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The myth of the exploding welfare state
I did think about putting this in the Benefits Up-rating Bill thread but I think it deserves its own place, as I think this is a tremendously important piece of writing from Martin Eiermann, Managing Editor at The European. Prior to joining the magazine, he studied history and political theory at Harvard University. A few selective quotes below, but I really would urge anyone with an interest in the debate around social security and the welfare state to have a proper read of the whole thing.
Five years have passed since the advent of the current crisis, and while the beast has since morphed from a financial crisis into a confidence and debt crisis, some mantras have become so deeply engrained into our collective psyche after loud proclamations and endless repetitions that they feature is almost any discussion about the future of the economy or, for that matter, the future role of the state. They have assumed the status of self-evident truths and have reduced public discourse to the squabble over fitting solutions. The mantra itself is taken for granted.
The myth of the link between the welfare state and the debt crisis is one such mantra. It posits, roughly, that the excessive welfare state has been responsible for out-of-control public spending and must be cut back down to size in the name of fiscal sustainability. We can…submit the alleged link between crisis and welfare expenditures to empirical scrutiny.
1. The welfare state isn’t out of control. In examining the sustainability of welfare expenditures, the critical number isn’t the total amount of expenditures but their relation to GDP. Simply put, the relation between welfare costs and GDP tells us whether a country can afford its welfare state. As long as the rise in welfare costs doesn’t drastically exceed economic growth, the much-maligned current system remains financially viable.
2. The welfare state isn’t responsible for the debt crisis. Public debt has risen quite significantly since 2008, especially in the Eurozone. The average debt increased from 80 percent of GDP to 87 percent, and countries like Greece and Ireland saw much larger increases. It’s tempting to conclude that those countries all have extensive social safety nets and high public welfare expenditures, and that the former must somehow be causally linked to the latter. But a country’s debt doesn’t correlate with the size of its welfare state. The three European countries with the biggest welfare state – Denmark, France, and Sweden – aren’t exactly fiscal troublemakers.
3. The welfare state isn’t about to collapse. While the welfare state cannot be held responsible for the current crisis, another important argument remains: Demographic change will make it unsustainable in the future even if it remains viable at present. But this is no full-scale argument against the welfare state: It is first and foremost an argument for pension reform.
Warnings against unchecked welfare spending have a long tradition. They are regularly invoked by liberal and conservative politicians – and amplified by the media – during budget discussions or whenever the discussion focuses on “free riders” and the incentivization of work. Even the social-democratic Left has become enmeshed in this tradition and bound to its myths: The promise of politicians like Ed Miliband (in the UK) or Peer Steinbrück (in Germany) appears to be that they’ll do a better and fairer job of administering welfare cuts – not that they’ll rethink the narrative.
As long ago as 1993, then-chancellor Helmut Kohl argued in Germany that “we cannot secure our future by organizing this country like an amusement park.” That was almost twenty years ago. The arguments were similar – and the Eurozone crisis wasn’t on anyone’s radar yet.
For the whole piece, see The Myth of the Exploding Welfare State
That’s just in time for a training package I’m doing on the whole ESA thing. I have included the politics behind ESA (partly as light relief), but I think to train people about ESA without covering the political points is doing them a disservice.
Going back to the original Tudor laws (and earlier), the conclusion you inevitably come to is that the state is much more flexible with welfare provision when the economy is buoyant, but restricts welfare support when the economy is in trouble and also uses the media to prepare the way with smears etc. Essentially, we have vacillating policy over hundreds of years partly ideological, and partly ‘economic’. It is interesting to note that all the flurry of ‘work is good for you’ reports were published around the time that the banking crisis was kicking off.
It’s very easy to miss the bigger picture when you are consumed by the day-to-day mind numbing minutiae of ESA (and soon PIP), but take a step back to review the historical timeline and a pattern starts to emerge.