Social Welfare: Lessons from Speenhamland
Keith Rankin, 20 February 1998.
Karl Polanyi, in his classic socio-anthropological account of the industrial revolution (The Great Transformation, 1944), gives great emphasis to the unforeseen impact of the guaranteed minimum income provisions introduced in England in 1795, and known generally as the Speenhamland system.
For Polanyi, the central feature of the industrial revolution was the creation of a national market system. Hitherto, markets had been important, and on two levels - local and international - but were always regulated to conform with the non-economic aspects of local and national society. The transformation to a market system overturned this relationship, with the requirements of the capitalist market economy taking precedence, and with the expectation that the social costs imposed by the sovereignty of the marketplace would be paid in large part by the dislocated individuals.
In a market-dominated social system, people are expendable atoms; the "utopian" economic organism takes precedence over the needs of its individual cells. The new system was a "machine ... under which man was now condemned to serve" (Polanyi p.98).
Polanyi's perspective is very relevant to our own age, as we move, not from local economies to a national market economy, but from national welfare states into a global market system, and the seemingly unrelenting demands that the global machine requires of us. Whereas the failings of the Speenhamland welfare system made possible the 1834 'New Poor Law' that underpinned the national market system, the failings of modern welfare states to deal with economic growth and its diminution of socially necessary paid work bring us to a similar point of bifurcation in social policy. The essential failing of the Speenhamland system was what we today call the 'poverty trap'.
It is to a version of the New Poor Law that, today, both neoliberals (the modern acolytes of Ricardian economics) and neoconservatives (the modern acolytes of Thomas Chalmers' social economics) are relentlessly moving our welfare system towards. The Age of Atonement by Boyd Hilton (1988), provides readers with a good sense of the prevailing "eschatological" worldview.
The closest modern proposal for a pure Speenhamland style of welfare reform is that spelt out by NZ Finance Minister Roger Douglas in 1987. Under this system - what Douglas called a "Guaranteed Minimum Family Income" - there would be "aid-in-wages" (Polanyi's term) sufficient to top up to the average wage the incomes of all single income working families. Another feature of the Speenhamland system was "aid-in-rent", indistinguishable from today's Accommodation Supplement.
To all intents and purposes, however, New Zealand's comprehensively targeted income support system is a rerun of Speenhamland; albeit of a less pure form than the Douglas proposals. The comprehensiveness of its targeting makes it into a highly bureaucratised form of universal welfare state; a welfare state that does provide a minimum income for almost everyone. It is an administratively expensive system that, under conditions of public expenditure restraint as mandated by the 1994 Fiscal Responsibility Act, leads to ongoing real reductions in the level of minimum income provided.
The Speenhamland system proved to be a cause of poverty rather than a cure, for a second reason; that is for a reason in addition to the high effective marginal tax rates that define the poverty trap. The second reason was the introduction of "the unjust Anti-Combination Laws of 1799-1800" (Polanyi, p.81); laws that have their parallel in New Zealand's 1991 Employment Contracts Act.
It turns out that the effect on wages of a guaranteed minimum income (GMI) system depends very much on the prevailing laws that govern the labour market. When these laws give workers the effective right to withdraw their labour, then the GMI provides an alternative means of sustenance; quite the opposite of a wage subsidy. As Polanyi (p.81) put it: "If labourers had been free to combine for the furtherance of their interests, the allowance system might, of course, have had the contrary [upwards instead of downwards] effect on standard wages." Under the kinds of labour laws that prevailed in New Zealand from 1938 to 1984, Speenhamland could have worked to diminish if not eliminate poverty. It could have led, but did not lead to, a high-wage high-productivity work force.
The solution to the poverty problem is, in large part, a switch to a welfare system based on a universal basic income (UBI). A UBI, in itself, gives workers more bargaining power as well as reducing EMTRs in the critical wage range; ie the range from minimum weekly wage to average weekly wage. The other part of the solution is to maintain (or improve) existing labour market protections, because it is such protections that prevent any kind of welfare state from becoming a low-wage wage-subsidy state, and which ensure that labour productivity doesn't fall.
Another lesson from Speenhamland relates to the role of the local parish as the jurisdiction for welfare payments. This led to restrictions being placed on the mobility of poor people. In the modern context, where we are moving not from local to national but from national to global jurisdiction, the national welfare states are the modern equivalents of the Speenhamland parish welfare programmes. Thus we see poor people are unable to leave their countries of nationality, whereas those with work experience and scarce skills form part of a global labour market. A proper solution today requires a global coordination of welfare provision, just as Britain in the 19th century needed to adapt by shifting from parish provision to national provision. In this respect, the New Poor Law was an advance.
It might be argued that the New Poor Law was a great success, because it enabled the great successes of the industrial revolution. The problem with this argument is that the industrial revolution was well under way before 1834, it could not have taken place without the many hardships that blighted a whole generation of British and Irish, and disaster was avoided only because there was an out available to the dislocated of the 1830s that is not available today. It is certainly no coincidence that 1834 was the year that Edward Gibbon Wakefield published England and America, and, after that, sought to put his ideas into practice in South Australia and New Zealand.
A return to the selfishness that underpinned the New Poor Law of 1834, and that underpins transnational capitalism today, will not bring about a new global industrial revolution. Without the safety valve of emigration to "new" lands that was a necessary feature of the last industrial revolution, the outcome of a global Poor Law equivalent to the British law of 1834 will be a global catastrophe comparable to that of Ireland in 1845.
Today, we need a socio-economic contract that values the intellectual resources that will be needed to generate sustainable economic growth. Such a contract should include a tax-benefit system - a UBI system - that provides incentives to participate in both market and non-market activity, while providing disincentives to both 'overwork' and 'underwork'. It needs to be an inclusive system based on fair taxes and universal benefits; a system that recognises and enables the contributions of all, whether paid or unpaid.
The Speenhamland-type hybrid system of income support that we have in New Zealand at present is the opposite of what we need. It creates four class groups: the underworking "beneficiary class", the overworked "taxpaying class", the overpaid "tax-avoiding class", and a class of low income workers that see themselves as "independent" or "self-reliant" taxpayers, but who are in reality receiving significant "aid-in-wages" and "aid-in-rent " benefits. This is a very divisive formula, through which members of each group can point their fingers at one of the other groups. It is a system that encourages the wasteful and inhumane social exclusion of the underworking group; a system that denies the economic sovereignty that is integral to citizenship. It is a system that is leading to the self-destruction of the New Zealand welfare state.
Rankin File | 1998 titles