Simon Duffy

Thoughts, Bemusements & Arguments

Tag: income security

Is a Pro-Community Welfare State Possible?

In the space of a few days I’ve been lucky enough to be part of two workshops where we explored the question of how to narrow the gap between public services (the official welfare state) and the community. Each event was inspiring, with stories of exciting innovations that demonstrate the power of community action and the ability of the state, sometimes with a little help, to act as an agent for positive social change. There is a clear appetite for a new settlement, a new kind of pro-community welfare state, one which works in harmony with its citizens, not against them.

Now I know that for many fellow campaigners against the UK’s austerity policies even to discuss these ideas is to move dangerously close to the Big Society Bullshit that has been used as a screen by Government to disguise more than six years of cuts, stigma and increasing inequality. Some believe that the old welfare state was just fine, and that we must go back to the 1945 system; others recognise that all was not perfect, but think that any criticism of the old system, at this time, just provides dangerous ammunition for the new barbarians.

I certainly have some sympathy with both positions. The old welfare system had many virtues which we have lost sight of, including a much greater faith in the ability of officials in the welfare system to make sensible decisions, at a local level. Much of this freedom and flexibility has disappeared as Whitehall has taken over the ‘management’ of the welfare state. I also recognise that the Coalition Government did a brilliant job of covering its tracks. For every vicious cut they imposed there was some wacky new programme (usually funded by the Cabinet Office) that was used to grab headlines and scatter glitter over gaping wounds. We live in a cynical age.

But I don’t think we can hold back from considering some of the fundamental flaws in how the welfare state has evolved over the past few decades. It is particularly important to consider some of the deeper factors, which are much harder to see, but which not only damage the welfare state but also enable the Big Society Bullshit to gain credibility.

The best lies are wrapped around a small nugget of truth, and repeated lies cannot be defeated unless you can share some deeper, stronger and more hopeful truth.

To begin with I think it’s important to remember why we need the welfare state. The welfare state is a compensatory mechanisms that helps us deal with two kinds of inequality: inequality of wealth (income and assets) and inequality of need (disability, illness and age). The more equal a society is in wealth then the less you need systems of benefits, taxes and social housing to rebalance things. However, even if wealth were equal you would still need to deal with the fact that some people will also need further help which they cannot get on their own.

Now it is important to note that this second problem is also linked to how willing people are to do what is right without payment. Inequality of need is no problem in a community that naturally organises itself to meet those extra needs; however in a society where doctors, nurses and social workers want to be paid, and to be paid well, for using expert skills then inequality of need will also require additional welfare systems to ensure these important additional needs are also met.

So the purpose of the welfare state is to compensate, not just for inequality, but also for the insecurity that comes from knowing that you might have needs, and that nobody will be willing to help you meet them without payment.

Now, in the way of a thought experiment, let us imagine that you are the ruler of a community that already has a welfare state; and now imagine that (for some strange reason) you want to destroy the welfare system, but in a way that people won’t notice. Here are some strategies you could use:

  1. Forget about the importance of inequality, spend less on making the poor less poor, but spend more on services instead. In this way public spending will remain high, but inequality will grow. This is what the UK has done, spending about 50% less on poverty now than it did in 1977. In this way, fundamental needs will grow but the system will appear unable to help them. This helps to undermine the whole system.
  2. Encourage inequality within public services themselves. The Chief Executive of the NHS is paid about £200,000 – 50 times more than the poorest 10% of UK citizens who live on about £4,000 per year. Charity chiefs can earn similar amounts (e.g. £175,000 for the CEO of Mencap). In this way the public and charitable sectors can create the inequality that they are supposed to be there to solve.
  3. Make the poor poorer through hidden taxes. For instance the poorest 10% pay 50% of their income in taxes, meaning that their real income is closer to £2,000 per year (about £40 per week). In this way the poor are tricked into paying the salaries of those who should be helping them.
  4. Then create extra taxes, just for those people who have higher needs. This is called means-testing or charging, and it means that if you have a disability you will only get support if you are very poor or if you are prepared to pay the high ‘disability taxes’ imposed by the adult social care system. For this reason many people opt out of the welfare state and start to believe that that the system only exists for ‘them’ (the poorest, the most unworthy). At the same time the poor have to make themselves even poorer just in order to get vital services.
  5. Associate the welfare state with stigma, control and a sense of unworthiness; in this way people will not want to support it, use it or value it. Spending public money on campaigns which suggest people on benefits might be “benefit thieves” has been a highly successful means of spreading fear and mistrust through the general public. Today people believe benefit fraud is rife, whereas it is actually statistically insignificant.
  6. Pretend that public services are inadequate and will be better managed by private sector companies. This has the double benefit of reducing people’s sense of control and faith in the system, while adding to the inherent inequality of public services (frontline workers salaries are pushed down, profits are sucked out, yet senior public officials can now earn more as ‘commissioners’ rather than providers).
  7. Talk about the need for communities to take back control, for citizens to be empowered and then dismantle any of the remaining systems of support. And here we are today – Big Society Bullshit.

