In the echoey theatre of modern political gesture, welfare has recently had one of its periodic stagings. A minister has honed his ideological credentials; columnists have extracted culture war content; tabloid journalists have parroted shamelessly grossed-up figures and patrolled Bondi beach for dole bludgers.
Yet for once it was worth cocking an ear. For if the world of employment is facing upheaval, then so is its counterpart of unemployment. And if the future of work is, as many argue, increasingly flexible, casual, various and scarce, it’s arguable that those short of it will steadily face exacerbated economic risk. What might a welfare system of the future look like? What is the potential of ideas such as a universal basic income or a negative income tax, long discussed by economists, mostly beyond the ken of politicians?
Despite its regular depiction as a peeler of lotuses for layabouts, Australians have reasons to be proud of their social safety net. Australia’s taxes are steeply progressive, moderating inequalities of income, and its welfare system comparatively cheap, certifiably efficient in delivering to those in greatest need. Most of the bill is absorbed not by the dole but by the aged pension, even if no tabloid has ever sent reporters to scour those opulent retirement homes and bingo halls in search of the spongeing workshy elderly.
But being fit for purpose is no help if purpose should change. “What we have now is a welfare system designed around a whole bunch of policy settings that aren’t there any more – a parsimonious dole predicated on a protected economy in what’s now a dynamic, unprotected, trade-exposed economy,” argues Tim Lyons of the thinktank Per Capita. “The dole makes sense if you’re a cook and you lose your job as a cook and you want another job as a cook in the same town you live in. But it’s not going to get you through a long period of unemployment without a decline into poverty, it won’t help you retrain and it’s not sufficient to help you move.”
Possibilities of gales of creative destruction are mitigated somewhat by slow growth in the supply of new workers. “One thing that’s happened over the last five years is that the growth rate in supply of workers has shrunk quite rapidly,” notes economist Saul Eslake. “Since 2011, we’ve seen slowest growth in working age population since the great depression … and unemployment has fallen by more in the last three years than in any other three-year period.”
Average job duration too has changed relatively little in the past 30 years and the much-discussed gig economy is as yet small, its impacts anecdotal rather than substantive – even if that may partly be a factor of official measurability.
In some respects, Australia is better prepared than other economies for the challenges of job churn. “We’re well ahead of a lot of other countries that tie a lot of things into the employment package,” observes the shadow assistant treasurer, Andrew Leigh. “For example, when you tie healthcare into employment, it makes it much harder to move between jobs. When you have defined benefit pension plans tied to a particular job, that makes transition towards an economy in which people start working multiple jobs far more problematic. In that sense, we’re starting in the new economic world with less lead in our saddle bags than much of North America and Europe.”
Developing a sense of future employment prospects, moreover, is something about which humility is advisable. Says Eslake: “While it is easy to point to jobs that are threatened by technological change, what economists, futurists and others have been very bad at is pointing to the jobs that will emerge, whether people will be appropriately equipped to do those jobs and whether they will produce adequate incomes.”
Yet some facts can now be constituted as trends. Wage growth is anaemic, with all manner of entailments, including a property boom that is the empowered consumer’s response to income insecurity. Casual work, meanwhile, is as profuse as full-time employment is flat. In 1988, just over a fifth of workers were employed part-time and adult full-time wages were 21% higher than wages paid to all. Today almost a third of workers are employed part-time and the wages gap yawns at 36%. Employers are ever more reliant on the ranks of casuals, part-timers, workers on short-term contracts, migrants on short-term visas and even full-time school students, who now constitute 2.3% of the workforce. The underemployed – those who would like to find more work but cannot – have reached unprecedented proportions, their circumspection acting as a drag on demand.
The Turnbull government’s peculiar mix of effervescence and inanition suggests a superficial engagement with future possibility – imprecations to “nimbleness” have replaced the valourising of “working families”. But its rhetoric about welfare – variations on lifters and leaners, workers and shirkers – sounds more like a pandering to constituencies.
The benefits of the laissez-faire approach have been whittled away, leaving concentrations of prosperity, a more general residue of exhaustion and discontent. “We’re about to fall into that low-inflation trap that we’ve previously avoided, even though we’re still growing – wage growth is the lowest it’s been since they started collecting that data,” reports George Megalogenis, the author of the Australia’s Second Chance (2016). “You can’t say people are slack and don’t deserve a pay rise. They’re working harder than ever and productivity has boomed. But the profit share has swung too far to capital without it being reinvested. So we need a reset, for same reason as you always need a reset – to maintain stability and smooth out the cycle.”
