Europe Tries Welfare Reform

Even Scandinavians want to cut back on benefits to encourage growth.

 

By Michael Tanner

If Congress — once it reopens the government and gets back to its usual business of redistributing taxpayers’ money — has any interest in reforming our burgeoning welfare state, they might look, of all places, to Europe, where serious reforms are underway.

Leading the way is Great Britain. While in the United States the federal government funds 126 separate anti-poverty programs, 72 of which provide cash or in-kind benefits to individuals, Britain is consolidating its six major welfare programs (the jobseeker’s allowance, the income-support allowance, the employment-support allowance, the child tax credit, the working tax credit, and housing benefits) into a single grant.

While someone receiving the seven most common U.S. benefits (Temporary Assistance for Needy Families, Medicaid, food stamps, WIC, housing assistance, utilities assistance, and free commodities) rakes in more than $35,600 in benefits in the ten most generous states, Britain has now capped the new consolidated grant at no more than £500 per week (about $40,000 a year) for a family, and just £350 (about $29,000 a year) for single individuals. It is estimated that as many as 40,000 households — about 1.6 percent of those receiving benefits — will have their total benefits reduced as a result of the benefit cap.

The idea, according to welfare secretary Ian Duncan Smith, is that “benefits should be a safety net — but not something that gives claimants an income out of reach of many hard-working families.”

At the same time, by moving away from a patchwork of different programs to a single universal credit, Britain will shift welfare payments to put a greater emphasis on children. It is estimated that the consolidation means some 2.8 million British households, mostly couples without children, will eventually receive lower benefits (although current recipients are being held harmless during the transition), while some 3.1 million households will actually get more money.

Moreover, the benefits will now be paid in a monthly lump sum, rather than weekly or biweekly, and paid directly to the recipient rather than to intermediaries like landlords. The poor will be treated like adults, with responsibility for their own finances, rather than childlike wards of the state.

And there will be a greater overall emphasis on moving recipients from welfare to work. “We want to help people find a job and move away from benefits,” Duncan Smith explained.

Meanwhile in the Netherlands, King Willem-Alexander’s speech to parliament in September, written for him by the government of Prime Minister Mark Rutte, warned that “the classic welfare state of the second half of the 20th century . . . brought forth arrangements that are unsustainable in their current form.”

The Rutte government plans to reform the welfare state with the understanding that “people must take responsibility for their own future and create their own social and financial safety nets, with less help from the national government.”

Even the so-called “Nordic model,” long touted by advocates of the welfare state, is undergoing profound changes. Sweden long ago enacted significant reforms to its safety net, including the partial privatization of its social-security system. This August, Finland announced plans to increase the effective retirement age, cut payments to students, and reform maternity leave. And in Denmark, the government has said that the time has come to embrace the “modernization of the welfare state,” adding that the system “needs to prioritize things in a new way and create the best possible conditions for people to get a job.” In fact, the Danish government has already slashed the length of unemployment benefits from four years to just two.

Perhaps the last holdout, Norway, long buoyed by oil revenue, elected a new center-right government this fall on a platform that called for, among other things, cutting taxes, reducing bureaucracy, and reforming the welfare system to better encourage entrepreneurship. The new government has plenty of public support for its plans: A recent survey by Fafo, a Norwegian research foundation, reported 51 percent of Norwegians supported reducing welfare benefits in order to secure economic growth.

While the government shutdown is ostensibly about Obamacare and debt, the real underlying question is the future of U.S. government spending, which is a question of the welfare state. Those on the right often say that if we don’t change direction, we’ll end up like Europe.

Meanwhile, Europe seems to finally be learning its lesson. Will we?