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ON THE UNINTENDED CONSEQUENCES OF THE WELFARE STATE

A paper submitted by




Klaus R. Kastner
A-4810 Gmunden
Traunsteinstrasse 217
AUSTRIA



July 1996

















N.B.: This is a journalistic (and not a scholastic) paper. Sources were used only indirectly
and, therefore, no references were made.









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P R O L O G U E


Young man, asked the seasoned manager the Doctor of Business Administration on his first day
of his first job, did they teach you the definition of TINSTAAFL at university? The young
man became nervous. He had been a brilliant student, indeed, but the term TINSTAAFL had
never come up anywhere. If TINSTAAFL was an important theory, how could he possibly not
have heard of it? The seasoned manager waited a few seconds while keeping a stern expression on
his face, then he blurted out: It means: There Is No Such Thing As A Free Lunch, and you better
remember that! The young man felt sure that he had lost his first job before he had even started
it. But then the seasoned manager put on a grin, reached out his hand and said: Welcome to the
real world, young man!
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I. TINSTAAFL and the Welfare State

The principal thesis of this paper is that, in reality, there is no such thing as a free lunch and that
the major problem with the Welfare State, as it is being understood in many European countries,
is that it tends to create the illusion as though there were such a thing. By creating this illusion,
the Welfare State impedes those forces that have historically worked for the betterment of society,
namely: the reasonable competition of thought and performance.

The idea of a free lunch is not part of natural human expectations (in primitive society - one can
safely assume - it was simply accepted that one had to hunt in order to get food on the table, and
in modern society one simply accepts that one has to pay for a meal in a restaurant). At the same
time, the fear of not being able to have lunch at all is still very much an issue for many people
even in todays advanced civilization. Symbolically speaking, the Welfare State, as understood in
many European countries, tends to suggest that the best way to provide lunch for everyone is to
provide it free of charge. Where that happens, the basic reality of there not being such a thing as a
free lunch is being ignored. That way - this paper suggests - the alleged cure becomes part of the
problem because it creates expectations which cannot be fulfilled on a sustained basis (i. e. the
expectation that there can always be free lunches). At the same time, those forces that are
necessary for the betterment of society overall (i. e. the reasonable competition of thought and
performance) tend to become impeded.

In primitive society - one can safely assume - there was no debate about the fact whether it was
right or wrong that one had to struggle for survival; it was a necessity. In modern society, the
struggle for survival seems to be unevenly distributed: the haves need to struggle less and the
have-nots are expected to struggle more. The question is, however, whether the term
struggle is an adequate term at our present stage of civilization. Struggle does imply in one
sense or another that success comes at the expense of someone else; that there is only one deer to
shoot and that it is either him or me to shoot it. Modern thought should convince us that there is
enough deer for all and that we will shoot the most for all if we marshall our resources towards
that common objective. Or, as the proverb says: If you give a hungry man a fish, he eats once. If
you teach him how to fish, he eats forever. Fishing can be fun, provided that one is allowed to
fish where the fish are. Being given a fish (when unable to catch one) is a tacit admission of
defeat, and it makes the recipient dependent on the donor.

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Human potential is best observed when it is being the most tested. The post-World War II period
provided for an unparalleled challenge for mankind to rebuild. And when modern mankind was
forced to focus its attention on obvious (and undebatable) challenges, it succeeded. It was not
government that achieved those successes; it was the marshalling of resources by the people to
one common goal, it was the effort and undertaking of individuals that made it possible.
Government only provided the framework for allowing that to happen. And in those instances
where government did not provide for an adequate framework (such as in East European
communism), the results did not happen.

There is nothing that I can give you, an Austrian leader told his people shortly after the end of
World War II. Except I ask you, he added, believe in the future of your country! (Editorial
comment: Believe in your own abilities!). Less than 2 decades later, another political leader
phrased it differently by saying: Ask not what your country can do for you; ask what you can do
for your country! These are classic examples of the themes that Welfare Government should put
forth. To misunderstand that is the classic foundation of present days Welfare State.

