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Social Welfare in Europe and North America

This is a guest post from Andrew Zvirzdin.  Originally from upstate New York, Andrew is currently pursuing a Master's degree from the Johns Hopkins School of Advanced International Studies in Bologna, Italy. He previously studied at Université Libre Bruxelles, University of Rome Tor Vergata, and Brigham Young University. He has worked on the Foreign Affairs Committee of the European Parliament and as an Assistant Editor for Scandinavian Studies. Andrew specializes in political economy, international finance, and EU–US relations.

Andrew ZvirzdinFreedom Fries are out of style, but Europe is still taking a beating this campaign season. Republicans are gleefully using Barack Obama's recent visit to Europe as evidence that he wishes to import European-style welfare states back to the United States “to grab even more of our liberty and destroy our hard-earned livelihood,” as Mike Huckabee recently put it.

Just how evil are European welfare states compared to the United States?

OECD data indicates that the differences may not be as large as we may think. Consider two key indicators:
Publicly Mandated Social Expenditure (as % of GDP, 2003)

France                 29.8
Germany              29.5
Sweden                29.2
Belgium                26
Italy                     25.3
Austria                  23.9
Denmark               23.8
Norway                 23.8
Iceland                 23.2
Portugal                23.2
UK                        22.8
Finland                  22.7
Czech Republic       21.5
Netherlands           20.6
Spain                    19.6
Canada                 19.5
United States         18.9
Slovak Republic      17.8
Ireland                  15.6

Fiscal support for families (as % of GDP, 2003)
*Includes cash, services, and tax breaks for families*

Denmark                4
France                   3.8
Norway                  3.6
Sweden                  3.5
United Kingdom       3.4
Iceland                  3.2
Austria                   3.1
Finland                   3.0
Germany                3.0
Ireland                   2.6
Slovak Republic       2.4
Czech Republic        2.4
Belgium                  2.4
Netherlands            2.1
Portugal                 1.7
United States          1.4

So where does the “destruction of hard-earned livelihood” begin? Does it begin when a country spends 20% of its GDP on social welfare programs? The 25% level? Does fiscal support for families at the 2% level demonstrate the evils of social welfare? When Americans speak of Europe's evil social welfare system, do they mean the German state corporatist model, the British targeted model, or the Swedish encompassing model? Yes, the United States spends less than Europe on social welfare. But the variation of social welfare spending within Europe is actually greater than the variation between the United States and Europe.

I suspect that many Americans imagine the traditional Scandinavian model of social welfare when they think of Europe. Scandinavia comprises only 5% of Europe's population, however, and a Lithuanian or Spaniard would laugh if you told him that his government had an excessive social welfare system.

Europe is a convenient punching bag for those in America who wish to point out the inefficiencies of large government. But the simple fact is that the United States has a large government too and probably has less to show for it, in terms of relative poverty reductions and social equity. Americans would do well to seriously consider the variations in social welfare systems in Europe and see what policies could work in the United States.

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Marie Claude on :

back to the Government like the great market heroes on Wall Street ???????????? uh, I had thought that the counter example for everything was rather France, uh, may-be I am parano

Don S on :

Everything, franchie? Not at all. You eat strange things like cheese and andoille and organ meats. But mostly the problem is that you French think far too highly of yourselves. You think of yourselves as the leaders of the world when that role rightfully belongs to another far more deserving nation. Modesty forbids me to actually mention this deserving nation's name.... ;)

Marie Claude on :

Don, kidding ??? you are THE gendarme, but I have the regret to announce you, not for longtime, cousin Putin is taking the relay

Anonymous on :

too late douchebag

Max on :

Yep, all in all an accurate observation. I'd wager that the European welfare-system is a tad bit bigger and more efficient than the US scheme, at least, if you take the two biggest European players France and Germany. The difference is, however, that in Germany and France in many welfare-sectors there is no big difference between a private or a government sector, while the US still has (f.e. in Healthcare) a defacto private sector. On the other side, I think both, Europeans and Americans, need to steamline their welfare systems a lot, because the waste in them is still too high.

Andrew Zvirzdin on :

Max, You bring up some good points and I agree with you that there are some serious efficiency issues in both Europe and the US. I guess the question then is, what level of inefficiency are we willing to have in order to have better welfare? Any time there is a public good with all that implies (Free riders, moral hazard, etc.) there is going to be some negative externalities. I guess the question both the US and Europe need to ask is how much is the country's health/well-being/equality worth? Your point about the private sector in the United States is good. In fact, when the OECD included the private sector, the differences in expenses across countries was practically eliminated, at least in net figures. Check out the OECD report for more information.

quo vadis on :

There may be a some fundamental differences in the way Americans and Europeans see the function of welfare. I suspect that Americans tend to see welfare as a means of providing a minimum standard of living or to share risk rather than as a means of promoting social equity in general. Tax policy is the primary tool for wealth redistribution, but you have to earn income to benefit from a progressive tax policy.

