The Social Welfare State, beyond Ideology

[Nathyn]

http://www.sciam.com/article.cfm?chanID=sa006&articleID=000AF3D5-6DC9-152E-A9F183414B7F0000&colID=31

The Social Welfare State, beyond Ideology

One of the great challenges of sustainable development is to combine society's desires for economic prosperity and social security. For decades economists and politicians have debated how to reconcile the undoubted power of markets with the reassuring protections of social insurance. America's supply-siders claim that the best way to achieve well-being for America's poor is by spurring rapid economic growth and that the higher taxes needed to fund high levels of social insurance would cripple prosperity. Austrian-born free-market economist Friedrich August von Hayek suggested that high taxation would be a "road to serfdom," a threat to freedom itself.*

Most of the debate in the U.S. is clouded by vested interests and by ideology. Yet there is by now a rich empirical rec-ord to judge these issues scientifically. The evidence may be found by comparing a group of relatively free-market economies that have low to moderate rates of taxation and social outlays with a group of social-welfare states that have high rates of taxation and social outlays.

*snip*

On average, the Nordic countries outperform the Anglo-Saxon ones on most measures of economic performance. Poverty rates are much lower there, and national income per working-age population is on average higher. Unemployment rates are roughly the same in both groups, just slightly higher in the Nordic countries. The budget situation is stronger in the Nordic group, with larger surpluses as a share of GDP.

The Nordic countries maintain their dynamism despite high taxation in several ways. Most important, they spend lavishly on research and development and higher education. All of them, but especially Sweden and Finland, have taken to the sweeping revolution in information and communications technology and leveraged it to gain global competitiveness. Sweden now spends nearly 4 percent of GDP on R&D, the highest ratio in the world today. On average, the Nordic nations spend 3 percent of GDP on R&D, compared with around 2 percent in the English-speaking nations.

The Nordic states have also worked to keep social expenditures compatible with an open, competitive, market-based economic system. Tax rates on capital are relatively low. Labor market policies pay low-skilled and otherwise difficult-to-employ individuals to work in the service sector, in key quality-of-life areas such as child care, health, and support for the elderly and disabled.

Being that there are probably both left-wing and right-wing skeptics on the board, I thought that this would a good topic for you.

I've agreed with the author's points for a long time. Investments in health-care, education, and infrastructure boost economic growth, or at the very least, are merit goods which mostly pay for themselves because of their effect on production.

Most damning of all is the fact that over 60 years now, there has been extensive data collected of the effects of taxation, and there is no correlation between economic downturns and high taxation. So, it's not the size of taxation that counts: It's how governments use it.

Both Austrian economics and, to a lesser degree, supply-side economics are pseudoscience.

 

[Darth Rotor]

Both Austrian economics and, to a lesser degree, supply-side economics are pseudoscience.

Next thing ya know, you'll be trashing meteorologists.

DR

 

[Nick Bogaerts]

The Nordic countries also have a small population and extensive natural resources. There's a reason Ikea comes from a woodland country rather than, say, the Sahara desert.

It would make more sense to compare the U.K. to nations of similar size and density, such as France or Germany.

 

[Darth Rotor]

The Nordic countries also have a small population and extensive natural resources. There's a reason Ikea comes from a woodland country rather than, say, the Sahara desert.

It would make more sense to compare the U.K. to nations of similar size and density, such as France or Germany.

Gee, you and your insistence on apples to apples comparisons. Some things scale up better than others.

DR

 

[Ziggurat]

On average, the Nordic countries outperform the Anglo-Saxon ones on most measures of economic performance.

Why limit the comparison of socialist economies to Nordic countries? Why not include Germany and France, for example? How is this not an exercise in cherry-picking? Are factors such as Norway's extensive oil resources (the exploitation of which isn't due to either capitalist or socialist policies, but undoubtedly contributes quite a lot to their wealth) factored into the comparison at all? I doubt it.

Poverty rates are much lower there,

Poverty rates are defined differently in different locations. Furthermore, poverty rates are strongly affected by immigration rates, something the US has substantially more of than Nordic countries, and a factor which cannot be directly related to either socialism or capitalism. I've said it before and I'll say it again: if dropping the poverty rate is your priority, then by far the simplest and most effective solution is to prevent any immigration. I'm not in favor of doing that myself, which is part of why I don't put much weight on comparisons of poverty rates.

