Fine-tuning the welfare state

Incomes and the Welfare State
October 25, 1996

Throughout Europe reform of the welfare state is seen as one of the key policy issues of the 1990s. It also reflects some of the widening cleavages over the future of Europe. The context in which French president Jacques Chirac and German chancellor Helmut Kohl, for example, have recently been seeking cuts in social spending differs significantly from the situation in Britain. In both France and Germany there is not only more widespread opposition to "social disarmament", but a more open, active and challenging debate exploring future policy options than is evident here. Significantly, too, continental conservatives like Kohl's Christian Democrats may now be committed to a leaner welfare state. But there remain many in their ranks with a distinct aversion to solutions fashionable in Britain, such as more reliance on means-tested benefits, and a firm belief that it takes secure, not frightened people to cope with change.

Tony Atkinson has played an important role in efforts to stimulate an active British debate on the future of the welfare state, and in the process to provide us with a conceptual framework more attuned to ideas and developments elsewhere in Europe. Such a framework was evident in popular form - though not popular enough it seemed for most of the British media to comprehend - in the final report of Labour's Commission on Social Justice, of which Atkinson was a member. A more scholarly version appears in this excellent collection of 16 essays. They were all written between 1989 and 1994 as part of the welfare state programme at the London School of Economics. The focus of the essays is social security and related distributional and labour market questions. However, many of the issues raised take us to the core of the wider welfare-state debates.

The volume divides into three sections. Part 1 consists of five essays describing the background of inequality and poverty in Britain and Europe against which calls for welfare state dismantling have to be assessed. It deals mainly with the 1980s and documents an rise in inequality in the United Kingdom extraordinary by international or recent historical standards. Growing polarisation is also the subject of a fine essay written with Holly Sutherland, in which Richard Titmuss's notion of the "two nations in old age" is extended to the early retired of the 1980s and 1990s.

The six essays in Part 2 then turn to the more conceptual economic and institutional analysis of welfare states. Here Atkinson is at his best, providing us with clear and precise grounds for questioning the negative conclusions reached in much of the recent economic evaluation of the welfare state. The essays in this section explain, for instance, how it is theoretically possible to reverse the conclusions conventionally drawn about the impact of unemployment insurance benefits on employment. Likewise, using a model based mainly on standard growth theory, Atkinson shows how, contrary to what is often claimed, a switch from state to private pensions may negatively affect the rate of capital formation. The essays also illustrate how crucial an effective institutional analysis is in developing an informed political economy of the welfare state. As Atkinson puts it: "The impact of the Welfare State depends a great deal on its institutional fine structure", something all too often neglected in economic models. The need to investigate the fine structure of the benefit system is highlighted in an analysis showing how cutbacks in unemployment benefits can make primary sector employment less attractive and encourage a shift from "good jobs" to "bad jobs".

The final section contains five essays surveying options for the future of social policy. These begin by illustrating the lack of transparency in some of the arguments put forward by critics of the welfare state. Replacing expensive universal programmes with cheaper targeted benefits may appear attractive. But, as experience in Europe and elsewhere illustrates, the design of effective targeting, especially that involving means testing, faces major problems of imperfect information and of work incentives. Much the same can be said of policies giving priority to social safety nets as the main form of social security. Western experience shows that safety nets are not easy to design and typically have only limited effectiveness. Echoing the Social Justice Commission and drawing also on lessons from other European countries, Atkinson argues instead for a reappraisal of the role of social insurance and for a new version of a basic income scheme. A modernised social security system needs to be built on the foundation of social insurance, historically and comparatively the most effective of all social provisions. A basic income scheme should be seen not as an alternative to social insurance but as a complementary measure, with the explicit function of reducing dependence on means-tested social assistance.

Inevitably, perhaps, there is some unevenness and repetition in this volume. It deserves criticism, too, on other grounds. Some will find it difficult to understand, for example, how an analysis of Britain's and Europe's future options in social policy can make so few references to gender issues, and neglect entirely questions of race and ethnicity or migration. But all in all this is an outstanding collection of essays. It provides much-needed clarification of issues often obscured by ambiguity and rhetoric.

Roger Lawson is senior lecturerin social policy, University of Southampton.

Incomes and the Welfare State: Essays on Britain and Europe

Author - Anthony B. Atkinson
ISBN - 0 521 46250 9 and 55796 8
Publisher - Cambridge University Press
Price - £40.00 and £15.95
Pages - 368

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