The Welfare State Myth – Part 3

This is part 3 in a five-part series. You can read part 1 here and part 2 here.

As I and others have pointed out, all of the risks that welfare state supporters say we need government “social insurance” to protect ourselves against — accident, illness, old age, job loss — can and were addressed privately and voluntarily before the creation of the welfare state: through private savings, insurance, informal help, formal charity and, notably, mutual aid societies.

In “The Voluntarism Fantasy,” Mike Konczal takes special aim at mutual aid societies, in which individuals would join societies, pay membership dues, and receive various benefits such as death, accident, and health care. These societies were “the most common provider of insurance and relief before the New Deal,” Konczal notes. “These were particularly important for low-wage workers, and played a bigger role in insurance than charity or welfare institutions.”

But, he goes on to argue, “there were a few major problems with these societies,” namely that their coverage, benefits, and availability were limited in various ways. For instance, Konczal makes a big deal of the fact that mutual aid were designed for “working men — for the most part, they did not cover women” — even though this was initially true of Social Security and could have been easily corrected.

In fact, all of the shortcomings Konczal mentions reflect, not some inherent defect in mutual aid, but the growing pains of an immature industry trying to meet the challenges of a changing world. All of them could be easily addressed by modern mutual aid societies or insurance companies should America abolish the welfare state in favor of capitalism.

Konczal’s most plausible objection is that the Great Depression and today’s “Great Recession” illustrate that voluntary institutions such as mutual aid societies face challenges they cannot meet. “Informal networks of local support, from churches to ethnic affiliations, were all overrun in the Great Depression,” he observes. In short, when masses of Americans have to call on a private aid and charitable organizations at once and for an extended period of time, the system inevitably fails.

But these examples prove only too much. Although Konczal never acknowledges it, free-market thinkers have long argued that a truly capitalist economy does not lead to long periods of mass unemployment, and that both the Great Depression and the Great Recession were brought about by government intervention. (See for instance here and here.) It is only government that can cause economic disasters of the magnitude of the Great Depression, which is one reason we should oppose government interfering in the economy.

In a capitalist society, the inability to support oneself is a marginal phenomenon — which does not mean we should be unconcerned with it, but it does mean that it is senseless to gear the system toward that phenomenon the way a welfare state does.

But what is most striking about Konczal’s argument is that he gives absolutely no weight to the fact that the pre-New Deal system was voluntary. Worse, he treats its voluntary nature as a shortcoming. Why? Because, Konczal claims, everyone would benefit from universal social insurance and therefore everyone should be forced into a social insurance scheme.

But the voluntary nature of mutual aid and the other methods by which early Americans dealt with life’s risks and challenges was not an incidental feature of those methods — it went to the core of the American system. As I have stressed again and again in my work, capitalism is the system in which all relationships are voluntary. Here’s how
Ayn Rand put it:

In a capitalist society, all human relationships are voluntary. Men are free to cooperate or not, to deal with one another or not, as their own individual judgments, convictions, and interests dictate. They can deal with one another only in terms of and by means of reason, i.e., by means of discussion, persuasion, and contractual agreement, by voluntary choice to mutual benefit. The right to agree with others is not a problem in any society; it is the right to disagree that is crucial. It is the institution of private property that protects and implements the right to disagree — and thus keeps the road open to man’s most valuable attribute (valuable personally, socially, and objectively): the creative mind.

The voluntary nature of capitalism goes to the root of its moral justification and its economic success. Capitalism is based on the idea that no one can force you to serve his goals — regardless of how lofty he thinks those goals are or how good he says they are for you. The American system said: you aren’t the pawn of others, and within the sphere of your rights, your independent judgment is sovereign.

Thus the groundwork was laid for social harmony and economic progress. People could deal with each other, not as master and slave, but as independent equals, working together through voluntary consent to mutual advantage. And since, in case of disagreement, they were free to go their separate ways, they road was cleared for unrivaled innovation and the prosperity it made possible.

This is the necessary backdrop for evaluating the welfare state. As we’ll see in detail in the later posts, it represents a radical departure from this individualistic, voluntary system of capitalism. The welfare state says that, no, men shouldn’t be free to go their own way — not if Konczal and his fellow travelers object. And we’ll see that, contrary to Konczal’s protests, the welfare state doesn’t benefit everyone — instead, it harms every person who aspires to make something of his life.