Future Challenges Reader Volume 5

Bertelsmann Stiftung (ed.)

Relationship Trouble Future Challenges Reader Volume 5

05

FutureChallenges

Cover photo: http://www.fotopedia.com/items/ehs1iuv5irde8-UCfSHUujDVY Protest at Wisconsin Capitol Photo by Stan Oleson CC BY-SA 3.0

Relationship Trouble

Future Challenges Reader Volume 5

Contents Foreword

4

Introduction

5

The Illusion of the Welfare State

6

Can Nepal Afford to Be a Welfare State?

11

The Torn Pocket of Father State

14

Welfare States –Too Good for Too Long?

18

LETS: Building Community Resilience through Local Economies

22

Mutual Benefits: the Path to Sustainable Governance

27

A New Development Paradigm Takes Shape in Bhutan

30

Future Challenges Team

35

3

Foreword

Foreword

Future Challenges is a project of the Bertelsmann Stiftung in GĂźtersloh, Germany and the Bertelsmann Foundation in Washington, DC, with the support of the Rockefeller Foundation. We are a global network of young authors, activists, academics and observers who work to illustrate how complex our modern world really is.

Creating a sustainable future for as many of the world’s inhabitants as possible is an admirable goal, but this goal will slip ever farther out of reach if we do not learn to embrace the complexity of the challenges ahead. We must ask ourselves not simply: What is the best way to ensure our safety? Instead, we must begin to ask: What is the best way to ensure our safety while managing changing population trends, providing high-quality education to as many people as possible, and ensuring that the benefits of economic globalization reach deep into our societies? We must demand that our political leadership takes the same approach. If we attempt to tackle our most difficult challenges alone, independent of one another, any solution that we devise will be unsustainable, sabotaged in the long term by unintended consequences that spill over from other issue areas.

On the other hand, if we learn to think about our greatest challenges as part of a connected web of issues, all of which have meaningful impact on one another, we may begin to identify solutions that are robust and long-lasting.

This fifth Future Challenges Reader examines the relationship between the state and its citizens, both as it looks now and how it might look in the years ahead as economic, demographic and social pressures build. We ask whether the social-welfare state is likely to rise supreme or, instead, some variety of unfettered capitalism with minimal state involvement. Is it possible that new models will arise that we have not yet imagined? And what should citizens in general expect from their governments in the future? These are no easy questions. To answer them requires reflections on personal responsibility, the advantages of collective action, historical examples, and the value of a state per se. This Reader is Future Challenges' own contribution to the discussion, with writings that cover the United States (Josh Grundleger), Nepal (Bhumika Ghimire), El Salvador (Mariana Belloso), Hungary (Daniel Vekony), Australia (Dominika Ricardi), Mexico (Daniel Kapellmann) and Bhutan (Noa Jones).

We hope you will enjoy this and the other volumes in the Future Challenges Reader series. To get involved with the program or to give feedback on what’s written here, please visit our website (futurechallenges.org) or contact us directly.

Enjoy!

4

Introduction

Introduction

The stresses of the last decades have emptied many state coffers, creating tension between citizens, who have come to expect certain goods from their governments, and those governments themselves, which are suddenly unable or unwilling to fund the provision of those goods. Are states as we currently know them necessary for our well-being? It would seem so, but what is the right balance between the state and the citizen, and what factors are important in determining that balance?

Our Future Challenges authors explore this big question by looking at their own experiences in countries in Latin America, North America, Asia & Europe. In each context, the relationship between citizens and governments has been changing. Some see these changes as an improvement, while others see it as a downhill slide.

Our authors from the Future Challenges network are scattered across 65 countries worldwide.

More than 30 of them contributed their perspectives, ideas and stories on this topic, and we have collected the best of the best to print here. More are available at futurechallenges.org.

5

The Illusion of the Welfare State

The Illusion of the Welfare State Friday, 8 March 2013

Josh Grundleger

Contact Information: jgrundleger@gmail.com Joshua Grundleger is an analyst at the Economist Intelligence Unit. He was previously editor-in-chief of The SAIS Review and Voices. He has a master’s degree in international relations and economics from Johns Hopkins (SAIS) and a bachelor’s degree in government and economics from Cornell University. Josh currently lives in New York with his wife.

The United States has a cultural problem. Europe has it, too. It is the welfare state—the overextended, debt-funded morass of entitlements. One might inquire why it is a cultural problem in particular. Usually the welfare state is discussed in economic terms and described as a problem of financial mismanagement. The real issue in this case would be figuring out how we Europeans and Americans ought to pay for our systems. If we could only reconcile the mismatch between revenues and expenditures, perhaps it would solve the problem of the welfare state.

The logic of such an economic explanation is, naturally, convincing. The welfare state is a huge economic problem that must be addressed. However, an economic solution is insufficient. That is because the core of the predicament lies much deeper, in the cultural fabric of the modern West. It is rooted, depending on one’s level of cynicism, in either an unfortunate misunderstanding or a willful dismissal of the nature of the welfare state. Without first addressing this cultural misperception, no economic answer will resolve the woes of the welfare state.

Our society—our culture—has been blinded by an illusion that the welfare state actually adds value to the economy. If the welfare state added or created something, the illusory logic holds, it would justify itself. If we can take a little money from somewhere, run it through the sausage-machine, and create more with it, then, using President Obama’s favorite phrase1, we have “invested in the future.”

This viewpoint portrays the government as a productive force, as though it were a business. If a business’s success can be measured by how profitably it produces something worthwhile, the welfare state can be judged by the same criterion. When a business profitably produces a shipment of bread, it is deemed a success. It has, as any economist will argue, added value to the economy. In parallel, a supporter of the minimum wage may simplistically look at the increase in the wages of the indigent and conclude that this is a successful creation of the welfare state. Wages for those at the bottom of the economic ladder have gone up, thus there is value added to society.

