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<font face="Verdana" size="2"><font color="#002864" size="5"><strong>Bye-bye Bismarck</strong></font>
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<font size="4">By Antony P. Mueller</font>




<font size="2">[Posted July 24, 2003]</font>




<font size="2"><img alt="Otto von Bismarck" src="http://www.mises.org/images3/bismarck.gif" align="right" border="0" width="194" height="250">Implementing
social security systems and providing so-called welfare and social justice as
governmental goals have become the outstanding features of the State since the
late 19th century.&nbsp;</font>




<font size="2">Germany in particular is a case worth studying. This country
was a pioneer in creating a comprehensive system of social policy, and it is
now one of the prime examples where a maze of regulations and the fiscal
burden that have come with this kind policy is paralyzing the economy. An
historical analysis of the German welfare state also reveals the close link
between the welfare and the warfare state.&nbsp;</font>




<font size="2">When Germany's Chancellor Otto von Bismarck conceived a
system of social security for the industrial workers in the late 19th century
he had a very clear objective in mind. Along with consolidating the
geo-strategic position of the Reich, he set out to bring the industrial
workers under the control of the State. Integrating the masses into the body
of the newly formed unified German State was the objective, and a
comprehensive social insurance system provided the means for obtaining this
aim.&nbsp;</font>




<font size="2">Social policy was foremost national policy</font><a title href="http://www.mises.org/fullstory.asp?control=1275#_edn1" name="_ednref1"><font size="2">[1]</font></a><font size="2">
and the social security system was primarily an instrument to lure the workers
away from private and communitarian systems into the arms of the State. In the
eyes of Bismarck it was the State that had created national unity and this
agent was also needed in order to maintain the social unity by a system of
mutual obligation between the State and its citizens.&nbsp;</font>




<font size="2">Originally, social security was set up to be specific as to
its target, limited in depth, and light in terms of the financial burden for
the productive sector of the economy. When the first steps were taken towards
the establishment of a social security system in 1883 with the establishment
of a health insurance system and with its expansion to cover old age, working
place accidents and unemployment, the maximum contribution to social security
was held to be no more than a total of six per cent of gross wages.&nbsp;</font>




<font size="2">Social security was meant to be restricted to the new class
of the industrial workers. Regular old age pensions would be paid only to
those of more than 70 years of age, and the pay-out would rarely be more than
the subsistence level.&nbsp;</font>




<font size="2">But as foreseen early on by Adolph Wagner—who was one of
the intellectual fathers of social policy and the author of the"law of
increasing state activity"—the expansion of the state functions into
the"social area" would change the character of the State and lead
to a massive financial expansion of governmental activity.</font><a title href="http://www.mises.org/fullstory.asp?control=1275#_edn2" name="_ednref2"><font size="2">[2]</font></a><font size="2">
He clearly foresaw also that the new"social epoch" would be the age
of interventionism with governments actively"correcting" the
capitalist process of production and distribution.&nbsp;</font>




<font size="2">While the practice and institutional forms vary from country
to country, the idea that the State must protect and promote social justice
and progress has become the paramount modern ideology around the globe.
Following the footsteps of Bismarck, the construction of social policy systems
has emerged as the distinctive feature of the modern State.&nbsp;</font>




<font size="2">Periods of war, depression and prosperity alike were the
major propellants for the expansion of the system when social policy became
the favorite means to offer the carrot along with the stick of more
governmental control. Social policy ushered the way into the age of the
unfettered growth of taxation, expenditures and bureaucracy making the modern
welfare state inherently totalitarian.&nbsp;&nbsp;</font>




<font size="2">In accordance with its historical roots, social policy up to
the present day has maintained its nationalistic aims, its paternalistic
schemes, and its authoritarian practice. As such, social policy represents the
modern complement to the traditional role of the State as an agency of warfare.
Social security has served as a formidable instrument in the hands of
governments to obtain popular loyalty and the allegiance of special groups.
Under democratically elected governments and dictatorships alike, the
temptation has been the same: expanding schemes of social security has been
the effective instrument in search of political power and presumed legitimacy.</font>




<font size="2">In Germany, it was first during World War I and its
aftermath and later under the Third Reich in the 1930s when the welfare state
experienced its greatest expansions. Under the national-socialist regime, in
particular, the appeal to"social justice" and the expansion of the
social security and protection systems flourished together with the build up
of the warfare state. In the first couple of years of the dictatorship, social
policy was one of the major legal projects of codification.</font><a title href="http://www.mises.org/fullstory.asp?control=1275#_edn3" name="_ednref3"><font size="2">[3]</font></a><font size="2">&nbsp;</font>




<font size="2">The systematization of social policy was so profound that
almost all major bodies of law that rule Germany's current social security
system can be traced back to their original formulation in the
national-socialist era. While minor adaptations were made to be more adequate
to the current needs, the original spirit of the social policy laws lives on
with its roots in the class distinctions and the paternalistic-authoritarian
schemes of the past.</font>




