The Welfare State and Poverty: A Reply to Fred Gruen

Abstract

1. Introduction The review by Fred Gruen (FG) of my book Welfare and Inequality: National and International Perspectives on the Australian Welfare State (Saunders, 1994a) contains a good deal of analysis and argument with which I am in broad agreement. He has made a number of perceptive comments, many of them critical in the scholarly sense, and I am grateful to him for these. However, there are also a number of points raised by FG with which I would wish to take issue and I am pleased to have this opportunity to do so. Some of these issues may appear to be narrow and technical in nature and hence of only limited interest and relevance. This is not so. As is made clear in my book, in FG's review article, and in what follows, these issues have a crucial bearing on the assessment of trends in poverty in Australia over the 1980s and on estimates of the effectiveness of policies designed to alleviate poverty and mediate inequality. In this sense, they are fundamental to any overall assessment of the achievements of the Australian welfare state. On this point at least, I suspect that FG and I agree. It is when it comes to the details, however, that our views diverge. In focusing on these, I do not wish to downplay those aspects of my book with which FG agrees--nor would I want to detract attention from those sections of his review where he is generally complimentary about my work! Details of the analytical structure and theoretical framework are important, but so too is the need to view the welfare state in a broad perspective. This involves stepping across disciplinary boundaries and recognising that economic analysis, whilst important, can contribute only part to any overall assessment of policies which are not only economic in scope and impact but also political in motivation and social in purpose. One of the leading welfare state analysts, Gosta Esping-Andersen has recently articulated this view in eloquent terms, arguing that the advanced welfare state became one of the hallmarks of post-war prosperity through bringing about economic, moral and political reconstruction (Esping-Andersen 1994). In focusing on some of the detailed issues raised by FG, I would not want this bigger picture to be lost. Indeed, one of the main motivations for writing my book was to draw attention to the broader framework, and to locate the role of economic analysis within it. 2. Poverty Research The main area where FG is critical of my work concerns poverty research, specifically the methods I used to estimate poverty in Australia over the 1980s. Before considering this specific issue, I wish to address several other matters raised by FG. The first of these relates to his somewhat confusing discussion of the link between poverty and inequality. In the opening paragraph of his review, FG quotes my evidence of the rise in poverty over the 1980s as an indictment of any welfare state which has the reduction of inequality as its fundamental aim. Again on page 129, after discussing my analysis of the impact of social wage benefits on income inequality, FG observes (correctly) that between 1984 and 1988-89 these benefits had the greatest income impact on the lowest three deciles of the household income distribution. But he then draws the implication that; 'the inclusion of community services seems to change the picture of the poor getting poorer quite substantially' (FG, p. 129). This claim cannot be deduced from the results in my Table 6.4, which refer to changes in final income for deciles of gross household income with no allowance made for differences in need through the use of an equivalence scale. Without such an adjustment, it is not possible to deduce what these results imply for the change in the living standards of poor, as opposed to low income, households. Having admonished FG for this oversight, it is nonetheless the case, as I have recently demonstrated, that his claim that the inclusion of social wage benefits does change the picture of the living standards of the poor (in 1988-90) is substantially correct (Saunders 1994b; 1995). …