History tells us that nothing comes free of effort: neither the pyramids, nor medieval castles, nor
the Autobahns were built without effort. The question is not whether effort is required to achieve
results but rather, whether the targeted results are appropriate ones and whether the effort to
achieve them is fairly distributed. There is no free lunch! The questions are: who should pay for it
and who should eat how much of it? If the Welfare State answers those questions adequately, then
the Welfare State is the objective to aim for. This paper does not suggest that the Welfare State
can under no circumstances answer those questions adequately. It does suggest, however, that -
over time - the Welfare State tends to be poorly suited to solve the problems that had lead to its
creation in the first place because it tends to impede those forces that are necessary for the lasting
betterment of society: the reasonable competition of thought and performance.


II. Laissez-Faire: The Answer to Everything?

Dynamic young Europeans, frustrated by overregulated societies that prevent them from realizing
their personal and professional objectives, may dream about the unlimited opportunities that the
American Way of Life offers. Unemployed Americans - or Americans who fear that they may
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soon be without a job - may dream about the benefits and protection that European Welfare States
offer. Which of the two is right?

Both are right in principle: The entrepreneurial American who believes in risks and rewards (and
who can live with the consequences of that belief) would probably suffer from depressions in a
European Welfare State. The traditional European, accustomed to stable and well-understood
structures, might consider suicide in an environment where the only thing that is permanent is
change.

Let the markets rule!, is the slogan of many today. We have to control the speculators!, is the
slogan of others. Both are very good slogans; neither is a universally applicable solution.

Two of the important elements for the sustained success of a society are: first, it needs to have
clear its basic rules of the game; and secondly, it continually needs to adjust these rules to the
changes taking place in society and in the world. It needs to be dynamic and not static. Political
and economic models tend to explain the functioning of society in a static way. They tend to
suggest that a certain political and economic structure has permanent validity and applicability.
The result often is a society of diminishing ability to adapt to changes taking place in the world; a
society of diminishing ability to self-correct.

It would be the subject of a dissertation in the field of Political Science to discuss the question of
how the basic rules of the game of a society (in other words: its perceived or real value
structure) evolve. If a national President pronounces, for example, that the business of America
is business, and if he remains popular after having pronounced that, one can conclude that by
having made that pronouncement he struck a familiar cord, a generally accepted value structure.
By contrast, if a head of government pronounces that we, the government, that is, have to
provide welfare to everyone, and if he gets applauded and reelected for that, then we are
witnesses of a different value structure.

Laissez-faire represents the value structure of a certain society at a certain stage in its
development. There is ample historical evidence that a complete laissez-faire approach leads to
many undesirable consequences. The answer, however, cannot be a ne pas laisser-faire
approach because its major - and most damaging consequence - is the de-emphasis of competition
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of thought and performance in the process of achieving results. In its stead move the regulation of
thought and performance and the power of regulators.

Laissez-faire should, therefore, be considered as a mindset, a basic way of thinking in the
process of determining what - within the context of the basic rules of a society - should be
assigned to the category of ne pas laisser-faire. In theory, a laissez-faire-mindset and the
Welfare State should not have to be mutually exclusive concepts: there is no compelling reason
why a Welfare State would not continually reexamine actual results against the original
intentions. In practice, however, it does not tend to work that way.


III. The Welfare State - Its Intended Consequences

The arguments in this paper do under no circumstances question the positive human intentions
and motivations underlying the evolution of the Welfare State (or rather: the Welfare-State-
Mentality). Believers in Christian faith could (and probably would) argue that the Welfare State is
the assertion of Christian commandments: Support the weak! Reign-in the strong! Provide for
general well-being of all!

The Welfare State tends to blossom where the basic rules of a society are not perceived to honor
the principles of supporting the weak, reigning-in the strong, and providing for general well-being
of all as prominent themes of everyday-life. The origin of the Welfare State is not the proposition
to provide for the dream of a better world. Instead, the origin of the Welfare State is the
disappointment that the dream of a better world might never materialize unless its achievement is
organized.

