Misdiagnosing the Ills of the Welfare State: How both the Right and Left Get it Wrong

As America's industrial economy continues its decline, at least as it relates to middle class American jobs, both the right and left in American politics search for solutions. The right swears that the issue is too much governmental spending, too much red tape, and that if we'd only unchain the economy things would improve for American workers. They're right to a degree, but not right enough. Though it's true we would see some growth from a smaller regulatory state, and should do all we can to shrink the regulatory burden, deregulation alone won't solve the problem for millions of Americans who've lost their jobs and any prospects of gainful employment in the future. What's more, there are only so many regulations that can be feasibly targeted: like or not, there's just not the political support to overturn many of the regulations in place.

The left, meanwhile, wants to double down on the welfare state: more government rationed health care, more regulations on businesses, stronger worker protection, less free trade, rules that stack the deck for organized labor, etc, etc. While such a policy arguably offers the promise of wealth redistribution from the upper classes to the middle class, it's not a prescription for growth. Worse, it runs the risk of killing the goose that lays the golden eggs!

A sensible middle course would work to increase the creative, entrepreneurial capacities of those left behind. A CNN story today highlights the challenge: 45% of Americans between 16 and 29 yrs old can't find work! And for the first time in history, credit card debt has been surpassed by student loan debt nationwide!

Consider that: the most educated group of young Americans in history, leveraged to the hilt in the process, and nearly half can't find work! Clearly, somewhere in the mix our education system is failing us!

If America is to tap the maximum potential of its citizens, it must find new ways to prepare its workforce to fill the jobs and create the businesses vital to prosperity in the 21st century. That can't be accomplished without a robust state (i.e. central government) taking the lead in new-economy policy, but simply feeding the current beast won't work either. Eventually, America's right and left wings will have to come with these realities.

Revolutionary Chaos?

Great read from Sergei Karaganov. Some snips:

Here is where we come to grips with an especially remarkable phenomenon. Social protests and revolts have burst in the grassroots of affluent Western societies, and although the demonstrators calling for the occupation of Wall Street and other places refer to the example of the Arab Spring, the causes of protests in the West are certainly not rooted in tyranny combined with corruption, or in informational semi-openness and semi-famine evidenced in the Arab world.

The root-causes are many but there are two major ones.

First, social inequality has grown unabated across the Western world over the past two to three decades. It was fuelled in many ways by the disappearance of the Communist threat. Overwhelmed by own problems, we, Russians, would whine about inequality in this country and yet it was growing everywhere – and was tolerable until a certain moment, as the downfall of Communism and the consequent vast expansion of the capitalist market made the slices of the pie bigger for everyone.

Second, the situation started changing fast in the last decade, when dozens of millions of jobs shifted to Asia, which was inexpensive, increasingly better educated and ready to work hard. The traditionally consistent increase of wellbeing in Europe stalled and then recoiled.

The West, awash with the euphoria of victory over Communism and the seemingly endless economic growth, which was largely fed by external factors, failed to embark on the necessary structural reforms (Germany and Sweden are rare exceptions). Instead of reforms, the outward prosperity became more and more heavily reliant on borrowings.

So what do we do now? Karaganov offers this boilerplate:

The reforms that are essential for raising competitiveness are painful and difficult to implement, as the authorities have to seek electoral consent from the majority whom these reforms unavoidably hit the hardest.

And he offers this this note of promise:

...the newly emerging world brings not only problems but also huge opportunities. Billions of people in Asia have extricated themselves from half-famine. New markets and spheres for applying one’s intellect, education and labor are appearing every minute… Victory in it will be won by those people and countries that are capable of readjusting themselves in advance.

The Opportunity State: Take 1

For several years I’ve had a theory on globalization. Namely, while it brings unprecedented prosperity to those who are prepared for it, it simultaneously wreaks havoc in the lives of those whose lives are geared for the industrial economy, and that we need a better governmental response to integrate those who are being left behind. To me, that response should be a transition from the state led, macroeconomic model known as the welfare state and towards a model that fosters education, training and preparedness among the masses. I call it the Opportunity State. That is, a state led economic paradigm that will replace the Welfare State.

The hallmarks of this state will be continued education, training and workforce development. With an Opportunity State, governments will transition their efforts away from ensuring a de minimis standard of living and will instead focus on developing the creative and entrepreneurial capacities of its citizens. Focus will shift from redistribution of wealth to greater distribution of the means to create wealth. When nations adopt an Opportunity State they will understand that globalization is irresistible; instead of trying to create barriers to it, they will attempt to create new means for their citizens to tap its incredible potential.

Although I have the basic workings of the Opportunity State in my head, the goal of this site is to help me sharpen my ideas, hopefully with the help of commenters. Eventually, this will allow me to better express my views, hopefully in some sort of publication form. In some ways, this project is a continuation of a theme I spent quite a bit of time on in my first blogging foray: cyberhillbilly.blogspot.com. That site was where I first articulated the term “the opportunity state.”

Although the term Opportunity State has been used in some publications since, such as here and here, so far as I can tell, I am one of the first to have used this terminology. Further, whereas others on the right and left have used this term to describe their vision of a society that promotes opportunity via the state, neither has attempted to make an all-encompassing argument about the outright replacement of the welfare state as I will here.

This is just an early snap shot of where I see this project going as of Dec. 30, 2011. I appreciate readers’ feedback and comments.