The welfare state

Material pro gido por derechos do autor

•

Stanford University PressStanford, CaliforniaC> 1987, 1993 Nicbolas BarrOriginating publisber: Weidenfeld and

Nicolson, The Orion Publishing Group, l..ondonFirst published in the U.S.A. by

Stanford Uníversity Press, 1987Secood edition publlsbed 1993Printed inGreat BritainClotb ISBN 0-8047-2206-4Paper ISBN 0-8047-220LC93-83252This book is printed on acid-free paper

Material protcgi lo por derechos de autor

Contents

üst of Tables x1

List of Figures xii

Preface lo tbe Second Edition xiii

PART 1 CONCEPIS

1 lntroduction 3

1 The Approach 32 The Welfare State: Definition and Objectives 6

2 Tbe Hlstorlcal Background 13

1 Early Days 132 The Liberal Refonns 173 Thc First World War and tbc lnter - War Period in Britain 22 4 lnter-War Poverty Relief in the USA 27S Thc Second World War and lts Aftcnnath 31 6 Recent Developments in Britain and the USA 347 Concluding lssues: From the Past to the Present 40

3 Polltlcal Tbeory: Social Justlca and the State 44

1 Theories of Society 442 Libenarian Views 463 Liberal Theories of Society 484 Collectivist Yicws 54 S lmplications for the Role of the State 59

Appendix: Non-Technical Sumrnary of Chapter 3 66

4 Ec:onomic Theory 1: State lnterventlon 70

1 Tbe Fonnal Sto!cUm : of thc Problcm 70 2 Why Economic Efficiency ls One of the Airns of Policy 723 lntervention for Reasons of Efficiency 794 lntervention for Reasons of Social J us t ice 86 5 Public Choice and Goverrunent Failure 93 6 From Theory Towards Policy: The lssue of Privatisation 95


viii Contents

7 Conc1usion: Economic and Politica1 Theory 99

Appcndix: Non-Tcchnical Summary of Chapter 4 JOS

5 Economle Theory 2:lnsurance 111

1 lntroduction 111 2 Thc Demand for lnsurancc 112 3 The Supp1y Side 1164 The lnsurance Market as a Whol e : Private and Social lnsurance 123

Appcndix: Non-Technical Summary of Chapter S 129

6 Problema of Deflnltlon and Measuremtot 132

1 Measuring Welfare 1322 Poverty 1393 lnequality 1: lndividuals and Families 1464 lnequa1ity 2: Aggregate Measures 152

Appendix: Non-Technica1 Summary of Chapter 6 164

PA8T 2 CASH BENEIDS

7 Flnandng the WeHar e State 169

1 The Structure of the UK Government Accounts 169 2 Cash Benetits 175 3 Benefi.ts in K ind 180 4 Assessing the Welfare State 182

8 Contrlbutory Benefits 1: Unemployment. Slckness andDlsabll!ty 188

1 lntroduction and lnstitutions )88 2 Theoretical Arguments for State lntervention 1943 Assessment of the National lnsurance System 200

9 Contributory Benefits 2:Retirement Pensions 208

1 lntroductioo aod Iostitutioos 208 2 Methods of Organising Pensions 2123 Efficiency Arguments for State lntervcntion 2174 Social Justice 224 S Assessment of National Insurance Retirement Pensjogs 227

10 Non-Contrlbutory Beneflta 239

1 lntroduction and lnstitutions 239


Contents IX

2 Theoretical Arguments for State Intervention 2443 Assessment of Non-Contributory Benefits 245

11 Strategies for Reform 263

1 Approaches to lncome Suppon 2632 The Negative lneome Tax Approach 2643 The 'Back to Beveridge' Approach 2774 Mixed Strategies 281S Conclusion: Cash Benefits 282

PART 3 BENEm s I N KJND

12 Healtb Cara 289

1 lntroduction to Bencfits in Kind 289 2 Aims 291 3 Methods 2944 Assessment of the British System of Health Care 3105 Refuon 326 6 Conclusion; Health Carc 332

13 Educatlon 336

1 lntroduction 336 2 Aims 3373 Methods 3434 Assessment of !he British Educational System 350S Reform 3656 Conclusion: Education 375

14 Houslng 378

1 lntroduction 3782 Ajms 379 3 Metho.ds 383 4 Assessment of British Housing Institutions 3925 Rcfoon 414 6 Conclusion: Housing 420

PART 4 EPILOGUE

15 Conch,.lon 427

1 Argumcnts for a Wclfare Statc 4272 Broader Perspcctives 434

Material pro egido por derechos d autor

x Contents

Glossary 438

References 4 4 5

Subject Index 482

Author Index 491


Tables

Table 4.1 An overview of public and prívate provision 96Table 4.2 Public and prívate provision: a more complete view 97

Table S.1 Gross and nc:t insuranoe premiums, and net income in good and badyc:ars 113

Table 6.1 Poverty and inequality in two difl'erent societies 142

Table 6.2 Values of the Atltinson inequality rnc:asure for the UK, the Netberlands and West Gmnany IS9

Table 7.1 lncome and expenditure of central and local governmc:nt, UK, 1992/93 (est.) 172

Table 7.2 Gross national product and spending by central a.nd local govemmc:nt, UK, 1920, 1948 and 1992193 176

Table 7.3 Nationa1 insurance contribution rates, 1992/93 177Table 7.4 Account of the Nationa11nsurance Fund, Great Brítain,

1992193 (est.) 179Table 7.S Cash bc:nefits, UK, 1992/93 (est.) 181

Table 8.1 Main national insurance bc:nc:fit rates, 1992/93 193Table 9.1 Financing a Pay-As-You-Go pension scheme in tbe presence of inJlation

and growth 21STable 9.2 Output and consumption with worlcforces of different si= 221Table 10.1 lncome support rates, 1992/93 241

Table 10.2 Distribution of bc:nefit expenditure by income decile, UK, 198S 258Table 11.1 Hypotbetical efl'ect of negat.ive income tax oo tax rates 269

Table 12.1 Health, UK, 1992/93 (est.) 312Table 13.1 Educatioo and science, UK, 1992193 (est.) 3S2

Table 14.1 Public expenditure oo housing, UK, 1992/93 (est.) 39STable 14.2 Public expenditure (more broadly defined) on bousing, UK, 1992/93

(est.) 396

Table 14.3 Mortgage interest tax relief and subsidies for local authoríty housing by level of pre-tax income, 197417S 402

Table 14.4 Household tc:nures by socioeconomic group, Great Brítain, 1978 413


Figures

Figure 1.1 Ovcrvicw of thc wclfarc state, UK, 1992193 (cst.) 9Figure 3.1 Thc optimal distributioo of iocome uoder utilitariaoism 49

Figure 4.1 Parcto optimal output: the simple case 73Figure 4.2 A simple general equilibrium represeotation of Pareto optimal

output 73

Figure 4.3 The Edgeworth box (distribution) 74Figure 4.4 The I0$5 resulting from marginal cost pricing under incrcasing retums

to scale 83Figure 4.5 Redistribution in casb and kind 83

Figure 5.1 Thc demand for insurance by a rational risk-averse individual 113Figure 5.2 Elfects of adverse selection on a competitive equilibrium 120

Figure 6.1 Povcrty and inequality 142Figure 6.2 The cost of maiotaining an 'equivalen!' standard of living for

dilferent families 1S1

Figure 6.3 The Lorenz curve 1SSFigure 6.4 Lorenz curves for thc UK, thc Ncthcrlands and West Gerrnany 1S6Figure 7.1 Partía!equilibrium incidence of a subsidy 183Figure 9.1 Live births per 1000 populatioo, 1940-84 219

Figure 10.1 Stylised n:presentation of tbe budget constraiot under income support 248

Figure 10.2 Cumulative distribution of expenditwe on pensions by iocome decile, UK, 198S 259

Figure 11.1 The cost of negative incomc tax 265

Figure 11.2 The redistributive elfects of negative income tax 271Figure 12.1 The elfects of consumer ignorance oo individual demaod for hcalth

careleducation 296Figure 12.2 A simple ruarkct for hcalth care 299Figure 12.3 Dilfereoces in the costs and benefits of hcalth careleducatioo by

socioeconomic group 325Figure 13.1 A simple human capital model of the individual decisioo to invcst in

bcalth careleducation 340Figure 14.1 Efficiency io the bousing market 380Figure 14.2 A simple stock-adjustment mode1 of the bousiog rnarket 384

Figure 14.3 Thc cffect of n:nt control on the quality of housing 408


Preface to the Second Edition

lbe friendly reception the first edition received was very gratifying. and 1 regret that it has taken so long till the appearance of the second. Much has happened in the intcrvening ycars both in Britain and elscwhere, particularly in the formerly Communist countries (one reason why the second edition has not appeared till now is that 1 spent two ycars with the World Banlc working on the design of social safety nets in central and eastem Europe and the former Soviet Union).

lbe dcmisc of Marxism faces thosc countries with the problem of the appropriate division of responsibility betwccn the state and the private sector - the central theme of this book. The cconomic argu ment and strategic policy conclusions remain the same as in the first edition: that the welfare statc (i.e. income support, health care, educa tion and housing), quite apan from its distributional and other objectives, has a major efficiency role. To the extcnt that this is so, it is no longcr public involvcment per se which is controversia!, but only its precise form and the choice of its distributional objectives. It is therefore not surprising. as discusscd in Chapter 1S, that the welfare state weathered the storm of the 1980s in Britain and America intact and, in many ways, strengthened.

Throughout the book, the main arguments are contrasted with thosc arising from dilferent pcrspectives, espccially from socialists and fromlibenarians like Hayek and Friedrnan. lbe debate with the latter is particularly fruitful. lbe diffe¡:ence betwcen their views and a liberal defence of the welfare state rests less on ideology than on cconomic theory. SpecificaJly, information problems, which are largcly left out of account in most libcnarian writing. are crucial to establishing the welfare state's cfficiency role.

Though the book is written spccifically for cconomics spccialists, the nccds of a diverse rcadership are kept in mind.lbe early theoretical chaptcrs (assume a working lcnowledgc of intermediate microcconomic theory.To help readcrs with little cconomics, each of these chapters has a non technical appendix, with the aid of which the rest of the book should, for thc most pan, be intelligible. AJgebra is uscd where necessary to pin down sorne important concepts preciscly, but the results are always explaincd verbally so that the cquations can be skipped by thosc who are prepared to talce their conclusions on trust. This book is thus accessible to rcaders in related academic arcas (e.g. social administration, public policy and


xiv Preface to the Secorul Edition

political economy) and to professionals in such fields as medicine and education. Familiarity with British institutions is not essential; they are described in separate sections which can be consulted as desired. The importan!arguments do not depend on institutional lmowledge and should thcrcfore make sense to readcrs in (or from) other countries. Thc principies developed are applicable to all industrialised economies and, to a large extent, also to transition economies. Where possible, examples and parallels from other countries are given.

Though the main thrust of the argument has not changed, there are a number of significan!changes from the first edition. Chapter 1 contains a new section on the objectives of the welfare state. The theoretical discussion is strengthened by new sections in Chapter 4 on public choice and govem ment failure, and on the boundary between the market and the state, and in Chapter S by a new section on social insurance, and by extended discussion of the problems caused by asymmetric infonnation.

Policy analysis includes discussion of three major UK developments: the 1988 social security reforms; reform of the National Health Service in the aftermath of the 1989 White Paper; and changes to school and university education under the 1988 Education Reform Act. In addition, the analysis of targeting in Chapter 1O has been extended, and there is a new section assessing the arguments for child benefit. Chapters 12 and 13 on bealth carc and education have been completcly reorganised. Chapters 12, 13 and 14 now discuss health care, education and housing, respective)y, and all have a common structure. Alongside discussion of ongoing refonns, the chapters include additional material on intemational comparison of health care systems and a new section on the reform of higher education, including discussion of student loan schemes. The Ref erences have been brought up to date, and expanded to include more intemational material.

Readers in a burry can find the major arguments in Chapters 1 and 1S,plus the concluding sections of Chapter 4 (economic tbeory), Chapter 11 (cash benefits), and Chapters 12, 13 and 14 (bealth care, education and housing, respectively). Readers in less of a hurry may want to look at a number of other books and articles which are, in many ways, com panion volumes. My colleague, Howard Glennerster's (1992) book sets out the detailed finances of the welfare state. Barr and Whynes (1993) invites a range of authors to cover the welfare state from a variety of different perspectives. Barr (1992) sets the arguments in a broader OECD context.

My thanks are due to all the colleagues and friends who hclped with thefirst edition. My specific thanks for help with this revision (without impli cating thcm in crrors which remain) are to Howard Glennerster and John Hills, to AJan Thompson for guiding me through the morass of UK cash benefit institutions, and to Martín and Peggy Baer for letting me share their


Preface to the Second Edition xv

rural idyU for a gCIOd part of tbe writing. My greatcst debt is to Gill, for ber support and encouragement, and for tolerating tbe sound of tbe nocturnal keyboard in hotels throughout central and eastem Europe.

Nicho/as BarrNovember 1992


Part 1Concepts


Chapter 1lntroduction

(The duties of the state arel ...first ... that of protecting the society from the violence and invasion of other independent societies; . .. second ... that of protecting, as far as possible, every member of the society from the injustice or oppression of every other member of it;.. . third . .. that of erecting and maintaining those publick institutions and those publick workswhich. though they may be in the highest degreeadvantageous to a great society. are of such a nature. that the profit could never repay the expence to any individual or small number of individuals. (Adam Smith, 1776.]

