The Relationship between Social Policy and Economic Policy - Essay Example

The Relationship between Social Policy and Economic Policy Introduction Dis s on the relationship between economic policy and social policy sharply emphasise the contributions of social policy to the economy. Gough (1996 as cited in Walker & Wong, 2009, p. 1) argues that “different welfare regimes exhibit different configurations of effects on performance and structural competitiveness” (as cited in Walker & Wong, 2009, p. 1). This means that there could be a give-and-take relationship between economic development and social equality on several instances, while on other circumstances there is a positive connection between economic performance and social policy. Nevertheless, this functionalist view of the relationship between economic policy and social policy does not clarify the general inclination to give more importance to economic policy than social policy (Walker &Wong, 2009). This essay analyses the relationship between social policy and economic policy in terms of Keynesian and Monetarist economic ideas in relation to welfare. Theoretically, there should not be any inconsistency or disagreement between economic policy and social policy if the latter approves and supports the economy. Nevertheless, in reality, social policy is generally viewed as a hindrance to economic development; it is viewed as pulling out economic resources and spending them on noneconomic activities (Kesselman, Krieger, & Joseph, 2009). Basically, social policy does not possess an independent and rightful sphere; it is considered to be a ‘poor person’s economic policy’ (Moroney & Krysik, 1998, p. 231). However, the state has a natural obligation to make sure that its social policy and economic policy are not conflicting. For this reason, once a welfare state is founded the rationale of its activities starts to work. The citizens become used to taxation and tend to view social policy as an integral part of social institution in highly industrialised or developed economies. On the contrary, citizens in pre-welfare states are less likely to recognise or allow taxation because of the absence of confidence in state agencies and the absence of actual experience or knowledge of the advantages of a welfare state (Walker & Wong, 2009, p. 1). In such circumstances, social welfare is commonly limited to the poor or substantially dispossessed by reason of charity. Regardless of the form of taxation (e.g. income tax, excise tax, etc), the capacity of the state to financially support its political and social activities relies on the capacity of the private sector to produce, invest, and accumulate (Sullivan, 1987). Although the production process that generates taxable assets is seen as being fundamentally outside the control of the state, the state should carry out all the necessary measures to produce the appropriate circumstances to capitalise on private accumulation since the state depends on its capacity to generate resources. In other words, the state is structurally dependent on private institutions for its resources or revenue (Cunningham & Cunningham, 2012). As a result, the state cannot formulate and implement policies which disrupt the process of capital accumulation. However, there is an evident irony within this arrangement. Even though the state is limited by its dependence on capital to finance its programmes, most of these programmes are in fact a reaction to capitalistic processes, such as intensive efforts towards better productivity and profitability (George & Wilding, 1984). In other words, the state should encourage the private institution to make an investment so that it could sufficiently support the people who bear the common difficulties linked to contemporary capitalism, such as inequality, discrimination, and unemployment. Therefore, the state can take steps on behalf of the people only if such steps do not destabilise the process of capital accumulation (Cunningham & Cunningham, 2012). Thus, economic policy and social policy should be regarded as one. Alcock (1998 as cited in Walsh, Stephens, & Moore, 2000, p. 89) supports this argument: “social and economic policy interact; therefore they need to be planned and developed together—and in practice in Britain, and elsewhere, this is just what happens” (as cited in Walsh et al., 2000, p. 89). Knowledge of the manner in which states attempt to manage the economy is useful in understanding these connections between economic policy and social policy. Keynesian and Monetarist Perspectives Management of the economy is a major responsibility of any state. Public spending, and how it is financially supported, is integral to the policy of macroeconomics. Economic outcomes are at the heart of every state programme or activity, and basically influence state action. Trends and developments in the economy have social impacts, like greater unemployment rates, which impact the rate of investment and expenditures on social policy. In a high-performing economy, there is a greater availability of resources, but perhaps less need for spending on social policy (Walsh et al., 2000, p. 