Some of you this may think that this is an unduly critical view of public policy over the past 40 years or so; others may think this is simply a restatement of what many others have been arguing for some time – “It’s the workings of capitalism; it’s the ideology of neoliberalism.”

So I’ll end by considering the question of motivation. Who wants to destroy the welfare state and why?

I asked you to consider how you would destroy the welfare state from within. But personally I find it difficult to believe that most of the politicians and the civil servants responsible for the welfare state have really been trying to destroy the welfare state. (But I may be being naive). In my experience (most of) our rulers want to do the right thing, but they do not understand the systems they control and act in order to gain short-term political advantage. Rationality and wisdom is harder to attain in a position of power.

Nor do I think that, for most of this period, greed and corruption by commercial companies has been the biggest factor in the destruction of the welfare state (although I think things have now changed, and it is certainly a significant factor today).

However I do think that shallow thinking has played its part; but I think that state socialism has been nearly as damaging as the kind of narrow economic liberalism that has now been relabelled as ‘neoliberalism’. It we think of people as merely animals, seeking selfish material benefit, then our thinking about the demands of justice and the organisation of society will be utterly inadequate.

So what are the real driving forces that continue to undermine the welfare state? Here are five poisons that I believe are eating away at the welfare state from within. I do not think they are the only corrosive factors at work, but I think they are important internal factors which should be given more attention as we try to think our way out of our current problems:

1. Centralisation – The more that decisions are taken centrally then the fewer the people involved in those decision, the easier corruption and the easier it is for powerful groups to get advantage over less powerful groups. Elites speak to elites, and after dinner comes the contracts, or the increased salaries for senior staff.

2. Meritocracy – The more hierarchical and the less democratic a society then the easier it is for its rulers to believe that they deserve their power, the money (that they award themselves) and their many other privileges. Meritocracy has always been the ideology of aristocracies – ‘we rule because we are the best’. The fact that the best are now the likes of Donald Trump, rather than the landed gentry, is merely a matter of detail.

3. Inequality – The welfare state exists because of inequality, but progressively it has treated inequality as an unavoidable fact, not as a problem that it was designed to tackle. Inequality make the poorest, not just poor, but weak and demoralised. Inequality makes the rich complacent and heartless. Today the welfare state not only fails to respond to poverty, it makes the problem worse by creating new kinds inequalities within public services themselves.

4. Insecurity – The ongoing dilemma for the welfare state, one that can be witnessed in the writings of Beveridge, Marshall and its other early designers, is the fear that the welfare state will give people too much security and encourage laziness or undue dependence. For this reason income security (unlike health security) has always been viciously means-tested. Strangely, as economic insecurity continues to grow in our increasingly global and technological economy, the state now works to increase this sense of insecurity through damaging changes to the benefits system. This toxic insecurity means that if people are unable to find paid work they are then punished if they volunteer or act like a citizen. The need to keep the poorest under control and feeling insecure eats away at the legitimacy of the system and further enables paternalism or bullying.

5. Individualism – The welfare state has been built around a highly individualised conception of the citizen. Family, friendship and community disappear in its gaze; instead bureaucratically defined solutions are offered to mere individuals. There is no role for collaboration, solidarity or cooperation in the modern welfare state, because all of those things move the centre of power towards community and treat the person as a citizen, not as a unit. Atomised we are weak – and that is how the system seems to want us.

The irony is that creating a good welfare state, or at least a much better welfare state, is quite possible. There is nothing inevitable about the ongoing decline of the welfare state. But in order to reverse the current decline we will need to think much harder about the real and underlying problems built into the current system itself.

