There are sound reasons why a conservative would support a welfare state. Historically, it has been conservatives like the 19th century chancellor of Germany, Otto von Bismarck, who established the welfare state in Europe. They did so because masses of poor people create social instability and become breeding grounds for radical movements.
Elected officials did not have real control of the government. Bismarck distrusted democracy and ruled through a strong, well-trained bureaucracy with power in the hands of a Junker elite representing the landed aristocracy in the east.
His paternalistic programs won the support of German industry because its goals were to win the support of the working classes for the Empire and reduce the outflow of emigrants to America, where wages were higher but welfare did not exist.
One problem with this conservative view is its lack of an empirical foundation. Research by Peter H. Lindert of the University of California, Davis, shows clearly that the welfare state is not incompatible with growth while providing a superior quality of life to many of those left to sink or swim in America.
In a new paper for the New America Foundation, Professor Lindert summarizes his findings. He points out that there are huge efficiencies in providing pensions and health care publicly rather than privately. A main reason is that in a properly run welfare state, benefits are nearly universal, which eliminates vast amounts of administrative overhead necessary to decide who is entitled to benefits and who isn’t, as is the case in America, and eliminates the disincentives to work resulting from benefit phase-outs.
- Few economists, if any, make the argument that welfare states are incompatible with growth. Rather, the argument is that welfare states, and their attendant tax burdens, serve as an economic drag. Welfare states don't mean zero growth, they just mean less growth than would otherwise be the case.
- A superior quality of life is in the eye of the beholder, and it is also not obvious how much the quality of life is a product of public policy. While it is certainly greater than zero, other factors such as climate and culture play a determining role.
- Bartlett's reference to "sink or swim" in the US is strange and inaccurate. The US, in fact, is a welfare state, with 54% of the federal budget in 2011 going to health care, social security and safety net programs. Robert Samuelson has calculated that the percentage of Americans receiving some kind of public assistance "probably exceeds 50 percent."
- Citing the reduction in administrative overhead as a key reason for adopting government-run health care programs is, at best, incomplete. One cannot properly assess efficiency without also knowing results. If one organization has higher overhead than another, but produces better results, the higher administrative costs may well be worth it. Also note that anti-fraud measures are an administrative costs, and that fraud is estimated to have cost Medicare well over $40 billion in 2010. Thus, it may well be the case that Medicare could profit from higher administrative costs. Further consider that if one's patients are elderly, and thus likely to have higher health care costs (as with Medicare) that administrative costs are likely to be lower as a percentage of expenditures.
Accepting economists’ preference for broad taxes and benefits, and seeing the administrative cost saving of universalism, will prepare one for a historic result that still surprises some Americans. The welfare states of Northern Europe, with their social spending as high as 30 percent of GDP in some cases, have not suffered any clear net loss of GDP from it. So say decades of data on GDP and economic growth, with or without the use of econometric regression analysis. This is what I have called the “free lunch puzzle”: large democratic welfare states, with universal entitlements, have not paid any net price in terms of economic growth or competitiveness, while following policies that delivered more equal incomes, less poverty, slightly higher life expectancy, and cleaner government relative to the United States or the average small-government economy.
While some may try to cite the problems facing Europe, the fiscal troubles of Mediterranean Europe and Ireland are unrelated to the welfare state. Rather, the Mediterranean countries deliver relatively little aid to schools or the poor, while over-protecting senior workers in older industries. Meanwhile, both Spain and Ireland have suffered mainly from the bursting of huge market bubbles in real estate.
Lindert's claim that Northern Europe has not paid any net price in terms of GDP, meanwhile, is not obvious given higher per capita GDP in the US over Scandinavia by a margin of at least $7,000 (Norway is the lone exception, but also a special case given that it's oil wealth has spawned a sovereign wealth fund so huge that its value ($654 billion) exceeds the country's GDP ($486 billion)).
A 2003 study in the New England Journal of Medicine found that Canada’s single-payer health system had less than a third of the per-capita administrative cost of the United States system, with its many private insurance companies and overlapping government programs – $307 per year in Canada versus $1,059 in the United States. And although American conservatives are fond of pointing to cases where Canadians come to the United States for treatment, a 2009 Harris poll found that 82 percent of Canadians favor their health system over the American one.
Americans believe that their health system is the best in the world, but in fact it is not. According to the Commonwealth Fund, many countries achieve superior health quality at much lower cost than paid by Americans. A detailed study of the United States and England in the American Journal of Epidemiology in 2011 found that over a lifetime the English have better health than Americans at a fraction of the cost.
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American conservatives routinely assert that the people of Europe live in virtual destitution because of their swollen welfare states. But according to a commonly accepted index of life satisfaction, many heavily taxed European countries rank well above the United States, including the Netherlands (where total taxes were 38.7 percent of G.D.P. in 2010 compared with 24.8 percent in the United States), Norway (42.9 percent), Sweden (45.5 percent) and Denmark (47.6 percent).
Related: Further commentary on Bartlett's column from the Cato Institute's Alberto Mingardi.