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Risk and Social Democracy

July 16th, 2007

The Centre for Policy Development has just published a piece I wrote for them, called The Risk Society: social democracy in an uncertain world. You can download the PDF here. Discussion has already started at CPD, so you’d probably do best to comment there.

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  1. Ernestine Gross
    July 16th, 2007 at 20:45 | #1

    John, I have read your paper with great joy. It gives a clear direction for the role of governments in an economy which is, IMHO, quite consistent with insights from mathematical economic theory (general equilibrium) as it developed since the 1950s.

    I don’t have a background in politics. But, I can say the term ‘social democracy’ makes sense to me in terms of the policy direction in your paper.

  2. MikeP
    July 17th, 2007 at 08:54 | #2

    That’s a great paper – have forwarded it on to many friends and colleagues. Have you seen (or rather heard) the July 8 podcast of Radio National’s
    Big Ideas
    program?

    It specifically considers the shifting of risk from countries and companies to individual households.

  3. July 17th, 2007 at 15:54 | #3

    and the engine of change is: alp/greens/dems/libs/familyfirst ?

    none of the above.

    parliament is happy with their world, they’re at or near the top of their career path. who else has political power in this clayton’s democracy? nobody.

    so many words about what should be done, so few about how to do it.

  4. Fred Argy
    July 17th, 2007 at 16:33 | #4

    John, thanks for your thought-provoking piece.

    I am not quite as confident as you are about the “resilience� of the institutions of the social democratic welfare state. Tin particular, the risk exposure of ‘vulnerable’ workers (those without individual bargaining power) has increased enormously.

    Employers have systematically transferred to vulnerable workers many of the income risks traditionally borne by capital.

    One way is through the shift from defined benefit super funds to contribution funds where the risk is carried fully by employees.

    Another way is through increased wage cost flexibility downwards. Even Howard Government’s so-called ‘fairness�, which applies to low income workers, has an escape clause: they can argue that the firm is ‘experiencing economic difficulty’. (Note also the recent decision of the Australian Fair Pay Commission exempts “drought-stricken farmers� -liberally interpreted to mean even those recovering from drought). Effectively, capital has transferred both cyclical and firm-specific risk to vulnerable workers.

    Thirdly, the vulnerable worker is more exposed to risk becuase he or she has less access to unions or collective bargaining. As a result, he has less control over his working hours and conditions and fewer ways of expressing his workplace grievances.

    In addition, because of the change in our immigration policy, vulnerable workers face new competition from foreign workers and from workers who were previously on welfare.

    And if he is displaced, they have less ready access to the social security system. While the total welfare net has expanded and widened overall, the eligibility criteria for able bodied people have been tightened (some will say dehumanised) and unemployment-related benefits have slipped markedly relative to the rest of the community.

    In addition, the increase in user pricing and growing privatisation of education and health has forced many lower middle class families to bear costs they did not have to bear before and they now face the reality that the socio-economic gap in quality of health, education and housing will widen.

    And vulnerable workers no longer have the safety valves provided by industry protection, Keynesian demand management policies, public employment or regional development.

    It is a pretty devastating destruction of the workers’ paradise!

    On a different topic, John, I agree that “equality of opportunity cannot be sustained in the presence of highly unequal outcomesâ€?. But ‘high inequality” does not really apply to Australia to anything like the same extent as the USA. And,in our environment, inequality of outcomes can be greatly reduced by levelling opportunities (in education, employment, health, housing, location etc) and this is more appealing to the average Australian’s sense of ‘fair go’ than hand-outs to low income people of working age.

    Thanks again for raising this important issue of risk and for suggesting new challenges for social democrats.

  5. MikeP
    July 18th, 2007 at 09:10 | #5

    I got the impression from the article that John was arguing not that the institutions have emerged unscathed, but that they’ve weathered the storm to some extent. I agree with you that they’ve taken a beating, but they’re still there to be harnessed/reinvigorated/etc, no?

    And on equality in Australia, factors like our minimum wage have probably helped stave of the kind of ingrained inequality that we’re starting to see in the US by bolstering the equality of outcomes. On that front, and on levelling opportunities, I’m mildly concerned about how much longer those factors will hang around…

  6. Razor
    July 18th, 2007 at 14:56 | #6

    Fred – I bet you were dissappointed when Gough was booted by the GG and then savaged by the Electorate.

    “Employers have systematically transferred to vulnerable workers many of the income risks traditionally borne by capital.

    One way is through the shift from defined benefit super funds to contribution funds where the risk is carried fully by employees.”

    What you fail to pojnt out is that employees’ risk is lowered significantly through not having their defined benefit linked to the viability of their employer. That is a marvellous risk-reward trade off. They also have much more investment flexibility to match their individual circumstances and risk tolerances. If they want low risk, them buy low risk investments, just as defined benefit pensions do.

    “the vulnerable worker is more exposed to risk becuase he or she has less access to unions” – absolute imitigated tosh. If a worker wants to be a member of a union then they can. They can seek advice as required. It is actually unions who deny freedoms through no ticket-no start policies – try being a non-CFMEU member on a Multiplex building site or a sub contractor.

    “In addition, because of the change in our immigration policy, vulnerable workers face new competition from foreign workers and from workers who were previously on welfare.”

