Problems and Paradoxes in Economic and Social Policies of Modern Welfare States

Abstract

Relationships between economic growth rates and the expansion of welfare expenditures in Western nations are examined. The point is made that real gross national product grew rapidly from about 1959 until about 1973, but that since 1973 it has either grown slowly or not at all, while welfare expenditures and entitlements have continued to escalate. Forecasts of a variety of important economic variables in these countries for the near term are presented and discussed, and it is concluded that despite the current modest economic improvement, difficulties in funding welfare states will continue throughout the remainder of the 1980s. Some consideration is given to problems in welfare states to the end of the century, and further difficulties in funding and managing these states are forecast for this period as well. Problems of welfare states are not regarded as short-term by-products of maladjustments experienced in the Western world in the last 10 years but rather as long-term characteristics.

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References

1. Maurice Peston , “New Paths for Socio-Economic Policy,” in The Welfare State in Crisis (Paris: Organization for Economic Cooperation and Development, 1981), p. 94.

2. One example is J. Kendrick , “International Comparisons of Recent Productivity Trends,” in W. Fellner , ed., Essays in Contemporary Problems, Demand, Productivity, and Population, 1981-82 ed. (Washington, DC: American Enterprise Institute for Public Policy Research, 1981).

Organization for Economic Cooperation and Development (OECD) , Youth Unemployment: The Causes and Consequences (Paris: OECD, 1980); idem, The Challenge of Unemployment: A Report to Labor Ministers (Paris: OECD, 1982); idem, The Unemployment of Women in OECD Countries (Paris: OECD, 1984).

4. These and related issues are discussed in G. W. Nutter , Growth of Government in the West (Washington, DC: American Enterprise Institute for Public Policy Research, 1978).

and for France, F. Eymard-Duvernay , “Combien d'actifs d'ici l'an 2000?” Economie et statistique, vol. 115 (Oct. 1979).

6. OECD Economic Outlook, 33:56-57 (July 1983).

7. Assessments of total rates of return are open to technical objections because a firm's marginal expected internal rate of return is the key element in investment decision making. This is, of course, influenced in turn by expectations about the real interest rate, but both these rates are extremely difficult to calculate for an economy and one falls back on the more easily determined total rates. The determination of the real interest rate at some moment in time—in contrast to expectations concerning its future level—is itself a complex issue, as is another important decision variable, the after-tax, real interest rate. However one may respond to the technical and important problem of profitability measurement, all studies known to me have indicated that profitability, on balance, has worsened in the major economies since the early 1970s.

8. OECD Economic Outlook, 33:6 (July 1983).

9. See Christine Cumming , “Social Security in Germany and the United Kingdom,” Federal Reserve Bank of New York Quarterly Review, pp. 19-20 (Spring 1983).

10.

10. L. B. Krause , “Perspectives, the Crisis in the World Economy,” Brookings Review, p. 4 (Spring 1983).

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11. Ibid., p. 5.

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12. Structural deficits are the amount by which revenues would trail outlays even at levels of relatively low unemployment and are contrasted with cyclical deficits, which are caused by transitory influences such as recession conditions that tend to disappear as recoveries take hold.

13.

13. J. R. Capra , P. D. Skaperdas , and R. M. Kubarych , “Social Security: An Analysis of Its Problems,” Federal Reserve Bank of New York Quarterly Review, pp. 1-17 (Autumn 1982); Cumming, “Social Security in Germany”; and Klaus-Peter Koppelmann, “Intertemporal Income Distribution in the Statutory Pension Insurance of West Germany,” in Studies in Applied Economics and Statistics (Goettingen: van den Hoech and Ruprecht, 1979), 8:127-139.

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14. Max Weber , “Politik als Beruf” (Oct. 1919) in Gesammelte politische Schriften, 3rd rev. enlarged ed., ed. Johannes Wineklemann (Tübingen: J.C.B. Mohr [Paul Sieback], 1971), p. 560.