The welfare state is more of a piggy bank than Robin Hood

Today, the European welfare states are large, resource-intensive institutions whose expenditure on social services accounts for an average of 28 per cent of the gross domestic product.

And if delving into what is the most important function and task of the welfare state, two ideas in particular seem to be widespread:

· On the one hand, the fact that the welfare state in Robin Hood style redistributes resources between citizens from higher and lower socio-economic strata, and thus helps to reduce inequality.

· On the other hand, there is the notion that the welfare state is a piggy bank that we each fork out to as a savings for when we retire or need other public support.

Age means more than status

But in fact, the welfare state plays a very different, but nevertheless important role, a new study headed by Professor Pieter Vanhuysse from SDU shows.

Together with two other researchers, he has mapped how the total sum of income in the form of taxes and expenditure on social benefits is redistributed among more than 400,000 Europeans from 22 countries.

- First and foremost, this research shows that the European welfare states do not in the first place reduce differences in status between socio-economic groups. The redistribution of the benefits of society mainly takes place across age groups, and age is therefore more important than status, Pieter Vanhuysse says.

- The European welfare states thus function as a means through which people of working age support both young people and the elderly. The welfare states are accordingly piggy banks rather than Robin Hoods – that being said, a piggy bank we do not pay into to cover our own consumption and pension, but where the money is spent here and now to finance education, pension, health care etc. for the benefit of today’s students and retirees.

And exactly when people receive more than they contribute – both from the public sector, but also the resources that different generations give each other in terms of time and money – the SDU professor has previously mapped. It turned out that the period in which people contribute to society is shorter than you would probably expect. On average, we do this from the age of 25 until the age of 58-60.

Need a break

Therefore, since in practice the welfare state operates more across age groups than across status groups, it is neither primarily nor solely responsible for reducing poverty and inequality, states Pieter Vanhuysse, who therefore proposes to tone down the criticism of the welfare state.

- For the last 50 years, the welfare state has been blasted for not reducing inequality enough, but that criticism is unfair when considering it has now transpired that this is not the primary task of the welfare state. Therefore, we need to give the welfare state a break and instead focus on the important task that it undertakes as a kind of redistribution machine between age groups, says Pieter Vanhuysse.

At the same time, he points out that the criticism of the welfare state is based, among other things, on the fact that a typical measure for judging how successful a welfare state is, paradoxically, has been precisely its ability to reduce poverty and inequality.

For example, it has become routine for the OECD, the IBRD and national governments to measure the distributional effects of welfare schemes on the basis of income. In this regard, it often turns out that people in the upper socio-economic classes receive just as much or even more than the lower classes.

Other policies affect inequality

Naturally, this does not mean that reducing inequality should be ignored, nor that public policies cannot make a difference.

- Everything from infrastructure projects and taxes to economic policy and tax policy can also lead to greater inequality. The protest movement The Yellow Vests is an example of this. In 2018, a tax increase on petrol and diesel made thousands of French people take to the streets with a legitimate call that the taxes and the high basic income tax rate make the rich even richer.

- In the same way, the light rail in Odense, major motorway projects and taxes on cigarettes are also something that affects some classes or status groups more than others, says Pieter Vanhuysse.

It is therefore not only the welfare state that should be targeted in the debate on inequality, but also the other policy areas, the SDU Professor and colleagues point out in continuation of the study.

A reinterpretation of the welfare state

First and foremost, the researchers hope that the new results can help point out that there is a need to reinterpret what welfare states mostly do.

- Many still consider the welfare states as the primary remedy against poverty and inequality, while for others they are a market-correcting institution that makes us less resource-dependent on our families. We do not disagree with this, but we do call for a change of focus and for perceiving the welfare state as an institutional solution that must meet the challenge of financing and equalise life cycle consumption.

Taxes connect generations

At the same time, there is no doubt that with an aging society in Denmark and Europe, the countries have an important task ahead of them in ensuring sustainable societies and, not least, sustainability between the generations.

- Given that in the future, there will be fewer young people to finance the growing number of old people and that the middle-aged group is already under pressure, it is crucial to invest even more in human capital. Among other things, we must invest in young people and their education – in a smart and broad way – so that they continue to be creative, productive and adaptable throughout their careers, Pieter Vanhuysse says, concluding:

- And finally, it’s about the relationship between the generations, who need to feel connected to each other and consider the transfers as part of that connectedness: That we agree to pay taxes today to fund pensions and care for the people who have helped fund our education and early years.