With Labour voting for the government’s bill to cap welfare spending, the debate on the welfare state has taken a decisively wrong turn. The issue is not the cap itself, its level, or even its design. The problem lies in the very way in which the welfare state is understood.
Even if one accepts the need for the cap, there are many problems with the way in which it is designed. Many people have rightly pointed out that the capping scheme is not as “recession proof” as it is portrayed. One defence of the bill offered by the government – and accepted by Labour as the key justification for its support – is that it exempts “cyclical” spending, such as unemployment benefit (now given the Orwellian name jobseekers’ allowance). But there are other elements of welfare spending that increase in economic downturns that won’t be exempt. For example, recessions may increase the need for disability benefit because more people are incapacitated due to the psychological and physical impact of unemployment, poor diet, and lack of heating.
Important though these criticisms are, the biggest issue is the very way in which the “problem” of the British welfare state has been defined and understood. The cap is based on the view that the UK needs “to prevent welfare costs spiralling out of control”, given the wasteful nature of such spending. This is not backed up by the evidence.
The British, having supposedly invented the modern welfare state (a debatable proposition), have the mistaken notion that they have an exceptionally generous welfare state, as evidenced by the widespread worries about “welfare scrounging” and “welfare tourism”.
However, measured by public social spending (eg income support, pensions, health) as a proportion of GDP, Britain’s is not much bigger than the OECD average; 24.1% against 22.1% as of 2009. And the OECD includes among its 34 members a dozen or so relatively poor economies – Mexico, Chile, Turkey, Estonia and Slovakia, for example – where the welfare state is much smaller for various reasons (eg younger population, weaker parties of the left).
Even when it comes to income support for the working-age population – the element targeted by the new bill – the UK is not a particularly generous place. In 2007 it spent 4.5% of GDP for the purpose. This was only slightly above the OECD average (3.9%) and way below other rich European economies: the figures were 7.2% for Belgium, 7% for Denmark, 6% for Finland and 5.6% for Sweden.
And it is not even as if the need for social spending goes away if you reduce the welfare state. For many British supporters of a smaller welfare state the role model is the US, which has a very small welfare state (considering its level of income), accounting for only 19.2% of GDP as of 2009. However, it has a huge level of private spending on social expenditure, especially medical insurance and private pensions, which is equivalent to 10.2% of GDP. This means that, at 29.4%, the US has total social spending that is almost as high as that of Finland, which spends 30.7% of GDP on it (29.4% public and 1.3% private). Moreover, if the cost is “spiralling out of control” anywhere, it is in the largely private US healthcare system, thanks to over-treatment of patients, rising insurance premiums and soaring legal costs.
Most importantly, the view that social spending is wasteful needs to be seriously challenged. The frequently used argument against the welfare state is that it reduces economic growth by making the poor workshy and the rich reduce their wealth creation, given the tax burden involved.
However, there is no general correlation between the size of the welfare state and the growth performance of an economy. To cite a rather striking example, despite having a welfare state that is 50% bigger than that of the US (29.4% of GDP as against 19.2% of GDP in the US, in 2009), Finland has grown much faster. Between 1960 and 2010 Finland’s average annual per capita income growth rate was 2.7%, against 2% for the US. This means that during this period US income rose 2.7 times while Finland’s rose by 3.8 times.
The point is that the welfare state – if well designed and coordinated with labour market policies to re-train people and get them back into work – can encourage people to be more accepting of change, thereby promoting growth. Firms in countries such as Finland and Sweden can introduce new technologies faster than their US competitors because, knowing that unemployment need not mean penury and long-term joblessness, their workers do not resist these changes strongly.
Most American workforces are not organised and thus incapable of resisting technological changes that create unemployment – but the minority that are organised, such as the automobile workers, resist them tooth and nail because they know that if they lose their jobs, they will not even be able to afford to go to hospital, and will find it extremely difficult to get back into the labour market at the same level.
The British debate on the welfare state needs to be recast. The false premise that the country has a particularly generous welfare state whose cost is spiralling out of control needs to be abandoned. The structural factors driving up welfare costs, such as ageing, should be accepted – rather than denied and so putting undue pressure on other elements of social services.
Above all, the debate should be redirected into reforming the welfare state in a way that promotes structural change and economic growth.
Source – Welfare News Service 28 March 2014
> A masterful summing-up of the UK today…
Scaremongering and celebrity obsession ensures the true picture of life in the UK remains forever obscured, writes Joyce McMillan
It’s never a good idea to fly into a rage in a public place; but there it was, a provocation so absurd and extreme that fury seemed the only sensible response. It was a magazine cover, lovingly displayed in a shop in central Edinburgh a few weeks ago; on it was a picture of Kate Middleton, the Duchess of Cambridge, with a caption that read, “Not only the woman of the year, but the woman of the century.”
