Part II - Fixing the Welfare State


30 June 2018



The welfare state was created to protect society’s vulnerable citizens. As reported in part one of this report, it first started with social insurance and in the post-War Era, has expanded to protect all aspects of well-being. This report will make the argument that the welfare state need not focus on creating protection and a cushion for citizens to fall on in times of need, but rather a series of programs that work to lift citizens out of hard times and into the middle class.

This report is not arguing that the welfare state is obsolete, rather it has a complex set of problems that must be fixed. While the Nordic states have proven to be the best at adjusting, they are not perfect, and so this report seeks to choose the best programs regardless of stereotype. In this modern era, the welfare state can be divided into three categories: healthcare, education, and social programs. All three need adjusting if society is to prosper as economies, population distributions, and lifestyles change.

First, healthcare has become increasingly complex and expensive. There is no arguing that universal coverage has proved to be the most effective, but it is still costly and can strain governments. This report suggests pursuing both decentralization and a public-private combination.

By opening healthcare to the private sector, there becomes shorter wait times, faster service, and lower public funding. Those who can afford it, will avoid longer wait times by using private healthcare, thus lowering the wait times for those who continue using the public system. To prevent highly inequitable pay and charges in the private sector though, the industry must be highly regulated.

Healthcare also becomes more efficient by decentralizing the system. The central government continues to control general healthcare policy, but not the specifics in localities. By giving more autonomy to municipal governments, local healthcare becomes more unified, caters to local needs, there is less duplication of services, and less inequality between rural and urban areas.

Education has succumbed to a similar issue, cost. There is no doubt that education is needed for citizens to find employment and subsidized post-secondary education is ever more important to the prosperity of society. Again, centralized control of schools increases costs for governments.

Instead, they ought to set the policy for the minimum curriculum schools must teach, but approve alternative schools so long they meet this standard. By utilizing a voucher system that provides families with enough to pay for decentralized schools that meet the standard will ease government spending. Families that can afford better education can use these vouchers to subsidize more expensive private schools.

Social programing needs the most reform of these three though. Reforms in healthcare and education will see moderate gains in savings while improving their services as they are single entities. Welfare states currently have a multiplicity of social programs for their least-advantaged citizens. For example, Canada has social assistance, a child tax benefit, old age pensions, old age guaranteed income, old age spouse allowance, worker’s compensation and employment insurance. These programs focus on some form of credit, but there are many other services provided as well. Despite these programs, Canada has also studied the effects of a guaranteed income.

This report argues that by reducing both the credits and services to a guaranteed income, with the exception of pensions, social programming will be more efficient and effective. This is not a universal basic income that is applied to everyone, rather applied to the least-advantaged as a strategy to push them into the middle class. Those who are unemployed would gain the most income and as they increase their income, the guaranteed income would gradually decrease until they reach the middle class, where it would stop.

This prevents providing government-funded incomes to citizens already making adequate incomes, but also avoids the poverty trap. The poverty trap is when one makes a strategic decision to not work in order to utilize welfare. Additionally, allowing citizens a tax-free income allows them the freedom to choose what is important to them, making the income more effective.

The biggest issue for such a program is how to pay for it. While this report does not get into specifics of how much a government may spend and thus would need to collect in taxes, it provides some answers. First, by consolidating several programs into one, government costs are reduced. Second, the taxes needed to fund the other programs would now be utilized for the guaranteed income. Third, the current system of redistribution through income tax is unsustainable and must be rethought.

Governments can get more creative by using natural resource-based taxes. Alaska utilizes one called the Permanent Fund Dividend. They collect a percentage of their oil revenues and give a dividend to their citizens. This could be extended to all types of natural resource extraction. Additionally, as states have begun to tax new products in pursuit of making life better for its citizens, including unhealthy food, carbon, and drugs. A portion of these revenues could be directed towards paying for the guaranteed income.

Lastly, while states must protect their citizens and lift them out of poverty, they must also pursue a free-market approach. Labour unions have become too strong and single-sourced government contracts have become too prevalent. Companies ought to be able to have more control over firing employees, so long as governments provide guaranteed income for those unemployed and assist in finding them new work. Further, companies should be able to compete for government contracts more openly, bringing the cost down and raising the responsibility of that company to do the job properly.

These adjustments to the welfare state seek to revitalize economies, societies, and prepare citizens for the future. For government, the time has passed to solely protect its citizens from poverty. Rather, it ought to pursue the encouragement of the least-advantaged to increase their status in society so that poverty is a subject of the past.