How to Think About The Welfare State

Advice for Conservatives

By Ajay Ravichandran

The impressive Republican victory in last November's elections has been taken by many conservatives as evidence that their movement's basic approach to politics is reasonably sound, if not spectacularly effective. Closer examination of two related aspects of that election, however, makes clear that the favorable position the party now enjoys masks serious problems facing both it and the conservative movement more generally.

The agenda that the Republicans ran on was almost entirely negative: they promised to roll back President Obama's expansions of the federal government, but offered few substantial policy proposals of their own. This approach is not sustainable: people may vote for a party once or twice just because they hate the other side more, but they are unlikely to take it seriously over time if it does not offer a compelling affirmative vision.

It seems plausible to locate the origin of this problem in another striking feature of the campaign: the prominent role that the orthodox small-government wing of American conservatism, as represented by the Tea Party movement, played in crafting the Republican message. For advocates of a minimal state which does little more than protect life and property, any effort to use government power to address problems like skyrocketing health care costs or mass unemployment is necessarily illegitimate. While this strand of conservatism has recently taken on an especially central role in shaping the Republicans' agenda, it has exerted substantial influence within the conservative movement for decades and has long been used to argue for the unqualified rejection of the welfare state. Regardless of this position's merit as an abstraction, however, it is simply not viable as a basis for a political party's platform: no party can hope to be competitive in a modern democratic-capitalist society if its agenda makes no room for the social welfare programs whose creation and administration most people see as an important function of government.

Many conservatives have noticed this problem and tried to address it, but they have made relatively little progress in part because they have failed to consider a vital question: what would a distinctively conservative welfare state look like? This issue matters because, just as conservatism cannot survive if it is entirely unresponsive to the needs most citizens expect their government to meet, it cannot govern without an principled informed vision of some kind for at least two reasons. First, if conservatives abandon blanket opposition to the welfare state and put no position concerning the proper use of government power in its place, citizens will have no reason to prefer them to American liberals—people choosing between parties with essentially the same policies are likely to prefer the one whose support for those policies is robust and genuine to the one which advocates them out of political necessity alone. Second, conservatives who believe that the only principled response to the welfare state is to dismantle it will have no standards with which to guide their use of state power once they realize that this response is politically unrealistic.

Therefore, conservatives must articulate a philosophically informed understanding of how the welfare state should be designed and administered, one that makes room for some social welfare programs while still allowing for principled objections to the conception of the welfare state advocated by most on the American left. Some progress might be made by considering how fundamental conservative principles should lead conservatives to differ from liberals in their thinking about two central dimensions of the welfare state while still supporting some social programs: its cost and the role played by direct government action in its administration.

Paying for the Welfare State

In order to examine how conservatives should think about the cost of the welfare state, it may be useful to begin by presenting certain tendencies in left-wing thinking about the issue. These tendencies rarely appear explicitly in the public utterances of any specific left-of-center thinker or politician, but as general patterns of thought they play an important role in shaping the American left's positions on the welfare state. Liberals generally tend to view the absolute quantity of resources consumed by social welfare programs as unimportant. To them, virtually any amount of spending is justified as long as it is fully funded through taxes. For example, the prominent left-wing commentator Ezra Klein recently claimed that Republicans who attacked the new health care law because of its high cost were making an irrelevant point because the law brought in more revenue than it spent. This position is typically justified using some version of the following argument: additional social welfare spending can be easily financed through significantly higher taxes on the very wealthy, and in view of how wealthy the United States already is, any reduced GDP growth that such tax increases would produce is worth accepting in order to guarantee access to basic necessities or promote economic equality. Furthermore, even when liberals come to see the cost of specific programs as intrinsically worrisome, they typically favor efforts to reduce those costs that involve using sophisticated administrative techniques to provide the same goods and services to beneficiaries while spending less. The Obama administration's push to have the Independent Payment Advisory Board (IPAB) set Medicare payment rates based on comparative-effectiveness research so that less money would be spent on less effective treatments is a good example of this latter tendency.

Conservatives' main basis for rejecting this view about the cost of social welfare programs derives from an attitude characteristic of our tradition: an awareness of the unpredictable and dangerous vicissitudes of history. Conservatives are acutely conscious of how fragile even the most stable human institutions have proven to be when confronted by unforeseen contingencies; it is because of this very understanding that they see the conservation of the existing order as a central task of politics. Because the deep pessimism about human nature that is central to conservatism makes them skeptical that creatures with our limited capacities will accurately predict which dangers might arise, they endeavor to perform this task in large part by working to cultivate resilience and flexibility in our society so that even the most serious threats will not be too destabilizing.

