The Clinton administration is looking to the European welfare states for models it can import to America. When President Clinton traveled to Brussels in January 1994 and described his domestic priorities to the generally dirigiste Eurocrats at the European Commission, they were impressed. Some theorized that American economic thinking was finally growing up. “It’s a sign of a mature U.S. approach to worker protection and competitivity,” one Eurocrat told reporters after the Clinton meeting.
At least one European-inspired program, the Family and Medical Leave Act, has already been enacted. The administration is expected to propose a large “re-employment system” that could mean enrolling 2.3 million people in a jobs scheme designed to move people from welfare to private-sector employment. Other proposals include increased employer taxes designed to defray welfare costs, a rising minimum wage, a national youth service program, and, of course, a national health-care system.
I moved to Brussels more than four years ago, also intrigued by the success of the European welfare systems. Plainly, the sort of social problems that plague New York and other American cities are less evident in Europe. But the more I look at these systems, the more obvious it seems that they are rooted in their national cultures. Europe really is quite different from the United States. There is less of a sense of movement; there is no presumption of limitless possibilities. Consequently, there is less chaos and disorder, but also less dynamism. Looking back from across the Atlantic, America’s problems and glories seem all of a piece.
The Clinton administration’s welfare pronouncements show little appreciation of the cultural settings of welfare programs. Rather, Washington’s prevailing attitude is one of technocratic obliviousness. The policy wonk looks at programs as blueprints, at national populations as virgin plots ready to be cultivated according to rationalist plans. This way of seeing looks right through the webs that bind communities and programs together. In truth, to try to import welfare systems of the style and scope found in Europe would be dangerous. Successful results may not be replicated, and American dynamism could be diminished.
The Swiss welfare system is an example of the sort of success that would be impossible in America. The Swiss system is administered locally, with relatively little central bureaucracy. It emphasizes the prevention of poverty as much as support for those in poverty. Aid is temporary, with demands placed on the recipients so that no culture of dependency develops. Members of the immediate and even the extended family are required to support kin who are in need. If a recipient becomes affluent later in life, he can be required to repay the aid he received while in poverty. Knowing they may have to make such payments, many recipients willingly forgo some benefits to which they would be entitled.
But the Swiss system involves an invasion of privacy that most Americans would find unacceptable. Very early in the process, welfare workers can come in and run a recipient’s life, even taking charge of child rearing. Intense community pressure is brought to bear on someone who does not conform to social norms. A Swiss citizen can get parts of anybody else’s tax return to make sure that person is conducting his finances sensibly so as not to become a future burden on the community. Some Swiss towns publish booklets listing everyone’s salary and net worth. Switzerland also strictly limits immigration. Geography, culture, and language conspire to limit movement, making this tightly bonded welfare system possible in a way that is difficult to imagine in the United States.
The Clinton domestic policy is based not so much on the Swiss model as on the German model. In 1992, Clinton spoke of the need for America to emulate “the high-growth economies of Europe.” The following year, he boasted that the Germans have an unemployment rate which, he said incorrectly, “is lower than all the other European countries, and yet they have very high mandatory labor costs.” And it is in health care, the most comprehensive Clinton initiative, that the admiration for the German model is most noticeable. “We have a lot we can learn from the Germans,” President Clinton has said. “The Germans are able to provide a high-quality health-care system at a much lower cost than we are, because they have much more discipline in the way it’s organized and financed.” The Clinton plan embodies many elements of the German system: mandatory enrollment in a health insurance system, regional health alliances with identical benefit standards, and reliance on a payroll tax and on other, hidden taxes.
The Clinton health plan, which would include almost all Americans, also reflects the political calculus that motivates the administration’s efforts to replicate European social programs. Many Democratic Party strategists have argued that the way to construct a working Democratic majority is to include the middle class among the beneficiaries of basic federal programs. At present, this is the major distinction between the American and European approaches. With notable exceptions such as Social Security, the American “safety net” model targets aid to the needy. The European systems, although there are important differences between them, almost all consist of universal programs that provide benefits to all citizens regardless of income, through such things as child-care facilities, broadly defined disability payments, monthly family benefits, and nationalized health insurance.
The European experience demonstrates the perils of a system designed to carry the middle class through fife. Such programs, over time, become exceedingly expensive and have severe economic consequences. Moreover, with nearly everyone a beneficiary of the welfare state, any reduction in the size or scope of benefits becomes almost a political impossibility. And the risks are social as well as economic and political. A European-style welfare system could undermine the cherished American values of work and volunteerism.
