LONDON — The moral obligation to help the poor and ensure that they have adequate food and shelter is recognized and promoted by the main religions of the world. The obligation has been assumed by civilized governments worldwide, but implementation varies hugely and there are no easy answers to the dilemmas and contradictions that inevitably arise.
In Britain, the first “Poor Laws” date from 1598 and 1601. Under these laws responsibility for relief of poverty was placed on the parishes in which the poor lived. As a result, parishes were most reluctant to accept into their parishes people who might become a burden on local taxpayers.
Unemployment insurance was first introduced in Britain in the early years of the 20th century. The National Insurance Act of 1946 based on the famous Beveridge Report of 1944 introduced comprehensive social-security provisions in Britain. This was seen as a pioneering development although German insurance schemes introduced in the 1880s predated the Beveridge report.
Among the basic dilemmas for which the old poor law and modern schemes for social security have failed to find answers are how to reward effort, how to avoid fraud and how to ensure that the system is not misused or abused by the “work shy.”
Low wages may mean that someone working with a family to keep is no better off, and sometimes worse off, than an unemployed person receiving social security benefits (i.e., payments to mitigate the effects of poverty). Governments have tried various ways of tackling this problem. One has been setting minimum wages, but the danger is that unless these are set at low levels they may deter employment and lead to increases in unemployment.
Another approach is to top off wages directly or indirectly, e.g., through the tax system (perhaps by what has been called a negative income tax) or through national insurance and social security payments.
All such systems are open to abuse and very complicated to administer. Direct subsidies may simply increase employers’ profits. Use of the tax or benefits system to top off wages may decrease incentives and introduce a poverty trap. Benefits that have to be withdrawn as wages rise may lead to recipients being penalized for working harder or more efficiently as every extra pound such employees receive in wages could result in a pound being docked from their benefits.
Another serious issue is whether benefits should be universal or means tested. The argument for universal benefits, such as child benefits, is that they do not require means testing. But universal benefits inevitably also go to those who do not necessarily need such handouts and are thus more costly to the taxpayer. Means-tested benefits can be targeted at those in real need, but they require a large and intrusive bureaucracy to administer them and an inevitable invasion of privacy. They may also induce fraud.
In the United States, it seems to be generally accepted that benefits should be earned and time limited. This is termed “work fare.” On its face, the principle is sensible, but if there are no available jobs, others must be created. They can be expensive to administer and may not be productive.
Time limits for benefits are understandable, but some recipients may still not be able to cope and no modern society can permit even a few people to die from starvation or exposure.
The British Labor government has adopted somewhat similar policies. Unemployment benefits, for instance, have been replaced by a more strictly time-limited allowance called the job-seekers allowance. While drawing this allowance, the unemployed are interviewed and screened for jobs. Those who fail to cooperate may lose the allowance.
Groups being targeted include school leavers and long-term unemployed. Another group on which much attention has been focused is single parents who, once their children can be looked after in nurseries, are being obliged to return to work, if only part-time.
In Britain the old-age pension is tied to the cost of living and covers only the absolute basics. A supplementary state earnings-related pension is being phased out and private pension schemes encouraged. The latest of these schemes, which has yet to take off, is the so-called stakeholder pension.
When it comes to inducing people with average or below average wages to save for their old age, the absence of a nationally funded scheme to provide care for the aged is a problem. At present, if an aged person has to go into an old people’s or nursing home, the local authorities only fund the costs after the bulk of the old person’s savings and property has been used up. Many people ask why they should save for such a contingency, noting that those who fail to save will have their costs paid by the local authorities.
In recent years attention has focused on the growing number of people claiming disability allowances and retiring early on ill-health grounds. There are suspicions that the criteria applied by doctors in assessing disability and grounds for early retirement have become too lax, because doctors understandably do not wish to cause friction with their patients. But the costs and implications of the increased numbers in these categories is forcing authorities to take a tougher line. Once again this involves an intrusive and expensive administrative bureaucracy.
The Labor government came to power in Britain with a pledge to carry out a root-and-branch reform of social security. Critics argue that they have only tinkered at the edges. This is probably unfair, not least because the arguments are uneasily balanced, but also because any change will offend one or more of the groups supporting the government.
The problems of social security in Japan have been rather different in many respects, but as unemployment rises and social attitudes change, the Japanese authorities are likely to face many of the same issues that European governments confront. Perhaps the most serious issue is that of pensions.
Defined benefit pensions are, for reasons of cost and the viability of the schemes, giving way to defined contribution schemes. The Japanese authorities may argue that the government scheme is adequately funded, but how productive, people may ask, are investments made by the scheme. Most company schemes appear to be underfunded and this is likely to be a serious drag on company profits at a time when Japanese companies should be moving quickly to increase their return on equity and en-sure their continuing profitability, and indeed viability, in an increasingly com-petitive world.
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