Welfare State Reform and the Logic of Rational Action

Transcription

1 1 Welfare State Reform and the Logic of Rational Action Peter Taylor-Gooby University of Kent The starting point for this paper is the assumption that market capitalism achieves high rates of economic growth but, if unmoderated, also generates inequalities. This may lead to internal friction, industrial unrest and political instability, and make it difficult for poorer groups to invest in skills. The objective of capitalist welfare states is to combine economic dynamism with social cohesion, prosperity with social justice. They have been largely successful in doing so in European countries for much of the post-war period. More recently the ability of the traditional pattern of state welfare to continue to fulfil this role has been called into question (for example, Pierson, 1994). New institutional settlements have emerged to address the problem. These stress the active engagement of those involved (as workers, citizens, professionals or service managers) rather than passive provision. This paper reviews the new political economy that underlies this shift and pays particular attention to the emergence of new and more fragmented political forces and new directions in policy in relation to new social risks. It argues that these shifts are associated with the growing predominance of analytic frameworks which stress the significance of self-regarding rational action as motivation, so that positive and negative incentives become the chief instruments for directing the behaviour of workers, citizens, professionals and service managers. It suggests that important alternative patterns of motivation available to people receive less attention since they are not significant in the theoretical approaches which provide the analytic foundations for policy-making. As a result, they are not reflected in policy. The outcome is: - Short-term success in reform as the incentive approach increases participation in employment and cost-efficiency in services; - Longer-term erosion of mutuality and social cohesion - Greater difficulty in conducting debates with those most influential in policy-making, because economic-based frameworks self-regarding rational action predominate at this level.

2 2 Implications of the Emerging Welfare Settlement a. The new political economy The widely-accepted neo-keynesian logic underlying the post-war welfare state settlement has been challenged by the globalisation of financial markets, greater competitiveness in world trade, a decline in growth rates, demographic shifts, rising long-term unemployment and an increase in the numbers of women seeking full-time employment. From the mid-1980s onwards the experiences of a number of major European countries showed the negative consequences of manipulating exchange or interest rates to regulate domestic economies in a way that contradicted market expectations (Scharpf and Schmidt 2000, ch. 1). The massive expansion of international trade, more than doubling as a proportion of expanding GDPs between the 1960s and the 1990s (Weiss 1998, 170), brought home the over-riding importance of economic competitiveness across large and expanding sectors of national economies. These factors were reinforced for most of the main European countries by the implementation of the Single European Act, which ceded control of their currencies to the European Central Bank. More controversially, a number of writers have argued that the post-industrial shift towards service sector employment was associated with a secular trend to declining growth rates on the grounds that opportunities to improve productivity are fewer in this area (Pierson 2001, Torben and Iversen 1998; Rowthorne and Ramaswamy 1997). These factors made governments increasingly reluctant or unable to use the traditional neo-keynesian levers of economic management to improve job opportunities through cheap capital or restricted imports, and to borrow to finance extra welfare spending. Governments also avoided tax increases which might raise labour costs and damage competitiveness. Approaches influenced by monetarism became prominent in Treasury thinking across Europe, and attention was focused on opening markets, deregulation, fiscal prudence and balanced budgets. The welfare state was increasingly seen as a non-productive burden on the economy leading to calls for constraint in state spending and a reduction in intervention (McNamara 1998; Hall 1993; see Table 1 for a summary). Table 1 about here At the same time as these considerations reduced the perceived value of the welfare state, a number of factors increased the pressure for spending: Technological change reduced the numbers of jobs available for low-skilled workers, particularly in the manufacturing sector, while more stringent competitiveness enhanced pressures to improve the skills of the workforce and to refresh skills during the working life; the contraction of opportunities for unskilled workers was particularly significant in the mainland European countries with developed social insurance systems which entitled unemployed workers to relatively high benefits as of right;

