Who benefits from the welfare state?
I recently posted a blog on the public debt crisis in Greece. One comment I received from the post was that the Greek crisis is a symptom of the capitalist system, which is in a coma. I respectfully disagree.
Although capitalism needs serious adjustments to incorporate the bottom of the pyramid, I do not think the problem is the free market system. What is definitely in critical condition is the misnamed welfare state. Lets take a look.
In recent years Europe has gone from crisis to crisis thanks to deficit-ridden public finances, especially in Hungary, Greece, Ireland, Portugal, Spain, Italy, the United Kingdom and so on. The average ratio of public debt to GDP in these countries is over 100%, implying that not even earmarking the total value of what these countries produce in a year would resolve their debt issues.
In fact, the United States is also not immune to this situation, and today the Democratic and Republican parties are waging an intense debate on increasing the limits of the public debt. If the dialogue breaks down, the consequences would be disastrous for the global economy.
The welfare state has failed
For decades politicians have sold the idea that government can help people live beyond their means and solve all their problems, of course, in exchange for their vote.
We call this illusion the welfare state. Whether we are dealing with sickness, unemployment, retirement, or maternity leave, under this scheme the government will solve your problems and you will have nothing to worry about. But this is precisely one of the major flaws of this model, because nobody knows your needs like you do and nobody can resolve them as effectively as you can. No one will give you anything; what you don’t do for yourself can’t be done by someone else.
Clarification: I don’t deny the need for the government to establish minimum standards of living for its citizens, and to ensure the supply of public goods and services that are essential, such as security, education, basic health care, law enforcement and basic rules of coexistence.
In fact, it’s absurd that people continue to die of hunger in the 21st century and are inflicted with 19th-century diseases, or that millions are unable to read and write. However, it’s equally absurd for governments to neglect their core obligations, including security, and control assets that in no way correspond to them. This is especially true since they are often not qualified to do so.
No one can live above their means without paying the consequences. This applies to families and businesses, and also to states. Governments for many years posed themselves as part of the solution; they now clearly are the very problem itself.
Today a large number of developed countries, especially the European nations, are beginning to pay the costs associated with decades of irresponsible policies and spending. The Greek crisis is just the first warning sign of a global trend. The welfare state has reached its limit and the only solution is to dismantle it or reform and reduce it to a minimum, create checks and balances, and strengthen accountability and transparency.
The transition toward a new model is not without its difficulties. It will have high social costs and cause enormous volatility in financial markets. But if this change toward a model of individual and collective responsibility is carried out in an orderly manner it can be a great opportunity to make the global economy much more efficient, creating real and lasting well-being for families, above all for future generations.
In Mexico, politicians need to learn the lesson well: the welfare state has failed. The consequences of following this model can be disastrous for everyone.
The population must remain vigilant and denounce those who spend irresponsibly on our behalf and contract debt that we will have to pay, sooner or later. In the long term, the welfare state only benefits few at the expense of everyone else.