The Poverty of Debate
Review by Peter Saunders
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The Ends and Means of Welfare: Coping with Economic and Social Change in Australia
By Peter Saunders
Cambridge University Press, 2002,
300pp,  $35.95,  ISBN 0 521 52443 1

This is a blast from the past. Although the author makes some passing genuflections towards contemporary 'Third Way' political ideas, the book is firmly rooted in old-style socialist thinking. Reading it makes you feel you have been transported back to the 1970s.

The author is Director of the Social Policy Research Centre (SPRC), traditionally one of the main centres for social policy analysis in Australia. Until recently, SPRC received block funding from the Commonwealth government, but two years ago the Department of Family and Community Services put its research contracts out to competitive tender, and most of the money that used to go to SPRC went elsewhere. Saunders is clearly still angry about this. He complains in his Preface that books like this one are unlikely to get funded under the new arrangements, and he invites readers to see his book as an ‘an example of what can be achieved under the core-funding model’ (p.viii).

But if this book is representative of the style and tone of SPRC output over the years, it is a wonder that the Commonwealth government’s patronage lasted as long as it did. The book is unashamedly one-eyed in its ideological sympathies, for Saunders seeks a return to statism and bitterly opposes what he calls ‘neo-liberalism’. It also repeatedly slides from evidence and conjecture into assertion and polemic. Political leaders of whom the author disapproves are accused of ‘deceit and denial’ (p.3), public opinion that diverges from his views is assumed to have been ‘manipulated’ (p.64), the Australian public is described as ‘alienated and powerless’ (p.264), intellectual opponents are derided as ‘naive’ (p.59) and ‘dogmatic’ (p.24), and the current government’s concern to manage budget deficits is airily dismissed as ‘lack[ing] any basis in sound economic reasoning’ (p.42). Saunders at one point calls for ‘informed reflection’ and ‘impartial analysis’ (p.215) in the debate over social policy, yet his own writing is at times quite ill-tempered and prejudicial.

The book presents the results of an SPRC survey of public attitudes about welfare and inequality, but Saunders constantly strains to break out of this narrow empirical straitjacket. What the book is really about is how awful social welfare policies have been since the 1980s, how unfair it is that some people earn a lot more than others, and how we need the government to put all this right by spending lots more of our money than it currently spends. When fragments of public opinion evidence can be found to back up any of these claims, they are seized upon to show how Australians are still committed to the kind of old-style socialist remedies that Saunders would have us embrace. When no such evidence can be found from his attitude survey, the arguments are made anyway, and the public is assumed to have been misled or misinformed as a result of the operation of media ‘reality filters’ (p.68).

The survey itself is somewhat limited. Given that it was done by postal questionnaire, the response rate of 59% is a creditable one (Saunders claims 62%, but he gets this by deleting non-contacts before calculating his response rate). However, some key groups were badly under-representedthe number of unemployed respondents, for example, is half what it should be, and Saunders has to adjust for this with heavy weighting. The income data, too, are weak, for although this was a study about poverty and income inequality, there is only one measure of people's incomes, answers are banded in broad income categories, and the mean population income estimate ends up 17% out.

Perhaps because the quality of the data is not very high, the data themselves are under-analysed. When he compares the subjective well being of employed and unemployed people, for example, Saunders does not control for obvious confounding factors like education or socioeconomic background, but given that he has only 64 unemployed respondents, he would presumably have run out of cases very quickly had he tried to do so. Similarly, at several points he divides his sample into ‘collectivists’, ‘individualists’ and ‘fatalists’ in order to compare their views on welfare and inequality, but most of his respondents could not be crunched into any of these three categories, and he ends up using just 30% of his cases (or 18% of the target sample). At this point, we might have expected him to stop and ask (a) whether an 18% sample is still representative and (b) whether these three categories actually make any sense given that 70% of people cannot be crunched into any of them, but Saunders does not consider such questions.

The survey also suffers from biased question wording in which classical liberal perspectives are parodied in order to generate suitably critical responses. Starting from his assumption that welfare-to-work policies ‘blame the victim’ (p.264), for example, Saunders tests public support for such policies by asking respondents whether they agree that ‘People who are unemployed have only themselves to blame’ (my emphasis). Not surprisingly, only 13% did agree with this (I know few self-confessed liberals who would assent to it either). This result is then used as evidence of the unpopularity of ‘neo-liberal’ arguments (p.107).

