Image: An old logo of the Social Democratic Party of Iceland. Traditionally, a red rose is the symbol of social democracy (source).
Table of contents:
- The cost of the welfare state
- Social policy basics
- In the aggregate, the United States spends as much on social welfare as the social democracies, but gets far less
- Whether poor, middle class, or rich, you're better off in social democracy
- Everyone in a social democracy has access to social welfare services that are of higher quality than those available to all but the richest Americans
- The American social welfare state is wasteful and inefficient; the social democratic model is lean and efficient
- The economy
- The social democracies have higher economic growth rates and lower unemployment rates
- In the social democracies, a higher percentage of working-age adults have jobs than in the United States
- The social democracies have fewer budget deficits, smaller budget deficits, and outperform the United States on other measures of fiscal responsibility
- Innovation and entrepreneurship is as good or better in the social democracies
- The social democratic model eliminates the work disincentives of the American social welfare system
- Social mobility
- Social democracy could work anywhere, from underdeveloped countries to the United States
- Social democracy has already proven effective in the United States through the Social Security and Medicare programs
- Social democracy could succeed at a state, city, or county level
- No, the Scandinavians aren't culturally superior to the rest of the world. Like anywhere else, Scandinavian history is filled with violence, division, strife, poverty, and hatred. Social democracy succeeded anyway. Social democracy has already succeeded in underdeveloped societies.
- Quality of life
Social policy basics
There are three basic models for social welfare systems in the developed world. For historical reasons, these are known as the liberal, Christian democratic, and social democratic models. The United States uses the liberal model, which, despite its name, is the most conservative model. In the liberal model, the government spends very little on social welfare and provides very few social welfare benefits and services for its citizens. What social welfare benefits or services that are provided are very narrowly targeted to the truly disadvantaged. The liberal model is most deferential to the private market; most people are expected to meet their social welfare needs through the private market, unless there is a physical reason why they cannot.
The American health insurance system is a great illustration of the philosophy behind the liberal model. Able-bodied adults are expected to work and obtain health insurance from their employer; it is thus very difficult in the United States for able-bodied, working-age adults to get government health insurance. However, all citizens over the age of 65 are automatically entitled to Medicare; in all 50 states and DC, it is easier for children to get Medicaid (through CHIP) than adults; and in nearly all states, work-limiting disabilities make people automatically eligible for Medicaid. The reason is simple: able-bodied adults can get a job that provides health insurance or pay their medical bills with their wages, whereas the children, the elderly, and the disabled are not expected to work.
How is this different from the social democratic model? Medicare is a familiar example of social democracy (Social Security and Medicare are the United States' two social democratic exceptions in an otherwise liberal welfare state). Medicare strongly resembles a social democratic program because of its philosophy of universality: everyone age 65 or older is automatically eligible. It doesn't matter if beneficiaries are rich or poor, disabled or not, employed, unemployed, or retired--it is universal. Of course, Medicare is not a true social democratic program; a true social democratic program would enroll everyone, not just those over the age of 65. But Medicare is a familiar example that illustrates the basic principles of social democracy: a universal, government-run program.
Social Security--the other social democratic program in the United States--is a universal government-run pension program: all workers and employers are automatically enrolled in the program. Whether rich and poor, blue collar, white collar, or professional, full time or part time--are all enrolled in the same program. As long as you are working or have had a job in the past, you are enrolled in Social Security.
In a social democracy, all government social welfare programs are universal. Imagine taking the strengths of Social Security and Medicare and extending them to the entire welfare state: that is the social democratic model. For example, in the United States, only poor children are eligible to apply for a free day care voucher from the Child Care and Development Fund, and foster or adoptive parents have access to special day care programs in some states. All other families must pay for day care services out of pocket, or go without day care services. But in the social democratic model, every single child is eligible for free or very low-cost day care services--whether they come from a rich family or a poor family; whether they are raised by a biological, adoptive, foster, or grandparent (etc); and whether or not their caretakers are working, unemployed, disabled, retired, etc. Liberal programs have many restrictions on eligibility; social democratic programs have no restrictions on eligibility.
Another hallmark of the social democratic model is very generous benefits and services. As we shall see below, government social welfare services (like day care services) in the social democracies are of uniformly higher quality than government or private sector social welfare services available in the United States.
The social democratic model includes these universal government benefits and services:
- Health insurance
- Day care services - Early childhood education to prepare young children for school--and safe supervision so their parents can work.
- Education (primary, secondary, and college/university)
- Unemployment Insurance - Ongoing cash benefits paid to laid off workers until they are able to find a new job
- Retirement pensions - Cash benefits for the elderly
- Survivor's pensions - Cash benefits for the dependents of deceased workers. These payments support grieving families who can no longer rely on their loved one's wages. Usually, survivor's benefits end when children turn 18.
- Disability insurance - Cash benefits for workers who are permanently disabled and no longer able to work
- Paid parental leave - Cash benefits for parents to stay home from work for several months so they can welcome a newborn infant or newly adopted child into their family.
- Paid extended sick leave - Workers who are temporarily too sick to work--for example, recovering from a major surgery--receive an ongoing cash benefit until they are well enough to return to their job
- Paid family leave - When someone becomes very sick or grievously injured and can no longer care for herself, the government pays a cash benefit for a relative to stay home and care for their ailing loved one. Often, this benefit is used for family members with dementia or who have suffered a severe stroke or serious injury.
- Long term care - For individuals with severe disabilities who require nursing home level of care (and are so sick they can no longer be cared for in their own homes by loved ones), the government pays for high quality long term care services for the final chapter of life
- A month of paid vacation time per year (paid by employers)
- A month of paid sick time per year (aside from extended leave benefits, paid by employers)
- Intensive job retraining or education ("active labor force management") to prepare laid off workers for their next job.
