Friday, 18 February 2011

Back on the welfare reform trendmill

Haven't we been here before? Didn't the previous Labour government promise benefit reform?

Yesterday, David Cameron was before the cameras promising yet another welfare reform Bill. The grand idea behind this latest initiative seemed strangely familiar. The complex network of welfare benefits will be replaced by a single universal credit. There will also be hard-hitting new sanctions to punish those who want to remain idle.

Cameron's main sound bite was that he was ''finally going to make work pay - especially for the poorest people in society." Sadly, that quote provoked a deluge of pedantry from me. "There is only two kinds of work" I said ” paid and unpaid work, the latter being better known as either slavery or housework".

Anyway, I have left the pedantry in the kitchen. I am now before a computer and back on the theme of benefits. There isn't the slightest possibility that Cameron's welfare bill will reduce the numbers receiving financial assistance from the state.

The benefits debate has always been framed around the conflict between providing incentives to work and poverty alleviation. If the state provides a minimum level of income to the poor, the incentive to work is reduced. If the state introduces sanctions against the work shy, poverty increases.

At the margin, changing the rules behind welfare payments will affect a small number of the unemployed. Tighten the rules and some will return to gainful employment. Weaken the rules and more people will stay at home and watch the atrocious yet strangely compelling Jeremy Kyle show.

Incentives isn't really the problem; the key problem is the appallingly low productivity levels of the urban poor. The vast majority of people on benefits do not possess the necessary aptitude or skills to acquire a job in the mainsteam economy.

This wasn't always true. Fifty years ago, the country was full of factories which could offer people with limited capacities a place where they could perform menial tasks for a modest yet reasonable income stream.

Unfortunately, all those jobs have relocated to the developing world, where people are willing to do those repetitive and menial tasks for a fraction of what low skilled British workers are prepared to accept.

The obvious riposte to this argument is that benefits keep UK wage rates high and therefore act as a disincentive to the unemployed in accepting lower wage rates. This is absolutely true but isn’t the point.

How far would UK wages have to fall in order to attract back to Britain all those factories that left over the last 40 years? The answer, obviously, is that wage rates would have to fall to close to those currently paid in the developing world.

If the UK benefit system were abolished tomorrow, there is a fair chance that unskilled wages could fall sufficiently far so that unskilled British workers are competitive with their developing world counterparts. The obvious implication would be that the living standards of these newly employed Britons would also be comparable with those in the developing world. In other words, many UK cities would be transformed into the kinds of slums that one sees in the developing world.

When this obvious point is made, it usually generates a lot of sanctimonious nonsense about education. If only more money was spent on tooling up the unskilled, then welfare reform might work.

Policy makers in the developing also know about the importance of education. Those same unskilled workers that took those factory jobs are also acquiring new skills. The bar is being raised. It would take an unacceptably high amount of public investment in education in order that British low skilled workers acquired sufficient levels of productivity to effectively compete against their counterparts in the developing world.

Therefore, welfare benefits are the cheaper option. In effect, we are paying for the pretence of living in a competitive modern and thriving economy. Some parts of the UK economy are doing brilliantly. At the same time, there are large sections of the potential workforce are woefully uncompetitive.

Deep down, most of us know this sad reality, which is why we are prepared to tolerate the outrageous amounts of money that is devoted to keeping the unskilled from starvation. We complain and moan about the work-shy, we angrily demand welfare reform. Politicians like Cameron respond to this clamour, and deliver us a feast of anti-benefit rhetoric. At time same time, we wink at the politicians, “Don’t take us too seriously” we hint. After all, “we don’t want to turn London into Shanghai”.


Anonymous said...

Your last sentence seems to be either misplaced or ironic.

At time same time, we wink at the politicians, “Don’t take us too seriously” we hint. After all, “we don’t want to turn London into Shanghai”.

bill said...

China has created a major imbalance that is destroying jobs in the western world. China is able to export goods & services significantly below cost because of the RMB's peg to the USD. And when I say below cost, that is also below cost in India, not just the UK.

When a country starts exporting more goods than it imports it creates an imbalance and the exchange rate alter to redress that imbalance. Because of the peg the RMB has not been allowed to rise to its natural level, artificially undercutting all other currencies. In the short term we get very cheap goods, but in the long term all jobs move to China as no-one can complete.

Your comments on education are illogical. You call those who see education as key as sanctimonious and yet recognise eduction the answer. The education/training required inst that expensive, and would be cheaper if you gave kids a good education to start.

Mark Wadsworth said...

We don't throw vast amounts of money at working age benefits, it is half as much as we spend on old age pensions.

All of welfare & pensions together is still rather less than the government spends on 'private sector procurement' (which is about one-fifth of GDP)

And as I've said before, I'd rather pay £20,000 a year to a family on benefits than £100,000 a year to a quangocrat or other private sector leech.

chefdave said...

We can afford higher wages though because we're far more productive than many other countries. Most developing nations (including China) are still building their infrastructre up to UK standards, this gives our poorest a massive competitive advantage so they wouldn't live like Chinese peasant farmers if we altered benefits.

No the real problem, the one they don't want to tackle is the housing market. It really doesn't matter how productive we are when the land market is being used to keep people poor.

The benefits/vs low paid work debate is just being used as a distraction, it doesn't solve the core issue.

Anonymous said...

"No the real problem, the one they don't want to tackle is the housing market."

NO....the real problem is IMMIGRATION!!

George Bernard Shaw said...

Is this the same Alice who wanted people to breed with abandon a few weeks ago?

The educated, skilled, employable middle classes elect not to have kids. The fecund, thick, unemployable, get-a-kid-get-a-council-flat classes drop kids who in our economy are not going to work.

OK, they create lots of jobs indirectly administering welfare, as warders, social workers, probation officers and the like. Their activities keep legal aid lawyers in employment. And sometimes we need infantry - though the Germans and French seem less bellicose these days. But there is a group of people who should not be born. Its eugenics we need, not welfare reform.

Alice Cook said...

George Bernard Shaw

Yes, it is the same Alice Cook who raised deep concerns about recent demographic trends.

As to your first point, I agree; there is something ironic about educated and employable middle-class people deciding not to have children while people with low educational attainment seem to be more than happy to reproduce.

However, I wouldn't necessarily put a negative spin on it. Obviously, it has something to do with values. If someone with a reasonable income stream decides not to have children, one can only assume that a desire for a higher level of consumption has trumped procreation.

If, on the other hand, someone living in a council estate decides to have children and is willing to live in poverty as a consequence, it is not immediately obvious to me that this is a bad decision. Children bring their own joy, even in council estates.

If I may be a little provocative, one could argue that the welfare system is acting as an implicit social contract between the middle-class childless couple and the fecund teenage mother. The latter provides the future taxpayer who will contribute to the pensions of the former childless middle-class consumer.

The problem however is that the offspring of the teenage mother may not acquire sufficent productivity to earn enough to pay for the pensions of the childless consumers.

Let us be brutally honest, which of these two stereotypes is the more irresponsible? Is it the former, who casually expects future generations to pay to their pensions? Or is it the latter who expects societies to subsidise their child rearing?

Whenever I hear the word eugenics I'm always reminded of the founder of the movement, Francis Galton. He was a late Victorian writer who prattled on endlessly about the needs to improve the quality of the English bloodlines. He felt that the English were a superior race, and he and his friends were perfect examples of that superiority.

The great irony was that he was unable to produce any children himself.