1 The Approach

1.1 The Central Argument

One of the wellsprings of this book was the exuberant insistence of various of my students and colleagues that economics appeared largely irrelevant to major issues of social policy. They had a point, and this book is an attempt to remedy their grievances and to assert the importance of economics. To help with the former 1 try to relate economic theory to different notions of social justice and to the historical development of the welfare state. In attempting the latter, two results stand out. First, the welfare state is not a subject apart, but one which fits very naturally into the framework of economic analysis. Second, the theoretical arguments support the existence of the welfare state not only for the fam i liar equity reasons but also very much in efficiency terms. This. it turns out. is an arca in which economic theory is capable of strong results which can justify the general idea of the welfare state to a surprising extent without resort to ideology.

Given the size of the subject, this book of necessity is an attempt to paint a broad canvas in the hope that readers, even if they do not accept all the answers, will at least be directed to the right battleground. The book addresses two broad questions: what theoretical arguments can justify tbe existence of the various parts of the wclfare state in a modem industrialised


4 ConCI!pts

economy; and, given these arguments of principie, how sensible (or otherwise) are the specific arrangements in Britain and in other countries?

The approach is best illustrated by two questions which permeate throughout:

l . What are the aims of policy?2. By what methods are those aims best achieved?

Question 1 is very broad ranging.There is general agreement that the major aims of policy in Westem societies include efficiency in the use of resources; their distribution in accordance with equity or justice; and the preservation of individual freedom.These aims, howcver, can be defined in diffcrent ways, and may be accorded different weights. To a utilitarian, 1 thc aim of policyis to maximise total welfare; to Rawls the aim is social justice, defined in a particular way; libertarians make their main aim individual freedom, and socialists their prime concem equality. Beveridgc's goal was the conqucst of what he called the five giants of Want, Disease, lgnorance, Squalor and ldlcness. Harold Macmillan once remarked that a just society should contain both a safety net and a ladder. The answer to question 1 is explicitly normative and largely ideological. The objectives of the wclfarc state are discussed in more detail in section 2.2.

In contras!,it is argued that once question 1 has been answered, question2 is not ideologica/ but technical, i.e. it raises a positive issuc. Wbcthcr a given aim should be pursued by market allocation or by public provision depends on which of these methods more nearly achievcs the chosen aim. Market allocation is neither 'good' nor 'bad' - it is useful in sorne instances (e.g. prívate markets for food in Britain are effective in achieving the aim that peoplc should not starve); but in others (it is argued in Chapter 12that hcalth care is onc) the market mechanism works less well, and a systemwith substantial state intervention can be argued to be more efficient and jusi. Similarly, public provision is neither good nor bad, but useful in sorne cases, less so in others. One of the questions throughout is which method is the more useful in different arcas of the welfare state.

The distinction between aints and methods is fundamental, and bears reinforcement. Consider two central questions which all societies faoe:

• How much redistribution (of income, wealth, power, etc.) should there be?

• How should the economy best be run (i.e. the market system, central

planning, or a mixed economy)?

The first question is clearly ideological and normative; it is an aims question and so properly the subject of political debate. But once that question has been answered, the second question is vcry largcly one of mcthod (i.c. a

1 Utilitllrian.ism aod other theori.es or socidy. includin¡ thote of Rawb: aod libertariao and aoc:ialist writm.are discussed io Chapter 3.


lntroduction S

positive issue) and more properly the subject of technical than political discussion. This approach is explained in detail in Chapters 3 and 4, and summarised in the concluding section of Chapter 4.

1.2 Organisation of the Book

Part 1 sets the scene, starting in Chapter 2 with a discussion of the historical development of the welfare state in Britain, including sorne comparison with other countries, particularly the USA.The next three chapters are the theoretical heart of the book: Chapter 3 discusses various definitions of social justice and their different implications for the welfare state; Chapter4 sets out the economic theory of state intervention and Chapter S the theory of insurance.Chapter 6 discusses problems of definition and measure ment.To belp readers who are diffident about their theoretical background, each of the conceptual chapters (3, 4, S and 6) has a non-technical Appendix which summarises the essential material; and tecbnical terms are explained in the Glossary.

Three major threads are developed in Part 1 which run through the rest of the book: the social welfare maximisation problem; altemative definitions of social justice; and measurement problems. The social welfare max imisation problem (set out in Cbapter 4) is the conventional starting point for economic theory. An importan!theorem states that under appropriate assumptions a competitive market equilibrium will allocate resources efficiently. lt is argued that, where these conditions hold, the role of the state, if any, is limited to income redistribution; conversely, where these conditions fail, there may be efficiency grounds for intervention in a variety of forms. The second major theme is social justice. The definition chosen will determine the weights assigned to different individuals, with major implications for the form and extent of intervention, e.g. wbether people with no income shouJd be supported at subsistence. or at sorne higher leve!. The third thread, discussed in Chapter 6, concems problems of definition and measurement. Many variables are hard to define and, once defined, hard to measure. A crucial and recurren!difficulty is that utility (see the Glossary) is not measurable. This makes it bard both to measure living standards and to compare them. Costs or benefits may also be hard to measure.

As far as possible each chapter in Parts 2 and 3 has a similar layout toclarify tbe structure of the argumeot. Each chapter discusses in tum: the aims of policy; the methods by whicb they might be achieved, i.e. the theoretical argumeots about intervention for reasons of efficiency and social justice; as.sessment in the light of this theoretical discussioo of the appropriateness (or otherwise) of the British and other systems, including discussion of the empirical literature; and reform.


6 Concepts

Part 2 analyses cash transfers. Chapter 7 briefty describes the finances of the welfare state. Chapter 8 looks at unemployment. sickness and disability benefits, Chapter 9 at rctirement pensions and Chapter 1O at non-con tributory benefits, in each case starting with the theory and thcn assessing the practice. Chapter 11 considers a variety of refonn strategies. Part 3 discusses provision in kind. Chapter 12 looks at health care, analysing the theoretical arguments for public production and aUocation, assessing the effectiveness of tbe UK national bealth service in comparison with systems in other countries, and discussing altemative ways in which hea1th care might be organised. Chapters 13 and 14 cover similar ground for education and housing, respectively.

The conclusions of tbe book are summarised in Chapter 15. Readers in a burry can get an idea of the book's approacb and its main conclusions by reading Chapter 1S and the concluding sections of Cbapters 4 (economic and political tbeory), 11 (income support), and 12, 13 and 14 (bealtb care, education and housing, respectively).

2 The WeHare State:Definition and Objectives

2.1 Defining the Welfare State

We shall see in Chapter 6 that importan!concepts like poverty and equa1ity of opportunity are hard, if not impossible, to define in principie, and even harder to measurc. The concept of the welfarc state similar1y defies precise definition, and no attempt is made to offer one (see the Further Reading). Even Richard Titmuss (1958) ducked the problem - that book is called Ersays on 'The Welfare State' (bis quotes). As he later put it, '1am no more enamoured today of the indefinable abstraction "The Welfare State" than1 was sorne twenty years ago when ... the tenn acquired an intemational as well as a national popularity' (1968, p. 124). Three arcas of complication stand out.

Welfore derives from many sources in addition to state octivity: individualwelfare derives not only, nor necessari1y primarily, from state institutions, but from at 1east four sources.

• The labour morket is arguably the most importan!, first through wage income. Full employment is a major componen!of welfare broadly defined. High levels of employment and rising labour productivity over the post-war period were at least as much an equa1ising force as redis tribution. In addition to wage incomc, firms (individually or on an industry-wide basis. voluotarily or under legal compulsion) provide occu pational welfore in the face of sickness, injury and retirement.

• Private provision includes voluntary private insurance and individual savmg.


lntroduction 7

• Voluntary welfare arises both within the family and outsidc, whcre people gjve time free or at a below-market price, or make voluntary cbaritable donations in other forms.

• The state intervenes by providing cash benefits and bcnefits in kind. In addition, it contributcs througb various tax concessions to the finance of occupational and prívate provision.

.Modes of delivery are also diverse. Thougb a service may be funded by the state, it does not follow that it must necessarily be publicly produced. The state can produce a service itself and supply it to recipients at no charge (e.g. bealth care under the National Health Service); or it can pay for individuals to consume goods produced in the prívate sector (e.g. free drugs under the National Health Service); or it can give individuals money (either explicitly or in tbe form of tax relief) to make their own purchases (e.g. tax relief in sorne countries for private medica! insurance premiums). The issue of 'privatisation', as we sball see in Chapter 4:6, is much more complex than is recognised in most public discussion.

The buundaries of the welfare state are not we/1 defined: though thc state's role should not be exaggerated, neither should it be understated. Sorne typically excluded expenditure (e.g. public health and environmental policies) is very súnilar in purpose to activities which are included.

Welfare is thus a mosaic, with diversity botb in its source and in the manner of its delivery. Neverthcless the state, througb various levels of govemment, is much the most importan!single agency involved in Britain, and in most industrialised countries (for a survey of the welfare state in ten OECD countries, see Barr (1992)). Througbout the book the term 'welfare state' is used as a shorthand for the state's activities in four broad arcas: cash benefits; health care; education; and food, housing and other welfare services (Larnpman. 1984, Ch. 1).

In broad terms the wclfare state today comprises cash bcncfits and benefits in kind. The latter embrace a wide range of activities, including education, medica!care and more general forms of care for the infim1, the mentally and physically bandicapped, and children in need of protection. Cash benefits have two major components.

l. Social insurance is awarded without an income or wealth test (see the Glos. ry), generally on the basis of (a) previous contributions and (b) the occurrence of a specified contingency, sucb as unemployment or bcing above a specified age.

2. Non-contributory benefits are of two sorts. 'Universal' benefits are awarded on the basis of a specified contingency, without either a con tributions or an income test. There is no convenient shorthand for this type of benefit: such benefits are often referred to (Gordon, 1988, p. 37) as'universal' and, reluctantly, I shall follow that usage. Major examples inBritain are child benefit and the National Health Service (discussed in


8 Concepts

Chapters 10 and 12, respective1y). Social assistonce is awarded on the basis of an income test. It is generally a benefit of last resort, designed to he1p individuals and families who are in poverty, whether as an exceptional emergency, or because they are not covered by social insurance, or as a supp1ement to social insurance.

In practice the Britisb wclfare state can be ta.ken to comprise, at amínimum, the publicly provided benefits (representing about 23.5 per cent of gross domestic product) shown in Figure 1.1, together with the contributions wbich pay for them.Cash benefits foUow the pattern described above. National insurance is payable to people with an adequate con tributions record; benefits covcr, inter alia, unemployment, sickness (sbortand long-tcrm) and retirement, of wbicb the last (not far sbort of 20 per cent of social spending) is much the largest. Non-contributory bencfits include cbild benefit (a weeldy casb payment to thc parent or guardian of every cbild), and income support (paid on the basis of a means test to those with little or no otber income). Tbc major benefits in kiod are the National Hcalth Service (23.5 per cent of total social speoding), education (approximately 21.6 per cent), and housing (6 per cent, plus substantial additional expenditure on cash assistance with housing costs).

2.2 The Objectives of the Welfare State

Tbe objectives of social institutions, as i11 any otber arca of cconomic policy, are efficiency, equity aod administrative fcasibility. In this context, however, it is useful to adopt a more detailed categorisation.

EflideDcy has at least three aspects.l. Macro efficíency: the efficient fraction of GDP should be devoted

to the totality of welfare-state institutions, e.g. policy should seek to avoid distortions which lead to cost explosions.

2. Micro efficiency: policy should ensure the efficient divisioo of totalwelfare-state resources between the differeot cash benefits, different types of medica!treatment, and differeot kiods of education.

3. Incentives: where institutions are publicly funded, their finance and the construction of bencfits should minimise adverse effects (a) on labour supply and employment, and (b) on saving.

Soppordng UYIDg staDclanls, the secood strategic aim, has at Ieast threecompooents.

4. Poverty relief no individuaVhousehold should fall below a mínimum standard of living. As discussed in Chapter 6, therc is no analyticallysatisfactory way of defining a poverty line, so that the definition of the mínimum standard is largely normative. Once the poverty line has been decided, the effectiveness of the system is measured by statistics relating to

1

T01'Al

GDP'(6JI.OI>n

1PUBLIC SPENDINGb

í2.8.Sbo

WELFAR STATE(148-Sb<l (IDO%)

1

SOCIAL SECURITY BF.NEFITS IN KINDBENEATs< OS.9bo ISI. I

02.9bo (49.) 11 1

NATIONAL INSURANCE NON-CONTRIBUTORY NHS EOUCATION HOUSING06.6bn BENEFTTS 04.9bo 02. 1bo !9.01>n(24.6<¡) .00.6bn (2J..S<¡) (21.6<¡) (6. )

(20,6<¡) 1 1

Retirement lnvaltdit f SKkness1 U nemptoymm t Othcr IAComc Child Various HowtnaBenefitPen: oiond Suppon Benefit Diublcmono

llenefit>J!28.01>n !S.7bo (l.lbo (1.5bo (0.4bo (13.0bn !6.01>n (4.2bo ((18.8\t-) (3.811>) (0.7'1>) (). ) (0.3'*>1 (8.7'*>) (4. ) (2.81\) (

;:: a a""'·

g.

a.

g"':::r

5Ia.

o-""

Figure Ll Onrview of IM welfare stalt, UK, 1992/J {tst. )

Soun:ea: UK (1992j.Tab2.1); UK

(1992e, Table 1); UK (1992e, Table 1); UK (1992d, Tables 1 and 2); UK (1992b, Figme 82); UK (1992f, lntroductory Table and Table 9.4); UK (1992g, Figure 1.03 and Appeodix 3); UK {1992h, Tables 1.1 and 12.2).

