Income and health – from a minimum wage to a citizen income?
Reproduced with permission from the International Journal of Management Concepts and Philosophy, Vol. 4, No. 2, 2010
Dr Stephen Watkins
Medical Practitioners Union, 128 Theobald’s Road, Holborn,London,WC1X 8TN, UK
Biographical notes: Stephen Watkins is a Director of Public Health in Stockport (population some 280,000) in the UK. A Trained Medical Practitioner, he is the Chairman of the UK Transport and Health Study Group, and a Council Member of the British Medical Association as well as a Past President of the Medical Practitioners Union. In his public health work he has focused on reducing health inequalities in Stockport. He has also developed a multi-agency Public Health Strategy and Public Health Network. He has published widely including papers in the British Medical Journal, Journal of Public Health, World Health.
Abstract: This paper returns to an argument made by a group of UK health professionals in late 1980s and early 1990s and suggests that a divide is developing between public health and the economic system. It argues that public health and well being can best be served by establishing a citizen’s income to protect the whole population and that this is compatible with some of the basic ideas set out by Keynes in the 1930s. Health professionals should engage with economic arguments and not accept the current terms that limit thinking about economics and health.
This paper is a written version of a talk given to the 7th Sandwell Health Alternative Economic Summit in July 2009. The summit is held regularly in the UK with national and international speakers to coincide with major G8 meetings.
The work of Richard Wilkinson has shown us that inequality of income has a direct effect on people’s health – that once a national GDP per capita passes the level of Portugal in the 1980s then the health of a population is no longer determined primarily by economic growth but more by the degree of inequality (Wilkinson, 2005; Wilkinson and Pickett, 2009). There is something about people’s position in the income hierarchy that seems to affect their health. It may be the stress of being excluded from lifestyles that are presented as normal or it may be the fact that low income is linked to powerlessness. Power to control one’s own life, including one’s own working life, is another factor that has been shown to have a major effect on health (Marmot, 2003; Yuill, 2009).
Increasingly we understand the immense power of mental well being as a predictor of good health. We are increasingly understanding too some of the elements of that well being – social support, inequality, greenspace, empowerment. We have a biologically plausible explanation for the links in the form of the stress reaction. Yet ironically, at the very time that material advance slows down and our society most needs to understand the true roots of its well being, we still do not have a clear scientific paradigm to link this knowledge together.
Which would you prefer – to earn £200 in a society where the average wage was £250 or to earn £150 in a society where the average wage was £100, assuming the purchasing power of the pound to be the same in both societies? When this question has been posed by psychologists and behavioural economists the replies are not what might be expected. Wilkinson also asked this question and said that most people would choose the £150. I have actually tried it myself with several groups and it comes out about 50/50 so people find the question difficult. However, to economists who believe that ‘more is better’, this is a no-brainer; to real people it is difficult. There is something important about relative status and it is probably linked to power and control.
In this paper I return to an argument that was first set out two decades ago. This is an unusual experience. But given the accumulation of two decades of evidence and the difficulties in the global economy I hope it has some merit.
From 1988–1998, I was the President of the Medical Practitioners Union, a part then of the trade union ASTMS, now of the trade union UNITE. (The Medical Practitioners Union is the major trade union organisation for doctors in the UK. Formed in 1914, it has seen itself as at the centre of public health reform and has opposed the British Medical Association in favour of policy which champions an ‘alternative way that puts patients first and the pursuit of single-minded profit last’ (UNITE, nd). Today it is part of UNITE, with its members some of the three million which make UNITE the largest UK trade union. ) This is an organisation which defines itself as the medical organisation of the social movements of the people. During my Presidency we published our proposals to address the issue of inequality and health through a citizen’s income (Medical Practitioners Union, nd). Although this was published whilst I was President and although I know that I wrote the final draft I can’t actually remember who to credit with the ideas and discussion that shaped it. I have a feeling that it may have been inspired by my predecessor Sam Galbraith. I say that because it is a very simple and direct solution to the problem of inequality and it sounds like the kind of idea that a surgeon would come up with. (Sam Galbraith is a neurosurgeon who went on to serve as a British and then Scottish Member of Parliament and a minister in the Scottish Executive. )
The proposal was and is very simple – we would give an income to every citizen who contributes meaningfully to society, whether through work, through self employment, through voluntary work, through parenting or caring or through undergoing education. Hours contributed would be transferable within households so as to include those who took a disproportionate burden of housework. Individuals who were too sick or disabled to work or were beyond retirement age would be exempt from making this contribution, although we felt that the numbers who were too disabled to make any kind of contribution would be small and the aim would be to find a meaningful contribution for everybody. Any citizen who could show that they had committed a specified amount of time per week to these purposes would receive a citizen’s wage of two thirds of the average income (with pro rata payments for those who contributed fewer hours). We would thereby commit two thirds of our gross value added. The labour market and financial markets could distribute the rest. It is what, following John Maynard Keynes, can be called ‘playing the game for smaller stakes’. Keynes in the General Theory recognised the importance of incentives but also suggested that they need not be as great as they were when he was writing,
“There are valuable human activities which require the motive of moneymaking and the environment of private wealth-ownership for their full fruition. Moreover, dangerous human proclivities can be canalised into comparatively harmless channels by the existence of opportunities for money-making and private wealth, which, if they cannot be satisfied in this way, may find their outlet in cruelty, the reckless pursuit of personal power and authority, and other forms of self-aggrandisement. But it is not necessary for the stimulation of these activities and the satisfaction of these proclivities that the game should be played for such high stakes as at present. Much lower stakes will serve the purpose equally well, as soon as the players are accustomed to them.” (Keynes, 1936)
We will return to Keynes later.
