Why Welfare Fails

Losing Ground:  American Social Policy, 1950-1980
by Charles Murray
Basic Books, New York, 1984

Since it appeared three years ago Losing Ground has transformed the welfare debate in America.  But its impact does not stem from its documentation of the failure of the "Great Society" welfare programs which President Johnson guided through Congress in the mid- 1960s.  No one doubts that most social welfare indicators on employment, wages, education, crime and family cohesion -- have either deteriorated or failed to respond as expected to the great increases in social expenditure which started 20 years ago.  What is so controversial about this book is the author's explanation of those failures and the policy reforms which that explanation seems to call for.  Murray argues that most welfare programs for people of working age and their children actually worsen the social problems they are meant to solve.  If the welfare state is ever to do its job, Murray claims, it must be rebuilt virtually from scratch;  both the qualifications for welfare and the way welfare is delivered must be radically reformed.  Losing Ground is being taken so seriously in America that Murray has so far escaped being branded a "racist" even though so many of the American poor are black.

It hardly needs to be stressed that the progress of this debate is of the utmost relevance to all countries which are committed to helping the disadvantaged sections of their populations, especially at a time when many Western countries are finding it increasingly difficult to finance their public spending.  It is especially relevant at the moment to Australia, whose welfare state has recently been the subject of a systematic review by Ms. Bettina Cass, of Sydney University, on behalf of the Department of Social Security.

Murray sets out to explain why poverty and crime, which had been steadily declining through the 1950s, should have begun to increase again in the late 1960s.  His explanation assumes two things:  first, that people respond to incentives, and will work and study only if the incentives to do so are great enough;  and second, that people should be held responsible for their own actions.  Murray argues that both these assumptions, which most people accept, were rejected by the "elite wisdom" which dominates the outlook of the framers of the Great Society programs.  By ignoring incentives, the policy-makers unintentionally created "incentives to fail".  Murray systematically traces the pattern of incentives faced by typical welfare recipients and concludes that many recipients are encouraged to become dependent on welfare.  As he puts it with blunt simplicity:  "Any social transfer increases the net value of being in the condition that prompted the transfer" (page 212).

But this is only part of the explanation, and a minor part at that.  (It is also the least controversial part, since the existence of the "poverty trap" and the "unemployment trap" is becoming widely recognised and documented in countries other than America).  According to Murray, what has done real damage to the social fabric is the attack on the traditional belief that individuals should be held responsible for the consequences of their own actions.  The message that "the system is to blame" was increasingly heard from the late 1960s, at first in response to early evidence of the failure of the new welfare programs, and then as a blanket justification for continuous increases in welfare spending.  As the message reached the poor themselves, it had a number of disastrous effects.  One was to erode many recipients' inner resistance to becoming dependent on welfare, and to convince them that they had a "right" to be looked after by white, middle-class America.  Another was to deprive those poor who genuinely wanted to work their way out of poverty of the status rewards for doing so:  they became virtually invisible to a welfare system which had eliminated the stigma of poverty and convinced itself that it was helping society's "victims".  In the "poverty culture", those who try to maintain the habit of regular work and to remain self-reliant are despised as "chumps".

Not surprisingly, Losing Ground has come in for a great deal of criticism.  Murray has been accused of ignoring changes in the American welfare system in the 1970s which increased the incentives to work.  Much unemployment in the 1970s was caused by economic recession.  There is a much lower rate of illegitimate births in Europe than in America, even though Europe has more generous social welfare programs.  Clearly, local factors will be at work in each country.  In Australia, much youth unemployment can indeed be blamed on a system which provides young people with a largely useless education and then prevents employers from paying them an economic wage.  Similarly in the UK, housing markets have become so rigid as a result of state intervention that many unemployed people are unable to move to regions where there are plenty of job vacancies.  On the other hand, since American labour and housing markets are among the most flexible in the world, a greater proportion of the unemployment in that country is likely to be the product of the causes which Murray cites.

But Murray has to devote at least as much time distancing himself from his admirers as responding to his critics.  Some American "small government" enthusiasts have plundered his book for what they regard as decisive arguments against welfare and for tax cuts.  Yet part of the attraction of Losing Ground is its genuine concern at the failure of the Great Society legislation really to help the poor and disadvantaged.  Murray actually says rather little about how the American welfare system might be improved.  But he believes that a successful system would have to embody two features.  First, it would restore status rewards to individuals who tried to become independent;  and second, it would be administered at state or local levels.  Federal welfare schemes are especially likely to fail, partly because they are remote from the problems they aim to solve, and partly because they offer little scope for experimentation.

Most citizens in modern democracies seem willing to help the disadvantaged through the tax-transfer system.  But some welfare recipients, however "needy", will inevitably learn the wrong lessons:  that there can be freedom without responsibility, that political lobbying brings more rewards than self-help, and that life was meant to be easy.  Quite possibly there is no ultimate solution to this dilemma:  there may be no way of delivering welfare so that all its beneficiaries make proper use of it.  The virtue of Losing Ground is that it forces us to admit, not only that the dilemma exists, but that helping the disadvantaged requires much more than money and good intentions.