Fresh Ideas for Conservative Reform

As Europe slowly moves toward a recession, exposing itself to another debt crisis, the public discourse remains notably void of much-needed calls for comprehensive, structural reforms to the economic size of government. Conservatives across Europe should be at the forefront of the public-policy debate with well-designed ideas for how to reform away the costly, inefficient, and morally degrading socialist welfare state.

There are a few exceptions out there, such as a nice two-part analysis of the welfare state by Egon Zsiros with the Hungarian Conservative. Predominantly, though, the voices of the right pay only passing interest to the institutional behemoth that in most of Europe gives government control over 40-50% of the economy. 

Since the welfare state is the indisputable cause of Europe’s seemingly unending economic malaise, and since the welfare state—as Zsiros eloquently points out—conflicts with core conservative values, it deserves a great deal more attention than it gets. Fortunately, the Heritage Foundation, an American conservative think tank, has published a list of welfare-state reform proposals that should help invigorate the debate. 

While the Heritage Foundation focuses on America and its admittedly quirky welfare state, some of its ideas are of such a general character that it should inspire a similar conversation in Europe as well. 

The fact that this new initiative comes from America is perhaps not entirely surprising. Over the years, American conservatives have been a bit more outspokenly critical of the welfare state than their European peers. In 1960, Senator Barry Goldwater published his classic book Conscience of a Conservative where he commented on the destructive forces of the welfare state. In 1964, Ronald Reagan held his widely recognized speech “Time for Choosing,” in which he gave a long list of examples of how absurdly and adversely the welfare state affected the lives of the people it was created to help.

Both Goldwater and Reagan were conservative thought leaders. Perhaps their inspiration has helped keep the conservative torch a bit brighter in America than in Europe. That said, for a good long time their inspiration did not seem to reach into the thick of the socialist experiment: the welfare state. Prominent conservative think tanks like the American Enterprise Institute and the Heritage Foundation made only residual efforts to explain, let alone reform, the welfare state. 

Fortunately, Heritage seems to want to change that: they have published a so-called budget blueprint with a surprisingly detailed list of tangible ideas for conservative-minded reforms to the American welfare state. So far, they are alone among conservative institutions to take a systematic approach to welfare-state reform; there are faint rumors out there that other American conservative outfits may join them, but much like is the case on the European side, most of those who label themselves conservatives seem to be taking a wait-and-see approach to the welfare state.

There is nothing wrong with this. Fiscal policy, which technically is the modus operandi of the welfare state, is difficult and technical in nature. Furthermore, the ideology behind the welfare state is convoluted to such a degree that not even proponents of said ideology (socialism) will want to talk about it. 

For precisely this reason, the new initiative from the Heritage Foundation may prove to be the first step toward a broader conservative conversation about welfare-state reform. They are not the first to carry this banner: my book Ending the Welfare State from 2012 presented a list of reforms that would accomplish more than what the Heritage Foundation proposes. As recently as April 2022, I published a two-part series here, focusing on the hurdles and the means to conservative welfare-state reform.

That said, the initiative from the Heritage Foundation is welcome, and of such a nature that it has the potential to inspire a more ideologically profiled conversation about the welfare state.

It does, namely, not take much reading to realize that the Heritage Foundation has a conservative foundation for its reforms. From a practical viewpoint, their reforms aim to change the fiscal trajectory of the U.S. government, but most of their reforms, at least implicitly, proceed from conservative principles. 

Today, the American welfare state, just like its European counterparts, is built on the premise that all spending—cash or in-kind—should redistribute income and consumption among individuals. Benefits should be paid out based on people’s income; to reinforce this redistributive purpose, the taxes that pay for the welfare state, relatively speaking, put a heavier burden on high-income earners than those with modest earnings. 

In their budget blueprint, the Heritage Foundation puts forward reforms that would replace the redistributive entitlement model with a flat-benefit system. They have limited this redesign to a couple of entitlement programs, but the idea is nevertheless powerful. It says that every person eligible for an entitlement program would get the same amount of money, regardless of their income (provided, again, that they qualify in the first place).

This idea, which I applied to “Reform #3” in my aforementioned book from 2012 and explained at length in 2018 in The Rise of Big Government, is not at all new. It got its first systematic application in 1942 by British conservative reformist Lord Beveridge. In his official report to Parliament, he wanted to morally part with the subsistence nature of earlier iterations of the welfare state and give Britain’s poor a last-resort yet dignified safety net. 

Lord Beveridge was a conservative pioneer in the sense that he took the principles of the ideology into policy practice. Some commentators have tried to place the origin of conservative welfare-state policy as far back as the Elizabethan Poor Laws of the early 17th century. However, such references are often meant to degrade the conservative approach to the welfare state than to provide an accurate historical account. 

What matters in Lord Beveridge’s contribution is that he offered a system of benefits that achieved its fundamental goal, namely to protect citizens from destitution, without serving as a conduit for the socialist idea of economic redistribution. The Heritage Foundation is moving in his direction, but there is one element notably absent from their reform list: the conservative litmus test.

