Debunking Utopia
Page 11
Other northern European welfare states have followed a similar path as Denmark and Sweden. The Netherlands long had one of the most generous welfare systems in the world. During the beginning of the 1980s the country ranked as a top spender in terms of welfare policy, on par with the (at the time) famously generous Swedish welfare state. Since then, however, it has scaled back its welfare systems, reduced the scope of public spending, privatized social security, and introduced elaborate market mechanisms in the provision of health care and social protection.20 Although not geographically a part of Scandinavia, the Netherlands has very similar cultural, economic, and political features as its northern neighbors. A difference is that the Dutch were earlier in shifting away from a very generous welfare system to a more limited model. The ambition to provide social safety nets, health care, and schooling to its underprivileged citizens has remained. However, by scaling down the generosity of the system, and creating insurance markets that combine universal coverage with competition and individual responsibility, the Dutch have found a new welfare model. Arguably, this more scaled-down model is more durable, since it encourages individual responsibility.
Germany and Finland have never introduced welfare regimes quite as ambitious as Denmark’s and Sweden’s, but they have worked to reduce welfare dependency. The United Kingdom, which has an even more limited welfare model, is also interesting to look at. The British have had less generous welfare state benefits than their Nordic neighbors. At the same time, they have lacked the Nordic culture of success. Therefore, the social challenges relating to welfare dependency are quite evident in British society. An extensive debate has for some years now been raging in the country about the need to restrengthen norms. In the beginning of 2014, for example, the documentary series Benefit Street was aired and ran for five episodes. It showed the lives of residents of James Turner Street in Birmingham, where reportedly 90 percent of residents claim benefit. The reality series sparked a massive debate about benefit claims and how the British welfare model creates a lack of motivation to seek employment. Although the program was criticized by the Left, recent political trends indicate that the route to welfare reform is favored by many among the British general public.21 When you think about it, isn’t it curious that American admirers of large welfare states so seldom point to the United Kingdom as a role model? After all, the United States was founded as a British colony and has to this day much deeper cultural links to the UK than to the Nordics. Arguably, the development shown in Benefit Street is very close to what Ronald Reagan and other American critiques of overly generous public transfer systems have been pointing to.
There is a possible exception to the new welfare contract being formulated in northern European welfare states: Norway. Thanks to its massive oil wealth in the Atlantic Ocean, this mountainous country has retained the social democrat ideal of very generous public programs. However, as Roosevelt so eloquently put it, welfare dependency is not only an economic but also a human issue. Certainly the oil funds have made it possible for Norway to afford paying for public benefits. It is an entirely different question whether the nation affords the human costs associated with the same policies. One consequence of the generous welfare policies in Norway is deterioration in work ethic. The TV series Lilyhammer, starring Sopranos actor Steven Van Zandt as an American expat to Norway, regularly makes fun of the lack of work discipline in the country.
This phenomenon is also apparent outside popular culture. In 2014 the Financial Times reported: “Norway’s statistics office says many people have started to call Friday fridag or “free day” in Norwegian. The state railway company says commuter trains serving the capital are less full on Fridays, and the main toll road operator says traffic is noticeably quieter on Fridays and on Mondays.”22 It is not only the adults who have stopped focusing on work. The youth – born and raised in a system with little reward for work – have gone even further. In a recent survey three out of four Norwegian employers answered that Swedish youth working in the country have a better work ethic than Norwegian youth. Out of those questioned, merely 2 percent believed that young Norwegians between the ages of sixteen and twenty-four have a high work capacity. Stein André Haugerund, president of the employment company Proffice, which conducted the survey, argued that the Norwegian welfare model has created a situation where incentives for hard work are limited, which in turn affects the behavior of youth.23
Those who doubt that generous welfare systems can affect working norms should think hard about the case of Norway. It is difficult to disregard the fact that Norwegians just one or two generations ago had among the strongest working ethics in the world. Without high trust, social cohesion, and a culture focused on individual responsibility, Norway would never have grown so successful. The country’s oil wealth has boosted the economy further, but has also proved a double-edged sword, since the massive revenues to the state made it possible to fund a very generous welfare system. From a progressive viewpoint, one could, of course, argue that Norway has it all. By relying on oil money, the government can cling to the democratic socialist ideals that its Nordic neighbors have begun to abandon. However, much as in oil-rich Saudi Arabia, handouts have fostered a class of socially poor.
A good example is given in the article “The Confessions of a ‘Welfare Freeloader,’” published in the Norwegian daily paper Dagbladet. There, a young man named Vegard Skjervheim related that he had been supported by welfare for three years, although he is vital and in his prime. And he was not alone: “I know several people – talented, gifted people – who do not take a job,” Skjervheim wrote. They do not do much else either, seen from a societal standpoint. No studies, no clearly defined plan for the future and no cunning plans to create wealth of any kind. The interest to ‘participate’ or to ‘help’ is minimal within this group, and poses no motivation to talk about. The feeling of responsibility when it comes to an abstract entity as ‘society’ is low.”24 The article spurred a national debate about the need to adjust the generosity of the Norwegian welfare state. Even in the oil-rich nation it has become evident that overly generous benefits are creating rather than combating poverty.
