A week, it is often said, is a long time in politics. Much, however,
can change in a year. Only a short while ago some European politicians
were touting the European social model’s superiority over what many
continental Europeans deride as “Anglo-Saxon capitalism.” Now, however,
governments across Europe are scrambling to avoid the fate of Greece.
Moreover, they are doing so by contemplating—and, in some cases,
implementing—the hitherto unthinkable: reducing their budget deficits by
diminishing the expansive welfare states to which many Europeans have
long been accustomed.

In doing so, these governments are finally acknowledging a truth
initially obscured by the crisis of the euro: that for all the disarray
generated by the euro’s recent tribulations, Europe’s economic woes have
more systematic causes.

One cause is several decades of low economic growth. As the Czech
president Václav Klaus recently observed, “average
annual economic growth in the eurozone countries was 3.4 percent in the
1970s, 2.4 percent in the 1980s, 2.2 percent in the 1990s and only 1.1
percent from 2001 to 2009.” “A similar slowdown,” Klaus added, “has not
occurred anywhere else in the world.”

A second problem is Europe’s profound demographic decline. On current
projections, for example, Spain’s over-65 population is set to increase
from its present level of 17 percent to 25 percent by 2030. That means
fewer people working to support growing numbers of pensioners.

When low economic growth and declining demography are combined with
European welfare states—generous state-provided health and unemployment
insurance; early retirement and liberal state pensions; large public
sector employment; legislation that emphasizes job security over labor
market flexibility—something eventually has to give. Greece has reached
that point. The rest of Europe is struggling to avoid following Greece
into the abyss.

Even so, many European governments are proceeding down the reform
path with barely disguised reluctance. In France, for example, President
Sarkozy’s government wants to raise the official retirement age from 60
to 62. That will not strike many as a radical reform. By contrast,
Spain’s Prime Minister Zapatero is already cutting pensions, civil
servants’ wages, and social programs. He has also promised labor market
reform, something the IMF has identified
as desperately needed in Spain. Yet, as the Economist correctly notes,
Zapatero “shows no willingness to force reforms past the unions. He
will do what he has to do, but always the minimum and without
enthusiasm.”

No doubt, this reflects a disinclination of many European
politicians—on the left and right—to concede that the post-war European
effort to use the state to provide as much economic security as possible
has encountered an immovable obstacle in the form of economic reality.
Yet it is arguable—albeit highly politically incorrect to suggest—that
it also reflects the workings of a potentially deadly nexus between
democracy (or a certain culture of democracy) and the welfare state.

One justification for democracy is that it provides us with ways of
aligning government policies with the citizenry’s requirements and of
holding governments accountable when their decisions do not accord with
the majority’s wishes. But what happens when some citizens begin viewing
these mechanisms as a means for encouraging elected officials to use
the state to provide them with whatever they want, such as apparently
limitless economic security? And what happens when many elected
officials believe it is their responsibility to provide the demanded
security, or, more cynically, regard welfare programs as a useful tool
to create constituencies that can be relied upon to vote for them?

The end result should surprise no one: a spiral of expanding welfare
that neither politicians nor the expanding number of welfare
beneficiaries have any real desire to stop until things become so
unmanageable that there is no alternative.

The problem, as Alexis de Tocqueville noted in Democracy in
America, is that public opinion, especially what he called “common
opinion,” is “the dominant power” in democracies. The contemporary
French philosopher Pierre Manent goes even further to claim that in
democracies “it is not dogma that comprises shared opinion; it is shared
opinion that is dogma.” It follows that if enough people want expansive
welfare programs in a democracy, the capacity for politicians to
oppose, for example, the desire of 51 percent of the population to
progressively loot the other 49 percent, is limited. To resist is to
court electoral rejection or, as we have seen, rioters running amok in
the streets of Athens.

