Sat, Nov 06, 2004 - Page 8 News List


The truth about welfare states

As a Swedish citizen working with politics in Taiwan, I am puzzled and alarmed at how the concept of a so-called "welfare state" is so regularly embraced by various people expressing their opinions in the Taipei Times.

Having grown up in such a state tends to make one suspicious of governmental measures designed to make people happy, as opposed to people making themselves happy under the rule of law. Even though people expressing support for the theory of the welfare state may have the best of intentions, I doubt that they would like to live in the kind of society it produces.

A recent example is Chang Tieh-chih's (張鐵志) argument that the welfare states of Nordic countries strengthen the competitiveness of their economies (Welfare state helps competitiveness, Oct. 27, page 8). He bases this on the recent World Economic Forum Global Competitiveness Report 2004-2005, in which Nordic welfare states are ranked just above Taiwan in competitiveness. Chang's basic mistake is that he has not read the report. If he did, he would have seen that Sweden is ranked third, despite -- rather than because of -- factors typical to welfare states.

The fact is that the report only attempts to evaluate the competitiveness of the private sector and policy areas such as court efficiency, contract laws and corruption among public officials. These are not defining factors of socialist welfare states. In these areas, Sweden ranks high and deserves praise. A predictable and efficient legal system is key to any rich society.

The report lists as "competitive disadvantages" typical defining factors of the Swedish welfare state. Examples of disadvantages listed are "low flexibility of wage determination," "inflexible hiring and firing practices," "low efficiency of the tax system" and "low wage equality of women in the workplace." These disadvantages are direct, conscious results of the construction of the welfare state.

The wage-flexibility disadvantage is a result of institutionalized rules for wage bargaining, centering powers in trade unions and business organizations. Inflexible hiring and firing is a result of the unique labor legislation pushed forward through a 100-year power axis between leading union confederations and the ruling Social Democratic Party.

Low efficiency of the tax system has to do with ideological motives behind some property, capital, business and income taxes, making the system arbitrary and anti-growth, and consequently turning normally law-abiding citizens into tax evaders and cheaters.

Finally, the problem of wage inequality between sexes is largely due to a "lock-up" effect centering many women in the sectors of health care, child care, elderly care and basic schooling. These sectors are run by state or local bureaucracies and have been monopolies ever since the outset. Government provision of these services are the very core of the Swedish model, along with the cumbersome labor market regulations that ensure a high level of power concentration to big business and big unions, at the expense of individual freedom and responsibility.

The report clearly lists these areas as inhibitors of competitiveness, removing the foundations of Chang's arguments. Chang is right that the welfare state can coexist with a competitive economy, but they do not reinforce each other. In Chang's article, another fallacy does away with the rationale for the rest of his arguments. That is the perception that free trade and capitalism create "huge social inequalities." Although this has been widely cited as a fact in the public debate since the days of Karl Marx, it is nonetheless false.

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