The New Statesman Essay - Why we should all get a state income

Governments are trying to cut back on welfare at just the time when the other pillars of social supp

Social security famously rests on four pillars: the state, the market, the family and the community. Econocrats at the World Bank and the Organisation for Economic Cooperation and Development (OECD) aim to persuade the state to step back and allow those other sectors to shoulder a larger share of the burden.

From Britain and America to Germany and Australia, politicians of the radical centre are enthusiastically embracing that suggestion. They cut back public pensions and encourage people to take out private pensions instead. They promote "care in the community", shifting the burden of care for the frail elderly and the mentally ill from the public to the private sphere. They adopt "welfare to work" policies, shifting people off public support and onto private payrolls, whether by gentle means (such as the UK's "work-oriented interview") or harsh ones (such as the "two years and you're out" policy in the US).

The justifications for such policies are many and varied. They include ideology (the ethics of self-reliance), demographics (the worry about rising pension and healthcare costs, as the baby-boomer bulge works its way through the population) and globalisation - we cannot expect to remain internationally competitive, it is said, if we treat our workers any better than the worst-treated worker anywhere in the world.

Each of those arguments is open to doubt, but let us focus on one central fact. Whatever else we say for or against welfare reforms, cutbacks in state provision rest crucially on the assumption that the other three pillars - the family, the market, the community - are actually capable of bearing more of the weight. That, I suggest, is radically untrue. Those other pillars are themselves crumbling at the same time as the state pillar is being chipped away.

Consider first the family. In future, it will not provide the support it used to do because:

- Families themselves are breaking down more often than before. In peasant societies, multiplying your number of children was thought to be a good old-age insurance policy. Multiplying your number of ex-partners is not.

- In any case, children are less useful than they used to be. Families have fewer children, and those they do have are increasingly mobile and hence less likely to live nearby when help is needed. Peter Townsend's classic study of The Family Life of Old People found that in mid-20th-century Bethnal Green (east London) nearly 90 per cent of the elderly had at least one child living within a five-minute walk. That, clearly, is a thing of the past for most families nowadays.

- Women, who used to be the family's reserve army of carers, increasingly enter the paid labour force, leaving them little time to discharge unpaid caring functions.

By the same token, the market is not the bulwark of social security that it used to be. The reasons include:

- The "standard employment relationship" - full-time, full-year, whole-life employment with the same firm - is largely a thing of the past. People increasingly have chequered employment histories. An ever smaller proportion of the workforce, therefore, can rely on the traditional company or occupational pension.

- "Flexibilisation of the workforce" - contracting out and the like - reduces labour costs largely by eliminating add-on costs. Individuals or groups anxiously competing for contracts have to pare expenses to the bone; and one of the first expenses they pare away is proper funding of their own long-term social security needs. It is a clear case of self-exploitation, strictly on a par with the competitive logic underlying Marx's law of increasing immiseration (according to which the only way firms can compete is to cut wages, thus immiserating their workers).

- In any case, personal private insurance schemes are bad investments compared to public ones. A study done at the London School of Economics for the Rowntree Trust found that the premium-to-payout ratios of privatised schemes were systematically worse than public ones. That is perfectly understandable. Set aside issues of profiteering and adverse selection (bad risks piling in, good risks opting out). It is simply inherent in the actuarial logic of small, personalised insurance schemes that they will have bad premium/payout ratios. In large and unsegmented insurance pools, the law of large numbers works to ensure that everything can be counted on to balance out. In small, segmented pools, it is altogether too possible for everyone to suffer worse-than-average luck at any given moment. Smaller insurance pools have to charge higher premiums to protect themselves against that downside risk.

Finally, the community sector is under pressures similar to those plaguing the other two:

- Increasing female labour-force participation deprives the community sector of its previous pool of unpaid voluntary labour.

- As voluntary labour is increasingly replaced by paid employees, the motivational distinctiveness of the charitable sector is lost.

- Services that were previously provided by public agencies are increasingly contracted out to private providers, in either the market (private for-profit) or the community (private not-for-profit) sector. In competitive tendering, the latter are increasingly obliged to mimic the former if they are to compete on equal terms.

The state, then, is backing out of the business of social welfare provision at just the same time as the other classic pillars of social security are being eroded. All the pillars are collapsing at once, for all too many people. Though many are still blessed with stable marriages, caring kin, secure employment and comfortable benefit entitlements, growing numbers suffer increasing insecurities on all those fronts. For them, market, family and community pillars prove to be woefully inadequate substitutes for reduced state provision for social security.

What is common to the collapse of those pillars is "destandardisation". Just as there is no longer a standard type of employment, so there is no longer a standard family. Serial monogamy endows people's family affairs with an bewildering array of obligations in the backwash of partnerings and repartnerings (and past partners' partnerings and repartnerings, and so on). Each person's family circumstances increasingly tend to be sui generis.

The consequences for state policy are momentous. Welfare states have historically relied heavily upon identifying broad categories of people who cannot reasonably be expected to earn their own living - the old, the disabled, the widowed and the orphaned. The state can pay generous benefits to such categories of people without fear of introducing disincentives for those who really ought to work for a living. Even what are called "universal" benefits have always relied on some categorisation. The "universal" old age pension is available only to people of a certain age, the "universal" family allowance is available only to households with children of a certain age, and so on.

