Gareth Morgan says NZ should look to Latin America for welfare policy. Your view?

By Gareth Morgan

It’s time New Zealand learned what the developing world knows.

Having a lot of people living in severe poverty is a disaster, socially and economically.

The good news is the developing world has found a solution to it – and it looks a lot like our proposal for an Unconditional Basic Income (UBI).

The bad news is New Zealand is oblivious to the progress happening just across the Pacific.

NZ-style targeted welfare is on the way out

The way countries provide income support to families has been rapidly evolving internationally, particularly in the developing world.

The move has been towards programmes which provide government cash transfers to any poor family, irrespective of the number of hours they work (the adults might be unemployed or work full time).

There can be conditions attached to getting the cash but these relate to ensuring the family is accessing social support – for example, making sure children attend school or are brought to medical centres for immunisations – not the hours spent in paid work.

Countries that have rolled out these schemes include (but are not limited to) Brazil, Mexico, South Africa and India.

And it is working

The developing world’s approach to income support is all about eliminating poverty and helping people reach their full potential.

And the programmes are working.

In Latin America the proportion of the population living in extreme poverty (defined as living on US$1.25 a day) fell from 12.2 per cent in 1990 to 6.5 per cent in 2008 and falling, and in moderate poverty (US$2.5 a day) fell from 22.4 per cent to 12.4 per cent during the same period.

The conditions related to social support are also working – child attendance at school has increased, as have immunisation levels.

Contrast all this to New Zealand.

Here poor families also receive income support from the government but the amount they get depends on a whole raft of conditions. Benefit payments reduce when people start working, and Working for Families (WfF) payments don’t kick in until the adults spend a combined 30 hours a week or more in paid work.

This condition is very important – there is more than $3,000 a year difference in family income net of tax depending on whether or not this paid work condition is met.

So why are we stuck in the past?

The New Zealand approach is a legacy from that long ago era when it was believed economies could always provide full employment.

If that were true it wouldn’t matter that unemployed parents received less than low-paid working ones – there wouldn’t be any unemployed parents to worry about.

But the reality is unemployment does permanently exist in New Zealand (and indeed, every developed country) and people can remain unemployed for most of their adult life.

As a result, our policies are locking thousands of families – those people unfortunate enough to be find themselves in the unemployed basket – into severe and persistent poverty.

And, in contrast to the developing world, nothing in our policy mindset aims to eliminate that.

Rather, we are obsessed with tying eligibility for support to paid work.

Fat lot of use that is in a world where full employment is a long distant memory, and for which there’s no evidence it is the unemployed person’s fault.

Instead, there is plenty of evidence that the supply of suitable paid jobs is inadequate and what’s more, where there is work the market wage for many isn’t enough to live on (the rationale for Working for Families).

It’s as if New Zealand policymakers are trapped in a 1970’s time warp, clinging to policies that long ago proved obsolete.

Poverty hurts us all, and the current approach isn’t working

Poverty is socially and economically corrosive – as a society we all pay – and there are programmes that are effective at eliminating it. It’s time we looked beyond the usual Anglo Saxon tri-partite of the UK, the USA and Australia to see what to do.

Of course, were New Zealand to adopt the developing world approach to income support there would be the usual moral outrage: ‘If you guaranteed the same low income to the unemployed as the working poor, surely all of the working poor would – well – stop working!’.

That has not happened in Brazil in the ten years that their programme – the Bolsa Familia – has been running.

There, someone receiving a Bolsa Familia payment is just as likely to be in paid work as anyone in the population as a whole.

Who knows where this belief came from in New Zealand that workers won’t work if they are supported out of poverty. But it’s a pretty sick piece of bigotry that we should ditch quickly.

If anything, our current system makes the problem worse, because it penalises those people that are trying to get ahead – as they earn money they lose their benefit. In some cases they are no better off as a result.

We should go further – an Unconditional Basic Income

It is possible of course to take the developing world approach to income support even further and roll out a common cash transfer to every person. This avoids the need (which is still present in the developing world approach) to identify poor families.

In developed countries like New Zealand, with sophisticated legal vehicles for holding assets and earning income, it is increasingly tricky to work out what any family’s true economic situation really is. Look no further than the apocryphal dairy farmer’s daughter getting student allowance at university.

So simply paying a common cash transfer to every adult makes more sense here.

Rolling out a basic unconditional cash transfer to every adult is typically called a ‘guaranteed basic income’ or ‘unconditional basic income’ policy or something similar, and it’s an idea that has been gaining traction.

It’s a concept we promoted in the book ‘The Big Kahuna’ released in 2011, and in 2013 the New York Times and the Economist each published articles about basic income policies.

The evidence is clear: releasing income support from conditions related to paid work is the way forward for New Zealand.