Ironically, the European welfare states have slipped into crisis just as the Clinton administration has looked to them for guidance. Europe is contending with two large, interrelated problems, both directly attributable to the welfare state. The first is the unsustainable growth of public spending. Total government spending in the nations that make up the Organization for Economic Cooperation and Development (which includes the United States) has risen from 28.1 percent of gross domestic product in 1960 to 43.8 percent of GDP today. The biggest elements in this growth have been the dramatic increases in spending on state pensions, nationalized health care, unemployment benefits, and family support.
The Italian state pension program, before recent reforms, was projected to consume the entire national budget by 2013. In western Germany, social spending has increased by five times after inflation over the past twenty years, with the steepest increases coming in the past five years. Even under the Thatcher government, British social security spending (which includes what Americans would call welfare) rose by an average of 3.7 percent a year in real terms.
Part of the rise is due to demographic patterns, such as the aging of the population. Part is due to political factors: as we shall see, the welfare state is easy to augment but difficult to roll back. And part of the inexorable rise is the result of incentives built into the welfare systems themselves. These incentives have brought about rising unemployment, disability claims, and the like-necessitating even more spending, which worsens the problems further, and so on.
Unemployment is the clearest and least controversial instance of this vicious circle. In Germany, social welfare programs are paid for through employers’ and employees’ contributions, so rising welfare costs are directly reflected in rising labor costs. Daimler Benz reports that this “second wage”—the social taxes—adds 80 percent to the cost of labor, though Germans often speak of a 50 percent added cost. (In the United States and Japan, by comparison, the second wage adds around 25 percent to labor costs.) With labor so expensive, companies have a disincentive to hire.
This added cost—compounded by regulations that make it costly to lay off workers and that mandate a high minimum wage—has had a devastating effect on job creation. European unemployment has been rising steadily over the past three decades, and is now six times higher than in 1960. The rate is more than 12 percent in Italy, France, and Belgium; and above 11 percent in the European Community as a whole. (And these figures don’t include many others who are in government training programs and disability programs.) Some countries are simply off the chart. Spain reports a 23 percent unemployment rate (though many work on the black market), and Finland suffers from a 20 percent jobless figure (in part because the dissolution of the Soviet Union decimated its major export market).
Unemployment benefits are generous and sometimes open-ended. In Belgium and Denmark, there is no limit to the duration of unemployment benefits. In Germany, married workers receive up to 63 percent of their former pay for as long as 32 months after losing their job. As a result, the unemployed have little incentive to look for work. About half of Europe’s unemployed have been out of work for more than a year, versus only around 6 percent in the United States. It is this combination of high benefits and persistent unemployment, with fewer people working to pay benefits for more, that creates the vicious cycle of spiraling costs.
The Welfare Culture
Europe’s second problem is the culture of entitlement that its welfare systems breed. Indeed, my central point is not that the United States shouldn’t import European-style programs because they are unsustainable (though they are). My argument is that even if Washington can find programs that work well in Europe, it still should think very hard before trying to implant them in domestic soil. Even systems that complement European mores would tend to erode important and distinctly American values and institutions.
When my wife and I moved to Brussels, we became friendly with a Finnish couple in their late thirties who, at the time of our first meeting, had one child. Very early on in our friendship, perhaps even the day we met, our friends mentioned that they were not married and that the woman had to return to Finland with their child every six months. She was registered as a single parent and had to show residence to collect her benefit. This was an affluent couple, he with a successful career and she on leave from a good job. What was striking was not that they were cheating the system, but that they would mention their ruse so quickly and so casually, with no sense that we might look amiss. The Scandinavian welfare systems have created an image in many minds of the state as great provider, whose benefits are there for the plucking. Nor is this attitude found only in Scandinavia. Try explaining to a British person that he does not have a “free” health care system, that he is merely paying for it indirectly.
This is not to say that Americans are more virtuous or more realistic than Europeans, or that America is better. The point is that each nation has its own economic and cultural strengths and weaknesses. By introducing a welfare system with the dimensions of a European system to the United States, we won’t necessarily be solving our problems, but we will be adding their problems onto our own.
Consider the American work ethic. Americans work phenomenally hard by global standards. Generous and comprehensive welfare benefits are likely part of the reason Europeans tend to be less industrious. For one thing, Europeans spend a shorter portion of their lives in the labor force. Free or nearly free university education induces many European students to stretch out their studies; the average university graduate in Germany is 29. At the other end, Europeans tend to retire earlier than Americans, in part, it seems, because of more generous state pensions.
