From Welfare State to Civil Society: Towards welfare that workd in New Zealand
Dr David G Green
1996
Preface
The purpose of this study, which was supported by the New Zealand Business Roundtable, is to suggest the guiding principles for the reform of the welfare state. Plainly any such task involves taking a view about the ideal of a free society. The report, therefore, undertakes two main tasks. First, it describes what I take to be the true liberal ethos and differentiates it from some modern doctrines which seem initially to resemble it. And second, it describes the ideal of private welfare which, before the development of the welfare state, permitted the government an essential but limited role whilst the chief burden was assumed by the unpoliticised community.
There are many people who have helped. Greg Dwyer has provided invaluable help by digging out materials and helping me to avoid misunder-standings. Among those who gave up their time to discuss particular issues with me are Michael Littlewood, Rodney Hide and Sir Roger Douglas of ACT, Ruth Richardson, John Tamihere and his colleagues at Te Whanau o Waipereira Trust, Susan St John, Gary Hawke, Bob Stephens, Mark Prebble, Alan Gibbs, George Barker, John Whitehead, Murray Coppen, Rob Laking, Graham Scott, Bryce Wilkinson, Roderick Deane and J.B. Munro.
Several people read the first draft and made indispensable criticisms, including Loraine Hawkins at the Ministry of Health, Paula Rebstock of the Department of Labour, David Preston of the Department of Social Welfare, David Thomson, Michael James, Peter Bushnell of the Treasury, Barrie Saunders, Michael Irwin and Jim Cox. I am very grateful to them all, but, of course, I absolve them from any responsibility for the final product.
Finally, I must thank Roger Kerr, Ann Henare and the other staff of the New Zealand Business Roundtable for their support. I have particularly profited from extensive conversations with Roger Kerr, who has taught me a great deal.
David G. Green
There should be much greater reliance on private insurance. Urgent, non-discretionary treatment should be available to all, but follow-up systems for recovering costs should foster self-reliance and thereby reward those who are insured.
The 1991 white paper on the New Zealand health system envisaged that some people might not want to rely on a regional health authority (RHA), preferring to determine what health services would be available to them. Instead they might opt to receive back the taxes they had paid for health services, and to make provision by means of an alternative health care plan.
Relative to the status quo, this scheme had the potential to encourage health care in New Zealand to develop in a less paternalistic manner and should be revived. Individuals opting to receive care from an alternative plan could be paid a tax credit on an age-related scale.
Hospitals (Crown health enterprises) should be privatised as access to health services can be underwritten by government funding and does not require government ownership of providers.
Education should be financed by parental payment, not from taxes. There are three main advantages for parental payment compared with voucher finance. First, payment more fully restores parental responsibility and thereby strengthens the family. Children's awareness that their parents are paying for their education creates a strong bond, helping to unite the generations. Second, there would be less reason for governments to interfere, because they would no longer have the excuse that they were exercising caution in the use of public funds. Third, taxes can be lowered, thereby reducing deadweight losses.
A system of education tax credits should be introduced to ensure that all parents can afford to educate their children. For people on low incomes, a credit payment would be made, whereas others whose tax liability exceeded the voucher value would pay less tax. For those paying tax at source, an adjustment to the tax code would probably be the simplest method.
It is now well established that the key to the successful functioning of any market is the possibility that new entrants will attract customers from existing providers. Without this discipline, established suppliers too easily settle down to a quiet life. For this reason, the state should not have the power to run schools, and should relinquish control over existing schools. This could be accomplished by means of a phased hand-over to independent educational trusts.
Tertiary education should also be financed by parental or student payment. The simplest solution would be to increase fees over a 10-year period until they cover 100 percent of the cost of each course. The income-contingent student loan scheme is generally well designed and should be extended to cover students in a wide variety of institutions, in New Zealand and overseas, in competition with public tertiary institutions.
The universities, polytechnics and teacher colleges should be privatised.
On current plans, the qualifying age for New Zealand Superannuation will be 65 in 2001. It would be advisable to raise the age by a further six months per year until it reaches 70 by 2009. People are now fitter for much longer and have a good deal to contribute in the workplace well after they are 65.