Do we have to wait until we are over-taken in the social and economic stakes by Latin America and Asia to wake up to that fact?

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This article was first published on his blog, Gareth's World. It is here with permission.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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16 Comments

"Who knows where this belief came from in New Zealand that workers won’t work if they are supported out of poverty"

The social welfare system was developed with the mandate that those on welfare MUST be discouraged, in order to make them contribute to society.

Remember these principles come from a time before automation and modern conveniences.  Putting a roof over your or your families head was a privilege that was earned not a right, as was food, shoes clothes and anything else.  Workmen would wheel their tools around in a wheel barrow or carry them in a sack, trying to sell their labour for a day to get some income.  Wives and daughters would be cleaning or doing laundry by hand up to 12 hours a day (using lye) just to contribute to the rent and food.  7 days a week, except church time.
Holidays and weekends being un heard of then.

Those who were lucky might tend large machines or animals, or oversee staff - things which weren't just day-to-day work, and not straight health destroying, back breaking labour.  The really well men off might have a clerks job, addressing envelopes, filling out ledgers, or scribing (especially copying) letters for people.  The truly wealthy in society might even have a professional job or be business share owners, although frequently it was hard to find funds to pay for such people.

In atmosphere like that, a guaranteed minimum income would indeed be a life saving reason not to go to work.

The question is... who is paying for that minimum income??

Who pays... Well the rest of us will pay, but that won’t be enough so the Gov will borrow and ultimately the next generation will pay, double or nothing.
We all know welfare self perpetuates, so how about a ground breaking new idea, No Welfare!  Give money to charities, find homes for unwanted children and make people responsible.
Now all I need to do is mention the global warming scam or the un-popular lefty, John Campbell and I will have done enough to be sent to jail, awaiting re-education.

Tell you waht dont use me in your crappy argument.  Since you seem un-educated I doubt "re-educating" you is at all possible.
 

Sheesh.. I didnt even mention peak oil. 
You tell me how Socialist solutions work.

If you read the article.............

It's not a question of who - but rather what will pay for it?  And the answer is capital - already accumulated - and which is not contributing (returning) in a meanful/productive way to society at the moment.

Kate,
A better way to fund a Universal Basic Income would be the creation of a Ways and Means facility with the Reserve Bank of New Zealand, just like the British government had with the Bank of England until it was abolished in 2000.
 
http://jpkoning.blogspot.co.nz/2013/06/from-intimate-to-distant-relation...
 
To ensure it doesn't have an undue detrimental effect on the balance sheet of the bank, it could be addressed by increasing the capital ratio on real estate which currently is half that of other financial assets. It would go some way to rebalance the current excessive concentration of investment in the Auckland real estate market and reduce the risk to the wider financial system
http://www.rbnz.govt.nz/research_and_publications/speeches/2001/0104984....

Yes, more ways than one to skin a cat :-).

capital isnt liquid, you'd have to borrow at interest to do that

steal it, you say?

I'm strongly against anything which steals peoples rewards for their labours against their will.
the whole point of civilisation is to prevent theft.

cowboy,
 
Civilization is built on theft, the vast majority of urban societies displaced the prior inhabitants of the land. Capitalism was created on the basis of the expropriation of people with customary ownership of what was subsequently considered private property (English commons, Maori)

An inconvenient truth :-).

Yes, a point I tried to make in another thread, (although I was speaking about wealth, not 'civilisation'), but it fell on deaf ears.

I found this iinteresting..
http://www.salon.com/2015/01/02/joseph_stiglitz_thomas_piketty_gets_inco...
 
stiglitz... mentions land... economic rent.... Capital/ wealth..

Well Gareth has surprised me with this nuclear explosion of common-sense.
 
Hardly anyone would know this, but this principle of universal payment is one of the foundation policies of..........wait for it, THE SOCIAL CREDIT movement. It's so long ago now no-one knows.
 
Of course they went even further on the common-sense theme, with the universal payment to be made with government freely created credit, with no debt interest burden to a private entity and of course no need to ever 'pay it back'. The initial State Housing programme from 1935 to 1940 did use this form of credit in part, from the newly nationalized Reserve Bank. The Te Ara Encyclopedia of NZ covers this very briefly under the section Reserve Bank. Unfortunately as Under-Secretary for Housing John A Lee was not able to have his own way on making this policy stick due to orthodox finance opposition in the Labour Party. Such a shame.
 
We need to have a good close look at this concept and how it is working in the countries already doing it.
 
Thanks for bringing this up Gareth.
 
 

We already have a simple universal  basic income that works well and doesnt discourage people from working, called NZ Super ..trouble is you have to wait til 65 to get it. Rather than something brand new we could gradually adapt this payment mecahnism for lower age groups & have a universal minimum income for all adults.