Karl Hinrichs and Matteo Jessoula (eds), Labour Market Flexibility and Pension Reforms: Flexible Today, Secure Tomorrow?

by Citizens' Income Trust | Oct 23, 2012 | Opinion

Karl Hinrichs and Matteo Jessoula (eds), Labour Market Flexibility and Pension Reforms: Flexible Today, Secure Tomorrow? Palgrave Macmillan, 2012, xviii + 262 pp, hbk, 0 230 29006 8, £55

Time was when a lifetime of full-time employment would be followed by retirement on a contributory state pension supplemented, for the fortunate, by an occupational pension, and, for the less fortunate, by a means-tested state supplementary pension. Those who are even more fortunate may have invested in a life insurance policy that lasts into their elderly years. Nonetheless, this hasn’t stopped some people wondering does Guaranteed Universal Life expire? Both employment and retirement income were relatively secure. Employment is now less secure, and increasing numbers of people experience part-time employment, short-term contracts, and periods of unemployment, making ‘flexicurity’ an important social policy aim: flexible labour markets accompanied by secure incomes and public services. There are also fears of an uncertain pension future, especially when it comes to investment; saving for a pension can be risky. Just like with everything in life, there is most likely a solution for this issue.

The chapters in this book are the result of a European Commission funded research project on the prospects for income security in old age in a Europe increasingly characterised by insecure employment and therefore flexible employment patterns. The problem that policy-makers and the book’s authors face is that many state and occupational pension schemes are posited on the now outdated notion of the ‘standard employment relationship’ – lifelong, stable full-time employment. Such schemes, whether state, occupational, or private, are funded by employee and employer contributions. Less stable employment patterns mean fewer and lower contributions and thus less income security in old age.

Each of the book’s chapters studies the current pension structure, labour market position, and recent reforms, in a particular country. There are chapters on Germany, Italy, Poland, Switzerland, Denmark, the Netherlands, and the UK. The editors conclude that these countries fall into three groups and that each group exhibits a particular pattern of recent reforms. Countries that previously relied for retirement income on state contributory pensions have raised contribution rates and/or subsidized the insurance fund out of general taxation, and have now introduced private and occupational pension schemes, which could be worth looking into when finding the right time to step away from your business. In countries with already more than one of the three ‘pillars’ of pension provision – state, occupational, and private – the emphasis has tilted towards private and occupational schemes, and now towards compulsory enrolment in funded portable defined contribution schemes which blur the boundary between private and occupational pensions. Eastern European countries are seeing both the development of contributory public schemes and a transition into privately funded pensions.

On the basis of the research results presented in the individual chapters the editors conclude that in segmented labour markets (for instance, in Germany, where ‘insiders’ still experience considerable employment security, and ‘outsiders’ highly insecure employment) pension provision ‘dis-integrates’: that is, it is worse at poverty prevention and income maintenance for those experiencing more fragmented labour market participation than for those in more secure employment; that in countries with more homogenous labour markets (as in the UK, where employment insecurity is more equally shared across the labour market) there are integrating elements in the pension system; and that where the labour market is highly homogenous, as in Denmark, the pension system is highly integrated. Central to the integrating characteristics of Denmark’s and the Netherlands’ systems are their ‘generous basic pensions based on residence … These schemes are crucial in preventing poverty in old age, especially for workers with interrupted carers or on an atypical contract, as well as women, who mainly work part-time’ (p.244). What isn’t entirely clear is what’s causing what: Does a more or less homogenous labour market result in a particular pattern of reforms, or is there some third factor causing both the labour market type and the reform pattern?

In the UK we might soon be moving in a more universalist direction. If we want to prevent poverty in old age then the evidence of this book suggests that it is in this direction that we should move, because it is in this direction that flexicurity can be achieved. The more general lesson to be drawn from the book is that poverty prevention and income maintenance in old age will be best served across Europe by universal state pensions accompanied by compulsory enrolment in portable funded defined contribution schemes to which both employer and employee contribute.

This is a well researched, well edited, and clearly written book, and anyone with anything to do with pensions policy should be reading it.

OPINION: Capitalism, Socialism and Basic Income

by Citizens' Income Trust | Oct 22, 2012 | Opinion

It is always interesting to read detailed arguments for a Citizen’s Income, but might I invite your readers to consider a broader reform programme which would entail a long-term foundation for the Citizen’s Income we all want to see? A reform programme which would reconcile socialism and capitalism? Of course a claim such as this cannot  be fully argued in the space of a letter, but the principles  can be simply stated.