Of course, there is no free lunch, so providing so many generous social welfare benefits and services comes at a very steep price:
- High unemployment
- Massive spending on welfare crowds out private investment
- Low workforce participation rates
- Stagnant economic growth
- Low social mobility
- Distorted work incentives
- Low innovation
- Out of control budget deficits
Of course, we can talk all day about how great the social democratic model is, but this is entirely meaningless if social democratic policies could never work in the United States. It may be a powerful model, but it only works in certain countries and could never work in a country as large and diverse as the United States for several reasons:
- The social democratic model only exists in homogeneous societies; this model simply cannot work in a diverse country like the United States
- The social democratic model only exists in very small countries; this model could never be scaled up to a large country like the United States
- The social democratic model only exists in wealthy countries; this model simply cannot work in a country with high poverty rates like the United States, let alone any poor/developing country
- The social democratic model only exists in harmonious societies; the social democratic model simply cannot be imported into a country with the level of division and social strife of the United States
- The social democratic model only exists in egalitarian societies; the social democratic model cannot work in a country like the United States that has such a high level of inequality
Before continuing, however, I want to acknowledge a key point. The logic behind the liberal model makes a lot of sense. Why should the government provide health insurance for people who can get it through their employer? Why should the government provide day care services for rich families who can afford to buy those services themselves? Shouldn't the government be a safety net that only helps people who really need it? Isn't that the most efficient and effective use of tax dollars?
These are good points, and they make a lot of sense. But as we shall see below, the liberal model has many unintended consequences. Though it makes sense for government-provided social welfare to be a safety net for the needy only, in practice, this principle imposes tremendous financial and human costs on all society.
Each of the following sections is a summary of one or more pages I have written on this blog. For more information on a specific topic, follow the links within the sections.
The United States spends about as much on social welfare as the social democracies
The OECD keeps data on aggregate social welfare spending. Common knowledge holds that the social democracies spend more and get more. Common knowledge is wrong. The social democracies indeed get more and better social welfare benefits and services. But if we include private plus public spending on social welfare, we find that aggregate social welfare spending as a percentage of GDP is about the same in the social democracies as the United States:
(Red boxes mark the United States and the social democracies. Countries are ordered left to right by decreasing social welfare spending as a percentage of GDP, which is indicated by the orange diamonds.)
Think about how amazing this is. Despite spending about the same as a percentage of GDP, the social democracies are able to extend so many social welfare benefits to every single citizen:
Clearly, the American social welfare system--which depends on the private market to provide social welfare services--falls well short of the social democratic model. Indeed, this table does not take into account the generosity of services provided. Social welfare benefits are far more generous in the social democracies (for example, the 11% of American workers eligible through their employer for paid parental and family leave are only offered a few weeks, whereas all families in a social democracy are guaranteed a year or more), and services are of much higher quality.
A typical American family spends far more on taxes plus private sector social welfare as a typical family in a social democracy
As we saw above, in the aggregate, the social democracies spend about the same amount on social welfare as the United States, yet get far more. But is this true for individual households? After all, government social welfare programs are supported by taxes; might a typical citizen be better off financially with smaller government social welfare programs and correspondingly lower taxes? In other words, which system is more cost effective for a typical American family? The social democratic model, with high taxes and very low private social welfare spending, or the American model with low taxes and high private social welfare spending?
This table breaks down the tax and social welfare spending costs of a median income American family:
There is too much data in this table to summarize; more information can be found here. In brief, the left side of this table accounts for every dollar of labor costs for a median income American family: every dollar employers must pay to employ the workers in this family. And the right side is every dollar that is spent to meet the social welfare needs of this family (so some items are on both sides). This is a full accounting of this individual family's taxes and the cost of social welfare services--both public and private--that support them.
At first glance, we might see the high taxes of the social democracies and assume that the American model is more cost effective for a typical household. Clearly, however, when we account for private social welfare costs (like employer-sponsored health insurance and savings for retirement), the social democratic model is a much better deal for a typical American family:
This table compiles the costs of additional, common social welfare services in the United States, which American families must forgo or pay for out of pocket:
Clearly, median income American families would be far better off in a social democratic system--and this becomes obvious once we account for public and private social welfare costs.
Some might assume that rich families are better off in the American social welfare system. With higher incomes, rich families are indeed better able to afford the high cost of private social welfare services. But when I repeated this analysis for an American family at the 90th income percentile (in other words, a family that is richer than 90% of the rest of society), the social democratic model proves so efficient that even the rich are better off in social democracy.
In sum, it's not just low income Americans who would be better off in a social democratic welfare system, and it's not just the middle class who would be better off in a social democratic welfare system. No less than 90% of Americans would be better off in a social democratic welfare system.
Social welfare services are of higher quality in the social democracies
A side by side comparison of the quality of social welfare services in the United States versus the social democracies is stark.
In the United States:
“You know, when we walk into some of these places, they’re meeting the letter of the standards,” Lahmeyer says. “But it’s like a warehouse for children. You know it when, as the inspector, you are the most interesting thing the kids have seen all day. They attach themselves to you and are trying to engage because there’s nothing else going on for them.”
...On other occasions, the process of closing a day care can be torturous. Lahmeyer recalled one place that racked up repeated violations over two years before a judge would shut it down. “I can tell you there’s a fair number [of cases] that we lost because the judge decided, No child’s died yet, so they stay open,” Lahmeyer says...I asked [child care inspector] McGinnis how many of the area’s providers she’d trust with her own child. She answered promptly: “Twenty percent.”By contrast:
[Finnish k]indergartens must have at least one adult for every seven children over age three, for every four children under age three, or for every two one-year-olds...One out of every three adults working in kindergartens holds a bachelor’s degree as a certified kindergarten teacher (in effect, the lead teacher in each classroom). The other two adults must hold credentials as “licensed practical nurses,” a vocational degree that is roughly equivalent to a high school diploma with specialized education and training to work with young children...Kindergartens must adhere to the National Curriculum Guidelines for Early Childhood Education and Care in Finland—comprehensive standards for child care environments and activities that address the developmental needs of the whole child...(It's worth noting that Finland has a higher proportion of young children than the United States. Overall, the age structure of the United States lends itself more favorably to a large government welfare state than the social democracies.)