If the Welfare State blossoms in societies where the above noble principles are not sufficiently
respected, why, then, is the Welfare-State-Mentality not widely spread in the United States? In the
country, where many Europeans believe that the law of the jungle still rules? Where the strong are
the heroes and the weak are the outcasts? Where there is little by way of social protection to
provide for the general well-being of all?

The answer lies in the degree of social awareness and social responsibility that is part of the
societys basic rules. The American culture may well respect the principles of supporting the
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weak, reigning-in the strong and providing well-being for all in no lesser degree than a good
European Welfare State. However, the American culture may propose that there is more than one
road to happiness and that the organized and programmed system of Social Welfare is perhaps not
the most efficient way to achieve desired results. That, however, does not necessarily mean that
the results are viewed any less desirable and as long as that kind of social awareness and social
responsibility is felt, a Welfare-State-Mentality is unlikely to blossom. Again, a Welfare-State-
Mentality is not necessarily a noble proposition per se. Instead, it could be viewed as an
admission of social defeat, as the admission that Social Welfare will only materialize if it is
organized by the state.

Still, the Welfare State - as it is being commented here - is the result of some form of social
consciousness of a society, of a shared belief that a reasonable equilibrium of well-being is the
basic foundation for the lasting success of a society. From that standpoint, the original intentions
of the Welfare State are absolutely honorable and noble! This is not what the debate should be
about. What the debate should be about is to what extent the actual consequences of the Welfare
State correspond to its original intentions.


IV. The Role (and Consequences) of Entitlements

In a well-developed Welfare State, the human being is greeted at birth by the Welfare State in the
form of a child bonus (which, actually, the parents receive). The young person begins grammar
school and learns that he/she is entitled to free transportation, free education and free literature.
Around the age of 10, the young person learns that he/she is entitled to move on (again totally free
of charge) to Gymnasium provided that the grades are adequate. Meanwhile, the parents have
become accustomed to the fact that they are entitled to receive monthly child support payments
from the state. Around the age of 18, the young adults learn that they are entitled to move on to a
university of their choice to study a field of their choice (again provided that the grades are
adequate). Of course, the attendance of university is free of charge, the parents continue to receive
the child support payments and in all likelihood one finds subsidized student housing (perhaps
with the help of the recommendation of an influential person). The student is under no
requirement to deliver academic results in order to retain the benefits of free education (and in
order for the parents to retain the benefits of child support payments). And when the student
completes his/her university education, he/she may even feel entitled to be provided with a job
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that adequately corresponds to the level of education received. A well-developed Welfare State
will normally provide ample employment opportunities in the public and semi-public sectors for
young academics. It is safe to assume that the performance requirements in such careers are less
stringent than in a comparable private sector career: income levels and promotion intervals are
prescribed and equal for all, and after a certain number of years the employee is entitled to be
pragmatized, i. e. total job security for a lifetime. And, of course, at a reasonably young age that
person will be entitled to retire in order to be able to enjoy retirement while still being physically
strong. In short, that prototype of a citizen of the Welfare State will never experience in his/her
lifetime the supply and demand forces of the real world.

That way, the young person learns from early on that one is entitled to certain benefits. And, of
course, if one learns that, then one also learns to insist on receiving those benefits; a mentality of
insisting on well deserved rights develops. What does not develop is a mentality of achieving
benefits through performance. One accepts the facts that, in order to eat one must be given a fish
and that the hand by which one is fed must not be hurt. Thereby, one does not discover the
pleasure of catching a fish by oneself (nor the agony if one does not catch fish despite great
effort).

Such a system of entitlements is unlikely to develop on its own. Instead, someone has to invent
the system and monitor/control compliance with it and that someone tends to be the Welfare
State. And whoever monitors/controls the system assumes a level of power and influence that is
generally not very much tested by forces of supply and demand: since the Welfare State tends to
be the creation of political (and not economic) interests, its implementation and administration
tends to also be influenced by political factors. And any system that tends to ignore and/or violate
economic realities over time is very much prone to become inefficient.