The most important element in a new framework for the economy would be the evaluation of the social costs and benefits of each kind of enterprise and, through a system of levies and grants, their introduction into market prices. Other demands on industry and commerce, most notably taxation of profits, would cease. Taxation would be confined to individual participants in the economy, but in their capacity as citizens or residents paying for the benefits society brings them. The Citizen’s Income should not be paid for out of a levy on economic enterprise.

Society, for its part, should recognise  its capital value as an instrument which makes enterprise possible. And it should translate this value into a practical tool by the creation of a sovereign wealth fund which would invest in stocks and shares at home and abroad in parallel with other funds. Income from the fund would  be dedicated to the citizens, thus providing a funding base for  a true citizen’s income, though the fund could also be used for collective initiatives. The model would be Alaska’s Permanent Fund. I leave on one side the priority support needed by those who cannot be expected to support themselves in the economy, that is: children, who are too young to work; the very elderly, who are past working; and people who suffer chronic sickness or disability.

The size of the fund ultimately required to make it worthwhile should not be underestimated. As to practicalities, nations such as China already have sovereign wealth funds. The way forward will become clearer once the principles and implications are widely understood.  Even if one doesn’t want to go the whole way in redesigning the framework of the economy, the creation of a sovereign wealth fund surely provides a way forward by translating the value of society into a practical reality for the benefit of all its members without imposing a levy on the economy. At the same time, the fund would help to reduce the serious inequality in the ownership of our capital.

The way to pursue the objectives of a basic income needs to be looked at in the light of a reconciliation of socialism and capitalism, which has been the great unsolved problem of the last 100 years. The advent of globalisation has pointed up a way to do this.

The starting point is the recognition that it is no longer satisfactory to treat the economy as if it were simply society at work, the way in which its members make their living. Globalisation has made it as clear as can be that society needs to clarify and redefine the framework within which it allows the economy to operate.

Here are the principal elements of a new framework:

1. Capitalism must be required to operate in its most competitive forms, subject only to the laws of the land and effective constraints on monopoly ( whilst recognising that some monopolies are an indispensable adjunct of privately owned initiatives ).
2. Market prices of products and services must reflect social as well as private costs and benefits. These costs would include such things as the use of public communications systems, the consequences of pollution and effects on health of products sold.
3. The most instructive example of this is the labour market. Employers provide the indispensable benefit to society of gainful work by its members. On the other hand they receive the benefit from  society of a readily available labour force. Recognising their joint interest society and industry and commerce should jointly meet the cost of maintaining the supply of readily available labour. A great advantage of this approach is that  employers of all kinds would immediately apply their minds to the invention and support of all kinds of scheme for reducing and even eliminating unemployment.
4. Alongside this would be a requirement that all those participating in the economy must insure themselves against the risk of unemployment – through ill health or redundancy for example –  under a system of mandatory minimum cover and optional higher levels. Society would no longer pay benefit to unemployed people capable of working.
5. Profits as such would no longer be subject to tax, for which there would no longer be any justification. Taxation would be confined to individuals as citizens or visitors.
6. Society would, of course, continue to play its own direct part in the economy through social enterprises such as health services, and education and, increasingly it seems, local and national collective initiatives.

We turn now to the changes in society itself which will secure the objectives of socialism alongside its wholehearted commitment to capitalism as the best way of maximising the national product. Society’s financial support for its members should be concentrated in the first place on those who cannot be expected to support themselves in the economy, that is: children, who are too young to work; the very elderly, who are past it; and those who are chronically sick or disabled. The funds for this support should be provided by the collective ownership of productive capital. The amount of capital required to generate the necessary income should not be underestimated. But support will gather as taxpayers realise that the  demands on them will fall as the capital increases.

Beneficiaries would receive their income as of right but expenditure would be administered in a three-way partnership  with a  family carer, if any, and the state, normally represented by a dedicated social worker. The  capital funds would be managed by professional investment managers alongside their commercial analogues.

Once we have provided for those who  cannot  operate in the economy  income from the sovereign funds can be used to introduce a basic income for all. It is entirely right that this, rather than the income of working taxpayers, should be the source of the basic income.

Hartley Dean, Social Policy

by Citizens' Income Trust | Oct 20, 2012 | Opinion

Hartley Dean, Social Policy, 2^nd edition, Polity, 2012, xi + 157 pp, pbk, 0 7456 5178 1, £12.99

Hartley Dean’s passion for social policy is rooted in twelve years spent working for an advice centre in Brixton. This reviewer’s passion for the subject stems from just two years working in Brixton’s Supplementary Benefit Office around the same time, but the question that has stayed with both of us is the same: How can we most effectively make provision for diverse human need? This second edition of Dean’s ‘short introduction’ on social policy is even more focussed on this question than the first edition, and although it retains the structure and much of the content of the first edition, it fully recognises the social and social policy change that has occurred during the last six years: for instance, the increasing expectations of the voluntary sector in relation to service provision.