The social democracies seem to have pulled off an impossible feat. With about the same welfare spending as the United States, the social democracies have more social welfare services, extend those social welfare services to everyone, and have higher quality social welfare services. The American social welfare system provides worse services to far fewer people, yet costs about the same. The social democratic model sounds to good to be true, but it's not. The next section will explain how the efficiency of the social democratic model makes this possible.
(see also: comparison of parental leave policies; the American health care system; the American university system)
Unlike the social democracies, much welfare spending in the United States is lost to administration
As we've seen, the social democracies spend as much on social welfare as the United States at the aggregate level, yet every dollar they spend goes so much farther. This is possible because the social democratic model is the most cost-efficient way to deliver social welfare benefits and services.
In a three-part series (1, 2, 3), I outlined the sources of efficiency in the social democratic model. By not taking advantage of these sources of efficiency, the liberal model loses an extraordinary amount of money to administration. The liberal model is so inefficient that administration can cost a whopping 10 to 15 times more than a comparable social democratic program. You did not misread that--the liberal model is so inefficient that administration can cost not double, not triple, but 10 to 15 times as much as the social democratic model. In brief:
- Universal eligibility is very easy. It may seem like a good idea to restrict eligibility to the truly needy, but how do you figure out who is truly needy and who isn't? Often, this is the greatest source of administrative waste in the liberal model, which must hire legions of bureaucrats whose only job is to verify that applicants meet--and beneficiaries continue to meet--program eligibility criteria. If a program is universal, then there is no need to verify anyone's eligibility (or even have an application process), resulting in enormous administrative cost savings.
- Social welfare providers can take advantage of economies of scale. For example, a private health insurer with 200,000 enrollees can negotiate lower prices for prescription drugs than a health insurer with 100,000 enrollees. By enrolling more people--and therefore representing more business for a drug company--a larger insurer can negotiate lower prescription drug prices than a smaller insurer. When a social democratic program enrolls an entire country, the cost savings from economies of scale can be maximized. Obviously, a government health insurance program that enrolled the entire United States--over 330 million people--would have enormous bargaining power and could save enormous sums of money through economies of scale.
- There are no wasteful advertising costs for social democratic social welfare services, because there is no competition and thus no need for advertising. When was the last time you heard a radio or TV advertisement for Social Security?
- The American health care system is the most inefficient in the world; over thirty cents of every dollar spent on health care is lost to administration (by contrast, Taiwan's social democratic/single payer health care system loses just over one penny to administration (1.07%) for every dollar of health care spending). The issue of prices is a major source of administrative complexity that leads to this enormous administrative waste. To see how, imagine a hospital that has ten patients who need the same blood test. The hospital will likely receive a different payment for each blood test. Each insurer pays a different price, and even if some of the ten patients have the same insurer, these patients might have different plans with the same insurer: one patient might have no deductible but owe a copay; another patient might have reached their deductible and owe nothing; another might have reached their deductible but are now subject to 30% coinsurance; another might might have a separate deductible for laboratory services; etc. Sorting out this extraordinary complexity does not occur for free; this is where much of the administrative waste of the American health care system stems from. By contrast, in the social democratic model, there is one single set of prices, specified by law, and simple cost sharing mechanisms. This eliminates much of the administrative waste of the American model.
- The repetitive negotiation of prices is a wasteful, redundant exercise. For example, in the American private market for health care, each individual insurer must negotiate the price for every type of office visit and procedure with each individual health system they contract with. This repeated, redundant negotiation of prices is a wasteful and unnecessary cost that is completely eliminated by social democratic programs.
- For social welfare, more enrollees is always better. It is cheaper per person to insure 1 million people than it is to insure 750,000 people. In technical terms, this is known as the actuarial value: the actuarial value of each enrollee falls as more and more people are enrolled. By enrolling every individual in the entire country, the per-enrollee actuarial value is reduced as low as it possibly can. This results in tremendous cost savings for the social democratic model.
Image: The flag of the Social Democratic Party of Korea (source)
Before starting on economic indicators, I need to explain why I mostly use economic data through the 1990's.
In 2002, much of Europe adopted the Eurodollar as their currency, giving dozens of European countries a common currency. Through the magic of exchange rates, this has brought prosperity to the "core" countries (Germany and Finland in particular) at the expense of the "periphery" countries like Greece, Portugal, and Spain. The catastrophic depressions of Greece, Spain, and Portugal enables the prosperity of Germany and Finland. Because so many European countries' economic prosperity or immiseration is determined by their situation vis-a-vis the common Eurodollar currency, it makes little sense to compare their economic fortunes; after all, the welfare state did not choose to join the Eurodollar. Those interested in further reading on this issue can indulge themselves here, here, and here.
For this reason, I (mostly) limit comparisons of economic indicators to before the adoption of the Euro dollar.
The social democracies have had higher economic growth and lower unemployment rates
A common argument holds that large social welfare programs are bad for the economy. Certainly there must be some drag on the economy when government welfare programs consume 40% of GDP. It would be great to have all of these welfare services for everyone, but huge government programs are a drag on the economy, resulting in lost jobs, which does more harm than good.
But this common sense is simply not true. For this table, the authors grouped countries according to the three types of welfare states in the Western developed countries--liberal, Christian democrat, or social democrat--and compiled economic growth and unemployment rates (click for larger graph):
As a group, the social democracies outperform the Christian democratic and liberal groups in economic growth and unemployment rates, but it's probably safe to say that there is no real relationship between a welfare state and economic performance.
Sweden, Finland, and Norway experienced banking crises in the early 1990's more or less identical to the banking crisis of 2008-2009 that ushered in the Great Recession in the United States; hence, Sweden, Finland and Norway had very high unemployment rates in the early 1990's. Obviously, a welfare state doesn't deregulate banks; the welfare state should not be held responsible for the folly of overzealous investment bankers, whether Nordic or American.
It's surely safe to say that there is no relationship between the size or type of welfare state and economic indicators. However, Matt Bruenig offers a different take based on hours worked:
Clearly, there is nothing to lose by embracing social democratic welfare policies.