Notes: 'EstimaiA:d figure.'lncludes cunen!and capital speoding and debt interest.'Figug Uter !han sum of its pans beca use expenditure in Northem lland and on adminiJtration has been included.•1nc1udes widows' bendlt.'lnvalidity bendlt and induttrial disablement and death bendlts.'Excludes statutory sick pay.•At!Cldanc:e aUowanc:e. iovalid care aUowanc:e. sev= disablemeot aUowanc:e, mobility aUowanc:e. disability living allowana: and disabilityworkins allowaru:e.


10 Concepts

how numy people are below the poverty line ('headcount' measures), by how muc/1 ('poverty gap' mcasures), and for lww long (i.e. life-cycle and intergenerational malters) (see Atkinson, 1987b; Fostcr, 1984).

5. Jnsurance: no one should face an unexpected and unacceptably large drop in their living standard. This is a major objective of unemployment benefits and most health-related benefits. Its success is measured by the rcplacement ratio, which shows a person's income when on benefit in comparison with his or hcr previous income.

6. lncome smoothing: institutions should enable individuals to reallocate consumption over their lifetime. As discussed in Chapter 9, individuals canredistribute from themselves at one stage in the life cycle to themselves atanother (an actuaria) private pension scheme); or such redistribution could be notional (an unfunded state pension scheme which embodies an inter generational social contrae!(Samuelson, 1958)). Alternatively, there could be tax-funded provision, with no prctence of individual contributions, to groups whose stage in the life cycle suggests that they are likely to be financially constrained (e.g. benefits for families with young children).

Objectives 5 and 6 are ditferent aspects of the broader aim of economic security. Objective 5 concems unexpected reductions in living standards (i.e.it is mainly an insurance objective); objective 6 concems predictable faUs in income (i.e. it is more a savings objective). 8oth objectives therefore have an efficiency as well as an equity dimension.

Tbe reductlon of inequallty, in contras!, is almost entirely an equity issue.7. Vertical equity: the system should redistribute towards

individuals/families with lower incomes. This aim is contentious. Al! incometested benefits contribute to it to a greatcr or lesscr cxtent; so, second, donon-mcans-tested benefits whose recipients disproportionately have lower incomes (e.g. the UK llat-rate pension). A third form of redistribution arises where the benefit formula favours lower-income individuals. ' Free' provision of a tax-funded service (e.g. health care in Britain) is also generally redistributivc.

The success or othcrwise of benefits in reducing inequality is assessed by inspection over time of aggregate inequality measures, though with all the caveats noted in Chapter 6.

8. Horizontal equily: ditferences in benefits should take account of age, family sizc, etc., and differences in medica) treatment should rcllect only factors which are regarded as relevan!(e.g. whether or not the patient has dependants), but not irrelevant factors like race.

Social integratlon So far the objectives have been conventional economic ones. Sorne commentators include broader social goals.

9. Dignit y: cash benefits and health care should be delivered so as topreserve individual dignity and without unnecessary stigma (Meade, 1978,


lntroduction 11

p. 269). Beveridge emphasised the importance of contributions in this context:

The popularity of compulsory social insurance today is established, and for good reason; by compulsory insurance, ... the individual can feel assured that (hisl needs will be met ...; by paying ... a contribution, he can feel that he is getting security not as a charity but as a right. IBeveridge Report (U K, 19421. para. 296.1

10. Social solidarily: cash bencfits and hcalth care should foster social solidarity, a frequently stated goal in mainland Europe. So far as possible, benefits should depend on criteria which are unrelated to socioeconomic status. Retirement pensions are an example; so is medical care in many countries. Additionally, benefits should be high enough and health care good enough to allow recipients to participatc fully in the lifc of the society in which thcy livc - an aim which relates closcly to thc objectivc of povcrty rclief.

AdmiolstratiYe feasibillty has two aspects.11. lntelligibility: the system should be simple, easy to undcrstand and as

cbeap to administer as possible.12. Absence of abuse: benefits should be as little open to abuse as possible.

Problems of definition aod measurcmcnt abound. Efficiency objectives 1-3 have precise analytical dcfinitions, but measurement problems, particularly the incidence of taxes, contributions and benefits, make it.difficult to assess how far thcy are achieved. How do we define a poverty line in objectivc 4; and how Jargc a drop in living standard is 'unacceptable' (objectivc 5)? The appropriate extent of vertical redistribution and a workable definition of horizontal equity (objectives 7 and 8) have occupied economists, pbil osopbers and political theorists almost since the dawn of time, and have plagued policy-makers at least since the British Poor Law Act of 1601. Evcn 'equality' is difficult to define unambiguously (Okun, 1975, Ch. 3), especiaUy in the context of benefits in kind like health care (Le Grand, 1982, Ch. 2). Conccpts like 'dignity', 'stigma' and 'social solidarity' (objectives 9 and 10) are hard to define and raise major measurement problems. Writers likc Hayek (1976) argue in addition that the term 'social solidarity' is devoid of meaning, and that its pursuit is both pointlcss and dangerous. Thesc problems are discussed in sorne detail in Chaptcrs 3-6.

Even were thesc problems assumed away, a second sct of difficulties arises, in that sorne objectives are inherently in conllict and others may be. The trade-olf between efficiency and distributional objectives, and between horizontal equity and administrative simplicity, are no lcss intractable for their familiarity. Other objectives conflict almos!by definition. lncome smoothing implies that an individual with higher eamings should reccive higher benefits, which sits uneasily with the requirement that benefits should redistribute towards thosc with lower incomes, and with the objective that


12 Concepts

benefits should contribute to social solidarity. On one interpretation of equity everyonc should receive benefits proportional to thcir past con tributions, but that, again, conflicts both with rcdistribution towards lowcr incomcs and with social solidarity.Thc choice of objectives and of prioritics between them is a fundamental normative issue.

Further Reading

The diversity of sourccs of welfare is discussed by Glennerster (1992,Cb.1). Titrnuss (19S8) and Briggs (196Ia) attempt to define the welfare state; see also Esping Anderson (1990). On tbe idea of wetfare see Robson (1976), Pinker (1979) and Higgins (1981).


Chapter 2

The Historical Background

The principie of laissez-faire may be safely trusted to in soma things but in many more it is wholly inapplicable;and to appeal to it on all occasions savours more of the pol cy of a parrot than of a statesman or aphilosopher.(J. R. McCulloch,1848.1

The poverty of the poor is the chief cause of that weakness and inefficiency which are the cause of their poverty.[Aifred Marshall,1S85.)

1 Earty Days

1.1 Poor Relief

Tbe British welfare state is neither the outcome of the Second World Wa.r nor simply the creation of the post-war Labour government. lts roots are ancient and complex. Christian charity to relieve poverty has gradually (though even toda y not wholly) been taken over by state action. And state activity has grown over the years from small scale to large; from local to central; from pennissive to mandatory;and from piecemeal to comp!ex and interrelated. From this tangle, however, four events stand out: the Poor LAw Act of 1601 and the Poor LAw Amendment Act of 1834 were the main legislative bases of poverty relief before the twentieth cent ury; the Liberal reforms of 1906-14 represented a substantial departure from /aissez-faire capitalism and so can be argued to fonn the basis of the welfare state; and the post-war /egislatwn of 1944-8 set the scene for the welfare state as we know it today.

lt should be clear that the question 'how did the welfare state come about?' is vast, so discussion is limited in two important ways. No attempt is rnade at complete coverage; the story is confined for the most part to the Britisb experience, with only a sideways glance at other countries, notably the USA. Tbe question is also controversial; 1 shall sketch out the major arcas of hístorical dispute, but rnake no attempt at resolving them. The chapter is organised chronologically, discussing seriotim the period up to


14 Conceprs

the end of the nineteenth century (section 1); the Liberal reforrns of 1906--14 (section 2); British developments betwcen thc two World Wars (section3); inter-war poverty relief in the USA (section 4); the Second World War and its inunediate aftcnnath in Britain (section 5); and dcvclopmcnts since1948 in Britain and the USA (section 6). Section 7 draws the threadstogether by considering the forces wh.ich created the welfare state.

Among the early motives for public poor relief in Britain were the fear of social disorder and chronic labour shortages in the years after the Black Death of 1348-9. As a result, the state attempted, inrer alia, to control wages and labour mobility in the Statute of Labourers 1351 and the Poor Law Act 1388. Tudor lcgislation grcw away from this repressive and not very effective regirne:

In 1576 the concept of 'setting the poor on work' was enshrined in statute law where it was to remain for something like three and a hallcenturias. 11the able bodied required assistance they had to work forit.and in the 1576 Poor Reilef Act JPs were instructed to provide a stock of raw materials on which beggars could work in retum for the relief they received.(Fraser.1984,p.32.]

1be 1601 Poor Law Act, built on the 1576 Act, adopted a twofold approach: each parish was required to assumc responsibility for its poor; and diffcrcnt treatment was prescribed for three categories of pauper. The 'impotent poor' (the old and the sick) were to be aocommodated in 'almshouses'; the able-bodied were to be given work in a 'house of correction' (not at first a residential workhouse); and those who refused to work were to be punished in this 'house of correction'. The idea was that paupers not able to work should be cared for and the able-bodied should be givcn work; neither regimc was intcnded to be punitivc.

This arrangcment worked modcratcly well for nearly two hundred ycars; but eventually its institutions, locally financed and adapted to a pre industrial economy, carne under pressure from population growth, increased social mobility, industrialisation and econom.ic fluctuations. By 1795 food shortages and inflation resulting from war and bad harvests had spread poverty from thc unemployed to thosc in work. giving risc to various local initativcs, ootably thc Speenhamland system which supplemcntcd wages with an 'allowance' bascd on the price of bread. The novelty of these changes was that they extended aid to people in work. Poor relief, whether under the Poor Law per se or under a local variant, carried less socialstigrna than it was later to acquirc.

Thcse arraogemcnts sooo carne under attack. Bentham believed tbat they caused moral degcneracy amoog recipients. Malthus argucd that poor relicf would cause excessive population growth, and Ricardo tbat it would dcpress wages and thcreby exacerbate poverty. Possibly more importan!than thcse theoretical arguments was the escalating cost of relief, partly due to rising


The Historica/ Background 15

prices (especially of bread), and also because of rising unemployment as soldiers retumed from the Napoleonic wars. As a result the costs (which were met from local revcnues) rose sbarply.

1be Poor Law Report and tbe Poor Law Amendment Act 1834 were consequences of tbis pbilosopbical and financia!climate. A Royal Com mission was set up in 1832; its repon, wbicb was laissez-faire in tone (sec the Glossary), was written by Nassau Senior and Edwin Chadwick, a former secretary to Bentham. The intellectual background to the repon, and particularly the position of the Classical economists on the Poor Law, is often misunderstood. lt is true that Malthus and Ricardo, worried by population growth and shocked by tbe earlier effect of the Poor Law, advocated its gradual repeal. But it is no/ tbe case tbat Nassau Senior (who was, according to Robbins, more in tbc mainstream of Classica.l thought) was against poor relicf. In Senior's view, 'tbe great test whicb must be applied to any projcct of state action in regard to relief is the question whether itlws any tendency to increase that which it is proposed to diminish' (Robbins, 1977, p. 128, bis emphasis). Thus.he supponed public provision for orphans. the blind and the disabled. including provision of medica! treatment and hospitals. He was not in favour of abolishing relief for the able-bodied and their dependants, but insisted on the principie of 'less eligibility', i.e. that relief should be limited to an amount and administered in a manner wbich lefi the recipient worse off than the employed.

The Poor Law Report was entirely consisten!with this approach wheo it argued that the new system sbould contain tbree elements (ofien referred to as 'the Principies of 1834'): the notion of less eligibility. the workhouse test, aod administrative centralisation. Less eligibility was the central doc trine of 1834. lt was not intended to apply to the old or sick, but only to the able-bodied whose indigence, it was argued, would be encouraged by higher benefits.1 The workhouse test (i.e. relief cooditional u pon living in the workhouse) was not a principie, but simply a meaos of enforciog less eligibility. As far as possible, the workhouse would provide a standard of living lower than that of the lowest worker. Additional restrictions were imposed, including the strict segregation of husbands, wives and children. The purpose -of centralisation was to avoid local corruption and incom petence; to ensure uniformity; to eohance cost-effectiveoess; and to promote labour mobility. Tbe difference between the 1601 Poor Law and the Principies of 1834 is importan!. The former was inteoded to give work to the able-bodied without stigma; the latter discouraged claims for relief by making its receipt highly unpleasant and also stigmatising.

1R.eaden may note more tha.n a passin¡similarity betwceo tbes.: ar¡u.mtnts of 1 SO ycars as;o, and thc: mort n:ca\1 debatea dilcusscd in sectioru 6 aod 7. Some tommenta:tors arJUt that part of thc Poor t.aw $pÍrit penísU. e.g. thc ded.ine in u.nemploymtnt bmcfit rdativt: to other bendh.t m Britt.:in in thr 1980s can bt iatct¡>med u a .,... of kst di¡ibility.