An important political question is if there can ever be such a thing as too much welfare. Is it possible that in some circumstances individuals may be better off receiving less generous public support? Gordon B. Dahl, Andreas Ravndal Kostøl, and Magne Mogstad have used an ingenious method to give a conclusive answer. In social sciences, it is often tricky to prove that one thing actually causes the other. The best way to separate causation (A causes B) from correlation (A and B both happen at the same time, without one causing the other) is to use so-called natural experiments. Dahl, Kostøl, and Mogstad explain that there is an ongoing debate regarding the link between welfare policy and poverty: “Some policy makers and researchers have argued that a causal relationship exists, creating a culture in which welfare use reinforces itself through the family. Others argue the determinants of poverty or poor health are correlated across generations in ways that have nothing to do with a welfare culture.”25
These claims are difficult to test scientifically because many factors can explain the link between children’s behavior and parents’ tendency to rely on welfare. However, the authors found a natural experiment that made it possible to isolate the effect of welfare generosity. In the Norwegian welfare system, judges are sometimes appointed to look at disability insurance claims that have initially been denied. Some appeal judges are systematically more lenient when it comes to granting benefits. From the claimants’ perspective, whether the judge appointed is strict or lenient is random; therefore, researchers can compare those who are granted disability insurance by a lenient judge with those who are denied the benefit by a strict judge. The conclusion is clear. The authors found “strong evidence for a causal link across generations: when a parent is allowed [disability insurance] at the appeal stage, their adult child’s participation over the next five years increases by 6 percentage points. Thi
s effect grows over time, rising to 12 percentage points after 10 years. Although these findings are specific to our setting, they highlight that welfare reforms can have long-lasting effects on program participation, since any original effect on the current generation could be reinforced by changing the participation behavior of their children as well.”26 In other words, overly generous welfare can indeed create a poverty trap for families, producing a social marginalization that is transferred from parent to children. As both Reagan and Roosevelt pointed out, this poverty trap is to be taken seriously.
Overly generous welfare can indeed create a poverty trap for families.
I myself grew up in a family supported by welfare handouts in Sweden. We moved between various neighborhoods that had one thing in common: many of their residents were immigrant families supported by the government rather than work. Even at a young age I could see that the difficulty for immigrants to find employment, coupled with generous welfare handouts that sometimes made it more lucrative to sit at home rather than work, created social exclusion. Both parents and their children became pacified. This simple observation tells us much about poverty in modern society. In previous generations (and in present-day poor countries) those born in impoverished families were often hungry, had poor or no housing, could not afford education, and even lacked the means to buy the decent clothing they needed for interviews. Today, in most if not all modern societies, underprivileged citizens can rely on various public programs to get their basic needs, such as housing and food, covered. Essential education is free, and scholarships are available to fund higher degrees. The global marketplace has created cheap clothing of good quality. From a distance it is difficult to spot a shirt made by an expensive Italian tailor versus one bought cheaply off the racks of the Gap or H&M. But this does not mean that the obstacles to escape poverty have vanished. Still today, those born poor often remain poor, and in turn pass social marginalization to their children.
Nobel Prize winner Robert Fogel has suggested that poverty exists in modern societies to a large degree because of an uneven distribution of “spiritual resources,” such as self-esteem, a sense of discipline, and a sense of community.27 Poverty is thus not only a material concept, but also a social one. It is clear that basic welfare institutions help alleviate material poverty by redistributing money and services to the less well off. But what role does the welfare state play in social poverty? To some degree welfare states can also alleviate social poverty. For example, in societies where even those born in poor families can access high-quality education, this gives the youth a sense of hope. However, the spiritual poverty that Fogel points to can be made worse when individuals who could otherwise be self-reliant become dependent on public support. When parents become trapped in dependency, their children’s behavior and self-esteem also seem to be affected. This is what Ronald Reagan meant when he said that the “most insidious effect of welfare is its usurpation of the role of provider,” pointing to how “government programs ruptured the bonds holding poor families together.”28
So we see that both Roosevelt and Reagan had good reasons to fear how the social fabric and human well-being could inadvertently be negatively affected by welfare dependency. Although Nordic welfare states seemed initially able to avoid this moral hazard, today we know beyond doubt that this was not the case. Even the northern European welfare states – founded in societies with exceptionally strong working ethics and emphasis on individual responsibility – have with time caught up to Roosevelt’s harsh predictions. Politicians on both the right and left in this part of the world are therefore seeking to formulate new social contracts, with greater emphasis on incentives for work and personal responsibility. The cradle-to-grave welfare model has lost some of its appeal, and politicians are increasingly turning to market mechanisms. Perhaps American progressives can learn a lesson from all this? After all, the basic idea of welfare policy is to help disadvantaged groups to create a better future for themselves and their families. Evidently overly generous welfare is not always the best way of accomplishing this goal. There is something as too much generosity.