Similarly, when investigating people's views about the causes of poverty, the only option offered to those who think that people may bear some responsibility for what happens to them in life was the absurdly exaggerated statement that the poor ‘only have themselves to blame’ (my emphasis). Again, just 13% agreed (p.154).

The use of crass questions like these suggests that Saunders does not really understand what classical liberals have been arguing when it comes to welfare reform. He has written a book attacking what he calls ‘neo-liberalism’, but he fails to appreciate what ‘neo-liberals’ are actually saying.

For example, Saunders struggles to come to terms with the idea (expressed forcefully in Lawrence Mead’s work as well as in recent Commonwealth government thinking) that self-reliance through work might be considered a good thing in and of itself. Liberals believe that, rather than relying on handouts from others, self-reliance is virtuous and should therefore be encouraged wherever possible, but Saunders doesn’t seem to understand this.

For him, policies designed to encourage and cajole welfare claimants into self-reliance confuse the means and ends of public policy (hence the title of his book). The objective of social policy should in his view be to provide people with a decent standard of living. Employment is certainly one means to this end, but doling out welfare benefits is another, and it doesn’t seem to matter much in his view which route we encourage people to take. He thinks we should ‘promote’ welfare dependency rather than trying to reduce it (p.57), and he suggests that, rather than pushing malingerers into jobs, ‘there may be advantages in allowing those with weakest attachment to the world of work to “opt out”’ and live on an ‘unconditional basic income’ financed by the rest of us (p.258).

What Saunders has failed to grasp is the moral argument that lies at the basis of classical liberal thinking on taxation and social policy questions. Liberals believe it is immoral for the government to take money away from people who are maintaining themselves and their families through their own efforts, and to redistribute it to people who have no intention of even trying to achieve self-reliance. Saunders never develops a reasoned critique of this moral positionindeed, he never even considers it—yet this is the cornerstone of the philosophy he is attacking.

Similarly, he shows no sign of understanding the ethical position on inequality which is taken by many classical liberals. He thinks that the liberal argument against egalitarianism is entirely economic—to do with incentives (p.183) —and he complains that the ‘neo-liberal’ agenda has subordinated social concerns to economic priorities. But the arguments about incentives are very much secondary in the liberal literature on equality and inequality. The key point for liberals is that it is morally wrong to use the coercive power of the state to take money and assets away from people who have established a just entitlement to them, and to redistribute them to other people in the name of ‘social justice’. If Saunders cannot understand this, perhaps he should talk to some dispossessed Zimbabwean farmers.

Saunders might perhaps respond that his book is about social and economic questions, not moral ones, but his book is actually littered with ethical and moral presumptions. The ‘fair go’ cliche crops up at least four times, the discussions of poverty, unemployment and inequality are shot through with moral rage and indignation, and normative judgements about what ‘ought’ to happen—‘what constitutes a “good society”’ (p.7)—ripple throughout the book. Saunders clearly thinks he occupies the moral high ground, but when we reflect on some of the ethical issues he ignores (as well as some of the moral positions he adopts), it can be argued that his approach is actually quite amoral and mean-spirited.

The reasoning that leads Saunders to propose a big increase in taxes on the richest 5% of the population is, for example, quite chilling: ‘While there may be resistance to higher taxes among the middle class, there is no evidence of widespread opposition to increased taxation on the very rich’ (p.252). In other words, let’s hit those who are least popular. It has always been one of the most unattractive traits of the traditional left that it has so few qualms about mobilising the envy and malice of the majority to ride roughshod over the rights of a minority. Saunders might care to reflect that there was ‘no evidence’ in Nazi Germany of ‘widespread opposition’ to the expropriation of Jewish property either, but that didn’t make it right.

This rather unsavoury kind of Machiavellian calculation can be found elsewhere in the book too. Reflecting on the fact that many of us nowadays end up paying as much in taxes as we receive back in state welfare services, for example, Saunders accepts that ‘arithmetically’ most of us could get by with a ‘much smaller state sector’ (p.59), but he dismisses this as a ‘naive’ proposition. Re-hashing an argument first put forward by Julian LeGrand nearly 20 years ago, he argues that the state should continue to bribe the middle classes with their own money so as to induce them to use and support public services which they would otherwise desert in droves. Saunders apparently sees nothing wrong with wasting millions of taxpayer dollars supplying second-rate services to people who do not need them, for this has the political function of ‘underpinning the support of the middle classes, without which the welfare state would founder politically. Far from being its main weakness, “middle class welfare” is the lifeblood of the welfare state’ (p.59).