Some of these problems cannot be solved by ‘policy’ (encouraging our rulers to have better ideas). The solutions we really need are constitutional, they require rethinking the fundamental structures of our democracy and our society. Unless we are prepared to do that thinking and begin advocating for more fundamental changes the legacy we were handed by our grandparents and great-grandparents will wither and die on our watch.

The Liberal Fallacy or Yet Another Argument for Basic Income

Liberalism, or neoliberalism, has many flaws but we don’t always focus on its biggest flaw.

You can see this flaw most obviously once you accept one of the most important axiom’s of liberal economics: if prices are flexible then the market will clear.

But what does that mean?

Well let’s begin with a simple example:

Farmers come to the market in order to sell their harvest. Shoppers go to the market in order to buy their food. The price is whatever money is exchanged for the goods. Now, if prices are flexible, then we can expect all the goods to be sold – the market will be ‘cleared’. When shoppers compete to buy some rarer item then its price will rise. When sellers compete to offload a less popular item then its price will drop. Eventually everything, even the most unattractive item should be sold as the price approaches zero.

Now the most obvious flaw in this account is that real markets don’t work like this:

The day finishes, and some goods are left over, even when there has been heavy discounting at the end of the day. This might be for all sorts of practical reasons – perhaps fewer people came to the market that day etc. But also the seller does not always accept the logic of liberal economics. He might insist on holding to his notion of a fair price – whatever the market conditions. Like the grandfather in Halldór Laxness’ The Fish Can Sing, who always sells his fish at the same price: On a day when there is high demand for fish he does not increase his price – he simply sells his ‘bargain’ fish quickly. On a day when demand is low he may not even sell his fish at all.

So, real markets are not like the pure markets of economics, not just because of the complexities of reality, but also because some people simply refuse to bend to the idea that the market should set the price. For the liberal this is a kind of irrationality: how can the fish have a value outside of the market mechanism? If nobody will pay your ‘fair price’ how can you imagine that this is its true value?

The liberal is competing with an older view (certainly the medieval view) that things really do have a fair price. And this is probably linked to Aristotle’s way of looking at things. Within the Aristotelian tradition all things have their true essence – their meaning or their value – which the wise can discern. But too often we see only the accidental properties of a thing – their semblance or their price. Within this tradition the market can no more measure value than the fool can find truth.

It seems to me that this debate about value has been at the heart of politics and society for some centuries. Liberals are modernists. The notion of an essential value is, for them, a fiction. Only the social mechanism of the market gives things a price. This may be sad and unromantic, they argue, but, for example ‘Your house is only really worth what someone is willing to pay.’ And unattractive as this is in some respects, as an argument it does have a certain power.

Today we can see these two competing perspectives playing out in the debate between those want to see greater market flexibility in wages, versus those who want to see greater rigidity, for example by the application of minimum wages, living wages or stronger employment rights. The liberal argues that, whatever the apparent disadvantages of zero-hours contracts, self-employment or reduced employment rights, any increased flexibility will improve market efficiency and so does benefit society in the long-run.

Liberalism may be rational but it is certainly unrealistic. Real markets don’t clear and real people certainly don’t behave ‘rationally’. In fact we all turn out to be a strange mixture of the modern and the medieval. When house prices went up by 360% in 11 years we became liberals, enjoying (if we owned a house!) the ‘rising housing market.’ [Interestingly this kind of jargon reveals exactly our confusion, for markets don’t rise or fall – they are just spaces.] But now that bubble seems ready to burst we have all turned medieval. We want the Government to bail us out and defend the ‘value’ of our house and to ensure that we don’t lose out from our own bad investments. Our sense of the fair price for our own home seems wonderfully flexible as long as its direction is upwards.

We are liberals when it suits us. Bubbles make fools of us all.

But this debate between fair-value and market-value is a sideshow; it does not reveal the essential flaw in liberalism. It cannot lead to any helpful answers to the fundamental questions of social justice.

The essential flaw in liberalism is much simpler – there is nothing in the market that will ensure the seller will get enough – enough to live on, enough to thrive, enough to support their citizenship. Market’s don’t care, they are not moral, they are not fair and they don’t need to ensure the survival of those who ‘come to the market.’