3 3 Population ageing, resulting from increased life expectancies and a sharp decline in birth rates as women gained greater opportunities in the labour market and other spheres of life, implied extra demands for pension, health and social care spending, most pressing where provision was of high standard; At the same time, pension programmes (already the largest spending areas of welfare states) were coming to maturity, locking in a commitment to sustained high spending; and The greater flexibility of family life and the movement of increasing numbers of women into paid work with access to improved career options allowed greater opportunities to citizens and started to address women s demands for social justice. However, informal care responsibilities placed a double burden on many working women leading to pressure for extensive child and elder-care programmes. European welfare states faced a dilemma: service spending must be constrained and also directed towards enhanced economic competitiveness, while more must be achieved with limited resources. b. New political forces From the viewpoint of individual citizens these changes produce a new agenda of social risks. These emerge alongside the existing risks which had shaped welfare state politics in the more stable post-war labour market and had led to the neo- Keynesian welfare settlement. The new social risks centred on access to paid work and the needs associated with social care and, in some countries, access to new nonstate services, migration and citizenship. Old social risks mainly concerned interruption to earnings and needs not met by the male bread-winner family system (unemployment, pensions, health care, education see Jessop, 2001). One important feature of the new needs is that they tend to apply to specific population groups at particular stages during the family life cycle access to training and paid work for unqualified young people, a demand for affordable child-care when families are young, elder care for those who have frail relatives, the problems of recent migrants and so on. Pressures for services to meet these needs and real but uneven. The demands from broad sections of the working class, often allied with middle class groups, that produced the mass services developed earlier in areas like health care and pensions are unlikely to emerge in relation to new social risks. Union pressures are fragmented and workers in the industries vulnerable to international competition are likely to be increasingly concerned about the impact of state spending on labour costs. From the perspective of policy-makers, the new situation offers both frustrations and opportunities. One the one hand the traditional approaches to politico-economic management are no longer appropriate. New efforts must be pursued to maintain national economic competitiveness. On the other, the fragmentation of pressures makes it more feasible to constrain spending on mass services and to restructure those services to achieve greater cost-efficiency. Also, and more importantly, it opens up

4 4 opportunities for the development of social welfare as social investment which offers to improve economic performance by enhancing the quality, flexibility and motivation of the work force and mobilising more people into employment. Social and economic policy may again interlock in a virtuous spiral enabling a new welfare state settlement, and one that can secure employment and the approval of voters. One issue is that the new approach requires the detailed management of welfare agencies to ensure that spending is appropriately targeted and that the incentive policies are directed at the appropriate groups. The Treasury approach appropriate to the neo-keynesian welfare state, in which the concern was to plan and manage interest and exchange rates at the macro-level and to set and monitor budgets for spending departments is no longer appropriate. Now Treasury ministries tend to involve themselves in much more detail in assessing the spending policies of other departments to ensure that the best policies are followed, not just to deliver outcomes, but to influence the incentives and behaviour of social actors at the micro-level. This involves setting detailed targets and monitoring the effectiveness of departments and agencies within departments in meeting them (Parry, ; Jenkins). From the perspective of business, the new context also offers frustrations and opportunities. Initiatives to mobilise more people into paid work are likely to be supported. Extra tax and increased labour costs are likely to be seen as a burden on competition. Social conflicts associated with pressures to maintain state spending are also a problem. However, initiatives that shift the balance of influence from labour to capital, such as a reduction in regulation or the entry of new groups onto the labour market, may be viewed more positively. In addition the expanded use of markets and opportunities for private sector entry into managed health, social care and pension markets may be welcomed. Businesses which operate in a high value-added context and require high-skilled worker, tend to support policies to improve the labour force. Those exposed to international competition are keenest to reduce cost-pressures. These changes imply a new politics of welfare. Support for the traditional mass services, such as pensions or health care, remains strong. The established working class movements which defended traditional employment practices are likely to become rather weaker. Governments and much of business, motivated by electoral and commercial pressures, wish to constrain spending and direct it more towards enhancing competitiveness. In relation to policies to move people into work and improve skills, pressures from citizens as electors and union members are less stable and more fragmented. There are opportunities to move towards a new welfare settlement in which economic and social goals will be attained by different means. Coalition between modernisers in government and business and some groups in the union movement to press for this is practicable; opposition from those who wish to limit the welfare state to the traditional model is weakened. Such coalitions can be found in the refondation sociale in France, the New Labour Third Way programme in the UK and the process which assembled the Hartz reforms in Germany. They also emerge in the negotiation of productivity improvements between employers and workers (Pochet). At the same time, the government apparatus to monitor and target spending more stringently is reinforced. c. New policy directions

