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Social Welfare Models And a Revolution
There are political turmoils in France, hidden behind the dis-affirmation of the European constitution, and in Germany now open in the campaigns for the federal election. In the United States the discussion about Social Security and about the election of judges, who are committed to a pre-Roosevelt state, are extensive.
All these arguments are results of economical problems in these developed countries a decade after three billion "new capitalists" in developing countries entered the global market place.
Central to the discussions, though sometimes hidden, is the role of the state in social welfare – defined as health care, education and unemployment and retirement safety. There are three models for the role of the state in these fields.
In the first model the state keeps mostly out of social welfare programs and lets them organizes privately within some regulations. Social welfare is restricted to emergency care and to prevent starvation and homelessness. It is payed for by taxes.
The second model describes societies where social welfare is organized by law, but is not financed by taxes. Employees and employers pay for mandatory health care, unemployment insurance and social security to dedicated system in capped percentages of individual wages.
‘All included’ welfare states of the third kind finance welfare through taxes. Self employed and people living from capital gains do pay into the system via general taxes as anybody else does and are also entitled to social benefits through these systems like anybody else.
The first model can be found in a pure form in the United States before Roosevelt and will exist again if Bush II finishes his program. Such state will have the lowest state share of GDP (< 20%) and the biggest differences between rich and poor. Labor costs (Wal-Mart) and tax levels are already low. The second model is the the current Continental-European one, with a tax share of some 35% of GDP and medium difference between rich and poor. Taxes are modest, but labor costs are high as they include health insurance and social security costs. The third model is practiced in Scandinavia with a 50% state share of GDP and tax financed social welfare for all.
With many developing states entering the global market place, the competitiveness of the developed states is in question. To erect a new factory global businesses are looking for law and order, low taxes on capital gains, low wage cost and a highly educated and healthy workforce.
In a "race to the bottom" all developed states have lowered taxes on capital gains and by now diminished these as a factor of competitiveness. This leaves wage costs and work force quality as the main competition factor between developing and developed countries.
The United States tries to solve the competition problem by privatizing more of education costs, social welfare cost and the associated risk, while at the same time pumping up consumption by lowering taxes. (Where social welfare is still part of labor contracts, companies are trying to cut it back through negotiations or do socialize the costs through chapter 11 procedures as United Airlines does now and GM and Ford will do next year.) This leads to a society with high, and growing, disparities and to huge state deficits.
It is questionable if a nation with this model can keep its long-term competitiveness as the competition factors education, workforce health and social peace are degrading in such an environment.
The Continental-European countries (France and Germany) have so far attempted to avoid any change. They still finance social welfare mostly through wage related payments. This leads to low competitiveness and high unemployment rates. As their social welfare systems are financed through wages, the payment to these systems have to be increased when unemployment is high, leading to even less competitive wage costs. This spiral is unsustainable.
These states are now in huge political struggles about the right way to go. Neoliberal forces (and "the money") on the political right desires an "American model", lowering the level of social welfare and thereby its costs, while the left wants to stick to a general welfare state. Nobody wants to call for higher taxes. The center is paralyzed and everybody is avoiding a decision.
The Scandinavian countries have, for now, solved the problem without diminishing their welfare state. They did lower their taxes on capital gains too, but they increased income and consumption taxes. The income taxes are highly progressive with the top rates around 56% and value added consumption taxes are up to 25%.
The distance between the poorest and the richest groups is very low compared to the U.S. and lower than in Continental-Europe. If you want to earn, and keep, millions per year as CEO, it is probably not the place to be. At the same time your children and you, like everyone, are entitled to very good free health care and a free and excellent education systems. As wage costs do not include welfare costs these states are internationally competitive. The Scandinavian countries do have low unemployment rates and balanced budgets. Their model is, for now, sustainable.
Personally (I live in Germany), I would have to pay higher taxes in a Scandinavian like environment. But for these I would receive more security and a peaceful social environment – my personal preference. So my hope is for the France and Germany elites to see the advantages of the Scandinavian model and to steer their countries and Europe into that direction. My petition is: Please change the wage financed social systems into tax financed and increase income and consumption taxes to balance the budget. If promise to do this, you will get my support and my vote.
For the United States a Scandinavian like model would be a revolution like the New Deal was around 1935. Revolutions only come, when the failure of the society and its leading elites are highly visible. Like in the early 1930s America is well on the path for the huge failures of recent political choices to become obvious to everyone. Thereafter comes the revolution.