Here is a more recent comparison of the United States versus the social democracies for unemployment:
Incredibly, for the duration of the Great Recession, Norway's unemployment rate never exceeded 4% and Austria's unemployment rate stayed below 5%; by contrast, the unemployment rate of the United States rose nearly to 10%. Even if we only consider the non-Eurodollar social democracies (Denmark, Norway, Sweden, and Iceland), it's impossible to argue that the American economic system inherently creates better economic growth or employment outcomes than the social democracies--whether today or the decades following World War II.
No, everyone will not stop working: the social democracies have higher labor force participation rates
The measure of unemployment has some important limitations: you are only counted as unemployed if you are actively looking for work. If you are lounging around idle, treating your country's safety net like it's a hammock, you won't be counted as unemployed. Most Americans assume this type of sloth occurs frequently in countries with generous welfare states.
This is why the labor force participation rate is an important partner for unemployment statistics. The labor force participation rate is the percentage of working age adults (18-64) who have jobs; unlike the unemployment rate, it doesn't ignore people who do not have a job and are not looking for a job. If it's really the case that there is widespread abuse of the social welfare system, the social democracies should have far lower labor force participation rates than the United States:
The United States does not compare favorably in labor force participation rates. Since the 1970's, the United States has had lower labor force participation rates than most of the social democracies; since 2008, we have had lower labor force participation rates than all of the social democracies.
It simply cannot be that the social democratic welfare state causes sloth; why have the social democracies had higher labor force participation rates than the United States for decades?
The social democracies have been more fiscally responsible
Another common argument holds that high government spending necessarily leads to out of control budget deficits. Again, this is not true. The United States' budget deficits were 7% of GDP in 2012 (after being 10.1% in 2009 at the height of the Great Recession), while Denmark's were 4%, Austria's were 3.1%; Finland's were 2.1%; Iceland, 1.9%; Sweden, 0.3%; and Norway actually ran a surplus of 13.8%. And if we look at more historical data, the social democracies have been extremely fiscally responsible, turning in far more balanced budgets than the United States:
Remember, Sweden, Norway, and Finland had an extra recession in the early 1990's that the rest of the world (including the United States) did not have. Despite having an extra recession (which was far more severe than the Great Recession), the social democracies have been remarkably fiscally responsible.
To get a better historical picture of the size of government deficits--rather than number of years of deficits--we can also compare government financial net worth (government assets minus liabilities). Here is a graph with data for 2007, 2009, 2013, and 2014 (before, during, and after the Great Recession):
In short, there is simply no evidence that a generous welfare state inevitably leads to budget deficits--whether we look at the size government deficits, number of years with budget deficits, or government financial net worth.
Finally, not only do the social democracies have fewer budget deficits, but investors have enormous confidence in the social democracies' ability to remain fiscally responsible. The social democracies continue to have low borrowing costs, despite their enormous welfare states. International bond investors believe the social democracies will remain fiscally responsible in the long term--because even in times of economic crisis, the social democracies have been able to run balanced budgets.
And that's because...
(Note: I consider the fiscal responsibility of the American Social Security program here)
Social democratic programs are so popular that even Tea Partiers support them
Taxes and welfare are really popular in Scandinavia. A recent poll found that--when offered better welfare services or lower taxes--Swedes overwhelmingly reject tax cuts:
[A 2012] survey shows that 80 percent of the population thinks the municipal and regional governments should increase the quality of childcare, while only 15 percent think that taxes should be lowered instead. Furthermore, 93 percent believe that the local governments should increase care for the elderly, while only 5 percent favor lowering taxes. Similarly, 91 percent prefer increasing the quality of healthcare rather than lowering taxes.These statistics are incredible; 80 to 90% of Swedes would rather have better social welfare services than lower taxes. Clearly, across the Swedish political spectrum, from the radical left, to the free market center-right, to the ultra right wing, social democracy is extremely popular.
By contrast, is there anything that 80%+ of Americans agree on? Actually, there is--and it's also social democracy. The two social democratic programs of the United States--Social Security and Medicare--also have broad popular support across the political spectrum:
The “revolutionary” rhetoric of the Tea Party has led some commentators to pigeonhole it as reflexively anti-government, but the concerns of grassroots Tea Partiers about representation should not be confused with blanket opposition to all federal social programs. Tea Party activists hold positive views about the government entitlement programs from which they personally benefit—including Social Security and Medicare, and also other entitlement programs they have used...Others referred to having relied on unemployment insurance after losing their jobs, or expecting to rely on Social Security in the future. These results are in accordance with the CBS News/New York Times poll of Tea Party activists, which found that about half of Tea Partiers say someone in their household receives Medicare or Social Security benefits, and that most Tea Party supporters believe these programs are “worth the costs . . . for taxpayers.” (45) As Massachusetts respondent Nancy puts it: “I’ve been working since I was 16 years old, and I do feel like I should some day reap the benefit [of Social Security Retirement benefits]. I’m not looking for a handout, I’m looking for a pay out for what I’ve paid into."[Social Security includes several programs. Most people do not think of Unemployment Insurance as a Social Security program. In UI, a portion of each paycheck is deducted to support the UI program, and when a worker becomes unemployed, she can collect cash benefits. This is designed to help people make ends meet until they can find their next job. This is a universal, social democratic program; whether they know it or not, every single American worker is automatically enrolled in UI.]
That CBS News/New York Times poll found of active Tea Party activists:
And while the vast majority opposes the health care reform bill, 62 percent say programs like Social Security and Medicare are worth the costs to taxpayers. (The figure is even higher among Americans overall, at 76 percent.)Similarly, a 2011 poll found that a whopping 76% of Tea Partiers opposed cuts to Social Security and Medicare.
Thus, according to survey data, somewhere between two-thirds and three-quarters of Tea Partiers--for all practical purposes, the far right of American politics--support Social Security and Medicare. It turns out that huge majorities of Americans are already in favor of social democracy.