If this book is shaky on ethics, it is also wobbly on logic. Several times Saunders contradicts himself or presents evidence which is contradictory without attempting to resolve it. We are told that ‘even on their own terms, [recent] economic achievements have been surprisingly modest’ (p.25), yet we then read that ‘the period has clearly been marked by increased economic prosperity’ (p.31) and that real household disposable incomes have risen by 26% in 20 years. Saunders buys into the argument that ‘an important function of the welfare system is to promote social stability and cohesion’ (p.222), yet he also warns that the Australian welfare system ‘opens up cleavages between beneficiaries and taxpayers’ (p.218), that it is ‘inevitable that political interests coalesce around particular programs’, and that these interests will ‘often conflict’ (p.223). We are told that ‘the level of support for many (though not all) welfare state programs is high’ (p.73) and that ‘the public is prepared to accept some increases in taxation’ (p.248), yet we are also told that in the last ten years, ‘support for lower taxes has outstripped support for higher spending by a factor of more than three to one’ (p.73). And so on.

As noted earlier, evidence gets interpreted in different ways according to what Saunders wants it to show. Finding that many people think that job insecurity worsened in the 1990s, even though it actually improved, he insists that this ‘subjective’ indicator be given as much weight as the ‘objective’ one: ‘What matters for changes in insecurity is not just the objective conditions that determine the probability of losing a job . . . but the nature of subjective perceptions’ (p.100, emphasis in original). But reporting that 85% of Australians express satisfaction with their standard of living while only 3% are totally dissatisfied, he immediately reaches for the ‘objective’ indicators to show that they are wrong to feel this way: ‘Few signs of material prosperity in many of these indicators!’ he announces triumphantly, after detailing various ‘objective’ indicators about people’s incomes (p.39).

In common with most other members of Australia’s social policy community, Saunders believes that there is a serious poverty problem in this country, and that it is getting worse. His problem, however, is that the downtrodden poor do not seem to realise it. Only 8% of his sample claimed that their income was not enough ‘to get by on’ (at the other end of the distribution, only 3% said they had more than they need). Saunders thinks these responses are implausibly small, so he concludes that the question must have been at fault: ‘The question itself is problematic and this casts some doubt on its usefulness for estimating poverty’ (p.165). So if people say their jobs are insecure, we accept what they say, but if they tell us they are getting by on their current level of income, we assume the question was faulty.

In fact, there was nothing obviously wrong with this question, and peoples answers appear to correspond quite closely with their ‘objective’ circumstances. To measure the latter, Saunders identifies 15 ‘financial stress indicators’ (things like a reported inability to pay bills on time, failure to eat out once a fortnight, and spending more than you earned in the last year), and he reports that: ‘Around one-quarter of all households in the bottom quintile of the income distribution had experienced five or more of the fifteen separate financial stress indicators’ over the past year (p.39, emphasis in original). He concludes that ‘those who have experienced these conditions . . . have experienced what many would regard as unacceptable deprivation bordering on poverty’ (p.41).

What Saunders is saying, therefore, is that about 5% of Australian households (‘one-quarter of the bottom quintile’) register positively on one-third of the items which together indicate a lifestyle bordering on poverty. This would appear to produce an ‘objective’ estimate which is more or less in line with his ‘subjective’ evidence that fewer than 8% of people think they have trouble making ends meet. Furthermore, it also fits with an earlier CIS guesstimate that about 5% of Australians can be considered ‘poor’ (although Saunders has elsewhere been highly critical of the CIS work on poverty). Objectively and subjectively, it seems that a poverty figure of around 5-7% is warranted by all this data, and combining these two dimensions, Saunders himself comes up with an estimate of 5.9%, although it is not clear whether he is prepared to accept this figure as the best approximation of Australia’s poverty rate (p.168).

Saunders turns next to the question of inequality, but again his evidence seems to point to a different conclusion than the one he wants to end up with.

On the first page of the first chapter of his book he describes the 1990s as a ‘bleak’ decade of ‘rising economic insecurity’, ‘social alienation’, ‘deep poverty’, ‘deprivation’, ‘exclusion’, and ‘discrimination’, and he attacks ‘policies that generated rising inequality’ (p.3). But when we come to read his chapter dealing with income inequality, we find him accepting that there has been ‘little overall distributional change’ in incomes since 1994-95 (a conclusion also drawn in recent publications by the ABS which finds no evidence of increased inequality since the mid-1990s).

