the welfare state as a failed experiment - mcgill … · the welfare state as a failed experiment...

INCE THE DAWN OF RECORDED HIS-tory, mankind has searched fora system of social organisationwhich promotes the highestdegree of economic prosperity,

opportunity and progress for all individ-uals in society. One of the most impor-tant long-term objectives of all intelli-gent, well-meaning individuals has beento discover and create such a system.

Indeed, recorded history shows thathumans have been continuously exper-imenting with social organisations insearch of this goal—starting with tribalhierarchies, then feudal systems,monarchies, dictatorships and, eventu-ally, democracies. Democracy appearsto stand at the higher-end of this Dar-winian process of political evolution.Having survived the tribal, feudal andmonarchical forms of government, themajor nations of the world have arrivedat various forms of democratic govern-ment.

The theory of democratic governmentrests on the premise that certain ser-vices cannot adequately be provided byfree competition amongindividuals in the mar-ketplace and must there-fore be provided by thestate. The primary ser-vices falling into this cat-egory are defence fromexternal aggression, po-lice protection from do-mestic criminals, and ajustice system for arbi-tration of disputes. It is further believedthat there are a variety of other goodsand services beyond the practical abili-ty of private enterprise to provide, suchas roads, canals, postal services,schools, and management of the air-ways and airwaves. As the democratic

model has evolved, the state has beendrafted by the voting public to be re-sponsible for a third aspect of the livesof its citizens, defined vaguely as therequirement to providefor the “general welfare”of individuals. Under thisumbrella falls a vast andever-growing list of ser-vices, such as the guaran-tee of retirement and dis-ability security, basichealth care, the insur-ance of safe working con-ditions, adequate hous-ing and food, safe food,drugs, air and water,wildlife preservation, andso on.

Underlying this “wel-fare state” is the viewthat all individuals in a society are enti-tled to share, to some extent, in the pros-perity enjoyed by the middle and upperclasses. This belief, in turn, rests on thepremise that many of those at the lowerend of the economic spectrum are vic-tims of bad luck, while many of those atthe upper end owe their prosperity to amore fortunate toss of life’s dice. This

premise is firmly rootedin our culture. Thustoday’s debate centres noton whether the govern-ment should provide forthe needy, but rather onexactly how much (and ofwhich needs) it shouldsupply.

The design of somesocial system that pro-

vides for the prosperity of individuals inour society is a noble cause. Empathyfor the suffering of others is rooted inour nature and gives rise to our com-mon desire to provide for those in need.But which variation of the democraticstate will best promote prosperity andprogress? A laissez-faire state, in whichindividuals—as long as they do not useforce or fraud against others—are free

to make their own economic and socialchoices and are responsible to providefor themselves through good times andbad? Or a welfare state, in which the

government influencesthe private choices ofindividuals through asystem of taxation, sub-sidy and legal restric-tions, and simultane-ously guarantees all aminimum standard ofliving?

Clearly, most peoplebelieve that the welfarestate is the best methodof promoting overallprosperity and progress.Evidence of its domi-nance is ubiquitous. Sim-ply look at the growth

in the level of government spending onsocial programmes in the world’sdemocracies. As my counterpart in thisdebate has pointed out, government out-lays for OECD countries in 1997 arebetween 40% and 50% of nationalincome, having risen on average some15 percentage points in the past threedecades.

Failure, But Still Victory?

The victory of the welfare state overthe laissez-faire state is puzzling to thoseof us who believe in the power of the freemarket. Is the evidence of history insuf-ficient to discourage even the most die-hard advocates of the welfare state?Invariably, as any government hasincreased its role as provider and guar-antor, the size of that government hasgrown and the inequities that its pro-grammes were supposed to haveredressed have increased. As more pub-lic money is spent on education, forexample, the schools turn out worse stu-dents. As more public money is spent onsupport for single mothers, more fami-lies break up and more children are bornout of wedlock. As more public moneyis spent on low-income housing, the

15WORLD ECONOMIC AFFAIRS ● SPRING 1998

John Pugsley

S

The Welfare State asa Failed Experiment

F O R U M : T H E VA L U E O F T H E W E L FA R E S TAT E

The author publishes John Pugsley’s Journal, amonthly investment newsletter. His e-mail addressis [email protected].

