Chapter One. Rendezvous with the Welfare State

C H A p T E R o N E Rendezvous with the Welfare State T ESSENTIAL idea of the Welfare State is as old as known history. Its concept and mechanism-· the systematic dispensing,through political chan,nels and without regard to productivity, of domestic wealth were at the very core of the Greco-Latin city states, of the medieval city, and of the post-Renaissance absolute monarchy. In .the city republics, ancient and medieval, it meant bloody civil wars. Their constantly recurring violent quarrels about constitutional issues disguised bitter class-warfares to seize the power that was dispensing all benefits. Most of them went on the rocks of their internal struggles for economic privileges.. A Lorenzo Magnifico in Florence or the Oligarchy of the Ten in Venice managed to "save" their cities-· by grabbing the power and robbing the citizens of every vestige of political freedom and civic rights. Jacob Burckhardt's allegation that the orgy of paternalism under Emperor Diocletian resulted in govern.mental money recipients larger in number than the taxpayers, might he applicable to many other doomed civilizations.1 "A CHICKEN IN France's Henry IV in the 16th. Century EVERY POT" promised a chicken in every· pot. Her brilliant Colbert in the 17th century and Prussia's enlightened Frederick the Great in the 18th, these forerunners of modem dictators, gloried in calling themselves the first servants of the nation.· Their Police State used the Welfare State as its instrument, facade and justification, as do modem dictatorships. In democracies the WeHare State is the IS COMPULSORY MEDICAL CARE AND THE WELFARE STATE [14 beginning and the Police State the end. The two merge sooner or later, in all experience, and for obvious reasons.

The "mercantilist" princes of the 16th to 18th centuries developed the basic tenets of the modem Welfare State in a piecemeal fashion. Originally their prime concern was the balance of trade-the want of gold and silver. To that, domes tic policy was subordinated, except when political motives were uppermost, such as the fear of hunger riots which occurred time and again in England under the Tudors and Stuarts, forc ing them to dispense humanitarianism. The craving for export surpluses led logically to promoting production. Amateurish Welfare policies followed and soon became a determining fac torin domestic politics. THE WELFARE. In Central Europe the 18th Century was POLICE STATE marked by the "Despotism of Virtue," exercised by benevolent rulers like Joseph II of Austria. The intolerance and intransigence of the "humani tarian tyrant" had no small role in provoking revolutions. The German kameralists of the period, who taught the technique of civil government, developed systematically the blueprint of the Welfare State (wolfahrt staat) of a territorial scope, far beyond medieval city limits and as the heart of the Police State (polizei staat). Even the words are 18th Century German.

This tradition of bureaucratic rule-for the alleged good of the subjects-was the heritage taken over by Bismarck. Bismarck's fundamentally significant role in modern history is rarely understood. His middle-of-the-road socialism was the connecting link between the old autocrats and the coming totalitarians. He thought he could overcome Marxism by his own brand of state socialism-just asFabian socialists, Keynes ians and New Dealers profess that their middle-of-the-road statism keeps the totalitarian wolf from the door. What Bismarck did accomplish was to revolutionize the old authoritarian school by giving it a quasi-democratic twist and by basing it on a superbly organized, technically well-trained and thoroughly disciplined bureaucracy. His Police-Welfare (or Welfare-Police) State had firm roots as none had had before. The substance of a military monarchy was wrapped in a parliamentary cloak. Share-the-wealth popularity was to 15] RENDEZVOUS. WITH THE WELFARE STATE be dispensed legally by an all-powerful and efficient adminis tration.

WELFARISM Even more interesting than to follow the IN OPERATION historical records of the Welfare State is to witness directly its contemporary gyrations and its ties with other facets of public policy. This writer was "conditioned"to the problemby early acquaintance with the petty inside-politicsin the Welfare Monarchy of the Habsburgs. His consciousinterest dates back to his studies in German uni versities from 1910 on, when the great masters of the German Historical Schoolstill were exerting intellectual leadership. The German public, and most Europeans for that matter, stood under the spell of Bismarck'sforceful personality, without real izing where that spirit was leading. The intelligentsia was infatuated already with the then still misty ideal of the welfare dispensing Iron Power. So was the populace on the street. It was my good fortune, in particular, to come in close con tact, as their student and assistant, with the two most original thinkers and most brilliant personalities of the period: Lujo Brentano and Max Weber, the foremost social scientistsof.their age. They were scholars of encyclopedic scope and of states manly stature, animated by the ethos of their belief in Liberty and JuStice. As true Liberals, they stood in matters of lahor policy for trade unionism, the eight hour day, and for factory legislation, as far as compatible with domestic free enterpri~e and international free trade. They were opposed to dogmatic laissez-faire-which meant paternalism in labor relations-as well as to paternalism in government. Realizing that history is the record of the eternal battle between the Power and the People, they saw clouds rising that most of theircontempo raries ignored: the aggressive economic nationalism and· the congealing, overbearing bureaucratism of the Neo-Welfare State. They saw the unique part Bismarck's Second Reich played in the revival of authoritarianism and fought it as a threat to the progress of occidental civilization.

