Europe's social safety nets and the global recession

[Count of Montesano]

Interesting article on MSNBC profiling how workers in Germany are also feeling the pinch from the global recession, but nowhere near as much as American workers.
http://www.msnbc.msn.com/id/30363790//

EPPELHEIM, Germany — With its tidy villages, orderly cities and atmospheric scenery, there are few outward signs that the German state of Baden-Wuerttemberg, home to historic Heidelberg and the famed Black Forest, is a victim of the current economic crisis.

But with the auto industry here hit especially hard — this is the home of Mercedes-Benz — things are tougher than they have been in decades. Unemployment is up 70 percent in the past year (albeit to a relatively low 5 percent total) and many employees have been forced to cut down their hours.

Misery below the surface, perhaps? Not at the bustling Fuerstenberger home just outside Heidelberg, where little has changed for the family's four children despite neither parent currently working.
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“If we were in Detroit, we could worry every minute,” said Sarah Fuerstenberger, 37. “But here, we’re safe because of the system."

While economic forecasts are just as dire on this continent as in the United States, Germany’s citizens — and, indeed, most across western Europe — can count on a broad government safety net that includes generous unemployment checks, universal healthcare and inexpensive university education to tide them over.

“The German government is really good about taking care of people; we know we won’t be starving one way or another," she added.

With "Jobs Bloodbaths" in the headlines, tax money being used to bail out private banks and iconic car companies such as Britain’s Mini, France’s Renault and Italy’s Fiat laying off thousands, news here is similar to that across the Atlantic. Unemployment is also the same — around 8.5 percent across Western Europe and the United States.

However, Europe fiercely resisted President Obama's calls for it to increase its stimulus programs last month at the Group of 20 industrial and developing nations summit in London. That’s because leaders here argue that their existing social welfare initiatives are already keeping people afloat as well as stimulating demand.

This of course begs the issue - are strong social safety nets worth their cost? I think it's pretty obvious that America's economic system is best when times are good for tremendous growth. However, in downturns it seems there's a lot more social pain and upheavals. Unemployment is the same in both countries, yet the Germans don't have to worry about losing their home or deciding between feeding their children and affording medicine if they lose their jobs. Also, I have to wonder if the Americans who are being absolutely destroyed financially will be in a better position than their German counterparts when the economy turns around.

[Fishy]

Interesting article on MSNBC profiling how workers in Germany are also feeling the pinch from the global recession, but nowhere near as much as American workers.
http://www.msnbc.msn.com/id/30363790//



This of course begs the issue - are strong social safety nets worth their cost? I think it's pretty obvious that America's economic system is best when times are good for tremendous growth. However, in downturns it seems there's a lot more social pain and upheavals. Unemployment is the same in both countries, yet the Germans don't have to worry about losing their home or deciding between feeding their children and affording medicine if they lose their jobs. Also, I have to wonder if the Americans who are being absolutely destroyed financially will be in a better position than their German counterparts when the economy turns around.

A social safety net like this and it's advantages depend entirely on your own point of view. Economically speaking it's a disaster in time of economic growth and just a minor benefit in time of economic problems. It has other benefits however like less chance for civil unrest, less so called secondary expenses and more chances for the people that are involved to get back on their feet with a job. On the other hand the financial cost of keeping a system like this active during times of economic growth are huge compared to the benefits.

In the end it all comes down to how do you believe a country should take care of it's people. Are people responsible for themselves and should they care of themselves, or should the government protect them against the most dangerous things in their lives if they just can't handle themselves. And should all of society pay for those people.

Personally I think socialists states are better, especially at times like this because it also helps prevent civil unrest.

[Event Horizon]

It all depends on how you calculate the cost and weigh the benefits, doesn't it?

[Tiberios]

Well Denmark has a large social security system, yet before this crises our ecnomy was better than it had been for nearly a half century, with umemployment falling as low as 2,1 % in december 2008.

From wikipedia: Denmark has a GDP per capita higher than that of most European countries, and 15-20% higher than that of the United States.

