Libertarian Thoughts on State Welfare
By Sean Gabb
(26th October 2015)
One of the main British news stories at the moment is an argument over changes to part of the welfare system. The Government claims it wants to make the child and working tax credits system more efficient. The Labour opposition claims it wants to cut benefits to the poor. I realise that, in writing about the welfare system, I am under a double burden of ignorance. First, I have limited experience and knowledge of state welfare. Second, and partly in consequence, I am not able to say whether the Government or the Opposition is lying over the probable effect of the changes proposed. This being said, welfare benefits are an important issue; I have been urged to write about it; and, so long as I keep to broad principle, my ignorance of the details should not be a disadvantage.
As a libertarian, I try to judge the abstract legitimacy of any institution or government policy by asking whether it would exist without a state to uphold it. I have in my mind the idea of a purely natural order, in which all association between adults, excepting only defence against aggression, is voluntary. Since this natural order would have no government, and therefore no taxes and no redistribution of income, there would obviously be no state welfare system. On these grounds, I say that the British welfare state has no abstract legitimacy.
Note, however, the qualifying adjective. Just because something is illegitimate in the abstract does not mean that it should be immediately abolished, or even that its abolition should be high on the agenda of any military junta advised by libertarians. In applying libertarian principle to the world as it is, we need to take into account both abstract legitimacy and particular circumstances. Where state welfare is concerned, the circumstances should rule out abolition in both the short and medium term.
Though by any reasonable standard, I am on the political right, I accept one of the central insights of left-libertarians like Kevin Carson. This is that we should not confuse the present order of things with a natural order. We should not defend the present structure of outcomes as if they were the outcomes of a free market. To look only at England and America and the rest of the civilised world, there are many people – perhaps ten or twenty per cent – who cannot earn enough to enjoy what is generally seen as a fair standard of living. Some of these people are what used to be called “the undeserving poor” – that is, they are lazy, or they are drug addicts or habitual drunks, or they have in some other way made parasites of themselves. But many are victims of circumstances that, like state welfare, would not exist in a natural order.
I have no doubt that some kind of wage system would exist in a natural order. There are people who do not like risk, or who have a high time preference. Rather than produce today for an uncertain future return, they will prefer to sell their time for a more secure periodic wage. But the nature and scale of the wage system that presently exists is not natural. It came into being and is sustained by a set of laws and institutions that set at least the poor at a structural disadvantage.
I am lucky. I am able to get a living almost as if I were in a natural order. I write. I am a private tutor and educational consultant. I teach for a small salary. I have no debts, which fact counts as an income in itself. I am not rich. I have to limit my expenses in ways I find unwelcome. I have to juggle unavoidable commitments in ways that I sometimes find embarrassing. But I have no one source of income, and any that goes down can be replaced without a plunge into actual want. Though I have fairly unusual skills, many more people should be able to live like this. They cannot, because, as said, they have been placed at a structural disadvantage.
There is always a demand for taxi drivers and delivery couriers, and for child minders, and for beer and wine made in small batches, and for cooked food, and for other goods and services that, in themselves, require little skill and capital to provide. But these goods and services are so taxed and regulated that they can only be provided with credentials or on a scale that most people cannot manage. If they are to get a living by work, it must be for wages.
When I was a boy, this was not a great practical evil. There was no shortage of paid work, and most wages were not very far from the median. Since then, further market distortions have driven much industry out of the country, and placed a firm and continuous downward pressure on unskilled and semi-skilled wages. Worse, there are parts of the country where almost no paid work can be had.
The various kinds of state welfare available are a necessary corrective to what would otherwise be grinding poverty. I agree that state welfare may encourage idleness. But there is worse than idleness. State welfare is a secondary distortion to markets to correct primary distortions that some libertarians still insist on calling market outcomes.
It is a disgrace to claim welfare when you do not reasonably need it. But there is no disgrace in claiming it when circumstances are against you. If we ever move towards a natural order, state welfare will eventually disappear. But it should not disappear before the distortions that presently make it necessary have been removed. By all means, let systematic fraud and wilful idleness be discouraged. But, for the moment, no one with any sense or humanity should wish to take away the safety net.
And I will be honest. I have said I live almost as if in a natural order. But “almost” is an important qualifier. When I was at university, I had a full student grant. I paid no tuition fees. I use the National Health Service. My wife collects whatever family allowance is nowadays called. We send our daughter to a state primary school, and are preparing her for the eleven plus examination that will let her attend a grammar school at public expense. In due course, I hope to claim my old age pension. If I get one, I will make full use of my free bus pass. No one who is in my position has the right to denounce the poor if they claim different benefits. So far as state welfare is based on robbery from the tax payers, we are nearly all thieving from each other.
I turn now to the specific benefits that are said to be under threat. Working tax credits are paid to those in work whose income falls below a certain level. Child tax credits are paid to those with children whose income falls below a certain level. They were introduced by Gordon Brown. Though otherwise an infamous man, he did much to rationalise a benefits system that tended to encourage idleness. Because, as said, I am ignorant of them, I will avoid going into details. But tax credits are a reasonable approach to the negative income tax proposed by Milton Friedman. If we are not to abolish state welfare, it should be fully rationalised. We should end unemployment benefit and housing benefit and old age pensions and family allowance and free school dinners and free gas boilers, and all the other ad hoc benefits brought into being in the twentieth century. We should replace them with direct cash payments, via that tax system, to bring every family to what is seen as a reasonable living. By all means, deter fraud, and exclude recent immigrants from the system. But let us have a welfare system that gives security and even dignity to the poor.
And so, to the extent that it really is trying to roll back the least objectionable part of the state welfare system, the Government is to be condemned. The politicians should think again about how to cut public spending. This is not the place to list the things that ought to be cut. But I am sure I am not alone in being able to find other economies than hurting the poor.