Reference: Rankin, Keith (1998) "Persuasive Compulsion", New Zealand Political Review  7(3):36-39.

keithrankin.co.nz/nzpr1998_3compliance.html


FAIR SHARES; FAIR BURDENS:
  the Concept of "Quasi-Voluntary Compliance"

Keith Rankin, September 1998

"The achievement of significant quasi-voluntary compliance within a population is always tenuous.... If multiple defection makes it unlikely that the valued collective good will actually be provided, the benefit of compliance is further reduced. On the other hand, the continued provision of the collective good, despite considerable non-compliance, would make contributors wonder why they are the ones bearing the burden. In either scenario, free riding, once begun, is likely to increase. Once quasi-voluntary compliance has declined, it is extremely difficult to reconstitute. Its reestablishment often requires an extraordinary event - such as war, revolution, or depression - that makes people willing to negotiate a new bargain."
   
Margaret Levi, Of Rule and Revenue (1988), pp.69-70.

 

Much of public policy is about ensuring members of the public comply with some generally accepted view of the collective good. Non-compliance arises where there is disagreement about what constitutes the public good, or about the most appropriate means of ensuring compliance.

The classic compliance issue is taxation, and it is the subject of an interesting book by Margaret Levi, Of Rule and Revenue, which combines neo-Marxian and rational choice perspectives to illustrate the various approaches by "rulers" to ensuring the payment of taxation. She uses case studies ranging from the Roman Republic to 1980s' Australia.

The principles Levi uses can easily be transferred to other compliance issues, such as the topical issues of workfare, personal savings, fire service levies, drunken driving, student loan repayments and child support. There are basically four positions that individuals take with respect to any compliance issue.

The simplest and cheapest position is voluntary compliance. With respect to taxation, that means paying tax voluntarily because we believe it is the right thing to do. Under a voluntary regime, there is no legal sanction to non-payment.

The polar opposite position is coercion, or compulsory compliance. As Levi notes, the Hobbesian social contract is one of coercive compliance. The underlying assumption is that nobody complies unless subject to coercion.

There are significant economic costs in enforcing universal compliance. Public revenue comes to be eaten up in compliance costs, leaving little to fund social wage goods such as public health and education. The Hobbesian assumption is that individuals are essentially apathetic to the public good, and that they pursue their own perceived interests to the detriment of the public good. Cynical individuals pay their taxes grudgingly, only because the cost to them of not paying taxes exceeds the perceived cost to them of paying taxes. They believe that everyone else is seeking to minimise their obligation, so they should follow suit. Tax avoidance through legal loopholes becomes a huge industry in a harsh world of tax minimisers and self-interested anti-tax lobbyists.

In between voluntarism and coercion is the position of "quasi-voluntary compliance". Levi sees this as the solution to the tax-compliance problem that makes economically advanced societies possible. In a sense it reflects a position on the continuum between voluntary and compulsory compliance. But it is more than a simple intermediate position.

Quasi-voluntary compliance is conditional voluntarism; voluntary compliance with the legal trappings of compulsion. It works best when only a small minority of the population (eg about 10 percent) prefer to not comply, seeking to "free-ride". (Under Hobbesian and neoliberal "public choice" assumptions, 100 percent try to free-ride.)

Most people in a society, through shared values of contribution and fairness, believe in the public good. The attitude is: "I want a social wage. I am happy to pay my taxes to fund a social wage if I can see that you are paying yours". Legal sanction is there to assure the majority that the small non-compliant minority will not free-ride, thereby ensuring that the majority do not become cynical. Compliance costs are low. Because most people are assured that most people are complying, then most people do comply voluntarily, and little enforcement is required. Yet, as Levi observes (p.67):

"Even when people prefer to pay, they still require assurances that others are also paying. Otherwise they will feel like 'dupes' and 'suckers' who must reconsider their own willingness to contribute. Thus rulers invest in deterrence that constituents perceive as directed toward others."

The fourth position is that of conscientious objection. It is the position of those who disagree with the consensual view of the public good. In the case of taxation, the libertarians who genuinely believe that taxation in excess of that required to support a minimal state (defence and a court system) avoid compliance because they believe that taxation is contrary to the public good.

