The Politics of Welfare

Should the way in which taxes and charges are levied to pay for social welfare systems reflect the benefits that particular individuals and families receive from the welfare state?

The modern welfare state faces a wide variety of problems, and the question of which system to adopt, how best to adapt and implement such a system is of primary concern. This paper will examine the introduction of a social insurance type system, with reference to the alternative models of social assistance and universalism, its desirability and validity.

The modern welfare state in capitalist societies appears as three distinct models; Universalism, Social Insurance and Social Assistance1. These will be used as the comparative models in evaluating the desirability of social insurance type welfare systems, concentrating on the United Kingdom (U.K.) as the primary point of reference.

The differing approaches of the three welfare systems are important in understanding the causes of welfare problems and whether or not the introduction of a more contribution based, social insurance type, system is desirable or indeed viable.

The first of the models, according to Esping-Anderson, is the Universalist Welfare type, typical of Scandinavian countries. It aims to provide high-quality state benefits and services free to all at the point of need in an attempt to prevent the commodification of labor and subsequent income gap, which inevitably leads to poverty and deprivation with its associated problems.

The disadvantages of this system are that it is extremely costly to maintain and improve, requiring high levels of taxation. The second disadvantage is that such a system requires near full employment in order to maintain the cost/service threshold.

The second, the Social Insurance model typical of Central European countries, (notably Germany), provides benefits and services on a quid pro quo basis. Level and quality of entitlement is based on past contributions. This system type was originally designed to preserve conservative conceptions of class hierarchy and paternalistic family structures (‘traditional family values’). Such systems present problems. They create and sustain gender inequality maintain social stratification and also present the problem of who caters for the well-being of dependents that have not and may continue to be unable to contribute.

The third, the Social Assistance model, common to Anglo-Saxon countries such as the USA, Australia, and increasingly the UK, focuses on providing subsistence assistance to the very poor, allowing the better off to provide for themselves through private welfare provision. This generates a commodification of labour that increases income disparity. This situation is primarily geared to favor large corporations and their wealthy scions. “What is good for business may not necessarily be good for the economy overall.”2

Such systems also dramatically increase the problems of poverty and deprivation. Creating a growing number of people existing on or below the poverty line, and adding to the number of people the system supports. It increases costs and leads to a decline in economic growth.

The nature of the difficulties faced by the modern welfare state and the direction reform can and should take, are key factors in examining service modernisation, centred on the introduction of more targeted benefits and services, the swiftest and best provided to those who contribute most, quid pro quo.

British welfare has encountered a number of problems over the past decades. From the pressure of the International Monetary Fund (IMF) and international business concerns to reduce government spending, primarily in the area of welfare transfers, to the approaching ‘taxation ceiling’, beyond which middle-class support for welfare taxation is believed to rapidly dwindle, creating a backlash and the erosion of the welfare state.

Though the willingness of citizens to pay taxes obviously varies with the political circumstances, there is surely something to the idea that the overall level of taxation has reached its limits in many OECD countries3.

More recently heavy criticism of the level of service degradation, and rising costs, has encouraged a further withdrawal of confidence in social welfare systems.

The problems in public service, such as declining quality, increasing school class sizes and hospital waiting lists, fewer state benefits more closely tied to means testing and the decreasing rate of state pensions have been brought about by a number of factors. A change in the system will have to be able to successfully deal with these difficulties.

Firstly, if the welfare state is to continue as an effective system it is essential to maintain middle-class support and participation. The new middle-class is now the single largest socioeconomic group within the electorate not to mention the largest producers of tax revenue,4 therefore their continued support and participation is essential to the continuation of successful welfare schemes.

Support and use of welfare systems has fallen in part due to a drop in the quality and level of services being offered by the state.

“Successive decades of under investment have weakened the public welfare services to the point of near collapse and it is unsurprising that chronic under funding shortages and inefficiencies have become commonplace.”5

This has led many, those who can afford it, to pursue private welfare provision, creating a two-tier service structure. This inevitably leads to discontent among those, (the middle-class), who increasingly see their taxes spent on others, (the poor) creating class tensions and calls for tax and public service retrenchment by the now dominant middle-class.