Rather than being structured around such topic areas as education, health, and poverty, as some introductory texts in social policy are, this book is structured around a series of questions: What is social policy? Where did it come from? Why on earth does it matter? What does human wellbeing entail? Who gets what? Who’s in control? What’s the trouble with human society? Can social policy solve social problems? How are the times a-changing? Where is social policy going? A topic approach offers the student an understanding of discrete social policy fields, but will not necessarily enable them to grasp what social policy is or why it matters, whereas reading Dean’s book, and grappling with the questions that it asks and attempts to answer, will hammer home for the student that social policy is about the systematic meeting of human need. (The new edition has benefited from Dean’s recent work on human need, published in 2010 in his book Understanding Human Need.)

If there were to be a third edition then I would ask for two additions:

As an advice worker, Dean would have grappled with the administrative complexity of the means-tested benefits administered by the office for which I once worked. The code of regulations filled a bookshelf, and knowing one’s way around those regulations was a major task in itself. But whilst means-tested benefits are discussed in the book, there is no mention of the administrative complexity which they impose on individuals and households. ‘Administration’ is not in the index. A general long-term shift in academic interest is in evidence here. If Dean had been a professor at the LSE during its earlier years, then he would have worked in the Department of Social Policy and Administration, rather than in the Social Policy Department. To include material on the administrative complexity of means-tested benefits in the next edition of his book would help tor reinterest social policy departments in such important administrative matters.

Dean helpfully distinguishes between Social Policy (capitalised: the academic subject) and social policies and social policy (lower case: policies enacted, and the category to which they belong). What would be helpful in the next edition of the book would be more discussion of the policy process: that is, how do social problems come to be recognised as such, how are political considerations in practice involved in the process, and how do policy ideas become legislation and regulations? Perhaps in the next edition we shall find ‘civil service’ and ‘think tank’ in the index.

But having said all that, this is a most useful book, and it is good to have an updated edition. Social policies matter, and therefore Social Policy matters. The book will give to undergraduate social policy students a good grounding in the questions at the heart of their discipline, and will remind them why they are studying the subject. What would be even more interesting would be for an examinations board to establish an A level in social policy ( – a social policy module already exists within a sociology A level) and for a new edition of Dean’s book to be written in a format appropriate for sixth formers. This would do wonders both for Social Policy and for social policy.

Barry Knight (editor), A Minority View: What Beatrice Webb would say now

by Citizens' Income Trust | Oct 19, 2012 | Opinion

Barry Knight (editor), A Minority View: What Beatrice Webb would say now, Beatrice Webb Memorial Series on Poverty, vol.1, Alliance Publishing Trust, 2011, 128pp, pbk, 1 907376 11 5, available from the Webb Memorial Trust, webb@cranehouse.eu

Beatrice Webb’s contribution to a Royal Commission on the Poor Law just over a hundred years ago was a Minority Report which set out five main principles:

• Poverty has structural causes
• Prevention is better than cure
• Dependency should be avoided
• Services should be integrated
• The state, not philanthropy, is responsible. (p.11)

The Government of the time took no notice, but Beveridge had worked as a research assistant on the Minority Report and its findings clearly informed his own 1942 report on National Insurance.

The world is now different, but poverty persists, and the contributors to this collection of essays ask themselves: What would Beatrice Webb have said today? Their suggestions include minimum income standards, supporting poor children in working families (which does not mean enforced low-paying employment), restoring the Child Trust Fund, small-scale lending, raising the tax threshold, retaining universal Child Benefit, reducing labour-market disincentives (rather than regenerating poor neighbourhoods), affirmative action to address discrimination and exclusion, and the active pursuit of gender equality.

In his final chapter, the editor lists four definitions of poverty: ‘absolute low income … relative low income … material deprivation … index of multiple deprivation …’ (p.119): but these are all static concepts. A dynamic definition of poverty would be this: ‘A structural inability to create one’s own path out of poverty’. This definition reveals high marginal deduction rates and complex administrative and income uncertainty and continuity problems on changing one’s employment status to be the serious problems which they are.