No-one seemed to find this odd, even though the century has barely begun; no-one was objecting, at least in public, to the idea that the perfect role-model for a generation of young women, struggling to earn more than £7.50 an hour, is a woman whose career suggests that the world is your oyster, so long as you can arrange to be born rich, to marry into the royal family, and to devote all your energy to standing around looking silently pretty in weirdly old-fashioned clothes.
And although the bizarre values of the celebrity magazine that published this cover might seem a far cry from the current debate about the UK economy, and the strange “recovery” it is now experiencing, it seems to me increasingly clear that the nation’s tolerance for the economic policies to which it has been subjected since 2008 is somehow bound up with the hallucinatory extremes of celebrity culture that now pervade our national life, inviting people to empathise not with themselves and those around them, but with the rich and famous.
This week in the House of Commons, the Tory benches could be heard roaring with joy at the news that British economic growth has returned to the heady level of 2.4 per cent a year, and that unemployment has dropped to just over 7 per cent. And when Ed Miliband tried to point out that this “recovery” is not much use to an average British earner whose real income is still £1,600 a year lower than it was in 2008, he was literally shouted down, by Tory MPs hysterical with triumph at the news that their beloved financial sector is once again growing by leaps and bounds, promising ever more lavish times for their friends in the City.
Ed Miliband is in the right of the argument, of course, so far as the current round of statistics are concerned. As a TUC report released on Monday made clear, the current increase in economic activity in Britain is mainly confined to London, with unemployment still actually increasing in the north-east and south-west of England. 80 per cent of the new jobs created since 2010 are in sectors where the average worker earns less than the living wage of around £7.95 an hour. Many of those “in work” are on poverty wages, and are being forced to work part-time or on zero hours contracts.
And astonishingly, the government actually includes in its “in work” figure the large number of people – more than a million, since 2010 – who have been forced to work for nothing, either in unpaid internships, or as part of the government’s own workfare scheme.
The truth about Britain, in 2014, is that ours has become a low-wage, low-output, low-productivity economy, with chronic under-employment and little job security, and with economic growth driven only by increasing household debt; indeed it would be interesting to know what proportion of the current upturn is directly related to the recent development of yet another London property bubble, supported by the government’s generous help-to-buy subsidies to those already on the property ladder.
If this is the real story of what’s happening in the British economy, though – a steady corrosion of ordinary workers’ earnings and benefits as a share of the national wealth, all designed to pay for a deficit almost entirely caused by the banking crash of 2008 and the subsequent bailout – it is not a story that most people have ever heard. The controlling narrative, as we all know, is the one about how the financial crash was caused by excessive public spending and an over-generous benefits system; the one about how we were all “living beyond our means” and have to pay the price; the one about how blaming rich bankers for the crash they caused, or expecting them to change their behaviour, is pointless and immature; the one about how migrants and benefit scroungers are the problem, and attacking them will provide a solution.
And it’s not difficult to grasp how this desperately skewed account of reality – actually false at every point – meshes with a television schedule that ranges neatly from Benefits Street to Strictly Come Dancing, offering viewers first a precisely-chosen group of underclass hate-figures, then a sustained orgy of identification with a series of celebrities; it’s a perfect, instinctive symphony of elite ideology, designed to divide ordinary people against themselves, and so to continue to rule.
All of which is elementary stuff, of course, for any boss class facing troubled times; distract the people by hatemongering and scaremongering, provide enough glitzy distractions and royal events, convince them that economic problems are just symptoms of personal moral failure – and hey presto, you can fool most of the people, almost all of the time.
And this time, too the tiny elite who are now trousering an ever-greater share of the world’s wealth have a peculiarly strong advantage, in that there is almost no organised resistance; just the odd protest, a brief and disparate occupy moment, and a steady thrum of dissent from the beleaguered trade union movement, which is about to become the main victim of the fiercely authoritarian Lobbying Bill currently passing through Westminster.
The idea that there is no alternative to George Osborne’s tired 1980’s neoliberalism may be intellectual and historical nonsense, in other words, disproved by the very breath of history, here in Britain and elsewhere.
Yet unless those of us who oppose his world-view begin to unite, to organise, to start arguing out a more truthful and compelling narrative in every workplace and community on the planet, our chances of challenging this new age of extreme inequality will be slim indeed; as slim as Kate Middleton’s tiny waist, and – in the eyes of a bamboozled generation – not nearly so glamorous, so interesting, or so important.
Source – The Scotsman, 23 Jan 2014