A Welfare State Fair For All

Welfare reform is sometimes seen as taboo on the centre left, however it shouldn’t be seen as incompatible with social democratic values. The ideals of social justice and fairness inherent in the centre-left critique have much to contribute to discussion on the future of the welfare state.

In the financial year 2009-2010 government social security spending stood at £192bn, in comparison to £50bn on education and £98bn on health. The world financial crisis and the failing economic policies of the coalition government have played their part in increasing unemployment. However this figure represents an unsustainable increase of 45% over a decade characterised by sustained economic growth and prosperity.

Recently Shadow Secretary for Work and Pensions, Liam Byrne, wrote for the guardian about the need for a ‘tough-minded social revolution’. A call for radical reform to the welfare system, restoring the contributory principle at the heart of the Beveridge report published 70 years ago but also creating a system suitable for 21st century challenges. This debate should be welcomed. Whilst it doesn’t mean falling into unhelpful ‘scroungers’ rhetoric, it does mean ensuring that work is incentivised by the welfare system and identifying the causes where this isn’t the case. At a time when hard working people are under increasing financial pressure, a fair system is vital to restore trust and confidence.

The coalition’s benefit cap in the Welfare Reform Bill currently in the House of Lords is broadly in line with the fairness principle; if work is to pay then the total amount of state support receivable must be below this. However an arbitrary cap has flaws; if such a measure increases poverty, particularly child poverty, and threatens some families with homelessness then it is counterproductive. The government’s own figures suggest that up to 100,000 people could be driven into poverty. Furthermore the policy is likely to have a greater impact on those in work, mainly hitting stable families on low incomes rather than those who don’t work at all. The government’s impact assessment indicates a couple working up to 23 hours a week will still be affected. This policy hasn’t been thought through. Labours plan to vote for the cap when the bill returns to the Commons provided it is localised to take into account regional variation in living costs would alleviate some of these concerns.

Where the government have crossed the line however is on support for the disabled and the sick. The decision to place time limits on access to Employment and Support Allowance (ESA) for cancer patients and young people with disabilities or illness is immoral. If the welfare system is to stick to its founding principles then it should be there to help people who really need it, especially for those who have contributed. No aspect of the welfare system should be off the table, radical reform is needed, but it should provide security and uphold dignity for those who simple cannot work.

One of the ‘great evils’ that Beveridge set out to address in his report was idleness. In restoring the ‘something for something’ principle to the welfare system, ensuring that the recipients are making every effort to find work is important. In this respect we shouldn’t be afraid to talk of the undeserving, those who turn down work when it is available are undermining its role as a safety net. In this sense it is not unfair to restrict or freeze entitlements in much the same way Labour’s Future Jobs Fund did if opportunities were refused. Not doing so is unfair on the taxpayer, but it is also unfair on the claimant. While a member of the Bank of England’s Monetary Policy Committee, David Blanchflower noted the serious psychological and social implications of unemployment. Youth unemployment in particular has the potential to damage productivity and aspiration. Therefore ignoring worklessness is a disservice to the individual and society.

Making work pay however is dependent on the availability of jobs. The stagnation in the British economy as a result of decisions taken by the current government isn’t going to provide work for the long term unemployed. Recent analysis of the government’s work programme by the National Audit Office for example, suggested that its predictions were over-optimistic. A fair welfare system must go hand in hand with a recovering economy if unemployment and therefore social security spending are to be reduced. The decision to scrap schemes like the Future Jobs Fund at a time when youth unemployment is at a record high undermines any efforts made to reform the welfare system.

Beyond the Department of Work and Pensions, education has much to offer in ensuring the development of skills required to fulfill demand. Coordination across government would allow the causes of worklessness as well as the consequences to be targeted. The pupil premium focuses extra resources at the most disadvantaged children; this would have the potential to prevent intergenerational problems if not for the biggest cuts in education spending since the 1950s. Ensuring social circumstances don’t hinder academic success and identifying issues early is key to preventing the perpetuation of low aspiration.

To address the problem of long term unemployment in Britain and to reduce the burden of swelling social security expenditure radical reform is needed. With fairness at the heart of any solution, a welfare system fit for the 21st century should be there for society’s poorest and most vulnerable whilst ensuring that working is always a better option for those who can. However fairness at the bottom of society goes hand in hand with fairness at the top. In a week when the chief of a bailed out bank is set to receive a bonus near on a £1m this issue is all too relevant. If David Cameron wants to deliver on his fairness rhetoric then the richest should also be paying their fair share.