5 5 A new welfare state settlement is currently emerging across much of Europe, at varying speeds and by different routes in different welfare state and policy-making contexts, and perhaps most clearly articulated at the EU level. The new settlement rejects the view that welfare states are at best irrelevant and at worst counterproductive. It seeks to maintain the traditional range of highly popular mass services, with continued pressures for cost-efficiency. This leads to new management systems (Rico, Saltman and Boerma 2003) and pressure on spending (Hinrichs 2000). It also strives to ensure that individuals are active rather than passive and take responsibility for their own welfare trajectories through seizing training and employment opportunities. Similarly managers and professionals in state services must be encouraged continually to operate services efficiently and effectively. The key feature is a strong emphasis on welfare as social investment which improves competitiveness and changes the behaviour of citizens, rather than as simply a burden on productive sectors of the economy. The most coherent statements of this approach are in the Third Way/Neue Mitte programme in the UK and Germany (Busch 1999) and in the ambitions expressed by the Lisbon European Council that the EU should become the most competitive and dynamic knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion within a decade (in other words by 2010, EU 2000a). The common theme is that a carefully-planned programme of interventions can serve both economic and welfare ends. The practical outcomes are: A more active labour market policy; Performance management through targets and the extensive use of internal markets in health and personal social services and other areas of state provision the new public management Both these approaches seek to constitute individuals as workers and service-users and as managers and providers of services as active and responsible for outcomes for themselves or for the services they run. d. A new analytic framework These shifts rest on a specific analytic basis and a new challenge to the role of state welfare in balancing market dynamism and social needs. An important aspect of claims for the virtue of markets is that self-regarding motivations are the most significant factor in determining how people behave. As Adam Smith pointed out: it is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard for their own interest (1991, 1776). In arguing for the primacy of market liberalism over two centuries later, Mrs Thatcher claimed in her 1987 Conservative party conference speech (and elsewhere) to be working with the grain of human nature in rolling back the state. These arguments suggest that welfare interventions should be regarded with misgivings and restricted as far as possible. The achievement of the new settlement is that it incorporates the selfregarding rational actor logic that underlies advocacy of the market within the case for a particular kind of active welfare state.

6 6 If self-regarding individualism is seen as playing the leading role in directing people s behaviour, it is easy to argue that interventionist and redistributive welfare states may distract effort from production to activities intended to advantage individuals in distribution, so that the pie fails to grow, to everyone s detriment, while social groups fight over the size of the slices (March and Olson 1995). Interventionism may also be seen as undermining the structure of motivations necessary for success in the labour market and creating a dependency culture that damages individual and economic progress, and possibly undermines the family ethic (for example Murray, 1984, Field, 1989, Auletta, 1982). Public administration experts, influenced by the arguments about the primacy of self-regarding motivations, have claimed that public officials and professionals will seek to improve their own conditions of work, reward and status by cherry-picking easy cases (Le Grand and Bartlett, 1993), inflating the size of their bureaux and budgets (Niskanen 1971), manipulating the flow of information to those who fund them (Pratt and Zeckhauser, 1985) or controlling entry to helping profession (Klein 2000) rather than serving the public interest. Correspondingly, individuals will use their social skills, social and political contacts and capacity to control information about needs to direct welfare resources away from the most needy and towards those of higher status, so that resources are inefficiently distributed (Le Grand 1982). Following these arguments, the redesign of public services in countries like the UK has tended to be directed at the restriction of budgets and at transfer of state to individual responsibilities. Where state services are highly valued (for example, in health care) reforms follow a logic that reflects Hume s point (made some years before Smith published): in contriving any system of government every man ought to be supposed to be a knave and to have no other end, in all his actions, than his private interest (1898, 1754 see Le Grand 2003, vii). Smith s assumption of selfregarding individualism appears dominant in thinking about citizen motives in the new welfare state. These approaches feed through into the intellectual positions of advisers and policy-makers. A related issue concerns the political economy of innovation and growth. Markets are seen as better than state-directed systems at selecting and applying the most useful innovations because they reward entrepreneurs efficiently without relying on a high level of ability and disinterest among public officials in distributing resources appropriately, a point stressed in different ways by von Hayek 1973, Knight, 1921; Schumpeter, 1942; and Riker Again it is the free play of the incentive and motivational system that is seen as achieving the most socially valuable outcome. All these arguments, which caution against intervention and advance the value of free markets, rest on the idea that material incentives are more effective than other considerations in shaping behaviour. The core idea is that people s motivations are at root self-regarding. The Impact of the New Settlement The most obvious feature of the new welfare settlement as set out above is that, despite the rhetoric, progress towards it is slow and uneven. In relation to activation

