Neo-liberal responses to the welfare crisis UK [and USA]

Structure of lecture Overview of USA welfare strategies (work, not welfare) Overview of New Right strategies in UK Does New Labour continue the tradition? Why did UK follow USA? From welfare ‘laggard’ to welfare ‘leader’? A reappraisal of USA/UK welfare today.

USA: the ‘laggard’ welfare state? : USA welfare rooted in New Deal –1947 First attempt (of many) to create health insurance fails (AMA opposes) –1955: federal pensions for disabled –1965 (L.B. Johnson) New Society Programme Medicare (65+) and Medicaid (for very poor) ‘War on Poverty’ 1970s: USA industrially ‘advanced’ but a welfare ‘laggard’

The Impact of USA New Society Programme?

1940s-70s: corporate welfare Average USA citizen relies on employment –Health insurance by employer (covers dependents) –Company pensions –Employment contracts determined by negotiation / collective bargaining. Full employment strategy reinforced by US foreign policy (repudiation Keynesian solutions)

1980s: Reagan’s attack on welfare Unemployment benefits burden enterprise and destroy (low paid) jobs. Murray: AFDC has created ‘underclass’ –Black, female headed, families rely on state –Fathers’ work incentives removed Result: ‘workfare’ debate: –Emergence of ‘working poor’ –USA experience contrast to ‘Eurosclorotic’ EU

USA: a ‘new’ or ‘old’ solution? Reliance on labour market reinforced by –Foreign/ trade policy (WTO, GATT, IMF etc.) –Promotion of domestic consumption –Far East purchase of USA debt (balance of payments difficulties) Reagan & Bush (es) create trade deficits 2005: Bush pledges to privatise social security (New Deal pensions) & fails

UK & neo-liberalism: Thatcher’s Britain 1970s: UK stagflation 1979 Thatcher elected: strategy: –‘Roll back’ the state: privatise public utilities –Control TU powers –Privatise welfare (e.g. housing: pensions) –Cut & tax benefits, increase ‘targeting’ –‘Market’ welfare (schools: NHS) –Promote labour market ‘deregulation’ Targets, benchmarks, charters & choice

From New Right to New Labour The Third Way: a larger role for the state Equal enthusiasm for market mechanisms and individualisation More emphasis on training/education ‘Making Work Pay’ –Unification of benefit/ tax systems (tax credits) –Subsidies for personal saving –Financial incentives to change behaviour

Why did UK ape USA n.b. UK a welfare state ‘leader’ in 1950s Change of aim: from unempt. to inflation As in USA, UK lacks link between wages and welfare rights –No automatic upgrading of benefit rates –Private welfare flourishes –Little middle class support (except NHS) –No legal ratification of industrial agreements British welfare state : ‘unfinished’.

Conclusion: the Neo-liberal revolution: USA shifts from ‘laggard’ to paradigm (low unemployment) Does this offer a model for EU to emulate? –Eurosclerosis can be cured via deregulation –Lower benefits will raise labour market participation etc. Birth of debates on ‘flexicurity’ = desire to increase varieties of employment without loss of social security [European Social Model]

Conclusion: some assumptions criticised Neo-liberal social policies reduce budgets –1979 welfare cut but social security bill rises –‘market’ social services are more expensive –UK: higher productivity: more stress/ sickness Social transfers damage competitiveness –Low/no social security counterproductive Discourages labour mobility –High social benefits reduce perceived risk More willingness to retrain for new skills Social transfers have positive economic consequences