From Ed Conway in THE TIMES, Friday 19 October 2018
(I met Ed Conway at a family wedding last year. Always interesting. ~ MJC)
Several years ago an American psychology professor, Sarah Brosnan, carried out an experiment with capuchin monkeys. She trained five pairs to give her a token in return for a slice of cucumber. Then she changed the nature of the trade. When they handed over the token, one of the couple received a juicy grape; the other got the cucumber slice as before.
The effect was remarkable. When the monkeys getting the cucumber saw their partner getting a better gift, many of them refused to co-operate. Rather than eating the cucumber, they decided to go hungry instead. Sometimes they would throw away their tokens, sometimes the cucumber. This irrational response was, Brosnan concluded, evidence of “an early evolutionary origin of inequity aversion”. It hinted at the existence of a “fairness gene”.
Morality, it seems, is not merely a cultural construct but something instinctive. That may be why it is so difficult to discuss benefits — the main way Britain deals with economic unfairness — without taking an extreme position. The welfare system is too generous. It is too stingy. It is needlessly giving money away. It is shamefully impoverishing those who need it most. As it happens, it is all of these things. But to focus on the extremes is to miss the most intriguing story: of a welfare system which is nothing like the one most of us grew up with.
Once upon a time, benefits were designed primarily for those who were out of work, whether unemployed or retired. There were bolt-ons for housing, for those with children and those with disabilities, but the overarching objective was to support those who were, for whatever reason, outside the labour market.
Over the years, the old system gave way to something very different. Tax credits changed everything: no longer would the emphasis be on supporting those out of work; the government made it its role to support those in work and on low incomes, opening the system up to millions more households. During Gordon Brown’s time in office, the tentacles of the welfare state wrapped further around the country.
Yet these astonishing numbers belie a crucial shift beneath the surface. These days, Britain spends less on unemployment than any other G7 country but more than any developed nation on family benefits: the child element that makes up the majority of tax credits payments. You get a sense of the generosity when you delve into the tax credits numbers and find that, despite the fact this all stuff is means-tested, some families manage to claim thousands of pounds in tax credits despite doing jobs that pay them more than £20,000. And when I say some, I mean nearly three quarters of a million households — a fifth of all recipients. This is not fraud; it’s the way the system works.
The biggest consequence of tax credits has been to subsidise low pay, which has been very helpful to big business. Without tax credits it is hard to imagine how the low wage economy — zero-hours contracts, internet retail distribution centres and all — could function. If you were wondering why the benefits bill remains stubbornly high despite unemployment being at its lowest level since the early 1970s, here is part of the answer.
Another consequence is to be found in the inequality statistics. Most postwar recessions increased unemployment and the income gap between rich and poor. It was odd that neither of these things happened after 2008 but according to the Institute for Fiscal Studies think tank, the welfare system may have been part of the explanation.
Rather than pushing for higher wages and risking job losses as they did in the ’80s, this time unions and workers were more content to let wages slide since tax credits provided an economic cushion. Across the economy, real wages fell by record amounts but those receiving tax credits were protected.
The recent transformation of the welfare state was a seismic development, yet politicians seem unwilling to grapple with it. Universal credit is less a wholesale reform than a consolidation — an attempt to take the existing piecemeal system and repackage it into one unmanageable pot.
There has been more engagement with the issues in the US, where Bernie Sanders has what he calls his Bezos bill (after the Amazon chief executive). It proposes extra taxes on corporate giants who exploit the welfare system by paying workers a pittance and expecting benefits to make up the difference. We have had nothing so imaginative from Jeremy Corbyn. Despite insisting that he is on a mission to reduce inequality, the Labour leader’s last manifesto didn’t even commit to reversing the recent Tory freeze on working age benefits.
Then again, perhaps it is unfair to expect too much from our politicians. They, like us, share so many genes with the capuchin monkey, who rages and rages over injustice, and then can’t be bothered to do anything about it.
Ed Conway is economics editor of Sky News