Let me propose another metric (though finding the data might not be easy) that might give a different perspective from the one presented in that column: how many people choose to move from Nordic countries to Anglo-Saxon countries, versus how many move from Anglo-Saxon countries to Nordic countries?

 

[Chaos]

*snip*

Both Austrian economics and, to a lesser degree, supply-side economics are pseudoscience.

EVERY economic model, applied one-to-one to reality and treated like the word of the Almighty, is pseudoscience.

That is because economic models make assumptions that have nothing to do with reality - like perfect information, instantaneous decisions and transactions, perfect rationality of all participants, and so on.

The purpose of such models is to serve as a baseline, so it can be studied how imperfections of the market, such as a lack of the things mentioned in the previous paragraph, affect the economy.

 

[Francesca R]

One of the great challenges of sustainable development is to combine society's desires for economic prosperity and social security.

[ . . . ]

On average, the Nordic countries outperform the Anglo-Saxon ones on most measures of economic performance.

The excerpt you quoted (I have not read the link) opens with how to combine ("balance"?) prosperity with security and then does a (cherry-picked) comparison that is based on prosperity. If you want to do a trade-off between baking the biggest pie possible and giving everyone a certain share of pie then I don't see the relevance on measuring pie size as a yardstick of success in this trade-off.

 

[Loss Leader]

Nordic countries also have a much more racially homogeneous population base and a more even distribution of assets among the population. I believe both help contribute to having better economic growth than the US.

 

[DanishDynamite]

The Nordic countries also have a small population and extensive natural resources.

Until the 1980's Denmarks natural resources consisted of the following: fish, salt, limestone, chalk, stone, gravel and sand. Not exactly extensive.

In the 1980's it became economically feasable (high oil prices) to extract oil and gas from the North Sea. We only managed to become self-sufficient with these items sometime in the 2000's. From the CIA Factbook over 2/3 of Denmark's GDP comes from services:

GDP - composition by sector:
agriculture: 2.2%
industry: 25.5%
services: 72.3% (2004 est.)

It would make more sense to compare the U.K. to nations of similar size and density, such as France or Germany.

Why?

BTW, France has a lower density than Denmark.

 

[bjornart]

Let me propose another metric (though finding the data might not be easy) that might give a different perspective from the one presented in that column: how many people choose to move from Nordic countries to Anglo-Saxon countries, versus how many move from Anglo-Saxon countries to Nordic countries?

Easy, schmeasy:
Norwegian emigration and imigration data from the Norwegian Bureau of Statistics

Immigration to Norway by country of origin                                                                      
                                                                                 
From       Annual ave                                                            
           1966-1970 1971-1975 1976-1980 1981-1985 1986-1990 1991-1995 1996-2000 2001-2005 
                                                                                 
World total     15240     18766     18758     20355     27330     27465     34690     37395
                                                                                           
Great Britain    1418      1886      2334      2541      1832      1587      1835      1582
Canada            352       398       280       255       257       295       306       243
USA              2867      3189      2488      2232      1987      2069      2104      1614
Australia         158       271       170       150       155       174       282       277
                                                                                 
                                                                                 
Emmigration from Norway by destination                                                                      
                                                                                 
To       Annual ave                                                            
           1966-1970 1971-1975 1976-1980 1981-1985 1986-1990 1991-1995 1996-2000 2001-2005 
                                                                                 
World total     14387     13931     14615     15317     21006     18546     22885     23782
                                                                                           
Great Britain    1329      1482      1863      1774      1944      1529      1826      1464
Canada            428       313       253       224       300       334       265       191
USA              2291      1828      2332      2145      2061      2071      2195      1314
Australia         278       208       142       159       188       199       287       220

Now as to how to interpret this I have no clue. The population of the originating country is of course an important factor, but so is the population (and the corresponding size of the economy) of the destination country.

 

[DanishDynamite]

Why limit the comparison of socialist economies to Nordic countries? Why not include Germany and France, for example? How is this not an exercise in cherry-picking? Are factors such as Norway's extensive oil resources (the exploitation of which isn't due to either capitalist or socialist policies, but undoubtedly contributes quite a lot to their wealth) factored into the comparison at all? I doubt it.

