Italy’s welfare

The imploding European experiment ought to inspire in us enough anxiety to reevaluate old truisms.

Italy 311 (photo credit: Arthur Wolak)
Italy 311
(photo credit: Arthur Wolak)
It was quite a spectacle a few days ago when Italy’s welfare minister, Elsa Fornero, broke down in tears at a news conference, right before TV cameras as they relayed the event live.
She was unveiling an austerity package, part of a plan to curb expenditures and regain control of the country’s mounting debt. It entailed raising the minimum pension age and canceling annual inflation adjustments for most benefits. There was plenty more.
Fornero tried to explain these measures, stressing that “we had to... and it cost us a lot psychologically...ask for a...”
Here she started crying and couldn’t complete her sentence. Premier Mario Monti picked up where she left off, telling the press that “sacrifice” was the word she was unable to enunciate.
This mini-drama’s significance extends far beyond the bounds of Italy. Most Western economies face a similar prospect. Health and retirement benefits aren’t adequately covered by taxes. Overspending leads to over-borrowing. Burgeoning budget deficits and debt threaten eventual insolvency. Belt-tightening is mandated to avert collapse, but it could trigger recession and unemployment.
This spells the end of an era – the demise of the socialist welfare state that flourished in Western Europe in the post-World War II period. Conventional wisdom had it that this model persisted as the essence of political enlightenment.
Lately, though, Europe’s model of looking after the needs of the citizen from cradle to grave appears to be no longer workable. Italy isn’t the only country that now admits it cannot afford it. It was preceded, far more drastically, by Greece and it will be followed by a growing number of EU members, and not only the so-called basket cases.
The breakdown was predicted decades ago by Britain’s Iron Lady, Margaret Thatcher. However she is perceived, she identified the problem when she quipped about the welfare state: “It’s all very nice except that you eventually run out of other people’s money.”
Boiled down to its essence, that’s what’s happening increasingly in Europe, but not only there. The American economy is in the deepest hock ever and we in Israel aren’t immune either.
Israel traditionally bought heavily into the model of a national welfare system that offers wide-ranging entitlements bankrolled by the taxpayer. The differences among our various governing coalitions were minuscule, of degree rather than basic orientation.
But can the largesse last? Welfare’s halcyon days may be over. The notion that a capitalist economy can support an ever-expanding welfare state now appears dashed upon the rocks of reality, leaving true believers, such as Fornero, grieving.
The reality is that not enough income is generated to prop up more and more entitlements, especially when benefit-dependency looms as an alternative to gainful employment. Greece, for example, was driven to the brink of bankruptcy not least by spendthrift welfare benefits. Before recent cutbacks, the average Greek retirement age was 53, owing to outrageously generous pension plans for public sector employees.
Such palpable dangers of state-budget profligacy notwithstanding, Israel’s own summertime “social justice” protesters demanded that entitlements be further enlarged. So successful was their campaign that the government agreed to forgo some of its fiscally prudent constrictions.
The imploding European experiment ought to inspire in us enough anxiety to reevaluate old truisms.
The world’s affluent societies all face the day of reckoning.
This is hardly the time for us in Israel to pronounce ourselves exceptions to the trend, even if our local populist zeitgeist so dictates.
When the world’s wealthiest societies titter on the abyss of economic disaster, we mustn’t luxuriate in throwing caution to the wind. Not only aren’t we stronger than they are, but if their buying power decreases, we are in trouble.
Our exports are already slowing down. It may not be politically expedient or popular, but our economic leaders need to draw attention to this fact – perhaps in a last ditch effort to encourage greater circumspection in public opinion.