From Welfare State to Civil Society: Towards Welfare that Works in New Zealand
by David G. Green
Prue Hyman
Associate Professor of Economics
Victoria University of Wellington
We should, perhaps, be grateful to David Green for presenting the "libertarian" case, and policy prescriptions in their starkest form. It can even be quite seductive: of course we want to abolish the cycle of disadvantage and abolish welfare dependence, but for many of us, not his way. And any gratitude to him and his sponsors, the Business Roundtable, disappears when reflecting on their success in gaining media attention for extreme views far beyond that achieved by their many opponents. Unfortunately, in this as in many areas, money speaks.
Green's society is one where you almost alone look after yourself and your dependants. "Parents should assume responsibility for their children's education and the government should assist only those with insufficient resources… Pensions and the provision of income for insurable contingencies should be a private responsibility" (p.199). Hence superannuation payments would be lowered to benefit levels, start at age 70, and be subject to stringent income and assets tests. Lower income tax rates and this minimal safety net approach to superannuation (and all other areas) would provide the "incentives" for retirement savings.
Paradoxically, Green claims that this philosophy is not individualistic, but incorporated a rich view of community. Private charity would resume its rightful role, taking the place of state provision, with an ethos of "organised but non-political welfare" (p.115), although it would have to raise all own finance. State welfare has crowded out voluntary agencies, he believes. The response to that belief by Rape Crisis, the Refuge movement, the IHC, CAB, providers of Meals on Wheels, foodbanks and the myriad of community groups dealing with ever increasing needs, can be easily imagined. Charity and poor law in the old days allowed even wider inequalities than today, and a partnership with government is inescapable. Nor does Green explain how enough private charity would emerge: if his view is that people only increase their paid work commitment when the financial incentives through low taxes are sufficient, why will they happily give away this extra money through charity, but not taxation, for the same ends? For Green, voluntary charity is morally desirable, while the welfare state is not. It is just as possible to construct a scenario with community acceptance of everyone's participation in sharing resource as desirable.
In fact, the New Zealand evidence (see the survey conducted for the 1987 Royal Commission on Social Policy) indicates that most people were perfectly willing to pay taxes for communal health, education and welfare provisions. Many believe, for example, that bringing up the next generation is a joint parental/community responsibility in which the childless like me should be happy, as I am, to pay taxes to help bring up children we collectively want and need. Taxation was not, despite Alan Gibbs, generally viewed as coercive theft. Much of the redistribution was seen instead as reflecting differences in dependence and independence over the life-cycle and variable needs due to chance rather than desert. Sadly, the assumption and praise of total self-reliance (read selfishness), independence, and the re-creation of the undeserving poor can set one group against another and lead to the assumptions becoming self-fulfilling prophecy. Some feel they HAVE (except that many simply cannot find the money) to take out private health insurance and save individually rather than collectively if the welfare state is being dismantled, even if many on high incomes would rather have a top tax rate of 50% and a decent public health system.
This helps break down social cohesion and a belief in communal/state organised welfare. Robert Putnam (1993) provides evidence that social capital and high social cohesion predicts economic success much more than the reverse, a warning against the recent redrawing of responsibilities which Green would take further.
Examining and deconstructing the language of libertarianism is beyond the scope of a short review. Green's discussions of liberty, freedom, community, and incentives are interesting, but ultimately unconvincing. Promotion of attempts to move towards more equal outcomes are seen by Green as incompatible with a free society. Incentives to enter the work force are frequently punishments for not doing so, particularly when unemployment is high - Green totally glosses over the demand side of the labour market. He asserts that many people have ingrained habits of dependency, paying no attention to systemic factors as against individual blaming and ignoring the evidence that most people want to be in paid work. Given the stigma of benefit dependence which Green largely denies, and the replacement rate evidence which he distorts, this is hardly surprising. The underlying belief is that everyone could pick themselves up by their bootstraps, with evidence that some succeed leading to the fallacy of aggregation.
Since the market is seen as desirable in almost all areas, its outcomes are hardly questioned. The argument that not all high incomes are deserved, some being due to luck, is mentioned. However, individuals should be totally free to reap the rewards of their efforts. An alternative implication, that sharing high income through community agreement might be reasonable, is not discussed.