16 Concepts

The Poor Law Amendment Act followed quicldy in the wake of the Poor Law Repon. Despite controversy among historians it is now clear that, though the intention of the Act was largely (though in imponant respects not fully) lo implemenl the recommendations of the report, the effect of the Acl in practice was less than appeared in principie. The Poor Law Com mission (in whom the powers of central government were vesled) was never able to bend local administration of the Poor Law to its will, particularly in respect of enforcing the workhouse test. But in other respects, it is argued, the implementation of the Act had more unpleasant effects than was i.ntended by its architects (see Bowley, 1937, Pt 11, Ch. 2). Many people were forced to accept the harsh conditions of the workhouse, and many others endured appalling privation to avoid it. Because of its very cruelty, however, the system became over time a force for change, and thus the1834 Act may be seen as one of thc roots of later developments.

1.2 Other Early Social Legislation

Nolwilhstanding the philosophical underpinnings of the Principies of 1834, laissez-faire was increasingly eroded over the nineteenth cenlury, in three arcas in particular: factory legislation, education, and public health. The firsl Factory Act, passed in 1802, protected women and children by limiting hours and rcgulating working conditions. Althorp's Factory Act of 1833 tighlened the rules and, probably of greater long-run imponance, appointed four inspeclors to enforce its provisions. The latter was implicit acknowledgement of the right of the state to regulate certain social conditions.

The role of lhe state in education staned more gradually (Fraser, 1984, Ch.4; West, 1970). Most schools in the early nineleenth century were charitable and reflecled the prevailing elhos of social deference, Christian morality and voluntarism. The Sunday school movement had an imponant role in teaching reading, often with the Bible as the only text. State intervention staned in 1833 with a grant to Protestan!schools for school building, i.e. as financial help for voluntarism, and from 1847 a grant was paid for a limiled scheme of leacher training. As govemmenl involvement grcw, a Royal Commission was established, though ils recommendations were largely superseded by the Education Act 1870, which gave every child the right (at least in principie) lo sorne form of schooling. School Boards were empowered (but not compelled) to provide elementary education, financed by a mixture of central and local revenues. The resulling system was a compromise in which the new board schools coexisted with the voluntary sector. Laler developments made elementary school attendance compulsory between five and ten (Mundella's Education Act 1880) and vinually free (the Fee Grant Act 1891).


1ñe Historical Background 17

Thus a process of gradual accretion over the nineteenth century led to a system of pri.mary education which was compulsory and largely publicly funded. Of the many explanations of these changes one in particular is a recurring theme - the national efficiency argument, which justified state involvement in education on the grounds that it made labour more productive, thus contributing to economic growth. lt is also argued that the1870 Act was encouraged by the extension of the franchise in 1867, creating a need to educate the growing electorate.

The third breach in laissez-faire was in public health (Fraser, 1984, Ch. 3; Finer, 1952, Chs 5, 7 and 8). In the first half of the nineteenth century, urbanisation (largely the result of the industrial revolution) and population growth caused cities to grow rapidly, leading to a housing shortage and, connected with it, a sanitation problem. The poor in particular were affiicted by typhus and tuberculosis; and a series of cholera epidemics, being water borne, attacked everyone, including the middle classes with thcir ready access to water supplies.

This was the problem. The solution again involves Edwin Chadwick,whose Report on the Sanitary Conditions of the Labouring Population of Great Britain (UK, 1842) was remarkable for the high quality of its statistical analysis. Chadwick originally advocated sewage disposal as a public enterprise on thc grounds that ill-health, by causing poverty, added to the cost of the Poor Law. Thc report, however, included wider grounds for intervention. lts main recommendation (though based on a faulty theory of thc transmission of cholera) was that sewage should be separated from other water through the use of glazed pipes. The report met considerable opposition, both technical and based on financia!, ideological and political argurnents. As a result legislation was delayed, and initially inelfective. After severa! false starts, the Public Health Act 1875 cstablished clear duties for local authorities, and remained the basis of most public health activities until 1936.

This, then, was the situation in the 1870s. The state was slowly becoming involved in increasing arcas of social and economic Iife; but though the Classical economists supported much of the new legislation, the prevailing doctrine was still largely laissez-faire.

2 The Uberal Reforms2

2.1 The Origins of the Reforms

Tbe third major development was the period of the Liberal reforms between1906 and 1914. Historians have debated at length this burst of activity so

•nm oecrion draws oo Hay (197S). See abo the Further Readin¡.


18 Concepls

much at variance with the ideology of the nineteenth-century Liberal Party. Hay (1975) distioguishes three inlluences in particular which bistorians regard as underlying the refonns: pressure from below; chaoged altitudes to welfare provision; and institutional inlluences.

Pressure from below There is a measure of agreement that working-class political pressure was one of the origins of the refonns, though the relatioosbip is far from simple. If refonn was so popular, why was it not a major election issue; and why the long lag between electoral refonn in 1867 and social reform in 1906-14? Pelling deals with the problem by denying the prernise, arguing that working-class pressure was ncgligible:

The members of the working class as a whole, cynical about the character of society as they knew it,were yet fearfulof changa which would more likely be for the worse than for the better.They advanced into the twentieth century with little expectationof socialimprovement being engineered by politicalmeans,andnone at all of the 'welfare state' as we know it today.)1979,p. 18.)

Hobsbawm (1964) argues that it was only unorganised workers wbo opposed rcform. Nor was working-class pressure necessarily importan!for all thc rcforms.

Cbllnglng actitudes to welfare provision among the political élite arose inler alia out of the national elliciency issue. The argument at its simples!was that economic growth depended on a healthy, cducated workforce. In dramatic contras!with the Principies of 1834, a speaker in Parliamentary debate could argue:

The futura of the Empíre, the triumph of socialprogress and the freedom of the British race depend not so much upon the strengthening of the Army as upon fortifying the children of the State for the battle of lile. lHansard (Commons), 18April1905,col. 539, quoted by Bruce.1972,pp. 152-J.I

The inftucnce of the national efficiency arguments is debatcd. At a mínimum they made social reform politically respectable.

A second reason for greater acceptance of intervention was a changedattitude towards poverty. The social surveys of Booth (1902) and Rowntree (1901) and the study of the health of Bocr War recruits yieldcd much cmpirical infonnation. The effects of thcse data on altitudes wcre complex; they suggcstcd that povcrty was more widcspread than had been belicvcd, and that not all poverty, even among the able-bodicd, was due to moral defect. They also raised doubts about the effectiveness of private phi1- anthropy.l

A third inlluence was the rise of collectivism. The 'Oid Liberalism', which was opposed to state intervention, had twofold roots in the 'natural rights'


1ñe Historical Background 19

individualist phi1osophy of writers like Spencer (1884) and in utilitarianism.• Betwccn 1860 and 1900, however, severa! philosophers, though in no sense advocating collectivism, suggested that the traditional definition of individual frccdom as absence of coercion was too narrow. It was argued (e.g. Hobson, 1909, Pt ll, Ch. 10 that 'positive freedom' should include not only economic freedom but also a measure of economic securiry.lt followed that the state, in advancing individual frccdom, should adopt an active role in social reforrn. This was the 'New Liberalism' (see Frccden, 1978).

In the context of these changing ideas the Gerrnan example became important. Betwccn 1883 and 1889,largely as a counter to socialist agitation, the German government under Bismarck had created a broad system of social insurance, under which compulsory contributions gave entit1ement toa system of guaranteed benefits, thereby removing the threat of the means test and poor house. The scheme was investigated by Lloyd George, and had a rnajor influence on the shape of the Nationa1 Insurance Act 1911 (discussed be1ow).

Institutiooal inftneoces on the reforms included pressure groups such as the Friend1y Societies. which represented the idea of working-dass self-help. It is also argued that bureaucracies like the civil service exerted an independent inftuence. McDonagh (1960) describes a process whereby, as awareness of a prob1em grew, a body of experts wou1d be set up to investigate. As a result of its findings awareness of the prob1em increased, and so did the volume of resources devoted to combatting it. Experts thus contributed not only to the manner in which social problems were tackled, but also to the range of issues regarded as the proper province of public policy.

The reforrns were central rather than local mainly because of the reluctance of central government (despite severa! officia1 inquiries) to reform local authority finance in the light of regional inequalities, and the failure of local revenues to rise in step with expenditure.5 FinaUy, the reforrns were outside the Poor Law partly because the latter was financed locally; partly to sidestep the long-established vested interests of local Poor Law institutions; and partly beca use of popular hostility towards the old system.

2.2 The New Measures

Whatever their causes (about which historians continue to argue) and motives (discussed below), the reforms of 1906-14 were substantial by any standards and particularly so in the context of the times. The new measures concemed children, pensions, unemployment, health and fiscal po1icy.

"T'bc important d.istinction betwom • natural ó¡htJ and a utilitarian defmce or individual fracdonl ilat lea¡th in Olapter l. wbieb abo diJamcs tht i6cu or ooUu:ti.;lt writ<n.'lb< ........, of my borrowcd copy o( Hay bu writta> •so whafs .,...q- in the mar¡in.


20 Concepts

OúJdml Tbe Education (Provision of Meals) Act 1906 pennitted (but did not compel) local authorities to provide school meals for needy children; the Education (Administrative Provisions) Act 1907 introduced medica! inspection of school children; and the Cbildren Act 1908 made it a pun ishable olfence for parents to neglect their children. Tbe motives for these Acts were partly hurnanitarian and panly on national efficiency grounds.

Peosioas The Old Age Pensions Act 1908

introduced a new principie into social policy. Hitherto relief had been provided ... from locBifunds and only alter a test of destitution. Now for the first time payments were to be made, as of right, from national funds .. . within strict limits of age and means, but with no test of actual destitution. [Bruce, 1972, p. 178, his emphasis.J

The Act introduced a non-contributory pension of five shillings (25 pence) per week for people over 70 whose income was below í31 per year, thougb it excluded previous recipients of Poor Law relief, and sorne people on moral grounds.•

Uoemploymeot and mlnlmum wages Various earlier proposals to resolve the growing prob1em of unemployment had met with little success (see Harris, 1972). Any acceptable solution had to meet four criteria (Hay, 1975, pp. .5(}-1). lt had to 'make the minimum alterations in thc nonnal worlcings of the labour market lo satisfy individualists, economists and industrialists.' Second, 'it ... had to be large1y seJf.financing in order to avoid unacceptable increases in direct taxation or the reintroduction of tarilfs.' It bad to be separate from the Poor Law to avoid the need to discriminate between the'deserving' and 'undeserving' poor. Last1y, it had to be sufficiently attractive to head off any socialist threat. The resulting package had three elcments: voluntary labour cxchanges would assist the nonnal worlcing of the labour market; there was to be a limited scheme of unemployment insurance; and a Development Fund would finance counter-cyclical public works expenditure, mainly by local authorities.

Thc scheme of unemployment insurance was limited: it applied only to a narrow rangc of industries; only workers eaming less Iban í160 per year were covered; and bencfits wcre low to discourage deliberate unemployment. A variety of other industrial lcgis1ation, including the Trades Disputes Act and tbe Workmcn's Compensation Act in 1906, and the Trade Boards Act1909, gave the govemment limited power to set minimum wages. lt was recognised that unemployment and sickncss were interrelated, so the Nationallnsurance Act 1911 also contained health insurance.The combined

•HistOf)' is full of small anomaües. luJ ldditioD&I RUOO for the pensiocu kplation. 1000nlmto¡

l'dJiDI

(1979, p.11). was1a)lof the Trusury's pune sllinp (bocause oij the l<mporary lull in the navalbuildil>& """'·wbid> wuduc: to the destruc:tioo of Ruuian battlcshipo in the Ruuo-Japonesc War ... Thus in a ocme it ..,.. AdnUral Toao. tbe mor ofTsushima. wbo laid the pounch•'Ork of Old AJe l'l:uliom aod descrva to be mncmbeTcd as tbe arcbila:t of tbe Brililb Wdf11< SUte.'


The Historical Background 21

package was financed by a weekly contribution of 9d, of which 4d was paid by the worker, the rest by the employer.

Healtb Whereas unemployment insurance, according to Hay, was largely the result of working-class pressure, health insurance arose more from considerations of national efficiency. Prior to 1911 there were voluntary hospitals for those who could atrord to subscribe to them; for others Poor Law hospitals otrered free and (for the most part) non-stigmatising health care (Abel Smith, 1964, Ch. 15). The 1911 Act did little to change these arrangements. Cover was extended only to the breadwinner, who was entitled to a sickness (i.e. cash) benefit, free medical treatment and drugs from a panel doctor, and access to a sanatorium.

Fiscal poUcy The fiscal controversies of the period concemed taritrs (which are not the issue here), and progressive income tax.The tra<litional economic argument was that taxation should be based on the principie of 'equal sacrifice' (implying a poli tax), or of 'equi-proportional sacrifice' (implying a proportional tax). 8oth approaches ruled out redistribution through the tax system. By tbe tum ofthe century, bowever, there was limited support for redistn"bution through tax-financed public expenditure. Edgeworth justified progressive taxation by appeal to the ' least aggregate sacrifice' pri.ncipleunder which marginal rather than total sacrifice was to be equalised. Equalmarginal sacrifice plus the assumption of diminishing marginal utility of income together imply progressive taxation.

A ditrerent line of argument by people like Hobson (1908) was thatmonopoly elements resulted in a sub-optimal income distribution, lea<ling to underconsumption. By thus attributing unemployment to under consumption wbich could be remedied by income redistribution Hobson foreshadowed Keynes sorne thirty years before the publication of The General Theory. Others, notably socialists, saw progressive taxation as an issue of social justice, a subject to which we retum in Chapter 3.

A brief assusmeat In assessing the reforrns two hotly debated issues arise: what was their motive (discussed in section 7.1); and were they particularly radical? It can be argued (Marsh, 1980, p. 17) that the virtuaUy simultaneous introduction of old age pensions, unemployment insurance, sickness benefits and progressive taxation, supported by the interventionist philosophy of the New Liberalism, constituted a fundamental break with earlier economic and political doctrines.