Is the evidence ofhistory insufficientto discourage eventhe most die-hardadvocates of thewelfare state?

As more publicmoney is spent on

education, theschools turn out

worse students. Asmore public moneyis spent on supportfor single mothers,

more familiesbreak up.

housing problem worsens. As more pub-lic money is spent on socialised medi-cine, the quality and quantity of carefalls. It seems that whenever the statesteps in to alleviate a problem, the effectis to make the problem worse.

The most blatant examples of thesefailures, of course, are the ultimatewelfare states—thosecountries that embracedcommunism. After theSecond World War, theSoviet Union, East Ger-many, Poland, China andCuba followed paths toeconomic disaster byattempting to bring pros-perity to all by abolish-ing wealth of a few. Stan-dards of living fell, citiesdecayed, industrial out-put slumped, pollutionincreased. In all these countries,walls, barbed wire, and machine gunshad to be used to keep citizens fromfleeing.

Some argue that not all aspects ofthese communist experiments failed.For example, it was pointed out to methat there was great improvement ineducation and health care in Cuba underthe state-run programmes. However, mypersonal tours of schools and medicalfacilities in Havana a few years ago led

me to conclude that theseinstitutions were promot-ed to gain public support,and could never have sur-vived except by beingheavily subsidised bythe Soviet Union. By thetime I arrived, those sub-sidies had ended and themedical-research facili-ties were idle. There wasbarely enough electricityto operate an occasionallight, let alone their

equipment. And while they boasted oftheir schools, and the teachers preachedthe greatness of the state, the studentswent without lunches. Those countries

that have tested pure communism standas historical monuments to the destruc-tion of production and progress whenthe welfare state is advanced to itsinevitable conclusion.

Abject poverty is the bitter reward ofthe total welfare state. But what aboutthe “partial” welfare state, in whichsome proportion of wealth is left in thehands of those who produced it, while amore modest level of redistribution andregulation is overseen by the state? Evi-dence suggests that the level of prosper-ity and progress in any nation is rough-ly proportional to the degree to whicheconomic decisions are left in the handsof individuals rather then state bureau-cracies. Studies such as the Index of Eco-nomic Freedom, published by the Her-itage Foundation, indicate that countriesin which individuals retain control of thewealth they create stand at the higherend of the scale in progress and pros-perity, in stark contrast to the lethargiceconomies of welfare states in whichgovernments commandeer the resources



40% of allAmericans todayare net recipients

of governmentaid—and this ratio

will reach 50%over the next

couple of decades.

PUBLICITÉ

Strategic Alliance

and then redistribute them to achievepolitical goals.

As each welfare state fails to achievesuccess, its defenders argue that the fail-ure is because the programmes of taxa-tion, subsidy and regulation were eitherpoorly designed or poorly administered.The programmes would work, they claim,if only there were “reforms.” Sadly, theargument that these failures have beendue to poorly designed programmesfocuses attention on the minutia ofdesign, and diverts us from having toexamine the verity ofthe entire premise onwhich the welfare stateis built.

A FaultyPremise

In light of the evi-dence that prosperityis greater where peopleare left free to enjoythe rewards of theirlabours and suffer theconsequences of theirfailures, why has theconcept of the welfarestate triumphed inminds of intellectualsaround the world? Partof the reason is thatthe premise on whichthe welfare state hasbeen built is neveropened for debate.

Every law, regula-tion, and programmeof every democratic government restssquarely on the acceptance of a singlepremise: One person’s need is a justclaim on the property of another. Theunderlying justification of every stateprogramme—education, food stamps,medical care, child care, unemploymentcompensation—is need. One person orgroup has a need; another person orgroup should be forced to provide for it.Sadly, this premise, which is truly theultimate foundation for the welfarestate, is never debated, and never ques-tioned. It is rarely even articulated. Yetit is the issue that should be debatedfirst. If it is wrong, then all of the greatdebates raging in society over the ques-tions of which needs are genuine needs,and whose property will be forfeited tosupply those needs, are totally moot.