The deserving and undeserving poor emerge at many points. Among sole parents, widows "traditionally and rightly enjoyed universal sympathy", which is deserved also by a mother "who has been deserted by a selfish man", but not those "who have wilfully or casually created new human life without proper consideration of the child's best interests" (p.85). Hence Green proposes that never-married mothers should be "encouraged" to live with parents or in "supervised accommodation", with a work test for any benefit when the child reaches school age and preferably much sooner. His emphasis on this area could make the reader forget that only 2.5% of recipients of domestic purposes benefits in 1991 were teenagers, implying rather few "girls contemplating the possibility of pregnancy" due to the possibility of a "subsidised house and an income to match earnings from employment without the trouble of working" (p.133). Bringing up a child is not, in Green's view, to be classified even partially as work, and work done largely by women - but then gender issues and feminist critiques of the libertarian position do not receive any attention in this book.
Ultimately, one's perspectives on these issues are matters of values and normative economics, not positive economics, logical argument, and empirical results, since the evidence on elasticities, incentives and the rest is all disputed, and the frameworks are not simple and objective. For many of us, moving the boundaries back somewhat from the changes of the last twelve years is far more attractive than going further in the same direction. Consideration of the type of society we want and of the social costs and benefits suggest the reassertion of collective values, but not the Green type of community. How about the valuation and more equal sharing of all useful activity, including unpaid household, caring, and emotional work (but not in money terms which encourages money as the only measure of value) and of resources, the reduction of the links of most of one's status and identity to paid work and the consequent disappearance of both overemployment and underemployment? In such a society, we might find satisfactory combinations of independence and interdependence emerging, with almost everyone wanting to contribute various forms of useful activity without needing Green's extremes of carrots and sticks.
References
Putnam, Robert (1993) Making Democracy Work - Civic Traditions in Modern Italy, Princeton University Press.
Simon Chapple
New Zealand Institute of Economic Research
This book was received in conjunction with a burden of expectations, a pre-review history. I new it had been commissioned by the Business Roundtable, I was aware that the author works for the Institute of Economic Affairs, a well-known New Right think tank in the UK, and I had read some reviews and commentaries, both favourable and unfavourable, in the newspaper. I embarked on my review keen to avoid pre-judging Dr. Green's book by its pre-review history. In the end I think it has serious flaws and is a relatively low-quality work, but I hope these conclusions are the result of a reasoned response.
If I understood it correctly, Dr. Green's analysis and policy considerations can be reinterpreted (in somewhat different language from which he uses) as follows. He argues, I believe correctly, that capitalism requires morality (widely interpreted) to function effectively. If we all operated in a narrow, rationally self-interested fashion, the transaction costs of many exchanges would be too high, the volume of market transactions would decline and we all would be worse off as a consequence. An effective set of morals, customs and norms raises trust and reduces stranger problems, both of which lower transaction costs and encourage mutually beneficial exchanges, channelling human activity into areas which are both socially and privately productive. Morality encourages positive-sum games and reduces negative or zero-sum games. So far so good. Dr. Green is of the view that what we might call the Victorian morality is the most appropriate for the effective functioning of capitalism.
I interpret Dr. Green as arguing that welfare capitalism requires this Victorian morality of family and individual responsibility, thrift and self-help to function, otherwise the system will be swamped by rational self-interested special pleaders, pushing up costs and increasing the numbers of zero or negative-sum games. However, the morality encouraged by the modern welfare state progressively undermines these values. The welfare state encourages a morality of rights and claims and downplays personal responsibility. The introduction of the welfare state crowds out effective private provision (what the Victorians knew as charity). Dr. Green believes this degree of crowding out to be quite high - effectively 100% or more. As a consequence, a growing fiscal and moral crisis of the welfare state develops.
From this point the policy conclusions become fairly obvious: do away with the welfare state to as great a degree as is politically feasible, encourage the morality of private family responsibility, thrift and self-help, and promote private welfare, voluntarily provided.
In a short review, I cannot address all the points at which I believe this edifice is shaky. I merely address the ones that struck me as the most important at the review instant.
Dr. Green's policy conclusions are radical. His analysis is typical of radical rhetoric both from the left and right, in comparing the reality of the welfare, state with the idealised family virtues of the bourgeois Victoria. One need not think long and hard before questions arise regarding the actual reality of these virtues. Dr. Green, however, seems to believe that the traditional family and its values have had a bad press. Perhaps. Or perhaps not.