Even during the working year, Europeans spend much less time on the job. The work week in Germany is 37.5 hours. American executives who have tried to merge U.S. and German workforces know this is rigorously enforced. Furthermore, the average American takes 30 days off a year, adding up vacation days, public holidays, and sick leave. The average French worker takes 55 days off a year; the average German, 61 days. (The Japanese take an average of 29 days off annually.)
One simply notices a different attitude towards work and leisure in the United States and Europe. It’s not necessarily true that Americans are more inclined to define themselves by their jobs, but Americans do seem to take satisfaction in being frantically busy. Thorstein Veblen spoke of the leisure class, but in modern America this has been stood on its head. The highest status goes to the people who are so indispensable that they are constantly on call or in touch. Even European vacation time is more leisurely than American time off; Americans have an amazing ability to turn their leisure into pseudo-work. Americans “work out” in their spare time and play competitive sports far more intensely than Europeans. When visiting Europe, they hit the tourist sights like locusts, taking in six museums and four cathedrals by lunch. Art Buchwald once wrote a column on how to do the Louvre in less than ten minutes (using roller skates).
This American dynamism strikes you in the face anytime you return to the states after an extended stay in Europe. It is the legacy of being a nation of immigrants. I write this article from Belgium, a nation with a 12 percent unemployment rate. Yet you never see the unemployed. They are at home watching TV or in the pubs. In America you would see an army of jobless that size, hustling, protesting, standing on the sidewalks carrying “hire me” signs. The dynamism of American life explains the violence and disorder of the place, and of course the poor and the unemployed face far more deprivations in the United States than in Europe. But the American values of vitality, self-reliance, and independence are the key to the fantastic success of American culture (our second-largest export). They account for America’s entrepreneurial success. They are at the center of our sense of ourselves: America is a nation for strivers.
These are, of course, subjective impressions. But by looking specifically at sick-day rates we can get a more objective glimpse at American and European attitudes about work. It seems safe to assume that people in all developed countries are actually sick roughly the same number of days a year. Despite their more generous vacation benefits, Europeans call in sick nearly three times as often as American workers. German and French workers are off sick an average of 19 days a year, according to a McKinsey study. American workers take an average of 7 sick days a year. And the fact that a disproportionate number of European sick days fall on Mondays and Fridays suggests that many of die stricken are not exactly at death’s door.
Until recently, Sweden, with the most extensive welfare state, was the champion of sick leave. The average Swede took 25 sick days a year; total absences for health reasons amounted to 50 days a year on average, including days off to care for sick relatives and days lost by people who retire early for health reasons. Over the past couple of years, though, companies have begun laying employees off in great numbers. The remaining workers reduced the number of days they called in sick. Companies suddenly found they were overstaffed, and more layoffs ensued.
The most famous example of the Europeans using welfare benefits to get off work concerned the Dutch disability system. Dutch workers who went on disability were allowed to receive up to 80 percent of their previous salary. A worker could qualify for the disability program if he could get a doctor to testify that he was suffering from such mental stress that he was sometimes unable to work, or that he had a bad back. By 1990, one in six members of the Dutch labor force was on disability. Many were in fact unemployed but had managed to get into the disability program which offers more generous benefits than unemployment. The Netherlands spends a greater percentage of its GDP on social security—almost a third—than any other European nation, though its government now is embarking on what could be the continent’s most far-reaching welfare reform effort.
These perverse work incentives can affect the way a nation perceives the market economy. People can lose sight of the fact that benefits have to be earned by productive labor. They can come to see benefits as being theirs by right, as obligations made by the state. When Americans speak of moral decline, they are talking about family break-up, crime, and the like. When Germans worry about moral decline, they talk about growing spoiled and soft. Chancellor Helmut Kohl has called his nation a “collective leisure park.”
Yet Germany is admirable because it hasn’t lost the connection between work and benefits. One gets the sense that the Germans will rebalance their welfare system and continue as a great productive nation. But other European nations have not responded to the economic crisis by calling on themselves to work more. Indeed, many French leaders have called on their people to work less. The most talked-about economic reform idea in France right now is “job sharing.” Workers would cut back their hours by a fifth (with or without some loss of salary, depending on the plan), and then companies would hire additional workers to take up the slack. Denmark has enacted a slightly more clever version of job sharing, called job rotation.
