Against the Tide

XIV

Robbing Peter to Pay Paul: On the Nature of the Welfare State*

There are certain things that no one in his right mind regards as anything other than bad. Their virtually unanimous condemnation provides economic policy with a few elementary guidelines that are beyond dispute today. No one wants poverty, sickness, or prolonged unemployment, and there is no one who would seriously contest the necessity to combat them. Much the same really applies to inflation, and even though there are a few groundlings among professional economists who would have us believe that a long-run, simmering inflation, at any rate, is not altogether a bad thing, the only interesting point in this argument is what it tries to obscure, to wit, the bankruptcy of a certain brand of economic theory and policy.

The position is entirely different as regards the welfare state. Even among its critics—and there are now very many of them—there is hardly one who would reject all the ideas and arrangements associated with this concept. But this circumstance constitutes both a serious danger and a difficult problem; for once we accept the principle of compulsion, which is inseparable from the welfare state even in the case of social security, as a means of assisting the individual in his struggle against the vicissitudes of life—where, then, is the limit? Might we not find that things get out of hand, as happened with progressive taxation, where, too, there was no stopping it once the principle had been adopted, rather rashly as we now realize? We are in the predicament of the sorcerer’s apprentice; almost anywhere we turn our horrified eyes, we see that the welfare state has a built-in, irresistible tendency to further growth. More and more areas of compulsory aid keep being discovered; more and more population groups are drawn in; the assistance rendered grows more comprehensive and the projects adopted more elaborate:

Water on water rushes—

It brings still more inside:

Oh, and a hundred gushes

Engulf me like a tide.

It would be hard to deny that the modern welfare state progresses by its own momentum and, in striking analogy with the principle of progressive taxation, that there is nothing in its conception to set a limit to it. To expand the welfare state is not only easy, but it is also one of the surest means for the demagogue to win votes and political influence, and it is for all of us the most ordinary temptation to gain, at no cost to ourselves, a reputation for generosity and kindness. The welfare state is the favorite playground of a cheap sort of moralism that only thoughtlessness shields from exposure. But what is equally bad is that to turn back on this path is as difficult as to turn a car on a narrow, steep Alpine road. This is what we realize to our consternation once it is beyond doubt that the road leads to the abyss. We have a warning example in Lord Beveridge, who rightly sounds the alarm today when faced with the consequences of the British welfare state, but who, we can only hope, must have enough self-criticism to remember the outstanding part he himself played in the creation of that welfare state as an advocate of inflationary “overfull employment.”

Now we can see the problem quite clearly. If the welfare state can be compared to a powerful machine that has neither brakes nor reverse gear, but a vigorous forward movement, and if, at the same time, there can be no question of destroying that machine, the problem arises of how to control its power. If the welfare state has no built-in self-limiting capacity, then the necessary limits must be drawn from outside, lest it outgrow us and ultimately become the ruin of a free and prosperous society, not to speak of depriving man of the dignity of being responsible for himself. To be sure, most of us do not deny that state help is indispensable and that many of the welfare state’s new institutions are a bitter necessity. There is no need to lecture us on this point, and indeed it would probably be easy to persuade us that, notwithstanding the overall verdict of “too much,” there are cases here and there where not enough is being done. That is not the point, therefore. The point is how we can make sure that if we give them an inch they don’t take a mile, or more. To this end we need some sort of rules, principles, criteria, and distinctions that enable us to resist a current that threatens to carry us away. There is hardly a more important task than this. All the more regrettable is it that it has barely been begun or perhaps is still not clearly understood.

According to the sound principle that it is best to proceed a minore ad maius, from the less to the more important, we may begin with a rule that might be called one of tactics, or emphasis. Given that the road of the welfare state carries oneway traffic only and that we are traveling along it fast without any reasonable hope of reversal, the first thing to make sure of is that from now on no further step is taken without being considered with the utmost care and extreme reluctance, without the economy wresting it from its conscience, as it were, like everything else in life that is difficult to undo. If in doubt, leave out—that should be the rule, the minimum of wisdom, to insist upon. Not only should the burden of proof as a matter of course rest upon those who advocate any further step along this road, but that proof should also be required to meet the severest possible tests. Over and over again the arguments should be scrutinized and the evidence sifted, the pros and cons carefully weighed, before any decision is approached, and even then it is best to sleep on it. Let all those who are responsible for Germany’s “dynamic old-age pensions” examine their conscience; are they sure they have met these requirements? Or are they not, rather, in the position of Lord Beveridge? And in Switzerland and Great Britain, do those who now yield to the temptation to follow the German example really take the burden of proof more seriously?

