Stanford University’s Michael J. Boskins wants to talk about disease and dysfunction. It’s not a medical condition, though; it’s an economic one.
Far too few governments rein in their countries’ bloated welfare states before disaster strikes. As a result, some citizens eventually suffer the economic equivalent of a heart attack: wrenching declines in living standards as they are victimized by unsustainable programs’ endgame. Greece and the city of Detroit are only the most recent grim examples.
The Dutch, Boskin says, seem to be making a move to cure themselves of the “Dutch disease.” The Netherlands’ King Willem-Alexander has stated that the nation can no longer continue to function as a welfare state; it simply is not economically sustainable. The king says there must be a shift from a welfare state to a “participation state.” Boskin comments:
That represents a genuinely remarkable shift. From the 1960’s and 1970’s on, those writing about the Netherlands often lamented the “Dutch disease.” There were so many generous subsidies, grants, and transfer payments – aimed at everyone from the truly needy to artists unable to sell their work – that after-tax wages were often barely higher than benefits. So people rarely returned to work after they lost or left a job, or did so in the underground economy, with its unreported cash payments.
Dependency programs like welfare, bloated pensions, and food stamps are driving many countries to seek solutions from the “Dutch disease.” Reforms, Boskin points out, will be a cure that will spread as quickly as the disease did.
America’s 1996 welfare reform grew out of initiatives in the US state of Wisconsin. And, just as Wisconsin’s reform proved to be a model that was successfully adopted nationally, so reforms in one European Union country could spur policy innovations elsewhere in the EU and around the world. And contagious successful policy reforms are precisely what Europe and most of the world need.