Alcock Chapter 18: The Distribution of Welfare Overview taken from book on p.

139 The distribution of resources is central to the provision of welfare through social policy, although distribution and redistribution take place through both state and private and voluntary transfers There is a range of different rationales underpinning the redistribution of resources to prsomote welfare. There are different ways for measuring distribution and its benefits for different groups. How it is paid for and who pays is very important in this. Much of the redistributive effect of welfare is as a sort of savings bank, transferring resources between different stages of peoples own lives. However, redistribution also plays a significant Robin Hood role, benefitting poorer sections of society most, particularly once one allow for how it is paid for.

Redistribution and its measurement are not issues only for the welfare state. Examples: In the 1990s, the creation of the Child Support Agency (later replaced by the Child Maintenance and Enforcement Commission) attempted to enforce payments by absent parents (generally fathers), to parents with care (usually mothers). Private insurance: many people make insurance payments, but only a small number actually claim and receive payouts (a redistribution from the fortunate many to the unfortunate few) Contributory pension schemes (horizontal redistribution across people of different life cycles) (139-140) Various aims of welfare services: 1. Vertical redistribution (on the basis of income, money distributed from rich to poor) 2. Horizontal redistribution (on the basis of needs, including between people of similar incomes) 3. Redistribution between different groups (favouring particular groups in order to offset disadvantages gender, ethnicity, age or age cohert, and not just income)

4. Insurance (insurance against adversity. People pay in through tax or NI contributions and in return, the system is there to protect them in the case of hardship) 5. Efficiency applying universal, compulsory, and possibly state-provided systems can be cheaper or more efficient than the market left to itself for some activities, such as healthcare, unemployment insurance, and education. 6. Life cycle distribution most welfare services are unevenly spread over the lifecycle (education goes largely to the young and healthcare and pensions to the old, while taxes that finance them come from the working generation) 7. Compensating for family failure - countering the fact that some parents do not meet their childrens needs, or that income is not fairly distributed in the household. 8. External benefits benefits beyond those of the direct beneficiary. Ex: promoting education can produce a more dynamic economy in the long term.

Problems in measuring how welfare services are distributed: Determining what is the counterfactual situation with which we are comparing reality. Determining incidents: who really benefits from a service? Determining valuation: to see the combined effects of different services, their values have to be added up in some way, which requires us to designate a price for services rendered, even if these services cant necessarily be easily valuated Determining distribution between different groups, or determining which unit of analysis to use (households, families, individuals?) Distribution of what (ex: gross public spending, net public spending after taxes, or gross public spending in relation to need?)? Looking at a time period (some services vary across the life cycle, but available data normally relates to short time periods) Data problems gaps in surveys, for instance.

Empirical results of a recent study on welfare distribution: Cross-sectional redistribution (snapshot perspective) see accompanying graph p. 144

Study estimates the average benefits in cash and kind from welfare services received by households in different income groups in 2004-2005. Benefits in kind are less concentrated on the poor than are cash benefits, but households at the bottom of the distribution receive considerably more than those at the top (nearly twice as much). The absolute value of welfare benefits is greatest for lower-income households, and much lower than average for high income families. Taxation is greater in absolute terms for those with higher incomes (even if not necessarily a greater portion of income). On a cross-sectional basis, welfare services is significantly redistributive from high to low income groups.

Life-cycle redistribution (lifetime perspective) see accompanying graph p. 145 Study measures the lifetime impacts of benefits and taxes by creating 4,000 hypothetical life histories, based on demographic and family patterns as they were in the late 1980s. Those with higher lifetime incomes pay much more tax than those with low incomes. In effect, people finance some of the benefits they receive through their own lifetime tax payments, however some people do not pay enough lifetime tax to pay for all their benefits. From a lifetime perspective, the system does appear to redistribute from the lifetime rich to the lifetime poor. However, most benefits appear to be selffinanced over peoples lifetimes, rather than being paid for others. Nearly 3/4ths of the welfare state operates like a savings bank and only a quarter operates like a robin hood distribution between different people.

Alcock Chapter 19: Social Policy and Economic Policy Overview taken from book on p. 149 In most contemporary accounts economic and social policy are presented as antagonistic or oppositional social policy is generally depicted as a drain on competitiveness and as bad for economic performance. In such accounts it is economic policy rather than social policy which is seen as the overriding imperative where economic and social policy clash, it is economic policy which should dominate. Such a view represents a significant departure from the previous Keynesian orthodoxy in which social and economic choices were seen to be complementary social policy was good for economic performance. The demise of the Keynesian orthodoxy and its replacement by a monetarist/new monetarist orthodoxy has been associated with a particular understanding of the constraints entailed by economic globalization.

Ironically, there is considerable evidence that such constraints are exaggerated with social policy being rather less corrosive of competitiveness than is often assumed and with regionalization rather than globalization being the more accurate description of the changing character of the UK economy.

