Friday, July 5, 2013

What is social democracy?

Image: Beneficiaries of Finland's social democratic welfare state (source)

I'm working on a few pieces that I realize won't be accessible to those without a basic working knowledge of social policy.  So, this post is a primer on social policy basics.  If you know all of these terms (Christian democrat, social democrat, residual, means testing, universal), you should probably skip this post.  If not, read on!

There are four basic types of welfare states, which I will describe in generalities in this post, but will not critique.  For this post, I'm only interested in explaining the basics for those without a social policy background.  The terminology is a little confusing to Americans because social policy literature uses European terms.  Indeed, the term "social democracy" in the United States unfortunately bears no resemblance to European social democratic parties.  The American Social Democratic Party is actually socialist, not social democratic, and the Wikipedia page titled "Social Democracy" is about socialism, not social democracy.

Before beginning, it is important to note that these are broad generalizations.  The United States is a liberal country because the bulk of our social welfare policies are liberal.  But our beloved Social Security and Medicare programs are both social democratic policies; the WIC program is probably best described as Christian democratic.  Canada and Great Britain are liberal countries for the same reason, even though they have social democratic health care systems (and it's worth mentioning that health policy experts consider these systems below average compared to other universal health care systems).  France and Germany are classic examples of Christian democracies, yet both have social democratic health care and retirement systems.  Indeed, in recent years--as evidenced by its child care system--France has moved more towards social democratic model overall.  So--understand that these are broad generalizations, of which exceptions could easily fill a volume.  For our purposes, a "liberal" country is one whose welfare policies are usually liberal, etc.

Fascist countries are those governed by dictators; Spain was a dictatorship until the 1980's; Portugal and Greece were both dictatorships until the 1970's.  In a dictatorship, the force of military and police power keeps the interests of the ruling class above the interests of everyone else.  Everything from infant mortality to economic growth is sacrificed in order to enrich the ruling class.  Unsurprisingly, fascist countries have (for example), very high inequality, low life expectancy, high infant mortality, high unemployment, and low economic growth.

In the developed world, liberal (or Anglo-Saxon) countries are all English-speaking.  The term "liberal" is confusing to Americans, because these so-called "liberal" policies are actually very conservative.  Liberal political parties assume that the unfettered free market is fundamentally the most efficient, fairest economic system that exists.  The government should interfere as little as possible in the free market; if the government tries to intervene in the free market to "improve" things, such interference will almost always make things worse.  There may be a small percentage of cases where people are not able to meet their own needs, but fundamentally, the free market is adequate for the vast majority of people to meet their basic needs.  Thus, policies are strictly means tested and residual

The assumption that only a small percentage of defective people need government assistance creates an obvious stigma for accepting welfare benefits.  If policies assume that only people with something seriously wrong with them need benefits, non-beneficiaries will assume the worst about beneficiaries.  And, because the taxes of non-beneficiaries support the benefits of beneficiaries, a liberal welfare state inherently creates animosity between those who receive benefits and those who pay for them them.

The American program Temporary Assistance for Needy Families (TANF) is a perfect example of a liberal program.  It is means tested: families must demonstrate that they are extremely poor in order to qualify for benefits.  It is residual: it rests on the assumption that families can and should look to the free market to meet their basic needs, rather than rely on government assistance.  Families (in many cases, even single mothers with infants) are required to engage in some work activities in order to be eligible for benefits.  Government welfare is thus residual to the free market--it's just filling in a few gaps here and there.  Families don't really need TANF, they just need have the path to the labor market shown to them. 

The policies of Christian democratic parties are very similar to liberal ones, except that they are far more generous, and there is far less stigma associated with accepting government assistance.  Since so many people accept benefits, there is far less animosity between non-beneficiaries and beneficiaries.  Most central/western European countries are Christian democratic.

In the United States, the Republican party is best described as liberal; the Democratic party as Christian democratic.  Neither party really doubts that social welfare policies should be as deferential to the free market as possible--that is, they both believe that the free market is essentially fair to most people.  The Republicans would argue that nearly 100% of people can meet their basic needs in the free market; the number of people the government must step in to help out is very small.  Democrats would argue that the free market is fair to the vast majority of people, but that the Republicans greatly underestimate just how many people cannot meet their basic needs through the free market.  Again, this might not be true for your representative, but, if the R's and D's had to put out a consensus statement, it would probably look something like that.  The Affordable Care Act, or Obamacare, is probably best described as Christian democratic.  It provides generous subsidies for many people who do not have health insurance, leaves tens of millions uninsured through no fault or choice of their own, and, crucially, expects most people (up to 133% of the poverty line) to enroll in private insurance, preferably from their employer.

