"What's cheaper; placating the poor with welfare or imprisoning the rich?"

Published in: The Independent: (NZ), 10 May 1996.

Keith Rankin, Economics Dept., University of Auckland, 18 April 1996.

Earlier this year, the BBC screened two Panorama documentaries ("Broken Promises" HPTV February 1; "Paying for the Future", TV1 February 7). The first was about the disillusionment of many who, through personal circumstances, had become reliant on the welfare net, and the many welfare critics who were becoming concerned at the growing cost/benefit ratio of the net. The second was about the disillusionment of the affluent middle class with the ultra-expensive "do-it-yourself" private alternative to the existing package of welfare benefits, social insurance, public education and public security.

The programmes featured two well known figures in the British "New Right". Lord (Robert) Skidelsky of the Social Market Foundation think tank, claimed that "people feel the benefits are going to the undeserving increasingly, rather than to the deserving" and "the nature of the original social contract was flawed." Professor Patrick Minford of the University of Liverpool stated that his vision for the middle class "is that they will be providing for themselves through their lifetime: health, schools, social security, pensions."

Earlier this month, another British new right scholar, Dr David Green of the Institute of Economic Affairs think tank, presented to the University of Auckland a summary of his recent book (sponsored by the NZ Business Roundtable) about alternatives to the welfare state in New Zealand.

Green takes Minford's view one step further into the realm of meta-economics. Not only should the middle class provide for themselves through private insurance, superannuation, schooling etc., but, as members of a civil society, they would be morally obliged to fund at least the deserving poor through voluntary societies and charitable aid, explicitly modelled on the paternalist institutions of Victorian England.

Green's is an altruistic economy in which every man is a moral agent who sacrifices all to provide firstly for his own family and secondly for the poor. There is no direct return on this investment, because saving for his and his wife's retirement is seen as separate from providing for his children; ie there is no expectation that his own children will be providing for him in retirement.

Government, in Green's model society, is an agent of coercion rather than an agent of welfare. This is certainly not the anarchy that Karl Marx considered laissez-faire to be. Right-wing government is skinflint but tough.

Green's view of the role of government in a moral economy is most explicit in his comments on non-custodial fathers: "Men should be deterred from fathering illegitimate children. The clear message the law should send is that any man contemplating sex outside marriage must be prepared to face the consequences of his actions. To father a child and refuse to take responsibility should be marked out as one of the lowest things a man can do. Fathers who neither marry the mother nor have custody should pay full maintenance. If their incomes are too low for full maintenance they should be reduced to the unemployment benefit level after the payment of maintenance and the handing over of savings or non-essential assets. Those out of work should be required to work."(From Welfare State to Civil Society, summary p.7)

He does not acknowledge the possibility that the mother might not want to marry him, that he may be prevented from gaining custody, or that he might not be able to find work. (Five percent involuntary unemployment is considered to be full employment by just about all right-leaning economists). While Green's views about the respective roles of government, men and women seem quaint when set against modern reality and the moral advances made this century in acknowledging women, the irony is that this patriarchal world view is increasingly underpinning modern social legislation, the obvious example being the 1991 Child Support Act.

At heart, Green's view is fundamentally contradictory. The general argument for making welfare transfers a matter of moral suasion rather than compulsion - and that is Green's central argument - necessarily implies that child maintenance should also be voluntary.

A free society is not a coercive society. Lindsay Perigo is right on that point. But a free society is a tax-paying society. Tax payment is a contractual arrangement, much like paying wages to one's employees is a contractual obligation. Taxation is a social contract: a contract to reimburse the public who effectively owns the resources of the public domain that contribute to national income; and a contract to invest in our public assets, the most important of all being our children who, in concert, will provide the goods and services that will be purchased by future recipients of private and public pensions.

The main conclusion of the Panorama documentaries was that do-it-yourself private welfare is prohibitively expensive. As is happening in America and is starting to happen in Britain, five to ten percent of the population are retreating into "overclass" ghettos (to use a word coined by Michael Lind in The Next American Nation) surrounded by barbed wire or other devices to exclude the remaining 90-95 percent. Private police forces are funded by private taxes (yes taxes) levied within the compounds. (Presumably people who cannot or will not pay private taxes are excluded from these communities.) The costs are so high that the overclass now resents all public taxation. Despite their wealth, they have little left to fund private charity.

According to Panorama's 'Man from the Pru' the full cradle-to-grave private insurance package, targeted to the lifestyle expectations of families in the bottom of the top income decile, costs 2,000 ($NZ 4,500) per month per couple, with half of that going to the private education of their children. These prices simply reflect the inefficiency of private provision of education, insurance and health care.

Panorama depicts the fully private welfare society as a highly stratified society, with all classes losers. The overclass has to live with the reality of its own confinement. The underclass lives beyond the jurisdiction of a cash-starved national government, and the harried middle-class lives life in a constant state of insecurity; ever fearful of unemployment, crime and illness. The main difference between the USA and Brazil is coming to be that in the former the overclass represents perhaps 10 percent of the population, whereas in Brazil it is less than 5 percent.

The simple fact is that public welfare - with the government rather than local friendly societies as the key clearing agency - is very efficient compared to any predominantly private alternative. Indeed, one of the main single reasons for accelerated economic growth in the twentieth century is the actual emergence of efficient welfare institutions. Of course welfare institutions, like all institutions, are imperfect and should themselves evolve as societies evolve.

The welfare state is a provider of efficient and comprehensive social insurance; it need not be Robin Hood. By moving from universal provision to a highly targeted approach, we have created many new inefficiencies and contradictions. Targeted welfare is a Trojan Horse that has acted to undermine confidence in social institutions that we have been able to take for granted because they have been effective.

If Jim Anderton is to be labelled as a dinosaur for favouring 1938-style welfare institutions, what does that make David Green, Robert Skidelsky, Patrick Minford and their New Zealand co-believers who seek a return to nineteenth century institutions?

Trilobites perhaps?

© 1996  Keith Rankin

Rankin File