Evading tax is equally as much a disservice to society.

Moral Capitalism: An Oxymoron?

Capitalism is in crisis. Or rather, it should be. Somehow it has deflected the ire of politicians, or maybe Westminster has avoided having revolutionaries in its ranks. Instead of seeing a call for more regulation, there are calls for less regulation; instead of the state stepping in to protect the citizen from the crisis, privatisation is called for. Capitalism has gone from having its quirks to being ravenously dangerous. But a solution is coming from Westminster, we must be quiet to hear it (it has to whisper lest the markets hear it). Ed Miliband is calling for more responsible capitalism and an end to “bad” capitalism, and even more remarkably David Cameron also calls for more responsible and ‘moral’ capitalism. But is it actually possible for capitalism to be ‘moral’?

Change is afoot; capitalism will now be ‘moral’. That rather suggests that the capitalism circa 1979-2012 was ‘immoral’, so for there to be a change the vices of the old regime need to be cleansed. The anger is aimed towards the greed, the recklessness, the disregard for the majority – yes, these must be vanquished, then we will have ‘good’ and ‘moral’ capitalism.

But therein lies the problem; these vices are what makes capitalism work, and any rules to change them requires state regulation (shudder). There are two fundamental principles to a capitalist economy; profit as an incentive and the notion of supply and demand. Both of these are so central to capitalist theory that to change them would mean to overhaul the capitalist system. One cannot separate the moral deficiency of capitalism from capitalism.

The idea that profit is the only incentive of man is the main moral basis of capitalism; nothing is worth doing unless one profits. This is a pessimistic analysis of human nature suggesting that man is inherently greedy and egoistic, an analysis most famously seen in Thomas Hobbes. Milton Friedman suggested this insight was sharpened with Adam Smith in the Wealth of Nations. In reality, Friedman misread Smith as in the Theory of Moral Sentiment Smith claimed that man had an innate conscience telling him to help the poor and give aid. This fundamental principle of capitalism praises greed and self-interest, or as apologists call it “individualism”, which leads to innovation and competition which improves prices for customers; everyone wins by people looking after their own interests. The flaw is; this analysis is wrong.

Profit is not always an incentive for action, particularly financial profit. Social responsibility, duty, decency, compassion and benevolence are all not only ignored but repulsed; such things cost money. Paying more to the farmers and workers increases the wage roll and thus lowers profit – thus there is no incentive for the board to pay a fair wage. Schopenhauer outlined three basic motives for action; compassion, malice and egoism.

But this moral theory is more than just a flawed analysis; it is an ideal. Man should be an individual looking after his own interest; let other people look after themselves. People are where they are through their own actions; the poor are poor because they did not try, those on state aid are dis-incentivised to get their life together. This inherently internal focused morality begets greed and egoism.

Karl Popper answered this objection to capitalism by pointing out that individualism and egoism need not coincide with each other, and that individualism and altruism are not opposites. He attacks Plato’s work and the works it inspired by equalling collectivism with altruism; the two run similar rhetoric. Is it possible to run an altruistic individualistic ethic? Not when there’s financial incentive in egoism, which is the behaviour capitalism breeds and needs.   

All ethics is an emulation of some sort of ideal role model. So what are the virtues of the ethical eudaimon of capitalism? Ambition, entrepreneurship, individualism, innovation and freedom. But this creates a problem; not everyone can be an entrepreneur, not everyone can run their own business – there needs to be a consumer class, and what are their virtues? In a capitalist society, they are greed and jealousy.

Where the consumer comes into the capitalist equation is with supply and demand. Demand means it is necessary to put the consumer in need; they are required to want, to be greedy and to demand at all costs. If people cannot afford things and do not consume, they are economically useless. This economic outlook transcends down so that socially they are useless. The capitalism society which a capitalist economy needs must be individualist in order for people to consume more, and more, and more, and then give them a credit card so they can consume some more. Capitalism requires consumers to have an insatiable demand for more. Or as Thorstein Veblen put it in Conspicious Consumption; “Unproductive consumption of goods is honourable”.

