Re-thinking social policy - Governments and the community(1)

Paper for ACTCOSS Conference 19 June 2000

Ian McAuley

University of Canberra


Social policy does not stand apart from other government policies. Indeed, in a democracy, all policy should be about the community, because communities come together through their governments to provide collective goods and services.

Under the philosophy of neoliberalism (erroneously known to some Australians as "economic rationalism"), however, collective action is devalued. Government is seen not as a means of creating and expressing community value, but rather as an overhead burden, inimical to economic progress.

The view is flawed, in that it rests on the assumption of a tradeoff between economic and social objectives. But the tradeoff is false, for a weak community cannot sustain a strong economy. The Australian economy is not as strong as superficial figures indicate; indeed, it is being weakened by the very policies which are producing these superficial figures indicating strong growth.

The community and welfare sector needs to be more assertive about defining a positive role for the state. The assertion that there is no alternative to neoliberalism is false. Globalization does not have to mean a "race to the bottom", or an emasculated public sector. There is a strong case for raising taxes to pay for collective goods and services; indeed that is an aspect of what real mutual obligation is about.


Compartmentalization of social policy

It is easy to draw a mental map of government as a number of distinct policies - economic policy, defense policy, foreign policy, social policy, industry policy etc.

This mental map is useful for designing administrative arrangements - dividing government operations into departments and agencies and establishing lines of communication. But it is no more than that - an administrative convenience.

For the very word "policy", is derived from the Greek words "citizen" derived in turn from the word "city", a social collection of citizens, or a community. The term "social policy" contains something of a redundancy; policy is, or should be, about society.

This is not a mere point in semantics. Rather, it is to go to the heart of what government is about. Is it simply another agency out there like Microsoft or BHP, or is it something owned by, accountable to, and ultimately controlled by society?

I suggest that the former notion is fashionable. It's a notion, curiously, shared by Marxists and by neo-liberals. Marx saw the state as an instrument to support capitalism; the neo- liberals see the state as an unnecessary overhead, a large and greedy institution which consumes but does not produce. (That is why the Commonwealth can talk about selling Telstra and the Commonwealth Bank to the people, rather than taking it from the people. Only if one believes the state is something apart from society can one hold such a belief.)

A democratic notion of the state is quite different. It does for people what they cannot do, or cannot do well, in their individual capacities. It is about people in society; all policy therefore is ultimately social policy. We cannot consider "social policy" in isolation from a broader notion of the role of the state.

Practical implications

What are the practical implications of such a re-affirmation of a democratic view of the state - as something responsive to and owned by the community?

The main implication is to do away with the common assumption that there is some trade-off between "economic" policy and "social" policy. According to this widely-held assumption, if we want better aged care we can have it only if we sacrifice economic growth. If we want more spent on education we have to make do with a lower standard of living.

Such a contrast immediately establishes organizations like ACTOSS in an adversarial relationship with the other lobbies - the industry lobbies who want a "stronger" economy, the transport lobbies who want more spent on infrastructure etc.

It's a wrong framing of the issues, however. The tradeoff is false, for there is no way in which a strong economy can rest on a weak society. Those nations which have misunderstood this, by putting "the economy" ahead of society, have sometimes had impressive short term results, but the costs in the longer term have been high - even ruinous. In the USA in the 1920s, for example, President Coolidge neatly summed up the prevailing mood of the time when he said "the business of government is business". In his opinion, government existed mainly to facilitate business. Three years later capitalism almost collapsed in the Great Depression. In the Soviet Union Stalin ruthlessly pursued a policy of industrialization, centered on heavy industry and industrial transport infrastructure. Housing and consumer goods were secondary in Stalin's forced modernization, and no civic institutions which could challenge the authority of the state were tolerated. Again, the cost was terrible.

In Australia we are facing something of the same problem. The philosophy of neoliberalism has been to use government policy to produce an impressive set of macroeconomic indicators - inflation and growth in particular. There are, at best, superficial statements on performance, for they ignore many of the costs which do not get captured in highly aggregated indicators such as the nation's Gross Domestic product (GDP).

The irony of neoliberalism is that in achieving a set of impressive top level economic indicators it is causing such damage to society that government outlays on welfare are rising in all countries in which neoliberalism has taken hold. In Britain, the Thatcher Administration set out to reduce the size of government. It embarked on a savage round of asset sales, and cuts in programs and public investment. But over the Thatcher Administration's watch, government spending (as a proportion of GDP) actually rose, because of the huge demands on the welfare state, which had to cope with the damage of neoliberalism - unemployment, devastated industrial cities, and mining regions converted to post industrial wastelands.

Similarly in Australia. Over the last quarter of the twentieth century, public expenditure on education, roads, research, defence, public order, housing and other areas of public goods has dwindled, while expenditure on personal transfer payments, such as pensions, has increased. In round numbers, since 1975 Commonwealth payments on the former, as a proportion of GDP, have halved, while expenditure on the latter have doubled. Increasingly our taxes, instead of providing public goods, are being used to compensate for the failure of our economy to provide good incomes in the private sector.

