Crisis? What Crisis? The Future of the Welfare State
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Don Gray
Senior Manager
Social Policy Agency
Introduction
Much of the literature and debate about the welfare state since the early 1980s has discussed whether or not the contemporary welfare state is in crisis. It is not surprising then, that much of the discussion at the recent conference, held at Alton (just out of London) on the "Future of the Welfare State" considered the nature of that crisis. Other issues debated at the conference included the likelihood of welfare states emerging in the developing economies, the challenges of an aging population, and the changing nature of institutions in welfare. These subjects are not developed in this review.
The Conference
I was fortunate to attend the conference, from 21 to 29 January, organised by the 21st Century Trust which involved nine key-note speakers, (mainly academics, ranging from sociologists to economists, to public management experts) leading seminar sessions, followed by workshops/study groups.
The programme was brought together by Senior Fellow Martin Jacques, journalist and founder of a non-political think-tank "Demos". The 25 conference participants ("fellows") came from Europe, Asia, Africa, America and New Zealand. Their backgrounds ranged from public servants, "Eurocrats" and health service professionals, to politicians, journalists and merchant bankers. We had many and varied differences, but the one thing we held in common was an interest in welfare or the welfare state.
The conference was very European in emphasis, but most of the issues raised are of much wider interest. The value of an international gathering was that many of the developments in participants' home countries were able to be added to the analysis.
The History of the Welfare State
In examining the possible shape of the welfare state as it moves into the next century, it is useful to examine its history. For the purposes of most of the discussion at the conference, the welfare state was taken to refer to public programmes in the areas of health, income transfers, education and training (and some other labour market programmes), social welfare services, and housing.
Several of the Conference speakers looked at the origins of the modern welfare state, essentially reviewing the three models developed by Gosta Esping-Anderson:
- Liberal: tax funded, where heavy reliance is placed on targeting to low income earners, with strict entitlement rules. New Zealand fits into this model;
- Corporatist: contributory systems involving employers and employees. There is not universal coverage, as this model relies on individual contributions by employees. The "traditional family" is an important element in this model. Germany and Italy follow this model;
- Social-democratic: based on universal, generous provision. Emphasis is on high quality and universal coverage. Scandinavia has had the most developed social-democratic welfare states.
Hilary Land (Professor of Social Policy at the University of London) prefers the typology developed by Titmus to characterise welfare states, because they distinguish between the fundamental values behind the different types of welfare state, rather than focusing on particular features. Titmus see the following types of welfare state:
- Residual: the state helps out as the last resort, market and family provide first. New Zealand is an example;
- Industrial Achievement: welfare is seen as important to industrial development. Germany is an example;
- Institutional Redistribution: welfare is seen as a means to reduce social divisions, in order to transform capitalism. Sweden is an example.
Land reviewed key events influencing the development of welfare states in Europe. She focused on the times of crisis which stimulated major change in how society, the economy and the state functioned: political and social turmoil in the 1870s (and the instigation of Bismarck's social insurance plans), the new "liberalism" in the United Kingdom in the period prior to the Great War, political chaos in parts of Europe between the Wars, the Great Depression and of course the Second World War.
Jacques considers that the debate about the crisis of the welfare state needs to be set in the context of the expectations of the welfare state in a post-war, modern liberal democratic state. He considers that there has been general consensus since the Second World War that the welfare state has existed in order to contribute to a more humane form of society.
If these shaped the birth of the European welfare state in the 1940s, Land suggests that the implications of changes since then need consideration too. Looking at Britain as an example, in the 50 years since Beveridge reported and the welfare systems were implemented, the UK has shed its Empire, turned to Europe, faced major economic crisis in the 1970s and seen the economic de-regulation of international economic systems.
The Crisis
All commentators agreed that the welfare state in general, irrespective of type, has been seriously challenged since the mid-1970s, and has been in or near crisis. Where the speakers at the conference parted company was in their analysis of the causes and likely or preferred outcomes of those crises or challenges.
Much of the discussion about the welfare state in crisis has considered a fiscal crisis. Debate has proceeded along two lines. The first is that the fiscal crisis can be resolved by making adjustments but that the welfare state can be sustained. The second argues that the welfare state has seen its day. Arguably it has had its merits, and achieved some important goals, but the welfare state is essentially too costly. It has failed to be sustainable.
Fiscal Pressures
If the crisis is a fiscal crisis, it is reasonably well agreed just what has caused it:
- the aging of the population;
- increasing life expectancy (related to health developments and technology); and
- the reality of significant and long term unemployment.
In the New Zealand situation, we know that the post-Second World War baby boom generation will start retiring early next century, and that birth rates have fallen since the early 1960s, meaning that the generation of workers to follow the "baby-boomers" will have a bigger struggle to support the cost of their parents in retirement.
