Cancel the Funeral: Reports of the Death of the European Welfare State Are Premature

During the past two decades, the American media have often reported on the demise of the European welfare state. As the story goes, generous social welfare benefits, in conjunction with excessive labor market regulation, caused Europe’s unemployment woes. Having recognized the damage done by overly generous social protection, European policy makers have opted for widespread welfare state retrenchment and labor market deregulation. The subtext of the tale is clear: the United States should take no social policy lessons from Europe; to the contrary, policy makers across Europe are fast adopting the U.S. model of bare-bones social protection. In 1995, in the midst of the recent American “welfare reform,” U.S. investment strategist Edward Yardeni (known as the “Wall Street Wizard”) announced in Business Week that Newt Gingrich was the “Angel of Death for the social welfare state—not only in the U.S., but worldwide.”

Vivid reports of the collapsed welfare state emerged during the early Reagan-Bush years and continued through the Clinton era. In 1983, Business Week declared that the “great edifice of the European welfare state is beginning to totter like an inverted pyramid.” In 1993, the San Francisco Chronicle reported that “nowhere is the dismantling of the social security net more drastic than in Sweden, [although] similar retreats from the expansive days of social democracy are under way in virtually every European Community nation.” In 1995, Business Week announced that “France… in recent weeks has been in the center of what may well be the last great Continental convulsion in this century, the dismantling of the European welfare state.”

These stories about Europe’s stressed-out welfare state appear alongside hundreds more that describe the damage that social programs and labor protections have caused the European economies. Seth Ackerman, a media analyst with Fairness & Accuracy in Reporting, recently reported in Harper’s that American news outlets have published six hundred articles since the mid-1980s on the unhealthy effects of European social protection—dubbed “Eurosclerosis” by Time magazine. Although it’s not clear exactly what drives this anti-European-social-policy drumbeat, Ackerman concluded that increasingly cozy relations between major media companies and American big business are a major culprit. “The ‘sick man of Europe’ is in truth a straw man of American capitalism,” he writes, “a cautionary fairy tale as widely believed by our journalists as it is beloved by the businessmen who sign their checks.” What is clear is that these stories gratify those who oppose public solutions to market-generated risks and inequalities; indeed, they justify the U.S. system of stripped-down social policy and minimalist labor protection.

Unpacking the Story

Let’s unravel these tales of economic disaster and w...