F. Hayek, The compulsory system of the state machine of social security

We have seen how the practice of providing out of the public purse for those in great want, in combination with that of compelling people to provide against these wants so that they should not become a burden on the rest, have in the end produced almost everywhere a third and different system, under which people in certain circumstances, such as sickness or old age, are provided for, irrespective of want and irrespective of whether or not they have made provisions for themselves. Under this system all are provided with that standard of welfare which it is thought they should enjoy, irrespective of what they can do for themselves, what personal contributions they have made, or what further contribution they are still capable of making.

The transition to this third system has generally been effected by first supplementing out of public funds what was obtained through compulsory insurance and then giving to the people as a matter of right what they have only to a small extent paid for. Making these compulsory income transfers a legal right cannot, of course, alter the fact that they can be justified only on the score of special need and that they are therefore still charity. But this character is usually disguised by giving this right to all or nearly all and simply taking out of the pockets of those who are better off a multiple of what they receive. The alleged aversion of the majority to receiving anything they know they have not earned and is given only in consideration of personal need, and their dislike of a “means test,” have been made the pretext of so wrapping up the whole arrangement that the individual can no longer know what he has and what he has not paid for. This is all part of the endeavor to persuade public opinion, through concealment, to accept a new method of income distribution, which the managers of the new machine seem from the beginning to have regarded as a merely transitional half- measure which must be developed into an apparatus expressly aimed at redistribution. This development can be prevented only if, from the outset, the distinction is clearly made between benefits for which the recipient has fully paid, to which he has therefore a moral as well as a legal right, and those based on need and therefore dependent on proof of need.

In this connection we must note still another peculiarity of the unitary state machine of social security: its power to use funds raised by compulsory means to make propaganda for an extension of this compulsory system. The fundamental absurdity of a majority taxing itself in order to maintain a propaganda organization aimed at persuading the same majority to go further than it is yet willing should be obvious. Although, at least in the United States, the employment by public agencies of “public relations” techniques that are legitimate enough in private business has come to be widely accepted, the propriety of such agencies in a democracy spending public funds on publicity in favor of extending their activities must remain questionable. And in no other field has this become so general a phenomenon, on both a national and an international scale, as in that of social security. It amounts to nothing less than a group of specialists interested in a particular development being allowed to use public funds for the purpose of manipulating public opinion in its favor.

The result is that both voters and legislators receive their information almost exclusively from those whose activities they ought to direct. It is difficult to overestimate the extent to which this factor has helped to accelerate development far beyond what the public would otherwise have allowed. Such subsidized propaganda, which is conducted by a single tax- maintained organization, can in no way be compared with competitive advertising. It confers on the organization a power over minds that is in the same class with the powers of a totalitarian state which has the monopoly of the means of supplying information.

Though in a formal sense the existing social security systems have been created by democratic decisions, one may well doubt whether the majority of the beneficiaries would really approve of them if they were fully aware of what they involved. The burden which they accept by allowing the state to divert a part of their incomes to ends of its choosing is particularly heavy in the relatively poor countries, where increase in material productivity is most urgently needed.

Does anyone really believe that the average semiskilled worker in Italy is better off because 44 per cent of his employer’s total outlay for his work is handed over to the state or, in concrete figures, because of the 49 cents which his employer pays for an hour of his work, he receives only 27 cents, while 22 cents are spent for him by the state? Or that, if the worker understood the situation and were given the choice between this and having his disposable income nearly doubled without social security, he would choose the former? Or that in France, where the figure for all workers amounts to an average of about one- third of total labor cost, the percentage is not more than the workers would willingly surrender for the services that the state offers in return? Or that in Germany, where about 20 per cent of the total national income is placed in the hands of the social security administration, this is not a compulsory diversion of a share of resources much greater than the people would expressly wish?

Can it be seriously denied that most of those people would be better off if the money were handed over to them and they were free to buy their insurance from private concerns?