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Where For Welfare? - Steve Maharey Speech

Hon Steve Maharey Speech Notes

Where For Welfare? Social Development And The Refurbishment Of The Welfare State

Presentation to the Sydney Institute, Sydney, Australia.


Thank you for the invitation to participate in this panel discussion - the issue is a particularly timely one.

I have been a regular visitor to Australia, and, given the wonders of the internet, I am an even more regular visitor on a virtual basis. I come to Australia for inspiration, for intellectual stimulation, and for enjoyment; and while, like all politicians these days I am, if not responsible for, then most certainly an advocate of the 'wired up' internet society, there are some things that one has to experience in the flesh. The sights of Sydney harbour may be captured on a web page, but the sounds and smells will never be - and, while politicians typically disavow deriving any pleasure from travelling abroad, let me say that I do enjoy visiting this place and I have enjoyed it again on this occasion.

This is my first visit here this year and I must make mention of the fact that this year is the Centenary of Federation. Presumably this has provided the opportunity for the Australian community to celebrate the birth of this nation, as a federation of states, and to celebrate the Constitution as your 'founding document'.

For New Zealanders it has provided an opportunity to reflect on the relationship between our two countries; I sense that few New Zealanders are aware that the Colony of New Zealand was an active participant in the constitutional conventions leading up to Federation, or that the legacy of that involvement is to be seen today in the fact that the Colony of New Zealand is listed as one of the States in Covering Clause 6 of the Australian Constitution.

The speed of travel and communications means that the 1200 reasons that some saw as constituting the obstacles to New Zealand's participation in the Australian Federation - the distance in miles between Australia and New Zealand - no longer present such an obstacle.

I don't know what particular form the widening and deepening of the relationship between Australia and New Zealand will evolve into - and in the interests of retaining my place in the Cabinet I am not going to volunteer my own preferences - but it is clear that no two sovereign nations are any closer than Australia and New Zealand. At the time of federation it was remarked that the 'crimson thread of kinship' tied both nations. That is still the case, and the bonds of kinship are complemented by a high degree of economic integration and independence, and by a very significant on-going interface between Ministers and officials through the structure of Ministerial Councils and Officials committees.

That similarity provides my point of departure for addressing the question, 'Where for welfare?' I will turn to this in a moment.

But let me first make some comments about some of the political issues around welfare reform.

Firstly, I am not going to comment on the merits or otherwise of the political debate within the extended Australian policy community over welfare reform in this country. While as a citizen of Australasia I have an interest in the nature of that debate, and while it is entirely possible that some residents of this country were responsible for voting me into office, that mandate relates to New Zealand politics and public policy, not to matters which are properly the responsibility of the Australian community.

Secondly, while I am not going to comment on the political - by which I mean party political dimensions of the debate in Australia - there is no way in which the politics can be taken out of the debate, wherever that debate occurs. The fact that the debate on welfare reform is in large part about what is affordable means that it is often the hostage of the more or less government divide.

Politics and welfare reform

Just last week the New Zealand Business Roundtable hosted well known US academic, commentator and libertarian (although not necessarily in that order) Charles Murray. The Business Roundtable typically favours less rather than more government, and is sympathetic to policies informed by neo-liberal worldview, and accordingly the fact that the organisation sponsored the visit of Charles Murray should not be a surprise.

The Business Roundtable has a role to play - as a modern social democrat I am obliged to say that - and I found Charles Murray to be quite an engaging individual when I met him briefly last week. That said I find the public policy implications of his analysis quite repugnant in a moral sense, and anything but optimal in terms of their welfare effects on both economy and society.

I too believe that 'the family' is one of the cornerstones of our society, but unlike Charles Murray I believe that society should embrace a diversity of family forms. I find it remarkable that a self-styled libertarian can advocate policies which are about prescribing the kinds of families that the state should, through 'family formation' interventions, seek to encourage.

Charles Murray favours capped and time-limited benefits, presumably on the grounds that without the former, there are incentives for young women to use pregnancy as the vehicle for accessing welfare benefits and without the latter beneficiaries to choose dependency over economic freedom. I disagree.

And I find it interesting that the language used in the literature on sole parent families is cast in terms of the reduction of 'illegitimacy'. Let me be clear - teenage pregnancy is a real issue, but the remedy, in my assessment, has as much to do with educating individuals so that they can make informed choices, and about providing real opportunities for young women and men, as about 'changing the incentives through capped benefits'.