A number of twentieth-century scholars have sought to address this
problem of democracy and ever-expanding state welfare. In the third
volume of his book Law, Legislation and Liberty (1979), for
example, the Nobel Prize-winning economist Friedrich von Hayek outlined a
series of constitutional rules that he thought might limit the
democratic state’s tendency to drift in this direction. Several decades
earlier, German market-orientated economists such as Walter Eucken,
Franz Böhm, and Wilhelm Röpke elaborated a whole system of
constitutional principles they believed would render democratic states
strong enough to resist capture by interest groups, but also limited
enough to prevent governments from expanding their economic powers
beyond a number of core functions.

But if the twentieth century has taught us anything, it is that even
the most robust of constitutional arrangements have not been able to
achieve such ends in democracies that lack politicians and citizens who
grasp the essential wrongness of using the state to support themselves
at the perpetual expense of others. Moreover, implementing such policies
does not even require solid majority support from the population. In
most democracies, people can only gain political power by cobbling
together large enough coalitions of support based on a range of often
incompatible promises made to sometimes very different interest groups.
After being elected, democratic governments are under enormous pressure
to use their political power to favor their various supporters if they
want to avoid having their erstwhile followers turn against them.

The bartering of privileges and grants to different groups is thus
almost inevitable in a democracy if a government wants to retain its
coalition of support. In these circumstances, expanding the welfare
state to reward particular adherents is a difficult temptation to
resist. As Röpke commented: “To expand the welfare state is not only
easy but it is also one of the surest means for the demagogue to win
votes and political influence, and it is for all of us the most ordinary
temptation to gain, at no cost to ourselves, a reputation for
generosity and kindness.”

Likewise, democratic governments attempting to reduce the welfare
state run the risk of alienating particular groups within their
supporting coalition. This may be enough to ensure a government’s defeat
at the next election. This is precisely what happened to Gerhard
Schröder’s Social-Democrat-Green government in Germany after it
implemented welfare reforms between 2003 and 2005. Not surprisingly many
governments opt instead to retain the status quo, despite often being
aware of the long-term economic consequences. Unfortunately for Europe,
that status quo is no longer fiscally sustainable.

Does this mean that shrinking the welfare state requires a
diminishment of democracy? The answer is no. Most authoritarian regimes
ranging from Hitler’s Germany to Chavez’s Venezuela have proved more
than willing to use generous welfare schemes to mollify large segments
of the population. In other words, it is not as if democracy is unique
in being coupled with welfare states, and so the cure need not lie in
reducing democratic norms or institutions.

The beginning of a proper response is to recognize that a democracy’s
ability to resist the long slouch towards the soft despotism of the
welfare state requires two things. The first is to shift the incentives
for economic mobility and security so that they lie in the private
sector rather than in becoming a recipient of state largesse. This task
is very difficult when much of the population already enjoys some
measure of state income. Yet it is dwarfed by the immensity of the
second challenge: developing a moral and political culture which
underscores the undesirability of politicians and citizens using the
state to live at others’ expense.

If opinion polls are correct, it may well be that, culturally
speaking, it is too late for much of Europe. The modern European welfare
state goes back to the late nineteenth century when Otto von Bismarck,
Imperial Germany’s ruthless “Iron Chancellor,” introduced state social
insurance in an undisguised attempt to placate the growing German
industrial working class and the ever-increasing number of Social
Democrats they elected to the German legislature. Far too many Europeans
now simply assume a munificent welfare state as part of the economic
landscape. Indeed the increasing number of older West Europeans today
has no incentive to change. Their attitude might be described as “Après
moi, le déluge.”

America, however, is a different story. The sheer intensity of
resistance to the Obama Administration’s healthcare legislation was
about many things. But it surely reflected the fact that millions of
Americans are simply unwilling to go the way of Western Europe.
Successful long-term resistance, however, is going to depend upon
Americans understanding that the link between democracy and the welfare
state has to be broken, and that the only way to achieve this objective
over the long term is through recommitting the United States to some of
the very best aspirations of its Founding—a love of liberty, an embrace
of the virtues needed to sustain freedom, and an unwillingness to
delegate to the state the responsibilities that free men and women owe
each other.

Samuel Gregg is Research Director at the Acton Institute. He has
authored several books including On
Ordered Liberty, the prize-winning The
Commercial Society, and Wilhelm
Röpke’s Political Economy.This article has been reproduced with permission from Public Discourse.