However, a eloser look at the individual programmes gives a less clear answer. The pension scheme, albeit non-contributory, was to sorne extent means-tested, and applied only to individuals over 70 who had never received poor relief and were not excluded on moral grounds. Its main purpose, it can be argued, was to improve national competitiveness by weeding out inefficient labour (the national efficiency argument again).


22 Concepts

Unemployment insurance was based in part on a weekly employee con tribulion of 4d (i.e. lurnp-sum and therefore regressive), and applied only lo a few relatively skilled workers in sorne ind ustries. Sickness benefits were financed by the same contribution, wilh similar coverage; and the health care benefits applied only to the breadwinner. It can be argued, therefore, that the refonns were relatively minor and with limited coverage; and that only the pension scheme was substantially redislributive from rich lo poor. The New Liberalism, from this viewpoint, was not very new; it still accepted capilalism unquestioningly, and in that sense was only a reinterprelalion of the Old Liberalism. As we sball see in section 4, strikingly similar issues arise in considering the novelty (or otherwise) ofthe 1935 US Social Security Act.

Nor, in conclusion,were the Liberal refonns in any way unique.Germany, as we have seen, had introduced social insurance in the 1880s, motivated in part by fears of social unrest. New ZeaJand introduced non-contributory pensions in 1898, ínter afia for reasons of national efficiency, in the face of increased intemational competition on an economy highly dependent on its exports. By 1908 Denmark, Ireland, Austria, Czechoslovakia and Australia also had sociallegislation of sorne sort (Pechman el al., 1968, Appendix C; and for more general international comparison Kaim-Caudle, 1973). The Liberal refonns, tbough one of the earlier examples of nationally organised income support. were not the first; nor did they represent a major dis continuity either with previous arrangements or with developments in other countries.

3 The First World War and the lnter-War Period in Britain

3.1 Housing

In contrast with the eventful years belween 1906 and 1914 the period thereafter was largely a time of stagnation in social policy, with the important exception of housing. There were also rnajor changes in unem ployment insurance (section 3.2). In housing, probably more than any other part of the welfare state, past policies, notably during and after the First World War, have a crucial bearing on more recent institutions. Before 1914, virtually all housing was provided by the private market. By and large the system worked well for those who could afford it; but for lhe lowest income groups, particularly in large cities, it led lo overcrowding and squalor (Gauldie, 1974). In a strictly technical sense the bousing market cleared, but policy-makers found thc result unacceptable both for reasons of public bealth and public order, and for more charitable motives. Early legislation had little effect, mainly because it imposed no duty on local authorities to remedy poor housing. Though working-class housing conditions continued


28 Concepls

people outside almshouses, payments were very low; and many localities gave benefits only in kind.

A detailed explanation of why these arrangements changed sharply in the1930s lies outside the scope of tbis chapter and is, in any case, a matter of controversy. 1 sball do no more tban set out the main questions. First, wby did income support at a national leve! begin in tbe USA later than in almost any other industrialised country11 and, moreover, at a leve!whicb by intemational standards was low? 12 The arguments are complex (for an overview see Higgins, 1981, Ch. 4). Most writers concentrate on one or more of tbree sets of factors: the infiuence of ideology (see section 7.1); thc cultural and política! beterogeneity of the USA (Gronbjerg el al., 1978; Katznelson, 1978); and tbe influence of pressure groups (Menscher, 1967; Derthick, 1979; Wcaver, 1982, Ch. 4).

A second question is why the 1930s legislation took tbc shape it did. To a minor extent it was inftuenced by the experience of otber countries, notably Britain, Germany, France,Sweden and Canada.Considerably more important was the desire to bcad off more radical proposals. Douglas (1925) advocated a system of family allowances for dependants. The Townsend Plan in the carly 1930s called for a monthly pension of $150 for everyone over sixty. Simultaneously, Huey Long was pursuing bis populist campaign to 'share our wcalth'.The Social Security Act 1935 was in part 'a compromise measure to bluot the political appeal of the enormously expensive and essentially unworkablc Townsend Plan' (Pccbman el al., 1968, p. 32).

Why, finally, did reform occur when it did? Wcll before the 1930s, pressures for change were emerging out of various long-run developments, notably technologica1 innovation, the decline of the family farm and decreasing average household size (see Wilensky and Lebeaux, 1965, pp.341-8). However, the crisis of the 1930s brougbt developments to a hcad. As unemployment mounted after 1929, local expenditure on relief rapidly outstripped declining tax revenues; and emergency assistance by states ran into similar problems, so that federal participation became inevitable. Under Title 1 of the Emergency Relief and Construction Act 1932, $300 million in federal funds was made available for loans to states to belp in their relief cfforts.n

" By 1930, 27 <OW>tries bad public oc:llemcs or pu>my rdid o( ...,.sort. Amoa¡ indUJtriali>ocl oountries ooly No,.,ay.lapon and Switzerlaod .urted la ter thao che USA (P<dunan "ol.• 1968.Appmdix C). "Why. lo we a oooccpl finl devtlopcd by Wokluky and l..d>eaux (1965) and sumequently adopted by other writen ("" Hiuim. 1981. pp.41-5).did che USA adopta rtsiduol modd o/ W<lfan:? We rttum lotbis iuue in ICdion 7.1."Repaymeol o/ lilac 1oam wu neotually ,...;ved.



4.2 The SocialSecurity Act 1935

Between 1933 and 193S the federal government played an increasing financia! and adminislrative role.Tbe Civilian Conservalion Corps, the Public Works Adminislralion, and lhe Federal Civil Works Adminislration organised public works; the Federal Surplus Relief Corporation distribuled surplus commodities lo the needy;and the Federal Emergency Relief Administralion supervised federal grants to states for unemployment relief. This 1ast had the greatest impact, both at tbe time and through its inftuence on subsequent legislation. Tbe use of federal funds gave federal govemment a measure of inftuence over the stale programmes, in particular on benefit levels and administration, and these features were carried over into the permanenl legislation.14

1be 1935 Sod•l Seauity Act created what, for the USA, was a broad ranging scbeme. lt established two major insurance schemes and three major forros of assistance, administered by a new Social Security Board whose powers and duties were set out in Title VII of the Act.u

Federal Old Age Benefits (Tille 10 were financed by contributions from employees and employers uoder Tille VIII and, as originally eovisaged, were to be ruo largely on actuarial lines with respect to bolh benefit levelsand financing (as we shall see shortly, neither resolve was effected).

Federal assistance to states for unemployment compensation was granted under Title 111, financed by taxes levied on employers under Tille IX. Unl.ike the pension scheme, which was federal, uoemployment insurance was organised by states, whicb had wide discretion over the precise form of their arrangements. Tbough the scheme (being insurance) provided no benefits for individuals currently out of work, this was much the most conuoversial part of the Act, many employers being bitterly opposed to any forro of unemployment compensalion. Nevertheless, by 1937 all the states and terrilories had such a scheme.

Old Age Assistance (Tille I) provided for means-tested cash paymeots to the elderly through federal grants to states with approved schemes. It was envisaged that costs would decline as the insurance benefits under Tille 11 became payable. By 1940, S1 jurisdictions offered OId Age Assistance.16

Aid lo the Blind (Title X) provided federal grants to a pproved state plans of aid to the needy blind. By 1940, 43 states qualified for federal funds.

Aid to Dependent Children (Tille IV) paid federal grants to stales giving cash assislance to famílies with needy children 'under the age of 16 [or under the age of 18 if found by the Stale agency to be regularly attending

"For futtbet clelails of lhc emcraency progaauncs, ,.. US Federal EmaiU'<t Rdief Admini•ltatioo(1942).and US Naciooal Resowccs and Plan.WB.¡ oard (1942. pp. 26-7)."For lhc wordin¡ o( lhc A<:t iudl,,..Social S«urity A<:t, 14 AuJUSI 193$, ch. 531, 49 Stalui<S al

Larp620, ot lor an cdil<d ....000. SI<VCllS (1970, pp. 167-80).


"Th< 48 cootinentalllalel. plus Wubínctoo OC, Alaua aod Hawaii.


30 Concepts

school) ... dcprived of parental support or care by rcasoo of the death, cootinued abscoce from the home, or physical iocapacity of a parcot'. 17

By1949, 42 jurisdictions had scbemes of this sort wbich qualified for federal funds.11

Tbe 1939 amendmeots to tbe Social Security Act stressed its welfare objectives and broadened its scope.Tbe strict actuaria!principies ofthe 1935 legislation were diluted; insuraoce beoefits became payablc to depcndants of aged recipients, and to widows and children of workers covcrcd by thc schemc; payments wcrc to bcgin in 1940 ratbcr than 1942; bencfits were tied to average earnings over a mínimum period, thus brcaking the link with lifetime contributions; and the earnings test prescribed by the 1935Act was slightly liberalised before the first benefits were paid.19 Tbe financial basis of the scheme also changcd.Tbe intention of accumulating an actuaria! fund was abandoned, and benefits for the elderly and their dcpendants paid almost entircly out of currcnt contributions (i.e. thc scheme was organisedon a 'pay-as-you-go' rather than a 'funded' basis, an issue discussed alleogth in Chapter 9).

A brief assessment To a grcater extent than the Liberal reforms, the Social Security Act can be criticised as in certain respectS timid. Tbe Act, admittedly, was an improvement on earlier arrangements: the rangc of benefits was broader, the age requirements for retirement more liberal, and the eligibility restrictions on residence and citizenship less stringent; and bencfits were paid in cash, this being a condition of the federal contribution to state schemes.

In importan!respects, however, 'the ... Act may be rcasonably rcgardedas a conservative legislative solution to a difficult and explosive problem' (Pechman et al., 1968, p. 32). First, though the federal government eosured some uniformity, statc programmcs still varied widely in terms of bcnefit levels and eligibility requirements. Second , the insurance arrangements were severely constrained: in 1940 only about 60 per cent of workers were covered; benefits were intended originally to bear a fairly simple relationship to contributions, thus ruling out any substantial redistribution (though tbis aspect was relaxcd somewhat by the 1939 amendments); and the insurance benefits were subject to an earnings test. Third, tbe assistance measurcs were categorical, i.e. they granted aid only to individuals falling into one of the thrce categories, aged, blind, or dependent child, since it was felt tbat only these groups should ever require assistance during times of high employment.

"Social Sccurity Act 19JS, lítk IV, soctioo 406(a). Pbrue ío bn<:kets ldded by ao ameodment ío 19)9.

"A funller eí&bt ma(AWU. Coone<tiout. lllínois, Kcntuety, MissWíppi. Nevada, Soulh Daltota aDCI Teust operatcd J<bem<s without federal funds (US Natíonal Resouroes and Pbnnin& Board, 1942. p. Sl). "Th<se ch.luges wm: bat<d oo n:commendatíons in US Advisory Couneíl oa Social Sccurity (19)8). wbícb rontaíos valuable bacteround ínrorma1ioo. For dctaíb o( 111< kJÍSiatíY< history, ""' My<n (196S, Ch.4) or. more: bridly, l'l:chman <1 al. (1968, Appendíx 81.



Further Reading

Good general texts on the historical development of tbe British welfare state are Bruce (1972), Fraser (1984), Marshall (1975) and Thane (1982). For a shorter account, see Glennersler (1990). Conlemporary discussion of 1be 'New Liberalism' can be found in Hobson (1909); for recenl analysis of economic and political thoughl al lhe time, see Robbins (1977) and Freeden (1978). For a brief inlroduction lo early poor n:lief, see Rose (1972); on lbe principie of laissez-fai.rr, Taylor (1972); and on the Liberal n:fomu, Hay (1975) (brief) or Gilbert (1973) (compendious). The early debates on unemploymenl are detailed in Harris (1972) and a history of health care prior lo 1948 in Abe!Smilh (1964). A brief official historical accounl is given in UK (1985d, Ch. 3).

The origins of the modem welfare state are discussed explicitly by Harris (1977) (a magisterial biography of Beveridge) and Titmuss (1958) (who stresses the inftuence of tbe Second World War). The Beveridge proposals are conlained in UK (1942) and !hose for lhe National Health Service in UK (1944a). Detailed hislorical stalistics for lhe UK from 1855 to 1965 can be found in Feinslein (1972). For thc modcm inslilulions, see ToUey (1991). Glcnncrsler (1990) assesses tbe posl-war dcvelopment of the Brilish welfare stale. For a detailed account of thc British welfare stale since the mid-1970s. see HiUs (1990).

For contemporary accounts of US developments in the 1930s, see Douglas (1939),US Federal Emergency Re1ief Administration (1942) and US National Resources and Planning Board (1942). For retrospective analysis, see Allllleyer (1966), Scbott land (1963) or Witte (1962); and for 1ater debates, Tobin (1968) and US (1969) (a remarkab1e document). Details of US legislation are given in S1evens (1970).

For dilfering interpretations of the origins of the welfare slale, including discussionof the theory of convergence, see Higgins (1981, Ch. 4) and Misbra (1981, Ch. 3) for a summary; and for specific views, Wilensky and Lebeaux (1965) and Rimlinger (1971). A more general intemational comparison is given in Kaim-Caudle (1973). For a compendious summary of instilutions intemationaUy, see US Department of Health and Human Services (1989).


