Daily Archives: February 10, 2011

The welfare state is a good deal

The essentials of life are food, water, clothing, shelter, healthcare and a livable income in times when a person cannot work through want of a job, disability, illness or old age. Most people most of the time can afford to pay for shelter, food, water, heating and clothing from their private resources.  Most could not afford the rest of the essentials  and very few indeed could survive long term unemployment without state aid.

It is important to realise what small incomes the majority of Britons have. Take these figures from the Government’s Regional Household Income Comparison 2004:

“Inner London had the highest disposable household income (after tax) per head of population (£16,500) in 2004. The area continued the trend of previous years and in 2004 was 29 per cent above the UK average of

£12,800. This was lower than in earlier years. In 2000 it was 36 per cent higher than the UK average. Tees Valley and Durham in the North East had the lowest household income per head at £10,800. This was 16 per cent below the UK average in 2004.” (http://www.statistics.gov.uk).

The uncomfortable truth is that even the average disposable  British household income is insufficient to comfortably bring up a couple of children,  pay an average mortgage and make  substantial pension contributions.  Worse, much of the population has less than average household incomes, many very substantially less. But even those with household incomes substantially above the average – many of whom support the idea of private provision for those “who can afford it” – would find themselves deeply embarrassed if they did have to meet the cost of everything they now receive from the state.

To take a concrete example, that of a middle class husband and wife with two children with a net annual household income of £40,000. At present they can, if they choose, educate their children free at state schools.  The entire family can be treated under the NHS. Until they are sixteen, the children will not even pay prescription charges. If their children go to university, as they probably will being middle class, much of the cost of the education will still be met out of taxes (tuition fees even at their new levels do not come near to meeting the full cost of a university education). If either parent falls ill or is injured, the taxpayer will provide basic support.  The same applies in the case of unemployment. If  any member of the family isunfortunate enough to be the subject of a criminal assault, the Criminal Injuries Board will compensate them. The family will receive child benefit which is not a means tested benefit.

Just imagine what it would cost to either provide such services by buying them directly or through insurance if one could find an insurer willing to issue cover.  A decent private day school education would be at least £12,000 for two children and could well be a good deal more.  A university education would cost tens of thousands of pounds.

Private health insurance for a family to cover everything covered by the NHS cannot be obtained, but even the best that could be purchased – and it will provide a much inferior cover to that of the NHS – would cost several thousand pounds a year and will not cover existing conditions either at all or for several years – those who doubt this should check out the BUPA website and see what even their most expensive plan does not cover (you will get a very nasty shock). Drugs, including prescription drugs, will have to be purchased at their full cost.  If the family has a member with a chronic condition requiring regular  treatment  or a condition requiring  expensive  one-off treatment, they will soon find their private insurance will not cover the treatment  or will do so for only a restricted period.  Mental health problems and long term nursing care are rarely if ever adequately covered by private insurance.  Where private insurance will not pay,  the family will be left with bills which  at best will severely constrain their lives and at worst bankrupt them. (The most common cause of personal bankruptcy in the United States is medical bills.)

Private insurance for sick pay and unemployment pay is both very expensive and strictly limited in the time it is paid – a year is normally  the longest period covered. The same applies to  mortgage insurance cover. There would be no child benefit or criminal injuries compensation available without public provision.

If the cost of providing for the family is restricted to just  the items discussed above the family would be hamstrung by the bills even if no major disaster such as a serious operation hit them. A mortgage to purchase even a modest house in most areas would be out of the question. University education would become a very big gamble for the children.  If a major disaster did hit the family, they would not be able to cope for an extended period because any private insurance they could  purchase would soon run out.

The family I have described is by normal standards comfortably off. It might be able to struggle along provided it did not hit a catastrophe which robbed the household of its breadwinner(s) or an emergency such as a serious medical condition which swallowed up vast amounts of money, but it would not be a materially comfortable or psychologically secure family.  Most families (and individuals) have considerably less income than this fictional family and a substantial minority live on an income well below the average, while half the British adult population have no meaningful savings or occupational pensions. The large majority of the population would be utterly unable to provide for themselves in times of hardship such as sickness, old age and enforced unemployment.

Those who claim that all the poor in Britain are only relatively poor should reflect on this stark statistic: the latest Inland Revenue figures for marketable wealth distribution ( 2002) show the top 1 per cent own 23% of national wealth and the bottom fifty per cent of the population have a staggeringly small 6% (Office of  National Statistics (ONS) website – published 2004).

In short, the majority of the British population live as they have always lived:  from one pay packet to the next.  They do not have the resources to withstand the withdrawal of state provision and are very vulnerable to  the competition of immigrants and offshoring,  which either destroy their employment or reduce their pay.

What applies to what might be termed social provision applies to all other public charges – such as defence, policing and  the justice system. Most individuals do not have to bear the full cost of these because they pay far less tax, direct and indirect,  than is needed to finance a per capita share of total public expenditure.  A quick calculation will demonstrate this. The projected public expenditure for 2006/7 is £488 billion.  There are approximately 45 million adults in Britain. £488 billion divided equally between them runs out at nearly £11,000 per adult head.