1 http://www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/jointcommitteereport.pdf

6

The Illusion of the Welfare State

http://www.flickr.com/photos/ familymwr/4930276154 Army Photography Contest Photo by flickr-user „familymwr” CC BY 2.0

However, this is a crucial error. Unlike a business, the welfare state is not (nor can it be) a producer or a creator. A business creates value by using some input—say, leather—and processing it into a finished product—say, a shoe—that is worth more than the sum of its parts. The welfare state, though, does not partake in this process. It is not a producer.2 Instead, it is a redistributor (often an inefficient one that consumes some of what it is supposed to redistribute). A welfare state does not add value to an economy but merely moves it from one hand to another. When the government provides food stamps or a housing check to an individual, it is not creating something but taking money from a taxpayer and giving it to someone else. When small businesses and protected industries (automakers, green energy, Wall Street) receive subsidies, the government is not producing or investing in anything but rather (forcibly) moving money from one use to another.

The failure to grasp—or accept—such a simple concept has allowed the Western public to live a lie.

We have convinced ourselves that the welfare state is adding value, not merely reshuffling it. In other words, we have fooled ourselves into believing that the welfare state is justifiable on economic grounds. Accordingly, the welfare state has garnered considerable undue support, which has directly contributed to its tremendous growth. Most significantly, the illusion of the welfare state has enabled an unstable, debt-funded expansion. For decades we have been able to ignore the cost side of the equation because we have become persuaded that the welfare state is paying for itself. The only thing the welfare state has created is a culture of denial.

2 I expect that some critics will try to portray the welfare state as part of the service sector. This is not an appropriate comparison. Services, like finance, create value by providing assistance—doing something—for their client, who will ultimately gain more (e.g., return on investment, information, etc.) than if he had done the service himself. The welfare state does not have a client. The benefits of the welfare state do not go to the person who hired or paid for a service (taxpayer) but to others.

7

The Illusion of the Welfare State

http://www.flickr.com/photos/ cdevers/4602805654 Banksy in Boston Photo by Chris Devers CC BY-NC-ND 2.0

One need only look to the American news to find many examples of this cultural defect. Despite the very public political battles over the deficit and debt level, when the president, in his recent State of the Union address3, offered a laundry list of new programs, it was the accolades that were most clearly heard. Advocates of one program or another rushed, with their hands out, to defend the absolute need for their projects4. When members of the Tea Party, the stalwart critics of expansive government, argued against Obamacare, they coupled it with a rallying call to keep the government’s hands off their Medicare5 (a lovely contrast). Every time a politician, whether Republican or Democrat, announces a new program that will benefit his constituents, the cheers can be heard for miles. Rarely does one think—or care to think—about where this program is coming from, at what cost, and who pays. The rich? Fine. The Americans? Works for Europe. Our great-grandchildren? Let them figure it out. Why should anyone care about these questions if the costs are merely investments that will be re-earned many times over? If a government program makes everyone richer, or at least just as well-off, wouldn’t you support such a policy?

This is the crux of the cultural problem: far too many people are convinced that the welfare state is adding value. They calculate the benefits that they can see and ignore the costs that are not visible. This explains why the welfare state has been sustained and why it has grown to such monstrous proportions. Individuals have been convinced that the welfare state can pay for itself.6 Many are able to ignore (or do not understand) that the welfare state—the government—is not creating or 3 4 5 6

8

http://www.nytimes.com/2013/02/13/us/politics/obamas-2013-state-of-the-union-address.html?pagewanted=all&_r=0 http://www.cnn.com/2013/02/28/opinion/sutter-preschool-obama/index.html?hpt=hp_t2 http://query.nytimes.com/gst/fullpage.html?res=9805E5D71330F933A15751C1A96F9C8B63 Another, and simultaneously compatible, argument is that some people completely understand that someone else pays for or will pay for their (or others’) benefits and either do not care (they are selfishly happy to take from others) or believe, for some moral reason, that some individuals have a duty to support others (a more intellectually consistent argument).

The Illusion of the Welfare State

http://www.flickr.com/photos/ camkage/4532968993/ Money Tunnel Photo by Flickr-user „Lomo-Cam” CC BY 2.0

producing but, instead, taking and then reallocating. In short, as a culture, we have failed to internalize what the welfare state is and thus have created an economic mess. The welfare state is not free goodies. It is not the government creating something. It is, plain and simple, the redistribution of resources. Period.

Now before the defenders of the welfare state have a fit, let me be clear. My argument here is not a condemnation of the welfare state. I am not saying that it is all bad. It is not. There is, in my opinion, a need for some type of welfare state (I will leave that for another discussion). Instead, I would simply suggest that we have a misperception of the welfare state and, as a result, we have chosen not to pay for it. As a society, we will only be able to determine its relative worth and its proper use if we truly understand what it is.7 We will only be able to solve the very real economic problems that surround it if we comprehend its capacities and limits.

For nearly a century, we have been able to ignore this issue for a variety of reasons. A booming economy, the threat of communism, and the relative youth and relatively modest debt burden of the welfare state facilitated our ability to blind ourselves with this misperception. These excuses enabled us to continually, in a classic tragedy of the commons8, hide from the truth and ask for more.

7

In truth, my hunch is that if properly perceived as an instrument of redistribution rather than an organ of production, far fewer people will support an expansive welfare state, and its proponents will have greater difficulty selling it. This is why President Obama frequently calls his new expenditure proposals “investments”—a misnomer at best.

