When Pragmatism Trumps Ideology – Thoughts on Immigration, Common Values and the European Welfare System

Europe

Many are describing the Obama administration as one that is pragmatic, in stark contrast with the previous presidency that can perhaps be labeled as rather ideological. In little less than two months, he has managed to placate peeved European allies and sent Hillary off to smooth ruffled feathers with the Russians. It’s hard to say whether his pragmatism stems from his personal beliefs or merely a reflection of him acting out of economic and political necessity.

This is nothing new. Thirty years of Chinese economic progress took place on the back of pragmatism. And Hank Paulson’s rescue of Bear Stearns, Fannie and Freddie, and AIG? There’s some good material for a play: “When Pragmatism Trumps Ideology – The Tragedy of Hank Paulson in Three Parts”.

This leads me to wonder about the issue of pragmatism versus ideology when it comes to immigration, partially because I spent the better part of yesterday morning forking over a handsome sum of money for a resident permit in this fair European state.

The shifting demographics of most of Western Europe coupled with its social welfare system give me the chills. Everywhere I look, I see an overly generous welfare system that create skewed incentives in education and employment, while placing immense pressures on its working members.

It’s clear what needs to be done: find ways to raise birth rates, or find value-adding immigrants.  But what will Europe choose to fight for? Preserving its welfare system at the expense of increased immigration,  or give up the comfort of the post-war social contract and make do with less based on the status quo? I dug out some research I did last year, and found an unexpected relationship between social norms and the welfare state that may shed some light on the issue.  Below is the edited version.

Immigration is a thorny issue on both sides of the Atlantic. To many, it is a pill reluctantly swallowed by many states in order to thrive, or simply stay afloat. With birth rates below replacement rates in most developed nations, demographic projections deem immigration a necessity. The effects of an aging population range from pension burdens – fewer workers supporting more gray-haired elders; to less innovation resulting from fewer prime-age workers; to the financial implications of a state turning from a net-saver to a net-spender.

Short of coercing and interfering in their populations’ reproductive lives, immigration provides one of the only lifelines available to the state. Doing so reveals the territorial character of welfare states. Europe’s unwillingness to take in more immigrants and its inability to successfully assimilate its existing immigrant groups put it at a distinct disadvantage to say, America. While America traditionally opens up her job market while limiting new immigrants access to the welfare system, Europe does just the opposite.

Globalization has promoted economic and social integration, but welfare states remain decidedly national. Can the forces of globalization overwhelm the socialist underpinnings of welfare states? What causes the differences between the European and the American welfare systems? A couple of reasons can be used to explain this phenomenon: the contradictory forces of voting system and racial diversity.

According to Andrew Leigh, in majoritarian systems such as the US or Australia where each politician represents a single electorate boosts the interests of one region’s residents over the rest of the country. On the contrary, under proportional representation systems in Europe, several politicians representing one district may develop class-based affiliations, increasing pressures for universal programs that redistribute resources from rich to poor. Therefore, the European model of governance makes any attempts in reform more difficult, even politically suicidal.

The remaining difference is based on racial diversity. It has been noted that more ethnic diversity leads to more negative attitudes toward welfare and lower levels of social spending in US districts. While the Americans have been politically indoctrinated to believe the poor as the cause, and not the result of anti-redistribution policies, the European system was dominated by the belief in socialism.

However, with a growing immigrant population and increased diversity among populations, it is becoming difficult for Europeans to see a universal welfare solution that is based on an earlier collective value system. Without a certain degree of solidarity, it is easy for some members of the dominant ethnic groups who feel threatened by the influx of immigrants to adopt an anti-welfare attitude that values self-sufficiency and blames immigrants for needing support. If this is indeed true, and if welfare states were built on the grounds of homogeneity, it is no wonder that Scandinavian states are struggling to address the changing circumstances resulting from an increasingly racially and ethically diverse society as a result of globalization and immigration. Can welfare states of the 21st century survive and achieve the goal of securing equality of all people?

Various researches have turned up contradictory findings. While some fail to report conclusive findings as to whether an inverse relationship exists between an increase in globalization/immigration and a corresponding decrease in welfare spending, others yielded more interesting results. Researchers Razin and Sadka suggest an interesting scenario that turns common perception on its head. An influx of skilled immigrants may raise the tax rate, since they are fiscal contributors, but with no initial voting rights. Whereas unskilled immigrants teamed up with the elderly voters may initially raise the tax rate, but the inevitable fiscal leakages (social spending on low wage, unskilled workers) may in fact drive the tax rate down after a period to prevent further leakages.

Should Europe embrace immigration to its benefit, it is almost inevitable that policy reforms will increasingly sample from the US and Australian variety. On the other hand, should Europe be complacent enough to focus on short-term gains, demographic changes that favour a reduction in welfare will increasingly butt heads with the pressing need for an ever-ballooning bill for social services. Forces of globalization may finally force welfare states to relinquish their autonomy in order to provide as they like for their citizens, and move towards a globally convergent band of standards.

picture source: ~Victheman

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