The Welfare State & Social Capital

Samuel Hammond, the Poverty and Welfare Policy Analyst at the Niskanen Center, has an interesting post at on the welfare state. He describes the role religion has played in social assistance, explaining that “philanthropy had to be earned through reciprocal relationships rooted in trust and goodwill. Churches relied on their member’s contributions and self-sacrifice to measure their strength of commitment to Christian ideals and bond the community together.” But then he points out how religion’s social assistance “began to unravel in the early 20th century”:

First, the social spending of the New Deal crowded out significant amounts of church-based welfare. By one estimate, New Deal spending caused church charitable spending to fall by 30 percent.

Then came President Lyndon Johnson’s “Great Society” and “War on Poverty,” and with it the creation of Medicaid and the expansion of food stamps and other income supplements targeted at the poor. Spending on Medicaid and Social Security rose exponentially after 1990, following a landmark Supreme Court decision that greatly expanded eligibility and a misconceived federal budget that promised to match state spending on low-income hospitals dollar for dollar, essentially turning Medicaid into a money pump.

Data shows that commitment to religious community in the United States has been steadily decreasing, and in a way that seems correlated to spending on public welfare. Since 1990, America’s non-religious population has grown from about 5 percent to over 20 percent and is climbing. A comparison of U.S. state rankings reveals a striking negative relationship between the generosity of the welfare system and the size of the self-identified “very religious” population.

So does the welfare state lead to a decline in social capital? When we look at the data from Europe, the “evidence by–and–large contradicts the U.S. narrative. Indeed, empirical studies tend to talk of welfare being “trust enabling”. Consider Sweden, which has one of most comprehensive welfare states in the world but also ranks near the top in measures of social capital.” So why the difference?:

The key factor appears to be the high level of decentralization in many social programs. For example, inSweden delivering healthcare is the responsibility of County Councils, while welfare, disability, and programs for the elderly are controlled by municipalities. Swedes also have very high rates of union membership. Yet instead of being confrontational with the employer, the norm is mutual advantage. In turn, unions are entrusted to manage stuff that in the U.S. would be cynically regulated, like unemployment insurance and parental leave. 

Economists extol the virtue of this kind of decentralization, known as subsidiarity, for reasons of asymmetric information. That’s just jargon for the truism that, in tight communities, everybody knows everybody. I was astonished to learn, for instance, that 75% of Swedes report attending “study circles,” 10% on a regular basis. These are regular meetings of a dozen or so people organized by larger voluntary associations that “range from the study of foreign languages to cooking to the European Union question.”

Elsewhere, Hammond proposes three ideas for decentralizing the U.S. welfare state:

  1. Medicaid wavers: “The first is the 1915(c) Home & Community-Based Waiver, which allows states to provide long term care under Medicaid through community based settings. An example might be an individual with severe intellectual or developmental disabilities. Traditionally, under Medicaid the individual will receive long term care through an agency and may even become institutionalized. Using the HCBS waiver, the eligible individual can self-direct their care from top to bottom, appoint a friend or family member as caretaker, and take control over their living environment. In some cases, the individual may even become the de facto employer, with the aid of a fiscal intermediary to handle payroll and other tasks beyond their capacities. So not only does the waiver redirect program delivery in a way that re-engages family and community, it also greatly enhances individual autonomy and self-determination.”
  2. Prevention programs: “A second, more recent example, is the Department of Health and Human Services’ initiative to channel Medicare spending on diabetes prevention through local YMCAs. The program launched as part of an innovation grant under the Affordable Care Act and is still being independently evaluated, but initial findings are promising. It’s a perfect case study in why community matters. By bringing pre-diabetic participants under one local roof, any direct educational benefits are reinforced by the peer-effects of other participants who may begin to form a loose network, check in on how well each is holding to their new diets, and so on. The best part is that, in theory, peer networks can persist long after the initial intervention. That means if this particular program were ended its effects may continue to reproduce overtime. The “cultural channel” for social policy is thus underrated by many progressives who automatically associate the enforcement of social norms through shame and stigma with conformity or oppression. Yet such social structures also serve as robust mechanisms for enhancing an individual’s self-control.”
  3. Universal basic income: “[Charles] Murray argues that [a lump sum transfer] only works if all or most other transfer programs are eliminated. It is in essence a strategy for eliminating the “hidden information” problem of poverty. With a basic income deposited monthly, it is no longer credible for someone who gambles their stipend away to claim total desperation, since their income stream is common knowledge. The remaining alternative is to appeal to friends and family. With the incentives set just right, the economies of scale and insurance benefits of pooling resources could lead to a dramatic community revival; however, Murray’s theory has yet to be put to the test.”1

This is why conservatives and libertarians need to “declare peace on the safety net” and seek out innovative ways to make it more effective and efficient.