The moral and morality of the welfare state

By Carlos Alberto Montaner

Americans are missing the point of the problem. They think they're involved in a technical discussion over the economic viability of Social Security, whereas the central issue is different and a lot more important: to choose between individual responsibility and economic responsibility.

That is precisely the core of a heated debate being held worldwide over a profound reexamination of relations between society and the state. The retirement system is just one more expression of that impassioned polemic.

Here, succinctly, is the historical background. Beginning in the mid-19th Century, an idea increasingly developed that the state should furnish people with certain basic services: free public education, medical care, unemployment compensation, sick pay and retirement pension.

Those ''welfare states,'' as they were called, began with Bismarck's Germany; Britain immediately followed suit. In Latin America, beginning with the Mexican Revolution of 1910, governments went farther, and the new constitutions added other ''rights'': People should have decent housing and reasonably paid jobs.

The state had to supply all that. The hunger, suffering and uncertainty that had hounded human beings from the caves to the skyscrapers were legally abolished. Simultaneously, big economic differences were censured, and the goal became to find a kind of equality in the distribution and holding of resources.

Growing inefficiency

It wasn't a project devised only by Marxists and radicals. The 19th century American economist Henry George, defender of a benevolent capitalism, proposed the creation of high inheritance taxes to redistribute wealth. Meanwhile, a concept took hold everywhere that the fair and convenient thing to do was to create a ''progressive'' fiscal system that collected more from those who earned more.

This vision of the role of the state, of the whole of society and the role of the individual underwent a crisis in the late 20th century. Why? Because of the extremely high costs it implied and because it created a growing inefficiency in the public sector.

This translated into a huge loss of legitimacy among the political systems, a phenomenon that in Latin America turned into a source of instability and violence. The popularity of authoritarian leaders, such as Hugo Chávez of Venezuela and Alberto Fujimori of Peru was a sign of the region's general dissatisfaction with the poor results produced by the state. The people wanted a tough hand that would deliver the unattainable goods and services promised by legal documents and political speeches.

Today, it is well known that the road to the welfare state is no longer passable. The few available resources are squandered, frustration endangers the democratic system and opens the door to all kinds of adventurers and demagogues. At the same time, the welfare state fosters among people a harmful attitude of prostrate defenselessness: ``The state, not I, is responsible for my happiness. If I lack something, it's because someone has taken it away from me.''

It is against this cosmic vision that the voices rise seeking a resurgence of individual responsibility and a reduction of the state's perimeter. They expect that a revitalization of civil society and private-sector efforts will achieve the levels of prosperity that the public environment is unable to generate.

The real problem is not where the retirement funds come from but whether we admit or reject the moral premise that every able-bodied person should save to pay for his or her old-age expenses without having to depend on the solidarity of other wage earners. That's the true debate.

Personal contribution

Forty years ago, I started to teach at an American university that donated 5 percent of our wages to a collective retirement fund that prudently invested the proceeds in the stock market. The commitment called for a personal contribution of another 5 percent.

Four years later, I quit teaching and moved to Spain, but many of my colleagues remained at their posts and contributed to the investment fund until they reached retirement age.

The result? As an average, about $1 million awaited each at the end of the road. These people had assumed responsibly the costs of their Third Age and reached it with their own resources proudly in hand.

Nobody is going to convince me that that system is worse than the other.

Source: Firmas Press