The welfare states effects are as much economic as social. The generosity of the welfare state is perhaps the greatest single determinant of the national burden of taxation. Some thus assume that the welfare state as an unambiguous burden on competitiveness. (150)

The changing relationship between economic and social policy: from Keynesianism to Monetarism and beyond Keynesian economics in the 1940s In the 1940s, the growth of the British welfare state was seen at the time as an important part of the solution to the economic crises of the 1930s. By putting money in the hands of the poor, it generated new depend for the developing consumer culture of the post-war years. Welfare payments were considered counter-cyclical injecting demand when it was needed most. By targeting welfare benefits to the neediest, recipients were more likely to spend rather than save any additional income they received. What brought the happy coincidence of social and economic policy to an end? Globalization. (150-152) 1) Demand management became far more difficult to achieve domestically in a global economy. In the context of an international recession, the injection of demand into the domestic market through generous transfer payments may serve merely to create an influx of cheap foreign import. 2) The welfare state is funded primarily through taxation direct and indirect, personal and corporate. But in an integrated global economy, businesses that are not burdened by high levels of taxation enjoy a competitive advantage. So national business are pitted against international competition, and they may be disadvantaged if their international competitors do not have to pay high taxes. 3) Corporations are not bound to a host economy in the same way as a traditional business enterprise. Such corporations do not have to put up with levels of taxation and other aspects of the regulatory environment of a given economy that displeases them, since they can easily relocate. Thus, in order to retain high levels of investment, production, and employment, national policy-makers must adjust their preferences to those of businesses (and reduce the taxes that dissuade them from

setting up ) 4) In a context where financial markets are more integrated internationally, policy-makers must seek to avoid the wrath of financial market actors in order to control both inflation and debt. Governments must be able to make credible commitments as to their capacity to control inflation and avoid running up substantial budget deficits or otherwise their currency is likely to suffer on the foreign exchange markets. What is the impact that globalization is likely to have on our contemporary policy choices? Indirectly: In the context where there is inflationary shock (associated, for example, in a large rise in oil prices) interest rates will increase regardless of the consequences for domestic demand and levels of unemployment. Higher levels of unemployment are accepted as a price worth paying for the control of inflation. Indirectly: in the new economic paradigm the capacity of the govt to borrow in order to continue to satisfy welfare need in more difficult phases of the global business cycle is significantly eroded. Directly: Since taxation is viewed as a burden on competitiveness, all aspects of social policy must be subject to stringent financial audit. Those elements which neither represent value for money nor contribute directly to competitiveness will be scaled back. Directly: The benefits that the welfare state continues to provide must be justified principally in terms of their contribution to the efficient operation of the labor market, rather than in terms of their contribution to social justice. Examples of welfare to work schemes designed to enhance the employability workers are viewed with preference over schemes that have workers provide for their needs and the needs of their families.

Criticisms of the idea that social policy is bad for economic performance (152-153) 1) Welfare recipients (when welfare is targeted on those with the least disposable income) are not only more likely to spend the transfer payments they receive, they are more likely to do so in purchasing stable goods (milk, bread, eggs, etc) which are sourced in the domestic market. Transfer payments are arguably the most effective means of stimulating domestic demand and are relatively immune from the pressures of globalization. 2) Transfer payments are typically a redistribution of wealth from the most affluent to the poorest; since the former are more likely to save than spend any increase in disposable income from tax cuts, and are also more

likely to acquire cosmopolitan tastes sourced through imports, a scaling back of social transfer payments is likely to worsen the balance of trade figures. 3) In a highly integrated economic space (such as an EU), cycles of economic health are likely to be shared. Consequently, if a high proportion of an EU countrys trade is with other EU countries, the coordinated injection of demand into the EU economy is likely to be an effective means of restoring economic growth. 4) Arguments that the welfare state is a burden to competitiveness rests on a limited understanding of competitiveness, where it is gauged solely in terms of the cost of goods. But high levels of societal welfare may be associated with a healthy and dedicated workforce, cooperative rather than adversarial industrial relations, long employment tenure, high levels of skill (human capital), technology transfer, product innovation and high domestic levels of consumer demand all which could correlate positively with economic performance. Markets with the highest levels of social welfare expenditure tend to be less price sensitive and more quality-sensitive. Welfare retrenchment: has it happened? (154) The long term trend for social spending to rise that was established in the early post-war period has not been reversed in recent decades, with the exception of Sweden (surprise!). Social transfers and the public provision of healthcare and education in the UK remain the largest items of public expenditure, and the share of total public spending they account for has consistently grown. BUT: there has been some welfare inflation : demographic changes (increase in the proportion of people in the population above or below working age) and higher costs of healthcare provision. If we attempt to control for such factors, we see some evidence of welfare retrenchment since the 1980s, despite rising levels of social spending. Competitiveness and the welfare state (155-156) The British economy has recently become more closed than open. Britains conducts more trade with its nearest EU neighbors than to the rest of the world. Britians economic performance is, if any thing, less dependent on global competitiveness and more dependent on regional competitiveness. But we take the issue of global competitiveness into consideration, there are 2 more important points to be made: 1) The most open economies in the world today are invariably those with the largest welfare states and the most generous benefit entitlements. There is no direct evidence to show that welfare states are a burden to competitiveness.