Why do we need these welfare payments? Because the current period of economic growth is not as good as it looks from the lofty viewpoint of the Federal Treasurer, who conveniently overlooks serious weaknesses, such as accumulating foreign debt and low household savings. Most seriously, the fruits of growth have not been distributed fairly, and we are running down our capital - both physical capital and social capital.

The economic growth which Australia has been experiencing over the last ten years contrasts strongly with the previous growth period from 1945 to 1972 which was also one of strong economic growth - in fact much stronger than is occurring now. But the benefits of growth then were much more widely distributed - between labour and capital, between the public and private spheres, and between city and the bush. While the benefits were shared, economic growth and social growth were intertwined.


Widening divisions

Economic growth under neoliberalism has seen an increasingly divided society. Deep chasms are appearing in Australia. Between those whose rewards are seven digit salaries (eight digit termination payments) and those whose rewards are insecure, low paid, demeaning work. Between those who can enjoy the good life of the cities and leafy suburbs and those in the outer suburbs and country who are doing it hard. Between those who have the education and skills to cope with change and those whose skills are no longer required. Once one of the most egalitarian countries in the world, Australia is now one of the least inegalitarian, in a transformation that has taken only twenty years or less.

Australia is coming to resemble a set of gated communities. Although we have few walled communities with armed guards, we do have strong spatial divisions. Canberra itself, once based on residential mixing, is becoming much more geographically segregated, particularly with the parsimonious development of the northern suburbs. We are establishing gated communities in health care and education, encouraged with private health insurance and with increasing subsidies for private schools. These trends are not as advanced in Canberra as elsewhere, but they are established.

Some in the welfare sector may not be too concerned; they may see it as desirable to see scarce public funds spent on welfare rather than on roads and defence. And why shouldn't those who can afford private health insurance, for example, be encouraged to get out of the public system?

The trouble is that this current system is unsustainable, for two reasons.

First, we cannot go on using welfare to compensate for an under-performing economy. One of the reasons our economy is under-performing is that we have cut back on public expenditure on infrastructure and education. Australia is being left behind by countries which have made such investments. As we cut further to pay for welfare, we weaken our long term prospects even further. If we go on as we are our capacity to raise taxes to pay for welfare will be lost. We need to invest in education, training and infrastructure to allow us to earn our way in the world; we cannot go on using welfare to prop up an economy incapable of providing well-paid jobs.

Second, and perhaps more important, these divisions are damaging society. When people feel society is no longer fair, they are unlikely to stop contributing so freely. We know about the big fall in voluntary work, for example. Perhaps it can be explained by the sense of unfairness in the sectors which have depended on volunteers in the past. When corporations replace church welfare agencies, or when churches themselves become corporations, paying executives six digit salaries, then a sense of fairness is lost. And when our education and health care systems are no longer shared we lose our institutions of social cohesion, and we lose the participation of those better-off citizens who will work to ensure our standards in education and health care stay high.

What is occurring in Australia is what Canadian philosopher John Ralston Saul calls the "corporatization" of society. Every institution is expected to become a corporation, to adopt business practices. There is no legitimacy other than the legitimacy of markets. Market values pervade our lives; charities become businesses, public space becomes market space festooned with billboards advertising Fords and Victoria Bitter, commercial television and radio invade homes with hours of inane advertising every day. Like Orwell's Big Brother, the market is everywhere; there is no escape from it.


It's society, stupid

When Clinton was elected the White House advisors adopted the phrase "it's the economy, stupid", as a warning to the President to get America back on a growth path. Looking back on the last quarter of the twentieth century, perhaps a better aphorism is "it's society, stupid".

In Australia there has been some recognition of this problem, but, like most policy responses of the current Commonwealth Government, it has been tokenistic. More words than substance, endless rhetoric about "families", and innumerable poorly funded projects and programs.

One policy response has been the hypocrisy of "mutual obligation". The word "mutual" is obscene, however, because the obligations are one way. One could postulate a set of obligations. Obligations for corporations and individuals to pay their share of taxes, and not to steal from the community through trusts and negative geared investments. Obligations for firms to employ and train workers, building up their skills and self-confidence in dignified employment. Obligations for executives to set an example to their employees, and to take no more than a reasonable salary. Obligations for firms to reward loyalty and to keep and re-train older employees. Obligations for professionals in medicine and law to act in the interests of their clients.

If those conditions were to hold, then the concept of mutual obligation may be reasonable. If some of those who have least power in society act with greed, if some of them cheat on welfare payments, or are less than eager in finding employment, then perhaps we should look to see the sources of these values.

A strong society cannot be created by a few government press releases or token interventions. It requires a sincere commitment from government, and a new social contract. That will not come so long as we are shackled with the burden of neoliberalism.


But there is no alternative

TINA - "there is no alternative" is the last line of defense for neo-liberals. Just as the twentieth century Marxists justified the totalitarian Soviet State on the basis of historical inevitability, so too do the neo-liberals argue that the trend is inevitable. Global competition, the race to the bottom in environmental standards and work practices, the shrinking of the nation state are all inevitable. Because it's happening, it has to happen.