Says veteran economist Ross Garnaut: “There will be a certain number of jobs in future that give very good incomes, with a degree of luck involved in who gets those – even people of talent could work their guts and out and not get one. We want a system of transfers that help the rest, the people who are unlucky, enjoy a reasonably secure life.”
But how? There are big ideas abroad. At the cutting edge is one with paradoxically ancient antecedents. Universal basic income, a form of social security involving the state paying its citizens a regular unconditional lump sum regardless of whether they work, claims a 500-year intellectual pedigree, the notion of providing “everyone with some livelihood” having been countenanced by Thomas More in Utopia (1516) as an antidote to crime.
It has since been approved by a remarkable range of reformers and redistributionists. In Agrarian Justice (1797), Thomas Paine envisioned a national fund, provisioned by the levying of a “ground-rent” on landowners, which would make two kinds of payments to every person: a fifteen-pound lump sum at the age of 21 “to enable him or her to begin the world” and a ten pound annual stipend to everyone over 50 “to enable them to live in old age without wretchedness, and go decently out of the world”.
In The Road to Serfdom (1944), FA Hayek argued that the universal assurance of “some minimum of food, shelter, and clothing, sufficient to preserve health and the capacity to work” was “no privilege but a legitimate object of desire” and could be provided “outside of and supplementary to the market system”.
For a long time, then, universal basic income has looked like an elegant solution in search of a problem, including in Australia, where it was first mooted in the context of postwar reconstruction in a 1942 monograph by the radio journalist RG Lloyd Thomas and was a proposition entertained in Prof Ronald Henderson’s landmark Report of the Commission of Inquiry into Poverty (1975). Lately it has found another articulate Australian advocate, the academic Tim Dunlop, whose The Future is Workless (2016) deems it “suddenly very sexy” – not a description often applied to social security schemes.
“To me the real efficacy of basic income is that even if we’re not headed into a workless future, we’re destined for a future where work will be based on short-term contracts,” Dunlop says. “That might be very lucrative for some people. And you might be able to string together a lifetime of that stuff. But, for a lot of people, even if there is plenty of that sort of work, there are going to be periods where you’ve got nothing. And if you have a society based on that insecurity, that’s a bad society.”
The argument is being heard in a number of countries. Swiss voters pondered such a scheme this year, before rejecting it; Finland is running a non-universal pilot program next year; Y-Combinator, a Silicon Valley incubator firm, will sponsor a similar test in Oakland, California.
And one of the most interesting features of a universal basic income is its variety of advocates, from wings of the egalitarian left, who see it as decommodifying labour and transforming labour relations, rallying behind such works as Guy Standing’s The Precariat (2011) and Nick Srnicek and Alex Williams’ Inventing the Future (2016), and the libertarian right, eager to winnow the welfare bureaucracy away, inspired chiefly by Charles Murray’s In Our Hands (2006).
Dunlop finds common cause with both. “The way the welfare system works now is insane,” he says. “It’s all outsourced to private providers, yet neither the government nor the provider can get you a job, only an interview. So the government is paying all this money to providers for getting people into interviews without access to the most obvious performance metric: did they get a job? All they can ask is are people ‘job ready’? So they come up with all these measures. Have you done a CV? Have you done training? Have you done this or that? All this government money is being spent basically on compliance costs, on policing people. I’m all for the libertarian argument in that sense. If we can get rid of that, I think everyone’s better off.”
The trouble with having some supporters on left and right is that annoys others. Many on the left hear the echo of “to each according to his needs”; a sizeable proportion of right still yearn to distinguish between “the deserving poor” and “the undeserving poor”. Welfare in Australia long ago sheered away from a social insurance model; it has traditionally been targeted, generally been niggardly. The idea of money for nothing would go against a deeply grained idea of a reciprocal bond between state and citizen – embedded in our national anthem, of course, is the notion of “wealth for toil”. Given work’s perceived ennobling characteristics, a basic income would strike some as morally corrosive.
But most now uncontroversial forms of income support were first condemned. And a universal basic income might prove less of a disincentive to work than generally imagined. In the most famous basic income experiment, Mincome (1974-79), residents of a poor town in the Canadian province of Manitoba were sent monthly cheques. Working habits among males in Dauphin changed hardly at all, households remained thrifty, and other life measures were enhanced: teenagers remained in school longer; mental health outcomes were better.
