Magazine article IPA Review

Too Hard to Cut?

Magazine article IPA Review

Too Hard to Cut?

Article excerpt

IT was begun, like many things which turn out badly, with the best of intentions. In the economies of the West in the 1950s and 19360s, it seemed that the good times would go on forever, and it seemed equally obvious that government should provide a system of benefits and payments which often stretched from cradle to grave. But when the welfare state became a nearly unbearable burden in the age of economic contraction that began in the 1970s, dismantling it proved to be an almost impossibly difficult task.

Ronald Reagan and Margaret Thatcher were elected to reverse the growth of the welfare state but a decade later it remained mainly intact, if somewhat battered. In a recent book, Dismantling the Welfare State (Cambridge University Press), Paul Pierson, a Harvard professor, examines the attempts at large-scale reform in the US and Britain, and his conclusions are fundamental to the course of reform in Australia.

Both the Reagan and Thatcher administrations did not, at least in their early stages, lack political will. Is reform, then, simply a matter of a government passing a piece of legislation to dismantle a program, and then collecting the savings? It is, after all, possible to identify areas of spending where major saving can be made: a figure of $15-16 billion has been suggested in Australia, for example (see IPA Backgrounder, 10 February 1995).

So what stops a government which arrives in office with an agenda of reform? There are potentially great political benefits to be gained from dismantling the welfare state (aside from the principles of economic management involved) such as the possibility of lower taxes or a reduced public-sector deficit.

POWER IS DIVIDED: Government, says Pierson, is harder than it looks from the Opposition benches. The executive is not the only player in the political arena, even if it is the most obvious one. In the US, political power is deliberately fragmented between the White House and Congress. Only in the first two years after the 1980 election was there a conservative majority in the Senate, and then it was an unstable coalition of Republicans and Southern Democrats. The Democrats were never in danger of losing control of the House of Representatives.

The result was that most budgets drafted by the White House were thoroughly restructured. The tax cuts were kept but the spending cuts were rejected. There was, however, a faint silver lining: fragmentation of power can make it easy to avoid blame. This was the case when substantial amendments were made to the Social Security (old-age pensions) system: each branch blamed the other for making the cuts.

So has the welfare state proved durable because of a lack of institutional capacity for change? Perhaps in the US experience, but the answer hardly applies in Britain where executive and legislative power is concentrated in the central government. But this is not all it seems, says Pierson. The government must still ensure that it retains the support of the party, especially key figures on the backbench. It is often these lower-profile figures that are most susceptible to pressure from interest groups.

Another key pressure point is party officials. Party figures are, it seems, easily convinced that large blocks of voters will be swayed according to the a treatment of a particular welfare program, and that the shift will doom the government.

The proposition is not entirely ludicrous. The American Association of Retired Persons, for example, is one a of the largest and most powerful interest groups in Washington, and exists for no other reason than to protect the system of universal pensions.

The threat of electoral retaliation can only work if the government's partisan opponents oppose the reform agenda: that is, that voters who become disenchanted with the government have somewhere else to go. This was the case in both Britain and the US throughout the 190s.

MANAGING CRITICISM: A proposal to dismantle any part of the welfare state attracts criticism: the issue is how much. …

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