On top of this, older people are living longer. For many this means a longer period in retirement being supported by retirement plans, including New Zealand Superannuation. As the number of "very old" people increases, so too does the likelihood that they will require more than just income support.
If the working age population is to support the retired population, as well as nurture the next generation of tax payers, they need to be reasonably economically active themselves (i.e. a good proportion in paid employment). Until the early 1970s New Zealand's welfare state had not had to support a significant number of unemployed workers. Official unemployment was rare, and of short duration. However, we are now experiencing significant long term unemployment, as is every other welfare state. This has a double cost: unemployed people draw resources from the system for their support, and they are unable to contribute resources to support the growing population of older people.
One View: The Fiscal Crisis Can Be Resolved
John Hill, Co-Director of the Welfare State Programme of the London School of Economics, disputes the argument that the welfare state is collapsing under its own weight. He has focused on the cost of welfare in the United Kingdom, examining changes which have or could be made to reduce the cost of the welfare state without undermining its fundamental ability to fulfil the role of ensuring a more humane society.
Hill differentiates the costs of various components of welfare by age group. The bulk of education expenditure falls to the under 25 age group. Health is concentrated mainly on costs at birth and for older people. The bulk of income transfers go to the retired population. Looking forward to the population structure of the next century, Hill concludes that the growth rate required in the United Kingdom to fund increased costs of welfare is not unmanageable, provided that some modest changes occur in the meantime. By his analysis, welfare expenditure in the UK represented 25% of GDP in 1981 and, after changes already made, fell to 22% in 1989. He suggests that a growth of 5% is required to fund the welfare system in 40 to 50 years time, taking the total cost to 30% of GDP. Given that this level of expenditure has been sustained in other economies, he argues, it should be manageable in Britain, and therefore concludes that there is not a fiscal crisis.
Hill suggests that the same conclusion is less likely to be made in social-democratic, or corporatist welfare states, or where the demographic profile shows a greater aging of the population than is projected in Britain. However, he suggests that there are areas for concern even if welfare is fiscally sustainable. These relate to the long term effects on social cohesion if changes made to the welfare state lead to growing disparities within society, and the risks of growing long term welfare dependence.
An Alternative View: Welfare is not the Solution, but the Problem
Professor David Marsland, Director of the Centre for Evaluation Research at Brunel, argued that of course welfare is in crisis because it is a fraudulent concept. It is fraudulent in that it "has from the beginning systematically deceived the people into expecting something for nothing, as of right" (1994). Even if the fiscal problem could be resolved, welfare needs major reform. However, he considers that such reform is unlikely to occur because any fundamental challenge to the concept of the welfare state is politically unacceptable.
Marsland sees the welfare state as requiring reform because:
- the concept is confused: a safety net for some; a stage on the road to socialism for others;
- it is not needed, because the standard of living and quality of life have been improved in post-war years, and persistent poverty no longer exists. The fruits of economic progress means there is less need for welfare;
- it cannot be afforded in terms of international competitiveness, the tax burden and the impact on incentives;
- it does not work because much of the tax collected to fund the welfare state is recycled to the people from whom it is collected, and those who really need help get too little, in demeaning conditions; and
- it causes dependency and destroys families.
The solution to the problems of the welfare state, according to Marsland, can be addressed by letting the market service the needs of the majority. There is a greater place too for new institutions, including voluntary and market welfare.
Marsland refuted arguments in support of the welfare state:
- in terms of being a social investment, the stance that if the state does not invest, no one will, is not sustainable;
- that the state provides welfare effectively or efficiently is not plausible;
- that welfare is not important in terms of social solidarity, because such solidarity has not been derived from welfare, and there are other ways of ensuring it.
Not surprisingly, this speaker's presentation was one of the most colourful, and provoked the most heated responses.
Interestingly, while he criticised fundamentally the existence of the welfare state, Marsland recognised that there is a residual role for the state, and he outlined a "National Special Assistance Programme" which would ensure that no one starved. The features of such a scheme are worth noting. Assistance would be provided on the basis of need, not right; it would be temporary; set at minimal levels, with use of loans; require some effort in return, and be locally set and run.
So, in reality, even the harshest critic of the welfare state to speak at the conference saw a legitimate role for the state in Welfare.
Widening the Debate
The Conference debate was strongly influenced by closely related lines of argument developed by Martin Jacques and John Urry (Professor of Sociology at Lancaster). Jacques sought to explore more critically just what sort of "crisis" all the talk is about.
A Different Society Fifty Years On
Jacques suggested that the fiscal question is not the key issue, that there may be a much more fundamental crisis which relates to the nature of "the state" and citizenship, as much as the nature of "the welfare state". This crisis of state is the result of a number of significant factors.
