Does capitalism “need” a welfare state to survive? So maintains The Economist. I find this a questionable contention.

They write:

As countries become richer they tend to spend higher shares of national income on public services and benefits. Spending on “social protection”, such as pensions, unemployment insurance and assistance for the hard-up, has risen from an average of about 5% of GDP in rich countries in 1960 to 20% today. Include spending on health and education and those shares roughly double. For some, the sheer scale of these welfare states is reason enough for reform.

But what the welfare state does is perhaps more important than its size. It should seek to allow individuals to make their own choices, whether through support for parents to return to work as in Scandinavia, personal budgets for disabled people to select their own provision as in England, or Singapore-style learning accounts so that the jobless can acquire new skills.

It seems to me that the British newspaper wants to say that a modern, capitalist economy needs a form of safety net, not necessarily a welfare state whose growth in size is indeed for some “reason enough for reform”. The Economist insists on the value of “universalism”, as an alternative to paternalistic aid to the poor. Such universalism shall mean “empowerment”, allowing people to make their own choices, particularly in the face o complex situations such as unemployment or illness.

While we may agree that this was the intention of the founders of welfare states, I find it questionable to value the welfare state for their intentions rather than their consequences. It is one thing to assume that a free, capitalist society needs a specific range of social needs to be answered. Individuals demand a certain degree of certainty for their future and need to be insured against worst case scenarios. But this does not necessarily mean that it is expedient, let alone “just”, to entrust the government with the goal of insuring them all. Provision of such service by government may result in a staggering growth of public intermediation, feeding an administrative bureaucracy rather than providing good insurance, or even “transfers” from the rich to the poor. That bureaucratisation may lead to functionaries being the true beneficiaries of the welfare state has long been pointed out.

The Economist points to two obvious challenges to the welfare state as it is: one is ageing, the other is immigration. This is what they write on immigration:

Across Europe, “welfare chauvinism” is on the rise. This supports a generous welfare state for poorer, native-born people—but not immigrants. Populists argue that, if migrants from poor countries immigrate freely to rich ones, they will bankrupt the welfare state. Others argue that liberal migration policies depend on curbing access to it: build a wall around the welfare state, not the country. Polls suggest that few native-born Europeans want to deprive new arrivals of instant access to health care and schools for their children. But some restrictions on cash benefits, like those already in place in America and Denmark, may be necessary.

As liberals such as Beveridge realised, the best way to secure support for free markets is to give more people a stake in them. The welfare state must be seen as more than providing shoes and soup for the poor, and security in old age. In a democratic society it is also crucial to the case for capitalism.

What the prescription here is not clear to me. “Welfare chauvinism” is most likely based upon a misjudgment: the idea that people endure fantastically difficult and risky travels, like crossing the Mediterranean, leaving their families and jeopardising the little they have, just because they want to be sure that if they catch the flu they can run to an ER room and not be asked to pay the bill. Actually, this misjudgment says something about those who hold it: proud citizens of Western countries that aren’t particularly proud of their societies’ ability to create wealth, but of its taste for redistributing it. It is more likely that people face so many daunting difficulties because they want a bite of the economic opportunities that modern economic growth supplied, than because they want a bite of our social insurance.

If this is a more reasonable assumption, then those who opposed “welfare chauvinism” should embrace a point made over and over by Bryan Caplan, that residency and work rights are practically separable from citizenship and eligibility for welfare rights. The Economist doesn’t go that way, though, and while it accepts that “some restrictions on cash benefits may be necessary”, it seems to me it cares more for reaffirming the need for welfare states as they currently are, than to accept the challenge to create solutions that may allow for greater public legitimacy for free movement of people.

This reminds me of a short conversation I had once with a prominent Italian left-winger. An extremely educated man, he was well-meaningfully appreciative of open borders. How do you reconcile it, I asked, with your battle to reduce flexibility in the labour market? A more inflexible labour market (which is often a feature of more developed welfare states) certainly makes the life of new comers harder. He didn’t answer. Perhaps the mere thought that a freer labour market and (more) open border could go together was for him a thought difficult to reconcile with his own idea of intellectual respectability. I see that same mechanism at work in this Economist’s article too.