WORLD FUTURE FUND
THE SUCCESS OF THE EUROPEAN SOCIAL WELFARE STATE
BIG GOVERNMENT WORKS
From the very beginning of history all human societies have been based on a social contract concerning the division of wealth. And the instrument for that contract has always been the government. This is the case for most nations around the world today. Many nations manage the distribution of welfare and services through a system of centralized government. In this system, basic government services protect the economic and social well-being of the people. This can cover everything from healthcare, childcare, education, safety, environmental sustainability and the elimination of poverty. This is funded through redistributionist taxation. Such taxation usually includes a larger income tax for people with higher incomes, called a progressive tax. This helps to reduce the income gap between the rich and poor.
The reality is that government sponsored welfare programs have been shown again and again to be the best way to reduce poverty (including child poverty), to provide healthcare to all citizens, to provide education to all citizens, to promote productivity along with the growth of business, and to improve the overall quality of life. (We have provided some links to reports and charts below to support this). This is a social safety net that can protect the citizens of a nation, which is good to have in place in the event of a widespread health crisis or economic crash.
Yet in America there is complete misunderstanding of all this. The phrase "welfare state" has developed a negative connotation, and there is the deranged illusion that government is the problem. Yet the reality is that providing these services through a centralized government is often the only efficient and realistic way to provide these services. Medicare in America is a classic example of the way that centralization of delivery services can cut costs and accomplish efficiency of scale. Even if Americans may pay less taxes than other nations, this is really only a benefit to the wealthy. Middle class and low income Americans often have to spend a bigger chunk of their spending money on basic services that are provided by the government in most developed nations around the globe. Many Americans have gone bankrupt because of the cost of healthcare, and several are in crippling debt due to the costs of education.
So we must also ask, what is the alternative to the services provided by big government? Some voices on the American Right (and Left) have proposed delegating these services to the private sector and private charities. Now we're not opposed to private charities. There are many that we support. However, the idea that the private sector will solve all of Americas social issues is absurd. Imagine if the military had to throw a fund raiser every time they wanted to build a missile? Imagine if the police force relied on six competing charities to function? Imagine if you could only call a firefighter to put out a fire in your building if you had fire insurance through a private insurance company. So this is not realistic. And yet this is the way that many other basic services in America are handled.
AMERICA: A STUDY IN SOCIAL DISASTER
FAILURES OF THE US LIBERAL ESTABLISHMENT
America's rejection of a sane social welfare system has led to astronomical levels of child poverty, millions in jail and no universal health insurance (some 30 million Americans still lack health insurance). Financially the middle class is hanging on by their finger nails and poverty is getting worse. Social Mobility in America Lags Behind "Old" Europe. Hertz, an Assistant Professor of Economics at American University in Washington, DC, takes a scientific and statistical look at socioeconomic mobility in the United States. He finds disturbing evidence that poverty is on the rise in America and that upward economic mobility between generations in the United States, long a heralded advantage of living in this country, lags significantly behind many developed countries, especially in Western Europe. Read the report: "Understanding Mobility in America: PDF" (Center for American Progress, 4-26-06)
Part of the problem historically was the failure of the "New Deal" to put these ideas into place . Instead the policies of Truman led to America pick a fight with the Soviet Union. So America started spending a lot of money on building up its military to take on a global super power, rather than using those funds to create a social safety net at home. Also, a Republican political ideology against "big government" developed when America was fighting the Soviet Union and ideas of communism. Yes, the complete incompetence of communism created a mess. But one failed political theory doesn't mean that all systems of government are false. In fact, social welfare has been a tremendous success in Europe, and is also making progress in other nations around the world, such as in rising Asian economies.
Unfortunately, "progressives" in America are not rising to the challenge. U.S. "progressives" refuse to put in place three essential parts of a welfare state: a consumption tax, an energy tax and single payer national health insurance.
STATE OF AMERICA 2016
State of America 2016 (World Future Fund)
This page contains a number of articles and reports on the rise of poverty, debt and other social horrors in America.
THE THREE ESSENTIAL PARTS OF A FUNCTIONAL SOCIAL WELFARE STATE
The Real U.S. Economy: Some Relevant Charts (World Future Fund)
America and Poverty A Sorry Record (World Future Fund)
Success of Medicare (World Future Fund)
HOW BILL CLINTON GUTTED WELFARE IN AMERICA
AND CRIMINALIZED THE POOR
During his presidency, Bill Clinton gutted welfare, criminalised the poor, all while funneling more money into incarceration. Many people remain ignorant of the destruction the Bill Clinton presidency wrecked upon the poor, and the destruction he waged upon the African American community. The starkest example of this was his 1996 welfare reform bill, which transformed welfare from an exclusive and unequal cash assistance system that stigmatized its recipients to one that criminalised them. The Personal Responsibility and Work Opportunity Reconciliation Act ended traditional welfare by returning to federal entitlement.