Let me assume that Dr. Green's analysis of the New Zealand situation is correct. The 1938 Social Security Act and the attendant growth of the welfare state are responsible for the apparent welfare mess we are in. Yet the problem of welfare dependency appears to have been non-existent until 1970, and fairly modest until the early 1980s, if we judge dependency crudely by numbers on the major benefits. Thus there appears to be a thirty to forty year lag between changes in the formal institution (introduction of the welfare state) and changes in the informal attitudes. In short, his argument would be that it took forty years for the welfare state to cannibalise the capital of the old moral values. Now, he proposes, we need those values back. If it took us forty years to change values in one direction, one might assume it will take a long time to change them back. Indeed, one of the things we should have learned from the last decade or so in New Zealand is how slowly institutions adapt to changes in circumstance and individuals to change in incentives. Therefore the first impact of any policy shift to the "night-watchman state" would in all likelihood be almost solely distributional, with little or no changes in attitudes. Even if one regards private charity as a sufficient substitute for a welfare state, it may take decades for new, effective, private institutions to emerge.
I wish to make several points here. First, the length of any transition to the "night-watchman state", as well the degree to which it may improve on the current welfare state, must be issues, yet nowhere does Dr. Green take seriously the deep and difficult questions which are raised. His only attempt to address these issues comes in his sanguine endorsement of a panacea of friendly societies and advocacy of tax breaks for private welfare. If the welfare benefits of friendly societies were so plain, why was the first Labour government, which introduced the welfare state as we know it, so overwhelmingly re-elected in 1938 with massive support from the very classes who were involved with and reaped the apparent benefits from friendly societies? False consciousness?
Secondly, Dr. Green's policy proposals imply a massive exercise in social engineering to promote what he regards as desirable moral attitudes. The extent to which the state or anyone else for that matter can generate attitudinal changes to the desired extent and direction is unknown, even if we agree the extent and direction are desirable. We might think we know the desired outcome, but where are our levers? And where and how do they connect to attitudes and morals? What about the unintended consequences of our actions?
A further problem arises with Dr. Green's anti-welfare arguments. In considering what the welfare state achieves, he does not take the issues of externalities and collective action as seriously as they deserve. Assume, for example, that the population is personally offended by beggars on the street. Their utility is lowered. This may be an entirely selfish, non-altruistic response. Without a welfare state there would be beggars on streets. Well, Dr. Green would doubtless argue, private provision will take care of the problem. However, welfare will not be effectively privately provided because, for each individual, the benefits from giving money to beggars to keep off the streets are diffused across the population and the costs concentrated on each individual. In addition, the transaction costs of privately forming coalitions to effectively internalise the externality are likely to be too high. Under such circumstances collective public provision, funded through compulsory taxes, may be a ore effective way of dealing with the problem. The welfare state, characterised by Green as a vehicle of "political coercion", may under some circumstances be a system where people vote to collectively compel each other in order to provide goods with substantial externalities.
More generally, Dr. Green rightly takes issues of government failure in all its forms very seriously indeed. What he continually brushes aside are the equally serious issues of market failure, which indeed he must to make the policy recommendations that he does.
On a scholarly level, I found too many aspects of Dr. Green's book disappointing. I mention some (but not all cases) I found, below.
Dr. Green plays fast and loose with historical fact, writing in the introduction that, "Before the nationalisation of welfare, responsibility was divided three ways: there was, first, individual or family responsibility; second, the community as distinct from the state; and third, the government" (my emphasis, p.vii). I was unaware welfare had been nationalised in New Zealand or indeed anywhere else in the Western world. In addition, I always understood that our current system of welfare ran on a mixture of individual or family responsibility, community and state responsibility. Another similar example of inaccurate use of language is his assertion that with regard to welfare, "the state monopolises all important services" (p.98, see also p.113, p.134, p.147). Surely the private sector has free entry to, and exit from, any area of welfare provision across the Western world? It is dadaesque for a card-carrying member of the New Right to talk of monopoly when there is a high degree of contestability in welfare provision. Perhaps they will revoke his card for this!
