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No Redistribution Without the Social State

by Norman Wagner and Mattias Schnetzer Monday, Oct. 20, 2014 at 11:37 AM
marc1seed@yahoo.com

In Austria 30 percent of the gross domestic product is spent on social services (not including education spending)...Since the 1990s social security has been increasingly discussed as a financial burden and less as a social achievement

NO REDISTRIBUTION WITHOUT THE SOCIAL STATE



Whoever is interested in redistribution cannot pass by the well-constructed Austrian social system



By Norman Wagner, Vienna



[This article published in Arbeit & Wirtschaft 6/2014 is translated from the German on the Internet.]



The fundamental tasks of the social state include protection from social risks like unemployment, sickness and disability. Well-built social systems like the Austrian system fulfill another essential purpose by creating the social balance guaranteeing participation in social life to all people. Participation also means sharing in society according to one’s possibilities and skills, not only ensuring survival.



CREATING BALANCE



Social redistribution is necessary for creating this balance. In Austria, this happens through the public functions, particularly the social functions. The Austrian social state has a strong redistributing effect that can be measured by the effect of social benefits and pensions on income distribution. If there were no social benefits in Austria and if income distribution in Austria were left completely to the market [market income is that income from paid labor, business success and assets], 44% of the Austrian people would be poverty-endangered [poverty-endangered according to an EU-SILC definition means having an income less than 60 percent of the average (median) income].



Expressed differently, the market alone is not suited for creating a somewhat equal income distribution. The social state is necessary for that. The public services from pension insurance have an essential part in this social state. The social state also includes compensations for times of child e4ducation or unemployment that would not be considered in private systems. Because of these benefits, poverty-endangerment is reduced to 25 percent. Through benefits like unemployment benefits, family grants and need-oriented minimum security, the average poverty-endangerment rate is reduced to 12.6 percent. This means the Austrian social state – beside all its other benefits – lessened the danger of being stricken by income poverty to a third or a half.



The importance of social state redistribution is greater for women than men. Without social services and pensions, 48 percent of women would be poverty-endangered – along with 42 percent of men. This is even true more intensely for older persons. Without social benefits, 89 percent of persons over 65 would be poverty-endangered.



MARKETS MAKE POVERTY



In many cases, single parents and families with three or more children also do not have any market income that could avoid poverty. Without transfer payments, more than half would be poverty-endangered. Graduation plays a central role in this connection: persons with social state transfer benefits are twice as poverty-endangered as university graduates, 63 percent compared to 34 percent.



SOCIAL BENEFITS AND CONTRIBUTIONS IN KIND



Not all social benefits serve the goal of social redistribution. Only a small part of benefits are need-tested, earmarked for persons in financial distress. This is true in the first place for existence-guaranteeing benefits like emergency relief, remedial grants or need-oriented minimum security. Other benefits also contribute to redistribution. Unemployment benefits depend on the preceding income (insurance benefit). Unemployment benefit recipients come disproportionably from insecure, poorly paid employment relations. On the other hand, many employees in good-paying secure jobs contribute to unemployment insurance, even though they seldom make a claim on that.



Alongside money payments, payments in kind play a central role in social redistribution. Well-organized affordable child care is an example. To (low income) single parents, child care offers the possibility of pursuing a job. Social counseling or public health facilities are contributions in kind that primarily benefit poorer sectors of the population.



All these benefits are necessary to create a social balance in an economically highly developed country with a huge number of different work- and life realities. However corresponding financial assistance is needed for this. In Austria, 30 percent of the gross domestic product is spent year after year for social services (not including educational spending). This is similarly true in other countries with well-developed social systems like France, Germany and Sweden. This is well-invested money because a society with comparatively few excluded persons like Austria would not be possible without a developed social state.



SOCIAL STATE ON THE DEFENSIVE…



The social state was on the defensive with the austerity packages of the last years connected with the financial- and economic crisis. Since the 1990s, social security has been increasingly discussed as a financial burden and less as a social achievement. The last considerable financial expansion of social state spending in Austria – the introduction of the national health assistance – occurred over 20 years ago. [The introduction of need-oriented minimum security in 2010 was undoubtedly an important social-political advance but not an essential system change or expansion.] The irony is that the social state is the target of austerity measures in times of economic insecurity with high unemployment and rising poverty although it is then urgently necessary. The social state ensures that the income of persons impacted by a crisis like the current one will not fall enormously and purchasing power will not collapse. Expanding – not cutting – the social system is urgently necessary in the present situation.