89). However, the state should constantly look for sources of financial support for its social welfare programmes. Therefore, welfare provision and development and implementation of social policy are greatly affected by how well or poorly the economy is managed. The management of economy differs from state to state. It depends on the state’s political ideologies and economic objectives. During the postwar years, states have been inclined to implement either a ‘Keynesian’ or a ‘monetarist’ model of economic management (Walsh et al., 2000, p. 89). Although different states have been predisposed to create their own specific models of either monetarist or Keynesian approaches, these two models have significantly different impacts on social policy spending. Keynesian economics was remarkably essential in creating the necessary economic framework for, and means of financially supporting, the formulation and implementation of social policy during the postwar years. John Maynard Keynes claimed that the government may and must be directly involved to affect the demand rate for and level of consumption of goods and services, by raising or lowering taxes, and by encouraging the creation of jobs or increasing the rate of employment (Roder, 2003). He argued that the government should create social and economic policies that stimulated positive employment. They could accomplish this by means of creating public services and social welfare that would generate jobs. The principle is that if employment rate is high or that a larger number of people are being paid regularly, demand for and consumption of goods and services would rise (Mullard & Spicker, 1998). High levels of demand for goods and services would encourage or contribute to the maintenance of high employment rates. Keynesian economics obliges the government to bring ‘purchasing power’ into economic processes (Walsh et al., 2000, p. 90). Spending on social programmes may create employment and revitalise the economy. Unfortunately, Keynesian economics failed to mitigate the high inflation crisis at a period of full employment. Still, different versions of Keynesianism were implemented by states to create welfare and public services and manage the economy until the latter part of the 1970s (Mullard & Spicker, 1998). The strategy led to high rates of public spending throughout this stage. When the economy declined in the 1970s, levels of unemployment escalated and the government was obliged to reduce public spending and raise taxes (Alcock, May & Wright, 2012). Keynesianism gradually lose its popularity due to its failure to resolve the problem. Hence, another model of economic management emerged: monetarism. The monetarist model comprises a refutation of numerous of the principles and objectives of Keynesian economics. The major economic objective of monetarism is to maintain inflation at low levels. Monetarism rejects creating policies to encourage employment. It even believes that unemployment may be used to maintain low inflation (Alcock et al., 2012). Monetarism argues that the state should refrain from excessively meddling with economic processes. It does not agree with the principle of controlling levels of demand for goods and services. However, monetarism recognises the major function of the government in regulating the supply of capital (Roder, 2003). Monetarism was implemented in the 1980s by the Conservative governments. So as to regulate the amount of circulating capital, they attempted to cut down public borrowing and public expenditures. The principle was that if public expenditures were higher than public revenue, then the amount of capital rose through borrowing (Floud & Johnson, 2004). The response was to restrict public borrowing and decrease public expenditures. In the initial stage of the Thatcher regime, indirect taxes on expenditures were augmented, privatisation of national assets were carried out, and rates of income tax were reduced. Bulk of the money accumulated went to efforts of reducing government borrowing. In spite of their achievement in lessening government borrowing, the Thatcher regime failed to cut down total public expenditures, which in fact escalated in the 1980s (Walsh et al., 2000). As reported by Pope and colleagues (1986), the rise in unemployment rate throughout the 1980s resulted in a more intense need for social services, and simultaneously lower amount of earnings was being generated from income tax and indirect taxes. The Relationship between Social Policy and Economic Policy: Keynesianism and Monetarism in Britain’s Welfare State From 1945 to 1975, also known as the ‘thirty golden years’ of economic progress, the issue of unemployment appeared to have been controlled through Keynesianism, a policy model that is generally seen as the representation of contemporary ‘social democratic’ framework of managed capitalism (Roder, 2003, p. 11). The principles of Keynesianism were implemented all over Western Europe. Keynesianism promoted social democratic revisionism, producing the circumstances that allowed the parties to act out their major policy ideals of equality, social fairness, and freedom more