March 3rd, 2015 | Uncategorized | 0 Comments
The $650 billion-plus that will be spent on welfare in the next four years would be a small sacrifice if we could be certain that the money was allocated according to need, that it relieved hardship rather than encouraged it, that it built resilience instead of eroding it and helped people bounce back, I write in The Australian today.
Yet the current system fails those basic tests, as government-run systems usually do. In Why Government Fails So Often: And How It Can Do Better, Peter H. Schuck concludes that most government programs are preloaded with a degree of failure.
Since state welfare provision is, in essence, the socialisation of risk, moral hazard is unavoidable. Put bluntly, any means-tested welfare payment provides an incentive to be poor. Charles Murray called it the law of unintended rewards: “Any social transfer increases the net value of being in the condition that prompted the transfer.”
The first point to make about welfare reform is that it will never produce a perfect system. It is hard to strike a balance between assisting victims of brute bad luck and making victimhood a career choice. The best that can be hoped of any program is its benefits outweigh its perverse consequences.
Yet welfare providers are disinclined to own their mistakes. Those who make a living from conspicuous altruism are usually proud of their work; they prefer to attribute failure to inadequate funding rather than flawed programs.
The electoral cycle also plays a part, writes Schuck. “Officials have powerful incentives to provide voters and interest groups with short-term benefits and hide the long-term costs of paying for those benefits.”
Welfare, like all government services, is prone to “non-market failure”, a term coined by economist Charles Wolf. In a non-market, the “product” is hard to define and difﬁcult to measure; quality control is lacking; services are usually provided by a single agency, depriving them of the benefits of competition.
Non-markets are compromised by “internalities”, the conflict between administrators’ private goals and the agency’s public purpose, sometimes diagnosed as provider capture.
The iron law of government intervention — that the first, and sometimes only, beneficiaries of programs are the people who administer them — applies to the caring professions as much as the tax office. In the abstruse world of modern welfare the needs of clients frequently come last.