Overloading welfare state leaves children to pay

As 2014 ended, many of us felt as though public life had short-changed us. Not in a monetary sense specifically, though I will come to that. It would seem that with few exceptions, electoral politics had become incapable of satisfying the multiple demands placed on it, and the reason is quite simple: it can’t.

No matter where in the world you look, Europe, North America and Japan in particular, though we are not exempt, countries are having to come to grips with the fact that the social democratic welfare state idea that dominated the past century or so has become unsustainable.

The state has tried to reconcile so many competing demands, between generations and within generations, the system has become exhausted and just not able to fulfil what those who pursued the old social democratic idea felt was its goal.

We read too often of the possibility that coming generations may not live as well as current ones. Reports of a recent Grattan Institute recent study The Wealth of Generations said just that. The ‘generational bargain’ was at risk Grattan head John Daley said. The baby boomers are hoarding the nation’s wealth and depriving their children of the possibility of similar living standards as their own, their report argues.

But there is nothing new in this.

In 1991, New Zealand social historian David Thomson published an important book Selfish Generations: The Ageing of New Zealand’s Welfare State. He raised similar issues to the Grattan report, but this time the generations were different; out by a generation in fact. The older generation were what he called the welfare generation, those born between about 1920 and 1945. The baby boomers of course were the next lot along.

Thomson argued that the welfare state ‘had behaved in a dangerously inconsistent way, imperilling its very survival into the twenty-first century’ and he was right. Electoral politics in democratic societies seem to have learned little, but the demands made by the public and which invariably often the political marketplace tries to provide has led us on a destructive path. Ageing and political spending will continue to load the costs of this behaviour onto the young and given much of this is funded by borrowing, it’s probably the case that many of the young haven’t even been born yet.

Thomson’s analysis was important for another reason. He characterised the dilemma that I have described above as ‘the problem of the common’ and this is a very useful way of depicting the time-bomb ticking away in Australia and many other places.

Essentially the idea is this: look at the ‘welfare pool’ as a commons. In a commons, there is no incentive for any one person not to overuse a resource that nobody owns. We know about over-grazing, over-fishing, over-use of water and similar examples. In a common field, it is in the interest of an animal owner to add to the herd, but it’s also true for every other to do the same. The pool, the commons, is exhausted unless rules of some kind are followed, usually in smaller social entities, or the land becomes enclosed and private.

The welfare state has become a mass pool and as Thomson says it ‘has robbed us of an identifiable community with whose resources each elector must act responsibly’. Smaller pools, such as families and the institutions of civil society, present all sorts of constraints, often social and moral. Larger, diverse and often geographically distant pools Thomson says ‘promises anonymity and dims the sense that an individual’s actions necessarily have consequences for others’.

So that’s our modern-day dilemma. But it is worse, for the welfare state has led to the situation where exemptions to the obligations of responsibility abound with self-reliance becoming a distant memory for far too many. Is this another route to Hayek’s road to serfdom?

American writer Yuval Levin described it this way: ‘because all citizens – not only the poor – become recipients of benefits, people in the middle class come to approach their government as claimants, not as self-governing citizens, and to approach the social safety net not as a great majority of givers eager to make sure that a small minority of recipients are spared from devastating poverty but as a mass of dependents demanding what they are owed. It is hard to imagine an ethic better suited to undermining the moral basis of a free society’.

And of course there is a bottom line and this is where short-changing takes on its monetary meaning. The welfare state as we know it today will send us broke, not only now, but cascading down through the generations to come. It’s hard to imagine where this will lead. Even a slightly weakening economy, and it’s not clear how weak ours will be in the near future, will exacerbate a worsening debt situation. Our capacity to reverse this will depend on controlling and reversing the demands of the welfare state, place boundaries on what it may do, and allow an enterprise culture with its hard work and subsequent rewards to flourish.

Granted, Australia has made some efforts to set some boundaries with a privatising retirement incomes system, tradeable water rights and private health insurance just a few examples, but we have a long way to go. What we should be seeking is a government more limited in scope and economically sustainable and that’s a fair aim. It might then be able to achieve some of what it wants, but we too should have more modest expectations. Otherwise, we may all decline together.

Greg Lindsay is Executive Director of the Centre for Independent Studies