Critics of a capitalistic economic system can credibly argue that it is not business that responds to
consumer demands but rather that it is business that creates those demands (which is subsequently
fulfills) in the first place. Critics of a Welfare State could reasonably argue that the Welfare State
first creates in the minds of the people the need for those entitlements that it subsequently
provides. There is nothing really wrong with a deodorant manufacturer to create a fear of
sweating with the aim that people will therefore buy his deodorants: theoretically, at least, the
individual consumer still has free choice to buy. There is something wrong with a state that
nurtures in the population the fear and the sense of risk associated with not playing by the rules of
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the state (e. g. the risk of losing entitlements or well deserved rights): practically, the citizen
of the Welfare State does not have free choice to individually depart from its rules.

One therefore tends to become dependent. Just like a perspiring person tends to become
dependent on deodorants (as long as he thinks that the deodorant is the answer to his problems), a
good welfare citizen tends to become dependent on the Welfare State. Only a fool would switch
jobs at the age of 45 if that means losing accrued severance and pension benefits! Only a fool
would relocate to a new residence if he/she is entitled to an adequate job in the place where he/she
lives.

Life is full of dependencies and interdependencies: the dentist needs a baker in order to buy bread,
and the baker needs a dentist in order to fix his/her teeth. Those are natural dependencies; they
are driven by supply and demand. The Welfare State tends to create unnatural dependencies:
they are driven by considerations of who should be entitled to what, often irrespective of
economic realities.

The case is being made here that, over time, unnatural dependencies not only tend to create
inefficiencies (because they tend to ignore economic realities), but that they also tend to ignore
basic human needs. It may be nice for a civil servant to know that he/she will be promoted in line
with procedures regardless of whether the promotion is deserved or not. But will he/she really
develop a sense of individual worth if he/she receives everything as a result of a system of
entitlements instead of a system of performance? Is it a natural human need to see entitlements
fulfilled? Or is Homo Sapiens perhaps a creature that thrives on achieving a sense of worth, a
sense of responsibility and independence, on searching for ways to compete through thought and
performance?

If it is indeed a basic human need to develop a sense of personal and individual worth, then the
Welfare State tends to violate that basic human need. The Welfare State generally does not
respond to individual needs. Instead, it tends to respond to the needs of groups and of society at
large. And the actual interests and needs of individuals can easily differ from the perceived
interests and needs of society at large.



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V. Institutional vs. Individual Responsibility - The Birth of Privileges

A laissez-faire society requires little by way of administration and control. The Welfare State,
instead, is based on administration and control. If welfare is an entitlement that must be provided
by the state, then the state requires institutions that supervise the providing of welfare. And
institutions are anonymous social systems. This is by definition not a weakness: many businesses
are organized as anonymous corporations and still operate very successfully. Why, then, should
the institutions of a Welfare State not operate similarly successfully?

The management of a business is normally accountable to its owners for results, and the return on
capital invested is a key measurement tool for most owners of businesses. The management of a
Welfare State institution is not directly accountable to owners and it is generally not accountable
for results in terms of a return on resources invested. Instead, it is accountable for compliance
with the rules of the Welfare State. Prima facie, there is no reason why a Welfare State health
insurance institution should operate any less efficiently than a private insurance company. Except,
it generally does not happen that way. The private company operates in a competitive
environment where it needs to reassess its structures and strategies all the time. The public
insurance institution operates in a monopolistic environment with a captive customer base. The
private company insures only those risks which it finds acceptable, the public institution must
insure everyone. The private company goes bankrupt if its costs exceed revenues over time, the
public institution has its deficits covered by the state.

Whereas businesses are created by entrepreneurial motives, institutions are established by law.
Whereas the destiny of a business is driven by performance criteria, the destiny of a public
institution is driven by compliance criteria: compliance with the laws and regulations that lead to
its establishment. Whereas performance is heavily influenced by competitive pressures,
compliance is driven by a mindset to go by the rules. The mindset of a public institution is
generally not to question the rules and there are generally only limited competitive pressures.

In the capitalistic business world, the customer is the so-called king: by having the choice
where to spend his money, he can reward those businesses that best provide him with services,
and businesses can reward those employees that achieve the most customer satisfaction.
Regardless how large an economy is, its cumulative performance is the result of individual
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decisions by individual economic agents. In short, responsibility and accountability rests with
individuals.