The book's use of language is also unintentionally humorous at times. Dr. Green is in favour of an absolute measure of poverty and has little sympathy for relative measures. I was delighted to find a beautiful example of the politically correct language of the New Right following his critique of relative measures of poverty: "Is it plausible to uphold an absolute definition of poverty, when what constitutes hardship will inevitably change with general prosperity? In practice, the absolute standard will be a 'moving absolute'. The minimum standard of living would be defined at a particular time in terms of a basket of goods which can change over time as the consensus on the accepted minimum changes" (p.49, my emphasis). Translation: Dr. Green, too, favours a relative poverty measure, but he just thinks it should be rather lower than everyone else.
Sometimes Dr. Green uses his statistics without the appropriate words of caution. On pp.86-87 he uses the decline in work undertaken by sole parents between 1976 and 1991 as evidence for the excessive generosity of the welfare system. However he omits to mention that (by my estimates) there were 17,031 people (a 1.2% unemployment rate) unemployed (by a Household Labour Force equivalent measure) and 10,256 vacancies (a 0.7% vacancy rate) available (by the Job Vacancy Survey numbers) in 1976. In 1991 there were 160,900 people unemployed (a 9.8% unemployment rate) and 5,310 vacancies (an 0.3% vacancy rate). Might this deterioration in the aggregate labour market situation, caused in large part by the disinflation of the late 1980s and early 1990s, have had something to do with the decline in labour market hours worked by sole parents? Might not comparison of 1996 with 1976 show something a little less spectacular?
Dr. Green argues that the fiscal, monetary and labour market policies followed since 1984 have given New Zealand "a good chance of approaching full employment, so long as there is no relaxation and the countervailing effects of welfare policies are diminished. Unemployment peaked at 10.9 percent in September 1991 and had fallen to 6.1 percent by September 1995" (p.116). Unemployment actually peaked in March 1992 at 11.1% by my reckoning (HLFS figures). More importantly, no mention is made that at the top of the last business cycle in 1985 unemployment was at 3.8% and that at the top of this cycle, despite a decade of labour and product market liberalisation and welfare cuts, unemployment remains stuck at 6%. Nor is mention made of the fact that it was the monetary and fiscal policies followed since 1984 that must take much of the responsibility for pushing employment up to its 11% peak.
It seems to me that the above is more than evidence of mere academic sloppiness. It is unsurprising that Dr. Green does not bring out these facts, since they significantly detract from the rhetorical force of his arguments. Indeed, in the end Dr. Green provides the strongest argument himself against his policy proposals. "We can improve our institutions", Dr. Green writes early in his book (p.29), "so long as we are modest [regarding what we can achieve]. We can become born-again persons, but we cannot devise a born-again culture". Three cheers. If only he had heeded his own wise words in formulating his policy proposals!
One can read a book, disagree vehemently on almost every page, but still learn an enormous amount from it (my archetypal example of this phenomenon is Douglass North's 1981 Structure and Change in Economic History). This could have been one of these books, but disappointingly it was not. Dr Green is too much a partisan to his cause. When academic balance and Dr. Green's views collide, so much the worse it seems for balance. It disappoints me to say it, but this book ends up as little more than one long, beautifully produced propaganda pamphlet.
A final point: Dr. Green (p.43) acknowledges that it is wrong, and reasonably so, to describe a black person as "nigger". I suggest to him it is equally wrong to persistently describe those born outside marriage as "illegitimate".
R.J. Stephens
Senior Lecturer in Economics and Public Policy
Victoria University of Wellington.
Green has written a political tract, or pamphlet. Just as the eighteenth century classical economists berated the Mercantilist pamphleteers for their chronic self-interested writings and policy advocacy, so future theorists of the welfare state in new Zealand will consider Green's work as pushing the interests of the New Right, or economic rationalists, to the detriment of the majority of the population. However, the Mercantilists were very influential in policy formulation, and given the power and political influence of the New Right in New Zealand, the worry is that Green's work may continue the strong rightward shift of policy.
Green's work is devoid of New Zealand content and specific analysis of the New Zealand welfare state. For instance why have 10 pages been devoted to considering black/white relations in the USA, and none to the Treaty of Waitangi and Māori/Pākehā issues? Why does he concentrate on analysing UK statistics on income inequality and poverty, and ignore the growing New Zealand literature on the subject? Where is mention, let alone analysis, of the Department of Social Welfare's latest initiative of Welfare to Well-Being? (DSW is not even listed in the index, though Prussia, Hitler, Islamic Fundamentalism and Gandhian philosophy are). Where is the analysis of the New Zealand welfare state by people such as Brian Easton, Susan St. John and Ian Shirley, or Boston and Dalziel's (1992) critique of National's changes to the welfare state from 1991? If the tract is to be taken seriously as a contribution to an analysis of the welfare state in New Zealand, it has to engage in New Zealand literature and policy problems, not ones which he imagines are occurring when writing from the northern hemisphere.