As early as 1881, Lujo Brentano warned that adventuring into govemmentalized medicine is ·the first step toward the Neo-Welfare State, which in tum opens up a road to national catastrophe-· in the long run.2 The run was too long and too slow to be understood. Other more urgent.problems·occupied COMPULSORY MEDICAL CARE AND THE WELFARE STATE [16 our minds. The warning was practically forgotten by 1919 when I gave my first courses as an instructor at the Munich Graduate School of Commerce on Insurance and on Coopera tives. Compulsory medicine seemed to be well established and a minor problem. In-between years, spent on. (unfinished) medical studies, provided no inkling of its practical function ing. The prevailing academic pattern naively accepted a governmentalized pseudo-insurance as a chapter of sozialpolitik (welfare policy), differing from other insurance only' by its non-profit character. And it was defended as an alleged neces sity in industrial society.

INTERMEZZO We were preoccupied with the Versaillestreaty, the great inflation and domestic and interna tional reconstruction and the sweeping out of the moral and material debris left over by Ludendorff. Europe's fatal fourteen years of transition after World War I began under the Lenin nightmare and ended with the Hitler chimera. True liberals were driveninto an unholyand futilealliancewith the middle of-the-roaders. Mter years of experience and study in international banking and public finance, I began to see that what most of my academic colleagues accepted and defended as an accom plished fact, the Bismarckian Social Insurance, was worm eaten at its very roots. What have "high finance" and inter national affairs to do with the poor man's compulsory social insurance? A great deal, as I found out, and with more than finance. For one thing, the social insurance funds gave the welfarist Weimar government a dangerous foothold in the nation's capital market and taught it to grab for other foot holds.

For anotner thing, I stumbled upon the discovery that Ger man compulsory medicine was more expensive than private health insurance and gave less in exchange. On top of that, it was badly infectedwith corruption. Insight into some of these shortcomings came about through my friendship with an outstanding socialist leader, old Eduard Bernstein. He was one of the three or four early apostles of the Marxian creed. But he lacked the fanatic dogmatism of the others. He became famous by speaking out in the '90's what 17 ] RENDEZVOUS WITH THE WELFARE STATE every Marxist knew and none dared to say-that history was not marching according to the time-table of the class-warfare theory. For this, he was temporarily ostracized by his own party. Through his honest eyes, I began to see that everything was not in order in the medical Utopia. The more I looked into it, the more disquieting the picture became.

FROM WEIMAR The Welfar~ State was .ffioving into the TO HITLER great depresslo~. My w?rk at the ,:ery center of German and InternatIonal bankIng put me at a vantage point from which to observe closely the world wide growth of Welfarism. It was intimately tied up with the political sceneof the 1920's,with its global money management and fictitious pacifism. It was supported by monopolistic wage structures, governmentally promoted international cartels, in flated gold exchange standards, by a centrally manipulated capital flow on the one end and by reckless spending on the other. It had to break down sooner or later. In many ways Hitler's rise was startlingly revealing. That one-third of the otherwise sober German people voted Nazi, / and over 10% Communist, was bad enough. But what about the rest, the three or four bourgeois parties and the Social Democrats? Why didn't they resist instead of letting the power slip without a single shot into the hands of notorious gangsters?

The Social Democrats and the trade unions behind them con stituted the world's oldest, largest, best organized and most in telligent labor movement. Why did they surrender shamefully and let themselves'be disarmed? The Weimar Republic catered to the trade unions and raised the wage level artificially, at the same time bestowing subsidies and high tariff.protection on the heavy industries and the big land-owners, the Prussian junkers. Once a·nation is entangled in the meshes of the Welfare State, the demagogue who can draw out of his hat more welfare for more people has every chance in a .crisis. The Bismarckian paternalism could be turned· into Ludendorff's Planned Economy by a mere switch of thebureaucratic··gear, which then could be shifted without grinding into the Welfare State of the Weimar Republic. As that got into trouble, the ultimate of demagoguery,.the com~ bination of ultra-nationalism and super-welfarism, had a field~ day. By that time, the socialists as well as the middle classes COMPULSORY MEDICAL CARE AND THE WELFARE STATE [ 18 were so intoxicated with the ideas of an allegedly inevitable state paternalism that the moral fiber had become too weak to generate resistance.

HUMANITARIANS Perhaps the most spectacular "social" IN DISGUISE aspect of Nazism was its emphasis on health, as part and parcel of a racial nationalism. That was not accidental. The health, or rather sickness, propaganda employed by Bismarck elevated that as pect of social welfare to a prime political issue. Just why were such rutWessmen as Bismarck and Hider so profoundly inter ested in the physical well-being of their subjects-and in high birth-rates I-while totally indifferent, nay, inimical to their mental integrity? But after a fashion so were their predeces sors in. the Mercantilist age, especially the ministers of the imperialistic Bourbons and the power-lusty Hohenzollerns. And so are their successorsto this day. Evidently, more than humanitarianism was at stake. Watch ing the world-wide growth of compulsory health insurance, from Icelandic fisherman to coal miners in China, I noticed something that seemed to be overlooked: that all modem dic tators-communist, fascist, or disguised-have at least one thing in common. They all believe in Social Security, especially in coercing people into governmentalized medicine.