Such benefits work well, so long as everyone's circumstances can be adequately captured in a few simple categories and conditions. In previous eras, they could. The vast majority of people used to fit one or another of a very few employment patterns or family types. Now, however, any standard category or condition fits any given individual's actual experiences increasingly poorly, both occupationally (with the flexibilisation of the labour market) and personally (with the flexibilisation of the marriage market).

That leaves two possibilities for future development, one dystopian and the other utopian. The dystopian response would be: "Back to the old Poor Law and Lady Bountiful!" Poor Law guardians assessed each individual's case on its own peculiar merits. Lady Bountiful, and private charities more generally, similarly tailored their generosity to individuals' peculiar circumstances - as those benefactors perceived them.

Case managers in social security offices are increasingly asked to behave in this way. It happens most obviously in connection with the more draconian workfare schemes. But it also happens whenever case managers put together packages of community services for "clients" whose capacity to walk out and take their business elsewhere is strictly limited. That amounts to giving one person absolute discretionary power over resources that another person needs in order simply to survive. The subjugation of one person to another's will, something which is thereby produced, is, or can be, almost total.

If people's circumstances really are sui generis, though, and if we really do want social provision to respond to each person's peculiar circumstances, then there is no obvious alternative. At best, we will have to trust requirements of due process and administrative law to prevent the case worker's proper discretion from turning into petty tyranny. Such procedural guarantees are far from ironclad, even as applied to public agencies; and they are even less so when it comes to contracted-out private providers, be they in the market or the community sector.

Indeed, the market sector might actually be the easier to manage in this respect. In the case of private for-profit providers, at least we know that the profit motive drives them and we can try to forestall some of the possible abuses that might arise from it. Private not-for-profit providers are no less capable of abusing their discretionary power over needy clients - requiring starving people to sing paeans in praise of the Lord as the price of their soup, and such like. But controlling their arbitrary discretion is harder. They are working to an agenda of their own and their aims are both more variable and less transparent. The abuses to which they are prone are, in consequence, less easy to codify and to regulate.

So what is the utopian response? It is to eliminate all links between social assistance and any conditions whatsoever. Everyone gets the same unconditional public transfer payments, no questions asked.

Such a policy might take many forms, including:

- Milton Friedman's proposal- embraced by Richard Nixon, but never enacted - for a "negative income tax". This is not quite unconditional (payment depends on one's income being below some threshold, at which point the tax office pays you, rather than you paying it); but, compared to the vast array of specific programmes it was designed to replace, the negative income tax certainly is minimally conditional.

- The "earned-income tax credit". Introduced into American tax law two decades ago, that scheme was greatly publicised as part of Bill Clinton's recent welfare reforms. New Labour has introduced a version in its working families tax credit. Those schemes, too, are slightly conditional (upon having earned income). But again, they are minimally so, compared to other modes of social relief.

- "Basic income", which, according to proposals nowhere yet implemented, would be paid to everyone in the country absolutely unconditionally. Or, as an only slightly more conditional variation on that theme, it might be paid as "participation income" to everyone in the country, conditional upon their proving that they are engaged in any of a long list of socially useful activities (paid or volunteer labour, raising children, doing community work, etc.)

- A lump-sum "demogrant" paid to everyone in the country, upon their coming of age. Something like this used to happen in Yugoslavia, when the country was a model of market socialism.

Are such unconditional income guarantees politically feasible? The US and the UK examples show that some sorts certainly are. But the more robust forms are harder to sell. The only way to fund substantial demogrants designed to effect major reallocations of capital, for example, would be through confiscatory death duties, which probably are politically impossible.

At first blush, basic income may sound almost equally unfeasible. But remember two things. First, basic income would be in lieu of all sorts of categorical (and indeed universal) social benefits that are paid at present; so the net cost of the proposal is substantially less than it might seem. Second, basic income would be taxable; so anyone earning well over the basic level would immediately return a portion (potentially a substantial portion) of it back to the Treasury. Thus, while undeniably costly, basic income would be considerably less costly than might at first be supposed.

But the "participation income" variation is probably the most attractive. Participation income is politically saleable, in a way that absolutely unconditional basic income might not be: it is not a case of something for nothing, but rather a case of social payment for socially useful effort. Participation income does not (as the earned-income tax credit does) arbitrarily differentiate paid from unpaid productive social labour. Participation income does not (as the negative income tax does) depend upon an income test that inevitably captures less and less of people's full income, as increasing workforce flexibility causes production and exchange to fall outside ordinary economic markets to an ever greater extent. Finally, participation income does not (as the demogrant does) make a once-and-for-all-time allocation, with no provision for people who invest their initial endowment unwisely.

My larger point, however, is that any of those unconditional benefit schemes would be better suited to the increasingly non-standardised world towards which we are moving. Let us simply give up, not only on means-testing, but on conditionality of any other form. Let us simply give everyone a fair share of social resources, and allow them to arrange their own affairs as they will. A utopian vision it may be, but some utopias have a way of coming true; and if my diagnosis of our present plight is even remotely correct, the increasing non-standardisation of our social world will eventually drive us towards one or the other of the futures I have sketched. It is up to us to decide whether it is to be utopia or dystopia.

The writer is professor of social and political theory and philosophy at the Australian National University, Canberra. This is an edited version of an article in the current (April-June) issue of the Political Quarterly

This article first appeared in the 08 May 2000 issue of the New Statesman, The tiny group that controls us all