Nov
12
By Paolo von Schirach
November 12, 2011
WASHINGTON – It is hard to put a positive spin on the “Club Med” crisis within the European Union. Indeed, all the Mediterranean and Southern countries –Portugal, Spain, Italy, Greece and Cyprus are in economic decline. Their mediocre political leadership has been incapable of countering this trend and equally inept at averting its financial consequences. The debt debacle is just the most visible manifestation of this decline.
Chinese official strongly criticized European system
That said, a sharp indictment of the European welfare system and labor laws, coming from China is somehow surprising, given the source: a socialist country that should have a positive bias in favor of social justice. Well, apparently it does not. Jin Liquin, Board Chairman of of the China Investment Corporation, a sovereign fund in charge of more than US $ 400 billion, apparently does not want his institution to get involved with any rescue plans for Greece, Italy or anybody else.
As reported in The Financial Times, Jin Liquin declared in an interview to Al Jazeera TV that:
“If you look at the troubles which have happened in European societies, this is purely because of the accumulated troubles of the worn-out welfare society. The labor laws induce sloth and indolence rather than hard work”.
This sounds like an indictment coming from free market thinkers
Now, this quite amazing, coming from China and not from a Wall Street banker. This blunt, unadorned statement is a powerful vindication of all the free market economists’ critiques of the modern welfare state. This is Friedrich von Hayek and Milton Friedman combined. Yes, we create a systemic problem when the welfare state is seen as a substitute for personal enterprise, when people think that it is possible and indeed right to get something for nothing.
Welfare programs are habit forming
When assistance is not about extraordinary help in an emergency, but it is instead provided as a matter of course, then entitlements for different classes of recipients become permanent and their cost keeps going up, while fewer people are engaged in productive activities. Once the habit has been formed, it is difficult to dislodge it. On the contrary, political leaders, in their constant desire to buy approval, allow unsustainable programs to carry on, borrowing whatever they cannot pay through current revenue. The result is large programs, unproductive societies and a high level of debt that eventually becomes unsustainable . And this is pretty much what happened in Southern Europe.
Chinese critic on target
So, Mr. Liquin is right on target. What is most surprising is that this sharp criticism is not coming from an anti-statist like Newt Gingrich or from Tea Party stalwarts who preach rugged self-reliance, along with low taxes . It comes from an official of a “socialist” country, someone theoretically embracing an ideology of equality and solidarity, which includes the objective of building a society in which all are taken care of.
Well, whatever may be happening in China these days, it is clear that the social bargain offered to the people does not include entitlements. Which is to say that not even a self-proclaimed socialist country approves a welfare system that objectively promotes sloth and indolence.
Well intended programs end up creating dependence
And this system is really the core problem in Europe and in some measure in America, as well. Welfare measures usually start with the sincere objective of helping those at the bottom. But inevitably these programs translate into some kind or another of income support. This way, instead of helping people to emerge from poverty, entitlements and subsidies make poverty or financial constraints more tolerable and thus permanent. People stay poor or semi-poor; but they do not starve. And yet they are not provided incentives, via training, education or other tools, to climb the social ladder and improve their circumstances so that they will not need welfare any longer.
In a related way, the intent to make life easier for seniors created enormous financial obligations for retirees in Europe and in the US that are no longer in line with the available fiscal resources.
The damage is psychological and financial
Deep down, as Mr. Liquin declared to Al Jazeera, the welfare state causes a corruption of values. Recipients are less motivated to take care of themselves. Indeed, the unintended consequence of well meaning welfare programs and overly protective labor laws is to make people “indolent” rather than productive. True.
But reform is out of the questions
And yet, any proposal aimed at reforming welfare programs is immediately attacked by the defenders of the system as mean spirited and as a way to wage war on the poor and the disadvantaged who suffer, while the “greedy 1%” according to the Occupy Wall Street Movement worldview, prosper just like feudal lords.
In the midst of the intellectual and moral confusion pervading the West as to what caused this huge mess, funny to have an official from a socialist country articulate a truth that many in the West are afraid of touching: out of control welfare corrupts and it is ultimately bad for both the recipients and the societies that distribute it. Out of control debt is only the most visible consequence.
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