Green's vision is one of a "free society" where individual responsibility for one's (family's) welfare is combined with a sense of community which permits voluntary contributions to charities to alleviate the needs of the deserving poor. The state's role in welfare provision is truly minimalist - education should be financed by parental payment, not from taxes; schools should be handed over to independent education trusts and universities privatised; hospitals should be privatised, with greater reliance on private health insurance, though urgent treatment would be available to all; social security benefits should be abolished, with reliance upon insurance, voluntary associations and possibly the Government, provided applicants have "exhausted all capital to be eligible for a benefit".
To underpin this change in direction of society, Green has three chapters on political, social and moral philosophy. His view is that of a civil society, based on individual liberty and freedom. Through a civil association there is a strong bond of solidarity with others in society, giving people a shared sense that the social system gives all people a chance to do the best they can in their self-chosen sphere of life. This is an ideal philosophy, but while the ideal is fine to set as a goal, it has to take account of real-life frailties and existing divisions within society, or at least provide some mechanism for overcoming those divisions. Without some principle of rectification and method for unification of society, lack of trust will continue between classes and races in New Zealand society. His proposals are more likely to result in a Marxist revolt than in his civil society. He ignores the very careful philosophical analysis of Maxine Barrett (1988), where she shows the difficulty of simultaneously combining the traditional starting points for justice of rights, deserts and needs. By concentrating on rights, Green places emphasis on negative freedoms, or absence from (state) coercion, whereas the welfare state was based on positive freedoms and rights, enabling people to perform to their ability.
A major theme of Green's work is that the provision of welfare by the state has resulted in negative economic and social outcomes. However, he is unable to provide any New Zealand evidence for this and other claims. For instance, he states that the minimum wage "inevitably prices some jobs out of existence, and should be abolished", but provides no source. Equally, he claims that primary education standards are falling, but fails to support this with data or references. Assertions should not form the basis of policy. Unemployment was not a delayed response to the 1938 Social Security Act, but a product of the 1980s economic reforms, coupled with demographic factors of a relatively fast labour-supply growth at a time when labour demand grew slowly due to the recession.
Green contends that the welfare state has crowded out individual responsibility, voluntary donations and charitable organisations. Certainly, Friendly Societies were at their peak in the nineteenth century, and in the absence of state provision they would grow again - but with the same shortcomings which led to state involvement in the first place: incomplete coverage, low benefit levels, provision of benefits based on moral value-judgments rather than need, inability to finance during a recession etc. Reliance upon private charity does not alleviate these problems (though the churches have been remarkably free of moral judgments in their provision of food parcels). He ignores the fact there is stigma in accepting private charity, or that the transaction costs of collecting charitable donations is extremely high, let alone worry about the free-rider problem which bedevils private provision of public goods.
Given the size and significance of the welfare state in New Zealand, it needs to be carefully evaluated to see whether it achieves our objectives. However, a retreat to the nineteenth century UK notions of charity and free markets will bring with it all the vices which Dickens so rightly condemned, and which led many to flee the UK to establish a new life in the antipodes. Green's vision of a civil society is the very antithesis of mine. He argues that people should only retire when they can afford to do so, otherwise they should continue working. His view is one of market provision of education and health care, when the democratic wish of the majority of New Zealanders is for continued dominance of state funding and provision. In his view, it is the provision of welfare which has caused family break-up and unemployment, rather than the state, acting on a humanitarian basis for all New Zealanders, which offsets the social and economic costs associated with unemployment and single parenthood. Agreed, three should be incentives to ensure that people return to the work force when possible, but that is the essence of Welfare to Well-Being. Green has not provided any logical and coherent explanation as to why the state should not continue its dominant role in social policy.
References
Barrett,, Maxine (1988) "Standard and Foundation for Social Policy" in Royal Commission on Social Policy, April Report, Vol III, Pt 1.
Boston, Jonathan and P. Dalziel (1992) The Decent Society, Oxford University Press, Auckland.