A selected list of men who have claimed credit for, or have been credited with, introducing or strengthening and expand ing governmentalizedmedical care reads like an extraordinary Who's Who: Prince Otto von Bismarck, Chancellor of Germany (1884); Franz Joseph I, Empe.ror of Austria (1888) ; Franz Joseph I, King of Hungary (1891) ; . Wilhelm II, "the kaiser" of Germany (1911) ; Admiral Miklos Horthy, reorganizing the scheme as Re gent of Hungary (1927); Nicholas II, Czar of Russia (1911); Vladimir Lenin-Ulianof, founder of modern dictatorship in Soviet Russia (1922); Joseph Stalin-Dzhugashvili, almighty Prime Minister and dictator of the U.S.S.R.; 19 ] RENDEZVOUS WITH THE WELFARE STATE Joseph Pilsudski, Marshal and para-dictator of Poland (1920); Alexander I, King and dictator of Yugoslavia (1922) ; Antonio de Oliveira Salazar, the professor-dictator of Portugal (1919 and 1933); Benito. Mussolini, Prime Minister and the Duce of Italy (1932 and 1943) ; Francisco Franco, military dictator of Spain (1942 and 1945) ; Yoshihito, Mikado of Japan (1922); Hirohito, Mikado of Japan (1934) ; Carol II, pseudo-constitutional King of Romania (1933) ; Joseph Vargas, President and would-be dictat~r of Brazil (1944) ; Juan Peron, President and boss of the military junta of Argentina (1944) ; .

Adolf Hitler, Chancellor, the fuhrer of Germany (1933, etc.) ; Pierre Laval, Prime Minister of France (1930), later ex ecuted for his fascist activities; Ambroise Croizat, Communist Minister of Labor in France (1945); Georgi Dimitrov, the late chief agent of the global Comin tern, Premier of sovietized Bulgaria (1948) ; ]osip Broz, alias Tito, Prime and Foreign Minister, dic tator, general secretary of the Communist Party of Yugo slavia (1947) ; Boleslaw Bierut, President and' dictatorial figure-head of Satellite Poland (1947) ; Klement Gottwald, President of the Sovietized Republic of Czechoslovakia (1948). This list of power dynamos-or symbols of power-with bleeding hearts for human suffering is by no means complete. Complete data on some of the Satellite and Latin American bosses are not available. Some others are missing because they do not qualify technically for membership in the club of recog nized full and semi-dictators and of paternalistic rulers'''by the grace of God" or otherwise, having' been elected in ordinary COMPULSORY MEDICAL CARE AND THE WELFARE STATE [ 20 democratic procedures and still exposed to new elections. But who would have foreseen that an easy-going, money-grabbing politician like Laval was to become a sort of second-hand Mussolini? Most certainly Laval claimed and wielded, about 1930, less than a fraction of the discretionary and arbitrary power the British Health Minister wields at this writing. And there are more Pierre Lavals and Aneurin Bevans around in what we call the democratic world than the unsophisticated might assume. They manage to be reelected again and again and strive to rule by blank delegations of power, immune from judicial controls and supported by rubber-stamp parliaments typical of "advanced" Welfare States of 20th Century vintage.

SOCIALIST Indeed, out of the ashes of the Welfare NATIONALISM States that went down unsung in the tumultuous depression new and much more im posing ones have risen since. It seems that history is running in cycles,progressingfrom what is known as National Socialism to what is recognized as Socialist Nationalism. Ever since Bismarck, great dictators and little demagogues compete with one another and with the humanitarians in courting the favor of the ailing, the lame, the blind, the poor, the underprivileged and the aged. In World War I, Luden dorH used Germany's social insurance, then Europe's most "progressive," for propagandizing Teutonic social and cultural superiority. Today, British and French propagandists vie with each other in eulogizingthe respective security plans. But Stalin outdoes all of them. "Government insurance in the U.S.S.R. is a source of pride of the Soviet workers before the whole world.

It is one of the jewels in the colossaledifice of Socialism. It is one of the testimonials to Stalin's deep solicitude for his fellow men by which we are all warmed and heartened," said Trud, the organ of the Soviet trade unions, in 1937.3 The great French visionary, Alexis de Tocqueville (De la Democratie en Amerique, 1840), warned more than a century ago that democracies like ours may succumb to a new and soft technique of governmental benevolence that subdues all indi viduality. The suspicion that the solicitude of notorious tyrants for the welfare of their subjects must have something to do with the political nature of the medical security systemswas one con sideration that inspired this study.