A flexible labour market certainly benefits employers, especially if they need to compete on price with organisations in countries who have much lower labour costs. Investors certainly prefer the cost of labour to be controlled or reduced employment securities. This reduces their liabilities.

But whatever benefits a flexible labour market offers to employers or investors, it still does not ensure that people will have enough to live on. Like the canny shopper, waiting until the end of market day, to see what price the unsold bananas might fall to, the employer knows that, when the seller is desperate enough, they will be able to buy the labour they need, at almost any price.

The essential flaw in liberalism is that, by its very logic, it will never provide a decent and secure income for citizens. To do so would be to undermine the market itself.

Of course, those who campaign for increased minimum wages or a living wage know all this. But they are forced to deploy the medieval argument – which while is attractive in many ways – is also fraught with many problems. They have been drawn onto the enemy’s territory. Their motivation is good, but perhaps their strategy is wrong. They seek to mitigate the market’s inevitable injustices, but they thereby accept that the regulation of the price of labour is the proper means of reducing social injustice. This brings with it a host of problems.

By arguing about prices we are arguing on the liberal’s territory. Instead, we must, as the Chinese say, lure the tiger from the mountains. We must start with need and justice.

This is how we can strike at the heart of the liberal fallacy. For, if the market cannot deliver fair and secure incomes for all, then perhaps so we must abandon the market for that purpose. Instead we must secure our basic income or our citizen’s income socially and politically. We must agree together what is fair, and distribute to each other the necessary resources for our basic or citizen’s income.

This is not to abandon the market for all purposes. It is to put the market in its place (in a more humble place – a secondary place). The market cannot ensure that we each have enough. So let us stop trying to make it. Instead we must create real income security together – we set a basic income and ensure that each citizen gets it. We must fix what is fair together and then we can let the labour market help us distribute our gifts and our talents between each other – at prices we are free to set ourselves.

This strategy has two further advantages over the mitigation of the market strategy which is currently being deployed by our allies.

First, it just lets the market do what is does do well – connect people’s needs to other people’s gifts. Price flexibility (once our basic income is secured) is a boon, not just to employers, but to employees, not just to customers but also to producers. If I love to write poetry, but the going rate for poetry is low, then I can sell myself cheaply, while knowing that I am doing what I really value. If I choose to do something that few others seem to value, like cleaning toilets, I can demand a higher price for my labour. We are free to decide what is important to us – in both buying labour and selling labour. We are no longer at the mercy of the market.

Second, we start to breakdown the illusion that the market can value us. Today we are constantly being told that all sorts of people are worth more than the rest of us and so are deservedly entitled to whatever salaries they award themselves – be they bankers, politicians, footballers or whoever. The price we pay for this exploitation of markets by the powerful is not only economic, it is spiritual. We are only too likely to believe the nonsensical idea that some banker is ‘worth more’ than some other person – perhaps the toilet cleaner. Constantly we forget what a proper understanding of economics can always teach us – there is no real relationship between value and price: water is cheap; diamonds are expensive; but it is water that we need to live.

Perhaps it is time to put the market in perspective. It is not a demon, it is not a saviour. It is just a useful tool for any society that understands that we are each worth infinitely more than our price in the labour market and that markets don’t take care of us – they never will. Only we can take care of us.

Keeping Money Fresh – The Ideas of Malcolm Henry

Nothing that could be got from the heart of the earth could have been put to better purposes than the silver the king’s miners got for him. There were people in the country who, when it came into their hands, degraded it by locking it up in a chest, and then it grew diseased and was called mammon, and bred all sorts of quarrels; but when first it left the king’s hands it never made any but friends, and the air of the world kept it clean. 

From the Princess and the Goblin by George MacDonald

I’ve just watched a brilliant film my Malcolm Henry on the creation of money and the case it creates for a basic (or citizen’s) income.

http://youtu.be/gue9Q6wgdjQ

I won’t summarise the argument he makes, other than to say that – like MacDonald – he distinguishes two kinds of money (a) the money in circulation in the productive economy which the air of the world keeps clean and (b) the money in savings or gambling which has become diseased. Henry then argues that we are locked into a toxic relationship with the latter; while a system of taxation for savings plus citizen’s income restores a healthy pattern of productive recirculation.