But there is an alternative. There is nothing new about globalization; in fact, apart from the period 1914 to1945, most of the last 150 years have seen a generally open world economy. In the postwar era sovereign governments set up the mechanisms which would allow for restoration of open trade while protecting standards of employment. They accepted a theory of public goods, which dictated a rational public/private boundary. Those who established this postwar order at the Bretton Woods conference in 1944 were looking at the ruins of the 1920s and 1930s, an era of unregulated laissez faire capitalism which had ended with depression, war, nationalist madness and dictatorship. They realized that if capitalism was to survive it had to serve society's ends.

In this realization they were doing no more than realizing an age-old social condition, that markets are good servants but poor masters. Markets work well to serve society's ends, but when they become the only mechanism in society for allocating economic activity they can destroy the very society upon which they rest.

Those who put together the postwar order realized that if capitalism didn't perform to serve society, people would reject it and choose communism, which, during the Depression, had looked like a reasonably attractive alternative.

The postwar order came to an end in 1973. A number of related events converged - the oil crisis, the end of the Vietnam War, the end of the fixed currency régime, and for some years national governments floundered, until the ideology of neoliberalism appeared in the early eighties. Its strongest champions were Margaret Thatcher elected in 1979 ("there is no such thing as society") and Ronald Reagan elected in 1980. Its legitimacy was enhanced by the failure of conventional Keynesian mechanisms of government spending to solve the mid seventies crisis, and by the rapid decline of Soviet communism over the eighties. That decline, according to neo-liberals, was demonstrable proof that the private sector is superior to the public sector. (Conveniently overlooked was the fact that the Soviet Union was undemocratic, and, like neoliberalism, had developed a grossly unfair reward system, was carrying high bureaucratic overheads, and was based on an unquestioned dogma about the role of the state.)

The legitimacy of neoliberalism has been further enhanced by strong economic growth over the 1990s, particularly in Australia. But, as pointed out, the benefits of that growth have not been shared widely. And, in part, it is illusory, for our impressive figures on GDP do not bring to account our crumbling transport infrastructure, the damage to our environment (particularly our agricultural land), our under-investment in skills and education, and the deepening divisions in our society.

Neoliberalism has also been bolstered by weak opposition. There are no strong, concerted voices pointing out that there is an alternative, just as there was an alternative in 1944. There are protests, such as the Seattle demonstrations in December 1999, but there is no unifying theme behind these protests. In Australia many of those who would have once constituted the "left" have meekly accepted the notion that there is no alternative. Organizations seek corporate sponsorship, in the belief that there is no way to increase public funding for their causes. When people complain about neoliberal public policy they complain about "economic rationalism", one of the most disempowering terms ever coined, for it carries the implication that there is something "rational" about neoliberalism. Anyone who levels an accusation of "economic rationalism" is implying that their own cause is somehow irrational and irresponsible. Perhaps that's why when governments throw a few crumbs from the table there are expressions of immense gratitude, such as occurred after the May 2000 Budget when the Commonwealth made a very loud noise about measures which will increase rural incomes by no more than a dollar a week.

Too many of those who should be at the forefront of opposition to neoliberalism are cowered and submissive, almost apologetic about their own existence, like a mob of sheep herded into a woolshed for shearing. They accept the rhetoric and assumptions of neoliberalism.

We do live in a global economy; we have done so for the last 150 years. But that doesn't mean we have to accept the "race to the bottom", weakening environmental and employment provisions, and trying to outdo one another to reduce the size of government. Institutions like the IMF and the WTO are creations of democratically elected governments; they can be changed to take into account environmental and labour standards. There is no inevitability about "smaller government"; research in many countries, including Australia, reveals that people are willing to pay more in taxes provided it is spent well - on public goods such as transport, education, health care and environmental protection. State and territory governments do not have to resort to pernicious ways of raising revenue, such as allowing a proliferation of gambling, or imposing regressive taxes such as high car registration fees (which, in the ACT, are the same for a Ferarri and a Ford).

Community preferences, in fact are quite in line with a well accepted, rational economic theory of public goods, which sets a useful dividing line between the public and private spheres. Such a theory not only directs public expenditure to where it is justified; it also ensures it is not wasted on subsidies for activities which can be provided in private markets, such as sports stadia and V8 car races. To provide adequate public revenues genuine tax reform is needed - such as higher and fairer personal and corporate taxes, abolition of tax shelters for the well to do, abolition of the Ralph "reforms" to capital gains taxation, adequate taxation on scarce natural resources, and closure of casinos and gaming halls. That would be real "mutual obligation".

The community sector needs to take a strong and confident stance. Their concern is about society, not as defined in some residual "social" policy, but rather in terms of government policy as a whole. The only obstacle is the barren, economically irrational philosophy of neoliberalism.


1. This paper makes a number of assertions about economic conditions, which are backed up in detail, with data sources and references, in a speech delivered in June 2000 to the Australian Society of Association Executives "The Australian Economy - from Menzies to the millenium", available at this same website.