How economic specialization led to the welfare state
Something I haven't seen mentioned in any economics text I've read -- book, article, blog post, etc. -- is why the welfare state, in some form or other, always pops up when people begin to specialize.
The greater wealth of more specialized economies is not the answer, since there's plenty of junk we don't spend so much more on when we get wealthier -- and the entire apparatus of the welfare state is not some slight increase. "When we get wealthier, we'll spend more on things" is a lazy and vague statement that avoids any discussion of how big that change will be. Why so much more spending on the same programs the world over, and hardly at all on others? Mere wealth increases don't help us figure this out.
It is not some far-off side effect of specialization that gave birth to the welfare state, but the very fact of specializing more and more narrowly in our job tasks. The econ 101 textbook tells you that specializing is unequivocally good -- though a more advanced treatment might tell you where it doesn't work -- because everyone benefits from pursuing their comparative advantage. I won't give a numerical example; you can look one up on Wikipedia. But if we're so much better off from this, then why do we fear more and more about our economic security and therefore demand -- and get -- a suite of programs called a "social safety net"?
Simply put, it's because comparative advantage would be a disaster in the real world (however well it works in some mathematical models). Nassim Taleb points out how fragile it is to the assumption that prices stay constant. For example, if one country specializes in wine and another in wool, things go all hunky-dory for awhile -- until wine is replaced by something else as the fashionable thing to drink, or there is some once-a-century natural disaster that wipes out your ability to make wine, or there's what Schumpeter called "creative destruction" where a more advanced industry replaces a more primitive form (such as the automobile replacing the horse and buggy).
Whatever the mechanism, suddenly the former suppliers are getting a lot less in exchange for a unit of their product than they were just before -- perhaps nothing at all if they're out for good. And this applies not just to whole industries but to individual workers. We all specialize in some set of skills in the hopes that they will be needed for as long as we have to work, perhaps with the occasional update. But when we're unemployed for more than a few months, and especially when we sense that our job description has been eliminated completely, we figure that that skill set ain't worth what it used to be, and that we're shit outta luck.
In a society where people have broad and general tasks, not being able to sell your labor to an employer isn't so bad. If you're a hunter-gatherer, you can provide lots of healthy food by yourself, defend yourself and family, and have enough time left over for leisure. Same thing if you're a nomadic herder -- you have a broad enough base of skills to fall back on to support yourself if you can't sell your labor. And ditto for farmers -- you may try to get seasonal work threshing wheat when the opportunity is there, but for most of the year you'll be "out of work" in that sense, but you have a wide enough range of skills to support and defend yourself on your own plot of land.
Some of these cases can get worse than others -- like if you specialize in the crops you plant and a natural disaster wipes out your monoculture crop for a year or two -- but in general you can get by without selling your hyper-specialized labor like the econ 101 textbook tells you to.
Still, occasionally a hunter-gatherer goes for awhile without taking down a large game animal, a herder sometimes has a chunk of their flock stolen, and bad weather ruins the farmer's crops. Rather than work hard to support themselves because of something that was just bad luck, wouldn't they prefer to have social safety net programs in place? Yes, but no individual can impose their will on the entire group, since they would just kill him in his sleep. In order to enjoy such programs, they'd have to convince everyone else to agree to them.
Yet in these pre-industrial societies, the audience that you're pleading to will be very unsympathetic. Why? Because they know that you have a broad enough skill set to support yourself through hard times. OK, so you didn't get that seasonal job threshing wheat -- so what? We all know that you've been planting your own seeds and have those to harvest and eat, that you've been raising a pig or two, that you've been mending your clothes at home, built fences or other protections, and so on. You'll get by -- at least, we would if we were in your shoes, so don't expect us to feel sympathy if you come crying to us.
Again there is some variation within these pre-industrial economies, but the point remains. Hunter-gatherers have no extensive, permanent welfare state structures, and that's because their lifestyle is the most robust to negative shocks. They eat such a wide variety of animals and plants that it would take the most perfect of perfect storms to make all of those skills useless at the same time. Herders also lack welfare state features, and again that's because they are not very specialized, and therefore are not so likely to go extinct through bad luck. For example, they pasture their livestock across a variety of grazing lands during the year, own a largish number of animals over whom they can diversify risk, etc. Farmers are a bit more specialized since they tend to plant only a few (perhaps just one) staple crops and are lucky to have even a handful of animals. It's not surprising, then, to see proto-welfare state institutions in farmer societies, such as long-term third-party charity groups who provide alms to the destitute or run hospitals for the poor.
Still, it takes the incredibly precarious lifestyle of industrial people to cause real fear about "job security" -- i.e., the ability to keep providing for yourself and family. If you lost your job and couldn't find work for six months, could you feed yourself? No, because you never learned to hunt wild game or gather and process plant foods so that they're safe to eat, you never bothered investing in a dozen or so cattle just in case, and you haven't been planting a variety of crops either. Forget whether you can continue your Netflix service or not -- you can't even feed yourself. You surely couldn't defend yourself against violence either, if the country were invaded or if a local crime wave broke out. (Defense spending, which dominates in the national budget, is a social safety net program -- just in case the bad guys show up, when you won't know what to do.) That's how narrow our specialized skill set has become.
Thus, we really do not have a plan B to fall back on if our specialized labor finds no buyer. Lazy thinkers will say that you should just specialize in something else -- except that it's too late. Specialized labor that is at all valuable takes time to specialize in. There could be a 10,000-hour apprenticeship that you need to go through before employers feel you're good enough to hire. There may be a critical window to acquiring some of the skills necessary. For instance, an out-of-work construction worker in Spain who thought his skills would be valuable for quite awhile cannot now specialize in Spain's tourism industry, where English language skills are needed. Beyond a certain age, you can't pick up new languages.
