Chris Renwick, an erudite History professor with a gift for pellucid English prose, writes in today's
The poor law, established in 1601, at the end of Elizabeth I’s reign, made Britain’s guarantee of help for the destitute unique among European nations.
Britain did not exist in 1601. James I, introduced the term at his accession in 1604. There was no 'guarantee of help for the destitute' then, nor, truth be told, is there one now. It is not the case that every hungry and homeless person in the country today is guaranteed assistance from the State. Various conditionalities have to be met. Genuine claims may be arbitrarily rejected- for example a sick person may be 'sanctioned' for failing to attend an interview- and a legal challenge may fail to avert death by neglect and inanition.
The last peace time famine, in England, occurred in 1623- a time of agricultural collapse in the North and North West. However, the underlying Malthusian aspect of the problem had peaked some sixty years previously and Market based reforms had already been set in motion. This meant that mortality ceased to be linked to bad harvests because trade and diversified specialisation- as well as improved entry and exit- had tackled the underlying problem of 'entitlement collapse' in a rational, not Sen-tentious manner. In other words, people hedged against dearth by their own efforts and decisions. They did not rely on some bogus 'guarantee' which the Crown had supposedly given.
Interestingly, contrary to the Thanksgiving myth, the Mayflower Pilgrims suffered dearth in 1621 and 1622 because most of the colonists were lazy thieves. Things turned around in 1623 and the next year there was an exportable surplus. What changed? The answer is that the guarantee to supply each colonist according to his need was done away with. Instead, each household was allotted land and allowed to keep what they produced.
Had 'Good Queen Bess' actually introduced a Socialistic 'guarantee of help to the destitute'- England would have starved in the same manner as those of its colonies in the New World which initially adhered to the principle 'from each according to his ability, to each according to his needs'.
Renwick is of a different opinion. Perhaps he thinks Britian was an 'organic' Polyani-type 'embedded' Society where the Lord and Lady of the Manor spent their days nursing the sick and distributing largesse to the destitute before getting all dolled up to dance the night away in beautiful ball rooms.
Then something terrible happened. The Jews came. Ricardo showed that, under diminishing returns, Landlords have an incentive to preserve a Malthusian reserve army to enforce the iron law of wages at the expense of Entrepreneurs in a manner which boosts their own rents. A corrupt 'pocket borough' riddled Parliament was holding the productive putative middle class in check by keeping the price of bread high and the wages for labour low. The more industrious farmer or craftsman bore the burden of the 'poor rate' so as to keep the very class he sprang from in a demographic poverty trap.
No doubt, the Reverent Malthus had a 'Keynesian' justification for this Divine dispensation. You see, the Aristos don't like saving money. They are notorious spendthrifts flinging coppers to the destitute and guineas to the gambling tables. They delight in ostentatious consumption. The Middle Class likes to save and invest its money. That would cause an under-consumption crisis. So Aristos we must always have with us. They must be tortured into trusses by their valets and scourged into salons by their footmen. Their gamekeepers lead them to a Golgotha where they are crucified for our sins seated upon their own shooting sticks. Such caviare and champagne as they are forced to partake of are as but vinegar & gall. Yet, in their measureless suffering we are all redeemed.
Renwick doesn't actually say it was the Jews who upset this beautiful apple-cart. Political Correctness gone mad, by Jove! Still, the man is sound enough- probably of solid Cumbrian stock- and he lets those nasty 'reformers' and 'modernisers' have it but good.
In the 1830s, an influential group of reformers, who later would be known as “modernisers”, changed the terms on which that help was offered. Assistance should amount to less than what the lowest-paid labourers could obtain with their wages, reformers insisted. Furthermore, help should only be available to people who were prepared to live in a workhouse – a dark, dank and miserable place where they were given an ill-fitting uniform and forced to carry out menial tasks in exchange for shelter and meagre rations of the most basic food.
ince the middle class paid for the wage subsidy to their less fortunate or skillful cousins, which in turn benefited the big manufacturer or Agricultural Estate, they used their political power to curb such expenditure. They were bound to succeed, because the rapidly growing middle class dominated industrial Towns and Cities had no Poor Law obligation to migrant workers. Rather, it was their own natal agricultural parishes which were on the hook. In other words, the letter of the Law was a double edged sword for the landed class. They would have to give up Agricultural protection (the 'Corn Law') if they wanted to save 'outdoor relief' (i.e. wage subsidies). In the end, they lost both but that wasn't till the dire boom-bust of the '40's shook them out of their complacency.
