An explanation how modern welfare is paid for by the poor not the rich, with particular reference to the notions of 'Private Enterprise And Poverty' and 'Soak The Rich'
The purpose of this appendix is to provide a perspective on welfare in the context of the analysis in this publication of "welfare rights". Welfare for the genuinely needy and underprivileged is desirable. But welfare in modern times is not so restricted.
One of the greatest myths in modern politics is that the concern for the poor and the underprivileged is shared only by those who put forward reformist proposals involving government activity and largesse. The opponents of this philosophy are perhaps partly responsible for this totally misleading impression because of their failure to communicate their philosophy in its total import.
There are several important facets about the problem of poverty which have been deliberately obscured by socialist rhetoric. Amongst them are the following: (1) Relief of poverty has a political history which predates government regulationism by many centuries; (2) Liberal capitalism is essentially a means of eliminating poverty and deprivation by the creation of wealth. Socialist propaganda has convinced many that the creation of wealth is the antithesis of the relief of the poor. Nothing is further from the truth; and (3) The object of modern welfare policies is not the alleviation of poverty but the equalization of wealth. Although the two concepts marginally overlap, they represent totally distinct goals.
Let us consider each of these facts in turn.
Charity was a part of western civilisation long before it was nationalized. Charity has been a virtue recognised and fostered by religion throughout human history. Christian charity has been an integral part of European civilization. In medieval Europe the Church bore the responsibility for organizing and promoting poor relief and it was not until the 16th century that the state began to take over this responsibility. Roger Lockyer, 'Tudor and Stuart Britain', 1471-1714, Longman, London, 1964 p 138. In England the first statutory measures to alleviate poverty were enacted in the late Tudor period. Relief however was directed not at the population at large but at the poor and disabled and the method employed was to place responsibility on the parishes which were helped by a poor rate.
However, even in that period, there was a resurgence of private charity and a resentment of state paternalism.
"To many merchants, particularly those who had risen from little or nothing, paternalism was anathema . . . Paternalism produced the poor laws, but this generalised form of relief was no more acceptable to the merchants than indiscriminate monastic almsgiving had been. They set an example by contributing more than half of the vast sums of money provided for private charities which were, in the long run, probably more effective than state aid for the poor" Lockyer, ibid 152.
The philosophy of these enlightened merchants was that the people should be helped to help themselves. In accordance with this philosophy, they poured money into the comprehensive remodelling of the English education system which together with the entrepreneurship they propagated, made Britain the most prosperous nation on earth. The Christian ethic as interpreted by the puritan middle class called for dedication to work, honesty, thrift and charity. It was fundamentally opposed to the corruption and paternalism associated with the institutionalised church and state. Until the 20th century welfare continued to be characterised by its focus on the genuinely poor or disadvantaged, the localised system of distribution and the emphasis on private duty to help fellow man.
The movement to centralised and generalised welfare drew its main inspiration from Benthamite philosophy. However, the two world wars acted as catalysts to this process by making governments feel that in the situation of war, the society needed to be organised and provided for by central management. The socialists who came to power after the second world war found these arrangements totally conducive to their philosophy and proceeded to entrench the system permanently.
The nationalisation of benevolence was carried through during the second World War, even before the socialist victory of 1945, but it was the postwar labour government that completed the transformation of benevolence from a concern for some people into a concern for all people's needs. The objects of that concern were no longer a particular group, the needy, but the totality of needs — needs of education, health, "welfare", and "security", the last two being open ended concepts that could receive almost any content.
Neil McInnes, "The Politics of Needs — or, Who Needs Politics?", 'Human Needs and Politics' ed Ross Fitzgerald. (Pergamon, Sydney, 1977) p 242
The second major fact which has become obscured by socialist sloganism is that the creation of wealth directly and indirectly contributes to the elimination of poverty. The philosophy of capitalism, works for the alleviation of poverty at two levels. Firstly it destroys artificial social and hierarchical barriers and generates opportunities for the poor to become rich or less poor. The modern socialist will argue that this reasoning is fallacious because those with capital will exploit those without it and therefore the rich will become richer and the poor poorer. The scope of this book does not permit us to refute such specious arguments. It is sufficient to remind ourselves that capitalism where it has flourished for any length of time has had a better record of reducing poverty than any system of state paternalism.
At the second level, capitalism by the creation of wealth promotes benevolence. Human beings whether poor or rich have characteristics both good and bad. Capitalism makes benevolence affordable to individuals. The great charity foundations of the United States which have benefited all mankind through the advancement of learning and science are by products of free enterprise. Under socialist welfarism benevolence and charity becomes the responsibility of the state. Individuals are deprived of the capacity to show concern for fellow man by being deprived of their wealth through taxation and other controls. Vast bureaucracies are set up to extract money from the public and to spend it on state determined priorities. In the process the bureaucracy itself soaks up most of the public revenue.
