Incentives and welfare

More than fifteen years after the USSR was put out of its considerable misery, it’s easy for us to ignore how much Western society still owes to Marxism. China has now abandoned communism for dictatorial capitalism, and soon the only little red books will come from Smythson boutiques. Castro, the seemingly immortal old fool, might have made his last seven-hour speech. And yet our beloved welfare state is still popular, still the sacred cow of British politics, and still runs on the basis of ‘from each according to his means, to each according to his needs’.

Karl Marx‘s communism was based on the belief that, come the revolution, the factories and infrastructure would be taken over by the proletariat, and everyone would spontaneously work together for the benefit of all in society, capable or incapable, weak or strong. Everyone will put into the common pool of labour what they can, and take only what they need. We could all do whatever our souls dictated, helping society whenever we could, and relying on our comrades when we couldn’t. The communist citizens’ actions, efforts and choices would be based on the needs of society as a whole, rather than the needs of the individual.

A post-revolution utopia is, crudely, what a welfare state tries to replicate. Our taxes are broadly taken on one’s ability to pay. This communal pool of money funds payments to those who meet various tick-box criteria for neediness. Benefits are provided according to how many children one has, whether one has a disability or a job, and how much or how little one earns.

The idea of council housing is that one should be able to have the kind of house that one needs, wherever one needs it. A drawingroom flat in Kensington sounds good to me. NHS hospitals will, in theory, treat you regardless of your wealth or the extent of your culpability in causing your own illness. State schools promise to house as many children as you can produce, if not educate them. And they’ll do so almost regardless of how well or badly they behave.

The welfare state’s help is largely unconditional. If you have three children by the age of eighteen and need assistance, you’ll likely be given a place to stay and a little money. It makes no difference whether you’ve been abandoned, careless, or have picked motherhood as a career, lowly as it is. All that matters is one’s need.

The benefits system does make one key break with pure Marxism, in that it acknowledges the problem of cheating. Marx would never dream that his good, good communists would cheat one another, to take more from and give less to society than their abilities and needs dictated, but even our dimmest, wettest socialists accept that not all people are entirely selfless. Some - perhaps those who won’t accept that there might be any fraudulent incapacity claimants on the welfare rolls - might think that this is only because property hasn’t been abolished yet, but the less said about them the better.

We compel people to pat their taxes, and to take no more than their officially-sanctioned due. We take this seriously enough that we lock up anyone who disobeys. And by doing so we implicitly recognise just why the welfare state fails.

We are not Marx’s perfect, communally-minded proletarians. If offered something unconditionally - like state benefits - we tend to take it without thinking too much about the interests of wider society. Those who control the welfare state are keen to squash those who take money from the system without considering broader society, so long as it’s the illegal kind of social fraud. The legal sort, where people take from the pool out of self-interest alone, is of no concern to them.

It is not particularly in society’s interests, for example, that subsidised child-rearing should result in teenagers picking motherhood as a career, lowly as it is. Those who become single mothers by choice are neither the honest, hard-done-by saints of Guardian mythology, nor the immoral, grasping demons of the Mail. They are often just following their own self-interest, and think it more satisfying, and more secure, than struggling to get and keep a checkout or cleaner’s job.

But the statistics overwhelmingly show that for the rest of us, our subsidies unwittingly promote violence against the mother, the child, and, when the child grows up, against the rest of us too. A child brought up by its mother and her boyfriend is thirty-three times as likely to be abused as one brought up by married parents, and seventy-four times more likely to be killed.

Funding Sure Start, crèches and subsidised babysitters not only makes life easier for hard-pressed, poor parents, but makes the prospect of pregnancy a good deal more attractive. Not only can a not particularly bright young girl choose motherhood as a passport to some degree of security and status, but the more the state provides help and assistance, the less responsibility she has to bear. It becomes a more attractive an option if there is a state institution for her to subcontract the graft of motherhood to; allowing her to carry on the lifestyle she’d have otherwise, and letting the Treasury pick up the tab.

The great failure of left-wing economics is to ignore the power of these incentives. Marxism and welfare statism share a belief that people will not change their behaviour if offered cash for doing x, or given penalties for doing y. We ignore such petty matters, and simply do what is fundamental to our essence, to the core of our being. Or soul, to those who take the opium of the masses.

People will look after their own health even if there’s a free service to rectify it if they don’t. Higher taxes won’t change what people do for a living, or how much of it they do. No one will be put off saving for their retirement, blowing the lot instead while young, just because their state pensions will be means-tested. They wouldn’t, surely, decide to follow their self-interest, have some fun in their youth, and vote to have some of my money instead when they retire? What happened to the communal interest?

Not many socialists really think this out, but just have a vague sense that we are above such petty money-grubbing, that there are more important things in life that a few pence on income tax, a little pensions credit or a meagre few grand in bonuses. And it would indeed be much nicer if we all did what was in our society’s interests, and ignored the consequences for ourselves. The descendents of Marx feel in their bones that the power of society is so much more powerful than crude, capitalistic bribes.

It is true that people won’t sit down to calculate exactly how much extra or less they will make under a new rule, and calibrate their utility-maximising response to the penny. But young people might see the old getting means-tested pensions, and the benefits of their grandparents’ personal saving wiped out, and decide to care rather more about having fun than saving prudently and boringly for the future. Just remember to take it instead from your own, unborn grandchildren. Changes in incentives change the atmosphere that people make decisions in, and if the incentives hit the spot, they change those decisions themselves.

Not even Marx, as it happens, was quite as naïve as our unthinking lefties. He recognised that life under capitalism was a life where egoism and self-interest runs society, in all kinds of ways. His silliness lay in thinking that property was the cause of this, and that revolution and the extermination of the capitalist classes would create Utopia. But Nye Bevin and chums thought that self-interest could be abolished by Act of Parliament, and that once child benefit, unemployment insurance and the NHS were established, the good, socialist citizens would use them only in the communal interest. His intellectual - and I use the word hesitantly - descendants have never questioned, or even thought much about it. As always, it’s easier to fell regimes than the ideas behind them.