9
WHERE DOES THE AMERICAN DREAM COME TRUE?
AMERICAN PROGRESSIVES INCREASINGLY ARGUE THAT the “American” Dream is realized, not in America, but in Nordic countries. The Huffington Post has, for example, published a piece titled “If You Want the American Dream, Go to Finland.” Journalist Blake Fleetwood explains: “Consider what Ed Miliband, the popular British Labor leader – and would-be Prime Minister – said to a conference on social mobility last year: ‘If you are born in a more equal society like Finland, Norway, or Denmark, then you have a better chance of moving into a good job than if you are born poor in the United States.’ This is a sad, depressing state of affairs for the U.S. and is becoming more true every day.”1 In the VC Reporter Raymond Freeman argued that one should “move to ‘socialist’ Sweden or ‘socialist’ Denmark” to achieve the American Dream.2 In the Los Angeles Times, Ann Jones wrote, “All the Nordic countries broadly agree that only when people’s basic needs are met – when they cease to worry about jobs, education, healthcare, transportation, etc. – can they truly be free to do as they like. While the U.S. settles for the fantasy that every kid has an equal shot at the American dream, Nordic social welfare systems lay the foundations for a more authentic equality and individualism.”3
Perhaps not surprisingly, politicians on the left in the Nordics support this idea. Norway’s former Social Democrat prime minister Jens Stoltenberg similarly claimed in 2013, “The opportunity to achieve the American Dream is larger in Norway than it is in the United States.”4 The same year Danish Social Democrat minister for trade and European affairs Nick Haekkerup declared, “The American dream, if I may be bold, comes to life in Denmark, in a welfare society.”5 Recently Stefan Löfven, the only current Social Democrat prime minister in the Nordics, joined in. Speaking at an elderly care home he said, “In the United States they often talk about the American Dream. But for many it remains just that – a dream which is never realized. In Sweden we use [social] tools to make sure that the dream turns into reality.”6
It is interesting to examine this argument in greater detail. In 1931 historian James Truslow Adams coined the term American Dream in his book The Epic of America. According to Adams, the dream was of a “social order in which each man and each woman shall be able to attain the fullest stature of which they are innately capable.”7 Today many, particularly on the left, challenge the idea that the American Dream actually can be realized in America. Rather, they believe that the dream comes true through social democracy. In 2004 Jeremy Rifkin published the book The European Dream: How Europe’s Vision of the Future Is Quickly Eclipsing the American Dream. There he explained that the American Dream captures the hopes of immigrants who left Europe to seek opportunities in the United States a hundred years ago. Today, however, according to Rifkin, this dream has turned into a nightmare: “the great American myth of upward mobility continues to live on, despite mounting evidence that what was once a great dream has become, for many, a relentless nightmare.” Instead it is the Old World in Europe that, through large welfare states, is “slowly becoming the new land of opportunity.”8
It certainly sounds dramatic that the American Dream has turned into some sort of nightmarish scenario. Surely if not America but rather European welfare states are making this dream come true, this proves that the American social model has lost its soul. Perhaps it is time to adopt a European-style welfare state in the United States? Those who make this argument can find some support in research. To be more precise, a number of studies compare the incomes of parents with those of their children. These studies tend to find that the link between the prosperity of parents and children is higher in the United States than in Nordic countries. This means that children in the Nordics move to an income class different from their parents’ more often than children in the United States do.9 This is interpreted as proof that the opportunities for upward
mobility are more limited in American society.
The idea that the Nordic systems offer greater social mobility is understandingly gaining attention among welfare state proponents. It is also a striking argument for those who wish to criticize American capitalism. The reason is, of course, that America long has been viewed as the land of opportunity. But what if America isn’t the land of opportunity? What if Nordic social democracy creates better opportunities for class mobility? Some far-reaching conclusions have been based on the observation that parental incomes have a stronger link to the incomes of their children in the United States than in the Nordics. Markus Jäntti and his fellow researchers, for example, claim that this shows that the idea of American exceptionalism, coined originally by Alexis de Tocqueville to describe high rates of social mobility in the United States, “may need to be viewed in a new light.”10 But all these conclusions are, ultimately, based on comparing apples with oranges.
The simple fact is that Nordic societies are much more homogenous than the American melting pot. Until recently, when immigrants started flowing into the Nordics, the vast majority of the populations in these countries had the same culture. And that culture was a Nordic one, with great emphasis on hard work, individual responsibility, social cohesion, and trust. Of course, the stronger link between the outcome of parents and their children in the United States is because the country is considerably more diverse. Much of the income difference exists because different groups, such as Asians, whites, and African-Americans, have different average incomes. Indeed, studies do find that more than half of the link between parental incomes and that of the children in the United States is due to persistence of earnings differences across racial and ethnic groups.11