Mincome was doomed by a conservative shift in Canadian politics and its findings were buried – perhaps in part because they cast doubt on an abiding assumption that the poor immiserate themselves by carelessness with money. On the contrary, it seemed, for having had little, they were all the more careful.
Occurring as it did only on a local scale, however, Mincome only takes the argument so far. A truly universal basic income would reach many who neither need nor want it. “If the proposition is for a basic income, then, as someone who earns more than $200,000, I say: ‘Don’t cut me a cheque’,” says Labor’s Andrew Leigh. “It will do nothing to change my behaviour and it will be produced either by raising taxes unnecessarily or, worse still, by taking money away from people who need it more than me. And we would be doing it in a country where the total burden of tax is one of the lowest in the advanced world.”
A basic income would, indeed, be exceedingly expensive: even calibrated at the minimum wage, it would require the disgorging of almost the entire tax take. “Our system isn’t perfect,” says economist Eslake. “It can be improved on the expenditure and the revenue sides but that can be done. Whereas if you were to say to the Australian people we need to raise the level of tax by 10% of GDP, I can’t see that flying. It is less of an issue for Scandinavian countries who recycle a lot more through the tax and transfer system.”
Dunlop is not so starry-eyed that he sees the universal basic income as an idea whose time has come. “I guess I end up at the view, as I do with lots of things about the future of work, is that we actually have to get to the crisis,” he says. “That you don’t argue your way into this, because the social and cultural norms are so entrenched that you need to come to a point where alternatives demand it. We only got a welfare state because of two world wars. You’ve also got to convince the one per cent that their income is being legitimately redistributed. They’re very powerful and it’s not like society is falling down around their ears – not yet anyway. In the meantime they can insulate themselves from it. Things will have to get very bad to get their attention.”
As Tim Lyons notes: “At the moment we’re a country that can’t come to grips with increasing the dole by $35 a day, which everyone, even the Business Council of Australia, accepts is a ridiculously low level.”
Sometimes drawn into discussion of universal basic income is a less ambitious but more robust welfare variation – that of the targeted cash transfer. Its advocates first stirred in the mid-1990s and again have numbered some interesting individuals. In his maiden speech to parliament in 1994, for example, young backbencher Tony Abbott outlined an inchoate plan for a broad-based, non-means-tested “family wage” of $100 a week payable to the principal carer of dependent children. Again the allure was simplicity, reduced bureaucracy.
While voters have shown an innate mistrust of radical change to the tax system, everyone understands and hardly anyone objects to a cash payment. A family wage is quite different from welfare. It is a recognition of responsibilities, not need. It is a payment for services, not a handout. It means that personal choice could replace economic necessity as a rationale for family decisions. One beauty of a family wage system is that it would take one public servant, just one, and a computer to administer. Payments would start the moment a birth is recorded on the registrar of births, deaths and marriages database and finish 16 years later.
The showpiece, however, has come from the left of politics, specifically Lulism in Brazil. Now 13 years old, Bolsa Familia is a mean-tested basic income allocated to poor families through the female head of household, delivered via a citizens card that operates on a debit basis, conditional on contrapartidas (counterpart responsibilities) such as children attending school, receiving vaccinations and medical check-ups. It is overwhelmingly popular, a quarter of Brazilian households being eligible recipients. It is also disarmingly cheap, absorbing less than half a per cent of GDP.
Bolsa Familia has its critics, from the right, including the Catholic church, and from the left, who see it as too paternalistic and consumerist – the contrapartidas are arguably as much about legitimising the scheme in the eyes of the middle class as improving public health outcomes. There have been the inevitable issues of abuse, enforcement and burden on overtaxed social services. Yet many initial objections have been disarmed: the evidence is against it breeding improvidence or dependency, with the bulk of the money spent on basics such as food and clothing, while three-quarters of adult recipients still undertake paid work.
If the disbursement of cash might seem a crude device, a third device has already been run up a mainstream political flagpole. The negative income tax, in which those earning below a set amount receive supplemental pay from the government, has described a zig-zagging intellectual course, one of its most committed advocates being Milton Friedman in Capitalism and Freedom (1962), who saw it as eliminating the need for a minimum wage, addressing disincentives to work posed by high marginal tax rates, and consolidating overlapping welfare circles.