2) If we examine the investment behaviour of transnational and multinational corporations, foreign direct investors are not more likely to invest in low taxation economies than high taxation economies. Educational attainment and skill level are the most critical factors in determining the attractiveness of an economy to mobile investors.

Alcock Chapter 29: Paying for Welfare Overview taken from book on p. 226 Some of the reasons why we have come to pay for many of the most important things in life through some kind of collective state funding lie in the economic theory of market failure. Another reason lies in the spread of our needs through the life cycle. Many arise when our claims on income are week. The welfare state is, in large part, a savings bank that works when private banks cannot. How we pay for these services publicly or privately matters not just in terms of how the burden falls on the rich or poor, but in taxations impact on efficiency in the wider economy. How welfare institutions are funded also affects their own efficiency. Many welfare services are paid for privately both in cash and in time spent by carers. The scale and variety of funding mechanisms are described. Governments are using new ways to respond to the challenge of an ageing population, rising expectations of service standards and growing reluctance to pay though taxation.

Who pays matters. (226) How do we fund welfare provision to meet socially defined needs? If we have a generous set of public services yet we pay for them through heavy taxes on the poor, we are not helping them. If the way we tax people or means-test them is a big disincentive to work or save, that is also inefficient. What are we paying for? (227) What does social policy mean in general terms? For Glennester, it is defined as the allocation of scare resources necessary to human existence and well-being.

But as we learned last week, the notion of what exactly is a basic necessity changes over time. Welfare provision should ensure that no one falls below an acceptable minimum standard of living and that citizens have an adequate diet, shelter, education, and healthcare. Problems with supply of basic goods and services Many economist argue that the state should confine itself to given poor people enough money to exist, and should cease to provide such service itself (idea popularized by Milton Friedman, 1962). Market failure However, there are some basic characteristics of many human needs and services that meet them to mean that they are not well-suited for purchase in market (ex: we cannot bottle clean air and sell it on the market.) This phenomenon is called market failure. Such goods are referred to as public or social goods. Information failure Occurs when we may be able to buy certain necessary goods, like medical care or education, but may make inefficient choices as private consumers because the information we need to choose efficiently is not readily available. There is an imbalance of information between the buyer and the seller. Behavioural failure People put off taking action even if they know that they should do so, because the consequences of the action are so far in the future that it is difficult to take it seriously. Example: saving for old-age. **These three types of failures explain why, in most of the world, many human services are provided and paid for, not by the markets, but by collective means of funding taxes, insurance contributions, etc. Social Policy: a lifetime savings bank (228) We also collectively pay for such services because in the market, some basic services (education, healthcare, pensions, etc.) cannot be easily financed by most people at exactly the time when they want them. This is called a capital market failure. A main aspect of social policy is to shift the time at which people pay for the services they need from periods when they cannot pay to times when they can acting like a lifetime savings bank. How much does the government spend? (228) See figure 29.1 for a detailed breakdown.

315.6 billion pounds spent in 2004/2005. Pensions and other social security payments (45 %), following health (26%), education (21%), personal social services (7%) and housing (1.5%). Who pays? (229) Many of the human services are paid for directly out of individuals own earnings or by private borrowing or insurance policies. Employers may also provide pension schemes or healthcare (called occupational welfare). About 70 percent (332 billion pounds in 2005/6) is funded by the state out of taxation (28 percent of the GDP). More than a of everyones income needs to be taxed to pay for these services or cash benefits. Who decides? (229) Her Majestys Treasury is centrally responsible for advising the Cabinet on expenditure. Major deicisions about which service gets what are taken as part of a Comprehensive Spending Review. Grants are also allocated to local authorities, which distribute them to bodies like schools or hospitals. Often the decision on how much money to give them is on the basis of the # of children or patients they attract. Required or Encouraged Behavior (230) Govts can seek to encourage individuals to provide for their own welfare (ie; to buy a house or save for their own pension). Tax relief is traditionally given to those who take out morgages (although no longer the case in the UK) or for those who invest in a private pension. Also: automatically opting employees into a private pension scheme, where employers are required to add to contributions and the govt supplements them (evidence has shown that most people will not opt out). Vouchers and Quasi-Vouchers (230-231) Giving state schools or hospitals money on the basis of the # of children or patients they attract is a quasi-voucher system. Giving to charities and other voluntary organizations can attract tax relief (vouchers) though giving time does not. Feminist writers argue that the personal social services budget would have to double if we were to pay women for the time they contribute to caring duties.