The present level of New Zealand Superannuation is too high. The link to wages should be abandoned and the rate set to coincide with the benefit system, as recommended by the 1988 Royal Commission on Social Policy. The appropriate comparison is with invalids benefit, which allows for long-term costs, and for that reason was chosen as the rate for transitional retire-ment benefit. The 1995 net weekly rate for a single person is $173.06 (compared with $197.76 for New Zealand Superannuation) and for a married couple $288.44 (compared with $304.24).
An income test should be retained and, at some future point, the retirement benefit should be subject to an asset test. Claimants should be expected to spend down to an agreed amount of cash and to dispose of property other than their own home or car. According to the Todd Task Force, about 70 percent of the over-60s own their own home without a mortgage.
Because any such changes involve a radical break with the past, it would be right to give a long period of notice to allow sufficient preparation. A reasonable future date for the introduction of income and asset testing would be 2009 when, under these proposals, the retirement age becomes 70. This would allow ample time for people to adjust and make private provision.
The TTE (taxed contributions/taxed growth of the fund/exempt benefits) regime should continue, but taxes should be cut and the special tax on the growth of pension funds lowered in line with reductions in income tax. Under these proposals the state would continue to maintain a safety net, regulate in the interests of competition and choice, and would provide useful comparative information to strengthen the hand of the consumer and enhance competition.
Provision of income in retirement should be an individual
responsibility. Retirement is a highly predictable event. Individuals have different
preferences for present and future consumption. They can save to fund their spending
during retirement in many ways. There are no compelling grounds for government support for
retired people in the medium term beyond the provision of a modest safety net for those
who cannot be assisted in other ways.
The terms of the welfare debate have changed in recent years. For much of this century, especially since the Second World War, the ruling ethos has been welfare from the cradle to the grave. This approach began to be criticised in the late 1970s on three main grounds. First, consumers of services such as health and education were being forced to endure public sector monopolies which were providing bad service and denying choice. Second, it was producing harmful effects on the economy, including a weakening of the incentive to increase earnings because of higher taxes; higher unemployment because of the increased cost of social insurance for employers; and increased government debt due to irresponsible borrowing to meet welfare expenditure. Third, the interaction of the social security and tax systems was creating incentives to avoid work, with the effect that more people had become dependent on welfare.
During the 1980s in Britain, the United States and New Zealand, governments came to power convinced of the necessity for radical reform to restore the market economy and cut government spending. However, by the end of the decade, it was obvious that progress in welfare reform had been very slight. Despite the many successes of 'Reaganomics' in the United States, 'Thatcherism' in Britain and 'Rogernomics' in New Zealand, the state remained a pervasive presence in all three countries, still disposing of a similar proportion of national income in 1990 as that being disposed 10 years earlier. By the mid-1990s the welfare states in all three countries, despite professed fears that they would be dismantled, had remained intact.
In New Zealand successive governments since 1984 have controlled the expansion of welfare spending. The increasing cost of National Superannuation was held in check by limiting increases in benefits and raising the pension age. Most other benefits were cut in 1991 by amounts varying from 5 to 25 percent and eligibility criteria were tightened. Absconding parents came under more pressure to support their children instead of expecting the benefit system to pick up the bill. A new system of tertiary education funding was introduced in 1990, public housing rents have been increased to market levels and housing subsidies reformed. All told, these measures have prevented increases that would otherwise have occurred, but the thrust of policy has been the imposition of expenditure constraints, not radical reform. This focus reflects the underlying cause of the policy changes, namely the financial crisis of the mid-1980s.
Why was progress so small in the 1980s, despite the known sympathies of the Thatcher and Reagan governments as well as successive New Zealand administrations after 1984? One common explanation is that powerful vested interests, such as public-sector trade unions, resisted change. The medical profession, for instance, fought health reform and the teachers' unions opposed educational change. Yet the British and New Zealand governments both introduced health and education reforms despite the hostility of the medical and teaching professions, who contrived to be upset even though the measures were limited in scope. So resistance by vested interests does not alone account for the lack of progress. It is also necessary to explain the limited ambitions of 1980s free-market governments.