Renwick himself says
The country had grown wealthy during the industrial revolution, via the financial might of the City of London, the manufacturing power of the north of England, and an enthusiastic embrace of free trade.
But, Poor Law reform was part and parcel of what drove the industrial revolution and turned the north of England into a manufacturing power house. Other monetary and financial reforms, culminating in Gladstone's Free Trade budget, ensured the security and burgeoning might of the City of London.
None of this would have been possible if an able bodied pauper could receive a wage subsidy to remain in his accustomed profession- or no profession at all- at the expense of the rate payer.
Once fallacious and hypocritical arguments- like the notion that widows and orphans would starve unless the yield on consols was maintained, or that Aristocrats had to be profligate to stave off an under-consumption crisis, or that 'outdoor relief' was an intrinsic aspect of 'Merrie England' as was the Corn Law- were driven out of political discourse, the face of the British working class changed completely. The Workhouse became a Hospital for the elderly and indigent. Admittance to it was a matter of bitter shame for the able bodied. The British worker became a Staknonovite avant la lettre.
Productivity, not Parasitism, was a badge of pride. Even the Aristocrats began to despise sinecures. The definition of a gentleman became one who held irregular perquisites in abhorrence. In any case, the door was always open to emigration. A Moll Flanders or Magwitch might make good in the Colonies rather than eke out a miserable existence in some Bridewell back home. Rising prosperity meant that hard working immigrants more than made up for the outflow. The perceived need for a captive workforce- itself a cab-rank type fallacy- was reduced.
However, there was still information asymmetry and adverse selection in Insurance markets- where they weren't wholly missing. Employers and workers faced the same problem re smoothing consumption and investment flows. Alfred Marshall would take trains to distressed areas and walk around looking into the pinched and wan faces of laid off workers seeking to divine the cause of this periodic curse. He read Marx and Lasalle but was left none the wiser. Still he soldiered on and, contemporaneously with quite a few other math mavens, founded the 'Marginal Revolution' which clarified the dynamics which Classical economists had left opaque. As he grew older, he grew more Conservative. Increasing acquaintance with bureaucratic reformers pushed him onto Pareto's trajectory. Like Herbert Spenser, Marshall felt instinctively that State Social and Health Insurance wasn't the panacea it might appear from a purely 'missing market' perspective. The underlying problem has to do with 'stickyness' in bureaucratic service provision under Knightian uncertainty. At the margin, it must be the case that some 'noise' is actually a signal. The longer you block that signal, the more painful the eventual shake out.
Renwick paraphrases Beveridge, a math maven Lawyer assimilable to the Coasian tradition, thus-
The biggest contribution to unemployment outside the downward slopes of the trade cycle, Beveridge argued, was the inefficiency of industry when it came to hiring workers. He asked readers of his book Unemployment: A Problem of Industry (1909) to imagine a scene he had encountered on many occasions: 10 wharves that each employed between 50 and 100 men per day, half of whom were regular staff and half of whom were reserves. While each wharf would experience similar high and low points in trade throughout the year, they were also likely to have their own individual fluctuations within those patterns. Anyone looking at the 10 wharves as a whole would not see these smaller deviations. The problem was that those smaller deviations were all that mattered to the reserve labourers walking from wharf to wharf asking for work each morning, because they meant the difference between them and their families eating, or going hungry.
If there was better communication and planning, Beveridge argued, almost all of those men would be able to find work each day. The problem was that business and industries were quite happy with the situation: they often had many more workers than vacancies, and did not need to pick up the costs of supporting those who couldn’t find work. Beveridge believed the state was the only institution with both the power to solve this problem and the interest in doing so. The political will to act on this conviction would have far-reaching implications for the millions of people who have found themselves out of work since. But we have slid backwards into a situation where precarious work paid by the hour is considered a sign of progress.
