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I feel kinda like I’d like to comment on this because I kinda live in a country that’s more-or-less a Nordic welfare state (less so nowadays but still…) but I’m not sure if I have the energy right now…
Well, I will say that sadly at least Finland is going more right wing all the time nowadays. There’s some massive propaganda around against the welfare state and it bothers me. Also there are a ton of problems with the system but I kinda suspect most of them could be fixed by just not cutting funding for services. Not all problems but a lot at least.
But hey, remind me to talk about how higher education is free here and you get paid to study… I’m not kidding, that’s literally a thing here. Seriously, guys, the way some countries *coughusacough* treat their students is not okay. I keep telling people about the system here because I want you all to get angry and fight for your rights.
ANYWAY, I’d like to point out that Ha-Joon Chang, an economist in the Cambridge university, has made some really good points about how this model actually makes economical as well as moral sense.
Here are some quotes from his books (though mostly just one of them):
On the effects of “big government” on growth (emphasis mine):
A well-designed welfare state can actually encourage people to take chances with their jobs and be more, not less, open to changes. This is one reason why there is less demand for trade protectionism in Europe than in the US. Europeans know that, even if their industries shut down due to foreign competition, they will be able to protect their living standards (through unemployment benefits) and get re-trained for another job (with government subsidies), whereas Americans know that losing their current jobs may mean a huge fall in their living standards and may even be the end of their productive lives. This is why the European countries with the biggest welfare states, such as Sweden, Norway and Finland, were able to grow faster than, or at least as fast as, the US, even during the post-1990 ‘American renaissance’.
About Korean job market insecurity:
As in our Korean example, a lack of job security can lead youngsters to make conservative choices with their career, favouring secure jobs in medicine and law. This may be the right choice for them individually, but it leads to a misallocation of talents and this reduces economic efficiency and dynamism.
On the realities of being unemployed in the US and it’s effects on those still working:
Most US workers are unable to put up an organized resistance, but those who can – unionized workers – will, understandably, do everything they can to preserve their current job distribution.
Comparison to bankruptcy laws (different rules for corporations and people again) (emphasis mine):
As the above examples show, greater insecurity may make people work harder, but it makes them work harder in the wrong jobs. All those talented Korean youngsters who could be brilliant scientists and engineers are labouring over human anatomy. Many US workers who could – after appropriate retraining – be working in ‘sunrise’ industries (e.g., bio-engineering) are grimly holding on to their jobs in ‘sunset’ industries (e.g., automobiles), only delaying the inevitable.
The point of all the above examples is that when people know they will have a second (or third or even fourth) chance, they will be much more open to risk-taking when it comes to choosing their first job (as in the Korean example) or letting go of their existing jobs (as in the US–Europe comparison).
Do you find this logic strange? You shouldn’t. Because this is exactly the logic behind bankruptcy law, which most people accept as ‘obvious’.
Evidence (emphasis mine, also I cut a lot of the numbers to keep this short; if you want them, send me an ask or something):
Until the 1980’s, the US grew much more slowly than Europe despite the fact that it had a much smaller welfare state. For example, in 1980, public expenditure as a share of GDP was only 13.3 per cent in the US […] Despite this, between 1950 and 1987, the US grew more slowly than any European country. […] Obviously, the size of the welfare state is only one factor in determining a country’s economic performance, but this shows that a large welfare state is not incompatible with high growth.
Even since 1990, when the relative growth performance of the US has improved, some countries with large welfare states have grown faster. […]
The interesting thing, however, is that the two fastest-growing economies in the core OECD group during the post-1990 period are Finland (2.6 per cent) and Norway (2.5 per cent), both with a large welfare state. […] Sweden which has literally the largest welfare state in the world […], recorded a growth rate that was only a shade below the US rate. If you count only the 2000s (2000-8), the growth rates of Sweden (2.4 per cent) and Finland (2.8 per cent) were far superior to that of the US (1.8 per cent). Were the free-market economists right about the detrimental effects of the welfare state on work ethic and the incentives for wealth creation, this kind of thing should not happen.
The problems of welfare state and what kind of welfare is better (according to HJC) (emphasis mine, also I added a paragraph break for easier reading):
Of course, by all this I am not suggesting that the welfare state is necessarily good. Like all other institutions, it has its upsides and downsides. Especially if it is based on targeted, rather than universal, programmes (as in the US), it can stigmatize welfare recipients. The welfare state raises people’s ‘reservation wages’ and deters them from taking low-paying jobs with poor working conditions, although whether this is a bad thing is a matter of opinion (personally I think the existence of a large number of ‘working poor’, as in the US, is as much of a problem as the generally higher unemployment rates we see in Europe).
However, if it is well designed, with a view to giving workers a second chance, as it is in Scandinavian countries, it can encourage economic growth by making people be more open to changes and thus making industrial restructuring easier.
Also, from another chapter:
The best way to boost the economy is to redistribute wealth downward, as poorer people tend to spend a higher proportion of their income.
Also, competition is supposedly the basis of capitalism and competition is only possible if everybody can participate fairly (again, emphasis mine):
Equality of opportunity is not enough. Unless we create an environment where everyone is guaranteed some minimum capabilities through some guarantee of minimum income, education, and healthcare, we cannot say that we have fair competition. When some people have to run a 100 metre race with sandbags on their legs, the fact that no one is allowed to have a head start does not make the race fair. Equality of opportunity is absolutely necessary but not sufficient in building a genuinely fair and efficient society.
― Ha-Joon Chang, 23 Things They Don’t Tell You About Capitalism
And this quote is just wonderful (and relevant to the video’s point about people supposedly not having incentives to work):
why do we need to make the rich richer to make them work harder but make the poor poorer for the same purpose?
― Ha-Joon Chang, Economics: The User’s Guide
(Guys, seriously, read his books. At least 23 Things They Don’t Tell You About Capitalism. It’s very readable, even with minimal knowledge of economics and it offers some great rebuttals to conventional arguments in favour of the current ideals.
I’m sure there are other books like this around too but well, I happen to own this one so I tend to refer to it. I’m not an economist, btw, not even close. My background is one introductory course on economics and just reading some socialist theory, that’s it.)