Nudge as a transitory measure

Copyright © David Hart

Thanks in part to the current controversy over benefit caps there has been a lot of discussion at Libertarian Home about how and whether Welfare fits in with the ideology, and it became clear how varied the views are within the movement.

Representing the objectivist corner, I made my position clear that I consider Welfare – the mandatory bailing out the unfortunate or feckless – as neither a moral duty nor a proper role for the state. Paul Marks contributed a clear vocabulary, so I’ll use it and call myself a “minarchist” at least with reference to this issue.

On Sunday, we also heard from Steven Stewart who advocated a more “limited state” position, defending a role for Government in organising a system of social insurance as long as there was no state monopoly, and sensible incentives were preserved.

I’d like to now present an idea I’ve fostered for a while which might turn the above theoretical discussion into a concrete policy proposal. The problem, as Ken Ferguson reminded us, is that we are all here to make a difference in society and what we need is a credible political solution that we could proudly add to the manifesto of a notional party at a future election.

Turning off the welfare taps would not happen, and if it did there would be social unrest like you have never seen. Pragmatically, a reformer needs to provide some level of service of the existing kind and either reduce it slowly, introduce healthy incentives, or both. The services would need to include job seekers allowance, disability benefit and practical assistance programs such as job centres and training programs, but would need to be slowly changed to ensure recipients are genuine and that the schemes really work cost effectively.

I am, therefore, obliged to borrow an idea from David Cameron’s school of thought and propose to nudge people into giving voluntarily, while adding brutal incentives, including the profit motive, to the system. I’m also borrowing from Dan Hannan and Douglas Carswell’s The Plan: Twelve Months to Renew Britain which advocates a move to local providers with local policies. If you do not already understand why that works, then the book will be well worth a read.

This would be the program for the Simonetarian Party’s first term in office:

  • Restructure the welfare organisations – I will make them as small as I can get away with, let’s say parish level. They will be simple non-profit entities no different from others in any field with no legal privilege or obligations except a contract to administer the existing services and prepare for the next steps. Immediately, the groups will be free to innovate in assistance programs and existing claimants will receive money direct from these groups, giving them a reason to get on and innovate rapidly.
  • Restructure taxes – if National Insurance has been merged it will need to be de-merged and the level will need to be set such that 100% of welfare spending comes from the one tax. Not more or less.
  • Restructure the money flows – rather than going via central funds PAYE is reformed so that money flows directly from the employer directly to the local group nearest to the employees workplace. That group will be obligated to provide welfare to that person in the event they loose their job or need assistance for any other reason. National Insurance is renamed Local Insurance.
  • Freedom for payers – at this point money is already coming direct from pay-roll to local groups then out to welfare payment recipients. Payers should now be given a choice about whether to pay into the predetermined local association or choose another, perhaps a neighbouring group that offers better service, is nearer home, solves a certain welfare problem more effectively, or it could be a new entrant such as an commercial insurance company or non-profit friendly society. There will be cracks, such as a welfare arrangement for long distance commuters, or for workers in problem industries, where new entrants will offer innovative solutions.
  • Freedom for providers – By now we are a couple of years in and the local managers will have full visibility of their costs and revenues, competition will be starting to bite even though the industry as a whole has a guaranteed revenue stream. If some providers need to merge and become larger, then they can do so at this point. That was the idea of starting them small, so that they can grow if necessary but there is maximum competition. Importantly, providers will now be free to set their own policies for claims and the levels of payment they will make. Welfare levels might go up or down to suit the circumstances of the area.
  • Freedom of participation – at about year 4 or 5 the level of contribution becomes voluntary. There is no automatic decrease, but you can choose your own level of Local Insurance “tax”. By now the media have been anticipating this for perhaps 10 or 15 years and the worry on the street and the topic of focus for media columnists is all about what rate people will choose to contribute at, if at all? How many will leave their neighbours to die of starvation? Will there be a riot? Who would people target in a riot, the local job centre or their own neighbours? The media’s role will be to ensure that everybody will have gathered, by now, that it is in their interests to maintain some payment level if they can. Some will have planned to increase payments, knowing there are particular problems in their area or industry. Nothing much will actually occur but lots of media people will make a lot of money watching the very little that does occur.
  • Freedom for companies – ending compulsory participation means we can end the obligation on corporations to administer welfare funding through PAYE. People who wish to maintain payments and work for a company that wishes to close it’s Local Insurance function can simply set up a direct debit to their friendly society (or whatever it is). Compared to 2012 this is one less burden on companies implying a small net increase in economic growth, especially for small companies.

At this point in time, the entire population has been nudged onto a voluntary system of welfare provision by default their payments remain unchanged, but they are in fact optional. By starting with ultra-local providers the industry will dominated by organisations with a particular geographic focus. Welfare recipients will now be connected locally to the people they rely on. New providers will connect people by their faith, or along train routes, or along industry lines and there may be a few national societies open to all.