So, there is no getting away from the politics - there is no separation between values and public policy. The choices are not simply technical or mechanistic.

In the time remaining I want to structure my comments into three sections.

I want to start at the conceptual level, using the Australasian family of nations as my starting point, and I want to suggest that for policymakers in the Australasian nations we can make sense of the issues if, in an historical sense, we think in terms of the choices that are presented as we make the transition from the politics and policies of domestic defence to an alternative model.

Then I want to briefly outline where we are heading in terms of the specifics of welfare reform in New Zealand and highlight the parallels with the recent Australian experience, and in particular the very strong similarities in terms of issues identification and policy response between what we are doing, and the recommendations arising out of the report completed by Patrick McClure and his colleagues on the Reference Group.

In conclusion I want to suggest that in terms of the challenges posed by the progression from the politics and policies of domestic defence at the conceptual level and the particular issues facing policymakers in the present context, the answer to the question, 'where for welfare?' is a qualitatively different approach to welfare, and to the relationship between economic and social policy. In short the answer to the question, 'where for welfare?' is 'social development'. It is an approach to welfare and social security that is, in essence, productivist. In terms of the challenges facing New Zealand’s Labour-Alliance Government, it is about bringing social policy to the challenge of economic transformation.

What comes after the politics of domestic defence?

Let me now attempt to provide a context for a discussion on 'where for welfare' by locating the Australian and New Zealand experience within a 'families of nations' approach.

One way of illuminating the issues facing policymakers is by means of a contrast between what have been termed the politics and policies of domestic compensation on the one hand, and the politics and policies of domestic protection on the other.

I will not attempt to rehearse the theoretical and empirical lineages of these models, or for that matter the limitations of using them - they are, 'ideal types', but I think that they are particularly useful when seeking to explain the trajectory of public policy, and social policy in particular, within the Australasian family of nations.

The politics and policies of domestic defence within the Australasian family of nations consisted of four closely related policies:

- The protection of manufacturing industry through tariffs and other trade protections

- The conciliation and arbitration of industrial disputes

- The control of immigration, and

- A residual system of income maintenance for those outside the labour market

And so when we examine the trajectory of Australian public policy in the post Federation period we can identify the markers that confirm the politics of domestic defence and the political and institutional logic that underpins it. It is there in the decisions of the Tariff Board in the 1920s. It is there in the decisions of the Arbitration Court in the first decade of the twentieth century.

What we saw in Australia and New Zealand was what has been characterised by Frank Castles as a 'wage earners welfare state'. Each of the defining elements of the politics of domestic defence, Castles argued in 1988:

"may be seen as interlocking components of a system of shock absorbers designed to defend and stabilise the existing structure of economic opportunities and rewards against any rapid or excessive disturbance from exogenous forces"

I have telegraphed the argument I want to make - the structure of economic opportunities and rewards has changed. Government changed them - both here and in New Zealand, and other governments and policy makers (and indeed consumers) changed them for us.

And the contrast between the two models is illuminating. To quote Frank Castles again:

"there is good reasons for supposing that the strategy of domestic compensation has an inherently more dynamic economic growth potential than that based on domestic defence. Grabbing competitive niches in new markets is built into the former, whilst protection serves, precisely, to insulate the economy from protection"

To continue the earlier automotive analogy, the shock absorbers of the old model simply don't allow us to take the developmental road we need to take.

Reforming the old order

My sense is that we are still haven't decided what the new 'set-up' will be that will allow us to take that road.

The politics and policies of domestic defence didn't simply unravel overnight. It was not as if we the extended policy communities woke up one morning to find that it had gone.

- Overseas markets (once the domain of the antipodean dominions) became less accessible, import licensing was removed and tariff protections were reduced and in some cases completely removed.

- Financial markets were liberalised, currencies were floated, policymakers, price and wage setters, and eventually the community accepted that there was no sustainable long run trade-off between inflation and unemployment.

- Wage fixing systems either evolved in a way that permitted a greater measure of flexibility and enterprise level responsiveness - as was the case with successive ALP/ACTU Accords in Australia in the period from 1983-1996 - or were subject to more radical forms of deregulation as was the case in New Zealand with the ill-conceived Employment Contracts Act passed by the National Party Government 1991 (much admired by some in the Australian community, and repealed by the Labour Alliance Government last year. I might add that unemployment rate in New Zealand is now at 5.4% and projected to decrease even further over the medium term).