Why is this issue never raised? It isignored by most people because the con-sequences of disproving it are too costlyto bear. An enormous segment of thepopulation, and particularly the segmentthat comprises the social thinkers andopinion makers, has now become depen-dent on the benefits bestowed by the wel-fare state. For example, Stanford econo-mist Michael Boskin calculated thatfully 40% of all Americans today are netrecipients of government aid—that is,they take more from the federal trough

than they contribute. Boskin calculatesthat this ratio will reach 50% over thenext couple of decades. In the US, onehalf of the population will be underwrit-ing the other half.

It is the beneficiaries who will lose iftheir need-based claim is ever chal-lenged. And the beneficiaries are legion.Millions are employed directly by thefederal government, the vast state-gov-ernment bureaucracies, primary-schoolsystems, public universities, governmentagencies, government contractors, inaddition to all of the recipients of busi-ness subsidies, rent subsidies, foodstamps, welfare, medical care, retire-ment income, disability income, and soon. Even the members of the mediawould find themselves stripped of 90% ofthe content of their newspapers, maga-

zines and television shows if the welfareapparatus were eliminated. When gov-ernment collects and then spends 25% or50% or more of the incomes of its citi-zens, it creates economic dependentsthat have every reason to blind them-selves to the obvious. See no truth, hearno truth, speak no truth.

Is Need a Just Claim?

Let us take up this challenge, and con-sider the premise. Is my need a just claimon your property? First, consider the

moral implications.Let me present athought-provokinghypothetical situationwhich I first heardwhen it was used byinstructor Jay Snelsonin course “V-50” givenby the Free EnterpriseInstitute in Los Ange-les, California.

Imagine that youown a nice televisionset. I live across thestreet, and one night Iknock on your door,tell you that I do nothave a TV, explain whyI desperately needyours and ask you togive it to me. You pon-der my request andeven feel some com-passion for my plight.But you turn me down.I leave. Later, after you

have gone to bed, I sneak in your backdoor and take the TV.

Most people would call this theft. Afterall, that is how we define theft—takingsomeone’s property without their con-sent. Are there any extenuating circum-stances that would cause my act of tak-ing your TV set without your consent tobe considered anything other than theft?Are there any situations in which itwould be reasonable?

For example, suppose that when Ifirst knocked on your door I hadexplained that I was hungry, and hadnot eaten in three days, and needed tosell the TV to get money for food. Wouldmy need for food have meant that mytaking the TV was no longer an act oftheft? Or would it still be stealing? Or,suppose that when I first met you I had



TH

E E

CO

NO

MIS

T

told you that my daughter was ill, and Ineeded to sell the TV to get the moneyfor medicine to save her life. Underthese circumstances, if you refused meand I took the TV without your consent,is it no longer theft? Or, suppose that,after you had refused me the TV, I hadwalked next door and talked to yourneighbours on each side. I explained myneed and told them that you hadrefused to give the TV tome. They both told me totake the TV. If I have thepermission of two ofyour neighbours, wouldit still be stealing? Whatif I had talked witheveryone in town, andwith only one exception(guess who?) everyonein town had agreed thatI should take your TV?Would it still be stealing?What if I had askedeveryone in the wholecountry, and again (withthe exception of you)absolutely everyone hadagreed I should take theTV. Would it still bestealing? Would it change things if,instead of selling the TV after I took it,I set it up in the local park and invitedeveryone in town, including you, towatch it? If you were given equal oppor-tunity to use the TV along with every-one else, would this mean my act of tak-ing the TV was no longer stealing?

By now the point of the story is clear.It does not matter what the thief’s “need”may be, it is still theft. It does not mat-ter how many other people give a thiefpermission to take your property; if hetakes it without your permission, he isstealing. It does not matter if the prop-erty is then used by all the community,including you. It is still theft.

If taking property from someone with-out that person’s consent is theft, regard-less of the need and regardless of howmany people agree that it should betaken, then when the government takesanything from a person without that per-son’s consent, it must also be consideredtheft. Involuntary taxation is theft. Ofcourse, voluntary taxation is not taxationat all. Perhaps some rare individuals vol-untarily pay taxes, but most people cer-tainly do not view taxation as voluntary.