A negative income tax was first mooted here by the classical liberals Wolfgang Kasper, Dick Blandy, John Freebairn, Douglas Hocking and Robert O’Neill, who in Australia at the Crossroads (1980) envisioned it being financed by “a reduction in the provision of ‘free’ government services and subsidies to private producers” (they also promoted life-endowment grants: sums of ‘the order of $20,000’ payable to young people 15-21 as a start in life or ‘stake’ in society). It was subsequently promoted as an anti-unemployment measure by Freebairn, Peter Dawkins, Ross Garnaut, Michael Keating and Chris Richardson in their Five Economists’ Letter of October 1998.
Garnaut, a former senior adviser to prime minister Bob Hawke and an ambassador to China, now a professorial fellow of economics at University of Melbourne, remains an advocate: “A simple way of making it work would be to give all Australian citizens or residents [an] automatic payment into their bank account every fortnight, subject to a means tests, principally an assets test, [and] you’d be taxed at a basic rate from the very first dollar of income … It’s just a much simpler system for employers and you don’t get high marginal tax rates discouraging people on social security as they do now.”
Its attractions were noted by the McClure review of welfare in 2000, which recommended a single “common base payment” to people of working age replacing all other pensions and allowances, with a few add-ons for those with special ability and housing needs.
Tony Abbott, by then the employment minister, thought that it “should be possible to build a consensus for a single working-age payment with supplements based on special needs and participation in the community”.
But the push lost momentum: its outgrowing instead was the low income tax offset and to a degree the raising of the tax-free threshold. The only political party in Australia still advocating a negative income tax is the Pirate party, whose platform in the last election included a tax designed to ensure of minimum income of $14,000 for everyone over the age of 18.
Whatever transpires, a shift in the paradigm of work poses a challenge to the recently evolved bargain between citizen and state. For much of last 20 years, Australian governments have explored variations on the theme of shifting costs back to the electorate, coaxing voters along the route of private provision for education, health, infrastructure, services and retirement. This slow but steady heaping of expenses on the household table has exacerbated domestic financial precariousness.
“You go underwater very quickly without a wage,” says Megalogenis. “Which suggests that, technically, if your open market model can’t provide your working-age population with a steadily rising income any more, you’ve reached the limits of that cost shifting, especially in education and health. That’s a big problem for the economy overall. It was a shortcoming of laissez-faire capitalism in the 19th century: it could never get its mind around the idea that when it got rid of a worker, it was robbing itself of a consumer. We face something like that problem now.”
To Megalogenis, the global financial crisis should be recognised as the day the future began: “The last few years in politics have diverted us from the great lesson of 2008-9. We now have a federal government looking at a structural budget deficit, a Reserve Bank that has lost its discretion on the price of money because global interest rates are now so low and a wages system not rewarding the worker for what the open market has demanded they do for the last 20 years, which is adapt – a model that’s broken but exhausted. Yet knowing how successfully the state leaned against the GFC, basically all the levers working exactly as you would wish, you could be pretty confident of it getting things right.”
The future requires, he believes, a state more active and more robust in alleviating the cost of day-to-day living. “Before the robots take over, I’d be thinking about where the state can get back in, with the commonwealth as the borrower and the states as the spender,” he says. “Most people want to feel that government is on their side. Not because they want a handout, which is the way it’s frequently been misinterpreted. They want government involved. So the state should be thinking hard about keeping on its books the costs it can bear on behalf of the community. Without an active state you can’t prepare the population for the next big hit, which is coming anyway, whether we’re ready or not.”
The welfare nostrums of the Turnbull government? Largely pointless, argues Tim Lyons. “What this mob has returned to is a view that it’s necessary to punish people who are unemployed, to get them in a headlock,” he says. “It’s a recurrent rightwing fantasy of the last 25 years that there’s this vast imaginary army of malingerers and a ton of money to be saved in welfare – the idea that we’re going to save the federal budget by finding a whole bunch of Paxton kids.”
In fact, believes Garnaut, the stakes could hardly be higher. “We’re testing how democracy works when wages are stagnant or falling,” he says. “Well, I think we already know how it works, which is badly. In fact, unless we get used to the idea of doing something systematic and non-stigmatising to support the incomes of ordinary people, it may not be viable as a political system.”
And the answers will not be found on Bondi beach.