Welfare is big business in the modern world. The British government spends somewhere around £250 billion a year and that figure is only set to rise forever. A rather random documentary (Benefits Britain 1949) I found buried in the 4od archive approaches this issue from a different direction - what was the original welfare state like?
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I'm not going to regurgitate 3 hours of pseudo-documentary in written format, but the sake of the comparison I do want to draw I'm going to touch on a couple of key points;
1.) The focus on getting people working is overwhelming - pretty much without exception. Even the cash benefits that were provided are focused on working.
2.) The system is probably just as biased as the modern welfare state, but in the opposite direction. Traditional family unit with problems? - lots of support and guidance, single mother? Pretty much discarded. Although the conclusion from the program itself was that the modern system is 'fairer' it doesn't seem objectively any difference to prioritize single mothers over family units or vice versa, there is still a bias in the system.
3.) Pensioners fell through the cracks - this is probably inevitable given that when the welfare state was first introduced life expectancies meant most pensioners could expect to survive a handful of years, paid for by family and savings. In the modern world where you can expect thirty plus years post retirement a different solution is no doubt required.
4.) The terminology and language is different. In today's world we have "benefit" "entitlements" both of these are very inclusive, positive terms. A 'benefit' is, almost by definition a good thing, while an 'entitlement' does not imply any stigma or obligation. Under the 1949 system you made a "claim" on for "assistance". First off it was something you had to ask for (and might not get) and secondly it was a stop gap measure while you got back on your feet.
5.) Not directly related, but since this crops up all over the place it bears reminding - the common misconception that in the modern world you somehow pay for your benefits by paying tax and national insurance. This is flat out wrong. Under the original format National Insurance was exactly that - Insurance. You paid a premium (your contributions) and then when you needed it you could make a claim. Under this system you really could make an argument for "I paid in, so now I want something back." In the modern world all taxes are soaked by paying for current spending, there is no contributory or savings principle. When you worked your taxes paid for the benefits of those claiming at the time. When your claiming benefits you are expecting others to support you.
6.) The 1949 system does have an inbuilt assumption that if you could work then there is work to be had. In the aftermath of the second world war a combination of vast infrastructure projects and a decimated workforce meant there was always a job going. Is this still true today?
Following on from this final point you can do an interesting thought experiment over the cost of providing employment.
Let's say you want to hire someone to work in your business - what are the costs?
(For the sake of this I'm ignoring things like the cost of advertisements, and the theoretical time cost of interviews etc).
Salary - the minimum hourly rate in the UK is £6.31 (over 21s). Assuming you want someone for 35 hours a week that's £11484.20 a year, you would also need to pay employers national insurance (£522). For the sake of convenience this adds up to pretty much £12,000.
Overheads - This is harder to judge since it depends in part on what the role is, and how much equipment it requires. During my stint working in a slot machine arcade my only overheads to the business were a couple of cheap shirts and a tacky waistcoat (£50 tops). On the other hand overheads for a full office set up can easily run for £5-6,000 a year.
Leaning on the pessimistic side here (since the service sector accounts for such a large chunk of the unskilled economy through call centers and 'admin') that gives total of £18,000.
So, if your new employee can generate £18,000 of value for the company everything is good right?
Well no - first off if they earned you can extra £18,000 then you've broken even, plus you have all the hassle of hiring and manager people. If you want a decent return on your investment (say 15%) then that person actually needs to be bringing in £20,700. Unfortunately even that figure is a bit low because your also going to have to pay corporate tax at 20%, which bumps the figure up again to £24,840 (say £25,000 for ease).
Going back to our 1949 example the combination of lower taxes, a bigger 'cash in hand' economy, and lower wages (the example being a labourer may expect to earn, accounting for inflation, £15 a day, compared with a minimum of £50.48 for an 8 hour shift), means that figure is going to be a lot lower. Lower costs to business of taking on new staff means more potential recruitment, while laxer employment laws also make it less of a risk since its easier to get rid of people.
In today's wold though you need to be generating £25,000 of revenue for a business for them to justify a single minimum wage job. How many people can actually do that? What skills and abilities are required to achieve that level?
Unfortunately these are questions somewhat out of the scope of a single blog entry, but it opens the way nicely for a topic I keep trying to discuss and can never find a good way of tackling - productivity. For a long time I've been arguing government spending in Britain is out of control, as is our benefits system. A client state of voters has been created, in a world designed for the benefit of politicians. The equation is brutally simple - tax the minority to provide handouts to the majority, who will then vote you back into office. But if you (theoretically) wanted to escape from this mess what has to happen? Simply put spending has to come down, and income has to go up.
The current attempt at this is the 'growth and stagnation' approach. IF the economy can be poked into growth, while holding spending levels steady in absolute terms, then the combination of increasing revenue, inflation, and static spending should begin to close the deficit gap. The alternative is to actively smash large chunks of government spending, while actively encouraging a more inclusive workforce. The key to this second part is productivity.
Businesses are profit seeking entities, if you cost a business £25,000 and earn them £50,000 then you should be employable. Regardless of the trade, craft or sector this holds true. The unemployable are unemployable because, in the most basic terms, a business doesn't think you earn them more than it costs to hire you (accounting for discounted risk and so forth). 1949 appears to have been successful in getting people into work by keeping the cost side of that equation down; yes you may be unskilled, inexperienced and part time, but it only costs a third of the 21st century price to hire you, so you only have to be a third as productive.
The modern welfare and employment system has created a trap for itself - rising costs of employment in the form of employers national insurance, business taxes, stringent hiring and firing laws, and minimum wages have all combined to make it more expensive for businesses to hire people. At the same time a generous welfare system has made it economically viable to simply not work, this in turn leads to those who do work to demand higher minimum wages (so they are actually earning more than those who don't work), and so the cost of employment goes up, and the whole thing spirals.
Productivity itself is a fleeting beast in economics. Training, skills, experience and ability all play a part, as does social conventions and attitudes. But its unfortunately not something that can be conjured out of thin air by waving money about. Education certainly plays a part, and so that will be my starting point next time.
Happy Trails,
/Z
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