How--in a country with so much division--can Social Security and Medicare be so popular? Social Security and Medicare are popular because they are effective, beneficial programs that are universal. When social welfare programs are effective and universal, they become immensely popular across the political spectrum, center, right, and left. People do not like cuts programs that they and their loved ones benefit from. That is why Medicare and Social Security are so popular: everyone benefits from them, so no one dislikes them.
By demanding universal eligibility and generous benefits, the social democratic model is always popular--and clearly, that's true everywhere from the social democracies to the United States. Voters support high quality, cost effective government programs that benefit them and the people they love; with universal eligibility comes universal popularity.
This inherent popularity of social democracy leads to three important outcomes. First, this popularity explains the responsible budgeting of the social democracies. If politicians don't properly fund popular programs, they will be fired by their voters. Second--and closely related--social democratic programs are extremely durable. It may be a tremendous challenge to get these programs passed, but once implemented, they quickly win over the vast majority of voters and prove extremely resistant to budgetary cuts--far more so than liberal or Christian democratic welfare programs. Again, politicians rarely risk cutting popular programs. Despite being the largest government program, Social Security survived the entire Great Recession without any budget cuts; with the sequester beginning in 2013, literally every other government program--from national parks to NASA--experienced budget cuts. Medicare was cut by the sequester, but even then, it's popularity protected it from deeper cuts: by law, cuts to Medicaid cannot exceed 2% and can only affect provider reimbursements. Congress was worried about the backlash if every senior in the country saw their Medicare premiums increase and so (wisely) limited sequestration cuts to provider reimbursement. No Medicare enrollees will ever see effects of those cuts, which only directly effect hospitals and clinics. These cuts cannot be passed along to seniors because enrollee cost sharing is specified by Medicare; the worst that could happen is a senior's preferred clinic decided it was no longer accepting Medicare. Clearly, even American politicians exercise great caution when cutting social democratic programs.
Finally--and somewhat paradoxically--universal services are actually the best programs for the poor, for three reasons. First, as we've already seen, social democratic programs are extremely resistant to budgetary cuts. Programs that are only for the poor benefit very few people and are thus unpopular. This unpopularity can lead to rare moments of bipartisanship, such as in 2014 when Republicans and Democrats argued not over whether to cut food stamps, but how many billions of dollars to cut from food stamps. Rather than protect food stamps, the Democrats proposed $4 billion in cuts while the Republicans proposed $20 billion in cuts; they compromised on $8 billion in cuts and President Obama signed these cuts into law. As we've seen above, these deep cuts don't happen to Medicare and Social Security. Even if Americans approved of food stamps as much as Social Security, it's hard to mobilize voters against cuts that don't directly affect them. Generous antipoverty programs for the poor in times of budget deficits may be the right thing to do, but it is a heavy lift politically; by contrast, social democratic programs are extremely popular across the political spectrum--and thus very difficult for politicians to cut even in times of budget deficits.
Second--and closely related--when services are universal, service quality remains high. Everyone has the incentive to maintain high service quality. For liberal services--that only the poor are eligible for--there is little political appetite to ensure these programs remain high quality. And finally--as we've seen throughout this page (see especially the sections on poverty and distorted incentives), social democratic programs have a better track record of reducing poverty than liberal antipoverty programs anyway. Social Security alone lifts 22 million elders out of poverty, thus reducing elder poverty by 71%; it also reduces poverty of the disabled by more than 50%.
In short, even the far right loves social democracy and is willing to pay higher taxes to support it. The key is universality: nobody wants to pay for services they don't use, so liberal programs always pit the poor against the rest of society society. This makes for a very messy, divisive political system. It doesn't have to be that way, and social democracy is the answer.
Social democracy drives innovation and entrepreneurship
A common argument holds that the economic security guaranteed through high social welfare spending leads to a dulling of the incentives that drive our economy forward. If people don't have to worry about their basic needs, they won't have the incentive to work hard or bring new ideas to the market. Thus, the cost of social welfare is economic progress; the social democracies can only exist by leaching off the innovation of liberal countries like the United States.
This logic is entirely backwards, however. Social welfare programs designed according to the social democratic model encourage innovation and entrepreneurship:
In another paper, Olds looked at the creation of the Children’s Health Insurance Program (CHIP), which offers publicly funded health insurance for kids whose families don’t qualify for Medicaid. By comparing the rate of entrepreneurship of those who just barely qualified for CHIP to those whose incomes just barely exceeded the cutoff, he was able to estimate the program’s impact on new business creation. The rate of incorporated business ownership for those eligible households just below the cutoff was 31 percent greater than for similarly situated families that could not rely on CHIP to care for their children if they needed it...
A 2010 study by RAND found a similar effect with Medicare. American men were more likely to start a business just after turning 65 and qualifying for Medicare than just before. Here again, government can make entrepreneurship more appealing by making it less risky...
Take food stamps. Conservatives have long argued that they breed dependence on government. In a 2014 paper, Olds examined the link between entrepreneurship and food stamps, and found that the expansion of the program in some states in the early 2000s increased the chance that newly eligible households would own an incorporated business by 16 percent. (Incorporated firms are a better proxy for job-creating startups than unincorporated ones.)
Interestingly, most of these new entrepreneurs didn’t actually enroll in the food stamp program. It seems that expanding the availability of food stamps increased business formation by making it less risky for entrepreneurs to strike out on their own. Simply knowing that they could fall back on food stamps if their venture failed was enough to make them more likely to take risks...As we've seen above, the social democracies have had very strong economic performance. It simply cannot be that social democratic welfare state reduces work incentives, innovation, or economic progress. Indeed, there's no evidence that the social democracies have less innovation than the liberal countries ("on a per-capita basis, Stockholm is the second most prolific tech hub globally, with 6.3 billion-dollar companies per million people compared to Silicon Valley with 6.9"). The social democracies spend about the same as a percentage of GDP on research and development as the United States:
And the social democracies have more science and engineering personnel per capita than the United States:
Furthermore, as a group, the social democracies do even better on these measures than the other developed world countries with liberal welfare states (Canada, Australia, Great Britain, and New Zealand).
