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Welfare state wither away

The forthcoming federal budget will focus on accelerating the pace of economic growth, although in the ongoing global economic debate, emphasis has been shifted from growth to green growth, a newly coined terminology, which implies that the poor must benefit automatically through a deliberate resource-distribution policy of the government.

The World Bank urged both the developed and developing countries, to adopt green growth policy. It urged the governments to rethink their approach to growth, measuring not only what is being produced, but also what is being used up. A view held widely in developed economies is that the benefit of rapid economic growth rates diffuse automatically across all segments of society, including the poor. This view is based on the trickle-down theory that was the dominant development thinking in the 1950 and 1960s. It implies a vertical flow, from the rich to the poor. That happens in the ordinary course of economic functioning. The benefits of economic growth go first to the rich and then in the second round, the poor begin to benefit, only indirectly through a vertical flow from the rich. This implies that the proportional benefit of growth going to the poor will always be less. By the early 1970s, the trickle-down theory lost some of its shine. The basic needs approach has to be adopted by the government. The dominant thinking amongst economists and the World Bank, IMF etc, was that more growth adds to the inequality. The capital-intensive industrialisation sometime results in jobless growth.

The case in point is of India, which despite being third developed economy of Asia, could not contain the level of poverty. After the global financial crises of 2008, the process of economic recovery both in the US and specially in the EU are painfully slow and the austerity growth dilemma has divided the economists in adopting a model for economic development as an effective mechanism of quick recovery to address the critical issues of growing unemployment and poverty. According to an ILO report, global unemployment will rise to 202 million by the end of the current year.

The supply side economists are against extra-stimulus to the economy and support austerity. A majority of them, agree that a Keynesian style state-driven stimulus fuelled by taking further debt, would not work. This amounts to a reversion to the told classical theory, according to which, the best government is that which governs the least in economic matters. Reliance is, therefore, being made on market forces. It is being argued that a fragile debt-ridden state cannot afford to maintain a very generous package of socio-economic welfare to the people.

The poor and working class have already manifested their dissatisfaction with this kind of approach both in the US, Europe and the Middle East in the wake of the Occupy Wall Street movement in the US, a series of demonstrations in the EU, and Arab Spring. In the process, the welfare state which envisages more elaborate arrangements for the welfare of the people wither away and is rarely debated in economic literature. Meanwhile, the concept of green growth has gained momentum, in which the role of the government would be pivotal. A brief historical perspective of the welfare state is given below:

The growth of the concept of welfare state can be traced in the post-Great Depression of 30’s era. Earlier, the Classicists believed that economic system is self-adjusting in nature. J. B. Say, a French economist argued that supply creates its own demand and consequently, there cannot be general over-production and underproduction crises. Full employment equilibrium has always haunted their minds. There was no need for the state to lay its hands on the economy, apart from defending it from external attacks and maintaining law and order within it. Adam Smith was shrewd enough to prescribe the field of action for the king lest he might meddle in the economic sphere.

Adam Smith believed in the harmony of individuals and social interest. However, later on, it was argued by some economists that the assumptions on which the structure of old economics was based, was unrealistic. It was perhaps Sismondi, who, while criticising the basic tenets of classical economics, emphasised that the aim of true economics was not the maximisation of wealth, but the maximisation of happiness. Keynes repudiated the classical doctrines. He advocated that the great depression was the result of lack of adequate purchasing power of the people. So long as this remained, there would remain the engine of poverty amidst potential plenty.

He proved that at the current income level, the total consumption in the community fell short of total income. The gap between income and consumption is bridged by investment, but the private sector in the face of declining marginal efficiency of capital and relatively sticky possibility of rising rates of interest could not bridge this gap between income and consumption. Thus, he advocated government expenditure to bridge this gap to speed up recovery. His ideas were put into practice in the New Deal Policy of President Roosevelt when Keynes visited the States in 1934. He was largely instrumental for evolving the idea of the World Bank (IBRD) and the International Monetary Fund (IMF).

Thereafter, the concept of the welfare state started gaining ground and especially the US and the European countries emerged to be the welfare states in the real sense of the term.

The late US President Roosevelt, commenting once on the state and its functions, put it very concisely as follows: What is the state? It is the duly constituted representative of an organised society of human being created by them for their mutual protection. The state or the government is but the machinery through which mutual aid or protection are received. The caveman fought for existence unaided and even opposed by his fellowman, but today the humblest citizen of our state stands protected by all the power and strength of his government. Our government is not the master but the creation of the people. The duty of the state towards its citizens is the duty of the servant to its master. The people have created it. One of the duties of state is that of caring for those of its citizens, who find themselves the victims of such adverse circumstances, which make them unable to obtain even the necessities for mere existence without the aid of others. To those unfortunate citizens, aid must be extended by the government, not as a matter of charity but as a social duty.

In Pakistan, the constitution, under Article 38, “Promotion of social and economic well-being of the people” envisages as follows: “The state shall- (a) secure the well-being of the people, irrespective of sex, cast and creed by raising their standard of living, by preventing the concentration of wealth and means of production and distribution in the hands of few to the detriment of general interest and by ensuring equitable adjustment of rights between employers and employees and landlords and tenants; (b) provide all citizens within the available resources of the country, facilities for work and adequate livelihood with reasonable rest and leisure; (c) provide all persons employed in the service of Pakistan or otherwise, social security by compulsory social insurance and other means; (d) provide basic necessities of life such as food, clothing, housing education and medical relief for all such citizens, irrespective, of sex, caste creed or race as permanently or temporarily unable to earn their livelihood on account of infirmity, sickness or unemployment; (e) reduce disparity in income and earnings of individuals, including persons in the various classes of service of Pakistan; and (f) eliminate riba as early as possible.

It will be realised that our constitution guarantees welfare, in its multi-faceted forms, to its citizens, but their implementation, both in letter and spirit continues to remain a big question mark.

(The writer is a former KCCI secretary)

M Nazir Ali, "Welfare state wither away," Business recorder. 2013-05-27.
Keywords: Social development , Social systems , Social issues , Social crisis , Social Crimes , National issues , Economic problems , Citizens , Education , Pakistan