Does the welfare state have a future?

It is often claimed that today's neo-liberal internationalised economy is a conjunctural phenomenon rather than the result of a structural change and that the current global market economy is not governable. However, the fact that the market economy is governable, in the narrow sense of regulation, is obvious to everybody. What one might argue more forcibly is that the state has lost a lot of its economic sovereignty in the past quarter of a century or so.

The main objective of the elites that control today's market economy is to maximise the role of the market and minimise social controls over it, so that maximum "efficiency" and growth may be secured. Therefore, social controls in the narrow sense are universally phased out. Although the welfare state would be left to basically decay, various "safety nets" would be kept in place to check massive social unrest. However, the safety nets, which target specific categories of people (very poor, etc), not only imply the elimination of the basic characteristic of the welfare state, its universality, but also the institutionalisation of poverty.

Even many social liberals today repudiate the universal character of the welfare state, blaming universality (the principle that social services are offered to every citizen irrespective of income and need) for the system's crisis. Indeed, in their effort to support the case against universality, they do not hesitate to invoke social justice, arguing that the universal system accentuates social inequalities because the middle classes are in a better position than the financially weaker, who are in real need, to benefit from social services (in education, health, insurance).

According to the same view, the inequality of the system is further enhanced by the fact that the more affluent have many means at their disposal in order to evade direct taxation, through which these services are, mainly, financed. However, though it is true that tax evasion flourishes among the affluent, this does not mean that there are no ways to tax them on the basis not so much of their income, which is indeed easily concealed, but of their luxury consumption and property.

Thus, the various indirect ways proposed to abolish universality (which, typically, would force the affluent classes to return, usually through taxation, the value of the social services rendered them by the state) would merely provide an additional incentive for the privileged "electoral majority" to withdraw from the social coverage of their basic needs in favour of private coverage and to push professional politicians into further downgrading the quality of social services.

It is therefore obvious that a system such as the one proposed by the European social liberals would easily end up resembling the American health and education system which, with its extreme polarisation between the high quality services provided by the private sector as compared to the misery of the state sector's services, must be the most socially unjust system in the Western world.

To my mind, it is obvious that the myth of an explosion in social expenditures is nurtured for reasons other than the supposed financial crisis of the system, due to demographic or similar reasons. In Denmark, many hospitals have already established an age limit of 70 for admission, not because the proportion of elderly people in the population has increased but because, in the framework of the neo-liberal consensus, the number of hospital beds has been reduced by 25 per cent in the past 10 years. Similarly, in Britain, it was recently revealed that many hospitals have reduced the age limit for treatment of several diseases to 65! A similar debate is taking place in Malta. Again, some are claiming that our welfare system has become unsustainable. Do the facts bear this out?

Over the three years to 2002, social security benefits grew 3.8 per cent per annum to Lm190.7 million but GDP grew at 5 per cent annually so that total benefits as a proportion of GDP actually decreased by half a percentage point to 11.3 per cent. Moreover, non-contributory benefits absorbed a lower share of expenditure, falling by four percentage points. Having said that, there does seem to be a trend for retirement pensions to garner a higher share of expenditure, there having been a 3.5 percentage point rise in their share to 42.4 per cent.

But, even then, the real reason for the savage cuts in social expenditure is that, in the framework of an internationalised market economy, the higher a country's "social wage" the lower its competitiveness. For EU countries in particular, in which the social wage has traditionally been, and still is, considerably higher than in the competitor countries of North America, the Far East, the problem has already become critical.

Still, from a radical perspective, the real choice is not between a neo-liberal system that directly abolishes universality and a social liberal system that indirectly achieves the same aim: both systems enhance the citizens' dependence on the state and the market in covering their basic needs. The real choice is between a system of social services that enhances this dependence and an alternative system that would strengthen the citizen's self-reliance and assign the system's control to the citizens themselves, through their communities.

Perhaps it is time to outline a new concept of social welfare which is based on a concept of economic democracy as an integral part of an inclusive democracy. Such a system would aim at satisfying the basic needs of all citizens - and that basic macro-economic decisions have to be taken democratically, and securing freedom of choice - that the individual take important decisions affecting his own life (what work to do, what to consume).

So, meeting the basic needs would be achieved through the issue of personal vouchers to citizens on behalf of the community. These vouchers would entitle each citizen to a given level of satisfaction for each particular type of need that has been characterised as "basic" but do not specify the particular type of satisfier so that choice could be secured. To ensure consistency as regards basic needs satisfaction throughout the community, the definition of what constitutes a basic need, as well as the level at which it has to be satisfied, should be determined by Parliament and local councils jointly on the basis of propositive referenda and the available resources.

The overall number of basic vouchers (BVs) to be issued would be determined on the basis of criteria which satisfy both demand and supply conditions, at the national level. Planners could estimate the size and mix of demand, on the basis of population size, the "basic needs" entitlement for each citizen and the "revealed preferences" of consumers. Planners could also estimate the supply, on the basis of technological averages, the production level, the mix and the resources needed, including the amount of work that each citizen has to do.

Finally, as regards caring for the needs of the elderly, children and the disabled, those unable to work would be entitled to BVs, in exactly the same way as every other citizen in the community would.

It is a pity that our government and the opposition are locked in a sterile, confrontational debate about our welfare system. Rather than scare tactics regarding its unsustainability on one side and a visceral opposition to any reforms on the other, we need to find a way of discussing the future of the welfare system so as to ensure its survival.