Likewise, the social democracies have a higher rate of new company creation than the United States:
And the social democracies also have a greater share of venture capital investments as a percentage of GDP:
Clearly, the evidence does not support the common assumption that social democracy hinders innovation and entrepreneurship.
In the popular imagination, the social democratic model discourages work (not true, as seen above) while the liberal model encourages work. However, in certain cases the liberal model actually discourages work due to severe distortion of incentives.
To see how, let's assume your state offers Medicaid to all families whose incomes are below the poverty line. You and your spouse were only able to find part time jobs, and since the two of you work so few hours, your household income is exactly at the poverty line. Your family is just barely eligible for Medicaid.
Suddenly, your boss offers you an additional shift each week. You'd love to take this extra shift--your family lives paycheck to paycheck and could certainly use the money--but if you do, your family's income will rise above the poverty line and everyone in your family will become ineligible for Medicaid (or your child care voucher, etc). Even with Food Stamps, you sometimes can't afford to put food on the table, so you desperately want to work this extra shift--but you can't because your family can't afford to go without health insurance.
Due to the poor design of liberal welfare programs--a design that almost seems designed to keep people impoverished--this scenario occurs frequently. People are prevented from making decisions that would improve their lives and strengthen society because the value of the benefits lost exceed the value of additional wages earned.
Obviously, social democracy solves this problem by making benefits universal. In a social democracy, you could take the additional shift because you will always be eligible for public health insurance. Work as hard as you like; take as many extra shifts as you like; you will never lose your benefits.
A similar argument holds that because social democracy limits peoples' incentives to work hard and create new ideas (as we've seen, not true), it also lowers social mobility--meaning poor children are less likely to grow up to become rich adults. Supposedly, this is very important because it demonstrates that poor families have too little incentive to work hard. (Obviously, this cannot be true--we've already seen that the social democracies have higher labor force participation rates than the United States.)
Measuring social mobility is fraught with difficulty, both technically and theoretically (eg), so I won't spend too much time on this topic; nevertheless, the research on social mobility either finds that the social democracies have higher mobility than the United States or is inconclusive. A meta study examined the available evidence:
Clearly, the social democracies have no less social mobility than the United States.
Matt Bruenig uses a different approach to argue that social mobility is pretty terrible in the United States:
So, you are 2.5x more likely to be a rich adult if you were born rich and never bothered to go to college than if you were born poor and, against all odds, went to college and graduated. The disparity in the outcomes of rich and poor kids persists, not only when you control for college attainment, but even when you compare non-degreed rich kids to degreed poor kids!In sum, there is no evidence that social democracy negatively affects economic performance.
Image: The logo of the now-defunct Co-operative Commonwealth Federation, a Canadian social democratic party (source). CCF had its greatest success in Saskatchewan, where it took control of the provincial government in 1944 and implemented a single payer health system in 1947. Owing to its success, this single payer system was eventually adopted by the entire country.
Yes, social democracy can scale up
A common argument against social democratic programs relates to size. The argument is that social democracy is only practical in a small, Scandinavian-sized country. Sweden, the largest Scandinavian country, has only 10 million people, or about the population of Ohio. Obviously, a nation of 50 states full of over 300 million people simply cannot adapt the social democratic model. It's simply too many people.
This is incorrect, for two reasons. First--as we saw in the above section on administration--the social democratic model becomes stronger with increasing size, not weaker. If social democracy is an effective model for a nation of 10 million, it is only more effective for a nation of 300 million.
Thus, the opposite concern is really true; it's amazing that a nation as small as Iceland (population: 320,000) is able to successfully use the social democratic model. Clearly, social democracy could be adapted by any country, state, or mid-sized city/county.
Second--and more fundamentally--social democracy already works in the United States. Both Social Security and Medicare are social democratic programs that work extremely well in our nation of 330 million. There is no reason we could not add additional social democratic programs, given the record of success of our existing social democratic programs.
As we've seen above, the social democratic model is extremely efficient. This efficiency translates to small bureaucracies needed to manage them, and Medicare is a perfect example. The Centers for Medicare and Medicaid Services (CMS) is the federal entity tasked with managing Medicare, but CMS also has a host of additional responsibilities. CMS is also responsible for the administration of Medicaid, HIPAA privacy laws, parts of Obamacare, clinical laboratory standards, long term care facility standards, and the Children's Health Insurance Program (CHIP). The scope of CMS's responsibilities is tremendous; in all, 100 million Americans are covered by a CMS-administered health insurance program (Medicare, Medicaid, and CHIP). Despite enrolling such a massive number of people--nearly a third of the entire United States, or ten times the population of Sweden--and despite its other numerous responsibilities, CMS only employs 4000 people--far less than American private health insurers as a whole. Clearly--with such small bureaucracies--social democracy scales up easily, is extremely adaptable, and is thus very practical for a large country like the United States.
This is not an aberration. Comparative studies of social welfare systems find that the administration of social democratic programs--like universal child care services, universal parental and sick leave benefits, etc--is extremely lean and efficient like CMS. The extremely efficient, adaptable social democratic model has proven itself successful in populations large (over 300 million) and small (around 300 thousand).
Local social democracy is a great idea
A parallel concern is that an individual American state, county, or city could not support a universal social welfare program, as people would migrate to that state to abuse the welfare system.
"Abuse" is one word, but "take advantage of" might be better. Why would a state not want to be an attractive place for people to live, leading to an influx of valuable workers and human capital?
The state of Kerala in India has been a thriving social democracy for decades, despite the fact that it has no ability to restrict immigration from other Indian states. And--as we shall see below--Sweden has a higher percentage of immigrants from underdeveloped countries than much of the rest of the developed world, and this has not necessitated a reversal of welfare spending.
Investing in people is always a good idea. And since social democracy becomes more efficient with more people, the more the better.
No, the Scandinavians aren't inherently superior to the rest of the world
Image: Under the Yoke (Eero Jarnefelt, 1893) captures some of the poverty and oppression of Finnish history that is often willfully overlooked (source)
Many argue that Scandinavian culture or the Scandinavians themselves are inherently superior to the rest of the world, and that's why they can make social democracy work. Social democracy can't work anywhere else, because no one else has this je ne sais quoi.
