Democracy produces welfare states

The first thing a votreprenuer will notice in his market survey is that income distribution does not follow a normal distribution. It is skewed to one side. There are, simply put, more poor people than rich people. What this means is that politicians can prosper at the ballot box by proposing redistributive policies. The result is the welfare state and high taxes.

Benjamin Franklin puts it very beautifully and succintly. He said: 'Democracy is two wolves and a lamb voting on what to have for lunch.' (5)

The welfare state reduces the incentive to work and inhibits entrepreneurial risk-taking. On top of that, labour friendly laws in Europe make it difficult to fire workers, who already have very short working hours compared to Americans and Asians. In some parts of Europe, the debilitating results can be clearly seen. Unemployment in France and Germany is around 10 per cent. Of course, a votreprenuer would not tell the truth to his voters by saying, " Vote for me and you can be lazy because we will get the hardworking taxpayers to support you."

Instead, he would couch his sales speech in a manner that dulls their conscience and makes them feel entitled to use their vote to transfer money from somebody's wallet to their own. This creates a climate of entitlement and dependency which is debilitating. These entitlements help the middle class more than the poor because that is where most of the votes are. In the present system, the centre of gravity of the electorate is Mr Average and this produces mediocre government.

On top of this, dependency on a faceless government has social consequences. It has eroded the ancient relationship between parents and children. For countless generations, parents have depended on their children to provide for them in their old age.

Now they depend on the government. Since children are no longer pension funds as in the past and taxes being so high, people decide to have fewer of them. If you look at the birth rates of Europe and Japan, you will find that they are below replacement levels. Yet the young are still expected to provide for the old! This time the provision is indirect - through the government in the form of higher taxes and welfare payments to the old. As the population in modern democracies ages, and with lower birth rates, it means that a shrinking working population has to support the old.

Would it not be better to cut out the middleman? It would certainly shrink the government bureaucracy if each retired person depended on his children in his old age as in the past. It would give them greater incentive to have more children and to raise them well which would also be beneficial to marriages. It was reported in the Economist in 1988 that less than 1% of American poor consist of people who are married, finished high school and held a job for at least a year. (6) All it takes to stay above the poverty line a a little bit of effort to get an education, be faithful to your spouse and keep a job. In other words, all you need are the old fashioned virtues of diligence, discipline and fidelity to one's spouse.

Nowadays, men find it easy to abandon their wives and children because they know they won't starve. The state will take care of them. This could have contributed to unstable marriages.

At the same time, the votreprenuers also notice that people hate paying taxes. They want benefits from government but don't like contributing money. So to cater for this market, they will promise tax cuts. The results are budget deficits and soaring public debt.

If you look at the statistics, most of the OECD governments have huge budget deficits. (1) As a whole, the OECD is running a combined budget deficit amounting to a tad shy of 4 per cent of GDP. Much of it comes from the US which has a budget deficit of about 5 per cent of GDP.

Japan is even worse at more than 6 per cent of GDP. Some economists have been warning of economic collapse if something is not done. Sometimes, politicians would inflate the money supply to pay for their deficit spending, resulting in inflation. Other times, they would resort to government borrowing which results in higher interest rates. Should there be an economic crash resulting in massive unemployment or high inflation, confidence in democracy will plummet. Then people will be ready to put power in the hands of a dictator. That was one reason why Hitler got into power.