The Nordic countries aren't actually Socialist economies. They are social welfare states.As to your question on cherry picking, you have to make the cut-off somewhere. Germany, for example, is very differently structured welfare-wise than the Nordic countries. Pensions and social-welfare benefits are very much tied to your job. Perhaps Chaos can tell us more. Not sure how things are in France. Perhaps you can enlighten us?

Poverty rates are defined differently in different locations. Furthermore, poverty rates are strongly affected by immigration rates, something the US has substantially more of than Nordic countries, and a factor which cannot be directly related to either socialism or capitalism. I've said it before and I'll say it again: if dropping the poverty rate is your priority, then by far the simplest and most effective solution is to prevent any immigration. I'm not in favor of doing that myself, which is part of why I don't put much weight on comparisons of poverty rates.

You don't feel poverty rates is an important metric by which to judge how well a society is doing?

Let me propose another metric (though finding the data might not be easy) that might give a different perspective from the one presented in that column: how many people choose to move from Nordic countries to Anglo-Saxon countries, versus how many move from Anglo-Saxon countries to Nordic countries?

How might this be relevant? You just said that controlling immigration was a way to reduce poverty. Denmark is fairly good at controlling immigration, i.e. keeping other people from moving here. Now you want to hold this against us?

Given that the US can't control immigration, I think I can understand why.

 

[Beerina]

You don't feel poverty rates is an important metric by which to judge how well a society is doing?

Not necessarily. In a truly free economy, the dumber and lazier folk might very well have a tougher time earning a decent living because they can't just be heaved on the backs of other, harder workers.

Yet such an economy might very well push technology ahead faster. This adds up and benefits "the poor". There's the old saying, more of an observation really, that the modern "poor" in said countries live better, longer, healthier lives than the royalty of a few hundred years ago did because of modern technology, especially medical technology.

Would a heavy-handed socialist system implemented 300 years ago, that would probably mean we'd be lucky to have year 1900 medical technology today be properly claimed to be a friend to the poor? To anybody? Or is it a murderous thing?

 

[Ziggurat]

Now as to how to interpret this I have no clue. The population of the originating country is of course an important factor, but so is the population (and the corresponding size of the economy) of the destination country.

Looks pretty close. Which suggests to me people don't have a strong preference between living in Nordic countries and Anglo-saxon countries.

 

[Ziggurat]

You don't feel poverty rates is an important metric by which to judge how well a society is doing?

Changes in poverty rate over time for a single country can tell you something about that country's development (though you have to consider a lot of factors even within one country in order to understand what it actually means). Comparison of poverty rates between two different countries generally tells you little.

How might this be relevant? You just said that controlling immigration was a way to reduce poverty.

No, actually, I said STOPPING immigration would reduce poverty. Controlling immigration is not equivalent to stopping it, and in fact need not even reduce it. I'm very much in favor of controlling immigration (something we in the US are doing a bad job at, and which I very much think we need to fix), but I do not want to stop it.

Denmark is fairly good at controlling immigration, i.e. keeping other people from moving here. Now you want to hold this against us?

No, I don't want to hold it against you, and you're misreading me completely if you thought I was. But because immigration into the US and into Denmark are not equivalent or even similar, comparing poverty rates between the two is an apples to oranges comparison.

 

[Merko]

http://www.sciam.com/article.cfm?chanID=sa006&articleID=000AF3D5-6DC9-152E-A9F183414B7F0000&colID=31
Both Austrian economics and, to a lesser degree, supply-side economics are pseudoscience.

I agree wholeheartedly about this. I also think there is good evidence to support the claim that the existance of a welfare state does not cripple economic development.

Of course, this goes a long way from proving that the welfare state is beneficial to the economy (which I do happen to believe). But one thing at a time, and debunking the myth of the grave economic harm caused by welfare states should at least advance the debate.

Next thing ya know, you'll be trashing meteorologists.

Meteorologists consistently make better-than-chance predictions, while these types of macro-economists do not. They merely offer after-the-fact 'explanations' (and when they actually make predictions, they are usually dead wrong).

Macroeconomics should be an important field of research, but unfortunately the scientific standard in this field makes postmodern gender theory stand out as a shining beacon of empiric science.