These dispositions should lead conservatives to be very suspicious of any position that sees economic growth as something that can easily be sacrificed. This is in large part because an expanding economy creates conditions which are vital for nurturing resilience. A society with good growth prospects can reward the risk-taking essential to innovation much more easily than a stagnant or contracting one can. Entrepreneurs in such a society driven to pursue their ambitions by the knowledge that large and growing pools of capital are available to finance their projects and that they can easily find other opportunities if they fail—innovators from throughout the world will be drawn there for the same reason. And a society where multitudes of creative risk-takers gather and thrive is likely to prove more resilient, both because its innovators can easily anticipate challenges before they arise and because it is likely to develop a culture that prizes and inculcates the capacity to adapt to changing circumstances. More concretely, a nation which does not maintain a reasonably high rate of GDP growth cannot preserve its economic position relative to other nations over time. Since military and diplomatic power are largely dependent on wealth, a nation whose economy is stagnant or shrinking as those of other nations can grow is highly vulnerable to shifts in the global balance of power that favor its adversaries.

Conservatives should be especially concerned about how the damage that large welfare states do to economic growth can compromise resilience because they have good reasons to think that much of that damage is very hard to reverse. No one needs to be reminded of how difficult it is for politicians to cut major social programs. Because any given beneficiary is likely to suffer more when benefits are reduced than any given taxpayer is to gain from the small change to his or her personal tax bill that would accompany any reduction, beneficiaries (including the firms that supply the services the welfare state pays for) have a strong incentive to resist cuts which is not matched by any comparable incentive motivating taxpayers to demand them. The unrest which has accompanied fiscal consolidation in Great Britain and other European states provides ample evidence of this fact. Even if pressure to lower taxes spurs politicians to act, they are likely to simply borrow money in order to keep social spending at the same level.

Furthermore, conservatives have long emphasized that cultural attitudes and institutions are easy to wipe out but very hard to deliberately rebuild, as no discrete group of people is likely to possess the knowledge required to consciously recreate complex social forms and blunt instruments like state power are poorly suited to the molding of beliefs and dispositions; we should expect the same to be true for the culture of entrepreneurship and flexibility that tends to accompany strong economic growth. We should also be skeptical of the left's preferred methods of reducing the costs of social welfare programs. In general, conservatism counsels doubt about proposals which purport to erase or blunt seemingly difficult tradeoffs. This attitude flows from the pessimism mentioned earlier—conservatives expect the world to be largely harsh and unforgiving and are therefore suspicious of any claim to the contrary.

Since conservative principles yield strong reasons for departing from the American left's view of the cost of social welfare programs, conservatives should develop an approach to thinking about the welfare state that places heavy emphasis on cost control without lapsing into libertarian purism. They should view the cost of a social welfare program as an independent factor to be weighed in evaluating its desirability in addition to the likelihood that it will achieve its objective. This means that conservatives should both be willing to argue in favor of a program that is less effective than the alternatives because it costs substantially less and to argue that proposed programs which do not achieve a certain cost-benefit ratio should not be implemented. However, the considerations discussed above differ from traditional rejections of the welfare state in that they are entirely compatible with accepting that the state has a legitimate role to play in providing economic security and fostering opportunity—they merely present another set of social goods against which these must be balanced. Framing a conservative approach to the welfare state around such considerations will allow them to present their worries about cost as part of an effort to weigh the tradeoffs between two sets of goods, both of which have genuine value, while still making arguments that are distinctively conservative. Furthermore, in emphasizing the need to balance competing values, arguments of this sort enable them to draw on one of the conservative tradition's characteristic strengths: its willingness to honestly confront difficult realities and work to adapt to them rather than seeking to do away with them in some way.

Concerns about cost derived from characteristically conservative dispositions also offer a more principled basis upon which to ground two policies often advocated by conservative supporters of the welfare state, means-testing and vouchers. Proponents of both policies, especially libertarian-leaning ones, often argue for them reluctantly and seem to see them mainly as second-best alternatives to the minimal state they favor. However, the considerations discussed above give conservatives reasons to prefer a smaller state to a larger one merely because it is smaller, rather than because it represents a step on the road toward a government that exercises only a narrow set of legitimate powers. Conservatism therefore provides positive reasons for seeing vouchers and means-testing as intrinsically desirable, since both are straightforward ways of lowering the cost of social welfare programs. These policies differ from the cost-control schemes which most liberals advocate in part because they actually involve deliberate sacrifices of other goods in exchange for lower costs: means-testing requires the sacrifice of universal eligibility, while introducing vouchers is likely to lead to a transition period in which the quality of the goods and services provided by any given social program goes down temporarily as the markets in those products adjust to the change in the distribution of buying power. Critics on the left typically point to these likely consequences of both policies in order to argue against them, but the framework of ideas outlined above allows conservatives to make two potent responses. First, a large state is sufficiently harmful to the resilience and adaptability of our society that we should be willing to make fairly substantial sacrifices to shrink it. Second, cost-reduction efforts which explicitly acknowledge that tradeoffs must be made between cost and quality are more likely to succeed than those that do not because they reflect a more realistic appraisal of the limits that our flawed nature and the harsh realities of life place on human endeavors.