So despite an expensive social security sector, I wuld say we are doing pretty well. the same with Germany, Sweden and Norway.

[Treize]

It is something a goverment owes to it's citizens, wether it is expensive or not.
It also increases equality.

[Zadig]

The thing is that now, during the downturn Anglo-Saxon deregulated economies are suffering the most in the western world, whilst the Nanny States in Europe aren't doing too well either, but not as badly.
However when times get better, eventually, the growth in the deregulated economies will be much higher than in those countries with strong labour laws.
Simply because during the crisis, it has been the companies who have been loosing out in terms of jobs in France for example, and they will be reluctant to go back and invest if they can't get out easily.

[The Dude]

It just hit me that this social safety net might also be the underlying foundation for the differences between how americans and europeans approach their governments. In the US, there is large distrust for the government and less government seems to be a popular ideal there. No wonder, the governments never been there for americans like european governments have been there for us. We have come to trust our leaders to a much greater extent, and with that the system, simply because they've proven themselves.

Ok, sure, there are screwups and we don't always agree with what our leaders do but that's unavoidable. And a problem easily solved by elections. I think that americans should learn to trust their leadership to a greater extent. It's why europeans are for example so resented by a channel like Fox News that actively campaigns against the Obama administration. Something like that is simply unthinkable around here. Not because we're "sheeple", but because we trust our government so much more that we wouldn't actually -want- to disrupt and harass them.

Now don't think that everything's all roses and butterflies here. Of course we have our problems too. But I think the essential difference between how either continent looks at its leadership can perhaps be traced be back to things like what the OP talks about.

[Event Horizon]

It just hit me that this social safety net might also be the underlying foundation for the differences between how americans and europeans approach their governments. In the US, there is large distrust for the government and less government seems to be a popular ideal there. No wonder, the governments never been there for americans like european governments have been there for us. We have come to trust our leaders to a much greater extent, and with that the system, simply because they've proven themselves.

Ok, sure, there are screwups and we don't always agree with what our leaders do but that's unavoidable. And a problem easily solved by elections. I think that americans should learn to trust their leadership to a greater extent. It's why europeans are for example so resented by a channel like Fox News that actively campaigns against the Obama administration. Something like that is simply unthinkable around here. Not because we're "sheeple", but because we trust our government so much more that we wouldn't actually -want- to disrupt and harass them.

Now don't think that everything's all roses and butterflies here. Of course we have our problems too. But I think the essential difference between how either continent looks at its leadership can perhaps be traced be back to things like what the OP talks about.

Fair point, but ultimately the popular vote is the definition of ideological common ground. If the U.S.A distrusts its Government it is because it has voted into power Goverments that it cannot trust.

Either that or the public cannot see nor understand what has occured nor been achieved because of ideological differences.

I would add that this phenomen is not unique to the U.S.A. It has occured in Europe many times in the past and it is occuring now. The Second World War produced a unity of perspective that was unique and temporary, in my opinion, and ultimately frustration and lack of fulfillment by the common people means the death of any form of Government as well as the penchant for extremist political views throughout all electorates.

There is validity in all perspectives, and I do not speak simply of politics. The fact that the merit can not be entertained through personal prejudice is a far deeper issue than simple opinion. By their own nature, all Governments are ultimately slaves to their populace, and the best that can be hoped for in any state is that it's laws slowly comes to embody the basic common perspective of its people.

I think, personally, that this perspective goes a long way to explaining the conflict of ideology in the U.S.A that is much more limited in the European states. The U.S.A wishes to be both equal and meritocratic and views itself as the bastion of both. Europe has a longer history and has managed to enshrine the common held perspective of equality within the laws of its state, but not without its struggles, not without it centuries of conflict, not without its near annhilation, and not without its critics nor its problems. The knowledge that equality and fairness is an ethical truth is universal, but the practice of such is much harder to impliment and is caught up in the storm of ideology.

I don't think people are all that different, but I am fully aware that ideologies and states are different. There are reasons for this, and when they can be understood sufficiently by those that actually have the power to represent others, then we will be all the better for it.

