“To dole out relief in this way is to administer a narcotic…. It is in violation of the traditions of America.” – PRESIDENT FRANKLIN D. ROOSEVELT, 1935
Going back in time, the views of Roosevelt were anything but uncommon. In the beginning of the twentieth century, even the proponents of the welfare state were greatly worried that the build-up of welfare programs might endanger the social fabric. To understand this reasoning, we must bear in mind that for the welfare state to function properly, it is not enough that most individuals follow the norm of properly paying their taxes. Neither is it enough that most individuals follow the norm of not overusing welfare services. Rather, for the system to work in the long term, the vast majority must abide the social contract. From the individual perspective, as transfer schemes become more generous and taxes are raised, it becomes increasingly lucrative to sideline the social contract. If government handouts are a good source of income, why work hard for a living? If taxes have become too high, why not try to dodge them? When all individuals in society follow the norms of working hard, paying taxes, and only using welfare programs when in need, the system will function properly even with a generous welfare system. However, if a critical mass of people change their behavior, the erosion of welfare norms can accelerate as the social contract falls apart.2
Group psychology plays a key role in society. According to researchers Fehr and Urs Fischbacher, legal rules and legal enforcement mechanisms typically lack effectiveness if not backed up by social norms. That is to say, we follow the rules when most of us think they make sense. In free societies governments don’t really have the power of enforcing rules that fundamentally go against the beliefs of the people. Social norms can in this sense be seen as rules of “conditional cooperation.” Critically, “defection of others is a legitimate excuse for individual defection.”3 In other words, if an individual perceives that her neighbors stick to the norm, she will be likely to do the same. If the neighbor is dodging his taxes or cheating the system to get money from the government, however, the individual’s own tendency to follow the rules will be diminished. Why work hard to pay for the neighbor to slack off? An erosion of the conditional cooperation underlying the welfare state can have grave societal effects. The result can be deteriorating working ethics, increased public dependency, and social tension.
To further complicate the matter, it is not enough to implement stricter enforcement of rules. Government measures to control how much public programs are used might signal to law-abiding citizens that violations have become a common practice. Friedrich Heinemann is a German scholar who has studied how generous welfare systems over time can undermine the very same norms that make the welfare systems possible to uphold. Heinemann explains that government sanctions can “be perceived as limiting citizens’ self-determination and will then further crowd out the intrinsic motivation to respect the law.”4 This means that if society reaches a point where overutilization of welfare programs becomes common practice, the deterioration of norms might prove difficult to stop. Politicians cannot simply repair the social fabric through public dictates. In this light, one can better understand how Roosevelt himself viewed doling out relief as “a narcotic, a subtle destroyer of the human spirit.” While the president actively expanded the American welfare state, he wanted to point out that there were legitimate reasons for concern about welfare dependency.
Over time, proponents of large public sectors forgot the warning words of Roosevelt and other early welfare state architects. They grew more confident that generous government services and handouts could in fact be introduced and funded by high tax rates, without the moral fiber of society suffering in the process. An important reason is that advocates of welfare policy pointed to northern Europe and claimed that the development in this region proved that social democratic policies could be combined with strong working ethics. If the Nordic countries could have generous welfare, why couldn’t America? The evidence from America itself pointed in the opposite conclusion. As Ronald Reagan explained during a radio address in 1986, it was quite evident that welfare dependency was a genuine concern. Reagan, who was serving his second term as president, said:
From the 1950s on, poverty in America was declining. American society, an opportunity society, was doing its wonders. Economic growth was providing a ladder for millions to climb up out of poverty and into prosperity. In 1964 the famous War on Poverty was declared and a funny thing happened. Poverty, as measured by dependency, stopped shrinking and then actually began to grow worse. I guess you could say, poverty won the war. Poverty won in part because instead of helping the poor, government programs ruptured the bonds holding poor families together.5
“Government programs ruptured the bonds holding poor families together.” – President Ronald Reagan, 1986
The president continued to provide a textbook example of how families can be adversely affected by welfare programs intended to help them:
Perhaps the most insidious effect of welfare is its usurpation of the role of provider. In States where payments are highest, for instance, public assistance for a single mother can amount to much more than the usable income of a minimum wage job. In other words, it can pay for her to quit work. Many families are eligible for substantially higher benefits when the father is not present. What must it do to a man to know that his own children will be better off if he is never legally recognized as their father? Under existing welfare rules, a teenage girl who becomes pregnant can make herself eligible for welfare benefits that will set her up in an apartment of her own, provide medical care, and feed and clothe her. She only has to fulfill one condition – not marry or identify the father.6
Ronald Reagan’s critique resonated with the people. The American public supported policies to limit the scope of welfare programs. Not only small-government Republicans and Libertarians, but also Democrats, such as Bill Clinton, continued to raise concern about how overly generous welfare programs – although introduced with noble intentions – could erode personal responsibility and disrupt family structures. The same issue has been highly relevant in many other parts of the world. Yet there has been a persistent conviction among the modern proponents of welfare states that it is indeed – somehow – possible to create stable systems with generous benefits and high taxes. The main line of reasoning is based on the Nordics. The welfare states in this part of the world seem to, at least at first glance, succeed in providing extensive services and generous cash benefits without eroding personal responsibility. If generous welfare works in Sweden and Denmark, why not also in the rest of the world?