The Role of Direct Government Action

Again, the best way to develop a conservative approach to thinking about the role of direct government action in the administration of the welfare state is to first briefly examine the prevailing position on the left. By direct government action, I mean action taken by government agencies that is more extensive than simply providing money—for example, the American public school system involves more such action than a voucher system would because in the former the schools are run as well as paid for by the government. Liberals typically view the effectiveness of direct state action in contributing to the objective in question as the only criterion relevant to the question of whether it should be adopted. They also see no moral difference between more and less active roles for the government in the running of the welfare state. Therefore, they do not think that direct government action is either consistently better or worse than approaches which give markets a greater role.

Conservative principles provide a sound basis for rejecting the first dimension of this view. Conservatives have two good reasons to argue that government action becomes less and less effective the more that it moves from providing individuals with resources to trying to design the framework in which they make use of those resources. First, conservatism generally counsels wariness toward schemes of organizing social life in which a relatively small group of people personally design institutions that profoundly affect the lives of many others. This suspicion flows from the awareness of the limits of human cognitive capacities that has already been touched on—most people are only capable of acquiring genuine knowledge about matters to which they are closely connected in some way, and therefore we generally have difficulty thinking at the level of abstraction needed to create social programs which will serve millions of people. Therefore, we should be doubtful that officials designing a public school system or deciding what federally subsidized health insurance plans must cover can really know enough about the social-scientific complexities involved or the specific interests of each citizen to make policy in a way that truly promotes all or even most of those interests.

Furthermore, conservative pessimism about human nature leads us to note that social programs in which state power plays a direct and prominent role are likely to become entrenched in a way that makes innovation difficult. Any such program is likely to create a constituency with an incentive to avoid making changes that might be needed to make it more efficient or adapt to changing circumstances—its employees as well as the firms that they contract with to provide the program's services. Because these people are not subject to market discipline, they have no countervailing reason to make the changes. They also are likely to have more political influence than program beneficiaries as well as a stronger desire to resist changes than taxpayers have to push for them, since any given taxpayer will benefit much less from any gains than any given employee or contractor will be hurt. Larger and more complex programs will generate bigger constituencies of this sort.

Conservatives should also contest the assumption by most on the left that there is no moral difference between direct government action and more indirect ways of assisting the needy. Their arguments should once more derive from a strand of conservative pessimism—namely, awareness that certain forms of struggle and difficulty cannot be eliminated from our lives without substantial costs. This is because the greatest human goods are only realized when people use their own talents and abilities to wrestle with obstacles—the satisfaction derived from greater material comfort, while important, cannot match the sense of accomplishment that comes from solving a difficult problem or mastering a complicated craft. These deeper satisfactions are characteristically personal, in the sense that one cannot passively receive them from others but must achieve them through independent decision-making and action. Therefore, they are available only in societies that give people the freedom to perform some difficult tasks without the aid of others. Programs in which direct government action plays a large role narrow the scope of this freedom, because in such programs the state makes many important decisions for citizens—it decides where their children should be educated, what types of health insurance and retirement plans they must have, and so on.

Many on the left will of course counter that markets can also place constraints on individual freedom and that a welfare state that gives direct government action a prominent role is therefore necessary to alleviate these constraints; however, conservatives can offer two replies that give them room to justify some social programs while still placing principled restrictions on the scope of government power. First, admitting that the market can sometimes infringe upon the autonomy that people need to realize vital human goods does not require denying that the state can also do so. Therefore, conservatives can accept this claim and strive to develop a set of policy proposals that aim to balance the limits that both institutions place on liberty against one another in order to render citizens as free as possible. This approach will sometimes involve preferring a less intrusive social program merely because a more intrusive alternative would restrict autonomy to an extent that its advantages do not justify; the widespread view on the left that effectiveness in providing tangible goods and services is the only relevant criterion to deciding which program to adopt cannot allow for this possibility. Second, the market and the state place very different types of constraints on individual freedom, and acknowledgment of this fact makes it possible for conservatives to contest the claim that programs involving direct government action are really necessary to combat the threats that markets pose to that freedom. Markets characteristically restrict liberty by depriving some citizens of even the minimum level of resources needed to truly exercise one's liberty. Therefore, the appropriate response to the harm that they do is to ensure that each citizen has access to these resources—doing so does not, however, require placing restrictions on the use of these resources. While it is rarely possible in practice to help the needy through cash transfers alone, conservatives should argue for programs approximate this ideal as closely as possible, since additional state intervention is more likely to be unnecessary or harmful than helpful.

