Tuesday, August 5, 2008

Corporate welfare?

With an estimated 12 million South Africans on welfare, persistent poverty and increased pressure on expanding the welfare system, an important question is how future 'care' will be financed. Will the private sector come to the rescue?

Anthony de Jasay provides some insights into this question for European welfare systems in his article Topping up welfare:

Throughout Western Europe, redistribution remains an electoral must. Right practices it no less than Left. However, the doctrinal climate in which it flourishes is undergoing a change. Capitalism is still condemned as selfish, inegalitarian and chaotic, but it is no longer treated as the evil that must be uprooted, destroyed and replaced by the purposeful, responsible and just socialist order. It is only the half-crazed, wild-eyed intellectual flotsam that still clings to the old dreams of doing away with exploitation. More and more socialists quietly realise that since private industry is better at exploitation than state-owned enterprises, it is better at capital accumulation too, and will create more riches for governments to lay their hands on.
Lately, however, it has dawned even on left-leaning politicians and union leaders that there is a trade-off between redistribution and economic growth. One cannot have both an extensive system of welfare provision in kind, complex protective regulation, high taxes and endemic budget deficits as well as low unemployment, technical progress and vigorous growth. Scared a little by the perspective of stagnation or breakdown, since before the turn of the century Britain, Holland, Sweden and Germany have tried to put a brake on the luxuriant spread of the welfare state. The share of GDP taken by government and the social welfare agencies seems to be levelling off. The European average is now hovering at just over 40 per cent, with Germany at 44, Britain at 45, though France is still defiantly leading the pack with 54 per cent.
The "Third Way" that Tony Blair learnt about from his sociologist guru Anthony (now Lord) Giddens (and that Vaclav Klaus branded the fastest way to the Third World) included the idea that business enterprises did not belong to their owners alone. Along with its shareholders, a corporation had other "stakeholders" to whom it owed some responsibility and who ought to have a say in its conduct. Employees, suppliers and customers were the obvious ones, but the townspeople, cultural and educational institutions, the environment and for that matter the whole nation had a "stake" in each business and it was management's clear duty to respect these stakes.
Corporations are sternly asked to be "good citizens", though only individuals can do that. Managements do yield to this moral pressure; doing so passes for "best practice" in most business ethics courses. The net effect is that state provision for welfare and good works, running at a level that stretches government finances to critical limits, is topped up by the private sector without taxation and budget deficits being further increased.

Corporations can certainly play an important role in the provision of social goods, but corporations, by their very nature, are highly unlikely to become pseudo-welfare organisations. The question is more about finding a balance between cooperation and competition, between state and market and between production and redistribution.  

The traditional economic theoretical division between state and market does not help in providing structure and function to such an emerging theory.

Image from fourletterword.

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