    Which way to you want it Fred – shut the gates and keep immigrant workers out or allow immigrants in – atypical left wing hypocrisy. And as for facing competition form workers previously on welfare – What??? once on welfare that means you stay there. I know there is intergenerational welfare dependancy but I was unaware it is a good thing.

    “And if he is displaced, they have less ready access to the social security system.” – Displaced – Dispaced! I didn’t know we had DPs still left over from WWII? Has there been a civil war I missed, or was that the last two AFL Grand Finals? And as for less ready access to the welfare system – exactly how do you mean? Should welfare be a lifestyle option for those who wish to surf in summer?

    “the increase in user pricing and growing privatisation of education and health has forced many lower middle class families to bear costs they did not have to bear before and they now face the reality that the socio-economic gap in quality of health, education and housing will widen.”

    The growing privatisation of education is because the Union influence in Government schools have seen the standards of education and discipline go down the toilet. Parents who want better get little or no support in the State systems because to demand excellence in academic, cultural and sporting pursuits is seen as elitist and exclusionary, especially by the teachers unions. Atthe same time the State ALP Governments responsible for funding and operating the Education and Health systems have failed spectacularly in their jobs. How long hacve the States been receiving all the GST revenue without cutting all the taxes they said they would cut? QLD and WA booming and still they can’t fix their health systems.

    “And vulnerable workers no longer have the safety valves provided by industry protection, Keynesian demand management policies, public employment or regional development.”

    Industry protection is a crock – how much economic theory and real evidence of the failure of industry protection to deliver the desired outcomes do you want to ignore, Fred? At the same time we have the biggest spending and taxing Federal Government in history. How much more Keynesian do you want? Don’t get me wrong, I am convinced that J.M. Keynes probably saved the great western democracies from revolution and communism, but economic theory, especially Monetary theory and management has come a long way, evidenced by the last fifteen years of low-inflation growth in the World economy.

    There never was a wokers paradise and there never will be.

    Let go, Fred, let go – the dream is dead, now get on and do something productive.

    Oh, and by the way, one your vulnerable workers handed their notice to me yesterday – that is one third of my employees. No issue with pay, no issue with conditions, likes the organisation and the people – just doesn’t think this is the right industry for them and wants to look around for something else. More pay??? No thanks! Anything lined up?? No just wants to temp for a while. So, now I carry the cost of a lower productive employee as their motivation dies off, search for , select, hire, train and get up to speed a new one.

  7. Fred Argy
    July 19th, 2007 at 10:35 | #7

    Razor, you make some valid points – mixed in with a good deal of mocking sarcasm. But you completely misunderstand what I was on about. In my posting I was simply arguing that the changes in the institutions of the ‘welfare state� have been much more fundamental than perhaps John seemed to convey, noting in particular that the vulnerable worker (admittedly making up only 1/5 or so of the workforce) is much worse off in RELATIVE terms.

    I was questioning a historical fact. I was NOT arguing for a retreat back to the 1960’s policy environment. In fact if you read any of my writings you will see that I am basically an economic liberal on product and financial deregulation and most forms of privatisation (except where we risk creating a private quasi monopoly or where the private sector is worse at managing the risks). Nor am I very supportive of a policy of reliance on passive welfare on its own.

    I am more of a lefty in my opposition to radical labour market deregulation and medium-term fiscal strategies (zero government borrowing) – but my beliefs are grounded as much on economics as on social justice. I am certainly a lefty in supporting stronger opportunity levelling policies (in employment, health, education, housing, location) but again I do so on both equity and economic efficiency grounds

    Just setting the record straight, Razor.

  8. Razor
    July 19th, 2007 at 13:07 | #8

    Dear Fred,

    Thank you for your measured response. I had a dose of the RWDB sh^ts on (see above about resignatin of employee). Don’t get me wrong either – I think there is a role for a social safety net. Unfortunately our safety nets are too cushy in some areas allowing intergenerational welfare dependancy, yet letting the small fish fall through in the case of systemic failure of child protection agencies across the nation.

    I would like to reinforce the point that most of what you define as “vulnerable workers” do not remain so for the whole of their working life.

  9. Kymbos
    July 23rd, 2007 at 14:39 | #9

    I’m very impressed with this piece. I have not seen much political economy since studying in the late 1990s, but this work breathes new life into the discussion about the rightful role of the state.

    I find especially interesting the idea that neoliberalism has pushed the most risk onto those members of society that are least able to manage it, and that “…with the advantage of hindsight, it is evident that the transfer of risk from government and business to households has been one of the most significant outcomes of the neoliberal era”. I wonder if this can be quantified?

    How often we see positive economic data, but it somehow rings hollow. Hitherto, I had not been able to put into words why this is so: an increasing burden of risk on the individual and household. Lower unemployment, but an increasing risk of retrenchment or exploited working conditions, with a simultaneous increase in company profits.

    Great work.

  10. Ernestine Gross
    July 25th, 2007 at 11:46 | #10

    JQ’s paper has been serialised by Crikey. I take this as a sign that many people are fed up with ideology (wishful thinking at best) and the long overdue rivival of reasoned argument is happening. (But then I am an optimist.)

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