in 1960 to 20% today. Include spending on health and education and those shares roughly double. For some, the sheer scale of these welfare states is reason enough for reform.
But what the welfare state does is perhaps more important than its size. It should seek to allow individuals to make their own choices, whether through support for parents to return to work as in Scandinavia, personal budgets for disabled people to select their own provision as in England, or Singapore-style learning accounts so that the jobless can acquire new skills.
It seems to me that the British newspaper wants to say that a modern, capitalist economy needs a form of safety net, not necessarily a welfare state whose growth in size is indeed for some “reason enough for reform”. The Economist insists on the value of “universalism”, as an alternative to paternalistic aid to the poor. Such universalism shall mean “empowerment”, allowing people to make their own choices, particularly in the face o complex situations such as unemployment or illness.
While we may agree that this was the intention of the founders of welfare states, I find it questionable to value the welfare state for their intentions rather than their consequences. It is one thing to assume that a free, capitalist society needs a specific range of social needs to be answered. Individuals demand a certain degree of certainty for their future and need to be insured against worst case scenarios. But this does not necessarily mean that it is expedient, let alone “just”, to entrust the government with the goal of insuring them all. Provision of such service by government may result in a staggering growth of public intermediation, feeding an administrative bureaucracy rather than providing good insurance, or even “transfers” from the rich to the poor. That bureaucratisation may lead to functionaries being the true beneficiaries of the welfare state has long been pointed out.
The Economist points to two obvious challenges to the welfare state as it is: one is ageing, the other is immigration. This is what they write on immigration:
Across Europe, “welfare chauvinism” is on the rise. This supports a generous welfare state for poorer, native-born people—but not immigrants. Populists argue that, if migrants from poor countries immigrate freely to rich ones, they will bankrupt the welfare state. Others argue that liberal migration policies depend on curbing access to it: build a wall around the welfare state, not the country. Polls suggest that few native-born Europeans want to deprive new arrivals of instant access to health care and schools for their children. But some restrictions on cash benefits, like those already in place in America and Denmark, may be necessary.
As liberals such as Beveridge realised, the best way to secure support for free markets is to give more people a stake in them. The welfare state must be seen as more than providing shoes and soup for the poor, and security in old age. In a democratic society it is also crucial to the case for capitalism.
What the prescription here is not clear to me. “Welfare chauvinism” is most likely based upon a misjudgment: the idea that people endure fantastically difficult and risky travels, like crossing the Mediterranean, leaving their families and jeopardising the little they have, just because they want to be sure that if they catch the flu they can run to an ER room and not be asked to pay the bill. Actually, this misjudgment says something about those who hold it: proud citizens of Western countries that aren’t particularly proud of their societies’ ability to create wealth, but of its taste for redistributing it. It is more likely that people face so many daunting difficulties because they want a bite of the economic opportunities that modern economic growth supplied, than because they want a bite of our social insurance.
If this is a more reasonable assumption, then those who opposed “welfare chauvinism” should embrace a point made over and over by Bryan Caplan, that residency and work rights are practically separable from citizenship and eligibility for welfare rights. The Economist doesn’t go that way, though, and while it accepts that “some restrictions on cash benefits may be necessary”, it seems to me it cares more for reaffirming the need for welfare states as they currently are, than to accept the challenge to create solutions that may allow for greater public legitimacy for free movement of people.
This reminds me of a short conversation I had once with a prominent Italian left-winger. An extremely educated man, he was well-meaningfully appreciative of open borders. How do you reconcile it, I asked, with your battle to reduce flexibility in the labour market? A more inflexible labour market (which is often a feature of more developed welfare states) certainly makes the life of new comers harder. He didn’t answer. Perhaps the mere thought that a freer labour market and (more) open border could go together was for him a thought difficult to reconcile with his own idea of intellectual respectability. I see that same mechanism at work in this Economist’s article too.
READER COMMENTS
Erik H
Jul 30 2018 at 11:50am
“It is more likely that people face so many daunting difficulties because they want a bite of the economic opportunities that modern economic growth supplied, than because they want a bite of our social insurance.”
Cite very much needed; this generality doesn’t seem to address both populations of immigrants.
I’ll restate your point it differently, as a choice. Imagine that you offered all of the would-be immigrants a choice:
You get all the social benefits but no real opportunity to get rich; or
You have a by-no-means-certain opportunity to get rich, but no social benefits
Do you really think most immigrants would choose #2? I don’t. And I say that because the no-social-benefits, low-opportunities-for-rich thing already exists in many of the countries that people are fleeing. What they want is much more basic.
