Robert J. Samuelson

America's giant welfare state

America has a hybrid welfare state, partly run by the government and partly outsourced to private markets. -- PHOTO: AFP 
America has a hybrid welfare state, partly run by the government and partly outsourced to private markets. -- PHOTO: AFP 

We Americans pride ourselves on not having a "welfare state". We're not like Europeans. We're more individualistic and self-reliant, and, although we may have a "social safety net" to protect people against unpredictable personal and societal tragedies, we explicitly repudiate a comprehensive welfare state as inherently un-American.

Dream on.

Call it a massive case of national self-deception. Indeed, judged by how much countries devote of their national income to social spending, we have the world's second-largest welfare state - just behind France.

This is not just conjecture. The Organisation for Economic Cooperation and Development (OECD) has recently published new figures on government social spending: unemployment insurance, disability payments, old-age assistance, government-provided health care, family allowances and the like.

By this measure alone, the United States is hardly a leader. It ranks 23rd in the world with social spending of roughly 19 per cent of gross domestic product (GDP). This is slightly below the OECD average of 22 per cent. France is the champ at nearly 32 per cent. (The data is generally the latest available, including some estimates for 2014.)

But wait. Direct government spending isn't the only way that societies provide social services. They also channel payments through private companies, encouraged, regulated and subsidised by the government. This is what the US does, notably with employer-provided health insurance (which is subsidised by the government by not counting employer contributions as taxable income) and tax-favoured retirement savings accounts.

When these are added to the government's direct payments, rankings shift. France remains at the top, but the US vaults into second position with roughly 30 per cent of its GDP spent on social services, including health care. We have a hybrid welfare state, partly run by the government and partly outsourced to private markets.

The OECD report brims with insights about welfare systems. Did you know, for example, that China - heir to a communist social system - has a puny welfare state compared to most wealthy nations? In 2009, its social spending equalled 7 per cent of GDP.

Or did you realise that, despite all the talk of "austerity", government social spending has hardly been reduced in most countries. The OECD reports cuts in a few nations (Greece, Germany and Canada, among them) but also finds that "in most countries social spending remains at historically high levels".

The main message that Americans can take from this report is that we need a higher level of candour. The very complexity of our hybrid system seems intended to disguise the reality that we have a welfare state. We have created a new vocabulary to validate our denial. From our "safety net", we distribute "entitlements" that are not "handouts" and don't qualify as "welfare" payments.

We pretend (or some of us do) that our Social Security taxes have been "saved" to provide for our retiree payments, when today's Social Security cheques are mainly financed by the payroll taxes of today's workers, just as yesterday's cheques were financed by the taxes of yesterday's workers.

If we were more honest about these matters, we might have an easier time debating what are admittedly difficult and unpopular choices. Who deserves benefits, how much and why? What are the consequences for taxpayers and the larger society? Does our hybrid mix of public and private power make sense?

These are insistent issues that won't vanish even though we pretend they don't exist.