successfully than before (Roder, 2003, p. 11). Nevertheless, according to Brivati and Bale (1997), the restored incidence of high unemployment rates in the 1970s started to challenge the generally accepted idea that Keynesianism and social democratic approach to the labour market were viable. Basically, state intervention in the economic and social policy-making process in Britain was a consistent and growingly distinct attribute of the period 1945-75. During this period Britain experienced considerable state involvement in domains which had previously been freed from state interference (Garner & Kelly, 1998). This more organised state intervention can be demonstrated by a look at the social and economic policy during the postwar years. After World War II, state intervention in Britain tremendously grew. The interventionist state was represented by two main attributes, namely, the formation of a welfare state and the expansion of welfare policies, and the extensive and constant economic involvement (Sarup, 1982). The argument that the state should interfere in an organised or methodical manner to deliver and regulate welfare was, prior to World War II, a very controversial idea. Keynes believes that the state must take steps only to deliver social services to those who cannot support themselves (Floud & Johnson, 2004, p. 214). During the postwar years, the people of Britain witnessed an unparalleled period of continuous economic development. However, in spite of the clear economic successes of the postwar years, there has been an ongoing concern about the inability to allocate the gains of economic development to every segment of the population (Kesselman et al., 2009). This inability to eliminate, or even mitigate, the extent of social and economic inequality is especially unexpected due to the considerable growth of public welfare spending in the postwar years (Floud & Johnson, 2004, p. 214): Between 1949/50 and 1996/7, real spending on social security benefits grew at an average annual rate of 4.5 per cent, more than 50 per cent faster than the rate of real income growth. Hence, it appears that the welfare state of Britain has been using an ever larger portion of national revenue so as to realise an ever declining level of income equality and opportunities. This apparent failure of the government may be even bigger. Several opponents of state intervention from the New Right movement have claimed that the delivery of welfare services hampers economic development by using resources in an unproductive manner; hence the welfare state could in fact have worsened, instead of alleviated, poverty (Floud & Johnson, 2004, pp. 214-215). The British government, since 1945, has been collecting social security contributions and direct taxes from the salaries of all employees, and providing low-cost housing, greater educational opportunities, and healthcare services, alongside financial assistance for adults and children who are ill, incapacitated, jobless, and poor (Brivati & Bale, 1997). The expansion of welfare state has formed a new relationship between the government and the people, but has also produced renewed political risk as elected officials try to win public approval by giving out impractical guarantees of greater benefits for lower taxes (Floud & Johnson, 2004, p. 215). Therefore, an analysis of the formation and operations of the welfare state is integral to an understanding of the relationship between economic policy and social policy in Britain. The appointment of the Conservative regime of Margaret Thatcher in 1979 is generally regarded a crucial political event. In the economic domain, Britain witnessed an array of policies intended to benefit businesses, like restriction of the power of trade unions, financial liberalisation, and income tax reductions. Government funding for poor performing manufacturing businesses was reduced as well, resulting in unparalleled, continuous high unemployment rates, especially in the manufacturing sector (Cunningham & Cunningham, 2012, p. 83). On the other hand, the social policy domain witnessed major changes, which involved substantial cutbacks in social security value. Financial assistance for single parents, the disabled, unemployed, and children were reduced, as well as state pension valye and housing grants. Furthemore, qualifications for almost all types of social security, specifically disability and unemployment services, were made stricter, the belief being that numerous able-bodied and healthy individuals were merely ‘prefering’ not to get a job (Cunningham & Cunningham, 2012). According to Garner and Kelly (1998), financial allocations for local social services were also trimmed down, increasing the responsibilities and tasks of social workers, and limiting the assistance they could give to service users. Moreover, Conservative regimes attempted to persuade the people to finance their own welfare. They tried persuading the people, through financial inducements, to rely on private instutions for their social care, health, housing, and educational needs. The objective was to restrict the function of the state in the direct delivery of