To sum up the ethics of capitalism; “greed is good” (Gordon Gekko). Capitalism needs greed, it needs people incentivised by their own financial gain to expand enterprises and create jobs and economic growth, and meanwhile it needs consumers to be greedy and insatiable for more goods. “The one who dies with the most toys wins” as an American bumper sticker said (un-ironically, unfortunately).

Is this really a good basis for society? There are very, very few idealistic ethical theories that suggest greed is a virtue (Ayn Rand is the eccentric exception, though Nietzsche comes close). Most people would argue that greed and egoism are not healthy; and yet here we are. Somehow in a system that needs the greed of individuals to survive. Even if one accepts that man is naturally greedy, surely that is a deficiency to overcome. But rather than being a human deficiency to overcome, capitalism just accepts it; man is greedy so deal with it.

Morality is subjective and does not really exist (we can get into a great metaphysical debate about what I mean by “is”, but that’s a different story). Some people believe capitalism is already “moral”, many don’t, and they both use the same argument; freedom. The neo-liberal perspective of freedom means the freedom of trade and of enterprise, the freedom from government intervention and the freedom to do what you want. The social democratic perspective of freedom is more like Franklin Roosevelt’s four freedoms; particularly the freedom from want and freedom from fear (the freedom from the fear of losing one’s job). On the one hand, to make capitalism “moral” it is necessary to change the ethics of capitalism, which would require regulation, and at the same time it is necessary to establish a definition of a “free society” to be idealised and attained.

To make capitalism moral means rewriting the rules – or actually establishing and enforcing the rules. This means regulation; the problem is that capitalists hate regulation and state interference; it’s inconvenient to pay minimum wage or follow health and safety guidance while competitors in India and China don’t. How dare the democratically elected government protect worker’s dignity and rights. Either this regulation must be international (flat out impossible), or the market must be restricted and shut off – either the British market or the European market. In either case, international free markets cannot be moral while different standards of what is ‘right’ and ‘responsible’ exist.

Can capitalism be moral? Only by massively changing it; more regulation, more limits, a shift in focus from shareholders to stakeholders, a tie between social responsibility and financial rewards, protectionism of responsible companies from financially successful ones, incentivise altruism, shift the focus from growth to jobs, moderation, a no nonsense approach to tax dodgers and an end to speculation. In short; ‘ordoliberalism’. Capitalism is more than an economic theory; it is a political and social theory as well and so it needs to start acting more responsible for the social and political implications. A moral capitalism will look very different to current capitalism.

The American Model: A European Dystopia

US Presidential hopeful Rick Santorum recently decried that the NHS brought down the British empire. Ignoring the questionable historical accuracy, this attitude is abhorrant. How dare he blast our system while theirs fails so badly, just look at the statistics. Unfortunately, his attitude is being praised and copied by many in the Conservative party  who just refuse to look at the facts (remember Hannan?); the current struggle is not just ideological, and not "class", but between facts established by statistics and blind ideology - the 21st Century equivalent to religion for some. 

A few posts back I mentioned the ‘Battle for Europe’, where Britain faces an invisible struggle between American neo-liberalism and European ‘welfarism’. Neo-liberalism, as run in America, follows the holy trinity of competition, privatisation and deregulation. These are the basis of the American model of education, health and security which emphasises individual freedom and responsibility; if you’re poor and cannot afford things, it is your fault and you must work harder. It is a model that puts the individual’s financial incentive as the only reason to do anything, a model where greed is not only good but natural; not something to be overcome but embraced.

While that model is what many Americans believe, or at least those in charge, what do we Europeans, or those dedicated to fairness and social justice, believe? Our aim is the elimination of poverty from society, and we believe that the redistribution of wealth and the equal provision of basic services is the best way to accomplish that aim. Education open to all, health available to all and equal security under the law for all not biased towards the wealthy. European values are incompatible with the American model.

There are three basic services which the state should provide its citizens; an education system, a health system and a security system which includes the police, the prison system and the armed forces – even neo-liberal idols from Rand to Hayek deemed the army as too important to privatise. There are plenty of other provisions for the state to spend on; housing, environment, agriculture and so on, but the three outlined above are the most basic necessities of life in modern society. These three systems cannot be privatised because they are so basic to a just society but also because their privatisation simply will not work according to both socialist and neo-liberal theory.

