The Social Welfare State, beyond Ideology
Are higher taxes and strong social "safety nets" antagonistic to a prosperous market economy? The evidence is now in...
By Jeffrey D. Sachs; Scientific American, Nov. 2006
Jeffrey David Sachs is an American economist, professor, and Director of the Earth Institute at Columbia University .
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 in the 1940s 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 record 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.
Not coincidentally, the low-tax, high-income countries are mostly English-speaking ones that share a direct historical lineage with 19th-century Britain and its theories of economic laissez-faire. These countries include Australia , Canada , Ireland , New Zealand , the U.K. and the U.S. The high-tax, high-income states are the Nordic social democracies, notably Denmark , Finland , Norway and Sweden , which have been governed by left-of-center social democratic parties for much or all of the post-World War II era. They combine a healthy respect for market forces with a strong commitment to antipoverty programs. Budgetary outlays for social purposes average around 27 percent of gross domestic product (GDP) in the Nordic countries and just 17 percent of GDP in the English-speaking countries.
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.
The results for the households at the bottom of the income distribution are astoundingly good, especially in contrast to the mean-spirited neglect that now passes for American social policy. The U.S. spends less than almost all rich countries on social services for the poor and disabled, and it gets what it pays for: the highest poverty rate among the rich countries and an exploding prison population. Actually, by shunning public spending on health, the U.S. gets much less than it pays for, because its dependence on private health care has led to a ramshackle system that yields mediocre results at very high costs.
Von Hayek was wrong. In strong and vibrant democracies, a generous social-welfare state is not a road to serfdom but rather to fairness, economic equality and international competitiveness.
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Comments: 35
But having lived in Canada and having benefitted from the safety net, even when, as a student, I was not obliged to contribute income tax towards usage of that net, it is a good thing, and yes, not at all indicative of free market suffering.
It's not enough that they be rewarded, but that the other must also be punished. They seem to think that in order that they win, others must loose.
Excellent and timely article, Carla! As Elmo says, we have a mixed economy and should have that. Most of the so called "socialized" nations also have mixed economies.
The point about our high prison rate is compelling. It speaks to a society that doesn't care for its own and punishes those who fall within the margins.
A lot more Americans may be unemployed soon as the economy collapses, and employers know they don't have to offer perks like health insurance when job applicants are literally hungry. There may then be a shift in public opinion toward demanding a "socialized" system like all the other modern countries have. It would be such an improvement.
Still a 10 from me.
When I used to live in Minnesota years ago, Huber Humphrey was one of our senators, and he represented the DFL: Democrat-Farmer-Labor party.
Scandinavian population base there in Minnesota - not afraid of benevolent practical socialism.
NY City public school budget is 5 billion for one year and they have no crayons.Carla these are facts Free money hand-outs always fail,Socialist history proves it.
The truth is that Billions and Billions spent for over 50 years,have only created a horrid out-come,50 years later.
You are perpetrating a myth! Socialism has not "failed." It is alive and well in many countries. No, they are not complete socialistic states but some come awfully close. And no one is proposing that the US become a socialistic country! The USSR failed but the were scarcely a socialistic country, they were a totalitarian dictatorship. Just as surely as was Saddam's Iraq!
True that "handouts" as such are usually counterproductive. However, there are numerous facets of social programs set up by various administrations that are working just fine. Small business loans have allowed many to build or add to a business and been very successful. The actual ones who get the most "hooked" on welfare are the corporations to whom much welfare has been given. The land bank, a program to help America's small farmers, has been abducted by large agricorporation's and is making CEO of these companies wealthy at taxpayer expense.
No society without any trace of socialism, is a civilized society. Pure capitalism is a barbaric society in many ways. Few in this country would want to go that route. And when an industry has failed in its service to the entire nation over a period of years or decades, as has the insurance industry, for the people to want a different approach is not only understandable but absolutely irresistible!
The insurance company we treats their policy holders properly is not making the best possible dollar for the stockholders. The insurance company who is doing the best possible return for the stockholders, is screwing the policy holders! It is a built in conflict of interest. Some essential service are best provided by government in a non profit manner.
My little addition: what the immature patriarchal intellectuals see as "failed socialism" is actually an incomplete system.
When the matriarchy comes into full power, in balance with the patriarchy, and both are mature (rather than this perpetual teen-age model we've lived with for quite some time), THEN we'll have a better chance at whole-heartedness in government as well as everywhere else.
And unlike you I know there are "lazy" people on welfare. For some it is easier than working. And it shouldn't be perpetual. There should be limits.
And not that it's anyone's business but to some on Gather I'm just some rich uncaring piece of scum who only cares for himself and not others ,the environment or my future grand kids. I have used welfare before and I might have to use it again soon but I'm not blaming anyone or asking to be taken care of. I will use it as it should be to supplement my income for a month or two till things turn around. Because of my income level I have qualified for assistance with many things but I have never used the majority of them because I didn't need them. So I am intimately familiar with the welfare system and I know many of the problems with it. We as a people have gotten moved towards the handout mentality. The government is suppose to keep us safe not "bail" us out every time there is a hiccup in our lives. And many of the "big"/green government regulations have ham strung many from caring for ourselves. You have to damn near get a permit from the city to cross the streets today. We have so many fees and taxes on our lives today that most have to work almost half the year to pay off the government before they start making money for ourselves. How the hell is that a good thing? Why should five months of our income go straight to the government before we start making money for ourselves. And it never seems to end. When was the last time your property taxes went down and not from buying a smaller house.
So I am one of those that you would call "poor" (although I don't consider myself "poor" and shockingly someone here suggested that I was "poor" and was being brainwashed into not thinking I was "poor". What?)and I still think there is too much that our government is asking from us. Let us take care of ourselves quit taking more and more money and let us take care of ourselves.
As for taxes, we pay less in this country than most countries do. We also get less for it.
Thanks for taking the time to share your story. I hope that you are doing better and don't have to go back on public assistance again.
It is, in a word, evil.
Tad: what we have here now is the increasing encroachment of corporate bureaucracy, coupled with corporate-controlled government bureaucracy on every aspect of our lives. Notice how every aspect of our lives is steeped in free-racket terminology and jargon. Human life is increasingly commodified.
I don't know what country you are living in, but your illusions are showing. Do you really think that the corporate state thinks of you as a human or a person? Can you defend Wall Streets' disastrous shepherding of our economic policy over the last 35 years? Do you really believe that "socialized" countries like the Scandinavian states are examples of "mediocrity and sloth?"
Socialism carried out democratically is, like any other system, what the people make of it.