Unbundle the Welfare State
From the December 20, 2010, issue of NR.


Jim Manzi

The fundamental issue of political economy in the Western world has been the same for at least the past 200 years: drawing the right lines between government authority and individual initiative. In the broadest terms, freedom has been winning. What the West has invented through Burkean trial and error has not been a libertarian utopia, however, but a workable hybrid that emphasizes freedom while creating a significant role for the government in domestic politics. 

The United States, the European democracies, and the other free nations have not converged on a single solution; instead, they have created variations on a theme that change over time, often in response to new or localized challenges and opportunities. This complicated reality makes it hard to deduce answers to most practical political questions from theory alone. But it can be helpful to look at the big picture in order to establish the context for our more fine-grained debates.

The long-term course of broadly capitalist societies is one of higher and more rapidly rising living standards than those found in societies with different methods of social organization. On the evolutionary timeline, however, the commercial republic is a brand-new invention. One should expect social evolution’s outpacing of biological evolution to create profound conflicts. 

Certain aspects of capitalism accord with our commonsense understanding of evolved human nature. One important example is the right to property, which in the primitive sense of “mine, not yours” appears in legal codes, myths, and stories as far back as we have writings. It is in the archeological record before that and has antecedents even in the territorial behavior of many animals. It is fair to describe the sense of property as an instinct. Another example is that both archeological findings and modern cognitive experiments have provided strong evidence to support Adam Smith’s famous assertion that some “propensity to truck, barter, and exchange one thing for another” is inherent to human beings. 

Capitalism can channel potentially destructive human characteristics — including greed, envy, and the need to establish personal and group dominance over others — into benign and socially productive work. This is because capitalism allows expression of these urges without violence as markets transform our baser motivations into general progress. 

Other aspects of capitalism, however, appear to conflict with human nature. The deep anxiety created by the choices offered to individuals in a free society was noted at least as early as ancient Athens, and a modern, extensive capitalist economy exacerbates this condition greatly. We simultaneously seek autonomy and desire to be part of an organic community. Further, while human beings are skilled at the social tasks required to act upon exchange within small face-to-face groups, it is unnatural to build alliances, judge intent, form emotional bonds, and trust others across a vast, impersonal modern market economy. 

The West has built an edifice of markets and free political institutions through a combination of luck, work, foresight, and painful trial-and-error learning, and this has produced once-unimaginable prosperity. But that achievement faces a constant undertow of resistance. It is essential for those who defend market institutions not to mistake this resistance for a defective temperament or malign intent on the part of those who display it, but rather to realize that it is, in part, an inevitable manifestation of human nature. This tension sits at the root of the debate about the line between government authority and individual initiative, and a contemporary capitalist democracy must find a way to manage it.

Governments in advanced democracies have deployed several overlapping strategies to ease the anxieties of capitalism. Among the most important are appeals to patriotism and other non-economic bases of social cohesion, explicit support for non-market institutions such as traditional families, and investments in the development of human capital. All are useful, but this combination of strategies never works perfectly or completely. Hence the creation of the welfare system, a complex of government-funded programs including pensions, health-care subsidies, transfer payments, and unemployment insurance. Public schools are dual-purpose institutions; they build human capital but also perform many social-welfare functions.

The welfare system represents the majority of government spending in most modern, advanced nations. Even in the United States, with its ideological commitment to capitalism, spending on pensions, health care, education, and welfare accounts for a majority of the primary public budget across the total of federal, state, and local governments.