The welfare state - anchor of stability in the crisis

by Joseph Woss

[This article published on 4/27/2020 is translated from the German on the Internet, http://awblog.at.]

Solidarity and fair burden sharing are basic principles of the welfare state. These principles must also be at the forefront when it comes to financing the costs of the crisis and making a fresh start after the crisis. The welfare state must be protected and further developed and the course must be set towards eco-social restructuring and, in general, towards greater justice. The work of the government will have to be assessed centrally on these points.

Welfare state and crisis

The crisis is hitting many people very hard. Even more than usual, such a situation shows how important a well-developed and solid welfare state is. Our welfare system is proving to be efficient and must remain so in the future. Necessary emergency programs - such as the relief funds set up by the government - can build on this. And where weaknesses become apparent, they must be addressed as quickly as possible. These range from obstacles in accessing the relief funds, to problems with care and protective equipment in hospitals, to inadequate income replacement in the event of job loss, and to gaps in the "safety net" of social assistance.

At present, the health sector and the labour market service in particular are facing massive challenges in the social system. Great work is being done in both areas, as well as everywhere else where, despite the risk of corona, full work is needed to keep the country running - in many cases at considerable health risk.

The crisis makes us aware of what many often overlook or refuse to acknowledge for political reasons: The real performers in our society are often professionals at the lower end of the income scale. One of the lessons of the crisis must be that in future their work must be remunerated according to its value and thus much better than before.

Health system - expanding rather than weakening

The health system is a good example of how justified warnings of cuts in social budgets are. Slogans such as "saving in the system" are still well remembered, as is the reference to a supposedly huge savings potential. De facto, this is primarily aimed at reducing the number of staff in hospitals and the number of acute-care beds. Today we can consider ourselves fortunate that this "leveraging of efficiency potential" has largely been prevented.

There must be no doubt that covering the additional costs and loss of revenue in the health system must be part of the aid programs. It is also important that measures to increase crisis resilience are taken quickly, including in the supply of medicines. Other problems must also be resolved, such as the loss of the possibility of benefiting from preferential self-insurance in the event of the loss of marginal employment.

Labor market - preserving jobs is the order of the day

The second huge challenge, apart from health protection, is the labor market. Despite paralyzing large parts of the economy, job losses must be kept to a minimum. The generous short-time work promotion scheme developed by the social partners, with 80 to 90 percent wage replacement, is the best instrument for this. The current figures, with some 900,000 workers affected and the enormous increase in unemployment, show how serious the economic slump is and how important the possibility of short-time work is.

A central objective of crisis management policy must be to maintain the jobs of short-time workers beyond the retention period and to bring the number of unemployed back to pre-crisis levels as quickly as possible.

Financial security - Corona must not become a poverty trap

Those who have lost their jobs and thus their income overnight as a result of Corona, or who were already unemployed before the crisis and currently have no chance of finding a new job, have been hit particularly hard by the crisis.

In addition to many one-person companies, cultural workers, etc., the loss of work has so far mainly affected workers who often earned very little even before the crisis. The latter receive unemployment benefits, but at 55 percent the income replacement rate is decidedly too low and should be urgently increased.

It is also very important to facilitate access to the "safety net" of social assistance and to improve the level of benefits, not least for children. The same applies to the demands to the Federal Government to remove undue restrictions on access to the assistance funds. If such proposals are not taken into account, there is a threat of a huge increase in the number of people at risk of poverty in Austria too. Everyone who is currently blocking this should be aware of this.

Statutory pensions - a reliable pillar even in the crisis

Pensions are currently attracting little attention, not least because the statutory pension insurance system functions smoothly even in times of crisis. Here it is a great advantage that 90 percent of the benefits in Austria come from the statutory system and are therefore not tied to the dramatic fall in stock market prices. However, the decline in premium income and the increasing number of elderly people will require a higher use of federal funds in this area as well. This is basically guaranteed by the legally regulated instrument of the "deficiency liability" of the Federal Government. In any case, the aim must be to safeguard the purchasing power of pensions and to maintain the system's performance for today's younger people.

