Far too few governments rein in their countries’ bloated welfare states before disaster strikes. As a result, some citizens eventually suffer the economic equivalent of a heart attack: wrenching declines in living standards as they are victimized by unsustainable programs’ endgame. Greece and the city of Detroit are only the most recent grim examples.
Many more suffer from the meager growth and barely rising incomes that result from the toxic combination of government overspending, burdensome regulations and corrosive taxation. Much of Europe fits into this category of economic stagnation.
However, governments occasionally stage successful retreats from welfare-state dysfunction. Canada reduced spending by over 8 percent of GDP in the 1990s, and the US reduced non-military spending by 5 percent of GDP beginning in the mid-1980s — a trend sustained by center-right and center-left governments alike.
So, when a European country reverses course to reduce welfare dependency and restore work incentives, it is worth noting — especially when that country is the Netherlands, which built one of the world’s most expansive welfare states in the 1960s and 1970s.
Recently, Dutch King Willem-Alexander, while delivering his first annual address to the Dutch Parliament, said: “Our labor market and system of public services no longer fully meet the demands of the twenty-first century… The classical welfare state is slowly but surely evolving into a participation society.”
That represents a genuinely remarkable shift.
From the 1960s and 1970s on, those writing about the Netherlands often lamented the “Dutch disease.”
There were so many generous subsidies, grants and transfer payments — aimed at everyone from the truly needy to artists unable to sell their work — that after-tax wages were often barely higher than benefits. People rarely returned to work after they lost or left a job, or did so in the underground economy, with its unreported cash payments.
Whether a person considered the Dutch welfare state humane and generous or bloated and foolhardy, its largesse took a heavy toll on the economy.
However, unlike the French, for example, the Dutch have responded to their past excesses with a series of policies designed to promote a return to work in the formal labor market. Indeed, they deserve an orange-hued salute for innovative reforms that governments worldwide might usefully emulate in the interest of maintaining a targeted, effective and affordable safety net.
For example, disability insurance has become a huge, rapidly growing problem in many countries, despite the dramatic decline in the percentage of workers in physically demanding and dangerous jobs like construction and manufacturing. To stem the dramatic rise in disability payments, the Dutch now require firms with high claim rates to pay more for disability insurance, thereby creating a strong incentive to ensure greater workplace safety.
However, reducing disability claims — and thus payments — is only half of the equation. The other half is returning those who can do so to gainful employment.
In the US, fewer than 1 percent of people who are disabled return to work. Early intervention and informational campaigns about return-to-work options are promising possibilities. Much economic research shows that job skills deteriorate the longer one is away from work, so retraining, information and re-entry programs are very important.
Similarly, the Dutch have embraced welfare reform, much as the US did in 1996, when Democratic former US president Bill Clinton and a Republican Congress agreed on time limits, as well as work and training requirements.
As a result, the Dutch welfare system now requires beneficiaries to show proof of an active job search prior to eligibility, to perform work or volunteer community service while receiving benefits and to take a job even if it requires a long commute.
The US’ 1996 welfare reform grew out of initiatives in the state of Wisconsin. Just as the state’s reform proved to be a model that was successfully adopted nationally, so reforms in one EU country could spur policy innovations elsewhere in the EU and around the world.
Contagious successful policy reforms are precisely what Europe and most of the world need.
To see why, consider the tax rate necessary to pay for social benefits, which equals the replacement rate — the average level of benefits relative to taxpayer incomes — multiplied by the dependency ratio — the share of the population receiving the benefits. The higher the replacement rate and/or dependency ratio, the higher the tax rate needed to pay for the benefits.
What is certain is that the dependency ratio will rise virtually everywhere, owing to inexorable demographic trends. The combination of rising life expectancy, lower fertility rates and, in some countries — including the US — the retirement of the post-World War II baby-boom generation, implies a rapid increase in the old-age dependency ratio.
The US, for example, will go from one retiree for every three workers today to a 1 on 2 ratio in the next three decades. Italy and Germany will have a 1 on 1 ratio. The percentage of China’s population that will be over 65 a generation from now will be larger than in the US.
Common-sense policy reforms that ought to be adopted, like the Dutch disability and welfare reforms, will provide a second dividend by lowering the dependency ratio. That will not be enough to maintain sound public finances indefinitely. However, by demonstrating cures to the “Dutch disease,” the Netherlands is giving all of us an invaluable lesson.
Michael Boskin is a professor of economics at Stanford University and senior fellow at the Hoover Institution. He was chairman of former US president George H. W. Bush’s Council of Economic Advisers from 1989 to 1993.
Copyright: Project Syndicate
When US budget carrier Southwest Airlines last week announced a new partnership with China Airlines, Southwest’s social media were filled with comments from travelers excited by the new opportunity to visit China. Of course, China Airlines is not based in China, but in Taiwan, and the new partnership connects Taiwan Taoyuan International Airport with 30 cities across the US. At a time when China is increasing efforts on all fronts to falsely label Taiwan as “China” in all arenas, Taiwan does itself no favors by having its flagship carrier named China Airlines. The Ministry of Foreign Affairs is eager to jump at
The muting of the line “I’m from Taiwan” (我台灣來欸), sung in Hoklo (commonly known as Taiwanese), during a performance at the closing ceremony of the World Masters Games in New Taipei City on May 31 has sparked a public outcry. The lyric from the well-known song All Eyes on Me (世界都看見) — originally written and performed by Taiwanese hip-hop group Nine One One (玖壹壹) — was muted twice, while the subtitles on the screen showed an alternate line, “we come here together” (阮作伙來欸), which was not sung. The song, performed at the ceremony by a cheerleading group, was the theme
Secretary of State Marco Rubio raised eyebrows recently when he declared the era of American unipolarity over. He described America’s unrivaled dominance of the international system as an anomaly that was created by the collapse of the Soviet Union at the end of the Cold War. Now, he observed, the United States was returning to a more multipolar world where there are great powers in different parts of the planet. He pointed to China and Russia, as well as “rogue states like Iran and North Korea” as examples of countries the United States must contend with. This all begs the question:
Liberals have wasted no time in pointing to Karol Nawrocki’s lack of qualifications for his new job as president of Poland. He has never previously held political office. He won by the narrowest of margins, with 50.9 percent of the vote. However, Nawrocki possesses the one qualification that many national populists value above all other: a taste for physical strength laced with violence. Nawrocki is a former boxer who still likes to go a few rounds. He is also such an enthusiastic soccer supporter that he reportedly got the logos of his two favorite teams — Chelsea and Lechia Gdansk —
RSS