A Comment on the ‘Sozialstaat’ (welfare state)

“Wir können uns dieses System das wir heute so haben mit dem was wir wirtschaftlich so erwirtschaften in der BRD einfach nicht mehr leisten. Wir leben seit Jahren über unsere Verhältnisse”.

“We can simply no longer afford this system that we have today with what we economically generate in the Federal Republic of Germany. For years, we have been living beyond our means.”

Friedrich Merz (Deutscher Bundeskanzler, CDU)

Take Away

Unlike ‘Socialism’, the conception of a ‘Sozialstaat’ (welfare state) never had any precise meaning. Thus, its political potential and its vaguely explained aspirations still arouses the fancies of many scientists, intellectuals, and especially politicians. For decades on end, the majority of the population has been eloquently lured into the convenient superstition that an ‘omnipotent government’ can resolve every social problem by social engineering or by just throwing government money at them. This increasing appreciation of cradle-to-grave care, in turn requires ever more complex and expensive government measures to address some remaining imperfections. Thus most welfare systems have reached  their limits and are dangerously spinning out of control.

I

Inspired by the ‘Social Question’ that dominated politics during most of the second half of the 19^th century, Adolph Wagner (1835-1917), one of the intellectually and politically most influential German economists, outlined the concept of Social Policy in vague and contentious terms. In 1883, Wagner a follower of Otto von Bismarck’s policies summarized Social Policy primarily as a legislative endeavor, using state power to fix social problems that arose in the distributive processes of the economy. For him Social Policy ought to be a guiding principle that will employ means of legislation and will apply the strong leverage of steep and progressive taxation to eradicate the unequal and therefore unjust (?) distribution of income and wealth. Although a clear definition of Social Policy never was (and apparently still is) of any concern, Wagner’s account quickly became a political standard and carried the political and academic discussions.

It is worth noting here that just about 20 years before he published his ”definition”, the same Adolph Wagner discovered the “Law of Increasing State Spending“. In 1863, he asserted that public expenditure increases as national income rises. The law predicts that as societies become more affluent, the government sector will expand disproportionately to the national economy, leading to a greater share of public spending in the Gross Domestic Product (GDP).  In other words, the dynamic growth of public obligations leads to the production of collective goods which in turn not only overload the government’s fiscal responsibilities. They also will eventually spin out of control. As an example, in 2024 in Germany about 31% of GDP flowed into state social benefits last year, and according to the projection for 2026 it could increase to some 37 %. Then again, it seems that Wagner’s dire warnings continue to be pragmatically disregarded ever since.

II

Unlike the term ‘Socialism’, the ‘Sozialstaat’ (welfare state) is neither grounded on a tenable theory, nor can it be clearly defined. It is probably for these reasons that its potential still arouses the aspirations of scientists, intellectuals and politicians. Most of these largely well-intentioned fancies seem to ignore the fact that scarcity is an pervasive condition of human existence and that our wants or desires are therefore thwarted by the limited resources we require.

Indoctrinated by the convenient superstition that the public coffers are inexhaustible, most beneficiaries of welfare transfers think that benevolent and altruistic politicians will distribute the public funds according to the prevailing dogma of ‘social justice’. Hence it is assumed that most societal problems can be resolved by social engineering and throwing public funds at them. Only occasionally people recognize the obvious and fundamental connections between disposable income, tax burden, tax revenue, government expenditures, state responsibilities or budgetary constraints.

The system’s alleged possibilities to relief people from their individual liabilities or at least diminish their inconveniencies make them unwilling and unsuited to provide for themselves.  Because beneficial results can be accomplished by completing an online questionnaire or submitting an application, we witness an alarming crowding-out effect where public welfare projects displace private obligations and undermine the prevailing coherent fabric of a society. Whenever people are faced with a problem, they first appeal to the relevant department in charge of assistance. In the scandalous situation that there are no support programs readily available, encouraged by politicians they collectively demand to fill the void. Then again by having public support at one’s finger tips, legitimate claims for relief will never diminish. Instead, the desire for support programs will constantly increase as the Sozialstaat produces its own load by allegedly freeing people from their individual responsibilities or risks. The paternalistic state puts the subsidiary principle on its head and the helper of last resort turns into the helper of first choice.

III

As more options are provided by the state, the higher will be the expectations. Consequently the race to the public funding opportunities steps up and rent-seeking situations reveal a culturally and ethically disturbing mechanism. Those in real need will be sidelined by the collective greed for cash or transfer services that wreck the budget. However there are also considerations of reputation and peer pressure. Since only fools would show some hesitance to do what everybody else does, the abuse of the system is rising not only when it is easy to seize the money, but also when it becomes senseless and even stupid to remain self-responsible or principled.

Driven by the promises of vote-seeking politicians, democratic governments cannot fulfill the cycles of rising collective demands. Individuals, groups, and coalitions of organized interests compete for social benefits, subsidies or hand-outs, hereby unleashing the dynamics of greed and envy: If one person gets help or cash from the public, another one is urged to quickly demand it too without bad feelings. Moreover, if one group calls for higher pensions, others have to enter the race if they do not want to fall behind. It is for these reasons that the current ‘Sozialstaat’ inadvertently produced collective behavioral norms that are shaped by rent-seeking motivations and unveil misgivings and social resentments. Thus increasingly individual responsibility, private ingenuity or resolve will try up and the inner coherence of families will be replaced by distributive measures.

Conclusion

As success creates opportunities, the welfare state’s accomplishments trigger the contrary of its desired results: instead of rendering support programs redundant it leads to an identification of new social problems. Thus we are facing the curious situation where the success of the welfare state is the greatest, the more it fails to deliver. But this is exactly the situation which created the socially precarious and fiscally untenable condition  we are currently facing.