Welfare state
The welfare state is a government that supplies income, insurance, medical care and schooling as an entitlement rather than as a purchase. It is financed by compulsory contributions, and it is an arrangement rather than a quantity of spending: the payer, the recipient and the party deciding are three different people, which is what distinguishes it from the charity and mutual-insurance institutions it replaced.
How it was built
The first national scheme was Bismarck's. Sickness insurance came in Germany in 1883, accident insurance in 1884, and old-age and disability pensions in 1889, and Bismarck was candid that the object was political rather than charitable: a man with a pension in prospect is easier to govern than a man without one. Britain followed with the Old-Age Pensions Act of 1908 and the National Insurance Act of 1911, and after the Second World War the Beveridge Report of 1942 supplied the programme, naming want, disease, ignorance, squalor and idleness as the five giants a state scheme would kill. In the United States the Social Security Act of 1935 and the Medicare and Medicaid legislation of 1965 did the same work in two instalments.
Murray N. Rothbard's history of the American case cuts against the usual account of the welfare state as a response to popular demand. He traced it instead to a coalition of postmillennial pietist reformers and a newly professionalised class of social workers and administrators, people whose careers were the programme, and found the pressure running from that coalition toward the electorate rather than the other way.[1]
What it displaced
The welfare state did not arrive in a void. Before compulsory schemes, industrial workers in Britain insured themselves through friendly societies, mutual bodies owned by their members, which by 1911 covered several million men against sickness and burial costs and were still growing. Members elected officers, set contributions and policed malingering among people they knew, and the societies competed for members.
The National Insurance Act of 1911 did not abolish them. It made a rival scheme compulsory and paid for it partly out of the same wages, which removed the reason to belong to two. This is the pattern Austrians point to when told that state provision fills a gap: the gap is often produced by the filling, and what is displaced was answerable to the people paying in a way the replacement is not.
The Austrian objections
Ludwig von Mises argued that the welfare state is not a stable middle way between capitalism and socialism but a sequence. Each intervention produces a result its authors did not want, and the remedy is a further intervention, so the system is defined by its motion rather than by any settled position.[2] Compulsory old-age provision is his standard case: the contributions are not invested but paid out at once, so the scheme is a claim on future taxpayers dressed as a savings account.
Henry Hazlitt pressed the incentive argument at length in Man vs. The Welfare State, where the recurring point is that a benefit withdrawn as earnings rise is a marginal tax on earning, and that rates high enough to matter are routine near the bottom of the scale, which is precisely where the effect does most damage.
The third objection is about knowledge rather than incentives. A friendly society could tell a sick member from a shirking one because its officers lived among them. A national administrator cannot, so eligibility has to be settled by legible rules, and the rules are then met by people who satisfy the rule without being in the condition it was written for.
Cost of delivery
Private charities absorb roughly a third or less of each dollar donated in administration and other operating costs, leaving the rest to reach recipients. James Rolph Edwards put the comparable figure for government assistance at about 70 cents in the dollar going to the bureaucracy and to others serving the poor rather than to the poor.
The revenue is not costless either. Compliance consumes time and effort that had other uses, and taxation reduces the incentive to work, save and invest. Taking the total public and private cost of taxation at 65 percent of net revenue, Edwards calculated that delivering one dollar of subsidy to a recipient costs nearly five dollars.[3]
See also
References
- ↑ Murray N. Rothbard. "Origins of the Welfare State in America" (pdf), Journal of Libertarian Studies 12:2.
- ↑ Ludwig von Mises. "The Agony of the Welfare State", 1953, in Economic Freedom and Interventionism.
- ↑ James Rolph Edwards. "The Costs of Public Income Redistribution and Private Charity" (pdf), Journal of Libertarian Studies 21:2, 2007, pp. 3-20.
Links
- The Agony of the Welfare State by Ludwig von Mises, May 1953
- Man vs. The Welfare State (full pdf and ebook) by Henry Hazlitt
- Origins of the Welfare State in America (pdf) by Murray N. Rothbard
- Compulsory Medical Care and the Welfare State by Melchior Palyi
- Welfare state at Wikipedia