Money Well Spent

Review of The Ends and Means of Welfare: Coping with Economic and Social Change in Australia by Peter Saunders (Cambridge University Press, 2002).

Listener 12 October, 2002.

Keywords: Social Policy;

The dispute over the economic reforms of the late 1980s and early 1990s involved two distinct questions. The first was whether they would work. As it happened our reforms were so incompetently managed that their economics failed miserably. But second, had they succeeded, would New Zealanders have liked their outcomes? Similar reforms in Australia, implemented with less ideological fervour and more common sense, resulted in their economy growing slightly faster than the OECD. Had the New Zealand economy succeeded from 1987 like Australian one, it would have grown 1.3 percent a year faster, and it would be in the top 10 of OECD economies.

But did Australia’s economic success also prove a social success? The Ends and Means of Welfare provides a meticulous research-based analysis of the question. Written by Peter Saunders, the widely respected professor of economics and director of the Social Policy Research Centre at the University of New South Wales (who should not be confused with his namesake who was toured by the Business Roundtable recently), the book answers‘probably not’.

Income inequality has been rising. Australia is 16th most unequal of the 21 countries in the Luxembourg Income Study (New Zealand is not a member) and its inequality has risen about average Moreover unemployment was higher in Australia than the OECD in the 1990s. It averaged 9 percent through much of its rapid growth 1990s, and still sits near 6.5 percent, whereas New Zealand’s is closing in on 5 percent. This is partly because Australia has a higher proportion of the population in the workforce. Its prosperity encourages more to look for work.

The book also points out that Australia’s government spending is relatively low by OECD standards. Some would argue this contributed to economic growth, but Saunders is one of a many economists whose research suggests any effect of higher spending is tiny (and even possibly beneficial).

Perhaps it is not surprising that there is much discontent in Australia despite the economic growth. There is considerable financial distress. A report from the government Productivity Commission suggests that ‘quality of life issues … concern a large section of the community.’ Saunders observes ‘what is most striking [from the surveys of happiness and satisfaction with living standards] is the sharp increase in dissatisfaction between 1995 and 1999 – a period in which economic growth was delivering rising real incomes to most Australians.’

The New Zealand reader is left pondering on the relevance of the Australian experience. Adopting the pragmatic more-market economic policy stance that Australia has done, and which the current New Zealand government broadly supports, may stimulate economic growth, but it seems that by itself it will not necessarily promote community welfare. Saunders would probably commend our higher spending on social welfare, but from his discussions of poverty, inequality, social inclusion, and the welfare state, he will not think that enough.

The good news is the book’s evidence against international social policy ‘convergence’, the theory that in a globalised world all countries will be forced to cut taxation and spending to a minimum. Since the level of government spending affects the composition and quality of output, and to whom it is distributed, The Ends and Means of Welfare may convince all but the most prejudiced that there is a strong case for active – but carefully designed – social policy interventions. This is a book which most New Zealanders may hope that the government and its advisers will soon read and take to heart.