8 http://en.wikipedia.org/wiki/Tragedy_of_the_commons

9

The Illusion of the Welfare State

But as our economies have aged, the threat of communism has dissipated, and the Great Recession has dragged Europe into austerity and cracked the taboo of the “third rail” in American politics9, maintaining this monumental myopia has become a fool’s errand. Sure, certain politicians and proponents still cling to the notion that a deficit-funded welfare state can be maintained. They clamor from their podiums that the rich need to pay their fair share and if we just make some more “investments” we will receive a ten-fold “return.” They lie to their constituents and say they do not need to cut this benefit or trim that entitlement, and everything will be just fine. All the while the broken system plods along toward its final collapse.

However, the prudent must shout down these foolish arguments. They must advocate for a correct portrayal of the welfare state as a mechanism for redistribution, where the government is unable to make investments or create value but can only take from some to give to others.10 They must be honest with the people, so we can understand the plight we are in.

If we do not make such an adjustment in our cultural understanding of the welfare state and instead continue to live this lie, we will destroy our way of life. Countless great societies have foundered due to the same internal rot. They increased their debts while failing to increase their desire and ability to pay for them. We cannot make these same mistakes. We cannot continue to fool ourselves into thinking that this model is sustainable. We cannot continue to maintain that the government can create something out of nothing. We cannot insist on arguing that the welfare state is some magical machine that will produce a path to prosperity. We cannot persist in believing that we can benefit without paying. The sooner we acknowledge that, by definition, the existence of a welfare state implies the existence of winners and losers, the sooner we will be able to address the slow deterioration that will ultimately mark Western civilization as yet another historical example of lessons not learned.

9 http://www.stlouisfed.org/publications/re/articles/?id=1793 10 A model of redistribution may very well be acceptable to Western societies. The merits of the welfare state ought to be debated. Do we want a welfare state?

To what extent? Who contributes and who benefits? But that is a separate discussion, one that can only successfully occur when everyone understands the limits of what the welfare state can do.

10

Can Nepal Afford to Be a Welfare State?

Can Nepal Afford to Be a Welfare State?

Monday, 11 March 2013

Bhumika Ghimire

Contact Information: bhumika_g@yahoo.com Bhumika Ghimire is a blogger and social media enthusiast based in New Jersey, USA. She is currently working as a technical recruiter. She also manages the social media presence of her employer.

A welfare state is like a parent, and citizens are its children.

Up to a certain age, children depend totally on their parents or caregivers. As they grow up, the level of dependency slowly declines until the child is no longer dependent and turns into an adult with responsibilities and aspirations of its own.

A welfare state does not follow this natural path of growth and responsibility. The state is expected to be a parent—perpetually. This is both a counterproductive and extremely expensive proposition.

We have seen pampered children who fail to live up to expectations because they have been mollycoddled by parents for far too long, while, on the other hand, there are children who suffer gross neglect at the hands of their parents and caregivers.

In families, it’s important to maintain a balance between parenting and overprotecting children. Likewise, a state should be balanced and not be expected to play the role of the perpetual parent.

The Nepali Context As I mentioned above, a welfare state is an expensive proposition. And Nepal’s struggling economy (as shown in the data below) simply cannot take the burden.

The current economic climate is not conducive to business or other means of generating revenue.

It is difficult to do business in Nepal because cost of starting a business is extremely high relative to per-capita income (Figure 1) and the case of doing business is only adequate (Figure 2) when compared with other developing or developed economies.

The shift in Nepal’s political and social landscape, as it becomes more sympathetic to socialist and communist ideologies, means that while labor protection is improving, investors and business owners get a rough deal from the state.

11

Can Nepal Afford to Be a Welfare State?

Figure 1, Figure 2 and Figure 3 http://databank.worldbank.org/data/views/ variableselection/selectvariables. aspx?source=doing-business#c_n

Cost to start a business

Ease of doing business, 2012

Cost to get electricity

Cost to start a business

Ease of doing business, 2012

Cost to get electricity 1 762.80

130.00

1 762.80

33.00 130.00 108.00

33.00

108.00

91.00 91.00

547.00 547.00 4.80 2.10 4.80 Nepal

2.10 China

Brazil

United 1.40 States

% Nepal of income China per capita, Brazil 2012

United States

Source: World Bank % of income per capita, 2012 Source: World Bank

Figure 4 www.heritage.org/index/excel/ 2013/index2013_data.xls

116.70

1.40

4.0 Nepal

China

Brazil

United 4.0 States

1=Nepal best, 185 China = worst Brazil

United States

Source: World Bank 1= best, 185 = worst

16.10 Nepal

China

116.70 Brazil

% Nepal of income China per capita, Brazil 2012

Source: World Bank % of income per capita, 2012

Source: World Bank

United 16.10 States United States

Source: World Bank

Nepal’s economy as compared to neighboring states and the United States Nepal’s economy as compared to neighboring states and the United Unemployment States Country GDP per Capita (PPP) Public Debt (% of GDP) (%) Country

GDP per Capita (PPP)

Public Debt (% of GDP)

Unemployment (%)

Bangladesh Bangladesh China China India India Nepal Nepal United States United States 0K

20K

40K

0

5

10 0

50

100 0

20

40

20K Source: Heritage0K Foundation

40K

0

5

10 0

50

100 0

20

40

Source: Heritage Foundation

Nepal’s economy as compared to neighboring states and the United States Nepal’s economy as compared to neighboring Public states and the United States Country GDP per Capita (PPP) Debt (% of GDP) Unemployment (%) 12

Bangladesh Country China Bangladesh

GDP per Capita (PPP)

Public Debt (% of GDP)

Unemployment (%)

Can Nepal Afford to Be a Welfare State?

http://ow.ly/lLLgI MY ROAD Photo by Michaël Garrigues CC BY-NC-ND 2.0

This creates an imbalance. Businesses are failing and, in many cases, are forced to shut down; as a result, skilled workers who cannot find jobs are forced to migrate in search of work. Many end up in countries with little or no labor rights or protections. Ironically, the pro-labor climate in Nepal works against its own workers and represents the failure of the labor rights movement.

