The Legacy of the Social Welfare State
There is a perfect storm emerging across the globe with Europe in the vanguard of economic and social woe. With the possible exception of Germany, every western European state is living beyond its means, ignoring the simple precept that you cannot spend what you do not have.
This is aggravated by increasing competitiveness from other parts of the world - frequently from people who are willing to earn far less than Europeans expect. The confluence of entitlements, lack of competitiveness, demographic trends and collectivist sentiment is literally changing the face of the continent.
The protests in Greece, England and Egypt, to cite three examples, provide vivid testimonials of an entitlement mentality at odds with the essential need for productivity. For decades the entitlement psychology has relentlessly decoupled the biblical and basic understanding that in order to eat, one must be productive.
In Europe, union pressure for wage increases and political power led to a social welfare system that defied human nature and the conditions necessary for productive activity. The net result of the entitlements that emerged from the general welfare benefits is declining competitiveness, the very condition a globalized economy requires. Many people, far too many people, believe the role of government is to care for them.
In the industrialized world this state of mind is aggravated by demographic trends and the loss of the advantage an information monopoly once provided. Thomas Friedman uses these conditions to argue 'the world is flat.' Of course it is much less flat than Friedman contends since productivity in some corners of the globe has yielded disproportionate improvements in living standards.
The roiling of politics in North Africa offers additional evidence that protests about living standards are seemingly unrelated to the factors that contribute to an improved standard of living. A recent news account told of a Tunisian resident who was trying to be productive and provide for his family, but when the government seized his assets, he, immolated himself. The injustice was there for anyone to see. The need for productivity is neither seen nor understood.
It is instructive that President Obama employs the European model of entitlement, regulation and income redistribution as his guide. It may be one of the few examples in history when a blatantly failed system is employed as a model for success. As the U.S. borrows more than 40 percent of the federal budget this year, we are perilously close to emulating the worst of Europe.
Will Rogers offered excellent advice for President Obama when he said, 'there are three kinds of men: the ones who learn by reading; the few who learn by observation and the rest who have to pee on an electric fence in order to learn anything.'
Although Keynesian economies promoted the big government ideal and lavish expenditures to compensate for recessionary trends, Keynes himself said, 'If Enterprise is afloat, wealth accumulates whatever may be happening to Thrift; and if Enterprise is asleep, wealth decays whatever Thrift is doing.' The key, of course, is enterprise or, if you like, productivity.
The perfect storm in the West is fostered by the decline of productivity. Instead of burgeoning 'animal spirit' of productivity, an expectation has emerged that society owes you something and that income disparity is transgressive. Capitalism can create wealth, but it also creates invidious comparisons (read: envy). Socialism tries to mitigate this eventuality through utopian engineering that never works. As Winston Churchill noted, 'The vice of capitalism is the unequal sharing of blessings and the vice of socialism is the equal sharing of misery.'
Like many unfolding events in life, it is time to state the obvious. Without productivity and enterprise, the West’s economic systems will falter and the societies themselves will be facing a very parlous period.