The wage earners welfare state was no more. But I sense that in both jurisdictions we have struggled to initiate the kind of conversation that we need to have about what might replace it.

There were of course the political excursions and contests around what might broadly be referred to as 'welfare'. In New Zealand David Lange established a Royal Commission on Social Policy in October 1986, in what was a partially successful attempt to marshal a public constituency in defence of welfare. That a defence was required at that time was indisputable in the face of a concerted drive on the part of his Finance Minister, others within his Cabinet, significant elements of the business community, and persuasive elements of the 'official family' to extend the logic of deregulation into the heart of the social welfare system.

And with the defeat of the Fourth Labour Government in 1990 and the election of a National Party Government, in December 1990 the incoming Government announced radical cuts in welfare expenditure, evidenced in reductions in entitlements and eligibility changes. The Minister of Finance at the time - Ruth Richardson - cast the changes as being about redesign to restore integrity. The philosophical underpinnings of what was in effect an attack on the welfare state are captured in Richardson's speech to the New Zealand Parliament on the 19 December 1990:

"The continuing increase in the size of the State has resulted in growing debt, punitive tax levels, and intolerable pressure on interest rates. These burdens have sapped the energy and initiative of New Zealand's wealth creators. We cannot prosper as a nation if we put spending ahead of earning. The Prime Minister has announced this Government's determination to attack the burden of Government spending and its commitment to translate into action the mandate it has obtained to redesign the welfare state."

I was elected to the New Zealand Parliament in October 1990 and took my seat in the New Zealand Parliament on Wednesday the 28th of November. The memory of Richardson's speech a few weeks after continues to remind me - when I need reminding - just why I am in politics.

Let me now move to the present and the approach to welfare and social security reform that the Labour Alliance Government is taking.

Put quite simply the New Zealand welfare system needs an overhaul. It was designed 65 years ago, and while it is still a matter of pride to members of the Labour Party that it was the First Labour Government that prosecuted the Social Security Act of 1938 - an Act which set out a new system which described the categories of people who were entitled to benefits (for example, widows, orphans, the sick) and significantly enlarged it to embrace universal health and superannuation schemes, a fundamental change is required.

Since the passage of the 1938 Act successive governments have changed and adapted the welfare system, buffeted along the way by the winds of change and circumstance. You will take it from my earlier comments that at times those winds have had the destructive power and feeling of a Wellington southerly blast.

New Zealand is now a more diverse society than ever before, made up of different communities, families and cultures. The way we live and work has changed too, with more women than ever before in paid work and many more people in part-time work.

The present social welfare system does not deliver what people want or need. It is overly complex with many layers and types of benefit. People fail to get the assistance they need because either they do not know what to ask for or it is too complex to meet their needs.

The system does not assist people to take on the risks of an entry-level job or take the first step towards a new career. It cannot give people certainty that getting a job will leave them better off. Nor can it respond quickly enough to changing individual needs.

At a time when there are skill shortages in some industries, we still also have many long term unemployed (although I would note that long term unemployment has reduced in New Zealand from 41,700 in December 1999 to 30,500 in March 2001 - a decrease of 27%). There is a however a gap between the opportunities presented in the labour market and the capacities of those available for work - the current social welfare system has failed to make the right social investments to bridge this gap.

Overall the current system is outdated, complex, and ineffective in helping people achieve independence. For example:

- Despite improved economic conditions, one in six people of working age rely mainly on a welfare benefit

- One in ten people of working age has been continuously on a benefit for more than two years

- Nearly a third of people who leave a benefit to take up work, are back on a benefit within nine months

In short, we need a welfare system that is modern, simpler, flexible, and more effective in supporting people to take up and stay in work.

Our aim, as a Government, is to achieve:

- A simpler, flexible and clearer system to meet individual needs

- More beneficiaries moving into sustainable paid work

- Fewer families and households where no one is in paid work

- More beneficiaries earning income from part-time work and more beneficiaries increasing the amount they can earn

- Every family being able to meet their basic needs

- Increased beneficiary involvement in their communities

How do we intend doing that?

The Labour-Alliance Government's approach comprises six main areas of policy and programme development:

- A simpler benefit system;

- Making work pay and investing in people;

- Supporting families and children;

- Building partnerships;

- Mutual responsibilities; and

- Tackling poverty and social exclusion.