The welfare state, a situation in whichthe state takes from some to provide forthe needs of others, is firmly rooted inthe concept of theft.

Taxation is Theft, With orWithout Representation

The “taxation is theft” argument isusually dismissed when first considered,since we are taught to believe in democ-

racy. For example, schoolchildren are taught thatthe American Revolutionwas fought over the prin-ciple that taxation with-out representation isunjust, but that somehowtaxation with representa-tion is appropriate. How-ever, in the situationdescribed above, I askedfor your vote before Itook your television. Yousaid—that is, you voted—no. Thus, you were “rep-resented” in the finalvote. How does the act ofgiving you the right tovote change the fact thatyour property was taken

by force? You have already agreed thatbeing outvoted by your neighbours didnot give me the right to take your prop-erty—or you should have.

We now confront the central contra-diction in what we have all been taughtover the years. On one hand we aretaught that stealing is wrong and there-fore immoral. On the other hand we aretaught that taxation with representationis right and thereforemoral. How can we rec-oncile this contradiction?Taking property withoutthe owner’s consent can-not be both moral andimmoral. It cannot beboth right and wrong.

The resolution canonly be found by exam-ining what we mean byright and wrong, moral and immoral. Iwill not be successful in convincing awelfare-state advocate that taxation isimmoral simply by calling it what it is—theft—or even by calling on a higherauthority and pointing out that Godcommanded, “Thou shalt not steal.”The welfare-state advocate will simply

argue that it is unfair for some people toenjoy higher standards of living thanothers, and therefore “theft” (though hewould not call it that) is the only alter-native.

Since both the advocates of the wel-fare state and the advocates of a laissez-faire society are both seeking to create asociety that achieves the maximum pros-perity and progress, and therefore theminimum of suffering for its citizens, letus arbitrarily define as “right” or “moral”the system that leads to our commonobjective. This leads us to the obviousquestion: “Is any society likely to becomemore prosperous and progressive if oneperson’s need is a justifiable reason forstealing another person’s property?”

Taxation ReducesOverall Prosperity…

A prosperous society is one in whichindividuals have access to the goods andservices that they feel are necessary tomake them comfortable and happy.Progress is measured by the growth inquantity and quality of those things.Goods and services, our material yard-sticks of prosperity and progress, onlycome from human effort. And herein liesthe reason that stealing is wrong orimmoral.

Why do we work as hard as we do? Foronly one reason: because we believe thatwe will benefit by the effort. The prima-ry human motivation for taking anyaction is self-centred. We expect to windup better off. I plant a garden to reap theharvest for myself and my family. You goto work because you believe it will pro-

vide for yourself and yourfamily. Each persontends to put forth effortproportional to the bene-fits he expects to gain.And since society is com-posed of individuals, thesum of benefits achievedby any society must beproportional to the sumof the efforts of the indi-

viduals in that society.This obvious truth serves as a pream-

ble to the argument that all acts of theftare destructive, whether based on pri-vate theft—such as when a mugger robsyou to satisfy his own needs—or basedon group theft—as when government,under the guise of providing for the wel-



Every successfulact of taxation has

a detrimentaleffect on the

prosperity andprogress of society.

If taking propertyfrom someonewithout that

person’s consent istheft, then whenthe governmenttakes anythingfrom a personwithout that

person’s consent, itmust also be

considered theft.

fare of all citizens, taxes you to meetthose needs.

First, consider the effect any act oftheft has on individual incentives to pro-duce. Suppose A and B live on an island,and A works hard to tend his gardenwhile B idly wiles away the days. If Bsneaks over and steals A’s harvest, theevent has a profound effect on both indi-viduals’ incentive towork, and thus on theprosperity of the societyas a whole. First, B hasfound that it takes lesseffort to steal than toproduce. He will natu-rally direct his energiesto becoming a moreeffective thief. On theother hand, A has notbeen rewarded for hiseffort, and this surelyreduces his incentive towork. But he does seethe payoff to preventingtheft, and so he will nat-urally devote part of hisproductive time, energyand thought to buildingfences or setting traps. With less time leftfor production, total production to thecommunity falls. If, in spite of A’s effortsat self-defence, B continues to succeed instealing A’s output, A will stop producingaltogether. No pay, no work.

