Europe: Welcome to Industrial Poverty

I have used the term “industrial poverty” to describe Europe’s future. The term is deliberately chosen to distinguish poverty with access to the conveniences of an industrialized economy from the kind of abject poverty we know from the most destitute corners of the world. Surely it is better to be poor in a country where you have clean water in the faucet, electricity that – for the most part – lights up your home, relatively reliable access to basic foods, and other basic services and products that provide an initial level of comfort in everyday life.

The term “industrial poverty” is relevant not because it redefines poverty – which it does not – but because it illustrates a new kind of economic stagnation that we are not yet entirely familiar with. Once Europe had made the leap into the modern, free-market based industrialized economy, the Europeans began affording themselves all kinds of perks that were not founded in free-market exchange. This led to the creation of the welfare state, the consequences of which are now painfully visible throughout Europe.

In everyday terms, the destructive attempts at saving the welfare state have led to the stagnation of the standard of living in Europe. Private consumption barely expands anymore; housing is not improving in quality; the young generation aspires to attain the same level of economic comfort that their parents had – as opposed to their parents, who aspired beyond what previous generations had enjoyed.

Europe’s economy is now at a stage where it is barely reproducing the same standard of living for tomorrow as it provided yesterday. This new state – industrial poverty – will in all likelihood last for a very long time. But before we even begin to explore its long-term nature, let us log yet more pieces of evidence that industrial poverty is turning Europe into an economic wasteland.

According to an ING Bank report a third of all Europeans are living paycheck to paycheck, or welfare check to welfare check. To begin with, 47 percent of all Europeans can not maintain their current standard of living for three months in the face of a severe loss of income. The corresponding number for the United States varies a bit depending on study, but tends to be in the bracket of 28-30 percent.

Furthermore, 30 percent of all Europeans have no savings at all, more than half as many as in America. And while Americans increased their savings during the recession, the average European household has seen its savings slowly decrease.

This last factoid is very telling. Europeans have a different way of saving for emergencies than Americans: they pay consfiscatory taxes and expect government to provide them with income security in the event of a partial or full loss of income. Of course, what Europe’s taxpayers are now learning to a larger and larger degree is the lesson that the Swedes learned already in the ’90s, namely that the welfare state will eventually default on its promises.

And then you are left with nothing.

A story from the EU Observer sheds more light on this situation:

The economic crisis, which has stripped the social welfare rights of millions, is contributing to a widening poverty gap between member states, the European Commission has said. The worst affected are young people, unemployed women and single mothers in member states predominately located in the east and south of the Union. “Most welfare systems have lost their ability to protect household incomes against the effect of the crisis,” EU employment commissioner Laszlo Andor told reporters in Brussels on Tuesday (8 January).

Precisely. It is almost a mathematical certainty that this happens once the welfare state is Euro-sized. The problem for Europe is that they have yet to learn what to do about this:

Andor, who presented the commission’s annual analysis on social and employment developments in 2012, said improving the design of state welfare systems “can increase the resilience to economic shock and facilitate [a] faster exit from the crisis.”

You can’t do that. It does not work. The Danes tried it during the kartoffelkur in the ’80s. The Swedes tried it in the ’90s, with the end result that taxes went up 45 percent per taxpayer, private consumption stagnated, the employment rate fell almost ten percentage points and has never recovered, the socialized health care system fired one in five employees with world-record health care rationing as a result.

Et cetera. Not to mention the horror stories about how government forces people to not apply for the income security they have been lured into believing would be there for them.

In other words: don’t try to make the welfare state “more resilient”. It’s been tried, it does not work.

As the EU Observer reports, the mainstream thinking in Europe, represented by Mr. Andor, points in the exact opposite direction:

His 496-page analysis … says strong social protection, such as child care for single women and well-thought-out labour standards which provide access to benefits in times of difficulty, can contribute to reducing an an  figure that “is hitting new peaks not seen for almost 20 years.”

The main concern, of course, is the government debt. Sweden has a smaller government debt than Greece. Therefore, eurocrats draw the conclusion that the Swedish welfare state is “better”. That is not the case. It kills people right and left by denying them all kinds of tax-funded benefits. But its budget is in balance.

The EU Observer then paints the grim, street-view picture of the new industrial state of poverty:

Almost 19 million people are now officially out of work in the eurozone, according to the latest figures published by the EU’s statistical office. “All the progress made in terms of unemployment vanished with the economic crisis,” says Andor’s report. Just before the crisis hit in 2008, the EU unemployment average was at 7.1 percent. Long-term unemployment now accounts for 42.5 percent of the jobless and will most likely spiral upwards due in part to growing redundancies and a skills mismatch. … Those lucky enough to find work are more likely to land part-time contracts. As more people lose their jobs, especially in the member states in the south and east, the risk of poverty intensifies. The study points out that almost half of all member states have experienced a net increase in poverty since 2008, with disposable household incomes dropping in two thirds of them. One in five households in Bulgaria, Cyprus, Greece, Hungary, Latvia and Romania are now having trouble making ends meet. A canteen at a primary school in an impoverished area in Lisbon reportedly remained open over the Christmas holidays because children risked malnourishment.

If the Eurocracy is going to continue to push for higher taxes and more government spending as the solution to this, then the Greek tragedy will soon morph into pan-European panic.

When American liberals advocate a European-style welfare state here, let’s remind them of what Europe looks like today. And let’s also take the opportunity to point out that the welfare state was originally created precisely to provide support for situations like this. Most of the initial programs, such as unemployment benefits, housing subsidies, child benefits and retirement security were inspired by the Great Depression. So it is not like the inventors – or shall we say instigators – of the welfare state did not know what a bad economic downturn looks like.

If the welfare state was really able to do its job, then how come tens of millions of Europeans are falling through its cracks? The answer, of course, is that the welfare state is the very cause of Europe’s persistent economic crisis.