Of particular interest is the number of suggestions which would reduce marginal deduction rates. Peter Kenway suggests ‘raising the level of the personal allowance to remove low earners from income tax altogether; raising the level of the income thresholds above which benefits and tax credits start to be tapered and/or council tax begins to become payable; reducing the rate at which tax credits and benefits are tapered away as earnings rise; … reintroducing a (lower) starting rate of income tax’ (p.56); and Jonathan Bradshaw calls for Child Benefit to remain universal and shows how effective it is at reducing poverty. Of equal interest is Steve Osborn’s finding that ‘the uncertainties created by the current benefits system and its implications for moving poor people into employment’ (p.80) is a serious problem.

If increasing inequality is a major problem, if income uncertainty across changes in someone’s labour market status are a problem, and if high marginal deduction rates are a major cause of poverty (and in the context of a dynamic understanding of poverty they are), then surely what Beatrice Webb would be saying today is what she said in 1909: that universal services are what’s required; and she would also be saying today that a universal unconditional income for every age-group would prevent poverty, would tackle some of poverty’s structural causes, would reduce dependency, and would integrate tax and benefits, and that it is the state’s responsibility to see that it happens.

Matthew C. Murray and Carole Pateman (eds), Basic Income Worldwide: Horizons of Reform

by Citizens' Income Trust | Oct 18, 2012 | Opinion

Matthew C. Murray and Carole Pateman (eds), Basic Income Worldwide: Horizons of Reform, Palgrave Macmillan, 2012, xv + 271 pp, hbk, 0 230 28542 2, £57.50

This book is a most useful survey of international experience of Basic or Citizen’s Income, of benefits sufficiently similar to enable them to be regarded as on the way to a Citizen’s Income, and of significant legislative attempts at Citizen’s Incomes. The book complements Basic Income Guarantee and Politics, edited by Richard Caputo and recently published by the same publisher, with which it overlaps to some extent, but not too much. Both books are essential reading for anyone interested in how experience of Citizen’s Income, and debate about it, are developing worldwide.

Some of the material in the first part of the book will be familiar to readers of this Newsletter, but some will not be. The Alaska Permanent Fund Dividend will be well known, but less well known will be some highly positive results from United States and Canadian Negative Income Tax experiments. This Newsletter has already reported stunning results from the Namibian Citizen’s Income pilot project, but less well known are the complexities of Brazil’s and Canada’s political economies and their effects on benefit reform.

The second part of the book describes Basic Income proposals for East Timor, Catalonia, South Africa, Ireland, Germany, New Zealand, and Australia. The overall impression is of a widespread global debate, different in different countries, but with lots of connections between the different national debates.

Murray’s concluding chapter is understandably effusive about the results of the Namibian pilot project, and about the brake on inequality provided by the Alaskan Permanent Fund Dividend. Conditional schemes, on the other hand, are found to lead to new inequalities (p.253), and tax credit and negative income tax schemes to have similar problems (p.255). Murray recognises the different effects of different political contexts, and this reviewer was particularly struck by ways in which more federal political arrangements, such as those in the USA and Brazil, can make the debate more possible locally but quite complex nationally.

One issue over which the editors seem to be somewhat confused is that of terminolog. In this book, ‘Basic Income’ usually means an unconditional and nonwithdrawable income for every citizen, but sometimes it means a class of benefit types of which an unconditional benefit is one member (e.g., p.251), which leaves the unconditional and universal benefit without a name. A similar problem arises in the introductory chapter, which lists some important questions: What form should the payment take? How much should it be? Should it be unconditional? Should it be universal? Can it be afforded? How should it be funded? Some of these questions are ‘controversial questions’ surrounding ‘Basic Income’ (p.2) if ‘Basic Income’ is understood as an unconditional, nonwithdrawable and universal income: but some are not. The question ‘Should the payment be universal?’ is a question about whether we should have a Basic Income. It is not a question about a Basic Income. Similarly, ‘Should the income be paid unconditionally?’ is a question about whether or not we should have a Basic Income. By the end of the introduction we are entirely unsure about what the term ‘Basic Income’ means.

I know that this has been said in these pages before, but it clearly needs saying again: clarity of definition is essential to rational debate.

Our position is this: A ‘Citizen’s Income’ or a ‘Basic Income’ is an unconditional, nonwithdrawable income for every individual as a right of citizenship. The terms should not be used for anything else. Other terms, such as ‘social dividend’ and ‘universal grant’ are equivalent, but only if they mean the same thing. (We do not use ‘Basic Income Guarantee’ because a guaranteed income can mean an income achieved by means-tested benefits.) Widespread agreement on the meaning of terminology would considerably help the clarity of debate, both individual national debates and the global debate, and it would have helped the editors and authors of the book under review to express themselves more clearly.

But having said all that: Murray and Pateman have provided us with a most useful collection of essays on some highly significant Citizen’s Income experiences and debates, and anyone interested in that debate should read this book.