The Morbid Obesity of Welfare State and Democracy

The world history book revealed that back in the eighteenth century, men in England, France, and the United States conceived of a new type of regime that would prevent the tyranny of the absolutist monarchies that reigned at the time. They put their hopes in a balance of power between various institutions of government, and in the periodical recourse to election to purge the system of excessive corruption and entrenched power. The democratic form of government established on those principles would work wonders for over two centuries.
But now, in its third century of existence, it is producing dysfunctional and potentially self-destructive forms of governance. The United States has been deadlocked in the monumental issue of its budget deficit and entitlements, unable to cut spending or raise taxes. Europe as a whole is no less fiscally bankrupt, and measures to restore its public finances are throwing the continent into economic depression and political upheaval.
As proved by history, this is not the first test for democracies that, over the last 200 and some years, have weathered countless political crises. Throughout that period, democracies were able to mobilize so many human and financial resources, that they won epochal wars against other regimes and were emulated on all continents. Yet, the diagnostic today is severe. With age, the democratic welfare state as we know it suffers from morbid obesity. While the remedy is not hard to conceive which is rebalancing the relationship between the public to private sector, it seems impossible to administer.
The genesis of the crisis points at the very design of the regime. The patient will not take the cure, voting out any government trying to cut public spending. Foreign donors who bail out bankrupt governments are often slapped in the face by the citizens of those countries. Many analysts economic lamented that the recent woes of Greece and Cyprus show how the people can lack responsibility and gratitude.
According to history, political theorists of ancient Greece were ambivalent about democracy. The Greek elite liked to rule its own affairs but, as a privileged minority in an expanding society, it had much to lose if a populist tyrant were to leverage the power of the masses. Accommodations were made with monarchy, hoping for a king powerful enough to keep the mob in check, and wise enough to protect the propertied classes.
These misgivings carried through the ages, and the coalition of well-off merchants, clerks, and landowners in Western Europe and the Americas, who unseated monarchs to have another go at democracy, sheltered their privileges behind the rule of law. They generally did not conceive of democracy as an exercise open to everyone, but rather as the prerogative of a propertied class with stakes in the system. The door was left open to the masses whose condition, no longer restricted by birth, could be improved through work and chance. Improvement would bring them into the franchise. Until then, their place was at the periphery of the polity.
Those restrictions could not hold and, by the middle of the twentieth century, suffrage had been opened to every adult. The marriage of democracy and mass politics was not a seamless affair, and it is good to remember that leaders such as Mussolini, Hitler, and Juan Peron were actually elected to office. But most democracies were able to keep their people away from toxic demagogues by setting up the largest state project ever conceived, other than communism, since the Great Wall of China: collective welfare.
Unlike communism, welfare left space for the market. Like communism, it aimed to cut off individuals from their kin-based or ethno-religious communities, binding them to the dual institutions of state and the state-regulated market. Functions that were traditionally performed by the extended family, care for the sick, young, and elderly; primary and vocational education; job placement; capital accumulation and transmission, were moved to the state and the market.
Welfare was to be the social contract of democracies, and the people signed on because, at least at the time, the transition improved standards of living. According to Camille Pecastaing, professor of Middle East studies at Johns Hopkins University, welfare brought stability to cities whose populations exceeded ten million inhabitants and to countries whose populations were well into the hundreds of millions. But the cost was phenomenal.
The economic viability of the model depended on continuous growth of the private sector, from which taxes would flow. When that was not enough which would not be long, the prospect of future taxes served as collateral for public borrowing. GDP did grow, but spending and debt grew even faster. The average OECD ratios to GDP are now around 50 percent for public expenditures and 80 percent for public debt.
With growth structurally slowing down in the most developed countries, appropriations have become a zero-sum game between those who get and those who will have to pay. Yet, familiarity with gigantic deficits gives confidence that the system still has some give in it. The combined public debt of OECD countries exceeds 40 trillion dollars. Many have come to imagine the state as the custodian of an infinite supply of money, and their democratic rights as a claim to financial entitlements.
While the seminal economist John Maynard Keynes has demonstrated that government spending is not always a zero-sum game, it can be if it is not a remedy to a temporary crisis of demand, but a way of life, as it has been in the Western world since the 1970s. And it is not just money, but also the interference of the state to favour a select few. There are hundreds of ways to game the market in which some of them are subsidies, scarcity-creating regulations, intellectual property rights. While some regulation is legitimate and necessary, in some sectors, from healthcare to education, the business model is entirely dependent on the state-sanctioned restriction of competition. The irony here is that democracy has returned to the impasse from which it was born: the tyranny of corruption.
Democracy never meant for elected officials to micro-govern, a task for technocratic elite, shielded from the pressure of special interests, with a holistic view on the long-term commonwealth, the modern version of the Ancient Greeks’ philosopher king. Elected officials were tasked with other functions, such as keeping the technocracy nimble and accountable for producing results efficiently. Crucially, officials had to “sell” to the people policies designed technocratically, not democratically, mustering the kind of legitimacy that brings together a country around a common purpose.
This distribution of duties served as a buffer against populism and kleptocracy. In the United States, this agent of governance, the Supreme Court, has time and again dampened the excesses of overreaching government. In the European Union, the Council has forced national governments to limit their deficit to 3 percent of GDP per annum. Such institutional constraints allow officials to go to their constituents absolved from responsibility for unpopular but necessary measures.
Democratically elected officials are failing to meet their end of the bargain. Respect for democratic institutions—parliaments, heads of governments, and presidents alike—has plummeted along with voter turnout. The re-elections of George Bush in 2004 and Barack Obama in 2012, which should have settled the matter of their leadership, did nothing to silence their detractors and mend the tears in the American polity.
In the Middle East, the revolutions of 2011 were as inspiring as the emergent democratic regimes were unimpressive. Camille Pecastaing explained that elected Islamist governments were received with such scepticism by their people that they have been unable to govern. An explanation for disillusionment is that democracy has dug itself into a hole by sourcing legitimacy from a delivery of welfare that has been exposed as unsustainable. Performance is disappointing, and can hardly improve given that the system has also broken down at the level of micro-governance. The technocratic sphere of competence is not sheltered enough by the political sphere, not autonomous enough from the people, to produce meaningful reform. It is also morbidly bloated, with the rigidity of senescence. In many countries, the primary function of civil service is to obfuscate unemployment, an endemic scourge correlated to the lack of dynamism of the private sector.
Societies have changed considerably since the late eighteenth century, and the democratic form of governance has perhaps not changed enough. In the United States, lobbying epitomizes undue interference in the policy process. But instant mass communication through media and social networks also allows people to mobilize in real time and oppose any unpleasant but necessary reform. Elected officials are exposed to constant scrutiny, and technocrats are inhibited by political meddling. With the rise of industry lobbies, trade unions, professional associations, social networks, and militant groups, civil society has evolved at warp speed. Far from being the victory of the democratic principle, in the form of a check on the power of the state, the vibrancy of civil society is an unprincipled usurpation which dooms those who fail to mobilize.
States have had bouts of over-indebtedness since the beginning of recorded history, and the recourse is always the same. A mix of inflation, default and confiscatory taxation, that is, a vast financial transfer to the state imposed on the holders of state liabilities. However painful the reset, life will go on, although not always for the regime. Quite a few tax hikes have triggered revolutions including the American and the French ones, which started the modern democratic experiment.
If bad financial management is the hallmark of tyranny, the mission of the democratic state is to produce governance where the public would not abuse the private, where future generations would not be sacrificed to the present. There are many ways in which modern democratic states overreach; economy and long term planning are not among them.