The future is even bleaker because of the absurd cost of housing, the rising cost of a university education and the likely high cost of energy and water supplies. There are even suggestions in current price movements that cheap food may be a thing of the past and the price  of manufactured goods from China and its Asian cohorts is also showing signs of inflation as their populations’ wages and living standards rise and they consume more of what they make.

The effect of everyone “paying their way” just for things such as education and healthcare would have a severely depressive effect on already dangerously low Western breeding rates as people had fewer children because of the increased costs falling on the individual.

The moral value of general provision

If public provision is necessary should it be available to all? Why should it not be granted only to those who through a means test show that they cannot support themselves from their own resources?  The answer is threefold: personal dignity, practicality and the engendering of social cohesion.

Anyone who has had the misfortune to claim means tested benefits  or who has assisted someone to claim will know what a frustrating  and degrading experience it can be.  The rules relating to claiming are Byzantine  in their complexity and a simple error on a form (which can run to 20 pages or more) can result in benefit being withheld or delayed.  But even when the forms are correctly completed and the criteria  for the benefit are met,  the delivery of the benefit is frequently  seriously delayed because the  volume of claims  and their  complexity simply overwhelms the administrative capacity of the public servants dealing with them.

If all public provision was means-tested, including NHS treatment and education,  the administrative cost would be massive and  the efficiency of the delivery of the provision  greatly reduced.  The additional administrative costs would have to be set against any saving gained by denying provision to people.

General provision also underpins social provision. Where all  are eligible, all feel that they have a stake in the Welfare State. That improves social cohesion.  Exclude the better off and the odds are that eventually  political circumstances will arise which allow those with the power to reduce or even destroy utterly public provision.  At best, if social provision is seen as only for the poor, it will gain a stigma  and the quality of the provision will be of little or no account to those who do not benefit from it.

The provision of public services gives everyone rich or poor  the assurance that if the worst comes to the worst they will not be utterly without the means to live.  That is the bottom line of having the privilege of being a British citizen.

Apart from simply making life more pleasant and secure, a socially cohesive society  has considerable cost benefits, because it will experience  less anti-social behaviour. That translates into fewer police, fewer trials, fewer people in prison and, indeed,  fewer laws to moderate social behaviour to administer – regrettably many laws are passed in response to moral panics.

Why should the haves pay for the have-nots?

The most obvious reason for not allowing anyone to opt-out from that part of taxation which is devoted to public provision is that no one can be absolutely certain that they will not meet some calamity in the future which will leave them unable to pay. The experience of medical care in the USA shows how easy it is even for the rich to find their wealth shrinking to a point where they cannot get all the treatment they need – the Superman actor, Christopher Reeve, one of the highest paid Hollywood actors,  found his resources exhausted within a few years of suffering the injury which paralysed him.

But there is a more subtle reason. The wealthier members of society should  always remember that they owe their privileged position to  the restraint of the have-nots and the power structures  of society which are overwhelmingly weighted in favour of the haves. Individual  effort and talent do of course play a significant role

in  the lives of everyone,  but it is also true that most people’s lives are to a large degree determined by the circumstances of their birth. If you are born into a wealthy family, the odds are you will live  the life of the wealthy throughout your life. A person born into poverty will probably remain at the bottom end of the social spectrum.  The same applies in varying degrees to those born between the top and bottom of the social pile.

No one needs academic studies to prove the truth  and potency  of inherited advantage. All people require is the evidence of their own experience. Let any man examine the lives of all those he knows  and he will find that most will occupy a similar social position to their parents.

A simple  way of understanding how much inherited social position determines lives is to consider crime. Proportionately,  the working-class  commit crime much more often than the middle classes (and even within the working class the frequency of offending rises with the degree of poverty).  That cannot be because the working class  are innately less able, intelligent or self-controlled, because we know that many of the middle class are also dim, incompetent and socially inept, yet they rarely end up with a criminal record.

The only plausible explanation for the greater criminality of the working  class can  be  their different  material  and  social circumstances. These  are much more precarious than those of the better  off.  They lack money and the social network which eases access to better jobs, while the opportunities to intellectually develop that are commonly open to the middle class are denied them. Give every person the means to live a middle class life and crime would drop  dramatically  simply because the press of  material necessity would not be there and because the alienation of the poor through being poor would have been removed.

The better-off also need to admit to themselves that there is no moral basis for inherited wealth. The person who inherits  money and possessions has by definition done nothing to earn it. The person who earned the wealth,  if it has been gained through moral means – and often wealth, particularly great wealth,  has not been so gained -has a moral right to it, but no one else.  The same applies to non-material advantages such as social connections.