Secondly, as the service sector develops and a society becomes wealthier people’s expectations of welfare provision also similarly expand, ‘patients demand the best and the latest’6. Expectation is increased by the existence of a basic minimum level of income and provision. After a period of time those in receipt of support, no longer consider it a minimum, but insufficient to their growing needs as consumers.

Thirdly, the number of ‘non-working’ people, (those who exist on benefits but are unable to work, either through illness, family circumstances or institutionalization) in the UK has been steadily increasing for 50 years; now outnumbering the standard unemployed, (those ‘actively seeking work’), by nearly two to one creating an ever-increasing number of state dependents to be supported by fewer wage earners.7

Fourthly, in order to remain internationally competitive a higher level of education is required to satisfy Marlow’s Model of industrial progression8, when the bulk of employment moves from secondary manufacturing industries, through tertiary service industries, (currently producing the bulk of British, US, French and Swiss GNP), and into quaternary research and development industries. The percentage of the population gaining meaningful, higher education qualifications and those leaving school/college with useful skills and qualifications must increase.

“Around 80% of the jobs in this country require five GCSEs or equivalent but half the young people finish compulsory education without achieving this. There will be little work for unskilled people in a few years’ time.”9

Finally, and importantly, the changing nature of the developed world’s demography, namely a falling birthrate and ever increasing life expectancy creates a top-heavy, ageing population. The aged require ever more support from fewer working adults. This Creates an increasing cash flow problem that will become catastrophic at some point in the near future unless some form of solution is found.

Old-age pensions now account for the largest proportion of welfare spending in Europe, and are only set to increase. This has served to encourage many, particularly the middle-class, to turn to private pension provision.

These factors have served to dramatically reduce key electoral, (middle-class), support for, and participation in, social welfare services in the UK and other OEDC’s.

These problems have been exasepated by successive Governments, over the past 25 years. Many welfare ‘reforms’ were engineered to make private welfare provision more attractive than the public provision to a growing majority of middle-class voters in line with Neo- liberalist economic policy under the guise of increased consumer choice.

“Systematic retrenchment entails long term changes in the political environment that make the welfare state vulnerable to future attacks. While consumer choice has been the focus of much of the rhetoric in support of public sector reforms, critics of Thatcherisum argue that Marketisation has undermined universal access to high quality services.”10

When considering whether social welfare transfers should reflect the contribution individuals have or will make it is important to identify the aims of the system. These aims are a subject of fierce debate, however four general principles can be singled out as the most desirable aims of a welfare system.

Firstly the need to combat social deprivation and its associated problems of crime, ill health and poor education. This is vital if the U.K. is to maintain its position within the world economy. Unlike the U.S. Britain’s internal market does not safeguard its continued growth. Britain must continue to progress toward higher levels of education and lower levels of prolonged ill health (non working) in order to meet the changing demands of the industrial progression curve.

Secondly the prevention of labour comodification, be it blue-collar manual or white-collar office labour. The growth of large international corporations and the integration of industry make it ever more challenging for individuals to retain control over their own lives and well being. For as business becomes ever more integrated the electorate is increasingly fragmented and ill informed. It is in the interest of any company to have the maximum control possible over its employees in order to more fully bend them to its wishes.

‘De-commodification strengthens the worker and weakens the absolute authority of the employer. It is for exactly this reason that employers have always opposed de-commodification.’11

National Welfare services remove employee dependence on employers or outside agencies that limit the freedom and choice of the individual.

Effective national welfare is the duty of any Government that claims to represent the best interests of its electorate. The erosion of personal freedom and choice by the business sector can only be effectively countered at this level. If not, it is not difficult to imagine a system where the individual is considerably more dependant on their employer than on their Government and fellow citizens. Thus undermining the sovereignty and power of the electorate and thereby democracy.

Thirdly by providing a comparable alternative to private provision, a welfare system must aim to remove social stigma attached to the use of public services.

“There should be no sense of inferiority, pauperism, shame or stigma in the use of a publicly provided service; no attribution that one was being or becoming a ‘public burden’. Hence the emphasis on the social rights of all citizens to use or not to use as responsible people the services made available by the community in respect of certain needs which the private market and the family were unable or unwilling to provide universally.”12

This was identified in the failure of nineteenth century U.K. poor laws: workhouses. In theory designed to provide the unemployed with support and work, instead, created conditions so dire that it became a sentence rather than a workable support system and resulted in extreme ‘ghettoisation’.