And even where it's possible to specialize in something else, if it's worth anything at all, probably a lot of others are already there. While you were busy specializing in a now obsolete skill set, these people -- your new competitors -- were specializing in what you hope to switch over to. With such a big leg up on you, they'll be there to stay and you'll have to be lucky to get your newly arrived foot in the door. There may be exceptions, and this new niche could have been overlooked and your old niche was just a bubble, so that workers can flow from your old one to this new one. But in general that won't be true.
So now you really do have a legitimate claim of helplessness, and your audience -- whether voters or state planners -- cannot deny it. They, especially in a democracy, will think, "Jeez, that could've been me." And with that, they vote for social safety net programs, for both selfish reasons (in case they're out of luck) and altruistic ones ("those guys didn't do anything blameworthy to be so on-the-edge").
If you think about it, you'd have to be a complete fool to leave behind a pre-industrial way of making a living and become a specialized labor-seller, given how fragile and vulnerable you would become to sudden negative shocks. You'd only agree to the lifestyle shift if you could expect some kind of cushion "just in case." At first this appeared as self-help protection in the form of militant (and then less militant) labor unions. But by insight or trial-and-error, workers figured out that there were economies of scale to be enjoyed, and they let the union approach fade away and instead delegated the social safety net functions to the government itself. Some people talk about the death of unions as though it signaled a rise in free market orientation among the public, but meanwhile the welfare state has only grown larger -- covering more areas of life, and to a greater depth within each one -- as it took over the earlier role of unions.
There's a deep irony here in the libertarian advocacy for pursuing comparative advantage yet shrinking or abolishing the welfare state. People only adopted the industrial lifestyle when they were reasonably sure that some kind of social safety net would protect them from the risk of being unable to feed or defend themselves should their narrow skill set become worthless for even six months. If the welfare state were eliminated, people would revert to one of the pre-industrial ways of making a living -- at least those are somewhat robust to sudden negative shocks. Whatever lifestyle you think is best, it's clear that you can't argue for narrow specialization and a small or absent welfare state at the same time. Perhaps this is why so few people have listened to libertarians, and why everyone has the sense that they're describing an unstable utopia rather than a feasible goal.
Lastly, there's one potential alternative explanation that on further inspection can be ruled out. The welfare state grew not only with the rise of specialization but also the decline in support from one's kinship network. Perhaps once the social safety net that your family used to provide began to shrink, people looked to the state to make up for it. That's plausible at first, but when you look at all the things that your kin do for you, the state only takes up the slack in a subset of them. For example, the social safety net includes education, health care, food, defense against violence, and old-age pensions.
However, one of the largest ways of your kin supporting you relates to finding a mate, getting married, and raising children. With the decline in kin support over the past few centuries in the developed countries, individuals have been left to fend for themselves in these areas -- and yet there was no welfare state program to help them out. The government subsidizes your college loan or rent for affordable housing, but it does not subsidize your loan to buy nice things to impress prospective mates (or to keep your body in good shape), and does not try to provide the poor with "affordable restaurant dating" so they can enjoy nice outcomes like the middle and upper classes.
Even when you find someone to marry, they may give you a meager incentive to do so through the tax scheme, but that's not what your kin do -- they help to raise a dowry or bride-price. The government may fork over more money on your behalf so you can see a better doctor, but they won't plunk down a red cent so that you can pay for a better wedding or get married to a higher-quality spouse.
And although there is some public daycare, this is far from a universal feature of the welfare state. Even where it exists, it's not really the same thing that kin provide, when you think about it. Your kin treat and try to raise your children in a different way than daycare workers do -- and you can call up your kin at any time, unlike the limited hours of operation for a public daycare center or, later on, a public school. There's so much of socialization that daycare workers and teachers don't even attempt, let alone accomplish, that your kin would naturally do -- for instance, all rites of passage, the kind of things that teach boys how to become men. This also includes all the skills you need to evade the state for the benefit of yourself and your family, which you'll need to do from time to time, as the interests of the state and the family aren't the same and often clash. Don't count on the gummint raising your kids to learn about that.
So while this "decline of family influence" argument goes a good ways, it doesn't capture as much of the picture as the "hyper-specialization" argument. The latter explains the lack of welfare state programs just mentioned because they do not result from a huge increase in risk and vulnerability due to job specialization.
This makes the forecast for libertarians look even gloomier, since if it were just weak families, we could still hyper-specialize but just limit mobility, require parental permission to marry, or whatever would strengthen family support once more, and eliminate that source of demand for the government's social safety net. But if it's due to specialization itself, like I said before, you can't have your cake and eat it too.
People should be free to join communities that collectively decided to adopt whatever economy they wanted. Some might experiment with pre-industrial lifestyles, betting on the long-term instability of an ever-growing welfare state. Others would dismiss them as Chicken Littles. The only way to find out who's right is to use trial and error. Or perhaps both are stable and represent different points along a trade-off continuum -- you can have more wealth and a more intrusive state, or less wealth and a more impotent central state. Whatever the case, and however people end up deciding, what's clear is that all this econ 101 balderdash about the wonders of comparative advantage needs to be thrown overboard, as it obscures too many of the very real dangers of specialization, such as the creation of a welfare state that may grow so bloated that it cannot work anymore, at which point the risk-averse populace with revert back to pre-industrial lifestyles where they're not so vulnerable.