The underlying problem is that the majority of people still think of the welfare state as innately decent and have not yet understood the serious, long-lasting harm it has caused. Not long ago I was listening to a British radio phone-in programme about services for the blind. A caller rang in to say that it was a scandal in a civilised society that a voluntary organisation, the Royal National Institute for the Blind, provided the bulk of services for blind people. His attitude is widely shared in New Zealand. But isn't the exact opposite true? That is, the more civilised the society, the more it will be able to count on spontaneous efforts to help people in need, and the less it will need coercive intervention by the state.
Too many people still see the state as the only certain way to discharge our obligation to the poor and unfortunate. But this view disregards our own history, and it disregards the harm that we are now discovering the welfare state does to fundamental institutions, such as the family and voluntary associations.
The history of welfare has typically been written by partisans of the expanding state who discounted the multiplicity of private activities as a patchwork of overlapping but inadequate efforts which ought to be replaced by a single, comprehensive scheme. But new studies are now beginning to show that the reality of welfare before the welfare state in Britain, the United States, Australia and New Zealand was very different from the image fostered by partisan historians. Marvin Olasky, for instance, has described the huge extent of American philanthropy in The Tragedy of American Compassion;1 my earlier Reinventing Civil Society2 describes welfare in Britain before the welfare state; Mutual Aid or Welfare State,3 written with my colleague Larry Cromwell, re-interprets Australian history; and David Thomson has re-appraised New Zealand's welfare provision before 1938 (his study is produced as a companion to From Welfare State to Civil Society).4 There are two main lessons from such studies. First, there was less justification for government welfare than partisan historians have claimed. And second, the record of voluntary welfare helps us to understand what is possible today. If people living in the nineteenth century at a much lower standard of life could evolve such fine institutions, then similar achievements ought not to be beyond us as we approach the next century.
There was an older ethos of 'community without politics' which, until the twentieth century, was an indispensable element of classical liberalism. In short, champions of liberty divided responsibility three ways: first, there was individual or family responsibility; second, there was the community as distinct from the state; and third, the government. The majority of the population assumed responsibility for fostering a 'public but not political domain' of duties to care for all those who were not succeeding for one reason or another.
Some of those who read the first draft of this report thought it a mistake to devote so much of the report to 'ideas' rather than policies. But the welfare problem faced by New Zealand is shared by other Western countries, not least Britain and the United States, and many of the ideas which are at the root of welfare failure have been imported. New Zealand's own home-grown tradition was abandoned under the influence of ideas from overseas, especially the United States since the late 1960s. These intellectual errors, as I see them, are the chief cause of the failure of welfare statism and for this reason I have concentrated on combating them and on re-stating the ideal of a free society and its associated ethos of private welfare.
The first difficulty in proposing the reform of any modern institution is that the protagonists are frequently affected by partisan politics and the language used is riddled with ambiguity. There is no agreed meaning even for fundamental terms such as freedom, equality, justice, democracy and community. Some clearing of the ground is, therefore, indispensable if confusion is not to reign. But the task is not merely one of defining terms, though it obviously helps if protagonists use the same words to mean the same things. It is more a matter of explaining the historical tradition of thought from which my arguments emerge. Chapter 2, therefore, begins with a description of what I take to be the mainstream tradition of liberty.
Chapter 3 offers an explanation of the continued strength of collectivist thought, describing its historical roots and modern-day counterparts.
Then, armed with what I hope will be agreed is an accurate and helpful method of looking at the ideal of freedom, I turn to more specific issues. Chapter 4 assesses the welfare problem as it is being perceived in Britain, the United States and New Zealand. Chapter 5 suggests how we could create a new division of responsibility between the state and civil society, and describes the ethos of 'community without politics' which is central to the ideal of civil association.
The remaining chapters each deal with one issue. Chapter 6 proposes
alternative methods of relieving poverty, Chapter 7 advocates health care reform, Chapter
8 deals with education and Chapter 9 is concerned with savings, including pension
provision.