The Welfare State places responsibility generally with institutions and not with individuals: The
Labor Office will take care of the unemployed, the Health Office will take care of the ill, the
Social Office will take care of the aged, and so forth. The ample supply of institutional
responsibility tends to diminish the awareness of the necessity that individual responsibility must
also be exercised if the sustaining of qualitative results is to be assured. It is much easier to fire an
employee if one knows that the Labor Office will take care of him. The unemployed will try much
less to find a job on his own if there is a Labor Office that is supposed to do that for him. If the
Welfare State pretends to take care of all, why should the individual attempt to take care of
himself?

A public institution tends to be the creation of political (and not economic) interests. As a result, it
would be naive to expect that political interests do not - in one way or another - influence the
management of public institutions; they do! Resources must be allocated and appointments must
be made and it is generally not the test of supply and demand, the reasonable competition of
thought and performance that drive those decisions. Any such situation is fertile ground for the
development of unnatural privileges. By that, we mean privileges that are not earned or
deserved; instead, they are being distributed. There is nothing wrong with privileges per se as
long as they are natural privileges (that is to say: earned through or deserved for
performance). There is something terribly wrong with unnatural privileges: they tend to lead to
mistrust and envy. They tend to lead to negative checks and balances: instead of checking that
there is no abuse, one tends to make sure that one gets away with as much as everyone else is
getting away with. The good citizen of a Welfare State may well admit from time to time that
everything needs to be paid for but he will always feel that it is the other guy who should pay
the bill.

In short, it is the principles of Fairness as a Social Value and Fairness as a Social
Responsibility that tend to get violated in a system that is shielded from the forces of supply and
demand, from the reasonable competition of thought and performance. And any social entity - be
it a family, a business, a state or even a nation - that does not count fairness among its principal
social values will sooner or later deteriorate in quality.

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VI. Competition of Thought and Performance

Look at the Japanese, the Argentine Central Banker said to the group of visiting foreign
bankers around 1985, although they live in an essentially poor country they have made so much
of it! And we Argentines live in one of the richest countries of the world and we have made a mess
of it. Can you imagine what Argentina would be like today if the Japanese had lived here and not
us Argentines? Yes, I can, reacted the banker from Tokyo, the Japanese would today be the
same way as the Argentines are because they wouldnt have had to try so hard. The group
laughed, but they had just heard a monumental truth.

It is disequilibrium (and not equilibrium!) that is the cradle of improvement and quality. If the
thought of the earths being the center of the universe had never encountered competitive
thoughts, we would still believe in that. If we never felt that we had something at stake, we would
never try to preserve it. Managers who are convinced that they are always right will sooner or
later pay a hefty price for having been wrong. Prudent managers will form their opinion by
generating a constructive conflict of opinions among others and by making their best choice
among them.

When the term competition is misinterpreted - and the Welfare-State-Mentality tends to
willingly misinterpret that term -, it can easily become a specter that arouses fears because it tends
to create images of the risk of losing, of the risk of rejection. The more competitive a society is,
the greater the discomfort of those who cannot stand up to competitive pressures, the greater their
perceived need to reign-in competition. After all, where would it lead to if everyone could
compete with everyone else? Would it not lead to a brutal battle for survival among the fittest (at
the expense of all others)?

This paper emphasizes the reasonable competition, whereby it is understood that one cannot
define where reasonable competition ends and where unreasonable competition begins. A
societys basic rules, its real or perceived value structure will determine the borderline between
reasonable and unreasonable, and this is a never-ending process of searching for the
commonly acceptable standard. What is accepted as reasonable competition in todays
environment may become perceived as unreasonable (or excessive) competition in tomorrows
environment. When, in the 1980ies, the accelerated competition for capital and yields thereon set
off the storm of corporate restructurings, one could also see many positive aspects in that
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development: cozy corporate managements were awakened and layers of middle-managements
discovered that receiving attractive salaries for little value added could no longer be justified.
Overall, many industries became more efficient in the process: shareholder interest and
shareholder value became the predominant themes. Today, when the most effective way to push
up a companys share price often is the announcement of a major staff reduction program,
responsible leaders are beginning to question whether shareholder interest is indeed the only
valid yardstick for corporate performance. And it may well be that a society that applauded the
priority of shareholder value yesterday will tomorrow promote the theme of corporate
responsibility to society.