In The Means to European Prosperity, I explained how this litmus test covers both the pragmatic and fiscal sides of conservatism:

In order to create a welfare state that contains its own outlays over time, we need to remove every reference to relative income or living standards from the definition of poverty. In their place, we employ a simple statement: “A person is considered poor when he or she, for involuntary reasons, cannot cover his or her most basic needs of nutrition, health care, shelter, clothing, and transportation.” This definition specifies the welfare state as a last-resort entity, the role of which is to step in and help when there is no other help to be had.

Despite omitting this test from their analysis of how to reform the American welfare state, it is delightful to see that the Heritage Foundation comes close to passing this test. Their forefront reform idea, again, is the flat-benefit idea, which they apply to America’s national retirement-benefit system. 

Colloquially referred to as ‘Social Security,’ this system currently pays out benefits based on the retired person’s lifetime income. Benefits rise with income, but the more you make, the smaller the share of your income that counts toward benefits. This tapering-off mechanism has two consequences, the first being economic redistribution. The second consequence is a bit more complicated but at the same time the source of the fiscal stress that is driving Social Security toward bankruptcy.

Since individual incomes rise faster than the overall tax base, this mechanism causes unending fiscal stress on the Social Security system. (For a detailed analysis, see Ending the Welfare State, pp. 116-133.) It is therefore necessary to decouple benefits from income, as the Heritage Foundation proposes. 

The problem specific to the Foundation’s proposal is that it does this based solely on a fiscal argument. It proposes, rightly so, that its reform would save the Social Security system a substantial amount of money. However, since it does not outline the conservative principles behind the flat-benefit idea, it leaves their reform vulnerable to the challenge of a proposal of seemingly stronger fiscal merit. An unashamedly conservative explanation of the reform would help secure its resilience in the public discourse.

In addition to Social Security, the Heritage Foundation wants to overhaul the federal disability insurance program in the same way. Currently, benefits are calculated based on the entitled person’s income; back in 2015, in a background report on the Heritage Foundation’s proposed reform, Heritage scholar Rachel Greszler explained:

Replacing the current progressive benefit structure with a flat benefit that is linked to the poverty level would lift millions of disabled individuals and their families out of poverty and better accomplish [the program’s] purpose of poverty prevention. 

Again, the flat-benefit idea is the only direction in which the welfare state can go. However, by not doing their conservative homework, Heritage leaves this reform unfinished. 

The key problem is the definition of poverty. As I explain in my essay on the conservative means to prosperity, the poverty definition currently used in Europe ties the poverty level to the prevailing standard of living in the economy as a whole. The American definition is no different: although the strict definition of poverty is a bit convoluted, the income thresholds of the definition (which vary by family size) are statistically, if not causally, tied to median income. 

Since the new, relative definition of poverty was established in 1965 (and updated in 1969), the poverty level for a family of four has remained at approximately 55% of the median income for a same-sized family. In other words, the level of poverty evolves with the progress of the economy, having the effect of positioning welfare-state benefits in tandem with median household income. 

Technically, the U.S. government is forced to increase the benefits paid out under the system based on increases in cost of living. These increases are measured by a standard consumer-price index, which in turn correlates closely with (though is of course not causally linked to) median income. Again, cost-of-living tied to benefits rises in tandem with median income.

Unfortunately, it gets more complicated. In a slow-growing economy like the United States, and even more so in Europe, any statistical relationship between welfare-state benefits and median income forces government to maintain a certain level of entitlement-benefit spending—for the very purpose of fulfilling its entitlement promises. This in turn forces government to maintain an elevated level of taxes. 

Reforms of the kind that Heritage proposes reconfigure the distribution of benefits, but they do not substantially reduce overall costs in the entitlement programs. Therefore, it will take a long time before there is any noticeable reduction in the burden of government on the tax-paying sector. 

As a result of this, there is no immediate hope for stronger economic growth:

– In a slow-growing economy, median income does not outpace inflation;

– Welfare-state benefits, even the flat ones proposed by Heritage, are tied to inflation; therefore

– Benefits will remain in constant relation to median income.

With benefits in an unchanged relationship to median income, the flat-benefit reforms from Heritage would—especially if applied more broadly—fail to increase incentives for workforce participation. Since this is a key ingredient in economic growth, it is doubtful that these reforms will fulfill even their narrowly defined fiscal purpose.

The Heritage reforms end up here for one reason only: they failed to explicitly build their reforms on a conservative foundation. 

If they had done so, they would have started their reform work by asking how we can overhaul the definition of poverty. Since the flat-rate benefits they propose are founded on the prevailing poverty definition, that definition limits the potential of what they can accomplish with their reforms. 

With all that said, it is good to see that other conservatives are beginning to take seriously the destructive role that the socialist welfare state plays in our economy, and our society. Thank you, Heritage, and welcome on board!