In this blog post, we will examine whether the two values of the fairness of economic differentiation and the sustainability of the welfare state can coexist in harmony.
In the process of economic and social development, the concentration or accumulation of economic resources and activities is a natural occurrence. However, this can lead to significant imbalances. For example, as the economy and society develop, more resources may become concentrated among economic actors who work harder, potentially resulting in greater inequality in the distribution of wealth. However, Henry Sidgwick argued that such economic differentiation in distribution—where each individual receives rewards commensurate with their contributions—is just.
Does this mean that there is no need to consider the so-called “people in the shadows,” who inevitably lag behind under the differentiation paradigm? The answer is not only “no,” but also that humans should not act in such a way. Adam Smith’s “sympathy and compassion” and John Rawls’ “consideration for the most disadvantaged members of the community” are essential moral imperatives for the survival of a social community. Therefore, a state without welfare policies is unimaginable.
The extent of government intervention for the welfare of its citizens has varied according to the times and circumstances. The welfare state, which emerged as a counterconcept to Nazi Germany’s war state, was established in the 1942 Beveridge Report as the concept that the state is responsible for the welfare of individuals “from the cradle to the grave.” In other words, the welfare state refers to a form of state intervention aimed at providing the general public with a minimum income guarantee, a social safety net, and the best possible social services. After World War II, advanced countries experienced welfare problems due to excessive welfare spending in their confrontation with socialist countries, leading to a significant decline in the concept of the welfare state in recent years. However, high-income countries in Northern Europe still maintain high levels of welfare systems. Ultimately, the extent of welfare depends on a country’s economic strength.
Now, we must shift our focus from the extent of welfare to the sustainability of welfare systems. The solution may lie in Henry Seidgwick’s economic differentiation, as mentioned earlier. Even if a country starts with a strong economy and aims to become a welfare state, if welfare is implemented in a way that negates the basic principle of differentiation, it may hinder economic development and undermine the sustainability of the welfare state.
This possibility can manifest itself in two ways. First, if excessive taxes are imposed on those who make efforts on their own in the process of securing resources for welfare, the principle of differentiation will be undermined, and the dynamism of economic and social development will be weakened. Second, if welfare spending is provided simply because people are “in the shadows,” moral hazard may occur.
If a class with a healthy workforce receives support simply because it is in the shadows, that class will not only seek to remain in its current state, but may also trigger another form of moral hazard, where relatively better-off classes fall into the shadows.
Therefore, the following approach is very useful for maintaining economic dynamism while fulfilling the functions of a welfare state. In other words, the method of securing welfare resources should not be so excessively high as to discriminate against those who make efforts on their own, and the fundamental purpose of the welfare system should be to bring those in the shadows into the light. Ultimately, welfare expenditures should be directed toward those who strive to become ‘self-reliant’ by supporting them in a way that encourages them to take the path toward self-reliance.