Chapter 3Political Theory: SocialJustice and the State,

The fundamental issue [of the welfare statelis not economic. lt is moral...The issue is the responsibility of people to manage their own affairs...lsit not the case that while adutls manage incomes children receive pocket money? The operation of the welfare state tends to reduce the status of adults to that of children. [Lord Bauer,1983.1

[The) major evil [of paternalistic programs) is their effect on the fabric of our society. They weaken the family;reduce theincentive to work. save and innovate; reduce the accumulation of capital;andlimti our freedom. These are the fundamental standards by which they should be judged. [Milton Friedman,1980.1

Tradtiionalsocialism was largely concerned with the evils of traditional capitalism.and wtih the need for its ovenhrow.But today traditoi nal capitalism has been reformed and modified almost out of existence,and it is with a quite different form of society that socialists must now concern themselves. [Anthony Crosland.1956.1

1 Theories of Society

A society is a co-operative venture for the mutual advantage of its members. lt generaUy contains both an identity of interests and conflicts of interest between indiv duals and groups. The institutions of any society (e.g. its constitution, Jaws and social processes) have a profound inftuence on a person's 'life chances'. The purpose of a theory of society is to offer principies which enab e us to choose between different social arrangements.In analysing the welfare state it is helpfulto distinguish three broad types of theory: libertarian; liberal;and collectivist.

Libertarians (discussed in section 2) are inmany ways the direct descendants

' Readen with a U.rul<d bactaround in political theory ao find th< aist of th< ar¡urneot in tb< Appeodixto this c:hapter.


Social Justice and the Sta/e 45

of the 'Oid Liberalism' of the nineteenth century (Chapter 2:1.1 and 2:2.1) although, as we sball see, there are important differences between 'natural rights'and 'empirical' libertarians.The former (e.g. Nozick) arguc that state intervention is morally wrong except in very limited circumstances. The latter, including writers like Hayek and Friedman, are the modem inheritors of the Oassical liberal tradition;2 they argue against state intervention not on moral grounds, but because it will reduce total welfare. 8oth groups analyse society in terms of its individual members (as opposed to the group or social class); give heavy weight to individual freedom; and strongly support private property and the market mechanism. As a result, the state's role vis-a-vis taxation and redistribution is severely circumscribed.

liberal theories (section 3) are the modero inheritors ofthe 'New Liberalism' (Chapter 2:2.1). They find their philosophy in utilitarianism (section

3.1) and in writers like Rawls (section 3.2); their policy advocates in people like Beveridge, Keynes and Galbraitb; and their practitioners in politicians

like Harold Macrnillan and Jobo Kennedy.The theory has three crucial features. First, societies are analysed in terms of their individual members.

Second,'private property in the means of production, distribution and exchange (is]a contingent matter rather than an essential part of the doctrine' (Barry,1973, p. 166), i.e. the treatment of prívate property is explicitly regarded not as an end in itself, but as a means towards tbe achievement of policy goals. FinaUy, liberal theories contain 'a principie of distribution which could, suitably interpreted and with certain factual assumptions, have egalitarian implications' (ibid.), i.e. in certain circumstances income redis tribution is an appropriate function of the state. This book, as Chapter 4 will amplify, is firmly in the liberal tradition.

CoiJectlrist theories, too, are varied. Marxist theory (section 4.2) draws its pbilosophy from Marx and its policies from writers like Laski, Strachey and Miliband. The theory sees industrial society as consisting of social classes, defined narrowly in terms of their relation to the means of pro duction. Private property has only a limited role, and the allocation and distribution of resources in accordance witb individual need is a primary concem of the state. Fahian socialists (section 4.1) present an intermediate case. They derive their philosophy from writers like Tawney, and find their policy advocates in, for example, Crosland and Titmuss, and their practitioners in politicians like Qement Attlee. Though sharing to sorne extent the egalitarian aims of Marxists, their analysis and methods have mucb in cornmon with liberal thinking.

1Tbcte il a cont'U:Jin& ambipity ln tbe ux of the word 'liberal'. la tbe nioetoc:Dth oeatu.ry it was UICd as a labd for tawe:{olu lhinket1 like llnltham and Nwau Se!úor (Chapt<r 2:1.1): and tnday a writ<rke Fricdtna.n.. in ca.D.in& hirmt.tr a libaal, iJ using the letm in the samr way. 1 shall, throu¡hout. rerer to such wrilen u tiberl&rians. and uae tbe t<rm ' beral' in the ...,.deaeribcd below.

46 Concepts

In practic:e the theories blur into each other like the colours of the rainbow - but it is useful for exposition to talk about them as separate entities, especially wben contrasting their implieations for policy (section 5). Never theless, their differences and similarities are complex, and involve subtleties well beyond the scope of one brief chapter. The purpose here is limited to sketching the ideological debate only in outline. Knowledgeable readers will, 1 hope, be forgiving.

2 Libertarian Views

It is necessary to retum briefty to nineteenth-century debates (Chapter 2:1.1 and 2:2.1). The ideology of laissez-faire derived from two quite distinct sets ofphilosophical arguments. When modero writers like Hayek and Friedman advocate free markets and private property, they follow Hume (1770), Smith (1776), Bentharn (1789) and Mili (1863) in doing so on a utilirarian or empirical basis, out of a belief that such institutions maximise total welfare. Nozick, in contras!, follows Spencer (1884) by defending private property on moral grounds, as a natural right (see Robbins, 1978, pp. 46 et seq.). Though not completely watertight, the distinction between the two views (exemplified by the first two quotes at the bead of the chapter) is crucial to debates about policy (section 5), and so merits closer attention.

NataraJ rigbts Hbertarians To Nozick (1974) evcryone has the right to distribute the rewards of his own labour. He calls this justice in holdings, which has three elements. A person is entitled to a holding if he has acquired it (a) through eamings (so-called justice in acquisition), or (b) through the inheritance of wealth which was itself justly acquired Gustic:e in transfer). Holdings which fall under neither principie cannot be justified, henc:e, (e) govemment may redistribute holdings acquired iUegally (the principie of rectification).

These propositions support the libertarian predilection for a minimalist or 'nightwatchman' state with strictly circumscribed powers: the state can provide one and only one public good, viz. the defenc:e of our person and property, including the enforcement of contracts; but other than correcting past wrongs it has no legitimate distributional role. Nozick regards taxation as thefi (sinc:e it extracts from people money (legitimately acquired) which they would otherwise have allocated in other ways), and also as slavery, in that people are forced to spend part of their time working for govemment.

Empiriall Ubertarians Hayek's theory has three strands: the primacy of individual freedom; the value of the market mechanisrn; and the assertion that the pursuit of social justice is not only fruitlcss (because there is no such thing) but actively harmful because it can (and, he argues, will) end

• Material pro gido por derechos do autor


Social Justice and the Sta/e 47

up destroying individualliberty. Freedom to Hayck (1960, Ch. 1) and other libertarians is dcfined narrowly as absence of cocrcion or restraint; it includes political liberty, free spccch and economic freedom. Coercion is legitimate only in strictly limited cases, such as tbe protection of individual liberty (ibid., Ch. 9). Individualism is tbe corollary of freedom, and the two are interdependent;1 the pursuit of equality wiU reduce or destroy them (Hayek, 1944).

To Hayek the market is bene6cial because it is efficient, and because it protects individual freedom.

lit isl a procedure which has greatly improved the chances of all to have their wants satisfied, but at the price of all individuals . .. incurring the risk of unmerited failure.Wrth the acceptance of this procedure the rerompense of dffferent groups and individuals becomes exempt from deliberare rontrol. lt is the only procedure yet discovered in which information widety dispersad among millions of men can be effectivety utilised for the benefit of all - and used by assuring to all an individualliberty desirable for itself on ethical grounds.IHayek, 1976, pp.70-1, my emphasis.J

Tbese advantages arise, aocording to Hayek, only if prices and wages are allowed to act as signals to individuals as to where to direct their cfforts. An individual's reward will be tbat which induces him to act in the common good; it will often bear no relation to eitber bis individual merit or bis need.

Hayek's view of social justice contrasts sharply with that of Rawls. Aocording to Hayek, a given circumstance (e.g. winning the pools, or dying young) can be regarded as good or bad; but it can be described as just or unjust 'only in so far as we hold someone responsible for bringing it about or aUowing it to come about' (ibid., p. 31). Thus something isjust or unjustonly if il has been caused by the action or inaclion of an individual orindividuals.Tbe market, in contras!(ibid., pp. 64-5), is an impersonal forcelike 'Nature', akin to an economic game with winners and losers, whose outcome can be good or bad, but never just or unjust. To Hayek, therefore, the whole notion of social justice is 'a quasi-religious superstition of the kind wbich we should respectfully leave in peace so long as it merely makes those bappy who hold it' (ibid., p. 66). However, 'the striving for [social justice] will ... lead to tbe destruction of the indispensable environment in wbicb the traditional moral values alone can flourish, namely personal freedom' (ibid., p. 67). The reason is that

the more dependen! the position of individuals ... is seen to become on the actions of government, the more they will insist that the governments aim at sorne recognisable scheme of distributiva justice; and the more governments try to realise sorne preconceived pattern of desirable distribution. the more they must subject the position of the different individuals ... to their control. So long as the

'S..partículatly lb< nplaulion of indivldoalian in lúyet (1944, p. 44).


48 Concepts

belief in 'social justice• govems política/ action, this process must progressively approach nearer and nearer to a totalitarian system. (ibid., p. 68, my emphasis.)

Friedman's views are broadly of the same stripe. His prima.ry value isindividual freedom. Hence

the scope of government must be limited. lts major function must be to protect our freedom both from the enemiesoutside our gates and from our fellow-citizens: to preserve law and order, to enforce private contracts, to foster competitiva markets. Beyond this major function, government may enable us at times to accomplish jointly what we would find it more difficult .. . to accomplish severally. However, any such use of govemment is fraught with danger.We should not and cannot avoid using govemment this way. But there should be a clear and larga balance of advantages before we do. (1962, pp.2--'3.)

To Friedman and Hayek the state has no distributional role, other than for oertain public . goods and for strictly limited measures to alleviate destitution.

3 Uberal Theories of Society

3.1 Utilitarianism

The utilitarian arguments which form the basis of much of this book derive from the 'New Liberalism' of the early twentieth century (Chapter 2:2.1), whicb was itself finnly rooted in tbe nineteenth-century Classical tradition. Thus modero utilitarians have common intellectual roots with empírica! libertarians.

The utilitarian aim is to distribute goods so as to maximise tbe totalutility• ofthe members ofsociety.'Goods' are interpreted broadly to includegoods and servioes, rights, freedoms and political power. Maximising total welfare has two aspects: goods must be produced and allocated efficiently (discussed in Chapter 4); and they must be distributed in accordanoe with equity (though not necessarily equally). The equitable distribution is shown in Figure 3.1. Total income to be distributed is A.B. Individual A's marginal utility (read from left to right) is shown by the line aa, and is assumed to diminish as his income rises. Individual B's marginal utility, which declines from right to left, is shown by the line bb.Total utility is maximised wben income is shared equally; A's income is A C, and B's is BC.

•synooymousty.to m.a..Umise total happi.Deu or total wdfan:.

Malcrial pro gido por derechos do autor

--

Social Justice and the State 49

a ¡.... .... b

b• r-"' --- -- b'

_.' r--- '1

b _. 1 ..... a11

A e D B

Figure 3.1 Tht optimal distributlon of /neo- undu utüitarlan/.rm

Utilitarianism can therefore justify redistributive activity by the state in pursuit of an egalitarian outcome; but this result depends crucíally on two conditions. First, A and B must have identical marginal utility of income functions.) lf B's marginal utility is shown by b'b', thcn thc distribution which maximises total wclfarc is uncqual, sincc A now has an incomc of AD. Second, utilitarianism can fully specify the optimal distributíon only where the utility of A and B can be measured cardinally.6

Various criticisms have beco rnade of thís approach. lt is asked whetherutility is capable of precise definition; whether interpersonal comparison of utility has any meaning; and whose utility counts (e.g. future generations, animals, etc.).These questíons are set to one síde to focus on the fundamentalcriticism, namely that utilitarianísm can sanction injustice by justifying harmto the least well-off íf this maximíses total utilíty. 'The trouble wíth [utilitarianism] is that maximísing the sum of individual utilítíes ís supremely unconcemed wíth the interpersonal distribution of that sum' (Sen, 1973, p.16).

Formally, suppose that individual B in Figure 3.1 derives less pleasure from lífe than A because he has major health problems. His marginal utility is shown by the line b'b', and the optirnal distribution of goods by point D. Thus B should receíve less income than A because of hís health problems. Thís outcomc is criticised as beíng unjust.

' Strictly, ....,ol other (ltdWcol) condítioiU.,..-ry. •·11- that thc Wldetlyin& social 'Oifar< fUDCtion is I)'IIVII<tric and coaca.. (... Chapte< 6:I.Z). For furtbcr diocuuion o( Paian utilitarianism and ill underlyin& UIUIIlpÚODS, occ Rowley and Ptacod< (197S, Cb.1).•For thc ddlnition of ardiul utllity,...thc Olotsary.


50 Concepts

3.2 Rawls on Social Justice

Rawls in sorne ways is Nozick's liberal counterpart. Nozick is a natural rights defender of liberty. For Rawls the natural right, and hence the prime aim of institutions, is social justice: thus 'each person possesses an inviolability founded on justice that even the welfare of society as a whole cannot override' (1972, p. 2). Justice, to Rawls, has a twofold purpose:itis desirable for its own sake on moral grounds; but also, and importantly, institutions will survive only if they are perceived to be just. Rawls argues that there exists a definition of justice which is both general (i.e. not specific to any particular culture) and can be derived by a process which everyone can agree is fair. The resulting principies deal with the distribution of what Rawls calls 'primary goods', i.e. economic goods, and also position, opportunity, skill, liberty and self-respect.