Temporary Assistance to Needy Families (TANF) established tougher mandates on poor single mothers and states were given more flexibility in how they spent their welfare dollars, opening the door to increased discrimination against minorities. The act prohibits anyone from receiving assistance for more than two consecutive years, or more than five years over the course of their lives. The act also requires that the recipients must be employed (in most cases) at least thirty hours a week in order to get their welfare checks - which in many ways - defeats much of the point of the program. A 2012 report by the Urban Institute also found that for recipients with barriers to employment, TANF did little to help them find jobs.
The “flexibility” that was the hallmark of the welfare reform bill enabled states to shift welfare funds away from direct cash assistance toward child care programs or subsidies for companies hiring welfare recipients. This meant that a greater portion of public welfare dollars went to the private sector. So the supposed flexibility touted in the bill was the ability for states to shift funds away from the public sector to the private one. States were pressured to reduce welfare rolls and used many strategies to deter the needy from applying for aid. States implemented complicated and demeaning application procedures and relied on fingerprinting and drug testing to weed out the “criminal element,” even though there was little evidence of widespread criminal activity among recipients.
The result was that all recipients and applicants were assumed to be potential criminals. Surveillance of low-income women punished black women in disproportionate numbers, resulting in more black children in foster care and black women in prison. Today, welfare and law enforcement work together to closely monitor the parenting of poor mothers.
Clinton did not offer a departure from policies that blamed the poor for their poverty or neoliberal economics. Instead, he turned what had been a few piecemeal reforms into a systematic overhaul of federal policy that led to the criminalization of the welfare poor. He redirected state resources away from financial support for the needy and toward surveillance and criminalization. Clinton used the argument of "personal responsibility" in order to direct funds away from the needy - especially away from women of color.
John Kasich and the Clintons Collaborated on Law That Helped Double Extreme Poverty (Common Dreams, 2-13-16)
15 Ways Bill Clinton’s White House Failed America and the World (Alternet, 6-22-15)
Charge: 'Clintons turned the State Department into a racket to line their own pockets' (Washington Examiner, 7-30-14)
Former President Clinton's Welfare Reforms of the 1990's Made America's Poorest Families Even More Poor (Center for Budget and Priorities, Off The Charts, 5-25-11)
While welfare was effectively gutted in America under Clinton, Social welfare has been a tremendous success in Europe ever since its implementation in the aftermath of World War II. The EU, comprising 25 nations and 450 million citizens, has more wealth and more votes on every international body than the United States. It offers guaranteed health care and free university educations. The various systems of social welfare in European countries are creating better educated citizens with a higher standard of living. Now we will state that the welfare system in Europe is not perfect. It has problems. But it is a much better alternative than what currently exists in America.
This concept of welfare is also nothing new. The German term Sozialstaat ("social state") has been used since 1870 to describe state programs devised by the German Sozialpolitiker ("social politicians"), and were implemented as part of Bismarck's conservative reforms. Yet this concept didn't catch on in English speaking countries until the Second World War, when Anglican Archbishop William Temple, author of the book Christianity and the Social Order (1942), popularized the concept using the phrase "welfare state."
Many countries began to consider the model of the "welfare state" because of the unemployment brought on by the Great Depression. The welfare state was seen as a middle way between the extremes of communism of the left, and the unregulated laissez-faire capitalism on the right. In the period following World War II, many countries in Europe moved from partial or selective provisions of social security services, to completely comprehensive coverage of the population.
The welfare state is also flowering in Asia. In 2011, Indonesia passed a bill to provide single payer health insurance to all 240 million of their citizens, making the nation the biggest welfare state in the world. In the Philippines, 85% of the population are now part of a government health insurance program. China's rural health-insurance scheme covers 97.5% of the eligible population. India has also extended health insurance (albeit modest coverage) to 110 million people.
Rich Asian countries like South Korea and Taiwan have gone even further. In 2008, Korea introduced an earned-income tax credit, a universal basic pension and an insurance scheme providing long-term care for the elderly. Before 1998, none of Taiwan's unemployed got state benefits. But by 2001, all of them did.
In South Korea, President Kim Dae-jung pushed through a controversial 1999 act guaranteeing a minimum income to the poor, even if they could work. That minimum is now about 97% of America’s poverty guideline, measured at purchasing-power parity, in a country with only about 67% of America’s GDP per head.
