Europe's Welfare State Troubles
by Tibor R. Machan
The Hungarian economist Janos Kornia argued, in his book The Road to the Free Economy (W.W. Norton, 1990) that welfare states are a very bad idea for developing (and post-communist) countries because, well, they haven't enough rich people from whom to extort the resources with which to provide goods and services to those who have been promised these free of charge.
These days Kornia's advice should be heeded by most governments in Europe since there is economic trouble throughout the region. Some of this trouble stems, of course, from the integration of formerly Soviet bloc countries into the region, some from post 9/11 economic downturns, some from yet other sources. But much of what ails Europe is due to the constant expansion of the social services governments are either trying or mandate business corporations to provide.
For example, in Germany today when business firms of a certain size hire employees, they must provide them with lifetime job security, let alone benefits such as health insurance and compensation for any mishap that occurs while in their employ. While this sounds ever so compassionate and worker-friendly, in fact it has disastrous and hardly intended consequences precisely for millions of workers.
For starters, investments in new businesses are far below those for which economies are known where such labor regulations do not exist or are much milder. Which, of course, makes eminently good sense - how could people expect to start a business in a volatile market place when they must sign up for life-time support for their employees never mind what the Market will do? After all, customers are free to leave, to turn to other firms, to change their purchasing policies. And even in old Europe no one has recently proposed that people be forced to buy goods and services they no not want (although they are indirectly subject to such force all the time, as when protectionist legislation prevents them from buying goods and services at favorable prices).
Because, however, the overall harm done by such public policies! (as the German law pertaining to the firm's legal obligation to employees) has become evident to many public policy wonks, including politicians and bureaucrats, and because even the general public is beginning to feel the pinch of those policies (with unemployed family members throughout the region), there is now talk afoot about abolishing some of these regulations. Not because the politicians and bureaucrats have come to see the injustice of forcing people to obey rules to which they haven't agreed, of course. No, that would probably be too much to ask for most Europeans at this time - they are still completely smitten with the idea of the welfare state (or, as they call it, social democracy). But as a matter of productivity and economic sanity, many in Europe are becoming convinced that the burden of the welfare state is partly to blame for their economic woes.
By all accounts, of course, welfare states are not compassionate! but extortionist. That is the first reason they ought to go. But, if we cannot have the best reason for reforming them, we should at least be somewhat gratified that reality is making itself known to the supporters of this fraudulent regime, even in old Europe.
Of course, it would be even better if Europeans had some leadership to look to - in the United States of America, for example - when it comes to the ill effects of the welfare state. Sadly that isn't a realistic option. Indeed, despite the rhetoric of globalization that emanates from officialdom in Washington, DC, the compassionate conservatism of George W. Bush has become an embarrassment to the United States, given Bush's support of protectionism, especially vis-a-vis American farmers. This policy has actually been shown to hurt the most needy populations around the globe, namely, African farmers. And it is, of course, a typical welfare statist policy - hurt some so as to preserve the vested interests of others.
Despite this lack of leadership from America, however, Europeans seem to be learning. And Janos Kornai can be proud of having given them the low down early about the hazards of welfare statism.
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