Anthony B. Atkinson has produced a number of proposals
for actions that might be taken to reduce the economic inequality that has settled
into many of our most developed nations.
These are discussed in his recent book Inequality: What Can Be Done? As an economist, Atkinson felt it was
necessary to justify his suggestions against the inevitable criticism that will
come from his colleagues. His book might
have been a lighter read if he had just said “To hell with the old fools, this
is what needs to be done.” Nevertheless,
the points made to justify his proposals provided some interesting insights.
Atkinson was particularly sensitive to the knee-jerk
reaction that would say anything that could be construed as affecting
productivity or the expense of conducting business in the “current business
environment” was ridiculous and old-fashioned.
What exactly is it about the current business environment that makes actions
that might reduce inequality ridiculous?
The most common response would include some claim about the increased
competition that comes with globalization.
Atkinson is not convinced by such assertions, given that the modern
welfare state had its origins in the first wave of globalization prior to World
War I. And at that time, social
provisions provided workers were thought to be necessary for the economic and
social health of the modern nation.
“….one of the main elements of
the proposed measures—the welfare state—had its European origins in the
nineteenth-century period of globalization.
It is therefore puzzling that the present period of globalization should
elicit the opposite response—that we are compelled to dismantle the welfare
state rather than, as I have argued here, strengthen it….”
The result of the Industrial revolution was to put a
worker in a more precarious situation.
Prior to that, a worker and his family had more flexible options
available. One could earn a living by
learning a craft, or hire oneself out as a common laborer, or produce goods for
sale that could be made in the home, or all of the above if necessary. With mass production methods, workers were
presented with all-or-nothing jobs. One
worked full time if lucky, or not at all if business dropped or a factory went
broke, or an injury was incurred while employed.
The increased competition that came with globalization put
workers at greater risk. Since workers
were a necessary resource, it was deemed economically sound to protect them
from economic risks.
“In Germany, which led the way,
there were several motives for the introduction of the Bismarckian system of
social insurance. These included the
need to preserve political and social stability in the face of the rise of
workers’ organizations and the spread of socialist ideas. But a significant factor was the need for
social protection that arose from the precariousness of employment when Europe
was exposed to greater competition in the 1870-1914 period of globalization.”
People in the US tend to consider social policies as
having their origin in the Great Depression and the postwar years, but in Europe
much of what would define the modern welfare state had already been put in
place. This was viewed as economically
and socially sound—and being the Christian thing to do.
“This led towards the end of the
nineteenth century, or in the early years of the twentieth century, to the
establishment of unemployment insurance, industrial injury benefits, sickness
insurance, and old-age pensions.”
“….the introduction of
welfare-state programs in Europe should be seen as complimentary with, rather
than in competition with, the achievement of economic goals. In the early days of the European welfare
state, social and economic policies were seen as working in the same
direction. This view persisted for
several decades. When in the United
Kingdom, Beveridge drew up his 1942 plan for postwar social security, he
collaborated with Keynes to ensure that macroeconomic and social policy worked
together, notably via the role of social transfers in providing automatic
stabilisers. In the United States, Moses
Abramovitz argued that ‘the support of income minima, health care, social
insurance and other elements of the welfare state, was….a part of the productivity
growth process itself.”
Eventually, this enlightened view would be subverted into
its exact opposite. One might interpret
the timing of this transformation as being caused by the growth of the second
great globalization era. One might also
attribute it to the cancer that is neoliberal economics taking root and being
imposed throughout the world.
“Only later, in the 1980s and
1990s did the predominant view shift and come to see social protection as an
impediment, rather than as a complement, to economic performance.”
Atkinson provides a chart indicating the percentage of GDP spent on social expenditures by each OECD country in 2011. The data includes specification of both
public and private spending.
“Social expenditures are defined
as benefits in cash or kind by public and private institutions provided to
individuals or families during circumstances that adversely affect their
welfare. They include social security,
health benefits, housing benefits, and active labour-market programmes.”
Let us compare three countries with the reputation for
actively pursuing generous and effective social welfare policies using high tax
rates to fund implementation. Public
spending by Denmark, Norway, and Sweden as a percentage of GDP comes in at 23%,
18% and 22.5% respectively. What about the
notoriously stingy United States? Its
rate of public spending comes in at 20% of GDP.
From just these numbers, one might assume that these are four similar
nations. Now add in the public contributions
to social spending. Denmark goes from 23
to 26.1%; Norway from 18 to 19.3; Sweden from 22.5 to 24.6%; the United States
goes from 20 to 28.8 %. When private
spending is included, the United States spends more on social assistance than
any country in the OECD except for France.
Several conclusions are suggested by this
comparison.
First: providing generous social assistance is not economically
harmful in itself. The Scandinavian
countries are all economically healthy and need spend no more than the less-generous
United States.
Second: the fact that the less-generous United States
must contribute so much more from private sources suggests that trying to skimp
on social spending is not only cruel, it is ineffective and probably
wasteful. Atkinson interprets the data
as supporting the notion that social needs will be met—one way or another. People will not be allowed to die of hunger; the
sick will get treatment; the homeless will be helped. If the state doesn’t provide for needs, then
assistance will have to come from employers, families, or charity. In any event, private funds will be removed
from the economy in much the same way that taxation removes funds from the
economy and reallocates them. If so,
then the state might as well do its duty and save some money by doing it more
efficiently.
The way to minimize spending on social needs is not by
cutting budgets. Rather, we should seek
a set of consistent economic and social policies that minimize the need for
social assistance. That seems to be the
lesson to be learned from the three Scandinavian countries.
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