The third forgotten fact is that welfarism today is no longer the alleviation of poverty but the equalization of incomes. Social security payments are but one aspect of the modern welfare system. They constitute the tip of the iceberg. In Australia the state provides free hospital care and education. It has legislated to impose minimum wages. It controls almost every aspect of the economy in its efforts to provide people with benefits of one sort or another. There are innumerable price controls, price supports and product and service standards. Industries must satisfy a plethora of regulations meant to ensure consumer or employee satisfaction. All these benefits are granted to the society at large, irrespective of the individual's capacity to satisfy his own needs. Welfare is no longer the entitlement of the poor or needy but is the expectation of all persons. But all this entails a price. The financing of the pervasive welfare system requires taxation and regulation. The welfare bill is met by taking away personal incomes and personal freedom. The modern welfare system is established and maintained on the pattern of taking individual wealth and distributing it to the public at large. The underlying principle of the welfare state is that the state and not the individual should bear primary responsibility for personal well-being.
Liberalism is not opposed to the provision of security to those who are unable to care for themselves. What the liberal philosophy opposes is the idea that welfare is a universal necessity which must be satisfied even at the cost of limited individual freedom. The guarantee of a minimum income is compatible with economic freedom and the market order. It is justified on ethical as well as economic grounds. By alleviating poverty the society benefits economically. Reduction of poverty increases the productive human resources and stimulates the market. It promotes social harmony and the spiritual well-being of the community. But the alleviation of poverty is quite a different proposition to the egalitarian objective of the modern welfare state.
The welfare state was built on the wealth generated by the growth of capitalism. Profits of private enterprise yielded the taxes which enabled governments to embark on their ambitious welfare programs. However, the wheel has now turned. By imposing unreasonable and ever increasing financial and regulatory burdens on the market, the state is gradually destroying the sources of wealth. It is in fact proceeding to kill the goose that laid the golden egg.
Let us end with two quotations which demonstrate that it is private enterprise which reduces poverty and that welfare expenditure does not necessarily benefit the poor.
Private Enterprise And Poverty
In the past century a myth has grown up that free market capitalism increases such inequalities, that it is a system under which the rich exploit the poor.
Nothing could be further from the truth. Wherever the free market has been permitted to operate, wherever anything approaching equality of opportunity has existed, the ordinary man has been able to attain levels of living never dreamed of before. Nowhere is the gap between rich and poor wider, nowhere are the rich richer and the poor poorer, than in those societies that do not permit the free market to operate. This is true of feudal societies like medieval Europe, India before independence, and much of modern South America, where inherited status determines position. It is equally true even where central planning has been introduced, as in many countries, in the name of equality.
Russia is a country of two nations: a minutely small privileged upper class of bureaucrats, Communist Party officials, technicians and a great mass of people living only a little better than their great-grand-parents did. The upper class has access to special shops, schools, and luxuries of all kinds; the masses are condemned to enjoy little more than the basic necessities.
Industrial progress, mechanical improvement, all of the great wonders of the modern era have meant little to the wealthy. The rich in ancient Greece would have benefited hardly at all from modern plumbing - running servants replaced running water. Television and radio - the patricians of Rome could enjoy the leading musicians and actors in their home, could have the leading artists as domestic retainers. Ready-to-wear clothing, super-markets - all these and many other modern developments would have added little to their life. They would have welcomed the improvements in transportation and in medicine, but for the rest, the great achievements of western capitalism have rebounded primarily to the benefit of the ordinary person.
These achievements have made available to the masses conveniences and amenities that were previously the exclusive prerogative of the rich and powerful. Milton Friedman and Rose Friedman, 'Free to Choose' New York: Harcourt Brace Jovanovich 1980 pp 131-2
Poverty there is under capitalism and under every system. Critics make much of the poverty in capitalist countries - more accurately semi-capitalist countries (since the influence of socialist ideas is pervasive in all capitalist countries). But poverty has existed and will exist under any system as long as human beings are ambitious to varying degrees and different. But where capitalism has reasonable scope for operation there is less poverty and better living standards than under any other system. Capitalism will operate to reduce inequality and poverty unless subverted by radical socialism and violence.
Soak The Rich
Incidentally we have a few misguided people around who believe that if only we could soak the rich all would be well for the rest of us.
Let us define as rich, anyone with a taxable income of over $40,000 per year. (1985)
According to the latest statistics produced by the Tax Commissioner there are over 88,519 individuals in Australia with taxable incomes about and over $40,000 per year. The chief taxer already takes an average of 42% of their income. If he took the lot, the additional taxes gathered would keep the entire bureaucracy going for just 8 working days.
Incredible though it sounds, Australian governments are currently spending at the rate of $364 million per working day. Soaking the rich is not an option. The bulk of the taxes must be paid, as they always were paid, by the bulk of the people. (The poor pay for modern welfare and the middle class and rich benefit. )
There are about 4 million families in Australia. With governments now consuming $90,000 million per year, every family is liable for a bill of $22,500 per year. To meet these liabilities, governments are robbing the savings of the past generation with continuous inflation, bleeding the earnings of the current generation with excessive taxation,and saddling the future generation with crippling debt. Viv Forbes, 'Common Sense', September 1985 p 7.