The Nordic countries also have a small population and extensive natural resources. There's a reason Ikea comes from a woodland country rather than, say, the Sahara desert.

Only Norway could be characterised in this way. Denmark is fertile, but densely populated. Sweden and Finland are largely barren, and though we have forests and some mining, these do not contribute much to the overall economy. I do not believe Ikea's success has anything at all to do with the supply of wood, because that does in no way explain why it would do better than its competitors, who have always had access to the same supplies. However, Ikea is a clear example that an extensive welfare state does in no way remove the possibility for an individual to found a one-man company and gradually grow it to a world-spanning business empire. Ingvar Kamprad, the founder and sole owner of Ikea, is also consistently one of the most admired Swedish persons since many years, refuting the myth that welfare states necessarily spawn a culture of envy, where individual accomplishments are not valued.

The excerpt you quoted (I have not read the link) opens with how to combine ("balance"?) prosperity with security and then does a (cherry-picked) comparison that is based on prosperity. If you want to do a trade-off between baking the biggest pie possible and giving everyone a certain share of pie then I don't see the relevance on measuring pie size as a yardstick of success in this trade-off.

The purpose of that article is not to prove that the Nordic welfare states are superior in terms of economic growth, but to prove that welfare states do not preclude economic growth. Considering this scope, cherry-picking is an allowable method.

Not necessarily. In a truly free economy, the dumber and lazier folk might very well have a tougher time earning a decent living because they can't just be heaved on the backs of other, harder workers.

One might equally argue, as I do, that in a truly free economy, the stronger and cleverer people would have a tougher time getting extremely rich because they can't just squeeze disproportionate riches out of the backs of the other, harder workers.

Yet such an economy might very well push technology ahead faster. This adds up and benefits "the poor". There's the old saying, more of an observation really, that the modern "poor" in said countries live better, longer, healthier lives than the royalty of a few hundred years ago did because of modern technology, especially medical technology.

This I wholeheartedly agree with, and I think the reason for this enormous improvement is in fact the shift towards greater equality. In the old days, the vast majority was poor and any surplus would end up in the hands of a small elite. The modern welfare states gave the common man (women are men, too, btw) an incentive to do more than just earn enough to stay alive. Science and economic growth became a concern not just of the elite, but of the majority.

Would a heavy-handed socialist system implemented 300 years ago, that would probably mean we'd be lucky to have year 1900 medical technology today be properly claimed to be a friend to the poor? To anybody? Or is it a murderous thing?

Capitalism ruled the world for centuries with relatively small improvements. Only with the advent of today's more equal societies--and indeed of socialism--did science and economy really take off.

Naturally, we can point toward failures in communist states and understand that economic equality is not a sufficient condition for improvement. But I would argue that it is, unless driven to absurdity, beneficial to improvement.

No, actually, I said STOPPING immigration would reduce poverty.

I am equally convinced that such a course of action would send any nation into deep decay within decades.

But because immigration into the US and into Denmark are not equivalent or even similar, comparing poverty rates between the two is an apples to oranges comparison.

Denmark has a low rate of immigration, but Sweden does not. You're never going to find two cases that are absolutely the same, but it strains credulity to think that the lower poverty rates in the Nordic countries would not somehow be linked to the high level of welfare support, high de-facto minimum wages, etc.

 

[Beerina]

One might equally argue, as I do, that in a truly free economy, the stronger and cleverer people would have a tougher time getting extremely rich because they can't just squeeze disproportionate riches out of the backs of the other, harder workers.

This is class warfare rhetoric in a nutshell -- the business leaders aren't the prime movers of advancement, but lazy or sneaky guys who trick others into earning them riches. Yet systems that punish the business leaders via regulation, heavy taxation, or outright nationalization do not actually benefit people as their standard of living drops. Last century was replete with example after example of this, putting the lie to the "scientific communistic management of the economy."

Capitalism ruled the world for centuries with relatively small improvements. Only with the advent of today's more equal societies--and indeed of socialism--did science and economy really take off.

Actually it started much earlier than that -- capitalist societies with freedom (capitalism is properly a derivative of freedom) really took off with the combined inventions of mass production (making all parts to exacting tolerances so they may be interchanged) and the assembly line. But even that is not enough, as there are plenty of communist societies with access to this technology who have difficulty providing for their own. In any case, it was well under way long before any socialist dreamed of even the beginnings of a welfare state.