Every successful act of taxation has adetrimental effect on the prosperity andprogress of society. Moreover, the higherthe level of taxation, the greater the lossto the society. Establish a taxation sys-tem under which one individual canclaim his neighbour’s goods based on hisown needs, and no matter how such asystem is adjusted, re-designed, or mod-ified, it will always lead to lower outputfor the society as a whole. Granted, therewill be some individuals who are betteroff (the recipients of government hand-outs), but the benefits to the recipientswill always be less than the losses to thevictims. Taking the fruits of the labour ofA and giving them to B, whether we callit taxation or stealing, is not a zero-sumgame.

…and Leads to Corruption

Since the act of taxation diminishesproductivity, prosperity, peace andprogress, appointing B to steal from A

cannot help in achieving the goal of aprosperous society. Taxation is therefore“wrong” (by our definition above).Moreover, the damage caused by a wel-fare-state system of taking from A tomeet the needs of B exceeds the obviousdamage it does to the incentives ofeither the victim or the recipient.Because politicians and bureaucrats are

human, handing them the power to stealis handing them an irresistible tempta-tion to corruption. The very act of plac-ing the power to steal in any person’shands provides the explanation for boththe inefficiency and corruption thataccompanies almost all governmentprogrammes.

The reason that state-administered welfareprogrammes of all kindsare less efficient thanprivate voluntarily ad-ministered welfare sys-tems—whether to pro-vide the needy withmedical care, education,child care, food, or any-thing else—is not a mat-ter of bad luck, bad tim-ing, or flaws in the waysthey are administeredor applied. They are inef-ficient because theyforcibly take propertyaway from the person who produced itand place it in the hands of the politi-cian or bureaucrat.

Politicians and bureaucrats areexpected to act in the best interests of the

general public. But since human natureinsures that both the politician and thebureaucrat will be compelled to seekways in which they themselves can ben-efit, handing them the power to steal willinevitably lead to their corruption.

On the other side, voters will also becompelled to use their power at thepolling booth to help themselves at the

public trough. They willband together into spe-cial-interest groups,each group intent onelecting politicians whopromise to subsidise itwhile taxing and regu-lating other groups.With every group carry-ing the banner that “Ourneed is a claim”, thestate inevitably expandsits grip on individualproducers as it doles outgoods and services tomeet an ever-growinglist of needs.

The Welfare Statev Human Nature

In 1875, Karl Marx stated the principleunderlying the welfare state quite suc-cinctly: “From each according to hisabilities, to each according to his needs.”The welfare state is founded on theproposition that it is necessary to takethe property of those who have it to meetthe needs of those who do not. As Marx

and Engels said inThe Communist Mani-festo, “…the theory ofCommunists may besummed up in the singlesentence: Abolition ofprivate property.” But thestate does not createproperty. Property is cre-ated by individuals. Andwhile there may be no“God-given” right to keepwhat you produce, ourbasic human natureguarantees that any sys-tem which uses force totake property from those

who produce it and give it to others willresult in not only a lower level of pro-duction and progress, but also a higherlevel of social conflict. It is no mysterywhy the welfare rolls grow when welfare



A tax system underwhich one

individual canclaim his

neighbour’s goodsbased on his ownneeds will always

lead to loweroutput for society

as a whole.

GE

OR

GE

GR

OS

Z

is offered. It is no mystery why govern-ment subsidies beget more governmentsubsidies. It is human nature.

These days, the communist system israrely defended in Western academic cir-cles. The collapse of the Soviet Unionand the abject poverty ofthe other communistcountries are too difficultfor even the most die-hard communist econo-mists to explain away. Yetdespite the failure ofcommunism, its underly-ing premise—that societyis better off if property isproduced according toability and distributedaccording to need—haswon the battle for minds.The majority of the “cap-italist” or “free-market”nations of the world arefirmly committed to theredistribution of wealthaccording to need.

