The death of social democracy?

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(Ex) PM Rudd wrote that the GFC had sounded the death-knell for neo-liberalism – but it seems to me that he had it entirely the wrong way about. It’s the death for social democracy.

The social-democratic welfare state is broke. It was always a Ponzi scheme, and it only worked thanks to rapid population growth.

Even the (communist) Chinese are ragging out the European welfare state. Jin Liqun, the supervising chairman of China’s sovereign wealth fund, recently told Al Jazeera that:

If you look at the troubles which happened in European countries, this is purely because of the accumulated troubles of the worn out welfare society. I think the labour laws are outdated. The labour laws induce sloth, indolence, rather than hardworking. The incentive system, is totally out of whack.

Why should, for instance, within [the] eurozone some member’s people have to work to 65, even longer, whereas in some other countries they are happily retiring at 55, languishing on the beach? This is unfair. The welfare system is good for any society to reduce the gap, to help those who happen to have disadvantages, to enjoy a good life, but a welfare society should not induce people not to work hard.

No wonder they aren’t buying BTPs (Italian Govt Bonds) …


  1. I totally agree with this post and the statement by Jin Liqun. An overreliance on welfare has created many problems in the western world – social and financial. I see the recent riots in the UK to be an output of this, and reflective of an attitude of many that they are owed success and a certain lifestyle – rather than working for it.
    I hope that Governments’ inability to continue to provide so much welfare due to financial constraints will rebalance the current attitude to welfare, and reinstate an ethic of working hard and being proud of what you achieve in the world.

  2. This doesn’t make sense.

    If the welfare state was the problem then all Europe would be affected not Southern Europe.

    1. all of Europe will be impacted. Germany has a large problem too. it’s just that they have credibility as a payer. Same with the USA. see here

  3. No, still doesn’t make sense. See Krugman’s response. It’s nothing to do with welfare states, and there is no general over reliance on welfare. And I’d be a little surprised if you could find actual evidence that suggests Scandanavians don’t work hard and/or value hard work in spite of high tax rates for high income earners combined with a relatively generous welfare state.

    1. Health costs and pensions eat everything – every government has a date when health speading will exceed revenues. It is age related spending and entitlements that send US debt to GDP to 900% by in the CBO’s recent long term projections.

      The linked BIS paper is one estimate, Europe has made their own, and the IMF (in various fiscal monitors) has made other estimates. They all show that the current system is unaffordable. The recession merely brought forward the problem by 10yrs. It only ever worked due to a growing population.

      Sent from my iPad

      1. Both the assessment on health and pensions are missing the obvious point. That money will still be spent. Now, here’s the thing. For health, governments pretty much always provide health services cheaper than the private sector does. Universality obviates administrative costs around members (attracting, tracking and retaining). The bulk purchase arrangements you get from being the sole procurer also saves a lot of money. The US, with it’s largely private system, spends much more per capita than we do for generally worse outcomes. If Australia ditched Medicare, people would still spend on health – just more money for a worse overall result. Health costs are affordable as we choose them to be.

        As for aging, there are a variety of policy responses possible. I’m less familiar with aging. Compulsory superannuation helps, but only insofar as there are things to invest in. I suspect we’ll find that people keep working, one way or another, as they get older.

        So perhaps, in a way, I agree with you that the current system is unaffordable. But a new system will be developed, and if that reverses the anti-progressive tax changes made over the last 20 years, that’s no bad thing.

  4. When I think of welfare state I think of Beveridge/Temple and their plan for the UK.

    Retiring at 50,55 etc, excessive public pensions ( in OZ super) etal are not part of a welfare state merely a subset of silly big government

    1. or perhaps a selfish electorate – the boomers have been drawing resources due to the size of the voting block.

      we sure are going to have something to vote for over the next 20yrs or so. the era of technocratic government is coming to an end – there will be some very big choices to be made.

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