Managing the new social risks

Welfare
Deborah Mitchell

"Globalisation … is creating deep social pain and political costs as sensitive sectors are opened up to outside competition and go through difficult adjustments. The human costs are hurtful and governments have a responsibility to help people through the process."

- John Howard (Prime Minister), Tokyo, 6 July 1999

THE welfare state and its constituent social policies hold a somewhat paradoxical position in debates about globalisation. On the one hand, the social policies that characterise modern welfare states are perceived as luxuries which we can no longer afford in a world of intensely competitive markets. On the other, these same policies are equally claimed as the primary vehicle for governments to "help people through the process" of adjusting to economic change.1 Australian debates about the role of the welfare state in the context of the global economy oscillate between these two positions, as in other nations with developed economies.2

Over the past decade, many of our social policy documents have made passing reference to the changed economic conditions brought about by globalisation, but they have not formulated any strategic policy response.3 In part, this lack of strategic attention may be attributed to uncertainty about the precise nature of the impact of Australia's entry to the global economy, and how this would flow through to social programs. In part, it may be attributed to a domestic social policy agenda that was preoccupied with internal social and demographic changes that were challenging existing policy structures and requiring more immediate attention. Finally, as welfare state analysts such as Ramesh Mishra have observed, "it is not the economic facts about globalisation but their political implications" that may have prevented explicit policy debates about the costs of globalisation and the social policy adjustments that might be required to smooth the transition into the global economy.4 It was not until 1998, when Mark Latham broke the political silence surrounding the impact of globalisation and the necessity to recognise and adapt to both the costs and benefits, that these three strands of the welfare state-globalisation debate came together (see Chapters 2, 9 and 12).5 Like other OECD nations, we are now entering a period where 'new deals' need to be struck to replace the postwar Keynesian consensus that shaped Australia's social policy direction for the latter half of the 20th century.

Already the impact of Latham's challenge to confront the impact of globalisation is being felt in social policy debates. The Howard government's recent review of social policy, undertaken by the Welfare Reform Reference Group (the 'McClure Report'), reflects this change in several ways. Firstly, the review does not take the existing social security system as a given, to be nudged in an incremental fashion towards minor improvements. Instead, it proposes a radical recasting of the existing system with a ten-year transition phase. Secondly, the review seeks to link what have been perceived as purely domestic social policy problems to the larger picture of globalisation. The report highlights the impact of technological change and the global economy as one of four underlying trends that "underpin the need for a bold change to our support system".6 So far, so good. However, the Reference Group's report is not without its negative elements. Its emphasis on a conservative social agenda - reflected in a lengthy discussion of the implementation of 'mutual obligation' - detracts from an otherwise positive attempt to sketch an alternative vision of our social security system.

This chapter initially considers the impact of globalisation on the welfare state as it affects the general environment in which social programs operate. This is followed by a brief outline of the postwar consensus that shaped the structure of Australia's welfare state, the major shifts in this original structure that occurred in the 1980s and 1990s, and, finally, the key recommendations of the Welfare Reform Reference Group. The third section of the chapter goes on to suggest how the impact of globalisation can be brought into the foreground of social policy debates through understanding the risks generated by Australia's entry to the global economy, and argues for the need to renegotiate the ways in which responsibilities for different risks are to be borne by individuals, the state and the market.

The welfare state-globalisation relationship

Discussions of the impact of globalisation on the welfare state inevitably begin with drawing distinctions between economic internationalisation and globalisation proper.7 Paul Hirst and Grahame Thompson have argued that economic internationalisation is not a new phenomenon, and has been a feature of the OECD economies for the past 50 years in terms of liberalisation of the trade in goods and services (also see Chapters 1, 2, 5 and 10). For other writers it is the combination of economic internationalisation and the new financial openness of economies that has changed the environment within which welfare states developed. As Mishra has written:

... before 1914, when economies were more open, there was no welfare state - no Keynesian macroeconomic management to maintain full employment, no universal social programmes and no high levels of taxation. Conversely, after WW2, when modern welfare states came into being, Western economies were relatively closed and self-contained. It is this structural dependence of the welfare state on a relatively closed economy that is the crucial issue [emphasis added].8