…BUT WITH POTENTIAL



The redistribution potential in Austria is by no means exhausted. Social redistribution takes place here almost entirely through (social-) state spending. State revenues (taxes, fees and social security contributions) altogether do not have any practical redistributing effect. A taxation of assets could make a contribution here.



DISTRIBUTION DEBATE PICKS UP SPEED



By Matthias Schnetzer



[This article published on April 2, 2014 is translated from the German on the Internet, http://blog.arbeit-wirtschaft.at/verteilungsdebatte-nimmt-an-fahrt-auf/.]



“For a long time inequality was ignored. Now it is at the center of political-economic discussion around the globe,” the acclaimed distribution economist Tony Atkinson wrote recently. International institutions thematicize the increased concentration on incomes and assets. In Austria, the spread of incomes and the concentration of assets are increasingly recognized. However the pressure of progressive forces has long been too week to overcome the blockade of the conservative side that defends an unjust distribution of incomes and assets with flimsy arguments – despite an intensive distribution debate.



That many institutions from a neoliberal camp jump on the train and thematicize distribution questions is remarkable. A study of the International Monetary Fund (IMF) that was hardly worried about the costs of inequality and starting points of distribution policy for a long while caused a sensation. The paper summarized that less income inequality leads to continuous economic growth and redistribution does not inhibit growth. For a long time the OECD emphasized the spread of incomes and in a recent report confirms the negative social effects of crisis and inequality. NASA financed a recent study whose apocalyptic conclusion attracted wide media attention. According to the NASA study, the exploitation of the natural resources and the unequal distribution of wealth could lead to the total collapse of civilization.



NEW DATA PRESENTS A CLEAR PICTURE…



The constantly better data is evidence the distribution debate is picking up speed. In the Anglo-Saxon realm, there is qualitatively high-grade data allowing detailed analyses of the income – and asset-situation of households. Oxford economist Tony Atkinson and Salvatore Morelli from the University of Nepal recently published a new data bank with long-term international distribution data. There is also a gigantic new data project for the US under the guidance of Berkeley economist Emmanuel Saez. This data project focuses on the long-term US wealth distribution since 1913.



The fresh wind in the international debate roused by the new data is noticeable…



…NOW POLITICS IS CHALLENGED



While the data on income and assets concentration has triggered a wide public debate, the data hardly affects political decisions. Empirical findings and economic theory provide many arguments for a redistribution of wealth. However conservatives blocked any discussion of property- and inheritance taxes in the last budget debate. A discussion about responsibility and handling the costs is absolutely necessary in view of the Hypo-disaster and its settlement.



Austrian society faces great challenges in the social area that must be financed. In health care, pensions, housing and education, the distribution- and financing debates will play an important role with the pressing tasks. Taxation of mammoth inheritances and wealth must have a central place on the political agenda. The question about the distribution of economic and political power is vital for a fair distribution of the financing burden for the necessary state tasks.



The behind wind of the international discussion will strengthen the following wind in the Austrian distribution debate. The book of the French economist Thomas Piketty that is soon to be published in Germany and already fueled topics of conversation in many media even before its publication could make an important contribution. Piketty discusses the systemic roots of inequality and not only its superficial symptoms.



“PIKETTY’S CAPITAL” SHAKES UP ECONOMICS



With his Opus magnum “Capital in the Twenty-First Century,” Piketty published a work praised by economic Nobel Prize winner Paul Krugman as “the most important economics book of the year” and described by the former World Bank economist Branko Milanovic as a “turning point in economic thinking.” The bows of the scholarly community raised expectations and awakened interest in the theme far beyond economics.



The distribution economist attempted to derive laws of the capitalist economic system and analyze the foundations of income and assets inequality. Piketty – more a sociologist than a pure economist in his self-definition – bases his investigation on a broad palette of data. The income- and assets data over years and the fruitful cooperation with Atkinson and Saez help him. Piketty takes unusual paths in economics and hearkens back to classical literature with historical references – from Jane Austen to Honore de Balzac.



The English version of the book is published by the Harvard University Press; the first French edition was published in the fall of 2013. Since then, there has been a regular flood of reviews which clearly increase the excitement.



RELATED LINKS:

Video: Capital in the 21st Century, 1hr 30min

May 30, 2014

to watch the 1hr 30 min presentation by Thomas Piketty, click on

http://www.youtube.com/watch?feature=player_embedded&v=heOVJM2JZxI#t=0

Thomas Piketty’s 1-hour 2014 Presentation

September 7, 2014

to hear Thomas Piketty’s 1-hour 2014 presentation on inequality of incomes and assets, click on http://mediapage.rtcnow.com/event/akwien/140704-piketty/en

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