Let me say a little more about each of these:

A simpler benefit system

We are moving towards a welfare system that is both more easily understood and easier to delivery. We question the need for five different benefits for people of working age - unemployment, sickness, invalids, widows and domestic purposes benefits. One option could include a move towards a 'universal' benefit with standardised eligibility rules and conditions that would greatly simplify the system for both the beneficiary and administration. Add-ons would be provided to recognise the particular needs of individuals, such as a care of children supplement a disability allowance, and an accommodation allowance.

Making work pay and investing in people.

We are ensuring that a move into work is worthwhile financially. We are also investing in disadvantaged regions to help businesses create employment. The Government is determined to develop a system that actively assists people to make an effective transition from the benefit to the workforce.

First and foremost such a system must provide security for people when work is low paid or uncertain. At the same time, it is vital that the system provides opportunities and encouragement for beneficiaries to improve their levels of education and training so they can aim for higher paying jobs.

Supporting Families and Children

We want a system that supports families and children through difficult times; especially when there is no one in paid employment.

We accept that good quality childcare is central to ensuring that parents are able to balance their work and family responsibilities. However, childcare and out-of-school care services have not kept up with demand. Recent New Zealand research has identified that:

- The cost of childcare is one of the biggest barriers to parents accessing childcare services.

- There is an unmet demand for out of school care, with an estimated 31,000 parents wanting this type of care;

- Only 400 of the estimated 1000 OSCAR (Out of School Care and Recreation) programmes in operation meet standards set by the Child, Youth and Families Service (there is no requirement that all services meet these standards);

- Many OSCAR programmes, particularly those in low-income areas, are struggling to maintain financial viability.

Building Partnerships

We are committed to working in partnership. It is only by joint action - with the voluntary sector, with local government, and with business - that lasting change will take place. Communities need to be 'backed' to find local solutions to local needs.

Our approach is designed to foster a community ownership of solutions. Effective co-ordination is also required to avoid wasteful duplication of effort and to share best practice among the partners. The Government is actively working towards these goals.

The new approach to partnership is exemplified in the relationship with the 'third sector' - the community and voluntary sector:

Third sector organisations contribute strongly to building our communities and are a rich source of talent and ideas. The sector already employs more than 80,000 paid staff and draws on thousands of volunteers. People who are unemployed or unable to undertake full-time work can use opportunities in this sector to reconnect with their communities and gain valuable skills and experience. The Government is working closely with the sector to ensure this happens.

The Government is committing over $4 million over the next four years to support the work of social entrepreneurs - people who possess the skills, energy and insight to make a real difference in their communities. By giving these people better training and support, we will ensure that they make an even greater contribution to their communities.

Mutual Responsibilities

We accept that it is government's responsibility to help those struggling to find paid work. However people must be prepared to take opportunities offered to them, and be aware of reasonable sanctions if they do not.

The approach that we are taking is based on two elements - clear responsibilities and clear consequences:

- Clear responsibilities

What is required is a planned approach, which clarifies the responsibilities of Government and the individual. Each person who is on a work-tested benefit will now have a Job Seeker Agreement. This Agreement will set out clearly their work test obligations, what the Department of Work and Income will do to help them move into work and what they will do to help themselves, including voluntary jobs.

- Clear consequences

We are making the benefit system simpler and fairer, but for those who do not accept their responsibilities, there will be sanctions. Those who fail to take up suitable jobs that are offered to them will not receive taxpayer support.

This also raises the issue of 'work for the dole'. Notwithstanding our clear commitment to the use of sanctions where appropriate, the Government does not intend introducing 'work for the dole' type schemes. We do not for one principal reason - they do not work. The Labour-Alliance Government is about making work pay, not 'make work'.

We came into government with a clear and unequivocal commitment to the repeal of the former government's 'work for the dole' scheme, the Community Work Scheme. And we did repeal it with an amendment to the Social Security Act this year.

There is very clear evidence that the scheme simply didn't work.

The evaluation of the Community Work Scheme, carried out by the Department of Work and Income's Centre for Operational Research and Evaluation, found that beneficiaries were no better off in Community Work than if left on a benefit;

- their employment outcomes were lower than that of a comparison group not participating in Community Work, and

- the probability of people achieving a positive employment outcome actually decreased while they were participating in Community Work

(for anyone wanting to have a look at this research copies of the evaluation reports can be found at ).

Tackling poverty and social exclusion

We are building the capacity of New Zealanders to be part of the modern economy and addressing issues that trap people in poverty and prevent their full participation in society.