Consider that the only true difference between Obama and Bush is ultimately experience and interpretation, and I think you will see my point.

[Ulyaoth]

American views towards government make no sense. Being a patriotic American is mostly viewed as being a good god fearing tax payer, loving your president and federal bureaucracy, loving the military, saluting the flag, and hating those damn evil communists. Now of course, this is the idealized view of what they should be, in reality, whenever the other party is in power, most people become angry and distrustful of the government and unproud of the country.

[Bovril]

Benefits are a good way of pumping money into the productive economy (rather than the financial sector). Taxing people who are likely to save and giving the money to people who are likely to spend keeps the wheels oiled. Its good, old fasioned, demmand side Keynesianism of the sort that has helped end recessions in the past.

In the US, there is large distrust for the government and less government seems to be a popular ideal there.

Maybe this is too simple. I don't think Europeans trust their governments more, but it may well be that they feel they have more control over them. Higher rates of unionisation, political pluralism and so on show a more active and participatory democratic culture in western Europe than the US. There is a great deal of talk and speculation about politics in the US, but it's largely along the lines of picking a team and supporting rather than direct participation. This is a massive oversimplification, but given that we have to make one, I think this is a fair one to make. I can't stress enough the idea that active trade unions are the most important democratising force in capitalist societies. Active participation in issues that directly effect oneself is the only way to be genuinely politically empowered.

[S.L.I.G]

The safety nets are a drain on people working, and ultimately a massive drain on society as a whole. If the recession becomes a depression in America- and its likely that it will, it will reach Europe as well. They will not be able to afford these safety nets without massive inflation, worsening the depression. Social pay outs [universal healthcare, social security, yada yada yada], are always fine in the short run, but are ultimately unsustainable in the long run. Period. The article rambles on about the glory of the German system, but what is Germany's economy compared to America's? It's not effected as much whatsoever by the economic downturn [obviously nothing to do with their welfare system], and therefore, the effects of the downturn have yet to been felt as harshly on their people, or their welfare system.

[Marie Louise von Preussen]

Generous social benefits come at a price, namely higher taxation by the working population. It will probably need a deep reform if it were to survive on legions of elderly people being sustained by a gradually smaller and strained young population, as in the near future.

And it is exactly the presence of a variety of factors, including the high burden of sustaining a safety net, that brings the cost of raising children up and making it less attractive for people to give continuity into the system. For if there's no next generation, then who's going to sustain whom?

[S.L.I.G]

Generous social benefits come at a price, namely higher taxation by the working population. It will probably need a deep reform if it were to survive on legions of elderly people being sustained by a gradually smaller and strained young population, as in the near future.

And it is exactly the presence of a variety of factors, including the high burden of sustaining a safety net, that brings the cost of raising children up and making it less attractive for people to give continuity into the system. For if there's no next generation, then who's going to sustain whom?

Exactly. In a paradoxical kind of way, in order to afford social benefits, we must remove social benefits. Maybe throw them in every couple of decades for the lucky few, then yank them before it causes systematic damage?

[Bovril]

It will probably need a deep reform if it were to survive on legions of elderly people being sustained by a gradually smaller and strained young population, as in the near future.

The way to avoid theproblem of an aging population, as is proved by observing birth rates in western Europe, is to increase provisions for parental leave, increase the minimum wage, increases subsidees to child care, etc. The laissez faire approach to governement policy necesitates either an aging population or immigration in wealthy societies.

[S.L.I.G]

The way to avoid theproblem of an aging population, as is proved by observing birth rates in western Europe, is to increase provisions for parental leave, increase the minimum wage, increases subsidees to child care, etc. The laissez faire approach to governement policy necesitates either an aging population or immigration in wealthy societies.

Subsidies for child care, as well as parental leave have shown increase in population growth [for example in Quebec]. However, how much of that is in the short term? How much of those taxes will not harm people in the future who want kids? How much of raising the minimum wage to the point of lowering profitability [and therefore incentive to invest], jeporadize the future of society? Ultimately, increasing house prices [due to an increased population, largely because even with low birth rates, old people do not die anymore], and increasing medical costs/retirement pensions/a recession~ you go down the line, the welfare state is a massive burden on the young. You do not alleviate the burden of a welfare state by increasing the burden.