Previously mentioned German researcher Friedrich Heinemann has set about examining whether Roosevelt’s warning “of the moral disintegration effect of welfare dependency” is really something to be worried about. By looking at the World Value Survey, a global survey of attitudes conducted since the early 1980s, Heinemann has concluded that a self-destructive mechanism exists in a welfare state. When welfare becomes more generous, and when unemployment reaches high levels, people find it more acceptable to take advantage of welfare programs: “In the long-run an increase of government benefits and unemployment is associated with deteriorating welfare state ethics.”7 Basically, people react as we would expect them to react. If government handouts become generous, more people will seek them. Particularly when jobs are scarce, welfare dependency therefore becomes a real concern.
Interestingly, the World Value Survey shows that erosion of norms is very much a thing in the Nordics. In the beginning of the 1980s, 82 percent of Swedes and 80 percent of Norwegians agreed with the statement “Claiming government benefits to which you are not entitled is never justifiable.” We shouldn’t be surprised that benefit morale was strong in this part of the world. After all, as we read previously in this book, the Nordic people had over generations adopted a culture with strong emphasis on hard work, individual responsibility, social cohesion, and trust. However, as the population adjusted their behavior to new economic policies, benef
it morale dropped steadily. In the survey conducted between 2005 and 2008, only 56 percent of Norwegians and 61 percent of Swedes believed that it was never right to claim benefits to which they were not entitled. The survey conducted between 2010 and 2014 only included Sweden out of the Nordic countries. It found that benefit morale had continued to fall, as merely 55 percent of Swedes answered that it was never right to overuse benefits.8
The thing with norms is that they change slowly, over the course of generations. When the government raises taxes or makes living on benefits more advantageous, most people continue to act as they have done previously. But this does not mean that norms are set in stone. Over time even the Nordic people have changed their attitudes as social democratic policies have made it less rewarding to work hard and more rewarding to live off the government. This is in accordance with research by French economist Jean-Baptiste Michau. He has suggested that a link exists between government benefits and cultural transmissions of work ethics. Michau explains that parents make rational choices regarding “how much effort to exert to raise their children to work hard,” based on their “expectations on the policy that will be implemented by the next generation.” Therefore, changes in culture happen over time as families react to new policies. Once Michau takes into account that changes occur slowly, he can show that generous unemployment insurance benefits can explain much of the changes in unemployment levels in Europe that have occurred over time.9
The idea of a self-destructive welfare state [is] something that serious researchers have found support for.
In another study Martin Halla, Mario Lackner, and Friedrich G. Schneider performed an empirical analysis of the dynamics of the welfare state. They explained that individuals do not respond to changes in economic incentives right away, because people are constrained by social norms for some time: “therefore, the disincentive effects may materialize only with considerable time lags.” This is to say, if your parents teach you to never live off welfare benefits if not forced to, you are likely to follow this norm even if the benefits become more generous. When the generosity of the system increases, however, parents become less likely to teach this norm to their children. The shift in behavior thus takes some time to occur. Interestingly, the authors found that in the short term, increased government spending on welfare programs can even have a small positive influence on benefit morale. As the welfare state is expanded, at least some people seem to make a concerted effort in not overusing it. Perhaps some even convince their neighbors to do the same. However, after some time the expansion of welfare programs leads to a deterioration of benefit morale. The three researchers concluded that “the welfare state destroys its own (economic) foundation and we have to approve the hypothesis of the self-destructive welfare state.”10 The idea of a self-destructive welfare state might sound like something thought up by rightwing conspiracy theorists but is in reality something that serious researchers have found support for.