Comparing the period from 1986 to 2000, Saunders does find that relative inequalities in gross and disposable incomes widened, but even here there is a sting in the tail, for inequalities in equivalent disposable incomes (that is, incomes after tax and benefits, controlling for variations in household size) actually fell during this period (the Gini coefficient fell from 0.352 to 0.346 and the ratio of top to bottom decile incomes fell from 4.84 to 4.28 [Table 7.2]). This is on the face of it an interesting finding, for equivalised disposable income is the measure generally favoured by researchers working in this area, and evidence that inequality based on this measure fell slightly after 1986 flies in the face of orthodox opinion. Saunders, however, refuses to believe his own figures, describing this result as puzzling. Just as he earlier decided that his data on subjective poverty rates must have resulted from a faulty question, so now confronted with evidence that inequality may not have risen after the mid-1980s, he decides that there must be some ‘unidentified peculiarity in the data’ (p.191), and he moves on. Having convinced himself that Australia is now facing a major problem of poverty and inequality, Saunders proceeds in the final part of his book to outline what we should do about it.

He starts sensibly enough, correctly recognising that ‘lack of employment remains the single most important determinant of poverty’ (p.96). He also makes a number of other important observations ’that long-term unemployment is a particular problem in Australia as compared with other OECD countries, and that those with jobs here seem to be working more hours than is the case elsewhere. He even recognises that there seems to be no problem finding employment in the USA ‘where the labour market is deregulated and minimum wages are very low’ (p.228). All of this would seem to point to Australia’s peculiarly inflexible and over-regulated labour market as a major cause of the problem, and to American-style reforms as a possible solution. As a recent CIS Issue Analysis paper has suggested, tight employment protection laws and other similar regulations discourage employers from taking on labour for fear that they will never be able to shed it, so when people do fall out of employment, it can take a long time to get back in again.

But Saunders resists such conclusions. Rather than being too tight, he thinks our labour market regulation is too loose, and he dismisses the example of the US in one sentence: ‘The United States approach of allowing market forces to drive down wages to a level low enough to make additional employment profitable is not an acceptable option for Australia’ (p.253). Never pausing to consider the possibility that our high rates of long-term unemployment and our higher than average working hours might both be linked to labour market rigidities, he argues for ‘reversing the trend towards labour market deregulation’ (p.262).

He then outlines his proposals for reducing poverty, narrowing inequality, bringing down unemployment and increasing people’s wellbeing. He starts, as traditional socialists have always started, by clobbering the rich: higher taxes on higher income earners, a clampdown on tax evasion, a new capital transfer or inheritance tax. He goes on, as old-style socialists have always gone on, to call for active government intervention in the labour market: a minimum wage, centralised wage determination, more spending on ‘labour market programs’, regional policies designed to increase demand for unskilled labour, a big and permanent expansion in public sector service employment to soak up the unemployed, a compulsory reduction in working hours to force people to share jobs, and a return to corporatist economic management with politicians, union bosses and representatives of big business thrashing out agreed policies between them. He ends up (as socialists have so often ended up) with increased welfare spending: an end to the compulsion in welfare-to-work schemes, an expansion of wage subsidies and in-work welfare benefits and payment of a basic, unconditional universal benefit to any citizen who asks for it.

Needless to say, none of this is costed, but discussing the major expansion in public sector employment that he favours, Saunders assures us that ‘the costs of such a program need not be prohibitive’ (p.256). He warns that public opinion will have to be primed and brought into line by a sustained propaganda campaign (‘bringing about this kind of attitudinal change requires a new welfare discourse’ [p.248]), and he notes that there will have to be changes in the political system to prevent a voter revolt (‘a program designed to address these issues does not fit within the normal political cycle and the political process will need to adjust to this reality’ [p.265]). The media, too, will have to be enlisted to help build a ‘coalition for change’ around a ‘sustainable re-constituted system’ (p.265).

But once the political system has been changed and the media have been tamed, we shall be in a position to pursue policies where only those who want to work will have to, where everybody will be looked after and the rich will pay, and where harmony and consensus will displace the individualism and self-interest of the dark, neo-liberal years. Presumably, the Social Policy Research Centre too will be restored to perpetual public subsidy, forever to make plans for how the rest of us should live our lives.

Author
Peter Saunders is Director of Social Research programmes at The Centre for Independent Studies (CIS). In one of life’s coincidences, the other Peter Saunders (the author of the book under review) is also of British origin, roughly the same age, and a professor who has published widely on social policy. Perhaps one way to avoid confusion is to remember that the two Saunders stand on opposite ends of the ideological spectrum.

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