I was talking to one of my graduate students on Friday about the European economic crisis and the inevitable collapse of socialism. He had an interesting reaction: “Well, of course, a welfare state in Greece, or Italy, or Spain is a really bad idea. But Germany is doing fine. Economists don’t appreciate the importance of culture. There’s nothing intrinsically wrong with the welfare state; it just requires a culture of hard work and orientation toward the future.”
That prompts the thought: Maybe socialism can work in the right set of cultural circumstances. Maybe, if the people do work hard; have children; save and invest for the future; and take advantage of the benefits of the welfare state only when they truly need to, a socialist economy can succeed. I’ve argued before that the welfare state is a pyramid scheme and is therefore ultimately unsustainable. But population growth could provide the exponential growth in the base that a pyramid scheme needs.
Is socialism sustainable, given an appropriate culture? For a while, surely. But how does one sustain that culture? How long can Germany remain Germany under a socialist system of economic organization? The empirical evidence from all across Europe is that socialism undermines the desire to work hard, have children, and save and invest for the future. In 1960, Europeans worked just as many hours as Americans; now they work far fewer. That represents a significant cultural shift. The welfare state, I think, is responsible for much of it.
Max Weber saw the Protestant Ethic as underlying the growth of capitalism. The growth of capitalism may underlie the growth of the welfare state, as prosperous people believe that they can afford to help those in need. Needs expand into wants, and the welfare state undermines both prosperity and the culture that made it possible.