A „laissez-faire“ society requires little by way of administration and control. The Welfare State, instead, is based on administration and control. If welfare is an entitlement that must be provided by the state, then the state requires institutions that supervise the providing of welfare. And institutions are anonymous social systems. This is by definition not a weakness: many businesses are organized as anonymous corporations and still operate very successfully. Why, then, should the institutions of a Welfare State not operate similarly successfully?
The management of a business is normally accountable to its owners for results, and the return on capital invested is a key measurement tool for most owners of businesses. The management of a Welfare State institution is not directly accountable to owners and it is generally not accountable for results in terms of a return on resources invested. Instead, it is accountable for compliance with the rules of the Welfare State. Prima facie, there is no reason why a Welfare State health insurance institution should operate any less efficiently than a private insurance company. Except, it generally does not happen that way. The private company operates in a competitive environment where it needs to reassess its structures and strategies all the time. The public insurance institution operates in a monopolistic environment with a captive customer base. The private company insures only those risks which it finds acceptable, the public institution must insure everyone. The private company goes bankrupt if its costs exceed revenues over time, the public institution has its deficits covered by the state.
Whereas businesses are created by entrepreneurial motives, institutions are established by law. Whereas the destiny of a business is driven by performance criteria, the destiny of a public institution is driven by compliance criteria: compliance with the laws and regulations that lead to its establishment. Whereas performance is heavily influenced by competitive pressures, compliance is driven by a mindset „to go by the rules“. The mindset of a public institution is generally not to question the rules and there are generally only limited competitive pressures.
In the capitalistic business world, the customer is the so-called „king“: by having the choice where to spend his money, he can reward those businesses that best provide him with services, and businesses can reward those employees that achieve the most customer satisfaction. Regardless how large an economy is, its cumulative performance is the result of individual decisions by individual economic agents. In short, responsibility and accountability rests with individuals.
The Welfare State places responsibility generally with institutions and not with individuals: The Labor Office will take care of the unemployed, the Health Office will take care of the ill, the Social Office will take care of the aged, and so forth. The ample supply of institutional responsibility tends to diminish the awareness of the necessity that individual responsibility must also be exercised if the sustaining of qualitative results is to be assured. It is much easier to fire an employee if one knows that the Labor Office will take care of him. The unemployed will try much less to find a job on his own if there is a Labor Office that is supposed to do that for him. If the Welfare State pretends to take care of all, why should the individual attempt to take care of himself?
A public institution tends to be the creation of political (and not economic) interests. As a result, it would be naive to expect that political interests do not - in one way or another - influence the management of public institutions; they do! Resources must be allocated and appointments must be made and it is generally not the test of supply and demand, the reasonable competition of thought and performance that drive those decisions. Any such situation is fertile ground for the development of „unnatural privileges“. By that, we mean privileges that are not „earned“ or „deserved“; instead, they are being distributed. There is nothing wrong with privileges per se as long as they are „natural privileges“ (that is to say: „earned“ through or „deserved“ for performance). There is something terribly wrong with unnatural privileges: they tend to lead to mistrust and envy. They tend to lead to „negative checks and balances“: instead of checking that there is no abuse, one tends to make sure that one gets away with as much as everyone else is getting away with. The good citizen of a Welfare State may well admit from time to time that everything needs to be paid for but he will always feel that it is „the other guy“ who should pay the bill.
In short, it is the principles of „Fairness as a Social Value“ and „Fairness as a Social Responsibility“ that tend to get violated in a system that is shielded from the forces of supply and demand, from the reasonable competition of thought and performance. And any social entity - be it a family, a business, a state or even a nation - that does not count fairness among its principal social values will sooner or later deteriorate in quality.