7 7 and labour market policy, Kok s assessment of the Lisbon process concluded: the European Union and its Members States have clearly themselves contributed to slow progress by failing to act on much of the Lisbon strategy with sufficient urgency... a key issue has been the lack of determined political action (2004 6). In relation to poverty and social exclusion the EU s 2006 joint report indicates disappointment with progress under the Open Method of Co-ordination, by identifying clear evidence of. an implementation gap between what Member States commit to in common objectives and the policy effort to implement them (EU 2006b 3.1). However, it also seems to be the case that it is those countries which purse intelligent activation and flexicurity approaches which achieve the best results (OECD 2004, EU 2004). This has led to continued advocacy of policies to promote individualised perspectives in European Social Exclusion and Employment Strategies and in the strategies promoted by the OECD in areas like labour market and pension reform. In relation to the evolution of New Managerial approaches it is difficult to find comprehensive overviews. However in the UK, which has moved further than most countries in health care reform, it is certainly the case that the use of stringent targets plus internal market systems, with extensive regulation of the treatments available, arrangements to ensure that both private and state actors can compete and a strong emphasis on the supply of information has led to very substantial improvements in outcomes and in waiting times in a relatively short period. The Kings Fund, often an informed critic of government, concludes in a recent review: Nevertheless, increased funding has bought more staff and equipment, and together with tough targets in England, this has helped reduce waiting times to an historic low (2005). The number waiting more than 13 weeks for an outpatient appointment or six months for inpatient treatment have fallen by about two-thirds in the four years since September 2001, and death rates for cancer and heart disease continue to fall, although rather more slowly (Treasury, 2005b, performance review website). An up-to-date study by Bevan and Hood reports that the the star rating system has improved reported performance on key targets (2006, 421). One conclusion, which must be tentative at this stage, is that the new approaches succeed in the sense that they enable welfare state services to continue to meet needs within the tight constraints of the current political economic context. In other words they promise to resolve the problems that challenged the traditional form of welfare state. The new approaches are founded on a particular understanding of the basis of human behaviour. One question is how far the design of institutions on the assumption that people are primarily self-regarding and individualistic directs or influences the range of motives which people follow. If so there is a severe risk that, whether or to the new policy directions deliver the goods of cost-efficient welfare in the short-term, they may in the longer term undermine social cohesion and solidarity necessary to make state ensure that citizens are willing to pay the taxes necessary to support a modern welfare state. Implications for Welfare State Reform Welfare states are developing new institutional frameworks which place much greater emphasis on self-regarding motivation. Make work pay, welfare to work and workfare/trainfare strategies pursue this direction in labour market policy. New