I do not know exactly whether this is the perfect solution to our problems; but it sounds compelling and intriguing to me. I will think more on this – and buy his book.

But it does strike me that in order to shift our thinking about social justice and to achieve a saner and fairer world we will need a new kind of economics. Henry seems to be doing exactly the right thing – offering us a way of picturing our situation which is true to our real challenges:

We are wealthy, but income is distributed unfairly; we are productive, but locked in debt.

It is worth remembering that the welfare state was partly the child of Beveridge – who designed some of its basic institutions – but it was also partly the child of Keynes – whose economic theory provided government with the confidence to act as the agent of growth. Today, while Beveridge and Keynes both have much to teach us, we re also suffering from the some of the limitations implicit in their models. In particular the Keynes-Beveridge welfare state tried to offer security of income through security of employment – but this model looks out-dated today.

Security is necessary, but the security we need must come from each other and not be linked to working as an ’employee’. Eventually we will find that freedom and security can be reconciled in a new economic framework.

So a big thank you to Malcolm Henry – a great innovator in the new economics we need!

Freedom – It Should Include Everything

I used to think that freedom was freedom of speech, freedom of the press, freedom of conscience. But freedom needs to include all of the lives of all of the people. Freedom is the right to sow what you want. It’s the right to make boots of shoes, it’s the right to bake bread from the grain you’ve sown and to sell it or not to sell it as you choose. The same goes for a locksmith or steelworker or an artist – freedom is the right to live and work as you wish and not as you’re ordered to. But these days there’s no freedom for anyone – whether you write books, whether you sow grain or whether you make boots.

From Everything Flows by Vasily Grossman

Grossman reflects on the way in which the Soviet regime extinguished every aspect of human freedom and his thoughts are still relevant today.

Political theorists divide freedom between the liberal freedoms – press, speech, conscience and socio-economic freedoms – living, work, craft. And much of the Left-Right conflict during the twentieth-century has focused on the supposed conflict or tension between these two kinds of freedoms and, in particular, the disputed status of ‘the right to property’ (or ‘property as theft’).

Of course our freedoms may compete; one good thing may always be in some tension with another good thing. But, as Grossman observes, our freedoms should hang together. The poet may value his freedom of speech, but the craftsman also needs his freedom to work – and to do the work that suits his talents. What made the Soviet regime so dreadful was that – in the name of freedom – all freedoms were destroyed. Economic freedoms were not salvaged by the state – they too were undermined.

But I think we have drawn the wrong lesson from these facts. In the West we may think that – to some degree – all our liberal freedoms are in tact and that even, thanks to the welfare state, we have now mastered and distributed socio-economic freedoms. But, really, we have made the same compromise as the Soviet state.

You can certainly eat – but only by giving up your freedom. We are impelled to work and to work on the terms set by our master. Either – you are employed and so must do as you are told – or – you are unemployed and must ‘not do’, you must stay inactive in order to get the crumbs that pass as ‘income security’.

And are our political freedoms any better? We can write what we want – but who will read us? We can protest – but who will hear us? The organisation of politics, the press and society is now so rigidly centralised that Stalin himself would be impressed. Our freedom is dwarfed by a society that lacks the spaces that would make our freedom meaningful.

True freedom, freedom for the whole person is a very rare and precious thing.

We might return to Grossman’s observation:

“freedom is the right to live and work as you wish and not as you’re ordered to”

So, we might ask ourselves, why – when we are rich beyond the dreams of any earlier generation – are we not free? What stops us having a reasonable degree of economic security and freedom?

Fair Incomes and Welfare Reform

One of the simplest ways of understanding what is wrong with the current welfare system and why current efforts to reform it will continue to fail is to consider this question:

Do we want to ensure that nobody has to endure absolute poverty?

There may be a few extremists who will say no to this – they are happy to see their fellow citizens die in poverty, but their views should be discounted. Almost everybody from Right to Left actually agrees that we do not want to live in a society where anyone would be left without support.

So does that mean we have a guaranteed minimum income?

Well we do, and we don’t.

Our current benefit system – for all its craziness, complexity and poor design – does attempt to provide a minimum income – through the Income Support system. We will (almost) always get something if the system’s rules say that we are entitled, but these rules are designed so that this are right is conditional upon our poverty. This is how poverty traps work:

You can get x, but only if you are poor enough.