The energy situation is also very frustrating. Despite being rich in water resources, Nepal’s energy infrastructure is quite poor, with all its major cities suffering hours of power cuts on a regular basis.

This hardly paints an encouraging picture for business owners and entrepreneurs. (Figure 3) It is no surprise, then, that the unemployment rate in the country is in the ballpark of 46% (2008 estimate) and that inflation, too, is very high. Our parent, in this case the Nepali state, is essentially a slacker—an underemployed parent who is in no position to pay for her children’s needs.

(Figure 4)

Welfare State?

Can Nepal afford to be a welfare state when it is failing to create an environment that is conducive to employment and revenue generation? There isn’t enough money in the house, so how long can the country depend on foreign aid and remittances sent home by migrant workers to sustain itself?

It is high time for the country to realize that if the state did what it is supposed to do in the first place, we wouldn’t need a welfare state at all.

13

The Torn Pocket of Father State

The Torn Pocket of Father State Wednesday, 13 February 2013

Mariana Belloso

Contact Information: @beiioso Mariana Belloso has a bachelor's degree in journalism, with a focus in economics and fiscal policy. in journalism, with studies in economy and fiscal policy. She has worked in several local and regional publications like Diario El Mundo, ITNow and Markets&Trends magazines. She is currently the Economics Editor at La Prensa Gráfica, the most important newspaper in El Salvador.

The Salvadoran state is like a father who has many children. It is in debt, has limited wages, has maxed out its credit cards and overdrawn its checking account, and while it gets loans11 to restructure its debt,12 it always comes back for another overdraft.

Father State thinks he’s doing well. He tries to take care of his little ones. Although he invests little in healthcare13 and education,14 he makes sure his kids pay low prices for water, energy, public transportation, and propane gas, which almost half of the households in the country use for cooking.

The country’s annual production is approximately $23.9 billion. The money Father State has, at least in 2013,15 is $4.5 billion; however, most of these funds are used for the operation of the legislature and judiciary. The executive branch,16 which doles out the aforementioned benefits, has approximately $2.7 billion.

In spite of these limited resources, the executive branch maintains a series of subsidies that have an annual cost of over $400 million, which works out to ten percent of the national budget and twenty percent of the executive’s budget. But this money does not exactly come out of the budget, nor is it even included in it, as we will see below.

These subsidies are the most debated and visible face of the social contract in El Salvador. People perceive the state as helping them because it gives them $9.10 a month to buy gas, because they pay low prices for water, or because their children receive shoes and can attend public schools.

This social contract scheme has been discussed and criticized during, at least, the past two administrations. The main concern is that these subsidies are not adequately focused17 on those genu11 12 13 14 15 16 17

14

http://www.revistasumma.com/economia/503-el-salvador-emite-us$800-millones-en-eurobonos.html http://www.laprensagrafica.com/gobierno-usara-fondos-para-pagar-deuda-de-corto-plazo http://www.laprensagrafica.com/radiografia-del-presupuesto http://www.diariocolatino.com/es/20120227/nacionales/100797/Ministerio-de-Educaci%C3%B3n--invertir%C3%A1-$120-millones-m%C3%A1s-en-2012.htm http://www.laprensagrafica.com/con-4-votos-areneros-se-aprueba-presupuesto-2013 http://www.mh.gob.sv/portal/page/portal/PTF/Presupuestos_Publicos/Presupuestos_votados/A%F1o 2013/Sumarios/gc_sumario3-13.pdf http://elmundo.com.sv/fusades-pide-reducir-monto-de-subsidio

The Torn Pocket of Father State

http://ow.ly/lXlZd gas bottle Photo by Xie Xian he Luobote CC BY-NC-ND 2.0

inely in need: the poorest population. The other major criticism is the lack of sustainability18 of these subsidies, which have aggravated the country’s fiscal deterioration and have not reduced poverty19 or redistributed wealth.

Let’s examine this closely. The electricity subsidy is given to households with monthly consumption below 200 kilowatt hours. This level of consumption covers homes with a refrigerator, up to two televisions, other appliances, and even a washing machine.

Critics of this subsidy say it should be limited to households with consumption of less than 99 kilowatt hours per month. However, the cost of this subsidy is covered by the Executive Hydroelectric Commission of the Lempa River (CEL), the autonomous institution that operates hydroelectric dams in the country and which has come to use more than half of its expenditures20 to cover this state subsidy.

Then, there’s the water subsidy,21 which costs about $70 million annually and is the responsibility of the National Administration of Aqueducts and Sewers (ANDA). The administration has begun a targeting plan, applying different rates depending on the consumption.

18 19 20 21

http://www.laprensagrafica.com/el-salvador/social/263452-subsidio-no-mejoro-el-servicio-de-transporte http://www.uca.edu.sv/deptos/economia/media/archivo/302cb7_politicaspublicasdelsubsidiodeaguapotableygaspropanoenelsalvadorysuimpactoenlad.pdf http://www.laprensagrafica.com/la-cel-ha-pagado-un-48-mas-en-subsidio http://www.laprensagrafica.com/subsidio-a-agua-potable-fue-de--70-millones-en-2012

15

The Torn Pocket of Father State

http://ow.ly/lXmCL Day 97 - Bus terminal Photo by Lee Shaver CC BY-NC-SA 2.0

The public transportation subsidy has been one of the most criticized. The government used to pay $750 per bus and $375 per minibus to prevent higher fares. The average urban fare is $0.20, for a bulk of population with a monthly minimum wage of $208.

The annual cost of the transportation subsidy was $70 million. In this case, Father State had to admit he couldn’t afford it: in 2013, the government announced a forty percent reduction,22 which means that each bus and minibus will receive $400 and $200 respectively, an annual cost to the state of $37 million.23 This has led to protests by public transportation entrepreneurs and threats of increased fares.