For Mishra there are a number of consequences that follow from this new financial openness: in particular, the ability of national governments "to manage their economies so as to ensure full employment and economic growth has been curtailed".9 This view finds strong empirical support in well-documented case studies, such as the failure of the reflationary policies of France in 1981, and results of changes in capital controls in Sweden in the mid-1980s.10 Gary Teeple has concluded that there is cumulative evidence that financial globalisation has effectively ended the era of high levels of public expenditure financed by progressive taxes (see Chapter 2).11

For other observers of the welfare state, the constraints that financial markets now place on government expenditure is not a sufficient explanation of the difficulties that many welfare states have been experiencing since the 1980s. Gosta Esping-Andersen has described a series of endogenous challenges arising from "the growing disjuncture between existing social protection schemes and evolving needs and risks".12 He has argued that changes in family structure (for example, the growth of single parent families), changes in employment and occupational structures (for example, deindustrialisation and the growth of service industries, and increased professionalisation and differentiation), and changes in life-courses (for example, less linear and 'standard'), have meant that the policies and programs designed to address the needs of a male breadwinner family became increasingly irrelevant over the 1990s.

Initially, the relative affluence of the postwar period allowed these emerging demands to be met from the dividends of economic growth, in the form of the extension of benefits and services to meet the needs of new claimants. This 'Golden Age' of the welfare state - as described by Esping-Andersen - proved to be fairly short-lived as governments adjusted to the changing financial environment. Across the OECD nations, the process of adjustment has typically required governments to manage two reform agendas in relation to the welfare state. The first agenda was retrenching public expenditures to levels that are 'acceptable' to financial markets - that is, playing to perceptions of competitiveness. Within these reduced welfare budgets, the second agenda was the prioritising and re-prioritising of the demands of different groups of claimants, according to political calculation.

Australia's social policy adjustments over the past two decades do not appear markedly different from those of other OECD nations. The one area of significant difference concerns the degree of pressure on social security budgets. The targeted nature of our social security system enabled Australia to withstand the downward pressure on welfare state budgets experienced in other nations during the 1980s.13 By the 1990s, however, the disjuncture between the existing pattern of provision and the emerging needs described by Esping-Andersen was becoming increasingly apparent, with the emergence of poverty traps, the increasing complexity of benefits administration and conflicting work incentive signals.14

The Australian agenda

The postwar consensus that underpinned the Australian welfare state - and in fact most of the OECD welfare states - had four general characteristics. Firstly, the consensus included macroeconomic policies which involved protection 'all round' and prosperity 'all round', via a protected economy.15 Secondly, it contained active labour market policies to ensure full year, full-time employment for male breadwinners.16 Thirdly, it had a strong centralised wage fixing system that guaranteed high minimum wages, had rigid wage relativities built into the award system, and privileged seniority over merit.17 Fourthly, it relied on a large unpaid workforce of women who remained at home to provide care for children, the elderly, the disabled and those not otherwise able to participate in the labour market.18 In this environment, the Australian welfare state had relatively little to do in the postwar boom years, and the social risks it was required to underwrite for individuals over their life-course were comparatively minor, until they reached retirement age. Moreover, the underwriting of most of these risks was done by the state - not, for example, by people insuring key risks over their life-course.

This underlying structure has gradually disappeared over the past two decades. During the 1980s, the dismantling of industry protection set in train a process of deindustrialisation that was to have a marked effect on the level of long-term unemployment, which has resisted policy solutions for some 15 years. In the early years of the Howard Coalition government, the dissolution of the previously integrated approach to wages, tax and transfer policies exacerbated the pressures placed on social policy. The income transfer system, in particular, has struggled to keep pace with the demands being generated at each stage of the retreat from the social wage deals struck by the former Labor government under the Accord processes in the mid-1980s. In the absence of any real political attempts to renegotiate the role of government, policy makers have had few tools at their disposal to 'patch-up' the ailing transfer system. Targeting was the one permissible strategy, and constant resort to this instrument resulted in the inevitable appearance of the long-predicted disincentive effects of means testing. At the same time as these changes were occurring, the major shift of women out of unpaid caring and household labour and into paid employment saw increasing demands on a range of support services, including access to equal entitlements in the social security system, and the implementation a range of family policies to support single parents.

