US and Western European social systems revisited

May 7, 2009

There is much talk about the US becoming “French“, “Swedish“, “socialist”….  because of its ongoing healthcare reform, stepped-up government intervention and high levels of public spending. This while the EU is having centre-right governments struggling to push through unpopular market-oriented reforms to boost economies that are lagging behind the US in dynamism. These are less prone to big hikes in public spending to sustain their economies in the ongoing crisis (not least because of a legacy of high levels of public debt and bigger welfare states).

The Wall Street journal today had an interesting feature comparing the fate of a laid-off industry worker in the US and in Germany and how the social systems in both countries affect their current well-being. Predictably: health care is the great dividing line. The US American also feels the crunch financially now, whereas the German has about one year to substantially start feeling the pain. Yet when reading the article with care one cannot avoid the impression that it looks overall rather equally tough on both sides, when it comes to uncertainty over the future. Which econonomy will ultimately be able to create jobs more quickly? seems therefore to be the fundamental question.

But are social systems between the US and EU so much different than is generally assumed? An article by the academic Peter Baldwin in Prospect Magazine this month says No. A highly recommended read. It certainly smashes a few deeply ingrained mutual (positive and negative) prejudices. Below a few highlights, but if you can, do take time to read the article, freely available online, in full:

“It is universally observed that America is an economically more unequal society than Europe, with greater stratification between rich and poor. Much of this is true. Income is more disproportionately distributed in the US than in western Europe. In 1998, for example, the richest 1 per cent of Americans took home 14 per cent of total income, while in Sweden the figure was only about 6 per cent. Wealth concentration is another matter, however. The richest 1 per cent of Americans owned about 21 per cent of all wealth in 2000. Some European nations have higher concentrations than that. In Sweden—despite that nation’s egalitarian reputation—the figure is 21 per cent, exactly the same as for the Americans. And if we take account of the massive moving of wealth offshore and off-book permitted by Sweden’s tax authorities, the richest 1 per cent of Swedes are proportionately twice as well off as their American peers.

What about poverty, not the same thing as inequality? Because inequality is greater in America, relative poverty is by definition also higher. But absolute poverty rates look different. If we take absolute poverty to be living on the actual cash sum equivalent to half of median income for the original six nations of the EU, we see that many western European countries in 2000 had a higher percentage of poor citizens than the US; not only Mediterranean countries, but also Britain, Ireland, France, Belgium, the Netherlands, Finland and Sweden. Unemployment benefits in the US, often portrayed as derisory in the European media, are actually higher than in many European nations. Greece, Britain, Italy and Iceland spend less than the US on unemployment, measured per capita.

The US welfare state is often portrayed as miserly and undeveloped compared to Europe. And so it is, if the standard is taken to be Sweden or Germany. But if we look at the span of social policy across Europe, a different picture emerges.

(…)

Yet despite the too large fraction of those who are not insured, Americans are relatively healthy and well-serviced by their healthcare system—to judge by disease survival rates. For diabetes, heart and circulatory disease and strokes, the incidence rates and the number of years lost to sickness are firmly in the middle of the European spectrum. And for the four major cancer killers (colorectal, lung, breast and prostate), all European nations have worse survival rates than the US.

Looking also at other forms of social policy, we see that the US fits broadly into the lower half of the European spectrum. As with its unemployment assistance, US spending on disability benefits is higher than in Greece and Portugal per capita, and practically at the same level as France, Italy, Ireland and Germany. (All figures used for comparison here account for differences in costs of living). State pensions in the US may fall into the lower half of the European spectrum. But examine instead the total disposable income of the retired in America as a percentage of what the still active receive. Only in Austria, Germany and France do the elderly fare better.

It is commonly known that the American state does not help out much in terms of family provision. Parental leave is not statutory and there are no guarantees that women can reclaim their jobs after pregnancy. Family allowances as such do not exist. On the other hand, if one counts resources channelled via the tax credit system, as well as outright cash grants and services, and if one measures them as a percentage of GDP, the US ranks higher than Spain, Greece and Italy for family benefits. Public spending on childcare (daycare and pre-primary education) puts the US into the middle of the European scale. Total spending on pre-primary care per child is higher than anywhere but Norway.

True, public social spending in America—that is, monies channelled through the state—is low compared to many European countries. But other avenues of redistribution are equally important: voluntary efforts, private but statutorily encouraged benefits (like employee health insurance) and taxes. Given all of these, the American welfare state is more extensive than is often realised: the total social policy effort made in the US falls precisely at the centre of the European scale.”

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