Matthew Taylor recently argued that the social market economy was in retreat. Bill Wells FRSA disagrees. He argues that in many countries, particularly the UK, it is alive and well even if there is room for improvement.
Different countries have their own brand of the social market economy. The more in tune this is with the nation’s culture and tradition, the more successful the country is in terms of prosperity, social justice and freedom. The UK, having flirted with importing a model from abroad, has reverted to the principles underpinning the Beveridgean welfare state, at least in respect of two of his five giants: want and idleness.
It is difficult to define a country’s culture and tradition but language and stereotypes do give us some hints. The individualism of the American Dream celebrates success but the other side of the coin is that there is no national insurance against failure. In France the tradition of liberté,égalité, fraternitésuggests a focus on the average Frenchman (usually a native born male). And in Germany the collectivism of Deutschland uber alles is reflected in the tripartitism of the social partnership system where, in return for maximising the number of ‘insiders’, individuals consider the effect of their behaviour not only on their own situation but also on society as a whole.
My best guess at the UK’s national motto is both less eloquent than the French and more prosaic: ‘That’s not fair’. Perhaps because I grew up in Poplar in the ‘Call the Midwife era’ the best statement on fairness would still seem to be the third principle of the 1944 Beveridge Report: that social security must be achieved by co-operation between the state and the individual. The state should offer security for service and contribution. In organising security, the state should not stifle incentive, opportunity or responsibility. And, in establishing a national minimum, it should encourage and leave room for voluntary action by each individual to provide more than that minimum for themselves and their family.
Want is best addressed through policies and institutions embodying universal but basic minimum standards. And idlenessthrough a system of rights and responsibilities and co-operation between the state and each individual, with the objective of minimising the time individuals spend in the state’s clutches, however benevolent.
The main delivery mechanisms are associated with the very British tradition of queuing and the language and processes reflect this: housing and hospital waiting lists; twice-weekly visits to Jobcentres as a requirement of benefit receipt and so on.
Unfairness within these processes largely results from the malfunctioning of and the inefficiency associated with queuing. So it is not fair: to have to wait so long for Universal Credit when the money is needed now; to have to plan to be ill as the first available doctor’s appointment is next Tuesday; or to have to queue with no guarantee of success. It is also not fair when no queue exists. So, for example, when a housing waiting list is a lottery with no value given to how long you have been on the list. Or, once people are on the Employment and Support Allowance, Housing Benefits or Tax Credit registers there is not much active management by the state to help them off quickly. It is even worse if the real or perceived reason for the malfunctioning is unfair. It is not fair if your waiting time depends on individuals paying money to jump the queue. Or where the queue is subject to: nepotism (where your place in the queue is taken by someone who is in the know); paternalism (where either the politician or, worse still, ‘expert’ public servants decide they know what is good for you and where in the queue you should be) or state sponsored philanthropy (where the politician or public servant enjoys the warm glow of self-righteousness by giving up your place in the queue to someone who is more ‘deserving’ or ‘needy’).
Until the mid-60s the contract of fairness between the state and the individual was largely maintained. In 1966, the share of the UK population in work, reached its post-war peak: there were around 300,000 people registered as unemployed and only a fifth were unemployed for a year or more. But from then on, the UK seemed to be trying to import a system from countries that were considered more successful – the social partnership, producer-focused countries Germany and Japan – and did not stay true to its culture and tradition of fairness. There was a shift away from helping individuals off welfare as quickly as possible.
By 1986 – just 20 years later – total unemployment benefits peaked at over 3.5 million with nearly 1.4 million on benefits for more than a year. It was no longer necessary to sign on regularly to prove that you were looking for work. The benefit system had become passive with no expectations on either the state or the individual other than respectively to fill up the cash machine or empty it.
Starting with the appropriately named Restart policy, the UK’s welfare to work policy went back to the future. The rights and responsibility agenda was re-introduced through active and efficient management of the individuals in the queue/register; now designated as the Citizens Charter. By the 2006 OECD Job Study Reassessment the UK was considered a ‘successful employment performer’, highlighting the importance of policies and institutions as major driver of success. The system that developed since1986 left the UK labour market well placed to cope with the economic crisis that began in 2008, acting as an automatic stabiliser. Its success was boosted by the extension of the rights and responsibility agenda to people on lone parent benefits and the equalisation of state pension age.
This has contributed to the structural improvement in employment rates. Now, finally back to roughly its 1966 peak, it is equivalent to over 3 million more people in work (using today’s population) since the 1983 trough. Because help is focused on the most disadvantaged, the improvement is generally felt most by those who started off in the worst position. It has also contributed greatly to the fall since 1990 in income inequality at the bottom of the distribution identified by the IFS. The UK bias is towards the social justice end of the social market model and this makes it unusual internationally.
Bill Wells is a recently retired Civil Servant who was a senior labour market economist for over 35 years in the Department of Employment and its successors.