The sportive interpretation of competition is: May the Best One Win!; it is not: May the Losers
Perish! The principal themes of Welfare Government are that competition must go hand-in-hand
with solidarity, and that the whole of society can never be better than the sum of individual efforts
and contributions. The principal worry of the Welfare State is that there would be a brutal battle
for survival among the fittest - at the expense of all others - unless social welfare is organized and
regulated. The Welfare State generally fails to promote the positive aspects of reasonable
competition in the process of achieving results. Instead, it tends to create the illusion that results
are already there and only waiting to be distributed. Witness, however: young Boy Scouts make
the solemn promise that they will always give their best and youthful enthusiasm is generated in
the process. Rotarians throughout the world are being called upon to probe their actions against
the questions whether what they do is true, is fair to all concerned, whether it promotes friendship
and goodwill, and whether it serves the well-being of all. Other service clubs composed of
business professionals set similar standards. And the standards of the Welfare State? The standard
of the Welfare State is that welfare will come about automatically provided that it is organized by
the state.

The call for protection and regulation is reactive (and not proactive) in nature. It tends to be the
reaction to the results of excessive or unreasonable competitive behavior. Politicians do not get
elected because they only propose to protect and regulate per se. Instead, they get elected because
they propose to protect society against something, they propose to regulate in order to achieve a
greater good. Instead of focusing on improving the framework for reasonable competition so that
better results are achieved, politicians tend to focus on reducing and/or eliminating competition
altogether in those areas where social welfare could be deemed to be affected by competitive
forces.
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Once the competition of thought and performance is reduced, the engine for the sustained
betterment of society is being slowed down. The only effective way to counter a silly argument
is to come up with a better one (and to allow that better arguments can come up). The only
effective way to improve the performance of a service business or institution is to expose it to the
competition of a better performer and to give customers the right to choose. It is not sufficient to
simply declare silly arguments as silly: they will continue to carry weight and influence unless
they are outweighed by better arguments. It is not sufficient to give a poorly performing business
or institution instructions to improve performance: there will be no substantial change unless it is
exposed to competition, until there is something at stake. There has to be something at stake -
either something real or something perceived -, there has to be a special motivation for man to
make a special effort.

In reality, there is always something at stake. An interpersonal relationship that is not actively
affirmed will sooner or later break down. A customer relationship that is not actively maintained
will sooner or later lose quality. A social system that constrains the forces of supply and demand
as well as the competition of thought and performance will sooner or later become inefficient. It is
the test of supply and demand, the reasonable competition of thought and performance that are the
constructive forces of a society. Any society that reduces the influence of these forces will reduce
the power of the engine for sustained betterment. When competition becomes unreasonable, the
answer is not to eliminate it but rather to improve the framework within which the test of supply
and demand, the reasonable competition of thought and performance can take place.


VII. The Welfare State - Its Unintended Consequences

This paper argues that the debate about the Welfare State should not focus only on its financial
viability (even though - in the shorter term - that aspect is its most obvious flaw). Of course, no
society can go on forever if more services are demanded of the state than the citizens of the state
are prepared to pay for. Eventually, the institutions of the Welfare State will become insolvent
(and many Welfare States are having to cope with that problem already). However, a good
Welfare State will find ways to repair such financial problems, at least temporarily. The well-
known repairs are: reduce the quantity and quality of services provided and increase the cost
thereof. A private business that behaves in such a manner in a period of financial crisis will
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accelerate its demise for the simple reason that its customers have a free choice to buy elsewhere.
The customers of the Welfare State do not have that free choice. As a result, the Welfare State
enjoys the unique luxury of fixing its financial problems by forcing the customers to pay for the
repairs and in the process it even strengthens the customer relationships because the customers
become even more dependent on the Welfare State. As long as the citizens of the Welfare State
can be convinced that, without the Welfare State, they would be left out in the cold, there will
be no material change.