By the 1990s, the dual impact of these externally and internally generated changes required structural changes to re-set the direction of the income support system and the way it was to be funded. One early structural change that commenced this process was the introduction of the Superannuation Guarantee Charge in the late 1980s. Australia had resisted funding its social programs in this way for most of the 20th century, relying instead on income taxes. While this change has no immediate impact on the fiscal issues surrounding the welfare state, its significance is that it shifts responsibility from the state to individuals and their employers for income support in old age. A second structural shift occurred with the introduction of the family tax package in July 2000. This package aims to remove some of the complexity and overlap between the tax and transfer system for low wage earners - the success or failure of this shift is yet to become apparent.

These two changes go some way to resolving the domestic pressures on the welfare state, but leave unresolved the longer term policy responses to the volatile labour market participation patterns resulting from the opening up of the Australian economy. The WRRG identified several characteristics of the 'new labour market' that need to be addressed by longer-term reform. These are the unequal distribution of paid employment between households (that is, the growing divide between two-income and no-income households), long-term unemployment and reliance on income support for lengthy periods, and the geographical concentration of disadvantage in regional Australia (see Chapters 7 and 16). In response to these new features of the labour market, the WRRG proposed replacing the current income support system with a participation-based approach that effectively merges labour market and social security policies. Firstly, the WRRG has supported individualised service delivery. The intention here is to tie packages of assistance (benefits and services) to individuals' different life-course stages. Secondly, it has proposed the simplification of income support; that is, the staged removal of current forms of categorical assistance and their replacement with rates of assistance that vary according to individual circumstances. Thirdly, it has advocated increased use of incentives; that is, additional assistance such as cash incentives and services targeted to individuals in order to encourage the take-up of low wage employment. Fourthly, it has recommended social partnerships, or the provision of subsidies and other government supports for local business and community organisations in disadvantaged communities and regions. Finally, it has supported the extension of mutual obligation, whereby income support recipients are required to participate in both paid and unpaid activities, according to each individual's capacities and local opportunities.

Leaving aside the 'mutual obligation' agenda, which has been the focus of much debate - and to some extent has overshadowed the more interesting aspects of the McClure report - the reorientation proposed by the WRRG does attempt to map one possible path for Australian social policy that addresses both the impacts of globalisation and the need for forms of assistance that match the increasingly diverse needs of individuals. In the context of this discussion, it is important to note that the policy strategy recommended by the WRRG is based on an explicit acceptance of the view that direct job creation programs are ineffective and that the widening distribution of job opportunities due to globalisation and technological changes will continue.19 In a sense, the WRRG report reflects Mishra's argument that the 'economic facts' of globalisation are not at issue; rather it is the 'political implications' that remain unresolved.20 The absence of a discussion about the need for a political renegotiation of what different actors in the social policy arena can and should be doing is not surprising. The WRRG was obliged to work to its terms of reference and therefore could not explicitly fill the political vacuum in which it was operating. Implicitly however, the WRRG has created the space for such a renegotiation to take place by recommending a lengthy transition period during which political processes can be mobilised to work out an Australian version of a 'new deal'. The following section sets out one approach that could provide a basis for bringing globalisation issues into the foreground of political debate over the future of social policy.

Developing a social risk management framework

An important factor in mobilising political support for a major shift in the aim and purpose of the Australian welfare state will be finding common ground between those advocating strategies to deal with the impact of globalisation and those who give greater weight to specific domestic concerns. Despite the different weights attached to the underlying causes of the pressures being placed on social policy, there seems to be general agreement that various social risks have increased substantially for large segments of the Australian population. This common theme may therefore be a useful starting point for a renegotiation of social policy aims.