Some things are possible to be beneficial in the short term [tax incentives, pensions], and some things are not possible in the long run [tax incentives, pensions], for the majority of society. Ultimately to get population back up we should

1) Cut Government spending [and I dont mean entirely, but there is definitely systamatic weakness thats going to get worse and needs to be cut down before it gets there]

2) Promote family ideals in education. Hammer it into our Children that having Children is the greatest thing they can do. Yes, propaganda. Only fair given that the media spreads its own propaganda that Children are a burden, and a carpe diem life style is the only life style anyone should have.

[Event Horizon]

Generous social benefits come at a price, namely higher taxation by the working population. It will probably need a deep reform if it were to survive on legions of elderly people being sustained by a gradually smaller and strained young population, as in the near future.

And it is exactly the presence of a variety of factors, including the high burden of sustaining a safety net, that brings the cost of raising children up and making it less attractive for people to give continuity into the system. For if there's no next generation, then who's going to sustain whom?

A percentage of GDP will always be invested in a safety net for old age. Your point is valid only if the level of support for the individual is identical under a public system than under a private one.

[Marie Louise von Preussen]

The way to avoid theproblem of an aging population, as is proved by observing birth rates in western Europe, is to increase provisions for parental leave, increase the minimum wage, increases subsidees to child care, etc. The laissez faire approach to governement policy necesitates either an aging population or immigration in wealthy societies.

This has been conducted in several countries of the Euro bloc. Right now the state gives childcare benefits and handouts for mother and infant, yet countries like Germany which adopted it showed only a marginal premise of increase.

By far the largest birthrate is in France, which has also one of the largest Muslim populations of the EU... And also one one of the highest rates of unemployment (more government handouts, less tax burden on a larger number of people).

A percentage of GDP will always be invested in a safety net for old age. Your point is valid only if the level of support for the individual is identical under a public system than under a private one.

Great, and what if we have a large portion of elderly men receiving pensions and only a small portion of young men working and contributing to social security nets? The burden becomes enourmous, as it is self-evident, and probably unsustainable.

[Event Horizon]

Great, and what if we have a large portion of elderly men receiving pensions and only a small portion of young men working and contributing to social security nets? The burden becomes enourmous, as it is self-evident, and probably unsustainable.

Without social security nets how does this precise problem change? Elderly men will have paid into pension funds all their lives and those pension funds will now be paying out, while the small portion of young men are working and contributing to their own pension funds.

What are the real differences? I can think of only pension size and coverage. What about you?

[S.L.I.G]

Without social security nets how does this precise problem change? Elderly men will have paid into pension funds all their lives and those pension funds will now be paying out, while the small portion of young men are working and contributing to their own pension funds.

What are the real differences? I can think of only pension size and coverage. What about you?

The difference is the elder population is bigger. If pensions were private and not Government based, then once the pensions were a big enough liability [to the point where they cripple the company, as they are crippling the nations of the West now], the pensions would be broken, one way or the other.

[Sphere]

I think a key point here is that we are comparing individual national European Governments to the US Federal Government which has authority over roughly the same population as the EU.

Most safety-net programs are not administered by the US government but rather individual states. Unemployment insurance, health insurance, welfare etc. are partially funded by the Federal government, but the states often kick in more money, and decide how it is spent. Most Americans prefer this system as the Federal Government is too big and too distant to do these things well (which is oft the complaint agaisnt the EU).

So the safety net varies greatly throughout the US. In Mass. there is near universal healthcare, in Minnesota welfare support continues even after you get a job, but when you go to states like New Mexico or Mississipii, the saftey-net is much, much slimmer.

I think the bigger divide between Europe and the US surrounds government involvment in industry. Government ownership stakes in companies, wage regulations, employment regulations etc. are drastically different. I myself had a little culture shock when my german friend informed me that the salary of architects is set by the government. Such a thing would be heresy in the US.