Quiggin, John (2001), 'The state of welfare at home and abroad: Review of Ehrenreich, B, Nickel and Dimed and Goodin, R. et al The Real Worlds of Welfare Capitalism', Australian Financial Review (09.14), 14 September.



In 1989, the 'short 20th Century', which had begun with the outbreak of the Great War in 1914, ended with the defeat of Communism and, at least by default, the victory of capitalism. For American observers like Francis Fukuyama, this victory was sufficient grounds to proclaim, ''the end of history' and the dawning of 'the second American century'. Much the same conclusion was expressed in postmodernist claims about the passing of the era of 'grand narratives' of which Marxism was the pre-eminent example.

With the end of the Cold War, however, the big historical questions was not 'Communism or capitalism', but 'what kind of capitalism?'. At least until 1996, when Bill Clinton announced 'the end of welfare as we know it', the choice could be posed more narrowly, as one between different forms of 'welfare capitalism', in which the exigencies of the free market were softened by a welfare system designed to eliminate or minimise poverty.

In comparing different models of welfare capitalism, the United States stands alone at one pole, with a welfare system confined to a rather patchy 'safety net' and a largely unregulated labor market. The other English-speaking countries form a group with more generous, but still relatively restricted, welfare systems. Most other developed countries (with the enigmatic exception of Japan) can be regarded as 'welfare states' of different kinds, but different analytical frameworks give rise to different classifications.

One of the most detailed and sophisticated comparisons of competing models of welfare capitalism has recently been presented by two Australian and two Dutch researchers, including philosopher Robert Goodin, political scientist Bruce Heady, labour market researcher Ruud Muffels and statistician Henk-Jan Dirven (GHMD for short). GHMD used comparative data for the United States, Germany and the Netherlands, which the classed as respectively 'liberal', 'corporatist' and 'social democratic'.

For those who dislike suspense, the back cover reveals that the contest resulted in an easy win for the 'home team', the Netherlands. Not surprisingly, the Netherlands performed best on social-democratic criteria such as maximising equality and minimising poverty. More interestingly, the Netherlands outperformed the United States on the key liberal criterion of maximising income growth and Germany on the key corporatist criterion of minimising family breakdown (GHMD take for granted the idea that the United States is a liberal society in which high rates of family breakdown are to be expected. The notion, popular in English-speaking countries, that free market radicalism can be married to 'family values' conservatism is not even addressed).

The core of the analysis is the use of large-scale panel data sets, in which individuals are interviewed at annual intervals over a period of a decade or more. This approach has big advantages over the more common 'snapshot' offered by once-off surveys. For example, in considering a society in which surveys consistently show that 10 per cent of the population are poor (by some definition), it makes a big difference whether the same 10 per cent of the population are always poor or whether, over a given decade, everybody in the population experiences poverty at least one year in ten. In the latter case, if income is averaged over the entire decade, no-one will be poor,

Not surprisingly, panel data analysis reveals a picture intermediate between these two extremes. The longer the period over which income is averaged, the smaller the proportion of the population who turn out to be poor. The international comparisons might surprise those used to thinking of free markets as bastions of equal opportunity.

About 6 per cent of Dutch people experience poverty (defined as a disposable income less than 50 per cent of the national median) in any given year, but, when income is averaged over a decade, the proportion of poor people falls to 1 per cent. In the United States, about 18 per cent of households are poor in any given year, and averaging over a decade only reduces the proportion to 13 per cent. The finding that the United States has less social mobility than other advanced countries is well-established in the social science literature, but not reflected in popular rhetoric.

It is also possible to test how many people are consistently poor in each of the 10 years. Almost no-one in the Netherlands experiences a decade of consistent poverty, compared to 3 per cent of Germans and 10 per cent of Americans. Not surprisingly, the failure of the US welfare system to combat poverty contributes to poor outcomes on other measures, such as equality of access to educational opportunities.

One difficulty with the GHMD is that, despite a sophisticated discussion of concepts of poverty, the statistical analysis focuses exclusively on a relative measure of poverty, setting the poverty line at 50 per cent of median income. Since the US is generally regarded as the world's richest country, it might be, for example, that the standard of living of Americans classed as poor is higher than that of Europeans living above their national poverty lines.

