Trevor Mallard excerpts this announcement about the UK Labour Party rethinking their approach to welfare:
Labour is calling for a radical rethink of the welfare state, arguing that the benefits system has betrayed its founding principles and “skewed social behaviour”.In a significant redrawing of Labour’s position on welfare, the shadow work and pensions secretary, Liam Byrne, on Tuesday argues that the ballooning of the
system has provided support that is unearned, and mislaid the original ideal of providing help to those that contribute.
Heralding a series of speeches over the next few months designed to mark out new territory for Labour, Byrne claims the party must recast the welfare state to meet the original intentions of its founder, William Beveridge.
I read a few chapters about Beveridge in a history of modern Europe a few years back, so I consider myself something of an expert on the subject. And yes, we have moved away from the original intention of Beveridge’s approach to social welfare – which was a full employment policy. His vision of the welfare state was that everybody got a job, there would be minimum unemployment while people transitioned between jobs, so you could afford a generous welfare system to support that tiny number of people.
The way governments did this – both in the UK and here in New Zealand – was that the state owned various labour intensive industries and hired people that weren’t employed in the private sector. Both countries stuck with that model until the 1980s when Thatcher came to power in the UK and Douglas and Lange corporatised and/or sold the NZ government owned forestries and the rail-roads, and all the surplus workers were sacked, which destroyed many of the country’s provincial economies overnight.
Part of the justification for these actions were the economic arguments that full employment policies aren’t a good thing. They lead to market distortions, they can be inflationary, they decrease labour market motility. A healthy economy has a fluctuating employment rate responding to economic conditions.
And these might all be true – but the reality is that scrapping the ‘full employment’ half of Beveridge’s welfare platform led to massive unemployment, both here and in the UK – that’s when the welfare system first came under criticism for being unaffordable. The party that reneged on the social contract around employment and welfare was the state, not the workers.
Anyway, for a while the new consensus was that we need a certain degree of unemployment so we need an unemployment benefit, because it isn’t fair to run an economy which benefits from unemployment but consigns the actual unemployed to lives of starvation and abject misery.
There are two problems with this arrangement. The first is that the unemployment created by Douglas/Thatcher wasn’t temporary or transitional – it was structural. The unemployed people in the regions most effected by their policies didn’t retrain or move – because there weren’t any jobs to move for, and this unemployment became inter-generational, with associated social problems – and the economy didn’t get the benefits of having a pool of unemployed workers, it just got the cost.
That’s the second problem. How do you pay for the welfare state? Most centre-left parties – including the New Zealand Labour Party under Clark and Cullen – adopted ‘the Third Way’, a term popularised by Tony Blair. The idea here is that the wealth creation from a deregulated free market economy provides enough tax revenue to fund a generous welfare state.
The problem with that is that unregulated free market economies are prone to catastrophic collapse (or, if you prefer, ‘creative destruction’): when this happens the state needs to step in and prevent the destruction of key industries like banking and finance, its revenues decline dramatically, and at the same time the cost of the welfare system rises sharply. The government can’t borrow to stimulate its way out of a recession because it’s already borrowing to prop up the financial system and meet its current welfare spending commitments.
Realistically I doubt UK Labour’s concern about welfare is driven by any of these considerations – their problem with the welfare system is that the Conservative Party ‘owns’ the issue of welfare, and that the UK public is just as excited by beneficiary bashing as the New Zealand public, so they want to inoculate themselves against being perceived as ‘soft on welfare’.
Personally I think the full employment policy might be worth a re-think. It upsets economists so it would probably be good for the economy – but it is hard to think of a nation-wide, mostly rural industry the government could run that would provide a good return to the taxpayers.