The Welfare State and Its Inevitable Unemployment

By: Carlos Sabino - @Sabino2324 - Oct 16, 2013, 8:32 am

Something very bad, almost baffling, is taking place in Spain, Greece, and other countries in the European Union: more than a third of the population under the age of 35 are now unemployed. Almost everywhere in the union, the problem affects a huge share of the working-age population — and we are not talking about employees without formal education. These are young people who have successfully negotiated all stages in the education system, even earning PhDs in many cases.

What reasons can lead developed societies to show a social imbalance so deep and negative that it threatens to break the stability of their way of life and their future development prospects?

Let us enrich the discussion with more information, which, though seemingly unrelated to the aforementioned situation, never fails to astonish me: in almost all countries in Europe, and in many others around the world, the share of the government in economic activity hovers around or over 50 percent. Even in the best of cases, it is well over 40 percent. We know that governments are not productive or consumer-oriented companies; rather, they are institutions that go about spending tax money they take from other people. In other words, around half of what many nations produce winds up in the government’s hands through taxes.

How is that huge amount of money fundamentally spent? Part of it naturally goes to law enforcement, bureaucracy, payment for the government’s administrative functions, and infrastructure projects. However, the greater share, at least in Europe and Japan, is directed to two other items: servicing public debt and what is commonly known as “the welfare state”: pensions, a wide range of health care services, education, and, in many cases, housing and entertainment.

Evidently, the gargantuan tax burden faced by companies limits their investment capabilities, which impedes production and job creation. The fact that the available workforce is highly skilled is irrelevant: the problem is not one of lack of qualifications — not enough people with the skills required for a particular job — but the fact that an enormous education system is flooding the market with graduates who have no way of finding a productive position.

The obstacle to economic development is not the lack of education, as one usually hears, but an education system inconsistent with the economy’s real possibilities. This problem is compounded by the little stimuli or incentive available to those who wish to create a productive company, and the significant barriers erected before them, defended with very spurious arguments.

Mired in growing debt, ever-harder to pay, most developed economies are torn between trying to inject stimuli into the economy — with money they lack — or simply yielding and accepting terrible recessions which would exacerbate the already unbearable level of unemployment. This is the crossroads now facing most developed nations, which consistently fail to find a convincing solution to their woes.

The root of the problem, however, lies not in how to stimulate the economy and jump-start growth again, but in the expansive welfare state built over the last few decades. The terrible pressure this system exerts on public finances and the many restrictions it imposes on private companies make its upkeep impossible, and it cancels all possibility of recovering growth.

These social programs have become virtually untouchable by the population and most analysts: they are seen as rights, just as sacred as natural rights, because everyone likes having guaranteed healthcare, education, pensions, and many other benefits. However, people tend to forget that these benefits are not actually “rights,” but disbursements of significant magnitude that governments make with money they take from other citizens. Nothing is free, even if it seems so, and these societies may have reached the uncomfortable moment when they have to cough up the bill.

It will be a long time, I suppose, before politicians and common citizens in these countries accept the hard truth that you cannot receive benefits without matching effort — that there is no such thing as a free lunch, as they say. In the meantime, we should ask both those politicians and the leaders of many international institutions to please refrain from prescribing the same medicine that, through their irresponsible policies, have left them with this worrying social disease.

Carlos Sabino Carlos Sabino

Sociologist, writer, and university professor, Sabino is director of the masters and doctoral programs in history at the University of Francisco Marroquín, Guatemala. Follow him @Sabino2324