David on :

I had to laugh when US Secretary of Education Spellings lamented last week that the US is "behind Denmark and Finland" in terms of the percent of younger working-age adults with post-secondary degrees. Both countries have essentially eliminated child poverty (approx. 2% of all children in both Denmark and Finland) while 22% of American children live in poverty. If the US were to cut child poverty by 90%, I'm confident that we too could match Scandinavian countries in terms of students who go on to receive post-secondary degrees.

Zyme on :

Smaller countries always have the advantage of being able to quickly react upon wrong social developments. The last numbers I recall showed child-poverty in Germany to be at 10% as well. Big countries relying on national models always do a bad job on reacting upon a large number of immigrants, who usually are in the poor pool - the solution might be to take a look at what parts of the authorities responsible for child welfare can be transformed to local agencies (to imitate the model of smaller countries)

John in Michigan, USA on :

"the solution might be to take a look at what parts of the authorities responsible for child welfare can be transformed to local agencies (to imitate the model of smaller countries)" You can't possibly mean that! Outrage! Sacrilege! That is [url=http://www.heritage.org/Research/Regulation/bg144.cfm]what Reagan was trying to do[/url] with the [url=http://www.heritage.org/Research/GovernmentReform/bg228.cfm]various block grant programs[/url], sometimes known as the "New Federalism initiative". Everyone knows Reagan was evil, so obviously the fact that he favored a similar approach must mean the approach is wrong, and therefore there is no need to consider the idea on the merits. (Sorry if the links are hard to read, they are historical documents from the 80's that appear to be put online using early 90's technology...)

Zyme on :

Well thank your for those links - while I always wonder how you find such abundant information, even more interesting would be whether this was enacted and considered a success or abandoned later on ?

John in Michigan, USA on :

Andrew, "So where does the “destruction of hard-earned livelihood” begin?" This is the big question. People like Huckabee are populists, not academics. But if he was an academic, his answer would be, the differences between the US and Europe, however modest, appear to be enough to change behavior. High social spending correlates with Europe's historically higher unemployment rate, and lower growth as compared to the US. Indeed, the correlation is pretty good within European countries as well, although there are exceptions. There is a lot of evidence that it is more than correlation, that in fact the one causes (or at least, contributes) to the other. But I acknowledge this is a very complex issue. "But the variation of social welfare spending within Europe is actually greater than the variation between the United States and Europe" Good point! I wonder how the within-Europe differences compare to the within-US differences? But it would be difficult to make a fair comparison, since many European member states are new and still in transition. If Europe's still-emerging consensus ends up favoring a federalist model, these within-Europe differences might be seen as less of a problem, perhaps even a virtue. In one of my first comments here on Atlantic Review, I made an extended, metaphorical comparison of US and European safety nets. Sadly, I can't find that text right now. I will try and locate it, I would be interested in your reaction.

John in Michigan, USA on :

Andrew, I found the text. Here is the relevant part of [url=http://atlanticreview.org/archives/927-Seeking-to-Ban-Scientology.html]my earlier comment[/url]: "I like to think of the old safety net metaphor. In Europe generally, the net is set so that no-one has to fall very far before they are saved, and there are few gaps or holes. The net is well padded and attractively decorated. The landing is so gentle, you might not even realize you're on it. If you are an immigrant, you aren't really permitted to live your life above the net that everyone else uses; but you are given your own net, that is far better than the old country. "In the US, the net is there, but you have much further to fall, and it isn't designed to be comfortable. If you fall, your supposed to get back up again and get off the net. The gaps are larger, but most people don't fall completely through, they instead get stuck in awkward positions. Everyone, native born or immigrant, uses the same net. "A critical difference is, in America, people are permitted to live outside of the net entirely. You are on your own, but you aren't limited by the consensus. This applies to non-conformists, free thinkers, nut jobs, etc. but even illegal economic immigrants are widely tolerated once they get past the border (although this might be changing). "OK I am painting with a broad brush. What do you think?"

Zyme on :

Like back then, I still agree :)

Andrew Zvirzdin on :

John, I like the net comparison. I would add to the "Parable of the Nets" a difference in public opinion too. In Europe, everyone feels like they helped build the net and therefore they feel they have a right to use the net when the need arises. (Or when it is time to go [url=http://www.economist.com/world/europe/displaystory.cfm?story_id=12009720]yacht racing[/url].) I think this is part of the reason why it is so difficult to talk about needed reforms in Europe. In the US, the government stole the net from your garage, and you are going to get it back from them some day. And how dare your neighbor use that net! I think this is the reasons why it is so difficult to talk about further welfare efforts in the US.