Not to rely too heavily on Maslow’s needs here, but if you don’t already have reliable food / medical care / schooling / security from violence / housing, then you are quite probably more interested in these than you are in getting rich. That social insurance is very valuable–and that is a large population of would-be immigrants. And of course that social insurance is all tied together: A country which feeds the poor is less likely to have people committing violence to get food, etc.
Obviously for those who already have reliable food / medical care / schooling / security from violence / housing, but who lack the ability to get rich, economics are paramount. But that is a different group.
Hazel Meade
Jul 31 2018 at 9:43am
<i>the no-social-benefits, low-opportunities-for-rich thing already exists in many of the countries that people are fleeing. </i>
No, not really. The countries people are fleeing tend to be highly corrupt with the wealth concentrated in the hands of a few close-knit families and tribes. Most of the people in those countries have no chance of ever getting rich because they do not belong to the right families. They cannot just start a business from scratch because the wealthy families control the government and will use it as a mechanism to put their competitors out of business. Westernized countries are unique in having a business environment where property rights are more or less equitably enforced and everyone plays by the same rules. Most other countries are highly corrupt and nepotistic.
Hazel Meade
Jul 30 2018 at 2:51pm
I agree there is a central contradiction between saying capitalism needs a welfare state, and also limiting that welfare state to the native born. If capitalism requires a welfare state, then how would that not also hold for international markets? Why does capitalism not demand redistribution to poor people in other countries, why only internally within rich countries? Indeed free international labor markets belie the idea that capitalism needs a welfare state because there is no international welfare system, and no apparent demand for one either. Poor people in underdeveloped countries aren’t asking for foreign aid, they are asking for the ability to migrate and work and take their chances in the free market.
nobody.really
Jul 31 2018 at 7:25pm
Various people immigrate for various reasons. But I’d argue that this misses the point.
Generally when we want to analyze the wisdom of an expenditure, we look at the people doing the spending. In the case of social safety net programs, that person is (roughly) the TAXPAYER. So we should be asking what the TAXPAYER wants.
And I believe the taxpayer wants to avoid the pangs of conscious he would feel constantly encountering destitute people. What do taxpayers do to avoid this? Well, they adopt laws on immigration, vagrancy, zoning laws, panhandling, etc., all in an effort to avoid encountering people from different economic classes. And they also adopt safety net laws to ensure that the people they DO encounter won’t show obvious signs of leprosy or whathaveyou.
It may well be true, as Caplan and Mingardi suggest, that Western nations could permit their streets to be filled with second-class citizens who would be grateful for the opportunity to escape their native hellholes in exchange for the opportunity to be a beggar in a Western country. But do WESTERNERS want to live that way? Do we really aspire to an Apartheid lifestyle?
Moreover, how stable would such a society be? Yes, the stereotypical first-generation immigrant is grateful and obsequious, even in the face of discrimination. But the stereotypical second-generation immigrant is not. When that second-generation immigrant watches his mom die on the emergency room steps for lack of coverage, while native-born citizens freely walk in to enjoy the benefits of the social safety net, what do you think will happen?
At a minimum, a lot of native-born people are gonna feel really shitty about the situation—and they’re gonna tell their elected representatives. True, plenty of poor people are dying for lack of health care in the developing world, too—but those people are out of sight, so out of mind. And that makes all the difference; those phone calls to the representative’s office are vanishingly few.
Is this really too hard to understand? Well, think about this: Imagine that Disneyland began selling a new category of ticket. With this ticket, children could come into the park, press their noses longingly against the glass of the restaurants and shops, but not actually go in any buildings or ride any rides or sit on any benches. I sense Caplan and Mingardi would say, “What a great development! Those kids are so much luckier than they would have been had they never been allowed to visit Disneyland at all–and that’s the relevant comparison group.” But how would the presence of all these kids–lucky by the standards of kids who never got to visit Disneyland, yet deprived by the standards of all the other visitors–effect the experience of those other visitors? What will those other visitors regard as the relevant comparison group? I sense Caplan and Mingardi fail to ask that question. They fail to realize that it’s those other visitors that actually foot the bills, so it’s their perspective that ultimately matters.
This analysis might seem cynical and myopic. But that doesn’t make it inaccurate.
Thomas Sewell
Jul 31 2018 at 9:43pm
An interesting welfare state exit strategy would be for the government to issue a welfare voucher for each citizen based on the estimated value of their welfare benefits, which they could then use to join an insurance plan (or plans) providing the mix of future benefits they actually want to have.
People would have to be ok with seeing folks not getting the benefits they decided they didn’t want, but it’d be a way to transition to a fully private competitive market for benefits and to include any immigrants in the market, but without any future vouchers.
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