One is a loss in confidence in national political institutions. Jacques cites opinion polls carried out in various countries which show that a majority of people would be prepared to pay more in taxes if they were to secure improvements in welfare services. However, the polls also show a distrust of politicians in spending increased revenue on those services. Similarly, politics is a different entity. More people are politically active outside of the structure of the party political system than was the case in 1945.
A further factor is that the political economy of the post-Cold War world will, according to Jacques, make the consensus which existed about the welfare state for nearly 50 years more difficult to both achieve, and to maintain. At the same time, the emergence of the "Asian Tiger economies" – with different approaches to welfare and the role of the state – represent new economic models which are challenging traditional western concepts and patterns.
The homogeneity of societies in 1945 has been replaced by heterogeneity, as a result of factors such as migration, the decline of traditional religion, and pluralisation of institutions from the family to employment. The nature of the state has not been immune from change either, with changed perceptions about what the state is able to do, or is good at (the shift from provider to regulator), with increased emphasis on accountability and efficiency.
He suggests then that the goal of ensuring a more humane society is increasingly likely to be fulfilled by the rise of a new form of civil society, where the state plays a much reduced role.
Globalisation
Urry follows this theme of the declining influence of the state, suggesting that globalisation means that states can no longer govern as they once did. National policies, he suggests, are giving way to global governance.
The flows of people, goods, capital, information and media are no longer within the control of the state. The various forms of transnational government limit national governments further. (In Europe, the creation of the European Union has led to national governments having to change their policies in order to conform to EU laws). This is fundamentally altering the notions of sovereignty.
So what does this mean for the welfare state? For a start, increasing numbers of people may not pay taxes in the one country, and many will feel little or no allegiance to the fellow tax payers of the country of current residence. (Remember, the Europe Economic Community has open borders to citizens of member states). Urry and Jacques argue then that people will be less prepared to pay tax at a national level, where they have little say, but may become increasingly interested in the provision of services within their community or locality. Expect to see more devolution and decentralisation. Expect to see increased struggles by local groups for a greater say over running local facilities.
At the same time international standards or rights and regulations will govern both expectations and requirements. This localisation and globalisation will squeeze the state. The slogan "Think Globally, Act Locally" sums up the pressures which they see the state coming under.
Relevance to the New Zealand Setting
Clearly the fiscal debate over the welfare state has been as relevant to New Zealand as elsewhere. We rank among the countries which have taken action in the areas of health service re-organisation, retirement income re-arrangement and education reform. We have gone further than most in re-structuring government, and limiting the costs of certain types of welfare programmes.
The debate about whether we have gone too far, not far enough, or are missing the point, is as vexed here as elsewhere (as any review of an Easton article read alongside the Business Round Table analysis will attest). However the debate in New Zealand is less rich – a function of size.
In respect of the wider debate sponsored by Urry and Jacques, it is as well to note that they live in the European setting. That setting differs considerably from New Zealand's. We have no equivalent to the European parliament. We are not a populous country with neighbours we can tunnel to, who share similar cultural histories, where we have free access to their labour market. While CER and our relationship with Australia does give us privileged status across the Tasman, the combined New Zealand/Australian economy is small by European standards. Therefore the New Zealand experience of globalisation differs significantly from that of Europe.
However, there are still interesting common factors which lead to questions about the extent to which the state is being forced to change.
We have seen the re-configuration of the state, with the State Sector Act, public health, and education reforms introducing new actors to the field of managing, funding and providing services.
New Zealand society does share in the trend towards pluralism rather than homogeneity. Families, employment and communities have changed and diversified. Institutions are also changing. Even before the advent of MMP we have seen considerable decline in the mass political party, and the rise of small, politically active issue groups, often locally based. However, the development of iwi as alternative deliverers of both welfare and other services, and the emergence of the Treaty of Waitangi as an important consideration in terms of our social and political development represents an aspect of New Zealand society which does exist in Europe.
Conclusion
The debate about the future of welfare state, when viewed from foreign shores, is broader than that which we are used to. To begin with, our welfare state is a model not shared by many. Wherever you have a contributory scheme, you have a range of additional issues and problems, related to collection of contributions, management of funds, and coverage of non-fund members. However, the challenges we face, and many of the strategies, are similar to those recounted at the Alton Conference.
All welfare states are facing tough times planning to meet greater levels of demand than originally anticipated. The fiscal issue is topical, but perhaps more fundamental are the implications arising from the changing nature of society (different cultures, family types and employment experiences). Watch with interest to see if and how the most generous welfare states tackle this.
However, perhaps the more interesting viewing within Europe will be to see how the European states develop their welfare systems in the coming years to meet the needs of a united Europe, where the authority of the state is very much debated territory.
