Volume 1, Issue 1 • 2009 • Article 7

Book Review of Shapiro's Is the Welfare State Justified?Mark Hyde, University of PlymouthJohn Dixon, University of Plymouth

Published on behalf of the Policy Studies Organization

Hyde, Mark and Dixon, John (2009) "Book Review of Shapiro's Is the Welfare State Justified?,"Poverty & Public Policy: Vol. 1: Iss. 1, Article 7.http://www.psocommons.org/ppp/vol1/iss1/art7

DOI: 10.2202/1944-2858.1006

©2009 Policy Studies Organization

Book Review of Shapiro's Is the Welfare StateJustified?

Mark Hyde, University of PlymouthJohn Dixon, University of Plymouth

Abstract

Mark Hyde and John Dixon review Shapiro's (2007) Is the Welfare State Justified?, assessingits merits as well as its flaws.

KEYWORDS: welfare state, pensions, political philosophy

D. Shapiro (2007) Is the Welfare State Justified? Cambridge: Cambridge University Press. £45.00, pp. 323, hbk. ISBN-13: 9780521860659

Classical liberals typically justify the market in terms of values such as personal responsibility, economic efficiency and individual freedom. This book is unusual in that it is authored by a classical liberal who defends private pensions with reference to collectivist philosophical values. Its central purpose is to demonstrate that if egalitarians are serious about their core principles, they should accept the primacy of markets as a foundation for retirement-income-protection. The welfare state as we have come to know it cannot be justified according to any philosophical perspective.

The strengths of Shapiro’s approach are twofold. First, he develops his analysis by integrating the insights of two disciplinary traditions. Political philosophy is concerned principally with the legitimacy of social institutions, particularly their appropriate normative foundations, while social science focuses on the dynamics of justice, including the design, societal impact and sustainability of income transfer programmes. Shapiro insists that an adequate account of justice must acknowledge the strengths of both approaches. If it is to distinguish dynamics of policy that are consistent with justice from those that are not, social science requires an appropriate normative theory. But if it is to give rise to principles that can reliably and sustainably be instantiated by reformers, political philosophy requires a concrete understanding of the dynamics of justice. This book draws upon both traditions in equal measure.

Second, Shapiro explicitly addresses the distinctive normative concerns of egalitarian liberals and communitarians, particularly their insistence that income transfer programmes should prioritise the normative requirements of “social” justice. The centrality of equality to egalitarianism means that it emphasises the importance of redistributive transfers that are able to address the adverse economic circumstances of the least advantaged. Shapiro’s analysis suggests that social insurance retirement schemes have a regressive intragenerational impact. Although they contribute for fewer years, individuals in well paid occupations have a higher life-expectancy, which means that they receive more in benefits over a lifetime. This compares unfavourably with Shapiro’s preferred market model: rates of return from a compulsory private defined contribution (DC) second pillar will be greater than those that could ever be achieved under a public scheme; the benefit entitlements that are derived from the DC second pillar could be protected by a state guarantee of a minimum pension income for those who are affiliated; while the least advantaged could be protected by a redistributive means-tested first pillar safety-net.

For egalitarians, the transfer of resources from the working population to retirees that is achieved by social insurance retirement schemes promotes

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Hyde and Dixon: Book Review of Shapiro

intergenerational solidarity. But in reality, pay-as-you-go financing has created inequalities in the treatment of generations. It has placed “significant burdens upon later generations that the earlier generations did not have—a low rate of return, a high level of taxes, and implicit pension debt—thereby reducing the later generations’ resources and most likely their welfare” (p. 169). This has resulted in widespread perceptions of unfairness, and intense distributional conflict between active contributors and retirees, undermining social solidarity. Although they do not transfer resources between generations, privately administered DC schemes achieve intergenerational fairness by ensuring that all retirees get what they have paid for. All are treated in an equivalent way, irrespective of the cohort to which they belong. Moreover, DC schemes promote greater security by conferring a genuine property right in the system, and they facilitate transparency, reflecting the clear relationship between contributions and retirement benefits. Egalitarians, we are told, “ought to be wildly enthusiastic about this” (p. 175).

This analysis is important to the extent that it highlights the very real possibility that publicly administered income transfers may fail to achieve the objectives that are endorsed by egalitarians, but it is problematic in at least two important respects. First, it should be noted that Shapiro’s preferred market model is not the set of institutional arrangements that would typically be embraced by classical liberals. For natural rights libertarians, the scope of public action must be restricted to the maintenance of a legal and coercive apparatus to protect individual freedom. The involvement of the state in transferring or regulating the transfer of resources violates inalienable individual rights. Consequentialist libertarians regard voluntary action as vitally important because it generates and diffuses the benefits of economic prosperity. Publicly administered pensions are regarded as unacceptable because they result in sub-optimal retirement income outcomes. The “real” classical liberal approach to retirement provision, then, is one that emphasises individual over collective responsibility for retirement income futures, and voluntary action. But the reverse is true of Shapiro’s “market” model, which requires the public authority to design, subsidise and regulate retirement income transfers, as well as compelling the economically active to affiliate to a supplementary retirement scheme. In reality, his distinctive integration of political philosophy and social policy analysis endorses a strong degree of collective responsibility for retirement income futures. This diminishes the force of Shapiro’s argument, since this book could be regarded as justifying the argument that the classical liberal concern with individual freedom and economic efficiency must be circumscribed by egalitarian values.

This said, Shapiro’s preferred “market” model is flawed in its own terms. The failure of his sophisticated philosophical repertoire to engage robustly with the desert principle means that his discussion of the second pillar has little to say about the degree to which the entitlements it is responsible for distributing have

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Poverty & Public Policy, Vol. 1 [2009], Iss. 1, Art. 7

http://www.psocommons.org/ppp/vol1/iss1/art7DOI: 10.2202/1944-2858.1006

been “earned” by productive achievement. There is now considerable evidence to suggest that the allocation of resources through DC retirement schemes can be morally arbitrary when appraised against the requirements of desert. This principle requires those whose productive contributions are similar to be rewarded in an equivalent way, yet DC schemes give rise to considerable variation in benefit entitlements, irrespective of the affiliated individual’s contribution history. DC provision confers benefits on people who have done nothing to deserve them: public subsidies for DC schemes are financed by taxpayers, who may not be affiliated to a scheme; entitlements to survivors’ benefits are conferred regardless of a person’s prior involvement in work; returns on the investment of a person’s contributions are paid without concern for any broader economic and social benefits that it has delivered. If the transfers that are administered under the auspices of DC retirement schemes are not consistent with the requirements of the desert principle, what is their appropriate moral justification? Furthermore, Shapiro fails to engage robustly with evidence regarding the efficacy of different approaches to the design of the first pillar safety-net. His preferred approach, means-tested social assistance, is characterised by several fundamental flaws, including the possibility of stigma, non-take-up, and parsimonious benefit entitlements. In comparison, a universal tax-financed retirement income safety-net would permit retirees to qualify automatically for their entitlements, eliminating the problem of non-take-up. And because universality has enormous political support, benefit entitlements are unlikely to be parsimonious.

In drawing our attention to the possibility that collectivist aims and values can be pursued through a well-designed combination of public and private retirement provision, Shapiro’s book represents an important contribution to the literature, reinforcing the growing recognition among pensions scholars that privatisation can be consistent with the normative requirements of justice. To this extent, Shapiro may be correct in his insistence that the moral force of the public pensions model that privatisation is seeking to replace is questionable. What continues to be justified is the role of the public authority in defining and regulating pensions, regardless of their sectoral locus.

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Hyde and Dixon: Book Review of Shapiro