Finally, the welfare state has been strongly identified as a tool for the dissemination of gender equality.

Traditional paternal family structures are seen as extremely damaging to the cause of female emancipation. Women are frequently the lower wage earners, if not wholly dependent, on whom childcare and care of the aged is frequently a major responsibility.

Comprehensive welfare, such as the Swedish type, allows considerably greater freedom and independence. State childcare facilities allow both (if applicable) parents to work, mitigating the dependence of one partner on another. Similarly elderly care facilities also allow freer participation in the market.

If benefits and services are to be linked to individual or family contributions, as in the social insurance system, some of its original design points will have to be altered, Its tendency to create deep social stratification and gender inequality. It must also be able to address the problems highlighted in this paper, while maintaining the desirable functions of a welfare system.

Consider the Swedish system, where similar problems where encountered in pursuing a wholly universalist approach they were overcome by the addition of income/contribution-based benefits to the basic welfare provision. Thus increasing service provision in line with expectations, whilst maintaining middle class support through the provision of benefits as a percentage of normal income.

“The Swedish welfare state has become institutionally more like the German welfare state”13

The problem of gender inequality (on the basis of child/elderly care responsibilities and long term income disparity) can be effectively mitigated through provision of adequate care facilities and the inclusion of more women in the workforce. Therefore the most in-egalitarian area of social insurance can be removed.14

This brings us to consider whether or not social insurance can alleviate the current problems within the welfare state whilst maintaining its vital role within society.

As previously stated, the major difficulty faced by modern welfare systems is the degradation of services and the corresponding loss of middle classes electoral support. The introduction of a social insurance type system will be able to effectively combat such problems. The middle classes receive benefits and services more fitting to their level of tax contribution, for instance, higher unemployment/sickness benefit, pensions, faster healthcare and a greater choice of services. This will lessen tension over who is the beneficiary of the resulting services.

The corresponding increase in the quality of services will produce dual benefits.

It will begin to match the expectations of those who wish to use the system and secondly it will provide a realistically workable alternative to private provision. It will allow greater consumer choice and a reduction in employer dependency. Furthermore such a system, whilst improving the services to match and exceed the expectations of the middle class, will ensure a higher and more comprehensive level of basic services for the poor and destitute, including education and training opportunities. This will ensure that the U.K. continues to maintain and improve its place within the world economy, according to Marlow’s model of industrial progression15.

It has been suggested that improvements in efficiency and the reduction of managerial positions within the welfare state could release sufficient funds to improve the quality of the service. “[T] he size of the public sector labour force declined by nearly 30 percent in the U.K. from 1988to 1994, yet there was a huge increase of managerial staff within the NHS…”16

However concerns that possible increases in tax will undermine support are not bourn out by past experience, support for higher taxation is entirely feasible providing the benefits which are received are proportional to any such increases.

‘The fact that an increasing number of middle class Britons opt for private alternatives over free public services is clear evidence that most would be happy to pay more tax if the system was of better quality. According to the well-respected Kings Fund institute, patients of fund holding General Practitioners routinely receive preferential treatment in the N.H.S. system.17

Finally such a system would help to address the problems of our ageing population by increasing the level of services and encouraging wider participation in contribution based government pension schemes as a more stable and reliable alternative to private pension provision. For instance medical personnel pay large sums into NHS pensions but also receive considerably higher returns.

It is vital to maintain welfare support for the free working of the capitalist market, otherwise the care of those unable to support themselves is left to the family or to charitable institutions effectively removing labour and capital resources from the market. 18

Women often most keenly feel this burden first in child-care and then care of elderly members of their family. This current gender inequality must not be allowed to continue.

It is the conclusion of this paper that linking the way in which taxes and charges are levied to individual benefit/service entitlement and quality as in the social insurance system will, if effectively implemented, help to alleviate the problems faced by the modern welfare state whilst maintaining the vital role such services play in maintaining social harmony, personal freedom and the effective and free functioning of the capitalist mechanism. Such a system will maintain middle class support and participation, without falling into the trap of social assistance type systems and the inevitable problems, inequalities and inefficiencies they cause.

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