The current welfare system is an incoherent compromise and it reflects a point of indecision in the body politic. We don’t want poverty; but we don’t want to guarantee the end of poverty. We feel uneasy: Can we afford it? Do we trust each others to make the necessary contributions? Do we trust ourselves not to abuse the system? And so we continue with a crazy system that gives millions a pitiful income and at the price of robbing them of the natural incentives to contribute, earn, save and grow their own families. In a way we are all caught in a collective poverty trap – unwilling to trust each other, unable to move forward together – we guarantee social insecurity, fear and the waste of human talent.

But we can spring the poverty trap by moving away from conditional rights and towards universal rights. If instead of making a minimum income conditional upon poverty we make it unconditional – universal.

It is as if each citizen were to say to each other:

Let us each pay a fair amount in taxes, and guarantee to each other a fair minimum income; using this we can each of us build our own life and make the best use of our own talents.

In practice we could make this shift by (a) merging tax and benefits into one system and (b) creating a guaranteed minimum income for all which then acts as the threshold at which we begin to pay taxes.

I describe these ideas in more detail in a joint policy paper with The Centre for Welfare Reform and the University of Birmingham:

Fair Income Policy Paper

I am not the first to make these arguments. In fact societies have, from ancient times, constantly attempted to achieve the right balance between income security and personal freedom. The system of Jubilees, part of the Jewish tradition of social justice, had exactly this function. No one could be cast into the slavery of poverty for ever – there was always the potential for redemption and the chance to build afresh because land that was lost through differences in trade, luck or talent would be returned to the family every fifty years.

The current UK government has at least realised that the current benefit system does penalise the poor through high taxes (dressed up as benefit reduction rates) but unfortunately it is unwilling to take the next logical step and to create a universal system of income security. Instead it is attempting to devise a complex new tax regime for those on the edge of the benefit system – which will leave some people better off and some people worse off. Given that we already live in the third most unequal developed society it seems that increased poverty for some is a price we should not be willing to pay.

Ultimately there are only two ways to reduce poverty traps either (1) to push some people deeper into poverty or (2) to lift everyone out of poverty together. The government has quietly set about the first strategy. Surely it’s time to consider the second approach – the only sane and moral solution.

Reflections on William Beveridge

In proceeding from this first comprehensive survey of social insurance to the next task—of making recommendations—three guiding principles may be laid down at the outset.

1. The first principle is that any proposals for the future, while they should use to the full the experience gathered in the past, should not be restricted by consideration of sectional interests established in the obtaining of that experience. Now, when the war is abolishing landmarks of every kind, is the opportunity for using experience in a clear field. A revolutionary moment in the world’s history is a time for revolutions, not for patching.

2. The second principle is that organisation of social insurance should be treated as one part only of a comprehensive policy of social progress. Social insurance fully developed may provide income security; it is an attack upon Want. But Want is one only of five giants on the road of reconstruction and in some ways the easiest to attack. The others are Disease, Ignorance, Squalor and Idleness.

3. The third principle is that social security must be achieved by co-operation between the State and the individual. The State should offer security for service and contribution. The State in organising security should not stifle incentive, opportunity, responsibility; in establishing a national minimum, it should leave room and encouragement for voluntary action by each individual to provide more than that minimum for himself and his family.

William Beveridge from Social Insurance and Allied Services

At the foundation of the welfare state it was clear that Beveridge was under the same pressure to ‘patch’ that we have faced ever since he designed it. Revolutions are difficult precisely for the reason he identified – they challenge sectional interests. Today the welfare state itself has become one of those sectional interests.

He also noted that social insurance is only part of what is required, and this is surely correct. However it is noticeable that in the delivery and funding of the welfare state social insurance is one of the weakest elements of the current system. Once we take out the taxes that the poor pay we find that only £25 billion is actually being spent on lifting people in the lowest 40% of earners out of poverty (that’s 2.5% of GDP). The vast majority goes on fighting the other ‘giants’. May be we’ve got the balance wrong?

The final principle seems more honoured in the breach than in observance. We have neither a clear minimum nor an encouragement for voluntary action – quite the reverse – obscure entitlements and perverse incentives.

For more thoughts on this see my essay for The Centre for Welfare Reform – Who really benefits from welfare?

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