<font size="2">Under the Third Reich, social policy measures were extended
to protect and further ideologically defined standards of reproduction, health
and the environment. The carrot of social policy served as the main means to
facilitate the application of the stick of repression. It also happened in
this period that the labor market came under almost complete control of the
totalitarian State making the dismissal and hiring of personnel dependent on
governmental permission (issued by the Labor Office or Arbeitsamt).&nbsp;</font>




<font size="2">Along with the privileges given to those employed by the
State, the restrictions placed upon a free labor market continued to plague
post-war Germany as soon as the era of full employment after the
reconstruction period had come to an end in the 1970s. In modern democratic
Germany, social issues in all their ramifications have dominated the political
game bringing the relevant parties and interest groups together under the
common ideological consensus of striving towards a fictitious so-called social
balance.&nbsp;</font>




<font size="2">After favoring free-market policies during the early years
of post-war reconstruction, it was as early as the late 1950s when the third
wave of social policy expansion set in, this time as a result of Germany's
prosperity and as a means to compete with the Socialist regimes during the
Cold War era. Step by step from then on, social policy grew into a veritable
avalanche, particularly in the 1970s. By explicitly adopting the criteria of
"social progress" as a state function, almost each and every aspect
of human existence became to be regarded as a social problem and a seemingly
legitimate reason for state action to do good.&nbsp;</font>




<font size="2">Grown for over a period of more than a hundred years, the
various branches of the obligatory social security system have put the entire
population under intensive bureaucratic care. Social policy has become a
labyrinth formed by laws and regulations, individual judicial decisions and
cases of special considerations that make it impossible to determine who are
the net payers or who are the net beneficiaries even in a crude way.</font><a title href="http://www.mises.org/fullstory.asp?control=1275#_edn4" name="_ednref4"><font size="2">[4]</font></a><font size="2">&nbsp;</font>




<font size="2">The coverage of old age, sickness and unemployment insurance,
along with social aid, and disability insurance and with all the numerous
special branches of social policy have turned Germany into an Eldorado for
those seeking a free ride. Often described as"generous", the German
social welfare system actually provides a plethora of incentives for
intentionally becoming unemployed, seeking early retirement and fulfilling the
necessary requirements in order to become eligible for social aid and
disability payments.&nbsp;</font>




<font size="2">Germany's current state of the economy with persistently
high unemployment, exorbitant wage costs and a drastically shrinking active
population cries for a change, but it amounts to a gargantuan endeavor to
reform a social welfare system which has grown into a veritable monster after
having been fed and pampered by all political groups that have been in power
in this country since the late 19th century.&nbsp;</font>




<font size="2">With the promotion of"social progress", the
modern welfare state has dissolved all limits to government. Together with the
traditional goals of protection and social justice, the extension to social
progress has opened the way to all kinds of absurdities, abuses and
interventions.&nbsp;</font>




<font size="2">With social policy becoming ever more comprehensive, it has
turned into a severe and suffocating burden for the economy. The boon—however
great or small it may have been in its early stages for a specific group—has
turned into a massive plague. Now, the dismantling of the welfare state
emerges as the major policy challenge of the 21st century.&nbsp;</font>


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<font size="2">Antony Peter Mueller has recently assumed a new position
as a professor of economics at the University of Caxias do Sul in Southern
Brazil. He is also an adjunct scholar of the Ludwig von Mises Institute and
a member of the Institut für Wirtschaftswissenschaft of&nbsp;&nbsp;the
University of Erlangen-Nuremberg in Germany.&nbsp;</font><font size="2">Antonypmueller@aol.com</font><font size="2">.
See the author's </font><font size="2">article
archive.</font>




<a title href="http://www.mises.org/fullstory.asp?control=1275#_ednref1" name="_edn1"><font size="2">[1]</font></a><font size="2">&nbsp;Heimann,
E.: <em>Soziale Theorie des Kapitalismus</em>. <em>Theorie der Sozialpolitik</em>,
<em>Tübingen</em> 1929.</font>


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<a title href="http://www.mises.org/fullstory.asp?control=1275#_ednref2" name="_edn2"><font size="2">[2]</font></a><font size="2">&nbsp;Wagner,
A.: Über sociale Finanz- und Steuerpolitik, in: <em>Archiv für Soziale
Gesetzgebung und Statistik</em>, Vol. 4, Berlin 1891, pp. 1-81.</font>


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<a title href="http://www.mises.org/fullstory.asp?control=1275#_ednref3" name="_edn3"><font size="2">[3]</font></a><font size="2">&nbsp;Seidte,
F.: <em>Sozialpolitik im Dritten Reich 1933 bis 1938</em>, München and
Berlin 1938.</font>


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<a title href="http://www.mises.org/fullstory.asp?control=1275#_ednref4" name="_edn4"><font size="2">[4]</font></a><font size="2">&nbsp;Mueller,
A. P.: <em>Sozialpolitik und Wirtschaftsordnung</em>, Frankfurt 1983, p.
141.


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