The Government’s reform of the welfare system is part of its overall approach to tackling poverty and social exclusion.

Extending opportunities so no group is excluded from society or is denied the full rights, benefits and responsibilities of citizenship is a key challenge being addressed by the government. These rights include the right to fair treatment, the opportunity for everyone to achieve their full potential and the right to security when in need.

We understand that people and groups feel excluded when they are unable to participate and belong to society. This may be because of financial hardship, poor health, crowded and poor housing, unemployment, and poor education.

Importantly, many of these social issues are inter-connected. For example, crowded housing may lead to poor health that may in turn make it harder for a child to do well in school, or hinder a person’s ability to work.

By my assessment there are quite marked parallels between this programme and that presaged by the McClure Report. However there are others here this evening much better placed to comment than I am.


The answer to the question 'Where for welfare?' is, in short, 'social development'. The challenge is to move from social welfare to social development.

What do I mean by social development?

Again we enter the realm of models and 'ideal types', but in summary a social development model has three defining elements:

- in terms of the economy it has a competitive bias, not a protectionist one

- it is employment friendly, and

- it is equitable

The social development model is about moving beyond the simple bifurcation of social welfare and economic development. It is about formulating a conception of social policy as productivist and investment oriented, rather than redistributive and consumption oriented.

James Midgely has argued, and very persuasively in my opinion, that,

"the social development approach not only emphasises productivist social policies and programmes but links them to broader attempts to harness the power of economic growth for social ends. Advocates of this approach believe that economic development is a powerful dynamic for progress. However, they also believe that if left alone, economic growth results in conditions of distorted development marked by conspicuous contrasts between wealth and poverty, and the exclusion of substantial numbers of people from participating in the productive economy. For this reason they advocate interventionist strategies that create employment, raise incomes, and contribute positively to improved standards of living"

It is about a shift from consumption oriented social programmes to those that invest in people and enhance capacity.

It is about the human capability equation:

Capacity + opportunity = human capability

But it is more than this. It is also about encouraging the development of social capital.

How does the social development model compare to what might be referred to as the traditional welfare model?

The following table suggests some of the defining elements of both.

Traditional welfare model Social Development model

Programme objectives Programmes designed to address income assistance needs of beneficiaries Programmes designed to make a positive contribution to economic growth

Outcomes sought Efficient delivery of entitlements Lifting of individual capacity and aggregate capability such that social and economic outcomes are optimised

Focus of intervention Focus on the individual beneficiary Focus on the individual and the community (lifting the capacity of both)

Relevance of individual skills and abilities

Skills of beneficiaries taken as a given Focus on using welfare interventions to lift skills of beneficiaries

Balance of redistributive versus developmental objectives

Welfare viewed as primarily redistributive

Welfare viewed as connecting economic and social development

Basis of assessment Centralised and prescribed forms of delivery based on assessment of entitlement Decentralised and tailored forms of delivery based on assessment of capacity and need

State delivery versus Devolved delivery State centred delivery Focus on partnerships as the basis for delivery of services, and monitoring and review of policy

Active versus passive assistance Assistance confined to delivery of passive assistance by means of transfer payments Focus on active forms of assistance that lift skills and abilities and overcoming obstacles that impede movement into paid employment

Poverty alleviation Poverty addressed by income support Poverty addressed by income support, lifting skills and abilities, and factoring in other dimensions of social exclusion

For Australia and New Zealand the politics and policies of domestic defence no longer have any relevance, other than as markers in the evolution of strategies to deal with the circumstances of our economic vulnerability.

The politics and policies of domestic defence were an appropriate response to the circumstances of economic vulnerability in the post Federation period. They are no longer appropriate in a globalised environment.

The challenge facing the Labour-Alliance Government is challenge of social and economic transformation. In terms of the latter it is about ensuring that the New Zealand economy competes at the top end of the market, but on the basis of its dual comparative advantage - its people, and what might be broadly termed its biological endowments.

A social development model means that social policy - social welfare, social security - becomes one of the drivers of transformation, not simply a passive recipient, and ultimately, consumer, of the largesse generated from the real economy.

It may no longer be appropriate to use the term wage earners welfare state to describe the particular public policy configuration that one finds in this part of the world. But in the social development model we see the primacy of work - increasingly skilled and well paid work that is the pathway to opportunity and independence. In that sense at least there is a nexus between past, present and future, as there is in a commitment to an economy and society which combines economic growth, social development, and social justice.


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