In this blog post, I will examine whether the two values of economic differentiation being just and the sustainability of the welfare state can coexist in harmony.
The accumulation or concentration of economic resources and activities is natural in the process of economic and social development, but it is likely to result in imbalances. For example, as the economy and society develop, more resources can be concentrated on hard-working economic agents, which can lead to more unequal wealth distribution. However, Henry Sidgwick believed that such economic differentiation based on distribution, that is, that each person receives a reward commensurate with their performance, is just.
Does this mean that we don’t have to consider the so-called “people in the shadows” who are bound to fall behind under the paradigm of differentiation? The answer to this is not only “no,” but also that humans should not do so. Adam Smith’s “sympathy and compassion” and John Rawls’ “consideration for the members of the community in the most difficult situation” are essential moral commands for the survival of a social community. Therefore, it is impossible to imagine a country without welfare policies.
The degree of government intervention for the welfare of the people has varied depending on the times and circumstances. The welfare state, which emerged as a concept of opposition to the war state of Nazi Germany, was established in 1942 by the Beveridge Report as a concept of the state taking responsibility for the welfare of individuals “from cradle to grave.” In other words, the welfare state refers to a form of state intervention aimed at guaranteeing minimum income, providing a social safety net, and ensuring the best social services for the general public. After World War II, developed countries suffered from welfare sickness due to excessive welfare spending in the process of confronting socialist countries, and the concept of the welfare state has declined significantly in recent years. However, the Nordic countries, which have high national income, still maintain a high level of welfare system. In the end, the degree of welfare can be said to depend on the economic power of the country.
Now, we should be concerned not with the degree of welfare but with which welfare system will be sustainable. To this end, we can find the solution in the economic differentiation mentioned earlier by Henry Seidgwick. No matter how strong an economy starts out and how much it aims to become a welfare state, if welfare is implemented in a way that denies the basic principle of development, that is, differentiation, the economic development itself may be hindered, thereby undermining the sustainability of the welfare state. This possibility can manifest itself in two ways.
First, if excessive taxes are imposed on those who make an effort in the process of raising funds for welfare, the principle of differentiation is undermined, and the dynamism of economic and social development is weakened. Second, if welfare spending is supported simply because it is “in a shady environment,” moral laxity may occur. If the healthy labor force receives support simply because they are in the shadow, they will not only be content with the status quo, but also cause another form of moral hazard in which the relatively better-off fall into the shadow.
Therefore, the following methods are very useful for maintaining economic dynamism while fulfilling the functions of a welfare state. In other words, the method of financing welfare should not be so high-rate that it discriminates against those who make an effort on their own, and the welfare system should have the fundamental purpose of bringing people out of the shadows. In the end, welfare spending should be made in a way that favors those who try to become “self-helpers” so that they can lead the way to self-reliance.