Because exchange rate fluctuate widely, the best way of assessing this question relies on the notion of Purchasing Power Parity. The basic idea is to convert one currency into another in such way that the cost of buying a representative basket of goods and services is the same in both countries. (The idea of a 'representative basket', like the associated mythical 'average consumer' raise plenty of problems, but this is not the place to explore them.)

In its Human Development Report, the United Nations Development Program estimates the proportion of the population in different countries whose purchasing power was less than $US11 a day in 1994-95. The results are more favorable to the United States than those of GMHD, but not much more so. An estimated 13.6 per cent of the US population fell below this absolute poverty line compared to 7.1 per cent in the Netherlands and 7.3 per cent in Germany.

Australia, by the way, was among the worst performers in the developed world, with 17.6 per cent of the population falling below the $US11/day level, putting us 14th out of 17 OECD countries in the Human Poverty Index. On the other hand high life expectancy and participation in education put us near the top of the league table, second only to Norway, for the UNDP's Human Development Index.

Another problem is that the comparisons were made for a period ending in the mid-1990s before the passage of the Welfare Reform Act, which led to 'the end of welfare as we know it' in the Untied States. Although the Welfare Reform Act has indeed been followed by drastic reductions in the number of welfare beneficiaries, announcements of victory are premature for two reasons. First, the passage of the Act coincided with the beginning of one of the most spectacular, and unsustainable, booms of the 20th century. Second, the Act provided a transitional mechanism, in the form of a 5-year lifetime limit on access to welfare, beginning at the end of 1996. The 5-year limit will begin to bite at the beginning of 2002, in what looks certain to be a deeply depressed economy.

AS GHMD observe, no matter how comprehensive and representative, statistics are an abstraction from reality. It is easy to point to statistics showing that the US has a large number of 'working poor' people, but harder to say what this means in terms of lived experience.

Barbara Ehrenreich's recent book, Nickel and Dimed: On (Not) Getting By In America, represents the revival of a tradition of investigation that predates the regular collection of official statistics. Ehrenreich sought to answer the question 'how can you make a living on the minimum wage' by direct experiment. Over a period of two years, she took a series of low-wage service-sector jobs in different American cities.

The jobs included waitressing, nursing-home care and retail sales, but the most memorable was that with the 'Merry Maids' housecleaning service (names were changed to protect coworkers). Ehrenreich has written in the past of her unwillingness, unusual now in the middle class, to have others do her housework and her stint with the Merry Maids seemed to confirm her worst fears. Despite backbreaking work (the Maids' motto is 'We clean houses the old-fashioned way - on our hands and knees!), the cleaning system required by the company focused exclusively on superficial gleam, with no regard to whether houses were actually cleaned or not.

Despite holding down two jobs and working 50 hours a week in a number of stints, Ehrenreich's experimental attempt ended in failure. The big problem was rent. As she observes, the jobs for the poor are mostly close to where the rich live. In Key West, a half-size trailer (i.e. a caravan) rented for $625 per month, prompting Ehrenreich's observation that 'trailer trash' had become an aspirational category for her.

Ehrenreich's coworkers, or at least those without an employed partner, dealt with the housing problem in various mostly unsatisfactory ways - living in trucks, sharing motel rooms in the off-season and so on.

For them, the real problem was health care. US workers rely on their employers for health insurance, but minimum wage jobs provide little or nothing in the way of health benefits. The various, and fairly desperate, safety net options provided through schemes such as Medicaid are often not available to the working poor. Minimum-wage workers simply have to put up with bad teeth, work-related injuries and so on.

How much is all this specific to the United States ? It might be useful to compare the jobs undertaken by Ehrenreich with comparable jobs in Australia. The big problem is to estimate the purchasing power of US wages in Australian terms. For the mythical average consumer, the average bundle of goods bought for $1 in Australia could be obtained for around 75 cents in the United States, suggesting that the $6-7 an hour earned by Ehrenreich in most of her jobs corresponds to around $8 to $9 an hour in Australia. At 50 hours per week or 2500 per year, this would be around $20000, which is about equal to the minimum wage in Australia for a work year of around 1750 hours.

Rents in our own 'global city' of Sydney are high, but don't appear to be quite as crippling as Ehrenreich found them. Equally importantly,whatever the problems of Australian public hospitals and pharmaceutical benefits, they are far better than the desperate options available to uninsured workers in the US.

Taking the results of these studies as a whole, there is little cause for complacency. The United States may be the worst country in the developed world in which to be poor, but Australia is not very far behind it.