This op-ed was first published on Paprika Politik, on Jan, 2nd, 2013
“Labor creates, politics destroys; that is why labor is not rewarded.” History has vindicated French economist Frédéric Bastiat’s prescient prediction, which serves as a clear warning to freedom lovers everywhere of the devastating effects of government intervention into the economy. It was true and obvious during the Communist period in Hungary and Central Europe. But do not be fooled: It is truer, even if not obvious, now that these countries have joined the ostensibly free-trade European Union.
The unnoticed danger awaiting citizens of Hungary and other Central European countries is to go from one collectivism to another. What could not be done by force would be done by purchase. Traditionally, when governments seized individual rights by violence and established dictatorships, it always proved to be a failure in the long run: That was because the process was violent, oppressive and alarming, and citizens would ultimately resist. But when a government gives subsidies, benefits, and privileges to its citizens, it in effect purchases some rights over them, making violations of those citizens’ fundamental rights more palatable. U.S. President James Madison foresaw this phenomenon centuries ago when he warned against “the old trick of turning every contingency into a resource for accumulating force into the Government.” This process is peaceful, soft and unalarming. It gives birth to the most powerful of all collectivism, which I have called “Welfareship,” by which I mean a democratic society based on welfare policies.
There is a trend inside the European Union that leans toward Welfareship. This trend is most pronounced in France. As a founder of the EU and a privileged partner of Germany, the French government commands significant influence in European policy debates. Furthermore, the approval of the European Budget Treaty and the slow move towards a “European Economic and Finance Ministry” mean that national laws will yield to European laws. France – especially the current Hollande government – is the perfect example to help identify the two main principles of Welfareship: The first principle is that labor must be shared, the second that wealth must be redistributed.
Sharing labor. Ayn Rand observed that certain government planners hold a fierce belief that “every man … owns an equal share of the technological benefits created in the world” (emphasis added). That is true, in their mind, because labor is a burden, and as such, it must be shared to benefit the workers. According to such a philosophy, the creation of wealth cannot be a suitable incentive since it would require labor, which is to say, suffering. The French adopted that principle when the 35-hour-work-week law passed at the end of the 1990s. The hours made available by the decreased workload would be used in order to hire other workers who would share the burden of work. Yet, practice proved theory to be wrong: Jobs were not created, unemployment continued to increase, and working conditions deteriorated since the same amount of work had to be done in 35 hours instead of 39. But rather than face economic reality and encourage labor, the French government has decided that wealth will instead be provided by the government through welfare payments. This is done thanks to an economic system called “redistribution.”
Again, Ayn Rand described the rationale behind wealth redistribution as a belief that “every man born is entitled to exist without labor and … is entitled to receive his ‘minimum sustenance’ – his food, his clothes, his shelter – with no effort on his part, as his due and his birthright.” The implementation of this principle led to a legal plunder described by Bastiat: “The law takes from some persons what belongs to them, and gives it to other persons to whom it does not belong.” This undeniable violation of property rights, as practiced by, for example, the French government, has two goals: First, financing the bloated welfare system, including retirement pensions, civil servants’ wages, and all public services financial charges; second, wiping out income inequality and making everyone earn roughly the same amount of money.
As a result, 35 million people in France – more than 50% of the population – benefit from 60 billion euros of welfare money. Just recently, the French constitutional council was forced to strike down a proposed 75% income tax (though, it should be noted, the council did so on a technicality and the proposed tax will likely return after the government reformats it slightly). The government has bought out its citizens to the extent that "everybody endeavors to live at the expense of everybody else," as Bastiat put it.
But what if this kind of collectivism was working and really improving living conditions? Does it work in France? No. To the contrary, the poverty rate has stayed steady at 13.5% over the last twenty years, unemployment has never gone under 8.5% in the last fifteen years and is reaching 10% now (15% if we count the undeclared jobless), and an entrepreneurial exodus has begun as 5,000 entrepreneurs have left France since the election of the socialist president in May 2012.
Welfareship is doomed to failure because it deprives men and women of their property, and consequently their freedom. Free-traders will not to accept plunder. Eventually, they will leave, taking their wealth creation abilities with them, leaving the government to its own disarray. And that will be Welfareship’s collapse. Hungarian free-traders should watch out which principles are shaping their public policies: those of free trade or those of Welfareship.