Don S on :

I'd say a better comparison might be that in the US it's an emergency net, while in parts of Europe it more closely resembles a hammock. I lived in Italy for a while, and knew many people who retired omn a pension by age 50, and went on to another career many of them.

John in Michigan, USA on :

"In the US, the government stole the net from your garage, and you are going to get it back from them some day. And how dare your neighbor use that net!" I prefer: In the US, the government bills you for a new, 1st class, top of the line net. Then gives your neighbor a used net that is barely holding together. When your neighbor complains, the government blames you for being selfish.

John in Michigan, USA on :

"I think this is part of the reason why it is so difficult to talk about needed reforms in Europe." Do you think the EU will help or hurt with this difficulty?

Don S on :

Europe may be taking a bashing, and the culture wars are certainly getting a workout. Business as usual every 4 years. Yet - I think this is last-gasp time for the old era. There are FAR more important issues on the table, as anyone who has read the news this last week can easily discern, assuming they have a detectable brain wave. We're in the biggest financial crisis since 1932, a global crisis at that, and I think the limits of American strength are visible if not completely here yet. Like in 1929 this one comes (in part) because of overgearing in the financial system, dodgy paper, and accounting standards unable to deal with market failure. One can hope that we'll handle this one better than the lst time but that is merely a hope not a certainty. The fiscal authorities in the US are not playing King Log this time around, but King Log appears to be in power almost everywhere else. "It's an American crisis - loet the Americans pay for it" is the cry. No, gentlepeopole - it's a global crisis. AIG is a global company - so why is it exclusively the US government who has to bail it out? We may be able to paper over the cracks for the noce - but the US is not going to be able to paper over all the various cracks in all the various problem areas going forward - that is obvious.

Marie Claude on :

do we have to pay for foolish bank products of your allowed "free market's"

Don S on :

Because something has to be done to stem the crisis, perhaps? Because The US stepped in to stem another crisis - the European postwar crisis. And crisis after crisis sinece then, whether Made in the US - or not. This one is mostly 'Made in the US', but not completely. Those assets are on your balance sheets as well. There is more dicey paper out there. The UK originated a lot of 100% and even 125% mortgages, do you suppose Frnce escaped it? I doubt it - if nothing else think of how much french real estate is owned by Brits these days. And Spanish, and Italian, and.... If this goes legless it WILL be felt outside the US - bigtime. And some of that paper never had anything to do with the US, so why should the US taxpayer bear that part of the burden?

Marie Claude on :

yeah, the Marshall plan, OK, but that wasn't a bank product, and it's all paid back, as far we are concerned

Don S on :

And NATO, and a bunch of other things also. Things most people forget about because they are part of the wallpaper so to speak.

Marie Claude on :

Nato, we are a full contribuator, not a subventionned country and I doubt that if we get in a dips..t that you would lift the little finger

Andrew Zvirzdin on :

Well, as the "beacon of liberal economies," the US gets the credit when times are good and the blame when times go bad. And, I am sure America will get its share of the blame [url=http://www.latimes.com/business/la-fi-euromood20-2008sep20,0,7535469.story]now[/url]. Since the fall of communism, world opinion has largely swung in favor of open, liberalized economies with little government intervention. The Asian financial crisis and Russian crisis helped cement the dominance of the liberal economy perspective. This crisis gives countries reason to pause in pursuing greater liberalization. And frankly, I think it strengthens Europe's position vis-a-vis the US. Because, their economic and financial models are arguably better and in a position to withstand the current credit crunch much better. Of course, Europe will get hit-but not like the US. I think we see evidence of this already in the ridiculous appreciation of the Euro.

Don S on :

Andrew, I rather doubt that ANYONE will be pursuing greater liberalisation after this. Decidedly including the US. So that is not the point at all. I do understand the impulse toward schaudenfreud, gloating, 'you broke it you bought it', etc. But it adds up to "you're on your own" in the end. At least it does to date. The point I'm making is that the US has been bearing a lot of burdens which people and countries around the world have come to take for grnted. So what happens when the US either cannot or will not bear those burdens any more; or has to or decides make choices about which ones to bear? People have been predicting the end of the hegemon for decades; this crisis brings that vision into sharp relief. Time to begin thinking about what (if anything) is going to replace the hegemon when the US decides to lay down it's Superman cloak.