An explicit discussion of social risk - irrespective of its source - has become an important theme in European debates over the welfare state, providing a counter to the new paternalism found in North American debates.21 The work of Ulrich Beck on the 'risk society' points to a range of new risks arising from increasingly global and complex societies - risks which the current welfare state is manifestly unable to deal with, and is constantly being stretched to accommodate. 22 Beck's observations are equally applicable to the Australian context. A simple comparison of social security entitlement categories shows that these have more than trebled over the past 30 years. In the decade between 1985 and 1995, for example, the number of family related entitlements alone increased from three to thirteen.23 This is one measure of the increasing diversity of life-course risks that the state is now required to cover. New risks associated with increasing breaks in employment continuity, with the uncertainties arising from casual employment, the possibility of becoming a sole parent or a primary care provider during prime earning years, and the possibility that wage-earners may have to retrain or reskill more than twice in their lifetime have yet to be addressed in any substantive fashion.

A second reason for a discussion of risk to be given prominence in any negotiation of a 'new deal' arises from the need to clearly delineate government responsibilities flowing from the decisions taken to enter the global economy, from other decisions which have led to many of these new risks appearing (for example, failure to invest in education(see Chapter 11)); and from the unintended consequences of previous welfare state activity (for example, passive income support of working age people). Taking full account of the nature of different risks gives us a much fairer starting position for negotiating the question of who should bear responsibility for each risk than does the 'mutual obligation' contract canvassed by the WRRG, where responsibility is primarily attributed to the individual.

Translating abstract discussions of risk into a framework that takes account of the practical realities of shaping and delivering social policy is a formidable task. Therefore the discussion presented here represents a first attempt at broadly conceptualising a new social policy framework along these lines. The social risk management framework shown in Table 13.1 [note that the tables and figures from the book Globalisation: Australian Impacts are not reproduced in this website sample chapter] starts from the assumption that the primary role of government is in the management of social risk. The emphasis on 'management' does not mean that the state will automatically assume the role of bearer of collective risk or provider of all welfare services, goods and benefits. As the manager of social risk, the task of government is to negotiate which risks individuals and the market will bear and which risks should be borne collectively (that is, through the state). The columns in Table 13.1 set out the current division of risk between informal social protection, undertaken by individuals or families, and formal protection, which is provided either through the market or by government.

The allocation of responsibility for different risks between individuals, markets and the state is largely a political matter. This is illustrated by two major re-allocation decisions that occurred in Australia under different governments. The first example is the introduction of the Superannuation Guarantee Charge (SGC) by the Keating Labor government as part of the Accord processes in 1987. In this instance, the role of government as social risk manager was pre-eminent: having legislated for the compulsory creation of these entitlements the government then plays no formal part in the administration and determination of benefit levels, other than a minor regulatory role. The actual provision of the benefit and its administration resides with the market, through the private superannuation funds. The costs of superannuation are borne primarily by the individual employee and their employer, with some collective input via foregone taxes. This represents a major shift away from the collective risk bearing of the former system - a public age pension system which, over time, will become a residual safety net. A second example is the recent push by the Howard Coalition government to revitalise private health insurance in order to reduce public assistance provided under Medicare (see Chapter 12). In this case, the government was unable to introduce the broad-based compulsory legislation that underpinned the SGC. Through a series of carrot-and-stick taxation measures, however, it has managed to prop-up a private health insurance industry that had been in serious decline for over a decade. The cost to the public purse has been substantial (averaging some $1.5 billion per annum over the period 1997-2000) and it is less clear that this shift of cost-bearing to the individual will be as successful as the SGC. In social risk management terms, the previous pooling of health risks under Medicare may turn out to be a better strategy than encouraging around one-third of the population into smaller risk pools managed by the private sector.

These two examples might lead to the conclusion that the primary aim of government - in its role as risk manager - is one of off-loading public responsibility for the costs of major social programs. This does not have to be the case. As a counter example, consider the responsibility for post-secondary education and subsequent re-training that currently resides with individuals. The transfer of this responsibility to the public domain could be negotiated on the basis that the state should be responsible for redistributing the benefits of entry to the global economy - which have been accruing to corporations and some segments of the labour market - to individuals who have been disadvantaged by this shift. The WRRG moves some way towards this position in its advocacy of early intervention and preventative measures to support the unemployed.24 A stronger risk management role could result in the adoption of policies and programs that give concrete expression to the much discussed ideal of lifelong learning (also see Chapter 11).