Though the failure of communism isevident, the cause of this failure is not.Communism and all other attempts atcreating a workable welfare state havefailed and will fail, because all systems forredistributing wealth require that individ-uals contravene human nature.

The only effective way to reach anyobjective is to first understand the natureof the materials with which you areworking. Scientists search to refine a setof axioms that describe the basic mech-anisms of physical nature and, workingfrom these axioms, engineers designdevices to reach objectives. If an engi-neer wants to build a plane that will fly,he first must understand the principlesgoverning the nature of the materialsinvolved. He then tries to design theplane according to those principles. If heviolates one principle of physics, theplane will not fly.

Just as the axioms of physics aredetermined by the nature of physicalobjects, the axioms of human action aredetermined by the nature of man, anature that has emerged over thousandsof generations through the process ofnatural selection. As sociobiologistEdward Wilson argues so eloquently inhis Pulitzer Prize winning book, OnHuman Nature, “mankind viewed overmany generations shares a single

human nature. … Individual behaviour,including seemingly altruistic actsbestowed on tribe and nation, are direct-ed, sometimes very circuitously, towardthe Darwinian advantage of the soli-tary human being and his closest rela-

tives. The most elaborateforms of social organisa-tion, despite their out-ward appearance, serveultimately as the vehiclesof individual welfare.”Simply put, individualman always acts in hisown self-interest. At ourcore, we are programmedto be selfish, although wemay not always be con-scious of the fact.

Individual humanshave evolved and havesurvived as a species forone reason: the normalindividual places his owninterests (and those of

his family) above the interests of all oth-ers. Human beings are self-centred. Weare universally selfish. Evolution built usthis way. Give man the choice betweendevoting his efforts to himself and hisfamily versus the welfare of strangers,and he will choose to help himself. Andit is not “bad” or “evil” forindividuals to act in self-interested ways. Thespecies exists becausegenes that impelled theindividual toward per-sonal survival were repli-cated more frequentlyand survived in the fol-lowing generations moreoften than genes thatimpelled the individualtoward unsuccessfulbehaviour. Man’s geneticprogramming compelshim to be self-centred.Man is not bad or goodbecause of his individualselfishness; he existsbecause of it.

Yet all of the systems of governmentso far devised, and particularly thosepromoting the idea of a welfare state,suggest that it is possible to find a vastnumber of politicians, bureaucrats andpublic servants who will selflessly servethe interests of strangers rather than

act in their own self interest. Giventhe nature of humans, it cannot bedone. When you attempt to build a sys-tem that violates the laws of nature,human or otherwise, you are guaran-teed to fail.

This leads to a curious confusion inour culture. When you tell the averageperson that it is not necessary or efficientfor the state to look after the welfare ofthe poor and less fortunate, he will mostoften argue that, because of man’s selfishnature, the person with wealth will nothelp the less fortunate, and therefore thestate is necessary to look after the needsof the poor.

The truth is just the opposite. Becauseof the selfish nature of man, it is utopi-an to give A authority over the life andproperty of B, particularly if they arestrangers to each other. Because allhumans are genetically programmed tofirst consider their own well-being, noman can be given authority over anoth-er without being tempted to find ways inwhich to use that authority to his ownadvantage. The idea that a governmentbureaucracy composed of humanbeings would put the well-being of thepopulation before its own well-being isutopian.

Historians have rewritten history,making it appear thatpolitical leaders haveacted in the interests ofnations, rather than intheir own interests. Intruth, behind every lawpromoted to help theignorant, the poor andthe disadvantaged, care-ful examination willreveal that the law’s pro-moters are gaining someadvantage. Protective tar-iffs benefit domesticindustries at the expenseof consumers. Minimum-wage laws benefit theunions by preventingcompetition for jobs.Securities laws protect

the established firms in the competitionfor capital. Medical licensing protectsthe established doctors from low-pricecompetition.

For individuals elected to positions ofauthority, acts of altruism are almostnon-existent. Lord Acton’s famous


All attempts atcreating a

workable welfarestate have failed

because allsystems for

redistributingwealth require that

individualscontravene human

nature.

