"Retooling the Welfare State: What's Right, What's Wrong, What's to be Done"
Retooling the Welfare State: What's Right, What's Wrong, What's to be Done by John Richards (Toronto; C.D. Howe Institute, 1997, 304pp)
On one side of the debate about socialism versus capitalism are those who believe that the latter has won the argument. In support of their positions they mention the success of Thatcher and Reagan. Furthermore, they point to the socialist parties of New Zealand and Great Britain which no longer adhere to the old shibboleths of public ownership and central planning. Instead, these and other parties on the left are now seeking a "third way" of pragmatic accommodations to the free market and a reduced public sector.
Has capitalism really won this debate? That's doubtful. For the contest among different ideologies are not won by a clear, once-and-for-all victory. The reality is that such arguments are not decided by "facts" alone, but by beliefs about facts. That's why the debate about the relative merits of socialism or capitalism flare up again and again.
One of the most interesting and thoughtful contributions to this debate is the book by John Richards, one-time member of the Saskatchewan New Democratic Party Legislature (1971-1973) and now teaching business administration at Simon Fraser University. Retooling the Welfare State will not endear him to the traditional proponents of the socialist ideals. He minces no words in faulting them for ignoring the reality of economic life and the limits of state intervention. While convinced of the immense good of the welfare state, Richards is equally sure that the current Canadian version is in serious trouble.
New parents needed
His major theme is that the historic "parents" of the welfare state—the social gospel-oriented churches and the traditional left—are no longer competent to play that role. Consequently, Canada's welfare state is an orphan, and Richards wants to challenge politicians and senior policy designers to become the new parents. He also warns that success is possible only if political decision makers are prepared to forego expediency and self-interest, and instead adopt an attitude of clear-headed pragmatism.
Richards has concluded that churches are now unfit to be a parent because they no longer command the respect they once did. Similarly, he finds the traditional left wanting because they have turned a blind eye to the excesses and unintended consequences of their own policies. He accuses them of mismanaging the national economy and creating social policies that have resulted in welfare and transfer dependencies. While calling for good social policies to improve the quality of life, he warns: "On the other hand, generosity is not enough Rigorous, 'tough love' management plus realistic—some might say Machiavellian—policy analysis, are equally necessary." (p. 27)
Richards is especially hard on the way his fellow socialists have allowed the historic ties between the Canadian left and organized labour to create a "fundamental contradiction." Since public sector unions have obtained a powerful voice in the union movement, which in turn is allied to the New Democratic Party, the traditional left has been unable to distinguish between its role as an advocate of the unions' self-interest in a continuing expansion of the public sector and the broader public interest. He elaborates:
Public sector unions are such a predictable and powerful opponent of reallocation of government budgets that they have largely destroyed the ability of the traditional left to parent the welfare state. Political parties organically bound to organized labor can rarely disentangle their role as advocates for public sector workers from their role as advocates for a generous but, well managed welfare state. (p. 176)
To prove this point, the author refers to the experience of the Ontario New Democratic Party government between 1990 and 1995, which demonstrated that it was "fiscally and managerially incompetent." (p. 38).
Retooling presents a scathing critique of what is described as the "looney left," especially evident in the post-1988 policies of the New Democratic Party, which Richards characterises as three "disastrous syndromes": a) a fundamental hostility to market behaviour; b) An unqualified identification with the claims of particular interest groups against society at large; c) Debt denial, or an inability to accept the necessity of containing the size of the public sector. (pp. 52-55)
The author analyses a number of social policy areas where preoccupation with short-term benefits, driven by powerful interest groups, are causing serious problems. Backed by statistical evidence, he reviews a number of key areas, including federally managed interprovincial transfers, unemployment insurance, health care, welfare, fisheries, monetary and fiscal policies, centralization vs decentralization, and a host of other related social policies intended to insure a basic level of merit goods for all citizens.
Richards lists four "hazardous dynamics" of the welfare state, as elaborated by the Swedish economist Assar Lindbeck who warned that those dynamics, if left unchecked, will jeopardize the economic foundation of the welfare state. They are the following:
- There is a tendency to abuse welfare provisions that serve as a disincentive to work. A Canadian example is the unemployment insurance program, especially as it has been used in the Atlantic provinces.
- Generous social program spending in due time results in high interest rates and economic instability. (This is obviously a controversial issue, and there are plenty of voices claiming that the cause and effect is the reverse.)
- A loss of the "Lutheran ethic" and "Prussian discipline," which has meant that recipients lose their reluctance to abuse social programs and administrators become lax in overseeing them.
- Transforming market risks into political risks occurring, for example, in Canada's fisheries policies. There short-term concerns about employment have crowded out long-term care of sustainable fish stocks, with clearly disastrous results.