But economies don’t grow by having their most productive people work less. At best, job sharing schemes offer a way to spread the pain of cutbacks, if salaries are brought down in line with wages. But the most disturbing aspect of the debate is the way job sharing proponents misunderstand the market. The presumption seems to be that there is a fixed amount of labor that needs to be done and that workers are essentially interchangeable. As modern economies move away from the assembly line, however, they rely more on human experience and imagination. A company cannot just reduce one person’s hours and slot another person into the role.
By separating benefits from work, pervasive welfare systems create the impression that jobs and benefits are products of the political system. When French farmers or fishermen feel an economic pinch, they riot. When French students have an economic grievance, they march. When French industrialists feel competitive pressure, they ask for protection. This happens everywhere, of course, but when the government gives in to these demands, people come to regard the market as optional: if competitors undercut your goods, the government can step in and either keep the competitors’ goods out or subsidize your own prices.
I believe that Europe’s most serious problem is that many people either haven’t internalized the rules of economic competition or think it is possible to evade these rules. The overly generous welfare state has played some part in encouraging this delusion.
Volunteerism in Peril
Another prized American institution that could be endangered by an overly broad welfare system is the buzzing hive of voluntary and charitable institutions, appreciated by America-watchers from de Tocqueville on down.
Across Europe there has been an erosion of voluntary and friendship societies, groups of people who take the initiative to tackle local problems. In Sweden, for example, very few intermediary institutions remain. Churches are a weak force in Sweden. Though intensely religious in the nineteenth century, it is now perhaps the most secular society on earth. There are few private foundations. Local government is more a branch of the national bureaucracy than a distinct local institution. Swedes are less close than people from many other nations to members of their extended families. In a recent survey on attitudes toward the elderly, 35 percent of young Swedes agreed with the statement, “No matter what happens, my parents will have to support themselves or go on social welfare.” Only 4 percent of American and 5.4 percent of Japanese agreed with the statement.
The current Swedish government has tried to institute reforms, including a school choice program. But the organizations that might have started local schools had all been absorbed into the state. The first private schools were started by Muslim fundamentalists, groups that retained their independence only because they were so far outside the Swedish mainstream.
Charitable donations are much higher in the United States than in Europe. In 1991, the mean monthly charitable donation for an American individual was $31.60, according to a study by the United Kingdom’s Charities Aid Foundation. In France, which has the lowest rate of charitable giving, the comparable rate was $6.50 a month. In Britain it was $11.35 a month; in Spain, $12.60. (Interestingly, the North American cities with relatively low donation rates are Washington and Ottawa, the national capitals.)
Of course, one reason Americans give more to charity is that the tax code, unlike those of most European countries, gives them an incentive to do so. But these differences in tax policy themselves reflect cultural choices—in favor of voluntary idiosyncratic aid in the American case, and in favor of centralized state provision in the European case.
The Hidebound Welfare State
The politics of European welfare systems make them hard to trim, reform, or even rearrange. Across Europe, and especially in Sweden, Belgium, Italy, Germany, and Britain, political leaders of almost all stripes sense that their welfare systems have become obsolete. Most Europeans are trying to gradually reduce the scope of their systems in hopes of keeping up with a competitive global economy. But their nations are gripped by a sense of being weighted down, of being unable to keep up with the times.
Sweden is the nation that should be furthest along in reforming its welfare state. Swedes have been talking about a welfare crisis for more than a decade now. Once among the wealthiest nations in the world, Sweden is now in the bottom half of the Organization for Economic Cooperation and Development in terms of per capita GDP. The Swedish government, led by Prime Minister Carl Bildt, came into office with a mandate for root-and-branch reform. Anybody who was in Sweden during the early days of the Bildt government remembers the sense of excitement. Everywhere government ministers were talking about vouchers and choice and deregulation.
And Swedish society has changed. It is now possible to talk about things that used to be unspeakable People now realize that there is a distinction between society and the state. But the welfare system itself has been merely trimmed, not fundamentally reformed. Disability benefits have been cut from 100 percent of lost salary to 80 percent. Eighty thousand public-sector jobs have been cut. The retirement age has been lifted from 65 to 67. But the state sector still accounts for roughly 60 percent of Swedish GDP, and spending is so high that taxpayers face a top marginal income tax rate of 50 percent that kicks in at a mere $25,000. On top of that there is a value-added tax of 25 percent.