The second element of social risk management concerns different risk strategies: these are reflected in the rows shown in Table 13.1. Essentially, risk management can be directed towards reducing risks (prevention), mitigating the worst effects of a risk event once it occurs (especially predictable risks, such as old age and sickness), or implementing ad hoc coping strategies for unpredictable risks or in cases where prevention or mitigation has failed. In most OECD welfare states in the postwar period, governments developed a policy armoury that included all three strategies, but they varied in the emphasis placed on each of the strategies. Traditionally, Australia has placed a strong emphasis on risk reduction through centralised wage-fixing and, to a lesser extent, active labour market policies - the wage-earner's welfare state approach that has been described by Francis Castles.25 This strategy was combined with a residual coping strategy of income-tested social security payments for those unable to participate in the labour market. Risk mitigation through social insurance, for example, was not actively pursued until the mid-1980s.

As noted earlier, there have been major shifts in Australia's risk strategies; these are shown in Figure 13.1. The most notable shift has been away from publicly managed or funded risk reduction strategies. This shift includes, for example, the scrapping of centralised wage-fixing and a retreat from full employment policies. This led to an over-emphasis on the risk coping strategies, and this has placed government income transfer budgets under considerable pressure. One response to the imbalance in risk strategies has been the move towards risk mitigation, as already discussed, through the introduction of the Superannuation Guarantee Charge and, more recently, increasing the pressure for individuals to take on private health insurance. This shift in strategy was also accompanied by a shift in responsibility away from the public domain and towards the individual and the market. This is also true for changes to coping strategies, where some responsibility has been devolved to market actors through contracting out, although core-funding responsibility still remains with government.

Thus the second element in the negotiation of a 'new deal' should include a reconfiguration of the balance between reduction, mitigation and coping strategies. At present, Australia's social risk management portfolio is unbalanced, with too much emphasis being placed on mitigation and coping strategies and insufficient investment in risk reduction strategies - especially for those segments of the labour force that are exposed to the global economy. Again, the WRRG report goes some way towards redressing this imbalance. Through its strong emphasis on intensive case management that focuses on risk reduction at the individual level, the report has effectively recommended the replacement, at that individual level, of preventive strategies that have been lost at the macro level (for example, job creation programs, education, training and reskilling). As the report's authors suggest - and the Howard Coalition government seems to have accepted - this strategy will require significant funding support and cannot be achieved in a budget-neutral way. The Labor Party's current policy emphasis on investment in education and training similarly seeks to redress this gap in our risk reduction strategies. By contrast, the Coalition government is proposing to go to the next election with a policy that favours spending on public works. In social risk management terms, this is a risk coping strategy (see Table 13.1), and does not address concerns about the government's having a balanced risk strategy portfolio.

Conclusion: A strategic, co-ordinated alternative

In most OECD nations, the dual impact of economic globalisation and changing social structures has prompted a renegotiation of the social contract of the postwar era. In some nations this renegotiation has been explicit, while in others piecemeal reforms have occurred over a longer period. Australia's response to date has tended to be of the piecemeal variety and has lacked a strategic, co-ordinated focus. While the recommendations contained in the WRRG's report emphasise mutual obligation and thus reflect a strong ideological standpoint, the report has also proposed a long transition period for reform to enable wider political debate about the final shape of our social policies. In responding to this opportunity, a critical issue is the need to develop a coherent alternative to the 'new paternalism' that has underpinned reform in the Anglo-American economies. This chapter has suggested one possible framework, a framework that casts the role of government as social risk manager, responsible, firstly, for designing policies and programs that achieve a balance between risk reduction, mitigation and coping strategies and, secondly, for ensuring a fair allocation of responsibility for different risks between individuals, the market and the state.


Deborah Mitchell is a Fellow in the Research School of Social Sciences at the Australian National University, Canberra. This is the text of "Managing the new social risks: welfare", a chapter from the Evatt Foundation's new book, Globalisation: Australian Impacts (UNSW Press), which can be purchased securely online.


Notes

1. The comments by John Howard to a Japanese business audience (cited in the Introduction to this volume) illustrate the contradictory position taken by many OECD leaders over the impact of globalisation. Imploring the 'free-trade laggards' to open their economies, responding to concerns about employment and social impacts with nostrums about the importance of social protection measures to cushion such impacts; while on the domestic front retrenching social programs in order to improve national competitiveness.