Asian welfare still looks sparse by Western standards. Public health spending is still only 2.5% of GDP, compared with about 7% in the OECD group of rich nations. That will change as Asia ages, but high co-payments (in South Korea), low payments to hospitals (in Thailand) and sparse facilities (in Indonesia and elsewhere) have also contained costs.
Some Asian countries have also set interesting records in providing for their citizens. Singapore is the only capitalist society to house more than 80% of its population in public housing. South Korea beats the world in college enrollment (it has more students than 18 to 23 year-olds). (The Economist).
So while these systems are not perfect, they at least are an attempt to create a social safety net for their citizens and workers.
DESTROYING THE MYTH THAT WELFARE CUTS PRODUCTIVITY AND LEADS TO DEBT
THE RESULTS SPEAK FOR THEMSELVES
Once again, researchers see little evidence that social expenditures of a welfare state contribute to losses in productivity ; economist Peter Lindert of the University of California, Davis attributes this to policy innovations such as the implementation of "pro-growth" tax policies in real-world welfare states . The social expenditures of welfare states have also not contributed to any significant debts. According to the OECD, social expenditures in its thirty four member countries rose steadily between 1980 and 2007. Yet the increase in costs was almost completely offset by GDP growth. More money was spent on welfare, because there was more money circulating in the economy, and because government revenues increased. In 1980, the OECD averaged social expenditures to equal 16 percent of the GDP. So welfare spending in these nations is not "out of control" as some critics would say.
The welfare state is also not responsible for the debt crisis in Europe's southern countries. Public debt has risen significantly since 2008 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. According to data by the OECD, industrialized countries tend to carry the largest debts – the G7 now averages gross public debt of over 125 percent of GDP. It is tempting to conclude that those countries all have extensive social safety nets and high public welfare expenditures, and therefore that social spending must lead to debt. 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 the three biggest debtors.
In 2011, an American economist published a graph that plots state spending against interest rates. If it were true that higher state expenditures increased the fiscal precariousness of a country, an extensive welfare state would presumably correlate with higher interest rates for government bonds. Investors would demand higher returns for riskier investments, and the government would have to pay higher interest rates on its debt. To cut a long explanation short - again, no correlation exists. Almost all Eurozone countries fall in the interest rate range between two percent and four percent, regardless of whether state spending amounts to 41 percent of GDP (Slovakia) or to 58 percent (Denmark). At the same time, countries with similar levels of public spending (around 50 percent) face drastically different interest rates, from Sweden (2 percent) to Greece (18 percent).
It is likely that the fiscal problems of countries like Greece are not the product of their welfare state. Instead, it is more likely that the housing bubble (in the US), the real estate bubble (in Spain), the misguided budget planning and political nepotism (in Greece), the deregulated derivative trading, risky speculations, and taxpayer-funded bailouts of banks (since 2009), industries or other countries have contributed to the ballooning of public debt. Gert Wagner, head of the German Institute for Economic Research, concludes: “Upon closer inspection, the rise in expenditures can hardly be blamed on a bloated welfare state and state bureaucracy.” (The European Magazine) Almost three quarters of German debt since 1990 can instead be traced back to the costs of reunification or to the rescue packages for the Eurozone. In the US, the Congressional Budget Office estimates that US budget deficits are almost entirely due to the Bush-era tax cuts, the wars in Iraq and Afghanistan, and the costs of the economic bailout.
WELFARE - GOOD FOR THE ECONOMY, SMALL BUSINESS AND ENTREPRENEURS
As we mentioned above, it has been shown that a system of strong government and centralized care does not destroy worker productivity. In fact, some research has even shown that when the government provides citizens with economic security, it emboldens them to take more risks. Entrepreneurs are actually more likely than other Americans to receive public benefits, after accounting for income, as Harvard Business School’s Gareth Olds has documented. And in many cases, expanding benefit programs helps to spur new business creation. Conservatives also argue that food stamps breed dependence. However, in a 2014 paper, Gareth Olds examined the link between entrepreneurship and food stamps, and found that the expansion of the program in some states in the early 2000s increased the chance that newly eligible households would own an incorporated business by 16 percent. (Incorporated firms are a better proxy for job-creating startups than unincorporated ones.) Publicly funded insurance also lowers the risk of starting a business, since entrepreneurs needn't fear financial ruin. The Childen's Health Insurance Program (CHIP) offers publicly funded health insurance for kids whose families don't qualify for medicaid. It has been found that CHIP eligibility increased the chances of immigrant households owning an incorporated business by 28 percent. Publicly funded insurance lowers the risk of starting a business, since entrepreneurs needn’t fear financial ruin. (This same logic explains why more forgiving bankruptcy laws are associated with more entrepreneurship.)