There is a special implication in all this for those of us who are responsible for our advance on this road not as practical politicians, but merely intellectually, and thus bear what is perhaps the heaviest responsibility. It is, to say the least, a moot question whether the broad masses themselves are always and everywhere keen on the modern welfare state. What we hear from Sweden and other welfare-state paradises may well give us pause. There can be no doubt at all, on the other hand, that there exists a broad and extremely influential group of people who are out for prestige and power, and who not only have the greatest interest in the progressive expansion of the welfare state but are determined to make the utmost of the opportunities it offers for social demagogy. I have in mind the group of people made up of so-called progressive leaders of public opinion, of officials of the public and private social security bureaucracy, of politicians adept in trimming their sails to the prevailing wind of mass sentiments and mass opinions, and finally of all those marching under the ideological banner of what I would call “progressism.” Regrettably, there is every reason to believe that in modern mass democracy the joint pressure of this group is so strong that we are infinitely more likely to get too much welfare state than too little, and there is far more danger of excess than of harmful abstinence. That is the direction in which the tide is flowing; that is the line of least political and social resistance, which the Western peoples are tending to follow in any case, whatever we may do for or against it.

Since in practice all the danger lies in the direction of an abuse of the welfare state principle, those vested with intellectual responsibility can be in no doubt about their correct attitude. The further expansion of the welfare state does not need their vote, for that is taken care of—and to a larger extent than suits us—by the political and social forces of the age. They can, therefore, safely adopt the rule of shifting the weight of their vote to the other side and of placing the stress on the dangers and limits of the welfare state. Cheap moralism is anything but moral for anybody, but for the responsible intellectuals it is nothing short of immoral. Their duty is to make themselves unpopular, just like the author of this article, and to say what, as it is, hardly anyone says.

In other words, it is safer in this case, as in so many others, to err on the side of exaggerating criticism rather than encouragement. The responsibility we shoulder in the first case is incomparably lighter than what falls to us in the second. The welfare state does not need our kindly help, since it can get along very well without it. But the dignity of the free individual and the good health of society do need our help, because they are jeopardized by the mushrooming welfare state. The time has come when the responsible statesman, the social scientist, and the leader of public opinion must form an alliance in order to strengthen the forces of moderation, caution, hesitation, and preservation, which are threatened with defeat, however much we may do. If this attitude requires courage, that is all the more reason for adopting it.

So much for the tactics, for the correct distribution of emphasis. One step further and we are in the wide field of another set of questions, namely, that mere common sense suggests that the aims of the welfare state can more expediently be achieved by doing one thing rather than another, without thereby making the welfare state more “unsocial.” In such cases one would really have to be quite hopelessly dogmatic to fail to realize that lack of intelligence does no good even to the welfare state. To take an example from the important area of social medicine, there are surely few people who would deny the necessity of giving financial aid in certain cases to certain groups, in order to help them regain their health. But there are intelligent and less intelligent ways of achieving this aim. It would be plain foolishness and failure to appreciate the elementary laws of psychology and economics, for instance, to seek to deny the necessity of the sound old principle of letting the patient normally meet some part of the cost of re-establishing his own health, thus giving him an interest in claiming assistance only after serious consideration and within reasonable limits of expense. Since exceptions have to be made anyway for emergency cases, there is no excuse for not applying this principle of automatic control through cost-sharing in health insurance, and it would be hard to find an answer to the question of why anyone who pays out of his own pocket for his clothes, his radio set, and, above all, for the innumerable ways of ruining his health should not also pay a modest part of the cost of restoring it.

It cannot be gainsaid, of course, that behind such questions of administrative technique and organizational expediency there are ultimately some problems of a fundamental kind. And this brings us to the heart of the matter. We are bound to look differently even upon questions of this kind if we hold different views on the true meaning of public social assistance. The basic distinction lies in which of two things we want: a helping hand for those who really need it, or who may be presumed to need it, or public social assistance as an instrument of a welfare state that deserves the attribute “socialist” because it aims at the progressive socialization of the satisfaction of wants and at economic and social equalization, without regard to the income and wealth of the individuals encompassed by the welfare state. The gulf that divides these two views could not be deeper and more unbridgeable; for the first of them is conservative (or, if another term is preferred, “evolutionary”), whereas the other is revolutionary, and the first is in conformity with the principles of the market economy and is indispensable if the market economy is rightly to be called “social,” whereas the other is hostile to it and erodes it.

However much it may be a matter of pressing concern to work out this distinction in precise terms and to make a clear choice, we are still very far from such clarification. Yet it is one of bitter necessity, so that we may stand firm against all attempts to obscure the decision and to pervert the idea that no one should fall below a certain minimum into the contrary idea that no one should rise above a maximum as near as may be the same for all. Nor, indeed, have we as yet gone the whole way in following through the practical consequences of those two social philosophies. Again it is social medicine that can provide us with plenty of instances for practical application in specific cases.

