Author Topic: News Article | The Future of the Welfare State  (Read 510 times)

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News Article | The Future of the Welfare State
« on: March 07, 2013, 12:00:59 AM »
The Future of the Welfare State

The Great Recession of 2008 and the Euro Crisis have triggered a worldwide discussion about entitlements ? protests in Greece and Spain over austerity proved that they have become a beloved part of modern governance. Is this the role the government must play? Must the current model be improved, or is the whole undertaking fundamentally flawed?

The Fundamental Flaws of Welfare
Isaac Inkeles


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In today?s world of budget crises and austerity, the welfare state is often discussed in practical terms: affordability, tax and benefit adjustment, efficiency, etc. These conversations assume that the welfare state is something to be desired; rarely, however, is the idea of the welfare state itself discussed. Is it a good thing? This question can be pursued several ways. Perhaps ? if we take for granted the favorability of capitalism - the welfare state is necessary because it induces the working classes to accept the capitalist model. Or, it may be that the welfare state simply helps the working classes, and so is good for purely humanitarian reasons. If one explores these thoughts, however, he will find that the welfare state neither in practice nor in theory does or can help the working classes, making it superfluous to the capitalist system.
To determine whether or not the welfare state prevents the poor from becoming disenfranchised with the capitalist scheme, its effects on the poor should be studied. It must, if it is to induce the working classes to participate in the capitalist system, alleviate their condition. Thus, if the meta-purpose of welfare is to maintain capitalism, its specific purpose is to facilitate the economic empowerment of the poor.
At the beginning of The Great Society in 1965, the US federal government spent US$77 billion on ?social welfare?. By 1978, that number had risen to US$317 billion. However, in that time span, the number of Americans living in poverty remained constant at around 2.5 million.
Between 1950 and 1968, the poverty rate in the US dropped nearly 17 points from around 30% to roughly 13%. However, as The Great Society?s welfare programs began to take effect, this progress stopped. Twelve years later, in 1980, the poverty rate stood at 13%, and today sits around 16% -before the recession, in 2008, the poverty rate was just above 13%. Welfare has also increased what the economist and American Enterprise Institute fellow Charles Murray has called the ?latent poverty rate?, or the number of people who would be in poverty if it were not for government assistance. The latent poverty rate dropped until 1968, when it began to rise once again, indicating a new, greater dependence on the government.
In 1982, Walter Williams, an economics professor at George Mason University, published The State Against Blacks, which argues that economic regulation and welfare have dramatically harmed African Americans. In a 2011 interview with The Wall Street Journal, he noted that ?the welfare state has done to black Americans what slavery couldn't do, what Jim Crow couldn't do, what the harshest racism couldn't do, and that is to destroy the black family.? Until the 1940s, 75-85% of African American children lived in homes with two parents; today those numbers have flipped, and upwards of 70% of Africans American children are born to single mothers.
Is it possible, however, that everything previously discussed is a case of correlation and not causation? How can it be established that welfare programs have deleterious effects, and this is not just the result of greater social trends?
There is a distinction to be made between a loan and a handout. A loan must be paid back. It is thus implicitly maintaining that the recipient of the loan will one day be in a position of strength and self-reliance. Loans charge people with responsibility and hold that they are capable of being responsible. They are, in this way, empowering.
A handout is fundamentally different than a loan. The recipient of a handout is not expected to be able to one day pay it back. Unlike with a loan, a handout does not expect anything of the poor, and in this way passes some severe judgments: those living in poverty cannot be expected to in one lifetime rise up into prominence, they are not to be given responsibilities (presumably because they cannot meet them), and they are in need not of an opportunity, but of charity.
This comparison between loans and handouts is designed to highlight the nature of welfare. A welfare payment is a handout, and it is hence a vote of no confidence in the people receiving it. It is debilitating and patronizing: it assumes that the working classes need the help of the affluent. In short, the welfare state cannot foster a sense of economic empowerment because it is not empowering. 
The welfare state has been unable to fight back against poverty. Any sense of economic empowerment and mobility that it creates is just that: a sense, totally illusory. Hence, it cannot keep the working classes enchanted with our capitalist scheme. Capitalism must survive or die on its own merits.
Even if the welfare state helped eradicate poverty, and thus was either necessary to support capitalism or justifiable on humanitarian grounds, the wise reader should still be wary of it: in the long run, a welfare state is unsustainable. It would be too easy ? albeit it perfectly fair ? to use the PIGS nations (Portugal, Italy, Greece, and Spain) to demonstrate the dangers of profligate welfare spending. Nations that are presumably more responsible are also in danger. In the United Kingdom, as of October 2012, public sector net debt was nearly 68 percent of GDP, and between 2011-12, the UK had to borrow the equivalent of 11 percent of its GDP. In the United States, Social Security will be operating in the red by 2033, and Medicare nine years earlier in 2024. Danish Prime Minister Thornig-Schmidt, who leads a coalition government made up of leftist parties, released a document called Denmark 2032, which began discussing the need for Denmark to prioritize its spending; the Danish welfare state cannot exist as is for much longer.
It seems that I have been quite harsh with welfare: not only is it unnecessary and ineffective, it is dangerous, putting at risk both our self-esteem and our public finances. Some modified welfare programs, however, are more than justified. There are some out there so despondent or so unable that their only succor is the government. Old age pensions, for those who cannot afford a dignified retirement and have worked to a ripe age, are hard to argue with. Those struck by fate with physical or mental illness and cannot work should be taken care of. We all aim to live in civilized society. The issue with the welfare state is that it aims to take all of us there in the same way. A broad and general welfare state is ineffective, but specific and tailored programs that work are rational and reasonable.