An important contribution to supporting the people concerned and at the same time to relieving the labor market would be to make access to disability or heavy labor pensions less restrictive for people with impaired health or people who have been working very hard for many years, at least for the period of very high unemployment.

Positive location factor and "automatic stabilizer

Often underestimated but very significant advantages of strong social systems are also the positive effects on the economy (qualified workforce, compatibility of work and family life, health protection, purchasing power, social peace, etc.), including their - currently particularly important - function as an "automatic stabiliser" in times of crisis. Stable pensions, unemployment benefits, short-time work support, etc. considerably curb the slump in demand that accompanies an economic crisis.

A massive collapse of private consumption would make the current economic crisis much worse and cause many more companies and employees to face existential problems. The necessary economic recovery will also depend to a large extent on how private purchasing power develops in the coming months and years.

The protection of social security systems is also of crucial importance from this point of view.

Rising costs, lower revenues

It is clear that the corona crisis is leading to massive challenges for the welfare state as well, especially due to the enormous additional costs for short-time work, unemployment benefits and in the health care system. In addition, there is the considerable decline in contribution income due to declining employment. In order to prevent this from causing lasting damage, a high degree of flexibility is needed in public budgets.

The government is right with its casually formulated approach that no costs must be spared ("at any cost") when it comes to managing a crisis of this dimension. Since crisis management will certainly not be achieved overnight, the necessary expansionary budgetary policy must be designed from the outset over several years. The mistakes made in overcoming the economic crisis of 2008/2009 must not be repeated, when the entire euro zone - with enormous social and economic consequential costs - switched to a rigid austerity course within a short period of time.

A financial protective shield via the social systems must be one of the central elements of the crisis management program.

Who pays the costs?

It is evident that the crisis will place a massive burden on public budgets. A fair distribution of the burden is indispensable. The main burden must be borne by those who are able to do so without cutting back on their living standards.

Above all, what is needed are progressive levies on large assets, large inheritances and peak incomes, and a ban on dividend payments in companies that demand support from public funds. It is also necessary to stop the opportunities for tax evasion by the rich and large corporations. Substantial changes are also needed in the EU's tax policy. For example, we must put a stop to tax dumping. The Financial Transaction Tax should also be taken up again and finally implemented.

On the other hand, it would lead to a social disaster if a large part of the burden of crisis financing were to be placed on lower income groups, average earners and social protection systems. Ultimately, the government's work on the Corona crisis will also be measured very centrally in terms of the distribution of costs.

New start - in the right direction

There will be no going back to the state before Corona, after such a crisis it is impossible. The necessary restart will in all probability be much more difficult than many people imagine today. But crises also offer opportunities:

The huge economic stimulus package needed must be directed to where there is an urgent need for investment anyway, while at the same time creating valuable jobs: Care, childcare, educational institutions, social housing, climate protection, infrastructure, digitalization etc.

The period of high unemployment lends itself to a clear focus on training and further education: the best possible initial training for young people, catching up on educational qualifications, qualified retraining in occupations where there is a shortage, etc.

Work, income and wealth must be distributed more fairly, and a number of "rules of the game" in our society must be changed. The upheaval forced by the crisis will hopefully force even hard-boiled defenders of the existing to rethink - if only because otherwise dramatic distribution conflicts threaten. The divergence between rich and poor must be stopped and steered in the opposite direction. Serious changes are also needed in the distribution of paid and unpaid work.

The process of European integration also needs a reorientation towards a social and welfare community based on solidarity. And last but not least, the current global crisis should be the occasion for a radical correction of the logic of globalization, which is primarily oriented towards capital interests - oriented towards ecological sustainability and social progress and thus towards the interests of the broad majority of people, both here and in all other parts of the world.