What could the State do in the above situation? Well, it could regulate the industry such that a levy on employers supported the unluckiest workers. Fine! But two things would happen in response- firstly there would be increased amalgamation within the industry, because of a one-off change in relative costs as well as a migration of business to an unregulated area- secondly there would be rent seeking behaviour on the part of the Industry. Political will suddenly increases in supply where rent-seeking behaviour increases. In the case of vital distribution networks, rent-seeking behaviour has complicated dynamic effects on the economy- none of them good.
A Coasian solution- viz. voluntary insurance- fails because of adverse selection. The puzzle of existential entrepreneurialism- i.e. poor people taking risks affecting their daily bread- can only be solved by positing a habitus of risk taking. The guy whose income is precarious is thinking furiously about niches in the market. Some of his ilk will succeed, others will go to the wall. Sill, since the fact he is he took the risk, this might actually be individually regret-minimizing as well as Hannan consistent (i.e. dynamically efficient) at the aggregate level.
Beveridge, an old fashioned Fabian who strongly believed in the work-ethic, gained salience because of post-War overfull employment. What was actually happening was that the working class was acquiescing in a shift of the tax burden onto its own shoulders. Since a reasonably functional democracy and fairly good governance ensured that at least some of that money was spent on things which created assets for working class people, the only nigger in the woodpile was people like me- globally footloose Coloured or, more recently, Continental immigrants.
This led ignorant people to confuse cause and effect. Somehow, the 'Welfare State' was given credit for a phenomenon- overfull employment- common to all Post War industrialised countries- even ones where no such thing existed and which grew far more rapidly. It was thought that the Beveridge Report was the Trojan Horse of Keynesianism. It was no such thing. Overfull employment happened by itself. An inflationary bias was a good way to shrink War time Debt. In the Seventies, 'fiscal drag' increased the tax burden on the working class. This was the other side to the coin of an unprecedented rise in Labour's share of National Income. But, once global monetary policy became explicitly Keynesian- Nixon's folly- Stagflation meant that it was the Welfare State which became the target of choice. Indeed, it was blamed for us immigrants who supposedly only came over to go on the dole. The truth is, what was happening was Tiebout sorting. Workers were coming to a State where workers were taxed and thus some of that tax revenue could be spent on the local public goods such workers valued. This was incentive compatible but it wasn't what Keynes or Beveridge or any other bien pensant
Liberal ever envisaged or desired.
The welfare state that came into being during the late 1940s underpinned a whole way of life that politicians only started to pull apart from the early 1980s onwards.
This begs the question- why then and not previously? The answer is obvious. State capacity had greatly increased because of the War. The entire population had been bureaucratised. Everybody had a ration card and anyone capable of productive work was sure of employment.
Industry took a different shape- not so much in England, where issues of 'caste as class' embittered everything, but elsewhere- because of the integration of a military style line management into the older commercial order. This increased 'Duality' in the Economy and occulted the actual distribution of Income and Wealth. Britain's exceptional Trade Union tradition was a separate factor which, however, proved fatal to its continuing success as a great manufacturing nation. It is not true to say that the welfare state underpinned a 'whole way of life'. Corporate health insurance and Union based unemployment benefits would have been an even better underpinning of a 'way of life' which was Americanised. It is not the case that Beveridge made Keynesianism possible or vice versa. The War changed the population in fundamental ways. It created State capacity of an unprecedented sort. I suppose, overfull employment meant that the Welfare State developed some persistent pathologies- families on the dole generation after generation, shuttling between the Probation Officer and the Social Worker- and undermined the viability of an 'efficiency wage' for the vast majority. However, it did cushion, to some extent, structural unemployment of an inevitable sort in extractive and heavy industries. There were other developments in the Seventies, which were 'Welfarist' but more obviously counter productive, but they have been quietly dropped from the core notion that Renwick cherishes-
The intention during the third quarter of the 20th century was to bring capitalism under control, specifically its tendency to interrupt and put downwards pressure on people’s earnings, rather than dispense with the system entirely.