2. Compare Alfred Pfaller, Ian Gough, & Goran Therborn, Can the Welfare State Compete? Macmillan, London, 1991.

3. See for example, Paul Keating, Working Nation: White Paper on Employment and Growth, AGPS, Canberra, 1994; and National Commission of Audit, Report to the Commonwealth Government, AGPS, Canberra, 1996.

4. Ramesh Mishra, Globalisation and the Welfare State, Edward Elgar, Cheltenham, 1999, p. 6. Throughout the 1990s, successive Labor and Liberal administrations highlighted only the benefits and the necessity of Australia's entry to the global economy, not the costs.

5. Mark Latham, Civilising Global Capital: New Thinking for Australian Labor, Allen & Unwin, St Leonards, 1998. Although others (such as Bob Catley, Globalising Australian Capitalism, Cambridge University Press, Melbourne, 1996, and Paul Kelly, End of Certainty: The Story of the 1980s, Allen & Unwin, St Leonards, 1992) raised the issues earlier, and many others have subsequently joined them, the achievement of Latham's book was to spark Australian public debate.

6. Welfare Reform Reference Group, Participation Support for a More Equitable Society, Welfare Reform Reference Group, Department of Family and Community Services, Canberra, 2000, p. 3.

7. Paul Hirst & Grahame Thompson, Globalisation in Question: The International Economy and the Possibilities of Governance, Polity Press, Cambridge, 1996, pp. 8-13.

8. For example, Mishra, p. 5.

9. Ibid.

10. P. Hall, "The Evolution of Economic Policy under Mitterand", in George Ross, Stanley Hoffman & Sonja Malzacher (eds), The Mitterand Experiment, Polity Press, Cambridge, 1987; and for changes in capital controls in Sweden in the mid-80s, see Jonas Pontusson, "At the End of the Third Road: Swedish Social Democracy in Crisis," Politics and Society, 20 (3), 1992.

11. Gary Teeple, Globalisation and the Decline of Social Reform, Garamond Press, Toronto, 1995.

12. Gosta Esping-Andersen, Welfare States in Transition, Sage, London, 1996, pp. 6-9.

13. Michael Keating & Deborah Mitchell, "Security and equity in a changing society: social policy", in Glyn Davis & Michael Keating (eds), The Future of Governance, Allen & Unwin, St Leonards, p. 48.

14. Ibid., pp. 135-36.

15. Francis Castles, The Working Class and Welfare: Reflections on the Political Development of the Welfare State in Australia and New Zealand, 1890-1980, Allen & Unwin, North Sydney, 1985.

16. Deborah Mitchell, "Labour market regulation and low wages: Taking a lifetime perspective", in Sue Richardson (ed), Reshaping the Labour Market: Regulation, Efficiency and Equality in Australia, Cambridge University Press, Melbourne, 1999.

17. Keating & Mitchell, pp. 120-52.

18. Deborah Mitchell, "Life course and labour market transitions: Alternatives to the breadwinner welfare state", in Moira Gatens, & Alison MacKinnon (eds), Gender and Institutions, Cambridge University Press, Melbourne, 1998.

19. Welfare Reform Reference Group, Interim Report, Department of Family and Community Services, Canberra, 2000, pp. 9, 24.

20. Mishra, p. 6.

21. For example: Lawrence Mead (ed.), The New Paternalism: Supervisory Approaches to Poverty, Brookings Institution Press, Washington D.C., 1999.

22. Ulrich Beck, Risk Society, London, Sage, 1992.

23. Deborah Mitchell, "Family Policy" in Brian Galligan, Ian McAllister & John Ravenhill (eds), New Developments in Australian Politics, MacMillan, Melbourne, 1997, p. 192.

24. Welfare Reform Reference Group, Interim Report, pp. 11, 60.

25. Castles (1985).

Suggested citation
Mitchell, Deborah, 'Managing the new social risks', Evatt Journal, <http://evatt.org.au/papers/managing-new-social-risks.html>