At first sight, the rise of neoliberalism in general and Act in particular signify a rise in the numbers of conscientious objectors. In practice, tax avoidance and demands for lower taxes represent interest rather than conscience. We see a rise in anti-social strategy that poses a threat to the consensus that it is in our individual as well as our collective interest to pay taxes. As a result, those who would normally be happy to pay taxes are starting to ask why they should comply when so many of those who can afford to pay are becoming overtly non-compliant. It is as if those who are happy to drive at the speed limit decide to drive faster because so many drivers overtake them.

With respect to taxation, we are witnessing a society shifting from low-cost quasi-voluntary compliance (which, in substance, is close to voluntary compliance) to a society which faces two major costs: the cost of coercing the weak, and the burden of the non-compliance (ie subsidisation) of the strong.


What of other compliance issues?

The public fire service is clearly under threat because of the desire by some socially irresponsible businesses to avoid their fire-service levies. The logical outcome of non-compliance will be a return to the very expensive system whereby individual insurance companies employ their own firemen. Such fire fighters would only act to save property insured by their employers.

Two big - and complex - compliance issues that have become very topical are those of work, and of savings.

Production (a better term than work) is basic to the economy of any society. It is production, rather than taxation, which really represents contribution to the collective good. It is production that makes taxation possible.

In an economically efficient society - ie a society that functions according to the principles of voluntary or quasi-voluntary compliance - it is important that virtually everyone is seen to be making a productive contribution. (It doesn't really matter if a few people are not contributing, as long as they are not doing public harm and are not in the public eye.) Problems arise (i) where some people are prevented from making a contribution (eg by rules that make it difficult for beneficiaries to undertake part-time or unpaid work), and (ii) where we take a too narrow view of what constitutes a productive contribution.

The problem with the neoliberal interpretation of the work ethic, is that it equates productive contribution with market (ie paid) employment. As a result of this narrow definition of contribution, the social value of work is open to question.

Work for work's sake does not add to the public good. It is easy to raise an argument that excessive compliance with a market work ethic is socially counterproductive. (For example, much market work is ecologically unsustainable.) Nevertheless, most people in societies such as ours still believe in a general obligation to participate in paid work. The result is conflict between people in paid work and those who either cannot contribute through paid work or who believe they can contribute more to the public good through unpaid activities. The rules of quasi-voluntary compliance say that those in paid work should be able to satisfy themselves that almost everyone else is contributing to the paid workforce.

The McCardle approach to workfare is a worthy attempt at quasi-voluntary compliance. This contrasts with neoliberal social welfare policy, which amounts to coercion through the threat of starvation. Indeed the McCardle approach is probably the minimum necessary to secure the ongoing good will of the overworked and underpaid New Zealand workforce. In this case, workfare is more about managing the perceptions of those in the workforce than about forcing beneficiaries into paid work. Unfortunately, Peter McCardle's relatively moderate approach to compliance has been undermined by a quasi-fascist media campaign against benefit fraud; a campaign that intentionally exaggerates the problem of work-avoidance, and that therefore undermines workforce compliance by making it seem as if there are many more selfish indolents than there really are.

In fact the McCardle approach - through the concept of the community wage - has the potential to create a new social consensus; a consensus that accepts unpaid work as a form of socially productive contribution. This of course is not the interpretation of neoliberals in government. But it can be a New Left interpretation, or a Green interpretation (as I recently argued in Greenweb [May 1998], in an article titled "Subversive Compliance").

The "community wage" concept can be used to legitimate new forms of activity such as community self-employment, and local public works undertaken by community cooperatives. Under such conditions, community employees are also community employers.

There are few serious conscientious objectors to productive activity, but there are many who object to the obsession with paid work as the only form of socially productive work. By interpreting a community wage as a payment, not for enforced non-production (as the Unemployment Benefit is) but rather as a facilitator of unpaid contributions, then we are creating conditions for a new social consensus on the future of work in economically developed societies.

With an appropriate consensus about what constitutes productive contribution, it is possible to maintain a near-voluntary compliance regime. That is of course the essence of Universal Basic Income (UBI). While the community wage is far from a UBI, by validating unpaid community work as an alternative to paid employment, it does have potential to evolve into a UBI.


