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November 20, 2013

Dutch welfare state is over

The long term damage that has been inflicted on the international economy and the implications for the future role of the state is something that is exercising every government across Europe.  Few can have been quite as blunt about the future prospects of the traditional welfare state as the Dutch Government in a recent speech given by the King of the Netherlands. The Dutch seem convinced that a new ‘participatory model’ is required which will require profound changes in the way we think about society.


Jose María Carrascal

The biggest news story of recent times has hardly made the headlines. It came in a speech delivered by the new King of the Netherlands during a ceremonial act – the official opening of the parliamentary year – when he announced the “replacement of the traditional welfare state by a participatory society”.

In other words, he declared the end of a sacrosanct system without setting out an alternative. While King Willem-Alexander delivered the speech, it was actually written by the Dutch government – a government made up not of conservatives like Margaret Thatcher and Angela Merkel, but of liberals and social democrats. In the next paragraph came an explanation: “The transition to a participatory society is particularly relevant for social security and for people who are in need of long-term care. The traditional welfare state of the second half of the 20th Century has created precisely in these areas systems that, in their current form, cannot be sustained”.

Does it have to be stated any more clearly? Well, the explanation lies in the numbers. The Netherlands, which has grown tired of trying to teach lessons to the countries of southern Europe for not doing what they should have done, will miss its own deficit targets this year, while its economic growth slumps to 1.25 percent and purchasing power by half a percentage point. This situation has forced the government to announce a budget cut of €6bn. According to Willem-Alexander, “a strong and sensible people can adapt to such changes”.

The heart of the current trend and this speech reveal that it is not a matter of extraordinary circumstances requiring a simple adjustment before we can go back to the way things were, once the bad times pass. No, it is a question of bringing in profound changes, of laying the foundations of a new society, of launching a new model to take over from the one currently in force that is no longer working. In conclusion, it comes down to replacing the welfare state with something quite different – a system dubbed the “participatory society”.

What is the participatory society? For citizens, it means taking on a significant number of tasks and responsibilities that till now were handled by the state, particularly regarding their future and the future of their children. The state will keep basic social services in place, but individuals will have to contribute more to them, both for themselves and for those around them – ie, the members of their family, their neighbours and relatives. Hence the term “participatory”.

The paternalistic state can no longer take on these costs, for the reason given above: the public accounts won’t allow it. And they won’t allow it because the welfare state is based on erroneous figures – I would even say on a rip-off. Every welfare state is based on a “social contract”, a pact that binds all citizens of a country, rich and poor, young and old, to share out costs and benefits as fairly as possible.

However, this contract has not been respected by the previous generations, who managed the accounts to their own advantage. One example illustrates this perfectly: retirement pensions began to be calculated in Spain from the amounts assessed during the last two years of active life, when earnings are at their highest. Then it became the previous eight years, which is still something. No surprise, then, that the social security fund is on the brink of bankrupcy thanks to the irresponsibility of a few politicians who have transformed the welfare state into a gigantic pyramid scheme à la Bernie Madoff, through which the allowances are paid based not on what the beneficiaries have paid in, but rather from the contributions of new taxpayers, who are becoming fewer and fewer.

Continent going bankrupt

After the collapse of the communist utopia comes the turn of the social democratic utopia, which combined the market economy with social services of all kinds. This made the model seem more solid, and made Europe a destination for millions of people willing to try to get here from Africa, Asia and South America. But the cupboards of the European paradise have been emptied out, and for Europeans too. In fact, the continent is going bankrupt, apart from some exceptions like Germany and the Scandinavian countries, which made the right adjustments in time in order to keep the pyramid from becoming their gravestones. Today, they want to do the same for those who didn’t want to believe what was coming.

No. What we are living through at the moment is a change of cycle, even of an era: this transition means we have to adapt to the new reality that will be dominating our countries and the rest of the world. It is impossible to keep paying out the same pensions, which come from our own contributions, if our life expectancy is longer, just as we can no longer continue to go after automatic wage increases if the company where we work is having difficulties. And we cannot keep up public institutions whose sole function is to pay salaries to relatives and friends, or go on claiming that nothing has been happening over these past decades.

Wealth is currently leaving Europe for emerging economies. Today, our middle class is being challenged by people who want to be the middle classes in Asia and Latin America. Does that mean we will be going back to ration cards and the misery of the post-war years? No. It does mean that today’s young people will be poorer than their parents, but much better off than their grandparents. Put another way: we can no longer spend what we don’t have, which should seem obvious. That’s how it is, even if we are surrounded by self-satisfied leaders who refuse all change and by parties of the left that are more conservative than anyone.