social services and enhance the function of private institutions specifically (Walsh et al., 2000, p. 102). Without a doubt, many gained throughout this phase of Conservative admininistration, but all the current studies on the social and economic situations from 1979 to 1997 reveal a worsening poverty and inequality. The most at-risk and those living in chronic poverty had gained least from the social and economic policies of the Conservative governments (Walsh et al., 2000). Meanwhile, New Labour views social policy as a means towards innovation and pragmatism. New Labour concentrated its policies on wider social investment and education as a more constructive third-way strategy. Under New Labour, the model of social policymaking and implementation has been enhanced, with social policy centred on guaranteeing assistance for the vulnerable population and eradicating child poverty, delivering services and providing counsel for the jobless, organising policies for the disabled, and greater support for retirees and more inclusive retirement programmes (Brivati & Bale, 1997). Prime Minister Blair guaranteed an improved, more efficient welfare state, wherein individuals are vigorously persuaded to look for employment (Alcock et al., 2012). The welfare state reform highlights productivity and attempts to eliminate reliance on welfare. Even though uncertainties remain about the sustainability and viability of the welfare and social policy programmes of the New Labour, the objective to formulate appropriate social policies is evidently present. The attempt to determine wide-ranging solutions to social problems and lessen the inclination of the government to allow the greater marginalisation of already underprivileged people sums up the third-way characteristic of the New Labour programme (Kesselman et al., 2009, p. 65). This so-called ‘asset-based’ welfare, as further stated by Kesselman and colleagues (2009), promises greater economic opportunities and alleviation of poverty. Conclusions It is usually claimed, and with much validation, that economic policy has consistently been prioritised over social policy. At periods of economic growth, social policy emerges as the secondary recipient. In contrast, at periods of economic downfall, social policy develops at a snails pace, stay stagnant, or even worsen. These assumptions are only partly accurate. The amount of resources invested in social welfare is voluntary, and not predetermined. Economic circumstances do not determine the amount of resources used for social services in any way. What is important is the way the economic condition is understood and the importance given to specific policies. This assumption has been substantiated by the adoption of Keynesianism and monetarism by the British welfare state. The lesser priority given to social policy is nothing more than an effort to sustain a specific form of economic structure at a given period. In such economic structure, social services which are viewed to satisfy the interests of the economy are retained and enhanced, whilst those which do not have an apparent and major contributions to the economy are curtailed or removed. In conclusion, social policy and economic policy are of equal importance. The relationship between the two only becomes disproportionate when external forces, such as political motives, come into the picture. References Alcock, P., May, M. & Wright, S. (2012) The Student’s Companion to Social Policy. UK: John Wiley & Sons. Brivati, B. & Bale, T. (1997) New Labour in Power: Precedents and Prospects. London: Routledge. Cunningham, J. & Cunningham, S. (2012) Social Policy and Social Work: An Introduction. London: SAGE. Floud, R. & Johnson, P. (2004) The Cambridge Economic History of Modern Britain. UK: Cambridge University Press. Garner, R. & Kelly, R. (1998) British Political Parties Today. UK: Manchester University Press. George, V. & Wilding, P. (1984) The Impact of Social Policy. London: Routledge. Kesselman, M., Krieger, J., & Joseph, W. (2009) Introduction to Comparative Politics: Political Challenges and Changing Agendas. Mason, OH: Cengage Learning. Moroney, R. & Krysik, J. (1998) Social Policy and Social Work: Critical Essays on the Welfare State. New York: Transaction Publishers. Mullard, M. & Spicker, P. (1998) Social Policy in a Changing Society. London: Routledge. Pope, R., Pratt, A., & Hoyle, B. (1986) Social Welfare in Britain, 1885-1985. New York: Taylor & Francis. Roder, K. (2003) Social Democracy and Labour Market Policy: Developments in Britain and Germany. New York: Routledge. Sarup, M. (1982) Education, State and Crisis: A Marxist Perspective. New York: Taylor & Francis. Smyth, P. (1994) Australian Social Policy: The Keynesian Chapter. Sydney, N.S.W.: University of New South Wales Press. Sullivan, M. (1987) Sociology and Social Welfare. New York: Taylor & Francis. Walker, A. & Wong, C. (2009) ‘The Relationship between Social Policy and Economic Policy: Constructing the Public Burden of Welfare in China and the West’, Development and Society 38(1), 1+ Walsh, M., Stephens, P., & Moore, S. (2000) Social Policy and Welfare. UK: Nelson Thornes. Read More