It would clearly be impossible to organise this by redistributive taxation – it would mean marginal tax levels of over 80% which would be wholly unacceptable even though we do at the moment impose tax levels higher than this on the poor by way of withdrawal of benefits. So we had a simple solution – we would have a once and for all downward adjustment of incomes, easily arranged for those who obtain their incomes by jobs or benefits, less easy for investment incomes but probably still capable of being done. After the once and for all adjustment, the market could take over again. The adjustment would create a huge windfall for businesses and this would be gathered in through green taxes and distributed as the citizen’s income. At one and the same time we would have found a market solution to two of the failures of the free market – its failure to account for externalities and its failure to achieve a fair distribution of income. If the purpose of the market is to optimise resources to meet human need there isn’t the slightest reason why somebody’s consumption power on that market should equate to the value of their skills on the labour market.
We also asked what impact this would have on the labour market. For the poorest sections of society their actual earnings would be small in comparison with their citizen’s income. This is, of course, already the case with the ‘benefits trap’ in which withdrawal of means tested benefits lead to the poor keeping only a small part of any income that they earn. There would be two differences – the first would be that it would no longer be possible simply to demonstrate that you were seeking work, it would be necessary to contribute to society in some way so the ‘scroungers’ argument – that people were exploiting state benefits by voluntarily not working – would become untenable. The second is that it would no longer be necessary to seek paid work, so ‘low pay employers’ could no longer hold the loss of your tax credit and the fear of being judged intentionally unemployed over their workers to encourage them to accept low pay. This means that employers would have to create a job which would compete in attractiveness with voluntary work. We thought that anybody who could actually be entrusted with the management of a significant part of other people’s lives should be able to do this. There are, of course, a lot of employers who lack these skills. However, given the importance that quality of work has on health, and especially the significance of control over one’s own work, as well as the importance of not allowing workers to be bullied, we saw no reason to continue subsidising these employers. Such employers are health hazards and should not continue to be allowed to damage the health of their employees instead of learning how to treat them as properly human.
We also asked what impact on the market the shift of employer costs away from employment and towards green taxes would have. We felt that it would achieve an overwhelmingly beneficial shift, although we did suggest it could be phased to avoid sudden dislocation. Twenty years on, of course, the idea seems much less radical than it did at the time – today everybody wants to boost knowledge-based industries and environmental industries.
We were then asked what it would cost. If you ask what sum is to be financed by the money-go-round it is two thirds of gross value added but if you look at funding rather than finance, if you ask what consumption power would actually have to move from one part of society to another rather than just go round in circles, we were able to cost it from figures given by the UK Commission for Social Justice and we costed it at £23bn in 1990s prices (Commission on Social Justice, 1994). It is probably double that now because of inflation, it will have further increased as inequalities have widened but this will have been partially offset by the introduction of tax credits. So it’s a huge sum. But not beyond the scope of the kind of sums that nations have in the past year found it possible to deal in.
We did produce a plan to fund it. At the time we produced the paper a very large part of the funding could have been found by abandoning married couple’s tax allowance and mortgage interest tax relief. Both of those have since been abolished anyway and the additional taxation gained spent much less productively so it would now be necessary to look again at how to fund it.
In addition to the £23bn there was a further £17bn that would be paid to low income members of high income households. Again this figure will have increased in line with inflation but it may also have decreased in line with the trend away from single income families. As it was a windfall benefit to relatively affluent sections of society we proposed simply to fund it through taxation.