Richards summarizes Lindbeck's advice to social policy mandarins as follows: "Beware unintended long-term consequences when designing social programs. Individuals will, over time, adjust to the incentives put in place. And those who are benefiting will form powerful interest groups whose goal is to preserve and promote the status quo against the claims of the rest of society." (p. 169)
The author describes two perverse changes in our society that present an especially difficult challenge for those who are responsible for designing social policies. First, he lists the growing gap between low and high income receivers, which has created "a social Gordian knot that is gripping many individuals, and no one seems able to cut them free." (p. 187)
A second perverse change singled out by Richards is the decline of traditional family values. He agrees that feminists have made valid points about the need for change in the role of women. But he takes issue with radical feminists who have become anti-male and look on single motherhood as a statement of women's liberation. Richards states: ..."family structure matters, and two parents are preferable to one for successful child-raising. ...Fathers are important to families; other things being equal, single parenthood is not good for children. (p. 208) .... no one should be sanguine about the doubling of the proportion of children living in single-parent families and the primary policy goal should not be policy designed to accommodate it." (p. 210)
He continues: "To be blunt once again, easy marriage dissolution and generous untied transfers to single parents are poor policy responses to the decline in traditional family values. Far from liberating women, they have allowed men to dissolve marriages with less social stigma over the fate of their abandoned children, and at far lower economic cost. (p. 211)
Redirecting social policy
In formulating five propositions for redirecting social policies (see sidebar below), Richards is aware of the danger of hubris, but also of "abstract waffle." In keeping with his stress on the value of two-parent families, he favours assisting low-income families with a provincial earnings supplement that would make it more attractive for parents on welfare to take employment. He would lower the tax-back rate (on a graduated scale) on wages earned by welfare recipients. Richards anticipates that providing a generous earnings supplement to families with children may serve as a disincentive for women to assume single parenthood and as an incentive for low-income fathers to assume their parental obligations.
Retooling the Walfare State is a refreshingly candid and realistic look at the current state of social policies in Canada. Insofar as Richards provides clear insight into the ill effects of many current policies and suggests a number of possible alternatives, this book succeeds.
But the strength of this book, namely, its emphasis on reality is also its weakness. What this approach amounts to is to fall back on a pragmatic calculation of the consequences of a particular course of action. In other words, this is a form of utilitarianism whereby actions are justified on the basis of outcomes. It is indeed prudent to anticipate the outcome of specific policies. But if that is the only guideline for determining our behaviour, we are ultimately relying on nothing more lofty than our own self-interest. We should be concerned about our own interest as long as that is done within a framework larger than our own existence. At this point, it makes all the difference in the world whether we believe that we humans are the creators of our own values, or whether we exist within the reality that stretches beyond ourselves. The decisive issue here is what is our worldview or fundamental belief about the very meaning of human life.
InCanada, the underlying assumption used to be that there is a given (transcendent) order of things that provides us with a standard by which we are able to judge right from wrong. That worldview was rooted in the Christian faith, which is now increasingly marginalized especially in the public domain.
But writing off Christianity is a serious mistake because it leaves us with no compelling reason to seek our neighbours' welfare. Instead, we are left with a public predisposition to seek our own self-interest no matter the cost to our neighbour.
Richards is right in saying that family breakdown is a major source of poverty; he is also right in advocating policies that reinforce rather than undermine the family. The problem is that pragmatic reasons for policies that may serve to strengthen family ties will be futile in the long run unless they are accompanied by a renewed awareness of our responsibilities as spouses and parents. Being faithful in marriage is the right thing to do for that is what we are created for.
I am grateful for this book for it contains a lot of sound advice. But instead of writing off Richards' two "parents" of Canada's welfare state, I want to make an urgent plea for the revival of at least one of them. What would be of immense benefit to Canada is a rediscovery and renewal of that which the churches are historically called to represent. After all, what can be wrong with loving God above all and our neighbours as ourselves?
John Richards' Five Propositions for Renewing Canada's Welfare State
Proposition 1: Clarify and Balance Budgets
The welfare state rests on the democratic assent of the majority. a necessary condition for that assent is that citizens have a fair idea of both program benefits and their costs in terms of taxes to be paid. Accordingly, do not separate the case for social programs from the case for balanced budgets—and use transparent rules.
Proposition 2: Maintain Accountability
Accountability matters. One—and only one—level of government should generally be responsible for any particular domain of social policy, and the responsible government should raise all necessary revenues via own-source taxation.
Proposition 3: Respect Comparative Advantage
Respect comparative advantage and celebrate competitive federalism. Ottawa has a comparative advantage in delivering programs that redistribute income according to relatively straightforward rules, but most social programs entail complex administration; in such cases, provincial jurisdiction should unambiguously prevail.
Proposition 4: Encourage Two-Parent Families
The many factors that bear on the successful raising of children include family structure. In general, two-parent families, comprising a mother and a father, do it better. Accordingly, social policy should discriminate fiscally on behalf of such families.
Proposition 5: Emphasize Workfare
Be generous in spending on subsidies to training and work, but be conservative in spending on passive income transfers, such as provincial social assistance and federal unemployment insurance.Subscribe