Privatised hospitals cannot work. A hospital cannot be run on the incentive of profit as no profit can be made from a hospital without charging patients ungodly bills. It is no secret that American hospitals have the best equipment, the best facilities and the best doctors, but that does not matter when 20% of the population cannot afford even basic healthcare. Compare it to the Model T automobile, often considered the best car, even the best invention, in history, a real landmark and defining moment. It was not the fastest car, or the most powerful, or was it the simplest. The greatness of the Model T was because it was the most available; that was its revolution. The exclusiveness of American hospitals, with operations and appointments bankrupt families and leave people in debt, is a burden to their society; heal the sick, not leave them in debt. Citizens are left with a painful choice; remain ill and or be in debt. Studies by Richard Wilkinson and Kate Pickett have found that life expectancy is unrelated to spending on health care in rich countries. More egalitarian societies are healthier. Even in global hospital rankings, the UK comes above the USA. But there is no correlation between the degree of privatisation and ranking; France is 75% publicly owned and ranks first, Spain second with 65%, UK somewhere near 15 with over 90%. The US health system does not work; profit can never be a stable or moral basis for a hospital.

The American education system is notorious, particularly its state education which keeps people in a cycle of poverty. Those who cannot afford anything other than state education wind up with poor academic records and live in poverty; there is very limited social mobility in the land of the free. If California was a separate country, it would be the seventh richest in the world, yet it has the second worse education records because whenever the state government introduce a tax the people vote it down. Low taxes equals low education attainment. Not to forget those schools who teach creationism and other potentially dangerous and unregulated material. Is this what we want for Britain? We may think £9000 a year tuition is outrageous; the Americans have it worse. Though they do have a scholarship programme, we are talking tuition in the tens of thousands. And also tuition for education we would expect to get for free. People are priced out of education; the affluent get the qualifications, thus the money. Despite its classless history and a theoretically open and mobile society, the education system keeps the wealthy at the top and the poor well below.

American prisons further exaggerate social ills and turn petty thieves into hardened gangsters. The American prison rate is comparable to China and the USSR, never mind Western democracies. The American prison system is the model which shows that harsh prisons are not effective; re-offence rates are sky high, crime is the highest out of the wealthiest nations, it creates a criminal underclass. Privatising the prison system means charging prisoners for use, that means that the market runs on maintaining tough sentences and a consistently high and increasing prisoner number. In Arizona this meant bribing judges to send people to jail. It also means charging people who often have no qualifications and are unemployable and already poor; totally inefficient.

The American model, the neo-liberal privatised model, runs on the incentive of profit. If there is no profit then there is no incentive for private investment; there is no market where there is no money to be made. Schools, hospitals and prisons are not designed to make profit; they are designed to help people, thus their privatisation makes no sense. The only way profit can be made is by the introduction of fees – tuition fees for compulsory education, fees for using hospitals and fees for prisoners, essentially a charge for getting sick and for leaving the straight and narrow. These people don’t need debt, they need help. Such fees put a price on necessity and maintain in effect an immobile class system; an underclass is created.

These are not the models to copy; they empirically fail in their task and do not work, they are counterproductive to that European ideal of a fair society. So can someone please explain why our government is emulating this model? It is not an ideological objection so much as a practical one; we are emulating failure. Blair says “it is not a case of two diverging paths”, well it is; American market driven, profit incentivised individualism or European decency and drive to help those in need. Competition or co-operation.

European values are incompatible with the American model, just as American values are incompatible with the European model. But it is more than just incompatibility; the American model does not work, promotes an unjust and unequal society and is morally rotten. Britain faces a choice; profit or decency. For a fairer society which we social democrats of all colours, from committed hard left socialists to advocates of the Third Way, fight for we must roll back the frontiers of the free market, unite with our European partners and send American marketism to the fire. If we are to have a healthy society we must shun the American model and fight against its implementation.

Robert Reich said in a recent article on Social Europe Journal (SEJ – go check it out); “Privatize” means pay-for-it-yourself. The practical consequence of this in an economy whose wealth and income are now more concentrated than any time in 90 years is to make high-quality public goods available to fewer and fewer.”

[Also check PES for various alternatives, including a “Change Europe” and “Regulate Financial Market Now” petitions. I know, online petitions are ineffective, but give it a go]

Robert Reich on US "private" model; http://www.social-europe.eu/2012/01/the-decline-of-the-public-good/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+SEJColumns+%28Social+Europe+Journal+%C2%BB+Columns%29&utm_content=FaceBook ]