Andrew Zvirzdin on :

"People have been predicting the end of the hegemon for decades; this crisis brings that vision into sharp relief." Exactly. To me, it reinforces the point that the prophecies of the end of the Hegemon are overblown. This too will pass, though hopefully we will be more willing to listen to arguments for stronger regulatory oversight and a more transparent financial sector. Yes, the US bears the costs of being a hegemon, and you are right that the evidence indicates those costs are increasing. But what are the costs of not supporting the international regime? I just thing the prophecies of gloom and doom are a little premature. I wonder what people said during the 70s stagflation and during the 80s Savings and Loan crisis?

John in Michigan, USA on :

Don, Actually, the world will be asked to help, in that these bailouts will be funded mostly with US Treasury bonds, that will be auctioned on the world market. If the additional bonds are purchased, it may make the US, or the US Treasury at least, more powerful, more of a world hegemon, not less. Or not. Borrow a little, the bank owns you. Borrow a lot, you own the bank. So, if the borrowers are the world, and the bank is the US treasury, will the current (and future?) bailouts tip the balance from US hegemony (the bank owns you) to the world owning the US? It depends how much "a little" and "a lot" are. Since the US treasury is a sui generis (one of a kind) bank, no one really knows where this tipping point is. Your arguements, that this is the end of the US hegemony, seem to assume that the Treasury Bill auctions will "fail" in the near future. Is this what you think? Where will the world invest it's low risk money instead?

Don S on :

John, my analysis is nowhere near as detailed as that. It's more perhaps on the Spenglerian level, and also a study of the history of the UK, particularly the period 1865-1914 when the gloss was wearing off the British Empire. Though I read Spengler so long ago I don't really know whether that is BS or not. I'm seeing quite a few signs of stress, of overstretch if you would in the US. The bank failure is the most blatant one to date, but far from the only one. My belief is that the US is trying to do way too much in the world right now, including things which other powers ought to be doing. These are obligations which were entered into many years ago, usually during the post-WWII period when there was really nobody else able to do them. Obligations taken on when the US had 40 or 50% of world industrial production are proving to be a major strain when we're down to 20% or less, as can be seen by many indicators, most particularly lack of investment in repairing and extending our infrastructure. I would like to see the US pull back from some of those things, to become the first power in a new concert of powers rather than the sole superpower who tries to do everything and eventually collapses from the strain as Edwardian England did.

Don S on :

"Exactly. To me, it reinforces the point that the prophecies of the end of the Hegemon are overblown. This too will pass, though hopefully we will be more willing to listen to arguments for stronger regulatory oversight and a more transparent financial sector." How would you - or anyone - know? I'm not going to argue that the international order should somehow try to prop up the US in it's current status as the sole superpower - that won't fly politically for good reason. But it is time for people internationally to consider what will replace it. It's time for the people in the US to consider what roles which no longer make sense for the US to play - and to pay for. "I wonder what people said during the 70s stagflation and during the 80s Savings and Loan crisis?" You are way underestimating this crisis. This one is a full-blown market failure crisis with the potential to replicate 1929-32. It's also not unlike the early 70's except that it's global. But not (to this point) like stagflation. Stagflation is what we might have gotten instead of a crash. One more thing, PE ratios. That is Price-Earnings ratios of common shares. For about the last 20 years these have been way high, maybe at 32 (share price divided by trailing earnings per share) The 2001 crash brough this down to 24 or 25, still way above the historical mean of about 15-17. The latest debacles have dropped it to 17 - average. It's not unlikely to go further down, wiping trillions more off of global net worth. Right now I'd say that if we get stagflation we might be - lucky. Stagflation was bad, way bad. But it was better than 50% forecolsure on mortgages and "Brother can yoiu spare a dime".

John in Michigan, USA on :

The only way we can get all the way to a 1930s style Depression is if ignorant economic populists attempt to crush international trade (Smoot-Hawley) or something equally stupid (such as trying to tax our way out of the current mess). But it is possible -- there is plenty of that kind of populism on both sides of the Presidential race. If that does happen, the rest of the world could still help us (and itself) by practicing what the US did for decades -- unilateral free trade.

Don S on :

The road to hell takes many paths. I agree that a 30's style depression is probably unlikely, but there are other ways to have depressions. I suspect we'll inflate our way out of the current one, which leads to the possiblity of a 70's style stagflation but on steroids. Perhaps even a hyperinflation although we'll probably stop short of that. We could have a Japanese style no-growth decade, or perhaps something like the depression of the 1870s with labor and farmers pushed to the wall, with labor strife, etc. One thing I'm pretty sure of is that if we take a $1 trillion hit it will mean little or no investment in infrastructure, which means we'll fall further behind in wealth creation. We may not be rich enough to reform other things which need reform. And all so we can keep on putting on side as the Superpower for the sake of people who have no appreciation at all for what that means and what it is worth. No thanks. They can go to hell in their own way. I will not sacrifice my country's long term good for Europeans - or indeed any other foreigner.

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