Look past these hand-wavy, evidence-free assertions, and you are sure to find ignorance or racism. Scandinavian history and society aren't the exaggerations we imagine them to be. When people argue that Scandinavian societies are inherently superior, they are really reacting with revulsion to the non-white diversity of their own society, longing for a minority-free utopian world that never existed.
I wrote a four-part series on this idea in 2014. Part 1 focuses on the history of Finland, which suffered seven centuries of oppression as a vassal first of Russia, then of Sweden; between occupations, Finland served as the stage for a destructive war between Russia and Sweden. There were also two major famines that separately killed a first a third, then 15% of the entire population. Clearly, Finnish history is not the exaggeration we imagine; it is full of violence, oppression, and hardship.
Neither has Finland been a particularly harmonious place, either. The Finnish Social Democrats first took the reigns of government in 1926, less than a decade following the short but brutal civil war of 1917, where the "Whites" waged a terrible campaign of political terrorism against the social democrats. Ultimately, 1% of the Finnish population died in this short war (by comparison, 2% of the population of the United States died in the gruesome four-years-long American Civil War). And so much Finnish infrastructure and property was destroyed that it took the economy nearly a decade to recover.
During World War II, Finland was conquered and partially occupied by the Soviet Union, and ultimately had to secede 15% of its landmass (which held 20% of its economic capacity) and pay war reparations to the Soviet Union after the war. About 3% of the Finnish population died in that conflict and another 13% became refugees. Yet despite the massive death, destruction, and displacement, the Finnish supported their welfare state before, during, and after World War II. Clearly, a prosperous and harmonious society is not a prerequisite for social democracy--not if social democracy can grow out of Finland's impoverished, bloody, and bitterly divided history, then survive World War II. Scandinavian society cannot be superior; their history is full of violence, division, cruelty, and strife like every other country. Social democracy does not need a peaceful, harmonious society in order to succeed. It can succeed anywhere.
Part 2 focuses on the contention that social democracy can only succeed in a racially, culturally, or ethnically homogeneous society by focusing on the experiences of Sweden and Kerala, India. By most measures, Sweden ranks as one of the most diverse nations in Europe, more diverse than France, the UK, and Germany. While some in the United States justify a frayed welfare state with its supposed unparalleled diversity, Sweden supports a strong welfare state despite having a higher percentage of foreign-born residents than the United States. An earlier post highlights the diversity of Kerala, India, to further support the idea that homogeneity is not a prerequisite for social democracy.
Part 3 again focuses on Finland. Today, Finland has one of the lowest infant mortality rates in the entire world. However, when the Social Democrats first rose to power in Finland, the infant mortality rate was nearly 1 in 10; today, that would place Finland with the eleventh highest infant mortality rate in the entire world. Moreover, the policies that reduced the Finnish infant mortality rate from among the highest in the world to among the lowest in the world were initially resisted by much of the Finnish population. Clearly, a superior society would not have fought against a policy that saved so many lives; a superior society would have embraced these policies wholeheartedly. That the Finnish were initially resistant to social democratic policy demonstrates that Scandinavian society isn't superior; social democracy can work anywhere.
Most importantly, when we assume that social democracy can only exist in a society that is already prosperous and harmonious, we rule out the most effective development policies in the areas of the world that need them most. For example, the Indian state Kerala has been a thriving social democracy for decades. Their achievements in development are as astonishing as Finland's:
Decades ago, Kerala's quality of life indicators were approximately average or lower compared to the rest of India. At one point, the state of Kerala had the highest poverty rate in all of India; from the 1970's to the end of the 1990's, poverty fell by half. In 1999, Kerala's literacy rate--easily the highest in India--was 90.6%, compared to India's national literacy rate of 52.1%. In 1999, Kerala had twice the national average of science and technology personnel per capita, easily making Kerala the Indian state with greatest human capital. Kerala easily has the highest per capita college and university enrollment of any Indian state. Keralan infant mortality, the lowest in India, was 13 per 1000 compared to the overall Indian infant mortality rate of 73 per 1000 live births in 1999. Kerala went from having a life expectancy of 29.5 in 1947--approximately the Indian average--to a 1999 life expectancy of 71, a full nine years longer than the national Indian life expectancy. Kerala has long had the longest life expectancy and lowest infant mortality rate of all states in India (it still does). In years past, Kerala suffered from large health disparities; now--unlike the rest of India--health disparities across gender, ethnic, regional, and city/rural lines have basically vanished. In all, Keralan quality of life indicators...are indistinguishable [today from the developed world] and still years ahead of the rest of India.Astonishingly, Kerala's per capital income is just 10% that of Brazil. You did not misread that; despite having 90% lower per capita income compared to Brazil, Kerala has used the social democratic model to make phenomenal gains in quality of life.
Kerala also has large minority groups (Christian, 21%; Muslim, 18%). Clearly, social democracy does not need a homogeneous, rich society to succeed. The social democratic model should be used to replicate the successes of Finland and Kerala in the developing world, but this will never happen if we wrongly assume the model cannot work in diverse or underdeveloped societies.
Part 4 compared basic financial and quality of life indicators of the American city with the highest poverty rate--Detroit--with that of Finland in the 1930's, when the social democrats first rose to power. Despite the unconscionable poverty of Detroit, Detroit has far more wealth and better quality of life indicators than 1930's Finland. If Finland can turn itself around to eventually lead the world in quality of life, so, too, can Detroit. So, too, can anyone.
Image: A 1900 campaign pin of the American Social Democratic Party (source)
It's a neoliberal world, so I had to lead with economic indicators and measures of efficiency. Now, let's talk about the actual important stuff--making people's lives better.
Social democracies do not undervalue women
International rankings always place the social democracies among the most gender equal countries in the world, based on indicators such as female labor force participation rates and number of female representatives in government. This isn't reversing causality; social democratic programs help foster an egalitarian environment. When society expects women--but not men--to take on caregiving roles for young children and elderly or disabled relatives, their position in society--occupationally, educationally, at home--is diminished.
