The Fallacy of Public Sector Affordability

In this guest blog Professor John Weeks, author of Economics of the 1%, explores the assumptions behind the idea that key public services, including education and pension provision are unaffordable. 

In my new book, The Economics of the 1%, I deconstruct the ideological arguments for fiscal austerity. Prominent among these is “public sector affordability”, a fallacy that looms large in the neoliberal assault on social spending.  This fallacy appears virulently in the polemics over deficit reduction in the United States, Britain and continental Europe.  The mainstream media treats it as established fact rather than the ideological dogma that it is.

It manifests itself in the United Kingdom in assertions that if university education were made available to a large portion of the population the public sector could not afford to deliver it.  Therefore, substantial fees are not barriers to broadening tertiary education, but serve as the vehicle to democratize access to education.  The demonstrable absurdity of this proposition has not brought it the ridicule it deserves.

The neoliberals apply the same argument in very area of social expenditure, major or minor.  With an ageing population, “the public sector cannot afford” to pay more than a safety net pension; and cannot afford to provide all the drugs and care needed by that ageing population, and so on.

The fallacy comes obvious when we consider society as a whole.  Only a tiny minority of people would argue that primary education should be a matter for individual families to decide and fund privately.  The overwhelming majority in most countries hold to the conviction that children have a right to be educated.  This is not only an individual right.  Fostering an educated and informed public is essential to a democratic society.

Conviction, not finance, determines the provision of primary education by the public sector,  for everyone, regardless of income or status.  If some wish to contract for private education, they may do so, but they must pay their taxes to help support education for all.  The social consensus on public provision of secondary education is equally broad (for everyone), though number of years provided varies (lower in Britain than most developed countries).

How do we identify the appropriate coverage and to what level the public sector should support tertiary education?  Here we find no consensus.  Those who believe that people have no right to higher education usually avoid taking that potentially damning position, seeking cover under the affordability argument: “I wish we could provide everyone with a university education, but we cannot afford it, and  in any case, people gain personally from higher education, so they should pay for it themselves to the extent that they can.”

The public sector can only afford to help the poor to university, and if you are poor and clever you will find funding, or so goes the argument.  The implication of this “equal opportunity” of the neoliberals is that the rich can be dumb and fund themselves to a higher degree, while the poor must qualify as “clever”.  Elitism in education is fostered, not diluted.

The affordability fallacy takes most pernicious form in its application to pensions and health.  In any civilized society children have a right to education and the old should live their final years in decent conditions with dignity.  The consensus supporting a decent life for the elderly exposes “affordability” as grotesque.  The question is, in light of a country’s economic development and productive resources, what level of decency can and should society provide to everyone past a certain age?

Once the level is set, it remains to decide the institutional mechanism by which society delivers it.  Considerable empirical evidence indicates that provision of pensions through the public sector has the lowest resource cost (i.e., saves money).  Unlike private insurers, the public sector need charge no risk premium.  The combination of social consensus and economic growth should guarantee the revenue to fund a pension system be it public or private, and the form is the cheaper and more equitable.

Equally obvious should be the fallacy of the affordability argument for health care.  With the appalling exception of the United States, in every high income country the electorate accepts the principle that everyone has the right to adequate medical care.  By accepting this principle, the debate must focus not on financial affordability, nor on coverage (everyone qualifies).

The affordability argument perpetuates a profoundly anti-social and anti-democratic fallacy.  Whoever makes it asserts, as Margaret “Iron-Lady” Thatcher did, that there is no society and people have no obligation to fellow human beings beyond an absolute minimum that social decency forces upon even the most reactionary.  Reducing people’s sense of social decency represents the long term project of those who peddle the affordability fallacy.  People exist as a loose collection of isolated individuals, taxpaying consumers, in a marketized state of nature where it is each for her/himself.  As Hobbes told us, in the state of nature without the social contract life is “solitary, poor, nasty, brutish and short”.  Not a bad description of what the one percent would have for the rest of us.

Oliver Wendell Holmes, US Supreme Court Justice for thirty years, famously wrote in a 1927 opinion upholding a tax on a tobacco company, “taxes are the price we pay for a civilized  society”.  Though this statement is too defensively negative, it moves considerably closer to social reality than affordability arguments.

If the public sector does not provide social goods and services, then a burden does indeed fall upon the household and individual.  Each person must bear the necessity to seek private provision considerably more expensive than public delivery would be.  Taxes are not merely the price we pay for civilized life, they are the vehicle to achieve a humane society.