The expression “organized or state-regulated capitalism” refers to two classes of phenomena, both of which can be attributed to the advanced stage of the accumulation process. It refers, on the one hand, to the process of economic concentration-the rise of national and, subsequently, of multinational corporations-and to the organization of markets for goods, capital, and labor. On the other hand, it refers to the fact that the state intervenes in the market as functional gaps develop. The spread of oligopolistic market structures certainly means the end of competitive capitalism. But however much companies broaden their temporal perspectives and expand control over their environments, the steering mechanism of the market remains in force as long as investment decisions are made according to criteria of company profits. Similarly, the supplementation and partial replacement of the market mechanism by state intervention marks the end of liberal capitalism. Nonetheless, no matter how much the scope of private autonomous commerce of commodity owners is administratively restricted, political planning of the allocation of scarce resources does not occur as long as the priorities of the society as whole develop in an unplanned, nature-like manner-that is, secondary effects of the strategies of private enterprise. In advanced-capitalist societies the economic, the administrative, the legitimation systems can be characterized, approximately and at a very general level, as follows.
The Economic System. During the sixties, various authors, using United States as an example, developed a three-sector model based on the distinction between the private and the public sectors; According to the model, private production is market-oriented, one sub-sector still being regulated by competition while the other determined by the market strategies of oligopolies that tolerate a “competitive fringe.” By contrast, in the public sector, especially in the armaments and space-travel industries, huge concerns have arisen whose investment decisions can be made almost without regard for the market. These concerns are either enterprises directly controlled by the state or private firms living on government contracts. In the monopolistic and the public sectors, capital-intensive industries predominate; in the competitive sector, labor-intensive industries predominate. In the monopolistic and public sectors, companies are faced with strong unions. In the competitive sector workers are less well organized, and wage levels are correspondingly different. In the monopolistic sector, we can observe relatively rapid advances in production. In the public sector, companies do not need to be rationalized to the same extent. In the competitive sector, they cannot be.
The Administrative System. The state apparatus carries out numerous imperatives of the economic system. These can be ordered from two perspectives: by means of global planning, it regulates the economic cycle as a whole; and it creates and improves conditions for utilizing excess accumulated capital. Global planning is limited by the private autonomous disposition of the means of production (for the investment freedom of private enterprises cannot be restricted) and positively by the avoidance of instabilities. To this the fiscal and financial regulation of the business cycle, as individual measures intended to regulate investment and demand-credits, price guarantees, subsidies, loans, secondary redistribution of income, government contracts guided by business-cycle policy, indirect labor-market policy, etc.-have the character of avoidance strategies within the framework of goals. This system is determined by a formulistically demanded adjustment between competing imperatives of steady growth, stability of the currency, full employment, and balance of foreign trade.
While global planning manipulates the boundary conditions of decisions made by private enterprise in order to correct the market mechanism with respect to dysfunctional secondary effects the state actually replaces the market mechanism whenever it creates and improves conditions for the realization of capital:
-through “strengthening the competitive capability of the nation” by organizing supranational economic blocks, securing international stratification by imperalist means, etc.;
-through unproductive government consumption (for example, armaments and space exploration);
-through guiding, in accord with structural policy, the flow of capital into sectors neglected by an autonomous market;
-through improvement of the material infrastructure (transportation, education, health, recreation, urban and regional planning, housing construction, etc.);
-through improvement of the immaterial infrastructure (general promotion of science, investments in research and development, provision of patents, etc.);
-through heightening the productivity of human labor (general system of education, vocational schools, programs for training and re-education, etc.);
-through relieving the social and material costs resulting from private production (unemployment compensation, welfare, repair of ecological damage).
Improving the nation’s position in the international market, government demand for unproductive commodities, and measures for guiding the flow of capital, open up or improve chances capital investment. With all but the last of the remaining means this is indeed a concomitant phenomenon; but the goal is to increase the productivity of labor and thereby the “use value capital (through provision of collective commodities and through qualification of labor power).
The Legitimation System. With the appearance of functional weaknesses in the market and dysfunctional side effects of the steering mechanism, the basic bourgeois ideology of fair exchange collapses. Re-coupling the economic system to the political-which in a way repoliticizes the relations of production–creates increased need for legitimation. The state apparatus no longer, as liberal capitalism, merely secures the general conditions of production (in the sense of the prerequisites for the continued existence the reproduction process), but is now actively engaged in it. It must, therefore-like the pre-capitalist state-be legitimated, as though it can no longer rely on residues of tradition that have been undermined and worn out during the development of capitalism. Moreover, through the universalistic value-systems of bourgeois ideology, civil rights-including the right to participate in political elections-have become established; and legitimation can be disassociated from the mechanism of elections only temporarily and under extraordinary conditions. This problem is resolved through a system of formal democracy. Genuine participation of citizens in the processes of political will-formation, that is, substantive democracy, would bring to consciousness the contradiction between administratively socialized production and the continued private appropriation and use of surplus value. In order to keep this contradiction from being thematized, then, the administrative system must be sufficiently independent of legitimating will-formation.
Habermas, from Legitimation Crisis
Posted by: slothrop | May 31 2005 14:57 utc | 81
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