Free Market Economy/Classical Liberalism Vs. The Welfare State – Which is the better ideal?

For years I’ve always shunned the complete Free Market Economy with its emphasis on laissez-faire based capitalism. The problems inherent have always been obvious to me so I have tended to preference a more leftist welfare based state. However as I begin to understand more of the political makeup of the left I also find that many left groups (while admittedly better than right groups) can be preaching a rather extreme course of action. Like almost all things in life a balance seems to be required, a balance between the ability to make money and the responsibility to pay taxes so that society is fair and has a degree of security.

What sparked this whole debate in my mind again was ironically simply the fact that I did some casual work today in which I was assigned to work with my boss’s father. He is a Swedish man by the name of Sten (essentially stan, but Swedish) and was I believe 70 years old. Despite the large age difference between the two of us, I quickly found myself enjoying his company as he was very friendly and talkative. Eventually we talked of Sweden which is renowned for having an extremely good welfare state, or so I had previously believed. Sweden has extremely high tax rates and thus it would be assumed that It has a good welfare system. Like many European countries I believe it has good public schooling and good health-care, something which America certainly lacks. If you have not already seen it I highly recommend you watch Michael Moore’s “Sicko (Special Edition)” as it is an interesting movie comparing the American health system to those of other countries.

Despite all this it appears, according to Sten, that Sweden does not have the most efficient welfare system in the world. It may well be that a lot of the money disappears in various bureaucratic processes, which is a common complaint of the classical liberals. Even if this is not the case there are other problems. The tax system in Sweden which effectively is the heart and soul of the welfare system is much to high. Even I, a person of rather left-wing views must say this. Sweden may be held up as a totem of how states should be, but like any other state it certainly has its flaws. A nice analogy for the high tax system was given to me when Sten told me of the famous author Astrid Lindgreen who was the author of Pippi Langstrump (or Pippy Longstockings, a renowned children's book). Apparently Lindfreen was taxed at 104% of her income! That is to say for every $100 she earned she had to pay the government $104. However I think Sten may have been just off the mark as other sources I have found state that it was 102%. Regardless, it’s just horrifically high. As “http://www.sweden.se/templates/cs/Article____18005.aspx” states:
“at the age of 68 she submitted an opinion piece to the Swedish daily Expressen on the subject of a loophole in the Swedish tax system which meant that she, as a self-employed writer, had to pay 102 percent tax on her income. She wrote the piece in the style of a fairytale, and it had an immediate impact.”

The high taxation system also has other huge problems. According to “Statistics Sweden” the mean tax rate is 30.44% this year (2008), which still seems a little high. This huge taxation rate as Sten explained means many people aren’t motivated to work (or at least not much) as:
1) So much of what they need is supplied by the government (education/medical etc)
2) They have to give such a large amount of what they earn back to the government in the form of taxation

Another problem with high taxation (as The Classical Liberals always argue) is that it creates “corruptness” so to speak. While not what we would consider really bad crimes, it becomes the case that professionals serve one another for free, so that they don’t have to pay for each other’s services and also don’t have to pay the huge amounts of tax they would otherwise pay to work for them, only to spend on each others service’s. Thus it works out better for them to do jobs for one another unofficially, maybe with some cash in hand. In essence the high tax levels would no doubt lead to a large amount of tax fraud around the country. (See: “http://www.skatteverket.se/download/18.3dfca4f410f4fc63c8680003885/swedish+report+200604B+.pdf” for more details)

Of course the welfare system they have in place is of course very good, despite the various flaws inherit in it. While I think Sweden is an example of extreme left-wing thinking and is ultimately too extreme to be sustainable I do think many countries could do with adding some welfare state systems into their economies. I believe we need taxation for various purposes namely a fair health system, a fair education system and basic support for those in dire need. When I say dire need I really only mean the heavily impoverished. There should also be reasonably cheap transport which if needed should be government subsidised to encourage people to use public transport and also do the environment good in doing so. Heck in China they even pay cyclists a fortnightly amount for cycling and not polluting!

However I think to achieve this a high tax rate would not be required. If the money was used more efficiently (which trust me it could be – however people will understandably always argue for different causes to be of top priority and so forth) the tax rate could be kept reasonably low and yet the welfare gains as maximised as possible. This promotes some sort of balance between classical liberalism and socialism, and its generally called welfare liberalism, and its currently where I’d say I stand on the political spectrum. So after all that I simply say that a balance is needed. It seems the Buddhists and their notion of “the middle way” are again correct. I seem to write about them in half of my damn posts, its about time I hurried up and published a link to a post on that idea of balance!

I do not think the free market/classical liberal state is, the be all and end all of politics. It too is extreme. If several people are disabled and people in general aren’t kind enough to support them out of their own pockets they die. Unfortunately I don’t yet have enough faith in humans for them to sort out all their problems all the time, after all were rather erratic creatures. Hence the notion of a state which is created on rational logic which remains throughout points of emotional turmoil needs to exist, so that we can stick by our long term values, such as helping those in need.

Capitalists also argue that competition is good, and while to a degree I think this is true, it is also true that blatant competition leads to fear and greed. People become unhappy and life is lead in a state of anxiety. Also, in a capitalist society everything becomes commodified, including values that I think simply cannot be compromised by no amount of wealth. No amount of money for instance could make me forgive someone for killing my mother, its just not something you can forgive in that way. Do we really want to live in a callous, competitive society where we are slave to the dollar? What’s more free market capitalism does not allow for any government intervention. In some ways this is good as government can do stupid things, but mostly government serves to implement reasonable measures, and in these cases it should be allowed to do its job. What I foresee through free market capitalism is a sort of monopoly forming. I know free market capitalists argue it won’t happen but to a degree it is inevitable.

Life isn’t all about economics and wealth, yet free market theory commodifies all. It certainly seems unreasonable to me. Still I love to read things which disprove my views because as annoying as it can be it ultimately leads me to learn from my mistakes. Several pro-laissez-faire fans have suggested I read F.A. Hayek’s "The Road to Serfdom (Routledge Classics S.)". Maybe then I can comment some more on the situation. Until then I’d say that taxation is required for various basic functions and infrastructure and so forth which society needs. Some could argue that private companies could do it, but I’d rather have certain services such as basic public transport available to all people, as well as medical centres and basic education, at very least those three things are requires, as well as some government support for those in economic crisis. The fact is that statistically some of us get very unlucky and just because that happens doesn’t mean we deserve to be left out on the street to die. A welfare liberal state is far more humane than a laissez-faire based one. And as a human I’m all for humaneness.