Sunday, November 13, 2011

Even China seems to have learned welfare state flaws

Published in The Tennessean, Sunday, November 13, 2011

by Richard J. Grant

Of those people that I have met who express an aversion to the welfare state, those who express the strongest feelings are often those who grew up in the system but worked their way out and escaped. They recognize the perverse incentives that separate sustenance from any thought of production.

Charity without thought is unlikely to edify the recipient; and this describes the destination, if not the beginnings, of governmental welfare systems. When charity is transformed into entitlement, any moral obligation to lift oneself up is no longer enforceable by those who pay. To call such payments “a gift” is to insult both parties to the transaction. Society has lost something.

There are those who, like Blanche DuBois, are content to depend on “the kindness of strangers.” But someone must do the world’s work, and societies that understand this are those that survive and prosper. Welfare states throughout history have tended to waste away both morally and materially.

Weakness has always reduced one’s options in the community of nations. When a government runs out of its own citizens’ money, it must either economize on its own profligacy or become dependent on the finances of strangers.

Given our record-high budget deficits and accumulated national debt, the attitude with which the U.S. treasury secretary recently visited Beijing was no doubt very different from that of his predecessor 10 years ago. We can only imagine the thoughts of the Greek finance minister during visits to Brussels.

As the European Union begins to wither from the south up, its various finance ministers look longingly outward for “investment.” But societies that increasingly specialize in consumption are not what investors are looking for.

One such investor has shared his thoughts in an interview with Al-Jazeera news. Jin Liqun, the chairman of China Investment Corp., China’s sovereign wealth fund, makes it clear that his assigned task is to manage a profitable business. In other words, he must be a good steward of the resources that have been entrusted to his care.

If European leaders were listening, perhaps they could take it as a lesson in sustainability. Said Jin, “I think what is most important is to have an appropriate incentive system. We should not follow some of the bad examples as these kinds of so-called welfare societies in which hard working is not encouraged. Now if people who do not work make as much as those who work hard, of course this is an invitation to indolence. This is not what we want to see.”

This is not his father’s communism. Europe’s troubles are “the accumulated troubles of the worn-out welfare society.” Jin adds, “I think the labor laws are outdated. The labor laws induce sloth (and) indolence, rather than hard working. The incentive system is totally out of whack.”

A society that is built around featherbedding and early retirement is not a society that is built to last. It is a society disinclined to provide for itself; and it is a society not yet ready to accept the moral obligations of a recipient of charity.

Mr. Jin is well aware that China has its own troubles. He is not preaching; he is speaking as a steward of property. Whether his motive is profit or pure charity, he has the right to expect the best from those with whom he deals. We do, too.


Richard J. Grant is a Professor of Finance and Economics at Lipscomb University and a Senior Fellow at the Beacon Center of Tennessee. His column appears on Sundays.

E-mail: rjg@richardjgrant.com

Twitter: @RichardJGrant1

Copyright © Richard J Grant 2011