As individualsare made to

understand thatthey cannot rely on

government tomeet their needs,

the naturalinstincts of

self-interest willchannel themtoward self-

responsibility.


maxim, “Power tends to corrupt andabsolute power corrupts absolutely,” isan astute observation about the natureof man. While the failures of welfare-state programmes are often attributedto bureaucratic inefficiency or politicalcorruption, the truth is that politiciansand bureaucrats are just normal indi-viduals responding rationally to oppor-tunities to pursue their own self-inter-est.

The “ideal” welfare state could neverexist. Professor David Friedman, son ofNobel laureate Milton Friedman, madethe point succinctly: “In the ideal [wel-fare] state, power will not attract powerfreaks. People who make decisions willshow not the slightest bias toward theirown interests. There will be no way for aclever man to bend the institutions toserve his own ends. And the rivers willrun uphill.”

Leave it to the Market

The fallback argument of advocates ofthe welfare state is that, while the systemmay not be perfect because of the falli-bility of humans, if the governmentignores the needs of the young, the old,the poor, the sick and the unemployed,these people are doomed. The welfare-state advocates argue that private indi-viduals are simply too selfish to help;income must therefore be redistributedfrom rich to poor. Yet, both the evidenceof history and the nature of man suggestthat forcing one segment of the popula-tion to be responsible for another groupdoes not work.

What is the solution to the dilemma ofthe needy and less fortunate in our soci-ety? It is certainly not to continue to try

and fine-tune the mechanism of the wel-fare state by adjusting the powers givento those in government. In fact, it is justthe opposite. Rather than handingpower to government to take propertyfrom one group and dole it out to anoth-er, the answer is to eliminate power andleave property in thehands of those who pro-duce it.

What about the disad-vantaged? First, as indi-viduals are made to un-derstand that they cannotrely on government tomeet their needs, the nat-ural instincts of self-inter-est will channel themtoward self-responsibility.Second, once the regulatory walls thatare part and parcel of the welfare stateare dismantled, disadvantaged individu-als will be in a much better position tohelp themselves. Vast opportunities willbe opened. Government, under the maskof protecting them, will no longerimpede their own productivity.

Third, as more individuals are weanedof state subsidy, private alternatives willnaturally and quickly develop. Privateinsurance products are the market alter-native to most risks, from old-age retire-ment and medical needs, to unemploy-ment, disability and even birth defects. IfI recognise that I am responsible tohouse, feed and clothe myself and myfamily without expectation of a govern-ment safety net, I will be much morelikely to respond to advertising from pri-vate firms that offer insurance againstlife’s pitfalls. Until I have saved enoughto pay for these services myself, insur-

ance premia will be built into my month-ly budget. If there is no government-pro-vided safety net, I will realise that I mustsave for my own retirement and for myown medical care.

There are others who truly cannot carefor themselves. What about them? For

example, what about theunfortunate child whois born disabled? In anation of individuals whoare made to be responsi-ble for themselves, par-ents would buy insuranceagainst birth defects tocover expenses and care.But what if they did notdo so? What about thosewho, by bad luck or bad

planning, simply have no way to care forthemselves? Those who are genuinelydisadvantaged would find more than suf-ficient altruistic feelings among theadvantaged—there would be adequateprivate charities to handle the trulyunfortunate.

In other words, the alternative to thefailed experiment of the welfare stateis to try a dramatically new experiment:a truly free market. Push governmentaside, and let competing individuals inan unhampered market be completelyfree to satisfy each other’s needs. Wherethe state dwindles in power, individualenterprise and prosperity flower. Wheregovernment transfer of wealth is min-imised, individuals are free to produceand trade, and are simultaneously leftwith the responsibility for their ownlives. Prosperity and progress is theresult. The invisible hand of a free mar-ket lifts everyone. l


The alternativeto the failed

experiment of thewelfare state is totry a dramaticallynew experiment—a truly free market.


PUBLICITÉ

Mendelsohn

the welfare state as a failed experiment - mcgill … · the welfare state as a failed experiment...

Documents