Hey all. I’m Manuel. I read Ben’s post on being a contributor to the blog and thought of it as an opportunity to write my ideas on a subject I love (economic history). I thank him for that. From now on, I will write mostly about some topics of Latin American and Iberian economic history in future posts. However, today’s piece will be on a different matter.
I’m from Mexico, a country that made newspaper headlines last week due to the influenza epidemic. Best (or worst) of all, I live in Mexico City, ground zero and the place where most deaths were registered. Since academic activities were suspended and Mexicans were urged by the authorities to stay home these days to stop flu contagions, I had a lot of time to read my favorite sites, the New York Times Global Edition included.
Last Sunday I found and liked “Going Dutch – How I Learned to Love the European Welfare State”, an article written by Russell Shorto on the Dutch social welfare system, published in the New York Times Magazine last May 3. The piece has been in the 10-Most Emailed list of articles of the NYT since it was published.
Shorto is an American writer. He is the current director of The John Adams Institute, a nonprofit American culture center in Amsterdam, and also contributes with articles for the NYT. Russell Shorto wrote “The Island at the Center of the World: The Epic Story of Dutch Manhattan and the Forgotten Colony that Shaped America” (New York: Doubleday, 2004), an acclaimed book on the history and legacy of Dutch migrants that founded Manhattan.
In the Americas the European model of welfare state is depicted in a mystified utopia and panacea for all our problems or is vilified as a Socialist ill by its centre-right and right-wing detractors. The article shows the entertaining reflection from an American faced with the benefits of the Dutch state and its welfare policy. The fact that Shorto comes (if not ideologically) from the land where free market and minimal government seemed to reign until Wall Street crashed, combined with the evolving equilibrium of the roles of state and market in the current Great Recession, are some of the reasons why the article is so popular.
Shorto’s reaction to the 52% income tax rate prevailing in the Netherlands is funny, yet one can understand the scandal when we know that countries in the Western shore of the Atlantic (with the possible exception of Canada) have in general low income tax rates. Fiscal income in Latin America usually comes from indirect taxes, ie, those on consumption. Thus Shorto has to mention the unexpected monetary transfers he receives from the Dutch state to help his American audience to overpass the 52% (maximum) income tax rate (“accommodation schoolbooks”, “child benefit”, and my favorite, “vacation money”), as well as the universal social security coverage (sadly, an alien reality to all inhabitants of the Western hemisphere) and decent public housing.
I first visited Europe and the Netherlands in 2005, being hosted by my friend Saskia van Groesen in a small village named Made, (North Brabant). I remember wondering about an interesting problem. The Netherlands has a surprising economic history and even better political economy: how do we explain the logic of a welfare state in a country that promoted markets from its sea ports and that gave birth to countless financial innovations (tulips bubble included)?
Dutch people live in a low, tiny land endangered by the North Sea. Avoiding water floods cannot be faced (nor financed by) the average inhabitant: a collective solution, collaboration and agreement and scale economies are the origins of the admired “polder model”:
“The Low Countries never developed a fully feudal system of aristocratic landowners and serfs. Rather, sailors, merchants and farmers bought shares in trading ships and in cooperatives to protect the land from the sea, a development that led to the creation of one of the world’s first stock markets and helped fuel the Dutch golden age. Today the country remains among the most free-market-oriented in Europe.”
Tolerance and freedom derive as logical conclusions of consensus solutions: how can you negotiate and agree with your fellow when you disrespect her for being a Protestant, a homosexual or a drug addict? (On this, I would recommend you to read Deirdre McCloskey’s work in progress on bourgeois virtues). The eventual losses of not collaborating are enormous, since an inundation would endanger most lands and people in the Netherlands: preserving individual ownership over a land is a major incentive for a collective effort we Americans (and I mean, inhabitants of the continent) can barely imagine.
A sense of community encourages minimization of income gaps by promoting deliberate welfare policies. These preconditions are the basis of social consensus needed to guarantee the mere existence of Dutch people. Thus one can explain how “People have a matter-of-fact belief not in government […] but in society.” Of course, no welfare state within a market economy is exempt from having differences or poor people. Nevertheless, one should compare the levels of human development in a welfare state against the economic and social inequality prevailing (and growing) in the U. S. and Latin America.
Shorto explores the private and public origins in the provision of public goods and services in the Netherlands. Finding that “European-style social-welfare systems: they are not necessarily state-run or state-financed”, Shorto writes an opinion on a false dichotomy American societies and politicians subscribe: “the old left-wing idea of vast and direct government control of social welfare, and the right-wing determination to dismantle any advances toward it, privatize the system and leave people to their own devices”. The war between what is public and what is private is better solved in terms of which sector has a better performance in providing individual welfare.
Yet the basis of all is social consensus. And Shorto does realize that a multiethnic population might endanger it. Even perennial agreement might jeopardize innovation, individual initiative and creative dissent. But in the whole, the balance for Dutch (and Europeans) is briefly resumed by Geert Mak, a friend to Shorto: “America is the land of the free. But I think we are freer.” Add Amartya Sen’s thought: by enabling people to fully develop their potential, the European welfare state encourages human freedom. Voilà.
But that’s all for today. Shorto and I seem to be convinced of the net positive gains derived from the welfare state. What do you think about the article?