There’s also a subsidy for liquefied propane gas (LPG). The government used to pay the companies that sell the product, so they would maintain prices below the real cost of LPG. Two years ago that changed, and now the government pays a fixed amount in cash to each family, so they can buy the gas at its real price on the market.

Again, criticism focuses on the LPG subsidy’s lack of precision. In response, Father State has enacted a new reform, which has pruned the ranks of beneficiaries and changed the delivery mechanism—for now, it is through the electricity bill, but the plan is to do it through some kind of prepaid card.24

22 http://www.elsalvador.com/mwedh/nota/nota_completa.asp?idCat=47673&idArt=7253961 23 http://www.contrapunto.com.sv/finanzas/subsidio-al-transporte-37-mlls-y-no-mas 24 http://www.laprensagrafica.com/Presidente-adelanta-detalles-sobre-tarjeta-de-subsidio-de-gas

16

The Torn Pocket of Father State

http://www.flickr.com/photos/ lshave/2960629072/in/pool-51085560@N00/ Panorama with sunshine and rain Photo by Lee Shaver CC BY-NC-SA 2.0

Subsidies go on. They have become a habit for people and a commitment for politicians. Each new president refuses to break the social contract,25 despite the cost to public finances.26 At the end of 2012, the total external debt of El Salvador was $13.5 billion, 56.5% of gross domestic product. This is not a new problem. Each year the country’s debt has snowballed: the larger the debt, the faster it grows and in greater amounts.27 With limited income and increasing spending, debt becomes the last alternative to finance the operation of the Salvadoran state, a parent with complicated finances and demanding children. How long will this scheme be sustainable? What will happen when the rope is stretched to its breaking point? Is there a way to change the social contract without neglecting the welfare of the poorest?

These are questions that many people ask; the government merely delays finding solutions.28

25 26 27 28

http://www.estrategiaynegocios.net/2012/05/28/funes-descarta-recorte-de-subsidios-en-el-salvador/ http://lta.reuters.com/article/domesticNews/idLTASIE81G0J120120217 http://www.eleconomista.net/component/content/article/142128-es-deuda-publica-subio-1500-millones-al-cierre-de-2012.html http://www.verdaddigital.com/index.php?option=com_content&view=article&id=92:funes-no-podemos-eliminar-los-subsidios&catid=1:nacional&Itemid=27

17

Welfare States –Too Good for Too Long?

Welfare States –Too Good for Too Long?

Monday, 18 February 2013

Daniel Vekony

Contact Information: danielvekony@gmail.com Born in 1983, Daniel holds degrees in hospitality (2005), international relations (2008) and economics (2008). Daniel was an analyst at the Hungarian office of Morgan Stanley between 2008 and 2010. Upon leaving the company, he began a PhD program in IR at the Corvinus University of Budapest. His field of research is Islam and Muslims in Western Europe.

As societies in Europe become older, Central European countries and EU member states as a whole need to find out if, in a world of global competition, they want, and are able to sustain, the state welfare system inherited from the twentieth century.

During the 1980s there was a proverb in Hungary: “Life is good as long as Kádár29 [the communist leader of Hungary from 1956 to1988] is alive.” He might not be now, but communist nostalgia is alive and kicking in Hungary and in neighboring countries.30 The longing for the safety and equality of socialist times is especially strong among those who grew up before 1989.

Sometimes it’s hard to blame them. After all, education was free back then, social mobility was the order of the day (because of the state’s policy of sending the children of agricultural and factory workers to school and university), and unemployment stood at zero. There were no rich people, but neither were the homeless visible (the homeless were either jailed or hospitalized if they suffered from mental disorders). People could make a living, be it ever so humble, and the state took care of everything. You didn’t have to think about what tomorrow might bring, so why worry your head about alternatives?

Of course, all of this was economically unsustainable after the oil crises of the 1970s. This facade of a welfare system could only be sustained by raising huge loans from international institutions like the IMF. This was the price Hungary paid for being what was called the “happiest barracks.”31 Regime change was not brought to Hungary by a revolution but rather by an elite of dissident intellectuals. Most Hungarians expected a rapid rise in living standards, but for the most part, this failed to materialize. In such a climate, any “reorganization” (dismantling) of the welfare system would have spelled political suicide. Indeed, those governments that tried it failed miserably.

29 http://en.wikipedia.org/wiki/J%C3%A1nos_K%C3%A1d%C3%A1r 30 http://reason.com/archives/2009/11/16/the-rise-of-communist-nostalgi 31 http://en.wikipedia.org/wiki/Goulash_Communism

18

Welfare States –Too Good for Too Long?

http://ow.ly/lLJkq Change Photo by flickr user „Who Cares?“ CC BY-NC-SA 2.0

Despite the devastating effects of the economic crisis, there is still no real debate on the viability of the welfare state, which is now showing serious signs of collapsing while suffocating the state budget and economic growth.32 It seems that the government has realized something has to change.

The current demonstrations against reforms in higher education,33 which would effectively abolish free higher education, are a good lesson for Hungarians. Populist slogans might sound great in an election campaign, but they come with a sobering price tag. The Hungarian government debt stands at around 79% of the GDP34 at the time of writing. Without decreasing the size of the state and the debt, real economic growth and a rise in living standards will not be possible.

Whatever happens, there needs to be a clear debate on the viability of and future prospects for the welfare system in the EU as a whole. As David Cameron has pointed out, Britain needs to focus on manufacturing once more,35 even if this means cutting back on public spending. But this view is hard to sell in countries like France and Hungary, even if failure to embrace it means losing investment.36 Europe probably doesn’t have many alternatives, however: as the economic center of gravity moves eastward, all European countries will have to face the tough choice between the welfare state and global economic competiveness.