8 8 managerialism treats providers more as entrepreneurs in public services and places greater responsibility on service users to determine their own outcomes through the choices they make. The implication is that well-designed active welfare state institutions work in the sense that they deliver a clear incentive structure which people tend to follow and they promote cost-efficiency in attaining the set targets. However they do not reinforce the motives that support mutuality and social cohesion. As western societies are becoming increasingly unequal, the winners may be less willing to pay taxes to help losers, except through self-interest, if they think there is a high risk they will themselves become losers. In the longer run they may be less willing to support state welfare altogether. Thus the policies which succeeded in overcoming the challenges to the welfare state in the short term may undermine the viability of welfare states in the longer term. A final issue concerns the dominant logic among the policy-making community. Increasingly those groups most committed to rational actor logics dominate in policymaking at national and European level. An important shift concerns the detailed intervention of economic approaches in the detail of policy design and management, rather than simply in the Treasury setting of departmental budgets. From the perspective of the rational actor model, the link between individual incentives and outcomes is highly valued. The role of institutions in framing alternative patterns of motives is less likely to be acknowledged. The problem then lies in recognising the risk of erosion of social cohesion. Within these frameworks, the patterns of mutuality and reciprocity in behaviour that reinforce social cohesion receive little attention. Policy-makers may pursue direction that damage the future of welfare states without realising they are doing so. It is increasingly difficult to develop a dialogue between those whose intellectual frameworks foreground rational actor approaches and those more concerned with the impact of the social and institutional context in which people live on the behavioural framework they adopt. Conclusion Welfare states are concerned to civilise capitalism, so that economic dynamism can be reconciled with human needs. This is necessary: we would not be able to have access to the fruits of growth that the market system has made possible without social arrangements which restrained the pressures to exploit the more vulnerable and advantage the strong (Polanyi) on the one hand or which generated political forces seeking to undermine the stability of the productive system on the other (Marx). Much concern has been expressed about crises in the form of the neo-keynesian welfare state. However a new form of welfare state is emerging which succeeds in meeting needs but is better able to adapt to allow national capitalism to operate in a globalised and rapidly changing world. This involves greater emphasis on managed free markets with more open borders and on individual responsibility for action to achieve one s goals. The transition to an active rather than passive form of society applies both to citizens using services and pursuing paid work, and managers and professionals operating state services in more competitive contexts with decentralised budgets. The basis is reliance on self-regarding individualism as the prime force in motivating human action.

9 9 A possible outcome of the new settlement is that it contributes to making people more individualistic. This may succeed in the short term (incentives work in improving welfare and welfare services) but in the long term undermine solidarity and social cohesion. People may not be willing to pay taxes for services for others. They may no longer regard collective provision with trust. The welfare state may thereby be undermined by the same forces that make for success in circumventing recent challenges. This problem may not be recognised in the social analysis of policymaking elites, because intellectual frameworks which understand behaviour as selfregarding at foundation and measure success simply through the extent to which immediate targets are met predominate among them.

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14 14 Table 1 The Development of the European Welfare State Settlement I: 1950s-1970s Challenges Traditional welfare state Context Economy Stable continuing growth Fiscal globalisation limits role of national government Competitiveness imperative Post-industrialism reduces growth Labour market High employment Technical change + international competition threaten job security; Shift to service sector Social Stable nuclear family, More flexible families; gender division of labour More women employed Population Stable balance between work-force and Ageing threatens sustainability of Political forces dependents Class-based: organised mass working and middle class interests in welfare state settlement Role of state Governments can control exchange, interest and unemployment rates Dominant theoretical models Political Neo-Keynesian demand management economy Administration Bureaucratic Professional pensions; health and social care Fragmentation: - access to paid work - social care - privatised services - migration Loss of levers of control Monetarism emphasis on containing money-supply; limited interventionism Budget-maximising bureaucrat Principal/agent problem Emerging Settlement II Social Investment Growth through competitiveness; High-value added work Flexi-curity ; Appropriately skilled flexible workforce Equal opportunities; Adjustment of dependency ratio Multiple interests; a larger role for business in relation to government Governments enhance and promote competitiveness Dynamic, knowledge-based economy ; Third way Decentralisation Performance management Internal markets

15 15 Citizenship The Settlement Welfare state Issues Passive, engaged during elections Trusting of authorities Traditional welfare state: Contributes to national production: - smoothes economic cycle - enhances workforce - promotes support for government Goal deflection from production to distribution Self-regarding; critical Damages economic goals: - unjustified costs - supports labour-market and allocative inefficiencies - promotes distributional struggles + not productive effort Counter-productive welfare state Active, responsible, individualist Welfare ends by market means : Contributes to national goals by: - work force training and mobilisation - efficient provision of necessary services - promoting social cohesion Inclusion of vulnerable groups Individualism and social capital