Indeed, a welfare state can only exist in a relatively powerful economy -- you can't tax enough out of the people of a nation to provide social security or welfare or medical care if they're all poor.

 

[The Don]

Looks pretty close. Which suggests to me people don't have a strong preference between living in Nordic countries and Anglo-saxon countries.

That pre-supposes a free movement of people between countries and doesn't take into account population size and language barriers. Most Scandinavians of a migratory age speak excellent English, most Anglophones do not speak Norwegian/Swedish/(I'm not sure Danish is a language ). This may impair Anglophones' ability to secure employment and hence to make the move. IN other words, no mater how much I want to live in Scandinavia, until I learn Scandinavish then I'd find it hard to.

If 1 person form country A (population 1) moves to country B (population 1 billion) and two people from country B move to country A then doesn't that show that county B is more popular with 100% of country A inhabitants and 99.9999998% of country B inhabitants preferring to work there.

Oh, and the darkness and the weather. Many Brits move to Spain, not because of the post-Franco EU-funded economic miracle but because it's nice and sunny. I don't believe the same can be said of Bergen.

 

[Merko]

This is class warfare rhetoric in a nutshell -- the business leaders aren't the prime movers of advancement, but lazy or sneaky guys who trick others into earning them riches.

If you'd paid any attention, you would have noticed that it was a word-by-word travesty of your conservative cliché about how the poor only have themselves to blame.

Personally, I side with Adam Smith on this matter. I believe the differences in capability between different individuals are generally far smaller than is commonly held. I also believe that laziness is not the cause of poverty, but the result of a lack of opportunity. I believe that the hardest working people in the world have always been poor, and always will be. If I had the choice of being a CEO with lousy pay, and earning millions working 14 hour shifts in an Indonesian sweatshop, I know what my choice would be.

Yet systems that punish the business leaders via regulation, heavy taxation, or outright nationalization do not actually benefit people as their standard of living drops.

Certainly I do not want to punish business leaders as long as they are being productive. However, saying that they should be rewarded does not equal saying that they should be infinitely rewarded.

I have no problem with IKEA's Ingvar Kamprad becoming one of the world's richest men. He gave people something they wanted, and he proved himself very competent in building something that improved society. IKEA can be blamed like most companies for abusing Chinese workers today, but I do not believe that this has been the case historically for IKEA as a Swedish company. Additionally, Kamprad paid his taxes.

It is something different with business leaders that merely inherit an empire and have little or no part in creating its wealth. Although I think this should mainly be a concern for stock holders, I do believe that many such leaders are paid far above their level of competence.

Actually it started much earlier than that -- capitalist societies with freedom (capitalism is properly a derivative of freedom) really took off with the combined inventions of mass production (making all parts to exacting tolerances so they may be interchanged) and the assembly line.

I would say that capitalism is properly antithetical to freedom, but I am not sure we share the definition of capitalism.

However, for all the improvements that were made during the early phases of industrialisation, it did not much improve the life of the average citizen. In fact, workers in the late 19th century were probably often worse off than previous generations of farmers. Life expectancy was low, there was no health care to speak of, and the work day was so long that their lives offered few opportunities of meaningful activity.

Indeed, a welfare state can only exist in a relatively powerful economy -- you can't tax enough out of the people of a nation to provide social security or welfare or medical care if they're all poor.

I certainly agree with you here.

 

[Ziggurat]

That pre-supposes a free movement of people between countries and doesn't take into account population size and language barriers.

No, it presupposes barriers are similar both ways, not that they don't exist.

Relative population size won't matter to the direction of net flow. There are more people available in the larger country who might leave the country, but the smaller country will absorb a smaller fraction of those emmigrants than other countries. The smaller country will have fewer people who might leave, but a larger fraction of them will consider moving to the larger country since it's a bigger target. If there is no net preference on where to live, then we will have a steady state situation where people move around, but there is no net flow even between countries with large differences in population.

 

[Ziggurat]

I would say that capitalism is properly antithetical to freedom, but I am not sure we share the definition of capitalism.

I suspect there's disagreement about the definition of freedom too.