Can the aging societies of Europe afford to wait for non-European countries to build their own social welfare networks and lose some of their competitiveness in so doing? The other choice would 32 33 34 35 36

http://libertybullhorn.com/2012/10/29/hungary-raising-taxes-to-save-the-welfare-state/ http://www.huffingtonpost.com/2012/12/19/hungarian-students-protes_0_n_2331961.html http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/2-24102012-AP/EN/2-24102012-AP-EN.PDF http://www.telegraph.co.uk/news/politics/david-cameron/8997011/David-Cameron-industry-is-returning-to-Britain.html http://english.alarabiya.net/articles/2012/02/10/193730.html

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Welfare States –Too Good for Too Long?

http://www.flickr.com/photos/onkel_ wart/2760770904/ Sarrod #20 -- Which way to go?

Photo by Thomas Lieser CC BY-NC-SA 2.0

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Welfare States –Too Good for Too Long?

http://www.flickr.com/photos/ benny4bs/6036778636/ because we can Photo by flickr-user “ben Matthews” CC BY-NC-SA 2.0

be the introduction of new legislation across the region aimed at global competitiveness, similar to the kind adopted by Germany in the last ten years. It is true that the Agenda 2010 reforms of the Schroeder government,37 which deregulated some sectors of the economy and cut back on social spending, mightily enraged the electorate. But in hindsight,38 it was a package of reforms that put the German economy back on track.

History shows that those who just sit back and wait for better times get left behind. The re-tailoring of the European welfare systems will inevitably be painful for many, but the clock is ticking.

37 http://www.dw.de/a-quick-guide-to-agenda-2010/a-988374-1 38 http://www.spiegel.de/international/business/the-us-discovers-germany-as-an-economic-role-model-a-822167.html

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LETS: Building Community Resilience through Local Economies

LETS: Building Community Resilience through Local Economies Saturday, 9 March 2013

Dominika Ricardi

Contact Information: dominika.ricardi@gmail.com Dominika Ricardi has a Master of Development Practice from the University of Queensland and takes a special interest in what can be done to build more sustainable and inclusive communities.

She is Treasurer and founding member of the Goodness Inc, and speaks English, Spanish, French and Polish.

Governance isn’t the only thing that is being taken into the hands of civil society. In Australia, the entire premise of the market system is also being reworked. If the state reneges on its promise to provide basic services, people start taking things into their own hands. Using Local Energy Trading Systems (LETS), people are exchanging, trading, sharing skills, tackling poverty, and building community all at the same time.

A Local Energy Trading System (LETS) is a community-based non-profit trading system that allows its members to exchange goods and services using little or no cash. Rather than exchanging money, members exchange a unit of local currency representing their skills and time, not as an alternative to conventional money but to complement the current system of trade.

As demonstrated by the recent global financial crisis, the current economic system is unstable and, moreover, inequitable, reinforcing the gap between the rich and poor. Michael Linton and Angus Soutar,39 the founders of LETS, suggest that perhaps the major problem lies in conventional money and the form that it takes.

Every modern community depends on the flow of national currency through its economy. Money flows into the community from exports, visitors, and government spending. It flows out via imports, travel, and taxes. While competing for a share of this limited supply, people work in ways that damage their health, the environment, and community well-being.

Linton and Soutar40 argue that money has no value in and of itself; instead, it merely represents the time and energy individuals have invested in earning it. However, because there is a limited amount of money available, those without the means to earn it are often left on the brink. The LETS system aims to avoid this problem by creating a kind of local currency that stays within the community.

39 http://www.gmlets.u-net.com/design/dm1%5E1.html 40 http://www.gmlets.u-net.com/design/dm1%5E1.html

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LETS: Building Community Resilience through Local Economies

Photographer: Jeni LewingtonCC BY-NC-ND 3.0

The system places value on people’s skills and time, whether “skilled” or “unskilled,” thereby protecting them from poverty and the whims of the marketplace.

LETS in Practice I recently had the privilege of interviewing two representatives of LETS systems, one in Brisbane and one in Maleny (a smaller town in the Sunshine Coast hinterland), to find out how LETS works in practice. I was surprised to discover that the Maleny group, despite its smaller population, has a larger number of active members, and I was curious to find out what made it so successful.

According to Ann Jupp, committee member of Maleny LETS, the group was founded in 1987—the first LETS in Australia. With approximately 180 to 200 active members, they are thriving, considering the entire population of Maleny is less than 4000. Members range from hippies to housewives to professionals. The majority of units (bunyas) traded are in the alternative health sector, including reiki and massage, but they are used for anything from house cleaning to babysitting to plumbing. The number of bunyas exchanged is negotiated directly and on a case-by-case basis between the “buyer” and “seller.” In the last three years, the group has exchanged over 800,000 bunyas.

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LETS: Building Community Resilience through Local Economies

Photographer: Jeni LewingtonCC BY-NC-ND 3.0

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LETS: Building Community Resilience through Local Economies

Photographer: Jeni LewingtonCC BY-NC-ND 3.0

Ann believes the success of the Maleny group is largely due to the “community mindedness” of the community. The group is promoted mostly through face-to-face social networking. There is even a cooperative café in town, the Upfront Club,41 which provides meals for bunyas on Sunday nights, and where LETS members can advertise their services. Members who volunteer at the café are paid in bunyas, which they can then use for meals and other purchases.

The Brisbane LETS group, on the other hand, faces challenges due to its geographic size. According to Liz Stanhope, secretary, there are approximately 200 members (including about 60 active members), but people from the north probably don’t trade with people from the south. They have a market day once a month, where people are able to trade produce and goods for units. When asked if they had considered establishing local groups that might help members get to know each other on a more personal level, she mentioned they had thought about it, but hadn’t figured out a sure system to make it work.