There are, of course, those who attempt to treat inherited wealth as a moral matter. They claim that a person has the right through the consequence of ownership to pass on what he or she has  to whoever they choose. That, of course, begs the question of how the wealth was obtained. But let us assume it was achieved entirely morally and by the direct efforts of the person – the best possible case for the supporters of inherited wealth.  Even in that instance the effect of the transfer of wealth to others is to  create a situation which is manifestly unfair, namely, the establishment of privilege for someone who has done nothing to earn it. Taken at the level of a society, that rapidly results in a permanent class privilege for the haves and their descendants.  The fact that the development of hierarchies is  an inevitable consequence of human society is neither here nor there when considering whether the consequences of a hierarchy is moral. Clearly  the deliberate disadvantaging of some to the advantage of others is  not a moral act, any more than enslaving a man is (the group now living who have by far the greatest moral claim to reparations are not the descendants of slaves but the descendants of the poor).

The American philosopher John Rawls in his book A theory of justice resurrected the idea of the social contract which was much in favour in the 17th and 18th centuries.  He posed, in so many words, the question “Suppose a group of people were to form a society from scratch, what society would they favour if each person knew nothing about the other people and had no idea where they personally would fit, socially  and economically, into the society?”  He concluded that the only rational choice would be one in which people had equality because no rational man would chose an inferior position for himself  and no agreement would ever be reached  which created an unequal society, whether in terms of social status, rights and duties or material circumstances. Note that Rawls did not rule out a man or woman choosing an unequal state -  some might do so thinking it would be worth the gamble to have a chance of gaining one of the favoured positions in an unequal society – he merely thought that it would not be a rational or normal decision.

Although Rawls’  hypothetical state (“The Original Position”) was not realistic, his thought experiment does demonstrate that what we have now as a result of the organic development of society is not what many, if any, would risk for themselves if they had the choice Rawls’ offered them.

Why not take away all inherited wealth? All of historical experience shows that such a cure is worse than the disease. Where the state controls (at least in theory) the totality of people’s lives, such as in the Soviet Union, the consequence is privilege and abuse not by the possession of money but by the wielding of state power.  There is also something peculiarly degrading about the idea that everything a person does is to be ordered and permitted by the state.  A degree of private wealth is a bulwark against state power. The trick is to ensure that wealth does not become too concentrated in the hands of the few, producing an uncaring and oppressive plutocracy.

As for the wealth which individuals create for themselves,  to tax to produce material equality would plausibly have a deleterious  effect on society generally. If a person is not to benefit from their own legitimate enterprise, why should they bother to make any extra effort or take risks? The obvious answer is they have no incentive to do so. However, that is to take to nakedly a material view of humanity. Even in circumstances where what someone did had no effect on their income, people would vary considerably in their willingness to work regardlessof the material outcome because personalities differ and there are rewards other than material ones such as the approval of others and celebrity.  Nonetheless,  it is reasonable to assume  from  the experience of communist societies that the overall effect would be to substantially reduce the individual will to work and take risk.

Of course, absolute material equality is improbable in any society, but the disincentive effect applies incrementally as the personal tax burden grows.  Once tax reaches a certain level people either work less or become dishonest and evade the tax. That applies not only to the obvious case of the entrepreneur but  to jobs generally, for people will be generally disinclined to take the more demading jobs if  the material rewards they offer are not significantly better than those for unskilled and easy employment.

It is also true that Man being a social animal will always form hierarchies because social animals necessarily organise themselves in that way (if they did not, sociality would never arise because the members of a species would be in constant antagonism to one another and could never reach the point of sociality).  Even if all material advantage was removed there would still be  the advantages and disadvantages of genetic inheritance, the differing qualities of  individual parents and pure accidental circumstances, such as the work available at a particular time and place, to create a socially layered society with patterns of dominance and dependence.

But  that does not mean that societies should simply be allowed to develop  without any state intervention to ameliorate  socially determined disadvantage.  Without social provision  of necessities the poor are left to live hopeless  lives which  struggle from day-to-day,  while untaxed or very lightly taxed wealth of the most successful results in a plutocracy within a few generations.

Plutocracy at best produces wider private charity – which is always inadequate -  and at worst an uncaring attitude towards the masses which sees nothing wrong in allowing them to starve if that  is a consequence of the economic circumstances of the society and times or even simply God’s will.  Plutocracy is in fact one of the most oppressive forms of society and one of the most difficult to end because it cunningly  presents itself as being the society  of individual opportunity (“the Ritz is open to all”) and is not nakedly oppressive in the same way that, say, Nazi Germany or Stalin’s  Russia was oppressive.  Consequently, there is no obvious focus for  discontent, no single hate figure and it has a much greater enduring power than an overt dictatorship.

What a society can safely do to narrow the  differences in life chances  at  birth is to act to ensure that all have access to education, healthcare and the means to live in a decent manner. That is the minimum.  A society can go further with the greatest public resources being directed at those in the poorest circumstances, for example, more money for schools in “sink” areas.  It would even be possible to devise a scheme for those who inherit little or  nothing by way of money or possessions to receive a payment from the state to remove to a degree the disadvantage of inheriting nothing.


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