Welfare Gives Rise to Growth

It turns out that the welfare state and increasing equality are not vague concepts, nor, wonder of wonders, are they enemies of growth.

Sometimes the simplest and clearest things are said by the observer on the sidelines - the OECD report, for example, which notes that inequality in Israel is widening at a murderous rate. "The economic crisis has added urgency to the need to address inequality. The social compact is starting to unravel in many countries," the report's authors write. But the Israelis, as we know, think that the economic crisis is a distant European problem.

In France, for example, inequality, which wasn't as great as in Israel, has been frozen and the lowest decile's disposable income, which in Israel is being quickly eroded, has increased. But alongside efforts to halt unemployment and plan austerity and cutbacks, France is not giving up the principle of the welfare state.

This principle is mistakenly interpreted here as "moldy socialism," which is bureaucratic and centralized. Although this summer the people demanded a welfare state, they didn't ask what that is. Well, here's an example. The deputy mayor of Paris, Anne Hidalgo, reported two weeks ago on affordable housing at a convention in Lyon. After years of building what the French call HLM (low-cost housing ), providing about 4 million housing units for about 12 million residents, the government and local authorities have decided to change direction.

HLM, the product of the welfare policy of the 1950s that sought cheap and quick solutions for the postwar baby boom and the immigration from the Maghreb, became a synonym for an impoverished banlieue culture, alienation and crime. In Israel they would probably decide to privatize existing public housing, invite contractors to carry out Pinui-Binui urban renewal projects and, in light of the crisis, stop subsidizing housing (except for the ultra-Orthodox and the settlers, of course ).

Not in Paris. Those weirdos actually decided to update policy. The municipality and the government are helping build new complexes in the neglected neighborhoods. Some apartments are being sold at full price and provide a livelihood for the contractors, and some are made available at low rents or are sold cheaply to low-income young people and students.

A lot of money is being invested in improving infrastructure, transportation and architecture, and in building prestigious public buildings and cultural centers that quickly give rise to cafes, shops and restaurants. The goal, to attract a strong population, has been achieved. At the same time, apartments in the well-kept neighborhoods are being subsidized to break up the homogeneity and create a lively and varied fabric of life. The result: Paris today is very different from the Paris of the 1980s, for example. Some French people are not pleased with the change. Others think it's great. Whatever the case, it faithfully reflects the spirit of the welfare state.

Israel for some reason has adopted the bluff that the welfare state, in other words major intervention by the state in the economy and society, prevents initiative and growth. There's nothing more absurd.

Ha-Joon Chang, an expert on development economics at the University of Cambridge and a fellow at the Center for Economic and Policy Research in Washington, describes similar absurdities in a new book, "23 Things They Don't Tell You About Capitalism." He explains that the free market is an imaginary concept, that living standards in the United States are not the highest in the world, that when the rich get richer the poor get poorer, and that it's definitely possible to conduct a good economic policy without economists.

In a chapter filled with explanations and statistics, Chang mocks the capitalist mantra that government intervention is bad for the economy and that the welfare state originated to make things easier for the poor. A well-planned welfare state, he says, encourages people to take risks at work and increase their openness to change. He says the countries with the most extensive social welfare policies - Sweden, Norway and Finland - have grown faster than the United States, where, in the absence of a safety net for workers and manufacturers, only products themselves are protected.

It's not that the welfare state has no drawbacks, but Chang says they can be curbed with the right planning. That's exactly what affordable housing is doing in France. As part of the overall safety net it actually creates mobility at work and a dynamic economy. So it turns out that the welfare state and increasing equality are not vague concepts. Nor, wonder of wonders, are they enemies of growth.

Read this article in Hebrew: הרווחה לא תעצור צמיחה