In discussing how to fund it we pointed out that a secure lifetime income would reduce the need to save and logically this should free up money that people should be willing to spend in tax, and we also pointed out that the consequences of inequality have considerable public expenditure implications which may no longer be needed.
The first of these reduces the impact on the individual of any tax increases, the second reduces the cost that needs to be funded. When account was taken of these offsetting savings we doubted if the actual cost would be very great. When we look at the cost of the scheme we have this interesting feature that the cost to be financed is huge, the gross cost to be funded is still very large but more capable of being contemplated, the cost to the state net of savings elsewhere may be quite moderate and the cost to the individual taxpayer, net of offsetting savings, may be very small. But how can it be very small? For the overwhelming majority of the population, indeed for anybody who was willing to work, voluntarily if necessary, and was able to make a reasonable stab at organising their lives, this scheme would eradicate poverty. How can we eradicate poverty at anything but a huge cost?
I said a short while ago that I would come back to Keynes. Keynes played a major part in establishing the post war monetary system. His aim was to avoid the problems that have caused such difficulties in the 1930s and the system was what the world used from 1946 until the 1970s. It was then abandoned because it seemed that it had ceased to work.
Keynes argued than money was a means of exchange not a resource in its own right. Its significance lay in the resources that it allowed to be brought into use because they could be traded. He further argued that if there were resources which were not being used because there was no money then the problem must be the shortage of money not the shortage of resources. So the answer was to print money. If you did this at a time when there wasn’t a shortage of money you would get inflation. However if you did it when there were resources unused because of shortage of money this wouldn’t happen – the money that you printed would bring the resources into use and thus create the wealth that would support the money. In the 1970s this didn’t work. There was recession, money was printed and instead of producing growth it produced inflation.
If it wasn’t for this problem with Keynesian theory the solution to our current problems would be straightforward. The problem lies in the financial economy not the real economy, so we should print money. It becomes quite simple to pay for the relief of poverty, the development of green infrastructure and the maintenance of public services. This is the argument that governments cannot afford public spending cuts. It is why in the UK for much of 2009, the Prime Minister continued to deny the case for spending cuts. It is why Barrack Obama emphasised in his January 2009 inauguration speech that the USA economy could still produce today everything it produced before the crisis.
“Our workers are no less productive than when this crisis began. Our minds are no less inventive, our goods and services no less needed than they were last week or last month or last year. Our capacity remains undiminished. For everywhere we look, there is work to be done. The state of our economy calls for action, bold and swift, and we will act – not only to create new jobs, but to lay a new foundation for growth. We will build the roads and bridges, the electric grids and digital lines that feed our commerce and bind us together. We will restore science to its rightful place, and wield technology’s wonders to raise healthcare’s quality and lower its cost. We will harness the sun and the winds and the soil to fuel our cars and run our factories. And we will transform our schools and colleges and universities to meet the demands of a new age. All this we can do. All this we will do”. (Obama, 2009)
Yet these messages have become more muted. They are characterised as a foolhardy denial of market and financial reality. Indeed since then many of these arguments have been abandoned.
So why did Keynesianism fail in the 1970s? A clue lies in something else that happened around that time, something that as public health professionals we know about very well. Up until then indicators of well being closely followed GDP per capita. But after that date GDP per capita accelerated but indicators of well being fell back. I believe that what happened at that time was that there was a change in attitude to making money. Up until then if you wanted to make money you set out to make a product or provide a service that people wanted to buy. To make money through investments you invested in companies that produced such a product or service. So the financial economy, the real economy, and the sense of well being all followed each other – they were just different indicators of the same thing. Then this changed so that money came to be seen as having an existence of its own, independent of the resources and goods that it is used to exchange. Once we start to think this way it becomes possible to absorb money into the prices of assets – houses, positional goods, derivatives. Some of those assets may be toxic assets, assets based on money that doesn’t actually exist because the entitlement to it in the financial economy has no counterpart in the real economy. Once you create this disjuncture between the real economy and the financial economy three things happen. Firstly indicators of well being no longer parallel indicators of the financial economy. Indeed it may be that in future central banks, instead of viewing this as unimportant, should see it as the first symptom of an emerging speculative bubble. The second thing that happens is that Keynesianism ceases to work. Money injected into the economy can easily be absorbed into assets instead of working in the real economy. The third thing that happens is that the risk of a financial crash grows as money increasingly ceases to be matched by something in the real economy.
