Appetite for Renewed Welfare Statism is Limited

The Democratic sweep in the midterm election has liberals -- and some special interests -- dreaming of a revival of welfare-state politics. But in one of the welfare states, Michigan, the appetite for fresh entitlements, higher taxes and a new binge of spending appears distinctly limited.

True, Michigan earlier this year enacted a higher minimum wage, something six other states have now accomplished by referendum. But the effect will be mostly symbolic, unless of course you happen to be a low-skilled, inner-city individual trying to get a foothold on the ladder of success. Far more significant was the 62-38 percent rejection by Michigan voters of a proposal that would have guaranteed public school teachers annual raises at least equal to inflation.

The measure, strongly backed by an unholy alliance of the teachers unions and local school boards, also would have required the state to pay pension and health care benefits. This would have absolved the school boards of accountability for the expensive packages they regularly bestow on the unions in order to keep labor peace. Proposal 5 showed strong support in polls before the election, leading observers to predict catastrophe for Michigan's already-challenged fisc.

But once voters got an actual look at the proposal, they bailed out in droves. If pensions and health care packages are too expensive, the voters basically said, the legislature and school boards have a way to fix things: shift from a welfare state approach to a defined contribution, 401k-style approach. The state is doing exactly that for its own new employees.

Another signal that the welfare state has reached a dead end came from the post-election junket to Washington by the chief executives of the Detroit auto companies for a long-sought sitdown with President Bush. Among their suggestions: force Japan to revalue its currency; provide some sort of help for health care plans that are costing them up to $1,500 per car; and hike subsidies for alternative energy schemes. In other words, welfare for corporations.

By most accounts, however, the president and his team gave the auto execs a polite one-hour audience, then sent them on the way. No doubt they will get a more empathetic reaction from the new Democratic majority on Capitol Hill. House Energy and Commerce Chairman-to-be John Dingell has promised hearings on currency issues, and Illinois Sen. Barack Obama has talked about exchanging a health care subsidy for higher production of hybrid vehicles.

But that seems unlikely to produce much either. New York Sen. Charles Schumer, a Democrat, and South Carolina Sen. Lindsey Graham, a Republican, earlier this year threatened to put forward legislation to impose trade limits on China if it didn't allow its currency to appreciate faster. But they backpedaled at the first sign of resistance from the administration (and a symbolic bump in the value of the yuan).

Besides, this week's auto show in Beijing, at which Ford, GM and Chrysler will be touting their wares for Asia's potentially huge market, underlines just how problematic any serious form of protectionism would be, even for them. The American auto industry is moving offshore as rapidly as possible in hopes of saving itself. And many legislators are likely to remember that they bailed out Chrysler once before -- and that it's now owned by a German company.

Moreover, Sen. Obama's suggested deal underlines why the auto companies are not likely to get too focused on a health care bailout: it would likely only come at a very heavy price in terms of government intervention in the rest of their business. The Al Gore wing would love nothing better than to be handed leverage for enactment of carbon dioxide controls on the auto industry.

In short, the industrial welfare state is collapsing even faster than the social welfare state. Not that the latter isn't facing renewed pressure: the city of Detroit -- the Model City of Great Society fame -- and other municipalities will soon be forced by new accounting standards to acknowledge the obvious: that the health costs incurred to keep peace with the unions are rapidly driving them into economic bankruptcy.

Long before Democrats could piece together some version of national health care, it's likely that the states and cities will have moved on to health savings accounts and more realistic levels of benefits. What's the matter with Michigan, liberal intellectuals will then be asking. The answer: it's the poor and the middle class who suffer most from the welfare state-approach to things.

So if Democrats want to translate the current backlash against Republicans into something more permanent, they will have to find ways to move beyond the rapidly unraveling 20th century welfare state. They will need to shift from their obsession with redistribution for some to a focus on growth and opportunity for all. And Republicans, if they want to stage a comeback in 2008, will have to find ways to prevent Democrats from occupying this high ground of American politics rather than caving in to the liberal vision of ever-bigger government.