This paper argues, however, that the debate about the Welfare State should be over its
sociological aspects and consequences. A society that nurtures in its people a mindset of
ignoring economic realities will over time deteriorate in quality and will lose competitiveness in
the world. The deterioration in quality cannot easily be measured quantitatively. The loss of
competitiveness in the world can easily be measured: financial and human capital (i. e. investment
and jobs) will gravitate to those societies that are more competitive.

This paper argues that the most undesirable (and possibly the most unintended)
consequence of the Welfare-State-Mentality is the deterioration in quality of the society. A
society that de-emphasizes the reasonable competition of thought and performance in the process
of achieving results and benefits will tend to reduce the element of fairness as one of its basic
values. No one needs to (or can) guarantee that life will always be fair; that would be utopic.
However, one can propose that fairness should be a predominant theme in a societys code of
conduct and, regrettably, fairness can not be decreed by law. The reasonable competition of
thought and performance and adequate rewards for those that fare better in that competition are
the most effective regulatory mechanisms to achieve fairness (as long as those who fare less well
are not unduly penalized for that). The most repulsive human reactions can be observed in
situations where people feel treated unfairly. In everyday-life, those reactions are envy, mistrust,
cheating, etc. - in short, a negative attitude towards other members of society. In history, the
reactions to unfairness have included wars and revolutions.

In a Welfare-State-Mentality, one can easily be lead to feel successful when one can fix ones
benefits; to feel happy when one has access to privileges; to feel secure when one controls
dependencies. With such a mentality - and with almost daily proofs that it is the called-for
mentality - one is unlikely to develop a yearning for a sense of fairness and fair play. One is
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unlikely to develop a sense of respect for the honor of the neighbor. And without those social
values, a society is unlikely to be successful over time.

Proponents of the Welfare State will claim that, without it, life would be a brutal battle of survival
among the fittest with the less strong being left out in the cold: people could not afford to be ill
because they would not be able to afford medical treatment; people who lost their job would face
starvation because society would not take care of them; etc. It is a gross misrepresentation to
suggest that opponents of the Welfare State are left untouched by human misfortune and by
human weaknesses. Any responsible spokesman for Welfare Government will promote the need
for a safety net, a system where the needy can count on societys help when they are in need.
However, opponents of the Welfare State can also paint a frightening picture of its negative
consequences: a society, where an ever-increasing portion of its members shares in the rewards
for competitive behavior without having to share in the risk and effort that goes along with them;
the contrast between (a) a 50-year-old factory worker who has hardly ever taken sick-days in his
career and who has never been to a spa (and who is now worried that his job might be exported
to low-wage countries), and (b) a 35-year-old retired high school professor who, despite many
sick-days and several recuperations in spas, could not handle the stress of facing students roughly
20 hours every week (not counting the 12 weeks per year that he was on vacation) and who,
therefore, had to be granted early retirement for health reasons (and who is now earning
substantial additional - and untaxed - income through private tutoring). Excessive distortions of
this nature provide fertile ground (and many votes!) for politicians who cleverly promise to clean
out the mess which the Welfare State allegedly created.


The period of Enlightenment encouraged man to break out of self-imposed dependencies and
inferiorities. It encouraged man to assume responsibility for his own destiny. The Welfare State
tends to accomplish the opposite. Without my party I would be nothing, an Austrian political
leader allegedly once said. Without the Welfare State I would be nothing, a good citizen of the
Welfare State might feel. Such sentiments reflect nothing other than the total denial of ones
worth as an individual, the total submission to organizations and institutions to provide for ones
security and well-being. And what, if - some day - these organizations and institutions wither
away in the storm of change that turns the world into a global village? And what, if - some day -
the Welfare State indeed can no longer uphold all those illusions that it created? How did the East
Germans feel when they found out that big cars and color TVs were not presents distributed by
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the state but, on the contrary, the rewards for effort and stress? Did they comfortably adjust to
those new rules of the real world or did they perhaps feel that they were no longer emotionally
equipped to deal with the real world?