If we look at the difference in another light, we shall see quite clearly that it is really a difference in people’s social approach, in the aims by which they set their course. On the one side are all those who put the whole stress upon the individual’s responsibility for himself and his family, who regard this responsibility not solely as a burden but as the essence of his human dignity, and who wish to develop and strengthen this sense of individual responsibility as well as both the willingness and the ability to assume it. In this view state aid is a subsidiary means, a rear position in case the front line of self-help and voluntary mutual aid collapses. On the other side are those who reverse this system of defenses, and who labor to prove that our basic idea, which is rooted in the individual, is ridiculously old-fashioned, unworthy of anyone progressive, Utopian, reactionary, philistine, or even economic nonsense. Their basic idea is the conception of society as a colossal machine with its tubes, valves, and thermostats pumping incomes this way and that, or else as an enormous pot to which people contribute unequally but from which all draw equal rations.

Any discussion between these two camps is difficult, but not hopeless. It is not in all circumstances useless to show the representatives of that second group their own social philosophy more clearly than they often see it themselves, and thus to try to chasten or even to shock them. The best result, however, may be expected from demonstrating that the further the modern welfare state progresses, the closer it comes to a critical point beyond which consequences are inevitable such as even the warmest well-wisher of this development cannot reasonably want without risking exposure as a diehard. This critical point—or, we might say, the point at which the soup boils over—can be determined in three ways.

The critical point is reached, first, when it costs so much to run the welfare state that even its beneficiaries, the masses, begin to be clearly aware of the financial burden involved, and when it becomes a matter of practical importance for everyone to work out whether, when all the pumping is done in all directions, he is better or worse off. It is almost impossible to answer this question today, a circumstance that adds to the unease and the misgivings that seem increasingly to characterize the spiritual climate in the typical welfare-state countries. At that point there looms yet another question, namely, whether the beneficiaries of public social security would not be better served if the welfare state left them more money to make provision for themselves.

Secondly, the critical point may be defined as the point where a vicious chain reaction sets in—where, on the one hand, the welfare state’s compulsory aid paralyzes people’s willingness to take care of their own needs and its financial burden considerably weakens people’s ability to do so, while, on the other hand, this limitation of self-provision makes people more and more dependent upon compulsory public aid and increases their claim on it. Just when this point will be reached not only depends on the proportions that the welfare state assumes in any country but also on the degree to which the people’s inclination to save and their sense of responsibility for their own affairs resist the pressure of the welfare state; it also depends on the tax system and on other circumstances. The Scandinavian countries provide the most striking illustration of this boiling point, but it would be rash to assume that Germany or Switzerland could not likewise be raised to this temperature, if only the fires of the welfare state continue to be kept good and hot.

The Scandinavian countries are also, together with such others as France, a good example of how the boiling point can be reached in yet a third way. This is perhaps the most critical point of all, because it makes it so crystal clear that the welfare state eventually nullifies itself. It is the point where the welfare state becomes one of the principal causes of chronic inflation, which, in its turn, is one of the many blots on the scutcheon of our time. How this mechanism works cannot be explained here in detail, but I may perhaps be allowed to plead that I have not shirked the issue—a discussion of it will be found in my book A Humane Economy.1 I would, however, stress one aspect that is often overlooked. Such a welfare state not only exports inflation to other countries that, like Germany, were more successful in containing chronic inflation, but it also sponges on them to the extent that month after month it builds up a debit position in the European Payments Union. The welfare state lives beyond its means, but that can be done only if others foot the bill.

To let someone else foot the bill is, in fact, a general characteristic of the welfare state and, on closer inspection, its very essence. There may be more charitable ways of saying this, but that does not alter the fact. But the point is not only that someone else pays, but that he is forced to do so by order of the state. That the welfare state necessarily implies compulsion is defensible, for how else could its aims be achieved? What is wholly indefensible is any attempt to suppress, obscure, or simply deny this inconvenient and ugly fact. Compulsion is so much of the essence of the welfare state that we should really call it the compulsory welfare state, if we want to call a spade a spade and forestall any attempt at camouflage. There is a good case for such plain speaking, the more so as strangely little is ever said, and sotto voce at that, about the nature of the welfare state as a compulsory institution.

In spite of its alluring name, the welfare state stands or falls by compulsion. It is compulsion imposed upon us with the state’s power to punish noncompliance. Once this is clear, it is equally clear that the welfare state is an evil the same as each and every restriction of freedom. The only question on which opinions may still differ is whether and to what extent it is a necessary evil. It seems obvious that a convincing case for this can be made out only within very narrow limits.

Not long ago the French historian P. Gaxotte characterized our age by saying that never before had there existed in the world so many jails filled with so many harmless and even perfectly honest people. If this is so, the welfare state as one of the main areas of state compulsion must bear its share of the responsibility.

* Frankfurter Allgemeine Zeitung, January 22, 1958.

1 Henry Regnery Company, Chicago, 1960.