An approach to the welfare state which tries to make as many programs as possible approximate simple cash transfers to those in need also avoids both of the problems concerning the effectiveness of direct government action that were discussed above. It is not compromised by our limited access to the vast quantity of detailed information needed to design institutions because it does not charge anyone with the task of designing institutions. Like any other market-based approach, it instead asks both consumers (in this case, program beneficiaries) and producers to figure out the rate at which they are willing to trade something they have for something they lack—this is a much more local and specific question and therefore far less susceptible to the problems of knowledge that plague institutional design. Government officials are only asked what minimum quantity of resources citizens need in order to meet basic needs—this is, of course, not an easy question, but answering it is far easier than determining which standardized curriculum will educate a large variety of children effectively or what medical problems every citizen must have protection against. Furthermore, because the government's role will be so limited, constituencies with an incentive to prevent improvements in social programs are unlikely to arise. The bureaucracy involved will be relatively small and the state will not contract directly with any providers, so both those pressures will be reduced. Moreover, because firms providing the relevant goods and services must compete directly for the business of program beneficiaries who can spend their money wherever they choose to, there will be strong incentives to make the delivery of those goods and services as efficient as possible. However, both these advantages will only exist in markets which are reasonably free and competitive, and many of the sectors with which social programs are connected are heavily distorted by excessive regulation. Conservatives should therefore couple their efforts to move the welfare state in the direction outlined with targeted regulatory reform.

The concerns about freedom which initially motivated the introduction of this approach can also help to provide a principled basis for another position that is often advocated by conservatives who support some social welfare spending: the view that the welfare state should be designed to put its beneficiaries in a position where they no longer need government assistance. This idea derives from conservatives' belief that the greatest human goods can only be realized through personal efforts. While social programs that involve minimal direct government action leave much more scope for recipients to decide important matters for themselves and thereby pursue the goods of accomplishment, such programs still deprive them of possibilities for achievement by providing them with resources that they would otherwise have to obtain through their own efforts. It is obviously true that this deprivation may often be the least bad option available, but it is still unfortunate and therefore programs should be designed to restore the lost opportunities as soon as possible. The practical implications of this principle will differ somewhat from program to program, but one obvious one is that programs should not provide incentives for beneficiaries who can fully support themselves by working not to do so. This involves, among other things, trying to ensure that benefits do not drop off so sharply when a beneficiary gets a job that the amount of benefits lost exceeds the amount of income gained. Programs which are specifically designed to substitute for productive employment, such as unemployment insurance and income support for poor families, should also include a component which actively helps recipients to develop skills that will eventually allow them to support themselves without program benefits.

Applying the Principles: Health Care

Having now laid out some considerations derived from conservative principles which might allow conservatives to embrace a version of the welfare state while still disagreeing vigorously with the left about how social programs should be designed, it may be instructive to consider how we might apply these principles in a specific case. Government provision of health care services is an obvious area to look at. Since the largest expansion of the American welfare state in several decades recently occurred in order to address various problems in the health care sector and conservatives were repeatedly criticized for failing to present a high-profile alternative to the Democratic proposal that eventually passed, it is worth thinking about what the conservative response should have been (and, perhaps, should be going forward, since the new health care law may still be repealed or substantially reformed). First, we should note the two main problems that the Patient Protection and Affordable Care Act (PPACA) was designed to solve: inability to buy health insurance among some poorer Americans and those with pre-existing health problems who were too expensive to insure, and skyrocketing health care costs that were threatening to bankrupt existing federal health programs and making it increasingly harder for even insured people to receive treatment. The new law addresses the first problem by setting up a complex system of mandates on individuals and employers, restrictions on insurance company practices, and government-organized health insurance markets; it deals with the second largely by funding research designed to figure out how to provide health care of comparable quality more cheaply and applying that research to the setting of Medicare payment rates through the IPAB process described earlier.