Another topical compliance issue is that of savings. Indeed the matter of coercive savings - which we thought we had disposed of in the September 1997 referendum - has reared its head again on the back of the dollar plunge this June. (My Internet site contains commentary about why the balance of payments problem that precipitated currency depreciation in Asia, Australian and New Zealand has little to do with a shortage of domestic savings.)

This is a particularly intractable compliance issue because of: (i) the high number of genuine conscientious objectors who disagree with the Peters-Shipley view of the public virtue of savings; (ii) the conspicuous non-compliance of the four-wheel drive owning quasi-rich; and (iii) the resistance of the majority of New Zealanders, who have been subject to huge cuts in their disposable incomes, to further cuts in living standards. (For most of us, the neoliberal Reforms have been an exercise in forced savings; meaning an exercise in cutting our disposable incomes.) Voluntary or quasi-voluntary compliance are non-starters under these conditions.

The only solution that achieves compliance is the introduction of a coercive savings regime. Thus Brian Easton, in his NZ Listener article "In the Abstract" (6 June 1998), comes out in favour of a compulsory savings scheme like that introduced by the Third Labour Government in 1974. At least Easton, to his credit, favours a public savings scheme over the ridiculously expensive quasi-private scheme that 92 percent of us rejected in September. (To be fair to Winston Peters, the scheme that his party submitted to the voters in 1996 was more like the scheme that Easton favours. The scheme we voted on was more like the one Act campaigned on.) Easton notes that research reveals a total lack of any kind of voluntary compliance with respect to retirement savings.

We are least compliant when (i) the consensus is weak, and (ii) there is a high level of conspicuous non-compliance. Thus the solution which I favour is to try to negotiate a new consensus about the economic benefits and non-benefits of saving, and then to forge a regime of quasi-voluntary compliance around that new consensus. What might such a consensus be like?

First, we know that increased saving during a period of high unemployment - ie unemployment of capital as well as of labour - is counterproductive to the public good. That was the major insight of Keynesian economics, and it still holds. Unemployment - meaning resources used neither for consumption nor investment - is a form of savings. We should utilise such savings before we call for more savings. Indeed, Japan and Korea are in big trouble this year because their instinctive response to crisis - to save more - is exactly what they shouldn't be doing. Rather, they should be buying their unsold stocks.

Second we should recognise that problems of global financial instability are just that; problems of global financial instability. They are not cause for us to run around like a bunch of headless chickens demanding higher rates of savings. The main source of financial instability is the huge bulk of globally mobile savings seeking the highest available returns. Adding to that bulk is no solution.

Third, we should recognise that high investment / high resource exploitation scenarios do not benefit countries facing environmental constraints. Savings for the purpose of increasing unsustainable growth are no solution.

What wisely invested savings can do is facilitate higher rates of productivity, reduced participation in the paid workforce, liberal education, and the payment of social dividends as means of sharing social wealth between those who contribute through paid work (and who can therefore save) and those who contribute through unpaid work.

A new consensus can be forged on ensuring that, when particular investments are required, in particular "green public works" and the development of technologies that bear gently on the world's social and physical environments, then those who have the ability to save do save in a way that facilitates such public good investments. The activity that we will all be expected to do is to facilitate public good investment. Some of us will comply by spending less; others will comply through increased sustainable non-market activity. In addition, a regime of quasi-voluntary compliance will be required so as to make polluters into pariahs.


Orthodox neoclassical economics is based, at its core, on cynicism. Margaret Levi notes (p.202):

"For microeconomists the state is a response to the Hobbesian dilemma that it is in every individual's interest to make a contract and then, at the first advantageous opportunity, break it."

Too much reliance on theoretical solutions that take a cynical view of human nature will not resolve intractable compliance issues. Rather, we need ongoing debate about the extent to which public good does in fact arise from compliance. And we need to be charitable about the compliance behaviour of others, fostering an ethos of voluntary compliance and socially responsible economic behaviour. Sustainable development depends on the maintenance of inexpensive yet effective compliance regimes. That's actually what Adam Smith meant by the "Invisible Hand".

 

© 1998 New Zealand Political Review


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