Arguing that we must have public service cuts and mass unemployment is to make the mistake that got us into this mess in the first place. We got here by believing that money exists as an entity in its own right rather than as a means of exchange. We won’t get out of this mess by repeating that mistake. There are, of course, toxic assets in the public services just as there are in the commercial sector. Transactional costs of meaningless internal markets, distortions produced by targets, bureaucratic empires, the revenue consequences of poor value UK Private Finance Initiative schemes, the consequences of poor procurement are all toxic assets and they account for the ebbing of public support for public expenditure (Pollock, 2005; Player and Leys, 2008). They must be addressed by involving those who use services and those who work in them in a continuous process of finding ways to produce better services more cheaply. We can’t do that whilst we continue to believe that anybody who knows what he is talking about is a vested interest. In some settings the process of involving service users and workers in a process of continuous quality improvement has achieved savings of a magnitude quite sufficient to bridge our current gap in public finances. But not in the UK, here managers do not know what is happening. And workers, including professionals, do not trust them enough to tell them.
However to the extent that the gap in the public finances genuinely represents merely the lack of the money to match a real need to real available resource we can finance it simply by printing the money. Since poverty constitutes exactly such a gap this explains why we can eradicate poverty at relatively little cost.
There are two massive logical jumps in this argument. The first is that although I have said that the disjuncture between the real and the financial economy stops Keynesianism working and explains why it didn’t work in the 1970s. I then advocate Keynesianism as the solution to the problem. The second is that my proposals undermine the rationing power of money in the public sector – if we once accepted that any public good could be financed by printing money there would be no end to the whimsical empires to be built by politicians and public service leaders.
I am not simply asking for Keynesianism. Indeed it follows from my argument that Keynesianism on a grand scale, simply throwing money into the economy, can only work if the pressure of real needs is stronger than the pressure of positional needs. It may be that once the disjuncture between the real and financial economy has been established that can only happen when a deep depression brings us to our senses. The absence of that is, of course, one of the things we want to achieve, and in its absence I believe that Keynesianism can only work if its connection to the real economy is actively achieved.
One way to make this link is directly to feed the money into the real economy. This is the idea that lies behind the paper ‘Local green Keynesianism’ produced by the North West Directors of Public Health (for a summary of some of the initiatives see Stockport PCT, 2009). If the construction industry is depressed let us build things – houses, railway stations, public conveniences. If civil engineering is depressed let us build railways and tram lines. Or even footpaths and cycle tracks. Could a depressed automotive industry build trams? If there is mass unemployment on dreary estates let us pay people who live there to design and build green infrastructure. And when they have sorted out their own estates let us pay the people who have jobs and live in less dreary areas to pay them to employ these skills in their own areas. These ideas are the modern version of the ‘Lucas Aerospace Shop Stewards’ Plan’. (This was a six volume document of alternatives to redundancy prepared in the 1970s at Lucas Aerospace in the UK (Wainwright and Elliott, 1982).)
Of course one very simple way to ensure that money is fed into the real economy is to pay for work to be done by people who would otherwise be unemployed and poor. When you give money to poor people they don’t invest it in diamonds and art and houses in plush suburbs and derivatives and villas in Tuscany. They spend it on things they need.
When they get a job, they start to pay tax. When they buy things, they pay VAT. The things they buy create work for others. This is the Keynesian multiplier. Even the most recalcitrant bean-counter ought to be able to understand it. It does not need to turn more than two or three times to fund itself.
How then do we stop this becoming a licence for just running an unbalanced budget to fund political whims and avoid choices? Partly this must be through a discipline of ensuring that the schemes are genuinely Keynesian, operating to bring genuinely unused resources into use for genuine social need. Partly it must be through the discipline of making the process local and participatory. Partly it must be through setting a new framework for economic decision making which focuses on measures of health and well being. Trusting things will come right is not enough. Here again it is useful to remind ourselves of an argument from Keynes. In the long run, he argued, we are all dead but the quotation is too rarely given in full for it is really an attack on the limited thinking of economists. ‘The long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is past the ocean is flat again’ (Keynes, 1923).
This raises an interesting question for public health professionals. Are we not the custodians of the body of knowledge out of which that new framework must be created? It may be thought wise to stop at this point before exploring some of the consequences of that conclusion, which could be challenging to traditional assumptions about science and professionalism. As the world grapples with the consequences of the financial crisis can health professionals stand aside from the question of whether it is resolved in the interests of the financial system or in the interests of people. If we believe that a disconnection between the concepts of money, resources and well being is damaging health can we just say that it is too controversial an issue for us? Let us suppose that if an election is viewed as a battle between Keynesianism and retrenchment, or between political parties, or between politicians there will be one result, but if it is seen as a battle between doctors and bankers it will be another. Where then lies our duty to science, to our own body of knowledge and to the values of which it is our professional duty to be custodians?
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