Mindful of the point made earlier about the conditions under which an approach to the welfare state centered around cash transfers can succeed, conservatives should first note that the American health care sector is subject to serious government-created distortions. Most state governments imposed minimum requirements concerning the treatments covered and the level of coverage offered (meaning the amount of money a policyholder has to contribute before the insurer will begin paying) even before PPACA was passed, and the new law has added even more such mandates. These rules price many consumers out of the health insurance market by making it illegal for companies to sell cheaper policies that cover less than what the rules prescribe. While some such requirements may be necessary, the officials responsible for setting them are vulnerable to the dynamics described earlier—doctors and medical device manufacturers continually lobby them to require coverage of treatments that are not medically necessary, and there is no countervailing lobby to resist the changes. The coverage level requirements also drive up treatment prices by insulating consumers from the costs of their spending decisions and thereby both leading them to overconsume health care services and freeing providers from the need to strive for lower costs. Furthermore, insurance companies are barred from selling policies in more than one state, which needlessly narrows the number of producers competing and therefore prevents improvements in both price and quality that would otherwise occur. In order to apply a revised conservative view of the role of government to health policy, therefore, we should begin by taking a page from the standard approach—regulation of insurance company practices should be scaled back substantially.

Conservatives should deal with the problems that PPACA was designed to address in the following way. First, the federal government should provide means-tested subsidies to partially or fully cover the cost of purchasing high-deductible insurance policies (policies whose terms require the policyholder to contribute a substantial amount before the insurance company begins paying). Second, each working adult should be given a health-savings account (HSA) into which he or she is required to annually deposit a certain share of his or her income; this income will not be taxed if it is used to pay for health expenses. Contributions should be required by default but an opt-out procedure should be available. Unspent funds remaining in an HSA at the end of a given year will be available in subsequent years and can always be withdrawn, though they will then become taxable income. Low-income citizens should have their HSAs partly or fully subsidized so that they are equivalent to the value of the deductible in a policy eligible for subsidies. The HSA and premium subsidies should replace Medicaid, the federal program that now provides low-income citizens with access to health care. Third, citizens who can verify that they are unable to afford a high-deductible policy because they have a preexisting health condition should be enrolled in a government program in which the state will pay all costs which exceed the standard annual cost of a policy eligible for subsidies. Fourth, a similar program should gradually be phased in as a replacement for Medicare, the public insurance program for elderly Americans. The government would pay the share of an elderly person's premiums which was added to the standard premium because of his or her age. Both the elderly and those with preexisting conditions would also be eligible for income-based subsidies.

This set of policies solves the problems which plague our health-care sector while remaining faithful to the principles outlined above. Providing fixed cash payments rather than creating new institutions which citizens are required to use allows people to retain substantial control over their lives while still addressing the needs of the least well-off and enabling society to benefit from the efficiency made possible by markets. The use of means-testing provides a straightforward cost-control mechanism for the program itself. Restricting subsidies to high-deductible insurance policies and offering HSAs addresses the rising costs that are causing the access problems by giving consumers and providers new incentives to spend wisely and reduce prices, respectively. Both policies also indirectly provide a way of controlling the amount of public spending needed, since the market forces they unleash will eventually drive down the cost of the health care services that this scheme requires the state to fund. Allowing people to opt out of contributing to HSAs and withdraw funds at any time also helps to accommodate the concerns about freedom discussed above. The programs for people with preexisting conditions and the elderly address this problem in a way that limits the scope of the government's fiscal commitments and allows market forces to operate. The former also avoids the many pitfalls of the effort to ban preexisting-condition exclusions that is part of the new health-care law, which include de facto price controls to prevent companies from pricing those with preexisting conditions out and an intrusive mandate on all citizens to purchase health insurance which is required to ensure that a ban on exclusions does not bankrupt insurance companies by letting people wait until they get sick to buy policies. The latter fulfills Medicare's purpose of helping elderly people cope with the difficulty affording insurance that accompanies advanced age while offering greater scope for individuals to make their own decisions about the use of health care services.

Many conservatives are likely to balk at the proposals offered above. They will contend that matters of principle as weighty as the constraints on the legitimate exercise of state power should never be abandoned for reasons of political expediency. And there is much truth in such arguments – as I noted earlier, a party which gives principle no place in its policy decisions will ultimately become a slave to interest groups. However, principles can be relaxed somewhat to permit responses to problems which a politically viable movement cannot ignore without being abandoned entirely. In the pages above, I have been careful to emphasize that conservatives should still be willing to fight for fiscal prudence and limits on the state's power to interfere in citizens' private lives. However, I have sought to recover justifications of those goals that allow the right to embrace some social-welfare spending while remaining authentically conservative. A movement that is unwilling to allow for even this much compromise risks making the perfect the enemy of the good. And it would be truly unfortunate if conservatives, who have long prided themselves on their ability to see past their opponents' ideological abstractions and deal with reality as it is, were to make that mistake.