Reform: The Future of the Welfare State
Yacine Fares
The future of the welfare state is one of massive, structural reform. It will be brought about by two realizations: that government spending has reached unsustainable levels, and that current welfare models are crumbling relics of a bygone era.  In the post-Great Recession world, austerity and spending reform are hot topics in many capitals across the globe. The recent financial crisis provided an inflection point for many governments that came as unemployment insurance spending rose and unsustainable deficits became reality. Aiming to curb these deficits, politicians have and will continue to look at the main drivers of government spending: entitlement programs. From this factor comes the pressure to halt, and possibly decrease, the rate of government spending on such programs. Long before the recent financial crisis, it became clear that many models of welfare across the globe have begun to crumble. Income inequality has increased globally, and western income distribution stands today in stark contrast to where it was a few decades ago. This is especially true for the United States. Economists forecast that such uneven distributions of wealth may be detrimental to economic growth and may hamper any promise of another ?American century?. Households spend increasing amounts of their paycheck on health care services, and other sectors of the economy are deprived of middle class business. The gap in quality between public schools and wealthier, private schools has increased and cemented a self-reinforcing higher class more able to invest in its future success. Facing a crumbling welfare system, many countries cannot solve their problems through the familiar solution of increased spending. Structural reform to welfare is the only path forward. It must take into account specific, national problems, chief among them being demographic in nature. In many parts of the Western world, older, retiring generations rival younger ones in number and place great strain on national retirement programs. An example of this problem is the US ?Baby Boomer? generation and the necessary reforms their retirement will herald to the Social Security program. While the recent expiration of some George Bush-era tax cuts increased the payroll tax on US workers to raise funds for the program, it is clear that structural changes, such as an increase in the age at which a worker can access full retirement payments, must be made soon. US workers are living longer, and their increased longevity places a great financial burden on the government and current workforce.
In the US and many other countries, health care spending also poses a large obligation for governments. In this arena, the US faces a much graver problem that much of the world. Prices for medical procedures in the US dwarf those of similar procedures in other countries; the health care system is fundamentally flawed. It is composed of a market where the consumer often does not know the prices of the services they are purchasing, or how necessary these services are. There is a pervasive incentive in the market for overprescription and overcharging. A reformed health care model must include new mechanisms that dictate how informed a patient must be in the doctor?s office and disincentivize price increases and overprescription. While much of the world does not share the United States? health care problems in neither number nor magnitude, flawed health care systems and their ballooning costs provide irresistible opportunities for both enhanced quality of care and reducing costs for all nations. In much of the world, there must also be a call for systemic reforms to education policy, an area which is often dictated by special interest groups that do not act with student proficiency as their fundamental goal. Until recent years, education policy has been stagnant and so a dearth of information exists about how specific changes to education system affect student performance. Governments have been hesitant to experiment proposed changes within smaller environments before vetting them as candidates for national policy. Education policy must remain on the cutting edge, must be driven by empirical data. Standardized tests must be improved so that lawmakers are confident that increases in standardized test scores truly do mean an improvement in student proficiency. The inefficient and bloated nature of many welfare systems is a silver lining to the dilemma of welfare reform. It provides a clear alternative to the deficit hawk approach that advocates blind cuts to a welfare system that has proven vital to social stability. The welfare state is integral to the western system of governance. Recent challenges to its existence, and certainly to its robustness, ignore the fact that it is the welfare state that ensures the continued existence of the free market capitalist model that has brought about economic prosperity in the western world. There is an alternative to cutting away a social safety net that calls for providing much-needed reforms to aging systems. A new approach to efficiency, perhaps a technocratic approach to efficiency, will define the future of the welfare state. Facing this approach or that of the deficit hawks, it is clear that reform is the only path forward.

Source: The Future of the Welfare State

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