1be original positloo is Rawls' starting point. He assumes that each person has goals which are facilitated by the possession of these primary goods, and invites us to contemplate a group of rational individuals, each concemed only with bis own self-intcrcst, coming togethcr to negotiate the principies of justice. They are free agents in the negotiation, but they must abide by the resulting principies. Rawls thus uses the convention of a social contraet.

In this situation no discussion between interested parties will yield principies of justice which command universal acceptance. Rawls therefore abstracts the negotiators from their own society by placing them behind a veü of ignorance.They are assumed to be well-informed about the general facts of the world - psychology, economics, sociology, etc. - but each is deprived of al/ knowledge about himse/f. i.e. of his natural characteristics or endowments, bis position in society, and the country or historical period into wbich he is bom. The negotiators seek to advance their own interests, but are unable to distinguish them from anyone else's.

The role of the veil of ignorance is best íllustrated by example. To distance ourselves from personal interests we (i.e. citizens through our elected representatives) may decide that aircraft hijackers' demands should never be met, even if innocent lives are lost. We do this in order to save even more lives in the long run; and we establ.ish this doctrine in advance of the event (i.e. behind !he veil of ignorance) because if it were our personal loved ones who were kidnapped we would be likely to do anything to save them, irrespective of the possible consequenees for othcrs in the future.

The negotiators can consider any principie of justice, e.g. the just action is that which is in the interests of the stronger; or that which ennobles the species; or that which maximises total utility. According to Rawls, the rational negotiator wiJI reject all these definitions because under each he might systematically be underprivileged. The only rational choice is to select principies in terms of what Rawls calls the 'maximin rule' wbich maximises the position of the least well-off individual or group. The



negotiators do this because 'for all they know they may tum out to be the least privileged inhabitants of a country like South Africa' (McCreadie,1976, p. 117).

The original position, together with the veil of ignorance, plays twodistinct roles. First, it is an analytical device, which 'reduc[es) a relatively complex problem, the social choice of the principies of justice, to a more manageable problem, the rational individual choice of principies' (Daniels,1975, p. xix). Secood, and possibly of greater importance, Rawls sees theprocedure of ratiooal, self-ioterested negotiation behind the veil of ignorance as a moral justification of the resulting principies - they will be seen to be fair, he argues, because they are selected in a manner wbich is both rational and fair, hence his term 'justice as faimess' .

1be principies or jastice wbich follow are those which Rawls claims would be chosen ratiooally and uoanimously by the negotiators. Because of the veil of ignorance, they will choose to maximise liberty for everyone. Hence:

The first principie (the 'liberty principie'): 'Each person is to have an equal right to the most extensive basic liberty compatible with a similarliberty for others' (Rawls, 1972, p. 60).

The negotiators then tum to the distribution of the other primary goods. Each will reject any principie of distribution wbich could leave him disadvantaged or exploited.

The negotiators may consider a principie that mandates a thoroughly equal dis tribution of goods . .. But they will soon come to realise that they stand to benefit by the introduction of cenain inequalities in the distribution of advantages. For example. giving a rural(doctorl an airplane would make him relatively advantaged. but even -and perhaps especially -the least advantaged among the rural populace stand to benefit as a result, and thus should sanction such inequality. (Gorovitz,1975. p.281.1

Hence:The second principie (the 'difference principie'): 'Social and economic

inequalities are to be arranged so that they are both (a) to the greatest benefit of the least advantaged and (b) attached to offices and positions open to all under conditioos of fair equality of opportuoity' (Rawls, 1972, p. 83).

The possibility of a conftict betweeo the two principies is ruled out by a priority principie, wbich gives the first principie absolute priority over the secood. A reduction in the liberty of, for example, the least well-off cannot be justified even if it is to their economic advantage. In addition, in the second principie he gives priority to part (b) over pan (a). Subject to these priorities the two principies can be regarded, more simply, as a special case of a more general conception of justice, in wbich 'all social primary goods liberty and opportunity, income aod wealth .. . are to be distributed equally unless an unequal distribution of any or all of these goods is to the advantage


52 Concepts

of the least favoured' (ibid., p. 303). At its simplest, the distribution of goods between individuals A and 8 in Figure 3.1 should be lhal shown by poinl C unless any other distribution benefits the less advantaged of the two. lf goods are nol so distributed, then any policy wbich improves the position of the less well-off would be an improvement according to RawlsY

Rawls lUid utilltariaDism Rawls is an explicil opponenl of utilitarianism. He regards il as illogical (inasmuch as il would be rejected by ralional negolialors in lhe original position) and as unjust (in thal it can sanclion injustice in the interests of maximising total welfare). The two theories can have very differenl implications. Suppose a given policy cbange malees at least one person better-off without making anyone else worse-off. This is an increase in Pareto efficiency;and hence desirablc to utilitarians even if tbe individual thus bencfited were rich. Rawls' difference principie, in contrast, would oppose the policy unless it were also (tbough not necessarily only) lo the advantage of the least wcll-off. Thus an efficient answer in Paretian terms will not always be a just answer in a Rawlsian sense (though, as argued in Chapter 4:2.2, it may be possible to find a distribution wbicb is both just in a Rawlsian sense and Pareto efficient).

Critldsms of Rawls' tbeory are summarised only briefty. It has been argued that the veil of ignorance wouJd be immobilising, i.e. the negotiators would be unable to make any decisions at all. According lo Nisbet (1974, p. 112),

(lhe negotiators) don't know much of anything - anything, that is, that we are justified by contemporary psychology in deeming requisita to thought and know ledge of any kind whatever.Nevertheless,Professor Rawls is shortly going to put his happy primitivas through feats of cerebration that even the gods might envy. Out of the minds of his homunculi, these epistemological zombies who don't know their names, familias. races,generation or societies of origin,are going tocome principies of justice and society so vast in implication as to throw all presenthuman societies into a philosopher's limbo.

Miller (1976) (discussed shortly in more detail) similarly argues that remov ing al/ cultural Jcnowledge will immobilise the negotiators; but failure to do so, though pennitting them 10 make a decision, will result in a cuJiure bound definition of justice.

Criticisms of the firsl principie concem Rawls' dcfinition of liberty and bis assertion of its primacy. It is argued 10 tbat Rawls' list of liberlies may be too narrow; that the principie of toleration (e.g. of divcrsity of goals)

'Undct lbc lelical utcosioo of lbc dilferencc prú>ápk aay poli<y lhould baldit lbc worst-olf in<livídual; if belsbt il inditf'trmt, il sbouJd beoefh tbe next WOI'R'-Oif, and so on. Jlawll lhUJ admits a poUq wbiclt bmdiu ""''lbc belt-olf. províded lhat e>eryooc <be is iodilferent 10 it.'FormaJJy, 1utilitari&o social wdfare functioo (oec Cbap<er 4:1) <loes not OI>I!Jirain lbc way indivíduall arewei¡I>Ud; 1R1v.1Jian oocial welf1rt 1\mction ,;... inJirute weiaht to the least-advanta&<d indivicluallsroup.'See Cbapter 4:2.1 aod lbc Appeodj>IO Cbapter •. puas 2-4."S.. Danieh(197S,pp. uvüi-ui1)1nd the dlapten thertin by Kart, Scanloo. Danids aod Fdt.


Social Justice and tlw State 53

inherent in Rawls' definition of liberty may reflect class bias; and that sorne issucs are left unresolved, e.g. what liberty should be accorded racists? AdditionaUy, Barry (1973, p. 6) and Hart in Daniels (1975, p. ux) dispute the priority given lo liberty. Poor people might weU be willing to trade sorne liberty for greater social or economic advantage.The second principie is criticised for its crucial dependence on maximin whicb, it is argued (Letwin, 1983, pp. 22-9; Arrow, 1973a), is tbe optirnal outcorne only under very rcstrictive assumptions. lt is also criticised by Marxists as being incompatible with any substantial degree of class conflict.

FinaUy, sorne writers argue tbat Rawls has developed nota general theoryofjustice, but a liberal theory. Rawls set out to find an 'Arcbimedean point' frorn wbicb a culture-free definition of justice could be derived, but

in the end the 'Archimedean point' for judging the basic structure of society that Rawls seeks eludes him. Every political theory, and every theory of justice, expresses a particular political and moral perspectiva. Rawls' achievement, which is considerable, is indeed to have produced a theory of justice -a theory of li beral democratic justice. llukes (19721quoted by Daniels, 1975. p. xvi.l

Mlller's anaJysis of social justke Miller (1976) argues that a completely general theory of justice is logicaUy impossible, and that in tbis rcspect Rawls was bound to fail. According to MiUer, social justice has three distinct elements:

• Rights, e.g. politicalliberty, equality before the law.• Deserts, i.e. the recognition of eacb person's actions and qualities.• Needs, i.e. the prerequisitcs for fulfilling individual plans of life.

The 'deserts' aspect implies, ceteris paribus, that someone who works longer hours sbould receive more pay, and the 'needs' aspect tbat an individual incapable of work should not be allowed to starve. Though admitting the difficulty of precise theoretical definition, Miller argucs that eacb element is a logically distinct principie embodying a particular type of moral claim.

It is easy to see that rights and deserts can be reconciled (e.g. a man should have the right to keep all his income if he has earned it legally); similarly, rights and needs can be compatible (e.g. aman should be entitled to health care if he is ill). But conflict can arise between desert and need: if1 am ricb and healthy and you are poor and ill, then either 1 am taxed (and do not receive my deserts) to pay for your medical treatment, or you receive no treatment (hence your need is not met) so as to protect my deserts.

The essence of Miller's argument is that the definition of social justice depends crucially on the type of society being discussed. In a pure market economy, justice will be defined in terms of rights and the requital of deserts. A collectivist defines justice as distribution according to need.


Miller thus argues that the different principies of justice are connected to wider views of society. He criticiscs utilitarians and Rawls, first, because


54 Concepts

tbey take no explicit account of tbe conflicting claims of rigbts, deserts and needs, but blur tbem into a single, indistinct wbole. Second, Miller criticises tbe view implicit in Rawls tbat there is a single conception of justice upon wbich everyone's definition will converge, arguing instcad tbat justice compriscs conflicting principies, tbe relative weigbts attached to wbich may vary sharply between different societies.

The whole enterprise of constructing a theory of justice on the basis of choice hypotheticalty made by individuals abstracted f rom society is mistaken. because these abstract ciphers lack the prerequisites for developing conceptions of justice.!Miller,1976, p. 341).

Or if they do manage to malee choices, it must be in terms of culturally acquired attitudes. In short, tbe negotiators in tbe original position will be immobiliscd unless tbey bave sorne knowledge of the nature of tbe society for wbicb they are cboosing rules of justice. Finally,

Rawls individ uals are given the anitudes and beliefs of men in modern market societies, and it is therefore not surprising that the conception of justice they . . . adopt should approxirnate to the conception ...dominant in those societies. (i bid., p. 342.1

Hence, he argues, Rawls fails to develop a general theory of social justice;such generality is not possible.

4 Collectlvlst Vlews

4.1 Fabian Socialism

Collectivist writers agree on tbe importance of equality. They rcgard resourccs as available for collective use, and conscquently favour govern ment action; but bistorically they have disagreed about whetber socialist goals could be achieved witbin a market order. Sorne writers advocate a milted economy which blends prívate enterprisc and state intervention; Marxists (discusscd in section 4.2) argue that tbis is not possible; that capitalism is inherently unjust; and that socialism is possible only where the state controls tbe aUocation and distribution of most resourccs.

SocWlst aims vary widely, but tbree are central - equality, freedom and fraternity. Equality is a variant of tbe vertical equity aim discusscd in Chapter 1:2.2, and fraternity of tbe social solidarity aim. lt is recogniscd tbat thesc aims can clash; and dilferent writers accord them different weight; but togetber they make up the socialist definition of justice. In Mi.ller's terms the dominant themes are rights and needs, witb descrts (tbough not entirely lefi out) assigned a smaller role.

Tbere is a measure of agrcement (Tawney, 1953 and 1964; Crosland,


Social Justice and the State SS

1956; and, for a counler-view, Donnison, 1972) lhal lhe crucial elemenl of juslice is equalily, wh.ich lo socialists is an active concept. Equalily of opportunity on ils own may be insufficient (Laski, 1967, Ch. 4; Tawney,1964), since substantial inequality of outcome may persist. Positive equa lising measures are needed, though nol necessarily complete equality of outcome.

Such emphasis on equality bears closely on Miller's concept of need.Weale points out that 'in sorne political arguments ... the assumption is made that to distribute according to need is to satisfy the claims of equality' (1978, p. 67), but suggests (Ch. S) that tbe relationship is rather more complicated. For present purposes we need only note that equality and meeting need are closely related concepts, though not logically equivalent.

The socialist concept of freedom is broad. It embraces the free exercise of individual choice (which is possible only if there is no poverty and no substantial inequality of wealth and power), and extends from legal and political relations to economic security. Thus individuals should have sorne power in relation to their conditions of work, including stability of employment, and should not be subject to the arbitrary power of others. In sharp contras!with libertarían views,

the socialist believes that freedom is the product of govemmentactionrather than govemmentinaction.Only govemment action through law, economic.social and fiscal policy can redistribute freedom so that its exercise can become a reality forall. IGeorge and Wilding.1976.p. 66.1

The third rnajor value is fratemity. To a socialist this

means co-operation rather than competition, en emphasis on duties rather then rights,on the good of the community rather than on the wants of the individua,lon altruism rather than self-help.libid.,p. 66.1

Altruism (e.g. Titmuss, 1970) is a recurring theme in later chapters.

