Jenny Shipley says the middle class has captured the welfare state. But did she understand what the welfare state actually meant before she began attacking it?

In her interview with Guyon Espiner, Jenny Shipley regretted that the ‘middle class’ were still beneficiaries of the welfare state. Now the term ‘class’ is a summary of a lot of complex ideas useful in social discussions, but I cannot recall it being used by such a senior politician – at least not since Harry Holland. Indeed some commentators on the interview choked on the expression, quickly switching to ‘middle incomes’; which was both more precise and more in keeping with New Zealand’s political rhetoric.

The idea probably came from an English economist, Julian Le Grand, who passed through in the mid-1980s. I recall two takeouts from his presentation. One was that surveys reported that the public was willing to pay more than it cost for an iconic structure – double in the case of the vastly over-budget Sydney Opera House. (Reflect on the cost and the value of restoring ChristChurch Cathedral.) The message was promptly forgotten – presumably because of the fiscal implications.

The other message was that the middle class had ‘captured’ the welfare state. Julian was a student and, later, colleague of mine, but I do not think he then had it quite right. It is true that the modern welfare state provided some support for those on higher incomes. It was never intended solely to be vertically redistributive – that is, only transferring income from those on high incomes to those on low incomes. It was also horizontally distributive providing social insurance; the main source of funding of public healthcare for those on middle incomes is others on middle incomes; if you are unlucky in health (or whatever) others like you who are luckier would contribute to your treatment.

This illustrates another issue. Private market delivery is not always efficient. An even starker example – one of Julian’s examples – is the enormous subsidies to London public transport commuters. Remove them, as is Shipley’s apparent wish, and London traffic would come to a halt.

Geoff Bertram provided a good critique of the middle class capture thesis in a report to the 1988 Royal Commission on Social Policy but it was ignored. Instead the neo-liberals seized upon the notion to justify the stripping out of subsidies, and the minister – in this case Shipley – adopted it without apparently understanding the argument.

Indicative of this was her claim to Espiner that ‘[t]he middle class has had, and continues to capture, a welfare state that was never designed for them.’ Just who said it was not designed for them? While there were numerous threads in its design, I would have said that a key notion was that it was designed for all of us – that it was never intended to be only vertically redistributive.

Even more confusingly, Shipley promised in 1990 and 1991 to ‘redesign the welfare state’. Now she is talking about design as if that did not happen. Did she or didn’t she do it? Does she know what she is talking about? I would be surprised if she has ever read, for instance, the report of the 1972 Royal Commission on Social Security, and I expect her knowledge of the history of the welfare state is even thinner. (Happy to report a correction.)

Mind you, she was no more ignorant than her neoliberal advisers. They knew no history or only very recent, and not always accurate, versions of it. (A bit like Trump, really.)

David Seymour, who represents the neoliberals in parliament, claimed that the 2017 budget demonstrated that National was ‘abandoning its roots’. But the budget was in the tradition of National and its predecessor parties. The only time it has had a neoliberal prime minister was for the two years of Shipley’s term (December 1997 to December 1999). You will recall she started off shifting the government to the right, quickly found the move was thoroughly unpopular (and impractical) and trimmed back towards the centre.

Indeed after 1991, as minister or prime minister, Shipley hardly pursued the policy she professes today. That was because it is undeliverable. Recall Welfare that Works. The booklet had lots of vague promises backed by impressive diagrams, but when the taskforce tried to implement them it quickly found they were but fantasies. You would have thought those with neoliberal inclinations might have learned from the exercise that you cannot target welfare without very high effective marginal tax rates. But they were too committed to targeting to learn from the failure.

Without effective targeting the promised redesign could not work and the actual package collapsed into vicious cuts of the incomes of the poor, used to pay for the tax cuts to those on upper incomes (or perhaps as Shipley would say, ‘the upper class’). Ironically, while Shipley seems to think the welfare state is essentially a vertically redistributive system, she contributed to markedly reducing the degree of vertical redistribution from the rich to the poor.

Were social policy in New Zealand an evidenced-based disciplined we would have concluded that the 1990s ‘redesign of the welfare state’ was a failure on virtually all its promised dimensions other than cutting the cost to the state. Instead we keep pretending it is a success while adding another patch to deal with yet another leak.

The patching of more and more increasingly targeted programs which are increasingly expensive to administer keeps generating demands for further patches because they do not work other than temporarily. Remind you of Muldoonism? So be it.

By the time the failed patches become evident, ministers and administrators have moved on, so no-one is responsible or remembers and another patch is applied. The poor the patches are meant to be helping are left coping with a myriad of targetted programs which are confusing (the take-up rates are embarrassingly low) and which take an awful lot of the supplicants’ time (a short interview may involve them hanging around in a waiting room for hours – see here).

The redesign of the state may have increased the incomes of the rich but it has also created jobs for the middle class administering its complexities. The poor work hard to support them; perhaps they deserve a reward. Perhaps this is the middle class welfare that Jenny Shipley should be really concerned with.

Comments (3)

by Tim Watkin on July 04, 2017
Tim Watkin

Brian, can you explain why more targetted requires higher marginal tax rates?

by Brian Easton on July 05, 2017
Brian Easton

There are a number of ideas lurking in here, Tim. As usual my being crytpic was trying to keep the word length down.

But here is a simple illustration. Suppose a benefit is worth $50 p.w. and the government proposes to bleed it out over the next $100 p.w. of additional income. Then it will claw back 50 cents for every dollar earned. 

Now suppose the government decides to tighten the targetting so that it is bled out over $50.00 a week. Then the clawback would be $1 for every $1 earned (so the recipient would get no additional spending power despite their additional earning). The 'effective marginal tax rate' is higher in the tighter targetting case. 

The illustation is not unrealistic when a number of supplements are involved, according to work by Susan St John 

by Andrew Hart on July 08, 2017
Andrew Hart

Jenny Shipley is oblivious to the decline of middle income jobs since the 1980's.

The old industrial/factory economy  produced many median income jobs. Conversely modern service jobs are more segregated into high paid professions/finance sectors or low paid hospitality/ food service sectors. (with low job security).

My thoughts much better explained by Thomas Piketty.

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