LETS and Community Resilience The LETS members I interviewed all believe that a local currency can strengthen community resilience. According to Ann, this is the reason she has stayed with it for so long. “It’s a great equalizer; it means that people who have not got the dollars can still get what they want. It’s also a very gentle and organic way of looking at trading within the community.” What makes it even better is 41 http://www.upfrontclub.org/

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LETS: Building Community Resilience through Local Economies

that trades can be undertaken between communities, interstate, and even internationally. There are now some 200 LETS groups in Australia, among the most of any country. Recently, a group from BrisLETS went to watch the solar eclipse in Cairns and traded units for accommodation. There is even an online system that allows members to connect with LETS groups across the globe. The success of the Maleny group, in particular, shows how an alternative currency can strengthen community well-being and sense of identity. In hard financial times like these, it is certainly an example that other communities may do well to follow.

For an online demonstration of LETS at work, click on the following link. http://community-exchange.org/demo/index.htm

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Mutual Benefits: the Path to Sustainable Governance Wednesday, 27 February 2013

Kapell

Contact Information: danielkapellmann12@gmail.com Kapell studies International Relations at ITAM University in Mexico City. Currently he is working for Johnson and Johnson Pharmaceutical Companies Janssen, directing the magazine Urbi et Orbi, and writing for Futurechallenges. Definitely, his two passions are music and journalism.

There are men who fight one day, and they are good. There are others who fight for a year, and they are better. Then there are men who fight for many years, and they are very good. But there are men who fight their entire lives: It is they who are essential. – Bertolt Brecht The days of the traditional welfare state are numbered. With the recent economic crisis, aging and fleeing populations, growing national debts, worldwide inequality, and the need for citizens who are skilled and responsible, governments must turn their attention to instilling values of productivity in their people, thus developing the type of people Bertolt Brecht esteems—men and women who will not just live quietly but who will, instead, actively help themselves and their communities to grow.

Under a reciprocal scheme, in which the state works as a supporter that both offers and receives help, integral co-responsibility programs enable governments to provide the people with tools to grow by themselves while generating new values that lead to sustainability and poverty eradication. As a result, governments receive an aggregated benefit from the work of more productive individuals, a win-win situation.

A perfect example of this kind of program is Progresa Oportunidades in Mexico. Internationally recognized, applied in more than thirty other countries,42 and supported by the Inter-American Development Bank, Progresa Oportunidades is described as follows by the World Bank:43 It focuses on helping poor families in rural and urban communities invest in human capital—improving education, health, and nutrition of their children—leading to long-term improvement of their economic future and the consequent reduction of poverty in Mexico. By providing cash transfers to households (linked to regular school attendance and health clinic visits), the program also fulfills the aim of alleviating current poverty.

42 http://www.oportunidades.gob.mx/Portal/wb/Web/oportunidades_a_human_development_program 43 http://info.worldbank.org/etools/docs/reducingpoverty/case/119/summary/Mexico-Oportunidades Summary.pdf

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http://www.flickr.com/photos/ garryknight/4876209724/ Win-Win Situation Photo by Garry Knight CC BY-SA 2.0

With the objective of using conditional monetary supplements and provision of basic services to eradicate intergenerational transference of poverty, Oportunidades helps families prepare for the future by using the government’s money to replace the potential income that is lost when families send their children to school instead of to work. Through conditional cash transfers given to the female heads of households, it seeks to enhance gender equality, achieve better management of home finances, and - most of all - take care of the education and health of children, who will later be able to enter the labor market if they are sufficiently prepared.

But how can we be sure that the money given is achieving its purpose? One of the most important characteristics of this program is that it was launched along with careful evaluations and assessments, which were conducted from 1997 to 2002 by an external association known as the International Food Policy Research Institute (IFPRI).44 This organization measured the success of the Oportunidades program in terms of school enrollment, nutrition, health, and prevention of disease in some of the poorest communities. As of this writing, Oportunidades has continued to grow and now helps 6.5 million families all over the country.

Nevertheless, the program has been strongly criticized for providing education and assistance without investing in creating an economic environment in which the newfound knowledge and skills can be used. That means even this better-prepared generation of workers will likely continue to live in poverty. If there are no good jobs and no specialized help to foster entrepreneurship, the government won’t be able to lower its costs and rely on the labor force to maintain self-sustainable communities.

44 http://http/www.ifpri.org/sites/default/files/pubs/pubs/ib/ib6.pdf

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http://ow.ly/lLMhz Biblioteca Vasconcelos - Alberto Kalach Photo by Carlos Alcocer Sola CC BY-NC-ND 2.0

To address this complaint, the government of newly elected President Enrique PeĂąa Nieto has gotten involved in promoting a new program called the Crusade Against Hunger45, which is intended to complement Oportunidades. The aim of this program is to help 7.4 million Mexicans by focusing on five pillars: achieving zero hunger through proper nourishment, eliminating childhood malnutrition, fostering community participation, reducing post-harvest losses, and most of all, increasing food production.

The combination of the two programs may indeed fill some of the voids left by previous antipoverty strategies. The programs will help the people who receive cash transfers and education to produce their own food and participate in productive, sustainable activities that help eradicate hunger. Notwithstanding, Crusade Against Hunger is still very new, and it has yet to be seen whether it will grow to the scale of Oportunidades, which represents around 46.5% of Mexico’s federal annual antipoverty budget.

This is a crucial moment for the administration to establish Crusade Against Hunger as a successful program that may both complement and improve the now-stable Oportunidades. It is a fact, however, that if the government wants it to succeed, it will have to stick to the paradigm of shared responsibility. We need to take responsibility on both sides, generate values rather than dreams, and achieve a sustainable paradigm of mutual benefit.

45 http://cruzadacontraelhambre.gob.mx/

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A New Development Paradigm Takes Shape in Bhutan Thursday, 14 February 2013

Author: Noa Jones

Contact Information: noajones@lhomon.bt Noa Jones has written for many magazines and newspapers including the New York Times, Tricycle Magazine, and VICE. Since 2010 she has been based in Bhutan as volunteer education coordinator for the Lhomon Society, a grassroots initiative fostering the development of holistic curricula designed specifically for Bhutanese students.