Finally, in social democratic countries, the government assumes responsibility for citizens' basic needs, like health care, child care, education, and retirement--for every citizen.  Programs are not social democratic if they are not universal--that is, everyone is eligible, no matter how rich or how poor.  For an example of a social democratic program, in Finland, all children have a legal right to child care.  Practically no family goes without child care.  It does not matter how rich or how poor a family is--all children are eligible for the same child care system.  All families--again, no matter how rich or how poor--are on government welfare.  Parents are charged user fees on a sliding scale, but the maximum fee is legally capped at 235 Euros per month, and poor families pay almost nothing.  All staff have college or graduate degrees in child care, so Finnish child care is among the highest quality in the world.  For another example, here is an amazing article comparing the American child care system to the French social democratic system, where all French day care centers have pediatricians and child psychologists available on staff.

It's important to note that social democracy is not socialism.  Social democracies are capitalist except for a few areas.  Social democrats believe that the free market works very well for most things, but for basic necessities--child care, disability, old age, health care, for example--the government can do a much better job than the free market.  In a socialist country, the government would control all markets, but social democratic governments only control certain markets--those related to basic well-being.  The scope is very limited.  And, it's also worth noting that social democratic policies aren't strictly socialist, either.  For example, in the United States, Social Security is a social democratic program for retirement, but people still save money for their retirement and have 401(k) plans or private pensions.  Medicare is a social democratic program for health insurance for those over the age of 65, but no one is stopping any of those people from purchasing additional, private insurance.  Of course, it's rare that American elderly actually do buy private health insurance, but they could if they wanted to.  Thus, since there is a private option, social democratic programs aren't socialist--they only provide a baseline to ensure that all can achieve their basic needs.

To repeat, social democracy is not socialism, since social democracy programs only cover a limited range of basic essentials (health care, child care, disability, retirement, etc), and the rest is left up to the free market.  A Finnish man might rely on government health care, child care, and retirement benefits, but he still has to find a private sector job (unless he's a government worker), find housing through the private sector, purchase consumer goods through the private market, etc.  And, social democracies allow individuals to pursue private options in addition to their public benefits.  None of this would be true in a socialist country.

Unsurprisingly, government spending on welfare in social democratic countries greatly exceeds that of liberal or Christian democratic countries, since all people are covered.

Though far bigger, social democratic programs are far more efficient.  The administrative costs of TANF, the American program described above, are legally capped at 15%.  That is, it is illegal for administration to cost more than 15% of the entire budget of TANF, and it almost always equals exactly 15%.  It's a huge, complicated program, and it really does require that level of administration.  Amazingly, that 15% figure does not include any information technology or computer systems; though this is administrative spending, it is not counted in that 15%.  That is a huge level of administration.

By contrast, the American Social Security program is a social democratic program.  It's administrative costs are less than 1%.

Why are social democratic policies so much more efficient than liberal or Christian democratic ones?  An apt analogy is the "girlfriend's laundry problem."  Imagine you are a clueless boyfriend who is doing your girlfriend's laundry, and the washing machine has just finished the first load.  The clothes now need to be dried--but which ones can be put in the dryer, and which ones need to be air dried out on the line?  If you screw up and put something synthetic or wool into the dryer, it will shrink and your girlfriend will have to throw it away.  As you pull every single item out of the washer, you must examine each and every individual the tag.  The tags might read: "WOOL: LINE DRY ONLY" "88% COTTON, 10% POLYESTER, 2% SPANDEX: TUMBLE DRY LOW, REMOVE PROMPTLY" "SHELL: 44% POLYESTER, 48% LYCRA, 8% SPANDEX. LINING: 100% POLYESTER: LINE DRY ONLY" "100% COTTON: TUMBLE DRY LOW WITH LIKE COLORS, REMOVE PROMPTLY" etc.  Is this sock wool or cotton?  Because if it's cotton, it needs to go in the dryer; if it's wool, it needs to go out on the line.  Uh-oh, this tag fell off, you better call your girlfriend to find out if it can be put in the dryer.  Before you know it, you've spent half an hour squinting at small tags to determine how to dry things.

But now imagine that your girlfriend only wears clothing that can be put in the dryer.  Now, your job is easy--everything can be shoveled from the washer to the dryer in one armful.  You're done in 30 seconds.  You turn on the dryer, and go back upstairs to watch more baseball.  When everyone is eligible for a program, very little effort is needed in administration.  Almost all the money can go to services.  But when only some people are eligible, it becomes a very costly, very time-consuming process to determine who is eligible for what.

Finally, many social democratic policies have the advantage of maximizing the potential of the entire workforce.  In the United States, for example, day care services are so expensive that they can be more expensive than one spouse's salary.  In this way, it is often more cost effective for one spouse to stay at home to watch children until they are old enough to start school than it is to work and have to pay for child care services that exceed the spouse's salary.  Doing so would be like paying to go to work.  Obviously, this is a massive inefficiency for the labor market.  Not only does the labor market lose out on the skills of this missing worker until his or her children start school, but this worker's skills deteriorate the longer he or she is away from work.  By guaranteeing all families child care services, social democracies ensure that no parents are ever in this situation, thus maximizing the potential of their entire workforce.  As we shall see in later posts, social democracies really do have far higher labor force participation rates, and this obviously makes for a stronger economy.

So!  That is a crash course in basic social policy.  Consider yourself informed.

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