Judging from the experiences in Scandinavia, the welfare state worked to some extent because it was based in small and ethnically homogenous nations, with a strong cultural and religious (Protestant) work ethic which had just experienced several generations of a booming capitalist economy. These traits kept the system afloat for decades, but the work ethic and the sense of duty slowly got eroded and replaced by a sense of rights, while the high taxation and the passivity bred by the system eroded initiative and the will to take risks. Again, these flaws are inherent to the model. They make time to develop, but they will, eventually.
The welfare state will also be subject to external pressures. International competition will make a welfare state economy less competitive because the high tax rates will stifle economic growth.
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Another factor is immigration, and welfare states tend to attract the “wrong” kind of immigrants, those who would be likely to piggyback on the system, while the most dynamic immigrants tend naturally to travel to countries where they pay less tax and thus receive more in return for their work and efforts.
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“If government becomes too paternalistic it deprives us of the need to be responsible for ourselves,” he says. “Then two things happen. We don’t get those challenges that seem to make us happier. And after a while we might even lose our capacity to make choices, which in terms of happiness is the worst thing that can happen to a person.”
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