For people who want to change the world, the departure lounge of Bhutan’s Paro International Airport was the place to be on February 3rd this year. The simple confines of the terminal became an extension of the high-level meetings that had taken place the week before, as members of an International Expert Working Group (IEWG) headed home on the one and only flight to Bangkok.

Francis Moore-Lappe, author of Diet for a Small Planet46, handed out biscuits to the likes of Hunter Lovins, president of Natural Capitalism Solutions, and pioneer Chilean economist Manfred MaxNeef47 while pursuing discussions on subjects like evolving models of democracy, paradoxes of political change, and the role of environmentalism in the new paradigm. The group had been invited

by H.E. Lyonchhen Jigmi Y. Thinley, prime minister of Bhutan and chairman of the steering committee for the New Development Paradigm, and included John DeGraaf48, Johannes Hirata, Thaddeus Metz, Kristen Vala-Ragnarsdottir, Anil Gupta, Jorgen Burke Mortenson, and many other intellectuals and activists from around the world.

Why Bhutan as its venue? Maybe because the country is one of the world’s youngest democracies.

Bhutan has been in the spotlight for its experiment in developing progressive policies for more sustainable and humane governance in line with the aspirations of Gross National Happiness (GNH).

With a landmass the size of Pennsylvania and a population of about 700,000, it may not be the largest or most powerful of nations, but it is an agile country with citizens who still trust their leaders.

In April 2012, Ban Ki-moon, Secretary-General of the United Nations, urged the Royal Government of Bhutan to take GNH to a new level. He gave the government the task of creating a New Development Paradigm (NDP)49 that, whether adopted into policy or not, will mark for future generations a point in history when populations across the globe started rethinking the role of government.

46 47 48 49

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http://smallplanet.org/ http://www.worldfuturecouncil.org/manfred_max-neef.html http://neweconomicsinstitute.org/people/john-de-graaf http://www.stwr.org/economic-sharing-alternatives/happiness-and-well-being-defining-a-new-economic-paradigm.html

http://www.flickr.com/photos/ babasteve/2670465231/ Bound for Bhutan Photo by Steve Evans CC BY 2.0

Secretary Ban Ki-moon said there is an urgent need for “a revolution in our thinking” to address the multiple economic, ecological, and social crises facing our world. “The old model is broken. We need to create a new one. . . . In this time of global challenge, even crisis, business as usual will not do. . . . Clearly we must unite around a shared vision for the future a vision for equitable human development, a healthy planet, an enduring economic dynamism.

To that end, Prime Minister Thinley and the Kingdom of Bhutan hosted this landmark IEWG gathering50 in the capital, Thimphu, from January 28 to February 2, 2013. The Prime Minister’s steering committee assembled an impressive list of participants, including scientists, economists, environmentalists, psychologists, and other great minds from all continents to collaborate with a select group of their Bhutanese counterparts. Their job was to “articulate the principles, goals, structures, and responsibilities of the new paradigm, so that this alternative perspective on development can contribute to the United Nations’ post-2015 development agenda.” The Secretariat stated that “the new development paradigm will focus on balancing thriving natural, human, social, cultural, and built assets and recognizing ecological sustainability, fair distribution, and the efficient use of resources as key conditions.” The draft report will be presented to the UN in June 2013, and a final document is due by September 2014.

It was a truly new millennial meeting of minds, with all the expected agreements and disagreements. How does one structure such a new paradigm? Based on the nine domains of GNH51? Or the 50 http://www.thebhutanese.bt/bhutan-unveils-its-new-development-paradigm/ 51 http://www.grossnationalhappiness.com/9-domains/

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http://ow.ly/lLKur stones, black and white Photo by Jos van Wunnik CC BY-NC-ND 2.0

UN’s Millennium Development Goals? Discussions were carried out under cloudless skies and in hallowed halls with hand-painted walls. Stories of success and collapse52 were articulated by this most articulate of groups. Hopes ran high and visionary statements flowed. “We need to remove the idea of private wealth from public decision making,” said one delegate.

“The inseparability of all that space contains is the key to bringing about fundamental change,” said geneticist David Suzuki. “Don’t get too romantic or ideological about nature,” countered Mark Mancall, “We are the custodians.” Suzuki warned that progress doesn’t always stick. “What we thought were great victories were just skirmishes,” he said. “We didn’t get to the root. We were too concerned with the symptoms and not with the underlying root causes.”

The Secretariat group hopes to identify these root causes and provide the best solutions known to mankind today. One root cause or symptom repeatedly discussed was income distribution. It was agreed that equality is more important for happiness than a country’s GDP or relative wealth on the world platform. Studies have shown that inequality is divisive and socially corrosive and ends up hurting the haves as well as the have-nots. Francis Moore-Lappe suggested that people either “reclaim or come up with another word for democracy, another way to come together.”

52 http://www.nytimes.com/2005/01/30/books/review/30EASTERB.html?_r=0

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In a joint statement, the Secretariat wrote: Perhaps most encouraging in this moment of life-threatening planetary crisis and malaise is the powerful surge of activity from civil society movements around the world taking the lead where governments feared to tread, and giving courageous expression to humankind’s basic goodness and inherent wisdom. This energy will and must create a global movement for adoption of the new development paradigm and generate the political will to act. But while we are witnessing a growing consensus that the present global system is bankrupt, as yet we still have no consensus on a clear, coherent and practical blueprint for the new approach that must take its place. Fortunately, elements of this consensus are rapidly emerging, including agreement that development must function within planetary boundaries and that it must enhance the well-being of all life forms.

This is definitely an initiative worth keeping an eye on.

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Future Challenges US | External Support

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