The theory of the self-destructive dynamics of welfare states has to a large degree been developed by Assar Lindbeck, one of Sweden’s leading modern economists. Lindbeck has stated that changes in work ethics are related to a rising dependence on welfare state institutions.11 Additionally, he points out that the evidence of explicit benefit fraud in Sweden leads to a weakening of norms against overusing various benefit systems. An example is that you find out that your neighbor is receiving sick-pay benefits, while also having an under-the table job, or black-sector job. The knowledge that he is cheating the system might encourage you to follow suit. According to Lindbeck, reforms to limit fraud are therefore quite important for maintaining a welfare state.12
A number of attitude studies in Sweden reach the same conclusion: a significant portion of the population has come to consider that it is acceptable to live off sickness benefits without actually being sick. A survey from 2001, for example, showed that four out of ten Swedish employees believed it was acceptable for those who were not sick but who felt stressed at work to claim sickness benefit. Additionally, almost half of those surveyed answered that it was acceptable for employees to claim sickness benefits if they were dissatisfied with their working environments or had problems within their families.13 Other Swedish studies have pointed to increases in sickness absence during sports events. For instance, absence due to sickness increased by almost 7 percent among men at the time of the Winter Olympics in 1988, and by 16 percent in connection with TV broadcasts of the World Championship in crosscountry skiing in 1987.14 During the 2002 soccer World Cup, the increase in sickness absence among men was an astonishing 41 percent. The stark difference between the events during the end of the 1980s and the beginning of the 2000s might be seen as an indication of the deterioration of work ethics over time, during a period when the population became adjusted to generous sick-leave entitlements.15
During recent years, governments on both the right and the left in Sweden have reduced the generosity of the welfare system. Strict controls have been introduced in the sick leave system and other welfare programs. A recent paper suggests that the reforms may need to be even more far reaching to reverse the longterm effect that the welfare state has had on people’s behaviors. Economist Martin Ljunge has written: “Younger generations use sickness insurance more often than older generations. Amongst the younger generation twenty percentage points more take a sick leave day compared with those born twenty years before, after other circumstances have been adjusted for. The higher demand for sick leave pay amongst the younger generations can be seen as a measure of how rapidly the welfare state affects attitudes towards the use of public benefits.” Behind the technical scientific language, we find a strong message: generous welfare programs can have a long-lasting effect on people’s behavior by encouraging overreliance on public support. Even many years after public benefits have been changed, people’s norms still keep changing as they become adjusted to generous welfare.16
“Much evidence suggests that the welfare state also has a very costly and long-lasting effect on the working ethic of Danes.” – DANISH ECONOMIST CASPER HUNNERUP DAHL
Similarly, Danish researcher Casper Hunnerup Dahl has concluded: “The high degree of distribution in the Danish welfare state does not merely reduce the concrete incentives that some Danes have for taking a job or to work extra in the job that one already holds. Much evidence suggests that the welfare state also has a very costly and long-lasting effect on the working ethic of Danes.”17 There can be little doubt, then, that the erosion of norms due to long-term adaptation to welfare policy is an observable phenomenon rather than just theory. Roosevelt and Reagan were right, and those who believe that generous welfare does not erode norms are wrong.
For the outside world the Nordic countries are still today shining examples of how large public sectors can be introduced without the moral hazard of welfare policy. However, much of the policy debate during recent years in the Nordic countries themselves has been about how to deal with overutilization and deteriorating norms. Sweden has already cut down considerably on the generosity of public services and welfare transfers, at the same time reducing the taxes on work significantly. Denmark has seen a slower pace of reform. However, the Danes are quite aware that change is needed. Somewhat surprisingly, it is not only the conservatives or libertarians in Denmark who raise the issue of dependency on government handouts. The Danish Social Democrats themselves actively acknowledge this problem.
Bjarne Corydon, who served as the country’s Social Democrat finance minister at the time, made international headlines in 2013 by pointing to the need to reduce the generosity of transfer systems in Denmark. Corydon explained that it was no mere coincidence that the government was reforming taxes, welfare aid, and the system for early retirement: “The truth is that we are in full swing with a dramatically positive agenda, which is about strengthening and modernizing the welfare state, and the result of the change will be a much better society than the one we have today.” The leading social democrat went as far as formul
ating a new vision for the future of the welfare state: “I believe in the competition state as the modern welfare state. If we are to ensure support for the welfare state, we must focus on the quality of public services rather than transfer payments.”18 Denmark is today often held up as a utopian society by the American Left. How many are aware that the politicians on the left in the very same country are openly criticizing the idea of overly generous welfare programs?
“I believe in the competition state as the modern welfare state.” – BJARNE CORYDON, FORMER SOCIAL DEMOCRAT FINANCE MINISTER OF DENMARK
Americans who still believe the moral risk of generous welfare can be avoided would do themselves a service by reading (with the help of Google Translate perhaps) a report published by the previous Social Democrat government of Denmark. The report calculated that 400,000 Danish citizens had few economic incentives to participate in the labor market. These individuals lost 80 percent or more of their incomes when starting work, since they forfeited benefits and had to pay taxes. Through extensive reforms of taxes and benefits, the government hoped to reduce the number to 250,000 individuals. Even the lower number represents around one in ten among the working-age population of the small country.19 In June 2015 the Danish left-of-center government lost the election to a new right-of-center coalition, which has an even greater emphasis on welfare reform. Interestingly the Social Democrats themselves increased their support in the election, regaining the position as the country’s largest party. Power shifted since the coalition partners of the Social Democrats, who want to keep generous welfare benefits, lost considerable voter support. The Danish people thus rewarded the parties on both the right and the left who wanted to reduce the generosity of welfare programs. Perhaps they realized that when it comes to welfare state policy, sometimes less is more.
Debunking Utopia Page 10