A 2010 study by RAND found a similar effect with Medicare. American men were more likely to start a business just after turning 65 and qualifying for Medicare than just before. Here again, government can make entrepreneurship more appealing by making it less risky.
Sometimes a robust safety net can discourage entrepreneurship. However, instead of gutting the program, sometimes the best solution can be to reform it. For instance, when France lowered the barriers to receiving unemployment insurance, it actually increased the rate of entrepreneurship. Until 2001, citizens on unemployment insurance had little incentive to start businesses, since doing so would terminate their benefits. Instead of cutting the program, the French government simply decided to let anyone who founded a business keep drawing from their unemployment benefits for a limited period of time, and guaranteed that they would be eligible to sign up for benefits again if their business failed. The result was a 25 percent increase in the rate of new firms created. However, in America many Welfare benefits still function like the old French system, and take away incentives for entrepreneurial behavior. This point is important because America has actually become less entrepreneurial over the past few decades. (The Atlantic)
Also, the idea that funding poor and middle class Americans will break the system is absurd when you consider the large amount of government subsidies given to big companies. According to The Cato Institute, corporate welfare handouts shot all the way up to $92 billion as of 2002.
So in America, we already have a welfare state. It's a welfare state for the rich. However, if we want to create a viable system that provides healthcare, education, and economic and social services to the rest of our citizens, a system of centralized government delivery (such as what we do with medicare) is the best - and most realistic solution. Such a solution has been shown as the best way to cut poverty, increase productivity, and create a state with healthier and better educated citizens. If America wishes to compete with the economic and technological successes of nations abroad, adopting such policies is imperative in providing a real future. A system of social benefits delivered via a centralized government apparatus is not about making people lazy or entitled. It's about giving citizens what they work and pay for, and it is what would help them become healthier, happier and more productive in the long term. It is about creating a social contract where all the citizens of a society benefit by participating in that society. This has been the case historically. This is the case in most nations around the globe today. It is time for America to get with the program an adopt a sane system of social welfare.
 Atkinson, A. B. (1995). Incomes and the Welfare State. Cambridge: Cambridge University Press. ISBN 0-521-55796-8
 Lindert, Peter (2004). Growing Public: Social Spending And Economic Growth Since The Eighteenth Century. Cambridge: Cambridge University Press. ISBN 0-521-82175-4.
RELATED WORLD FUTURE FUND REPORTS
The European Social Model (ETUC)
European social model (Wikipedia)
Welfare State (Wikipedia)
How a Democrat Killed Welfare (Jacobin, February 2016)
Europe’s Secret Success (New York Times, 5-25-14)
Western nations with social safety net happier (CNN, 9-25-13)
The Myth of the Exploding Welfare State (The European Magazine, 10-24-12)
The Real Welfare Problem: Government Giveaways to the Corporate 1% (Common Dreams, 9-3-12)
The welfare state wins this budget war (The Washington Post, 8-7-11)
IS PRIVATE PROFIT THE SOLUTION?
New Report Documents How Privatization Steals Wages, Harms Communities (Truth Out, 6-6-14)
PROBLEMS IN THE U.S.
What Americans Don’t Get About Nordic Countries (The Atlantic, 3-16-16)
The staggering cost of day care when you make only the minimum wage (Washington Post, 10-6-15)
New Research Documents Growth of Extreme Poverty in US (Bill Moyers, 9-3-15)
The U.S. Is Number One -- But in What? (Alternet, 10-13-14)
Forget Retirement, Americans Aren't Even Set for Emergencies (Daily Finance, 6-23-14)
More Evidence That Half of America Is In Or Near Poverty (Truth Out, 3-24-14)
Thirty Million Uninsured (Factcheck.org)
Kenneth Arrow says single payer is better than any other system (PNHP, 3-16-16)
Single-Payer Is Worth Fighting For (US News, 1-21-16)
The Trouble with For-Profit Healthcare: Even the Insured Face Mountains of Debt (Common Dreams, 1-5-16)
Putting ‘Medicare for All’ on the Agenda (The Nation, 9-5-14)
CHILDCAREChild Care Cuts Expose Longstanding Failure in Welfare Reform (Colorlines, 5-24-10)
Public Pension Funds Roll Back Return Targets (The Wall Street Journal, 9-4-15)
The impact of benefit and tax uprating on incomes and poverty (PDF) (Joseph Rowntree Foundation)