Reform is now stalled; the status quo has proven too strong. Moreover, it is likely that Bildt’s party will lose the next election. The cuts the government did make elicited howls of protest. And attitudes about the welfare state have not changed fundamentally. Most Swedes accept the idea that the system had become too much of a drain on the economy, but they still tend to favor a pervasive welfare state in the name of social justice. They also reject the notion that benefits should be limited to the needy; universal benefits are seen as an important aspect of community cohesion.
While Sweden has enacted only modest reform, other European nations have done even less. Most nations have trimmed expenditures only slightly; Germany, for example, has cut unemployment benefits for people without children by a mere 3 percent. A favorite tactic has been to push through reforms that do not affect current beneficiaries. Britain will raise the retirement age for women, but the reform won’t take effect until 2010.
This nibbling around the edges is in contrast to the atmosphere of crisis that surrounds much discussion of the welfare state. Nowhere is this contrast more evident than in Britain. It is hard to open a British newspaper or journal without reading of some bold idea to reform state pensions or the child-support system. This sort of radical thinking is evident not only on the right but also on the left. The Labor Party spokesman on welfare reform is Frank Field, one of the most respected analysts in the country. He recently told his colleagues that it was time to “think the unthinkable.” He declared his support for the elimination of the state pension and a switch to compulsory private pensions funded by employers. His party leaders disowned the idea, but they have established a Commission on Social Justice to ask fundamental questions about the welfare state.
The Tory minister in charge of welfare reform, Peter Lilley, is a true radical. But he must keep the image of John Moore, Margaret Thatcher’s welfare minister, forever in his mind. Very good-looking and highly intelligent, Moore was touted by some as a future prime minister. But when he tried to reform the welfare state head-on, he received so much opprobrium that he was forced to resign from the government, his political career in ruins.
So Lilley works slyly, and is perpetually voted the least-known member of the British cabinet. So far his main accomplishment has been to budge the debate to the extent that most people now understand that there is a connection between the cost of the welfare system and the relatively poor economic performance of the nation.
There is no chance that Britain will soon undertake the fundamental reform that many people believe is necessary. When Lilley’s Thatcherite colleagues begin musing in public about fundamental reform, more-senior ministers leap up to reassure the world that the welfare state is sacrosanct.
This is the pattern across Europe. There is a sense of crisis, a feeling that Europe’s economy will continue to stagnate until its welfare systems are reformed. But no one has found a way to make the necessary changes politically acceptable. Voters see the unemployment rates, and many of them agree that the problem arises from costly benefit structures and rigid labor regulations, but they seem unwilling to accept change that would diminish their own benefits.
The feeling of gloom that results from this deadlock is palpable, and those with means routinely evade unappealing social welfare programs. The welfare state resists change. Unemployment continues to rise. Budgets are out of control. Frustration breeds contempt for the institutions of government. Protest movements prosper. The major parties have been taking electoral beatings all across the continent. But the new governments of Europe all face the same contradiction: the people are disgusted with the status quo but are unwilling to surrender any of their own benefits.
Transplanted to the United States, a European-style welfare system would generate the same problems. In addition, the development of a centralized, hidebound social system would seriously damage America’s image of itself as a fast-changing, modern, youthful nation.
America’s Global Values
Pervasive welfare states like those in Europe are simply at odds with American cultural values. Perhaps the greatest irony is that those American values are increasingly becoming global values. In the postindustrial economy, developed nations are becoming more individualistic, more dynamic, more fluid. The values that gave rise to and are reinforced by the universal welfare state may soon be at odds with the dominant cultural values not only of America but of the world.
One day, sitting in a Stockholm hotel room, I turned on the television. There on the screen were programs that I used to watch on Manhattan public-access cable TV. Swedes from Malmo to the Arctic Circle can watch such celebrated New Yorkers as the lady who conducts her meditation show with her eyes rolled back in her head; Robin Byrd, the macramé-wearing stripper; and the astrologer who once opened his show by saying, “You know, earthquakes have horoscopes too!”
In the glory days of the welfare state, Sweden had only two channels. People came to work each morning talking about one channel’s programs or the other’s. Now there is a plethora of channels offering programming of wide diversity, in both content and quality. That’s one aspect of the erosion of cultural uniformity. Lifestyles and earning patterns are becoming more individualized, more diversified, and, frankly, more Americanized. Overprogrammed welfare systems have trouble coping with this sort of unpredictability.
America is blessed with a culture that seems well-suited to a global economy that demands individual initiative and creativity. The U.S. welfare system certainly needs reform, but that reform should take account of the country’s unique and vibrant culture. A European-style welfare system would smother the very attributes that are America’s best hope.