The third quarter of the 20th century commenced with an unprecedented accumulation of power in the hands of the State. In Britain, Exchange Controls were only fully abolished in 1979, and the fear that they might be restored only dissipated after '92. Capitalism was already under control. Americans couldn't buy gold for most of the period. Markets weren't free and, in the Seventies, it was big Industries which went on the dole. The worker now had to pay for his idle cousins at the racetrack as well as for his inefficient managers on the golf course. The Welfare State had become a Monty Python sketch. At Number 10, the shop stewards have turned up for their ritual 'beer and sandwiches', but the CBI barges in whining for champagne and caviare and millions in bail outs. Everybody has a sob story. The 'White Heat of the Technological Revolution' means handouts to a new class of entrepreneur who promises to bring hi tech jobs to unemployment hotspots. But industry has turned into a money pit.
The Government is no longer in the business of paying people to promise they will build factories where workers will be paid. Why? Because the thing is an obvious swindle.
No doubt, the Govt does pay people to promise they will cut Welfare by pretending sick people aren't sick or unemployed people are not actually looking for work. Without question, the Government throws money at 'public private' initiatives which destroy National Wealth. Clearly, this too is a swindle. But it isn't the same swindle exactly.
We have come to see the welfare state simply as a cost to be kept down rather than part of an economic and social strategy that aims to deliver security for all and opportunities to obtain more for those who want to.
This is nonsense. Costs should be kept down. Benefits should be increased. Stop doing stupid shit or giving money to obvious swindlers. That reduces costs. Make sure you get value for the money you do spend- that increases benefits. An economic and social strategy that aims to deliver security for all is bound to involve doing stupid shit and giving money to obvious swindlers. Politicians have a fiduciary duty. This duty can only be discharged with due care and diligence if there is clarity as to the corpus available and the class of beneficiaries. Security for all is meaningless. At the margin, agents need action guiding signals. If the State covers their ears, on the excuse of shutting out 'noise', they may get some false security. But sooner or later, the State will face a fiscal crunch. It's 'guarantees' will turn out to be worthless. Just ask the Greeks or the Venezuelans.
The idea that these goals are no longer obtainable is clearly false. A good start would be to reconnect with the liberal idea, now more than a century old, that everyone sees returns when they pool risks, whether it’s the individuals who can stop worrying about what is around the corner, governments that might otherwise cut their headline costs but succeed only in shifting it somewhere else, or the companies that benefit from healthy and educated workers operating in a safe environment.
A pooling equilibrium is not necessarily a good thing. That's why Nature and Economics display separating equilibria on the basis of costly signals. In the short run, the State can suppress costly signals in favour of cheap talk. But, the crisis, when it comes, will be that much more severe because an eusocial mechanism has been thoughtlessly disabled.
It is never a good idea to 'reconnect' with century old notions. Why? The guys who had those notions are dead and can't speak up for themselves. The historians who tell us about those notions are stupid and ignorant and tell stupid, ignorant, lies.
We now have a new type of technology which can plug 'missing markets' and do 'separating equilibrium' based risk pooling better and more cheaply than ever before. The British Govt. has shown no deftness in adopting this technology. On the contrary, it appears to be in the business of handing over money to whichever contractor can screw things up most royally.
Companies that benefit from healthy and educated workers operating in a safe environment are doing very nicely for themselves, thank you, without any assistance from the State. They don't want 'risk pooling'. Employees may, because of Knightian Uncertainty, but it is regret minimizing for them to ask for this and remain content when it is denied. In other words, this isn't a first order Preference. It is strategic behaviour.
A successful economy requires all these actors to understand that they need to give, not just take, in order to build an environment in which they and those that follow them are able to succeed.
This is nonsense. Economic agents don't need to understand meaningless bromides like 'you need to give, not just take' because they already understand that they have to pay for stuff they buy and get paid for stuff they sell. There is no need to 'build an environment' which appears spontaneously all over the world and throughout human history.
By contrast, when it comes to eating a slice of Pizza we do need urgent Government intervention to ensure that a safe and sustainable environment is created in which agents who bite into the pizza are properly cautioned to unclench their jaws and begin a chewing motion. Furthermore, it is important that salivary juices are released as this aids in the formation of a bolus which can be swallowed safely. We must reconnect with the idea of the great Horace Fletcher who propounded this revolutionary doctrine of chewing and mastication a little more than a century ago.
I must stop now, because the guy from Papa John is ringing the bell. Tragically, I may choke to death because this Tory Government has criminally refused to build a proper environment for pizza chewing in this country. If I die tonight, Theresa May and her neo-liberal cabal will have my blood on their hands.