Getting out what you put in

John Reynolds, the Shadow Secretary for Work and Pensions, has suggested that there needs to be a "stronger link between what you put in and what you get out" in the welfare system. If we leave the politics of this aside for one moment, this statement does seem to rather miss the point of the welfare state.

One feature of the welfare state is it acts as a kind of insurance system. Insurance is all about pooling risk. Take home insurance. Anybody's house could burn down and nobody wants to bear the full cost of that happening if it does (most people couldn't). With insurance, nobody has to bear the full cost: it is born collectively by those participating in the insurance market. On some level, then, some people 'take out' more than they 'put in'; those whose houses burn down being the takers. This feature of insurance is essential to welfare too. You don't know when you might get sick or become unemployed, so you pay into a system that gives you support in the event that you need it. Because the costs of sickness and long term unemployment can be very large and don't happen to everyone, some people will inevitably 'take' more out of the system than they 'put in'. The fact that what you get out does not reflect what you put in isn't some accident. It's the nature of insurance, as opposed to a private savings account.

This view of the welfare state is, however, somewhat limited, and ignores other substantial features of what a good welfare state should do. The first, quite simply,  is to meet certain important human needs. This might mean providing support for those disabilities and health conditions which mean they are unable to work or in need of care. In financial terms, it is quite inevitable that some people in need of this support 'get out' more than they 'put in', because neither these needs nor your ability to pay for these needs is uniformly distributed amongst the population. If it were, there would be no need for this function of the welfare state.

Another essential feature of a good welfare state is redistributive. If it is paid for by a progressive income tax system, those with means will pay in more than those without. Even if needs were uniform, this would redistribute resources somewhat from those with high income to those with low. But needs are not uniform. Social housing is needed by those who cannot afford to rent or buy a home. Even health and education needs of the welfare state are greater lower down the income spectrum that at the top: those on lower incomes tend to face more health problems and cannot afford private education. Once again, what you 'put in' is not what you 'get out', at least not if a welfare state is supposed to promote social welfare.

This said, it is all too easy to see what political ends remarks like Reynold's might have. And I don't suspect for a moment that he is seriously advocating the welfare state move away from providing for the needy or replacing risk pooling to what amounts to a private savings account. Reading the interview the remark is part of, his overall intentions are clearly to increase the size and the scope of the welfare state while building some level of consensus amongst the sceptical. But I do wonder if it might be possible for politicians to discuss the welfare state without doing so in a way that detracts from its purpose.