The Welfare State tends to create jobs by mandate. Welfare Government will, instead, create
the economic framework - the legal and regulatory environment and the spiritual leadership - so
that jobs come into existence in the interplay of customer needs and suppliers capabilities. The
Welfare State feels responsible for all (and tends to limit those that would rather be left on their
own). Welfare Government will, instead, feel responsible for those that need support (and will
provide opportunities for the others). The Welfare State requires the citizens to comply with its
rules irrespective of individual needs and interests, and it is not very efficient in adapting to
changes taking place in the world. Welfare Government will, instead, warn the people that - in
times of change - nothing should be taken for granted (except basic welfare for the needy, of
course); it will motivate people to believe in their own ability to take care of themselves and to
put that ability to use. The Welfare State proposes a better world that will come about as a result
of laws and regulations. Welfare Government will, instead, propose a better world that will come
about as the result of honest effort and fair play. In short, Welfare Government will nurture a
desire on the part of the baker to pay for his own lunch in the restaurant so that the restaurant
owner can continue to buy bread from him. Perhaps the Welfare State had originally set out to
achieve those very same results. The writer believes that it probably has and this belief attaches
validity to the title of this paper, namely, that the negative consequences of the Welfare State that
are now seen and felt in many places are unintended (and not intended) ones.


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VIII. The Manifesto for Welfare Government

Many scores ago, a great leader coined that basic truth that one cannot fool all of the people all
of the time. We have not fooled anyone else; instead, we have fooled ourselves! We have allowed
ourselves to think that we are entitled to benefits without recognizing that they must be paid for.
We have begun to take for granted that we are entitled to the best education, the best jobs, the
best incomes, the best social services, the shortest working life and the most comfortable pension
benefits; and - all of this preferably at no special effort on our part. We have delegated the
responsibility of caring for ourselves to the state and we called that state the Welfare State. And
we have made ourselves dependent on a state that is no longer capable of caring for us in the
manner that we lead ourselves to expect it.

We now make the call for Welfare Government. Our principal belief is that the greatest of all
resources that we as a society have is our human capital. We will treasure this capital without
restraints: we will eliminate barriers that may limit this capital in its growth and we will provide
a framework where reasonable and fair competition of thought and performance on the part of
individuals combined with solidarity among all can bring about positive results for all. In the
process, we will be able to assure the lasting betterment of our entire society. And: we will
responsibly care for our human capital and protect it where and when it requires caring and
protection.

Our conduct will be driven by the principles of fairness, responsible social behavior and
solidarity. We live in a rapidly changing world and we need to continually adjust to the changes
taking place around us. Not long ago, a great leader said that history will punish those who are
slow in responding to changes taking place in the world. We do not wish to be punished!
Tomorrows world will be different from todays. We can no longer take things for granted that in
the past we may have felt entitled to. However, we can take for granted the confidence that
personal effort, the willingness to work and the preparedness to contribute will lead to the
rewards that we all hope for. To assure that we can have that confidence will be the responsibility
of the state, of Welfare Government!



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E P I L O G U E


The young man had grown older and he was now a seasoned manager himself. He had made a
good career but between many ups there had also been several downs. He had switched employers
3 times, one time involuntarily; he had relocated his family twice. On the whole, he felt relatively
secure: through various insurance policies he had financially provided for university education for
his children; for health, accident and invalidity coverage as well as for ample pension benefits.
Since the respective payments were tax deductible, part of the financial burden was actually borne
by the state. That way, the state enabled him to better provide for the welfare of himself and his
family. The no-longer-so-young-man had developed a healthy interest in politics and he was a
critical observer of the different political parties and politicians. He voted at every election, but
not always for the same party or person, and he never shied away from voicing criticism where he
felt criticism was due. The no-longer-so-young-man had also developed a strong sense of social
consciousness. Life had taught him that nothing could be taken for granted and that,
notwithstanding personal skills and qualifications, good fortune was also an important ingredient
for success. And he realized that not everyone could always count on having good fortune.
Having had good fortune himself, he felt obliged to support those that were short of it. The Doctor
of Business Administration had not used his title in years, but he often spoke of the values that
life had taught him and that he was glad to live in a society that provided opportunities.