There will be a new dawn for personal accountability and self-reliance, but also a new trend for keeping an eye on the welfare of those around you, if only for your own well-being. Over all, I think this would be much better.

Simon Gibbs

Simon is a London based IT contractor and the proprietor of Libertarian Home. Working with logic and cause-and-effect each day he was naturally attracted to nerdy libertarianism and later to the benevolent logic of Objectivism. Find him on Google+ 

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  10 comments for “Nudge as a transitory measure

  1. Jan 31, 2012 at 10:32 am

    Simon, this seems quite a complicated proposal. Also the internet to some degree defeats the point of localism in this area. All you’re talking about is the transfer of cash from a National Insurance pot to an individual at a time of need.

    You make one point I agree with strongly which is the true separation of Tax and National Insurance. This needs to be done immediately.

    I would then argue that it is essential that the State be removed from the provision of service. So all schools, hospitals, etc are privatised. This is important because it will destroy the concept of the State as the benevolent provider.

    Then state national insurance needs to be limited in scope and length of cover, and no longer universal. Wealthy people can buy their own cover and poorer people can choose to enhance their basic state cover if they wish.

    My view is that a voucher system is the best way to get to this point.

  2. Jan 31, 2012 at 11:10 am

    Rob, I think we have a slightly different focus. Mine was on insurance against destitution from reduced hours, redundancy or illness, that kind of thing. health and schooling are a bit different, and I admint I have a gap there.

    I support localism, and would invite you to look at it from the individual perspective. Individuals are motivated by, for example, preventing neighbours dying in the streets. Those motivations are inherently geographical, because streets are geographic features. Consider that people are dying in the street in Africa and India right now and I, like most people, would freely admit to caring less about that than local problems. If the “tax” is to become voluntary, it must capture the motivations of donors.

  3. Ken Ferguson
    Jan 31, 2012 at 7:49 pm

    Whilst I am generally in favour of localism, I am not sure that the kind of system described in the original post is workable.

    The danger is that we replace a complicated and bureaucratic national welfare system with an equally bureaucratic, and less accountable local system.

    Assuming the state is to continue, the cheapest, most efficient and least damaging welfare system to enterprise should, in my view, be based on a Citizens Basic Income.

    http://www.citizensincome.org/

    • Feb 1, 2012 at 7:04 am

      Ken, I’m confused. Perhaps I haven’t communicated it well, but the end-state of this plan is not in any way distinguishable from a full free-market approach, is it? The innovative step is only to use the Nudge approach of providing a healthy “default” recipient for the money. The recipients would collapse if it were shown that their insurance isn’t worth it or they don’t get enough claimants back to work.

      If I’ve communicated this well, then wouldn’t you agree it’s more accountable than CBI or CBD?

  4. Ed Joyce
    Jan 31, 2012 at 10:00 pm

    I would prefer a tax on assets than income and that to be redistributed as a citizens dividend rather that a citizens income (i.e. everyone gets a share of what is collected but it is a floating figure). Any tax on income is likely to reduce total (aggregate) supply and thus limit GDP growth in the long run. The starting point needs to be North Sea oil revenues. Raising the incomes of all would help limit the need for benefit. The Alaska permanent fund dividend has some of the features of the scheme that would help.

    Business land could also be included as a source of dividend revenue in a longer timescale.

    Ed Joyce

    • Feb 1, 2012 at 7:12 am

      With this approach, once business land is included, how does the CBD come to vary if funded by a tax on a fixed amount of available land?

      • Ken Ferguson
        Feb 1, 2012 at 10:12 am

        This is one area where the level of payment should be determined by need rather than what is available in the pot. The CBI payment should cover the basics for survival- enough for food clothing and shelter.

        Of course, I see CBI as a stepping stone towards a market system and at the moment we are seeing a stepping stone toward CBI being put in place with the proposed Universal Credit.

        Libertarians should support it.

        • Ed Joyce
          Feb 1, 2012 at 8:37 pm

          It would be better if the CBI was funded out of North Sea oil revenues rather than income tax, which will drive down total (aggregate) supply. I don’t see why there is resistance to this.

      • Ed Joyce
        Feb 1, 2012 at 8:32 pm

        Because the land varies in price the Citizens Dividend changes. The system is called site valuation rating. The question is whether it should be set at the level to pay the maximum citizens dividend. I believe that this would be helpful to take people out of the welfare state.

  5. Tim Carpenter
    Feb 2, 2012 at 1:18 pm

    Localism:

    The problem with localism is that the current situation relies heavily of transfers from wealth generating areas to those which are not. This can in some ways be dampened because costs of living are also relative, but I do not think it compensates anywhere near enough.

    To resolve the welfare issue, one proposal I have long held is to not fund household expansion once people are on benefits. If you have 2 kids and want another, find a way to fund that. No increases in housing, especially.

    Monopolistic, State-run Social housing also has to be unwound while dealing with the issue of planning. Land banking will be less of a problem, I suspect, if developers were not so paranoid at being unable to secure future revenue streams.

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