Exclusive Commentary

Correcting the Myths: The U.S. Social Welfare State, By Irwin Garfinkel, Professor, Columbia University School of Social Work and Timothy Smeeding, Professor, University of Wisconsin-Madison

- Posted September 13, 2010

The United States is a capitalist nation that has eschewed Scandinavian-style socialist policies in favor of capitalism and economic growth, right? Wrong.


The U.S. is not only one of the largest welfare states in the world, but it is strong economically precisely because of its adoption of some socialist policies—with public education as the primary driver.


Below is a list of myths that we debunk in our book Wealth and Welfare States: Is America a Laggard or Leader, which is about our country’s commitment to social welfare and the effect these policies have on our economy.


Myth: The welfare state undermines productivity, efficiency, and economic growth.


Fact: Welfare state programs complement capitalism and increase productivity, efficiency, and economic growth. Investment in public education is the main driver of this; education is so demonstrably productive that including education in any analysis of social welfare shows that, in general, welfare state programs enhance rather than retard productivity, efficiency, and growth in economic well-being.


Myth: The welfare state is the antithesis of a capitalist nation—and thus wealthy nations are, by definition, not welfare states.


Fact: All wealthy nations, including the United States, are welfare states—that is, they are primarily capitalist states with large, selective doses of socialism. Capitalist governments socialize select institutions to reduce the economic insecurity produced by a market economy. The most common areas of targeting include education, public health, and some forms of insurance. While such policies require resources, rich nations have figured that the benefits exceed costs.


Myth: The United States has an unusually small welfare state.


Fact: Welfare state programs are quite large in the United States—transferring close to one third of the country’s income from one to another part of the population. When measuring the size and impact of a welfare state, it is critical to not limit the analysis to traditional notions of welfare like cash assistance but to include a broader set of social welfare transfers such as education, employer-provided benefits, and all in-kind benefits.


Myth: The size and priorities of welfare states in rich nations are very different.


Fact: The 14 wealthy welfare states that are examined in the book are strikingly similar in size and structure. In all countries, including the United States, welfare state transfers are large—around 30 to 40 percent of each country’s total production of goods and services. The domains socialized are also similar: old age pensions, health, education, and cash public assistance for the poor are common to all countries.  In most, pensions are the most costly, with health insurance second, education third, and public assistance the least expensive.


There are two exceptions to this that set the U.S. apart: the U.S. has much higher spending on health care and much lower spending on cash benefits and early childhood education.


Myth: The United States is and always has been a welfare state laggard.


Fact: Although the United States has always spent comparatively little on social insurance and assistance for the poor, it was a world leader in providing mass public education during the 19th and 20th centuries. Other rich welfare states have imitated the American model of investing in education for the masses.


Myth: The United States is still dominant in its educational advantage over other countries.


Fact: The United States has been losing ground and needs to provide additional investments in education if it is to remain a leader. The U.S. is at the high end of educational achievement if attainment is measured by high school and college degrees, but near or at the bottom when measured by enrollments in early education or achievement test scores.


Myth: The United States pays far less than other rich countries for health insurance.


Fact: Including the costs of employer-provided health insurance, the United States pays far more than any other rich country for less universal health insurance.


Myth: The U.S. investment in healthcare means we provide the best health care in the world.


Fact: The quality of care for the top fifth of the population is as good as or better than health care in the rest of the rich world. But the quality of care for the rest of the population is notably poorer. While the U.S. does expend a lot of money on health care benefits, other rich nations achieve the same or greater benefits at lower cost. Moreover, in terms of both infant mortality and life expectancy for the elderly, the U.S. ranks last or near last.


Myth: In the U.S., most welfare state benefits go to the poor and near-poor.


Fact: The way that benefits for families with children are distributed in the United States is U-shaped, wherein the poorest and richest get the largest benefits, and the working poor, lower middle class, and even the middle class fall between the cracks.


Health care and housing are the most perversely distributed because the U.S has separate programs for aiding different income groups—with the poor receiving means-tested benefits from safety net programs and the middle and upper classes receiving employer provided and/or tax related benefits.


The richest fifth of the population gets health benefits that are almost twice that of the poorest fifth. The richest fifth receives housing subsidies – through the mortgage interest tax deduction – that are nearly four times the housing assistance provided to the poorest fifth and about eight times the assistance provided to the lower middle and the middle class.


Irwin Garfinkel is the Mitchell I. Ginsberg Professor of Contemporary Urban Problems and co-director of the Columbia Population Research Center at the Columbia University School of Social Work.


Timothy Smeeding is Arts and Sciences Distinguished Professor of Public Affairs at the La Follette School of Public Affairs and director of the Institute for Research on Poverty at the University of Wisconsin-Madison.