Research has consistently shown that employers in the United States pass over women for promotions out of concern that they will leave their job to care for children (even if a woman isn't married and doesn't have any children). Better to promote a man; men don't leave their jobs to care for their children. That's women's work.
A parallel concern is care for elderly or disabled family members. Society expects women to give up work to care for elderly or disabled family members, but men are not expected to do so. These expectations unfairly diminish the occupational success and opportunities of women.
A giant step towards solving these problems can be made through social democratic policies. With paid parental leave for both men and women, men and women alike can be expected to take time off following the birth of a child, thus diminishing the incentive to pass women over for promotions. Universal, affordable child care ensures that women can work even if they have young children at home. By contrast, many women in the United States are forced to leave their jobs until their children are old enough to start school because the cost of child care exceeds their wages. Aside from the obvious unfairness, failing to guarantee child care for all children wastes an extraordinary amount of talent and skill in our workforce.
Similarly, generous universal family leave benefits as well as universal long term care services ensure a more fair distribution of care for disabled family members who can no longer care for themselves. All this helps to foster an environment where men and women have equal opportunities. Alone, these changes cannot ensure gender equality. But without these universal services in place, it is difficult to see how gender equality can be achieved.
By creating universal parental leave, universal child care, and universal long term care systems, caregiving responsibilities are shifted off the shoulders of society's female members and shared more equitably. Women don't have to turn down educational or occupational opportunities due to the caregiving responsibilities that society absolves men of. With social democratic welfare programs, women of all income levels can have greater opportunity to succeed in all areas of life.
Comparing poverty between countries is somewhat difficult. However, it is indisputable that poverty in the social democracies is far lower than in the United States, no matter how poverty is measured. This should not be surprising.
It's important to remember that poverty rates do not include welfare benefits. The poor in the social democracies benefit from universal health care, universal child care, free college/university tuition, paid vacation, paid sick time, etc; the American poor might be eligible for Medicaid or child care vouchers in blue states, but certainly won't be getting free college tuition or paid vacation. By not counting the value of welfare benefits, these statistics are informative but nonetheless of limited use.
Historically, the social democratic model has been the most successful at abolishing poverty:
The Palma ratio is a better measure of inequality than the Gini coefficient. Clearly, the social democracies (marked in red: Sweden, Austria, Iceland, Norway, Finland, Denmark) have lower inequality as measured by the Palma ratio (Palma v.1) than the United States and the other liberal countries (marked in blue).
As with poverty, measures of inequality do not include the value of social welfare benefits. In other words, in addition to their post-tax/post-transfer income, the citizens of social democracies also receive government health insurance, public child care services, paid vacation, paid parental leave, etc. If inequality measures took the value of social welfare benefits into account, the social democracies would have even lower inequality. Inequality statistics are thus informative but of limited use.
Means testing is wrong
As I mentioned in the introduction, it makes sense that social welfare benefits should be targeted only to the truly needy. Above, we considered how this results in massive administrative waste and inefficiency, but we didn't consider the human costs of means testing. The cruelty of means testing is highlighted in these two heartwrenching misadventures in the American welfare state. First,
a family who needed to qualify for Medicaid because a family member became disabled in a horrible car accident in which she was not at fault. Only Medicaid covers the long term care equipment and services mommy needs to live, but Medicaid only covers poor people--so the entire family must live in poverty for the rest of their lives (they have to meet the so-called income and asset tests). The family had to liquidate their 401(k) (and pay the early withdraw tax penalties), sell their cars, empty their bank accounts, and sell all their valuables in order to meet the asset means test. Daddy had to cut his hours at work to 133% of the poverty line to meet the income means test; thereafter, 100% of any wages in excess of this level would be taken by Medicaid. Baby can never attend preschool when she gets older because the family can never earn or possess enough money to pay for tuition; auntie can't pay for baby's preschool because that would be Medicaid fraud. And baby can't have a college fund because any savings would make them ineligible for the Medicaid services that keep mommy alive.Second,
Mother and daughter lived above the poverty line until mom need a hysterectomy. Mom was unable to work after the operation, so the family applied for and received TANF, food stamps, and Medicaid. However, mom slipped into a coma due to complications following her hysterectomy; when she woke up, she found that she had lost all of her benefits because she failed to report she was in a coma. And because she lost her benefits, she lost her home and her daughter, and had to subsist on one meal per day while sleeping on her ex-husband's couch--all the while recovering from her surgery and coma.That post further explains how--in the aggregate--millions of Americans are forced to forego income and savings due to the terrible policy of means testing.
A child shouldn't grow up in poverty and be forbidden to save for college because her mom was a victim of a hit and run. A woman shouldn't lose her home and be separated from her daughter because of complications from a surgery. Means testing makes tragedies like these inevitable.
These heartbreaking situations don't occur in the social democracies because eligibility is universal. With universal eligibility, means testing is eliminated and these barbaric scenes can be eliminated.
There will always be mistakes in means testing--a misplaced document here, a clerical error there--and these faceless, bureaucratic mistakes have the power to destroy people's lives. There will always be mistakes with means testing. This is not the case with universal programs, because everyone is always eligible--how can you make a bureaucratic error about universal eligibility?
No one slips through the cracks
Here, I detailed three atrocious examples of people falling through the cracks of the American welfare system:
- 36 of 82 counties in Mississippi were not served by Obamacare subsidies in 2014. These counties contained some of the highest poverty and infant mortality rates in the entire country.
- The Child Care and Development Fund--which is supposed to pay for day care for poor children so their parents can go to work--was so poorly funded in 2000 that 86% of eligible children did not receive benefits.
- Prior to 2013, the Indian Health Service was so poorly funded that--at some reservations--money runs out around May each year. Residents of those Indian reservations who got sick after May are simply out of luck. In 2013, IHS was targeted by the sequestration budget cuts, and funding equivalent to 804,000 patient visits was taken from IHS's already grossly inadequate budget.
The conclusion to this page is here.