Sodalist crlticlsm of tbe free market starts with the motive given toindividuals to pursue personal advantage rather than the general good (see Tawney, 1921), and denies the l.ibertarian assertion that the former brings about the latter. Second, the market is undemocratic, inasmuch as sorne decisions with widespread effects are taken by a small power élite, and others are left to the arbitrary dislributional effects of markel forces. Third, the market is unjust because il distributes rewards which are unrelated lo individual need or merit, and because the costs of economic change are dislributed arbilrarily. Fourth, the free market is not self-regulating; in particular, left lo itself, il is uoable lo maintain full employment. Lastly, the market has not been able to abolish poverty, Jet alone inequality. In sum,

production is carried on wastefully and without adequate plan.The commodities


56 Concepts

and services necessary to the lite of the community ere nevar so distributed es to relate to need or to produce e result which meximises their socialutility. We build picture palaces when we need houses. We spend on battleships whet is wanted for schools ...We have, in fect,both the wrong commodities produced, and those produced distributed without regard to socialurgency.(Laski,1967,p.175.( 11

Socialists are in general agrecment over the failings of the free rnarket, and in tbeir choice of aims, but tbey part company over tbe bcst way of acbieving them. Though tbe distinction is far from watertight, and is disputed by sorne writers, it is useful for exposition to contras!the 'fun darnentalists' (largely Marxists), wbo reject capitalism and its associated pattem of economic and social relations, with the 'revisionists', who bold that the ills of society can be corrected witbin a broadly capitalist frarnework.

Revisionists see two great changes in the capitalist systcm: first, govem ment today has a large role to play in economic life as well as in other areas; second, tbe classical entreprcneur has largcly disappeared, the ownersbip of modem corporations being both dilfuse and largely separate from the people who manage them. It is argued in consequencc (see the quote by Crosland at the bcad of the chapter) that capitalism has beco'tamed', and that the rcsulting mixed economy, with an active role for govemment in the distribution of goods, income and power, is fuUy compatible with socialist objectives.

4.2 Marxists

This is not a Marxist book and 1 am no Marxist writer, so this section seeks only to sketch out as much Marxist thought as is neccssary to contras! it with other theorics (see the Further Rcading). In considering the Marxist view of capitalism we need to tum our minds to three things: the contrast between the Marxist approach and that of conventional cconomic analysis; its analysis of the exploitation of labour; and its view of the role of govemment in supporting capitalism.

'The Marxist approacb dilfers substantiaUy from that of the classical political economists like Smith (1776) and Ricardo (1817), for whom the production of commodities was largely independent of the society in question. This approacb has continued to dominate economic thinking. It is argued that conventional economic theory is applicable to tbe USA, to Britain, to Sweden, and to the former Communist countries; and such economic analysis is seen as almost entirely separate from política!and social arrange ments. Thus to Sweezy (1942, p. 5), 'economic theorising is primarily a process of constructing and interrelating conccpts from which all specifically

"Havin& rnd tbls paravapb, il ls lnstructiY< 10 rcad lh< qu01< from Hayek (1916, pp. 70.1i)D _.,2. oo lh< vin11<1 of lhe marlr.et.


Social Ju.stice and the State 57

social content has been drained off'. A key part of Marx's thought, in contras!, is that the economic, political and social structure of a society is delennined largely by its dominan!mode of production.ll is argued lhat the capitalisl mode of production will result not only in a particular form of economic organisation, bul also (and inevilably) in a particular and inequi table structure of social class and political power.

Tbe exploltation of labour UDder c apitallsm

is a central tenel of Marxist

thought. Conventional economic theory sees individuals as selling their labour services (more or less) freely in a (more or less) competitive market; the wage is established when thc demand for labour equals its supply, which, under competilive conditions, results in a wage rale equal lo the marginal product oflabour. Capital, similarly, receives its marginal product, which, under compelitive conditions and in the long run, is equal to the'normal' rate of profit plus any premium for risk. Under eertain conditions12

these payments lo factors exhaust the producl leaving no surplus; thus, it is argued, there is no exploitation. In a Marxist analysis of the labour markel this apparently free exchange of labour serviees (called /abour power) for the wage is seco as a key feature of the capitalist mode of production. But for most people the sale of their labour power is their only means of subsistenee, since other methods (e.g. the cultivation of common land) are largely blocked. Thus,

in the capitalist mode of production the worker is torced to sell hislher labour power because he/she has no substantialsavings or independent access to the means of production ...Hence the relations of production are enforced through the institution of the labour market. IGinsburg,1979,p.21, my emphasis.J

Because of this compulsion, the capitalist is able lo extract surplu.s valuefrom the labour he employs.

Marx's argument is complex, but in essenee exploitation arose becausethe capitalisl was obliged to pay only a weekly wage sufficient to support the worker and his family at around subsislenee, but could then extrae!as much output as possible by imposing long working hours. The surplus value is the difference between the value of a worker's output and his wage and is, according lo Marx, much greater than that necessary to yield a'normal' rate of profit. This view, suitably modified to account for wages above subsislence, is held by Marxists today (see Robinson and Eatwell,1973, pp. 28-9). lndividuals whose only souree of income is the sale of thcir labour thus have less power than the (fewer) people with more choice (e.g. because they own weallh and/or have independent access to the means of production). Marx argued that this inequality of power is inevitable in a

"Euler'alheomn llatcs lhat poyiaa.U racton their nwpnal product wiU lcad10 prodU<te>baustlon uodcr consu.ot mums &o JC&Ie. 1b.il can oc:cur flthn wbere tbe production f\mdion eüt.ibita con.stant retums to tcale at aU levcla o( output "' at the poiat o( minimwn lotla-run a..nae eott.


58 Concepts

capitalist society, and cooscquently the more poweñul few are able to exploit labour by extracting its surplus value, hencc enjoying a dis proportionate share of output.

Bccausc of its exploitative nature, Marx's attitude to capitalism 'was one of total rcjcction rather than rcform and much of bis intellcctual effort went into proviog that the capitalist system was both unworkable and inhuman' (Mishra, 1981, p. 69). The heart of the argumeot is that the capitalist mode of production causes conflict between ooe class (the large, poor, exploited working class) and another (the small ruling class, which derives power from wealth and!or política! inftuencc), and that conftict betweeo thesc classcs is inhercnt and inevitable.

Tbe role or goYemmeot In a capltallst society Given this position, it is nccessary to ask why capitalism has survived dcspite the numerical superi ority of the working class. The first reason, according to Marxists, relates to economic power, which is conccntrated in a small number of hands. The sccond is the distribution of political power. The ruling class dominatcs govemment decisions, Marxists argue, both becausc of its ecooomic power and becausc members of the economic élite sharc a common educatioo and social class with the political élite. Accordingly, govemment in a capitalist society always favours the ruling élite (Miliband, 1969, Chs 4-6). Third, tbere is the power of the ruling class over ideas.The arguments are complex and the details controversia! (see Strachey, 1936; Miliband, 1969, Ch. 8). From this prop to capitalism derives the Marxist emphasis on 'consciousness raising'.

All thrce factors constitute the Marxist explanation of the continuancc of capitalism despite class conftict. But there is disagreement whether the rcsulting structure supports capitalists by furthering the intercsts only of the ruling class, or whether thc state, rather more broadly, supports the eotire capitalist system, with sorne benefits also for the workiog class.Gough (1979, pp. U-14) criticiscs sorne Marxist writers for igooriog tbe effccts of class conftict; he argucs that in order to protcct the capitalist system in the facc of working-class pressure, the state has extended the benefits of the we1fare state, with gains not only for the ruling élite, but for workers as well.

The Marxist state The next step is to outline the Marxist definition of a just society and the role of govemmeot neccssary for its achievement. Marxists share the socialist triad of liberty, equality and fratemity, though with sorne differences in interpretation and in their rclative weights. Liberty is a much more active concept than the mere abscnce of coercion. It cannot exist where cconomic or political power is distributed unequally, nor where the actions of the state are biased (Laski, 1967, Ch. 4; Miliband, 1969, Ch.7); frcedom, moreover, includcs a substantial measure of equality and economic sceurity. To a Marxist, therefore, frcedom and equality are two



essential and intenningled aspects of social justice. This contrasts very sharply with the liberal perspective, in which the potential contlict between freedom and equality creates the central problem of political economy.

Equality to a Marxist does not necessarily imply complete equalisation. Ac:cording to Laski (1967, p. 157), 'the urgent claims of aU must be met before we can meet the particular needs of sorne'. Once this basic condiúon has been met, differences in rewards should depend on cffort or ability. lt can therefore be argued that the Marxist aim is one not of equality, but of meeting oeed, which, as we have seen (Weale, 1978), is a related but logically disúnct objective. In Miller's tenns, tbe Marxist definitioo of justice is based largely on needs, with rights somewhat secoodary aod with a small place for deserts.

Finally, we tum to the methods advocated by Marxists for the achieve ment of these aims. lt is clear that their view of society, particularly the emphasis oo economic equality and analysis of class contlict, implies a highly active role for govemment. They stress the importance of nationalising the meaos of production, both because profits though produced sociaUy gen erally ac:crue to a few large sharebolders, and because private ownership of productive resources is incompatible with the Marxist definition of freedom. Though not a panacea, nationalisatioo is regarded as essential to the achievement of Marxist aims, including industrial democracy, which is seen as a oecessary concomitan!of political democracy. An additional purpose is to ensure that industry is run for social rather than prívate benefit.

A Marxist society, therefore, would combine public ownership and govemment planning with wide-scale participatioo by workers in decisions affecting their lives. Libertarians argue that there is too much planning in the welfare state, Marxists that there is not enough - planning, they argue, far from reducing individual freedom, enhances it. lt is logical that each side should reacb the cooclusion it does - planning reduces freedom defined by libertariaos as the absence of coercion, but (if sucoessful) enhances freedom defined by socialists to include sorne guarantee of economic security.

5 lmplications for the Role of the State

5.1 Theoretical lssues

This section compares the theories, aod discusses their implications for policy geoeraUy (section 5.2) aod the welfare state in particular (section5.3).

Cridds"'s of Uberallsm by libertarialls centre largely on the definitioo of individual freedom. The liberal concept includes economic security, so that social justice embraces needs as well as rights aod deserts. Libertarians


60 Concepts

criticise the inclusion of needs (at any rate above subsistence) because the resulting institutions (e.g. taxation) abridge natural rights (Nozick); are pan of a slippery slope towards totalitarianism (Hayek); and reduce economic efficiency. Severa) counter-arguments are possible. The first concems Hayek's argument that it is not possible to define social justice. As we shall see in Chapter 6, many concepts, including poverty and inequality, are hard, if not impossible, to define; but this does not imply that no such phenomenon exists. Defenders of Rawls would argue, in addition, that the priority of the liberty principie is explicit protection against the Hayekian slippery slope;and also that redistribution does not violate individual rights where it was agreed behind the veil of ignorance, as part of the social contract.11

Criddsms of llberali<lm by coiJectirists arise, first, because of the greater collectivist emphasis on needs. Additionally, collectivists adopt a broader defmition of freedom. As a case in point, Daniels (1975) criticises Rawls' liberty principie, because it underestimates the effect of economic inequality on political liberties; as a result the two principies may be incompatible. Marxists atso criticise liberal theories because they leave out class conftict.

Critldsuri of llbertarianlsm There is no opposition by liberals to markets per se. But they attack the libertarían emphasis on free markets, which can distribute resources unjustly by failing to meet individual need. More specifically, Hayek (1976, pp. 64-5) has a view of markets as a garne with winners and losers; but it can be argued that it is a game without rutes, like a boxiDg toumament in which participants are not divided into different classes by weight. To liberals this violates the assumption of equal power on whicb, inter a/ia, the advantages of a market system depend (see Chapter4:3.2). Collectivists criticise the libertarían definition of freedom as too narrow, and regard equality and economic security as inseparable aspects of freedom (contras! Hayek, 1944, Ch. 9, and Laski, 1967, p. 520). In addition, Marxists reject the mark:et system entirely.

Criddsms of collectivlsm Natural rights libertarians, iD consequence, entirely reject collectivist views, since attempts to redistribute resources equally or in accordance with need are regarded as violations of individual freedom. Empirical libertarians and liberals criticise collectivist views not

"Th<re ís at timeo"" opoáty abou1 Haydc's ar¡uments abou1 JO<ial juslice. He stal<o (1976. p. xi) lhal1..-aually] 1 pera;...r lhat the Emperor bad no dotbes on. tha1 is, lhat the tmn ..toeial justice' ' wasenlirely <mply and meaninslcU ..• Tbe more 1 tried 10 si>< it de6oile meaninth¡e mon: it fdlapart: Yein ditrustina Rawts he obterves lhat 'thc diffcre.occs bctwcca: us tcCIDCd more \'Ctbel than substantial' (p.xiil). Laaer. be ar¡ues 'lhal the r<eopition lhal in sudl <Ombinations u ..rocial", "ecoaomic" [or]..distributivt'" ... juatioe tbe term ..jus.tict" is wbolly cmpty should aot k:ad ua 1o throw the baby out wil.hthe balh walet' (p. 100), lince il diJifibtai#ns canoot be jwl, hurilwiWns """· On the lattcr poúlt Hayd<claíms lhat be lUld Rawls are in a_.,t.

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The welfare state