„Asset-based welfare‟: The social policy corollary
of the Anglo-liberal growth model?
______________________________________________
Premier séminaire Finance et protection sociale
Sciences Po, Paris,
3-4th October 2012
Colin Hay, University of Sheffield, UK
We live in a world in which familiar ideas and
conventional orthodoxies have
been challenged …
Robert E. Lucas: “for all practical purposes … the central problem of
recession prevention has been solved” (Address to the American
Economic Association, 2003);
The ‘Great Moderation’ Recast
__________________________
1. The end of debt-financed, consumer-driven growth?
2. … And the Anglo-liberal growth model which sustained it?
3. … And the „asset-based welfare‟ with which it came to be
associated?
4. The period 1992-2007 recast – from the careful nurturing of
growth to the inflation of a bubble economy – and the mortgaging
of citizens‟ capacity to satisfy their future welfare needs on the
indefinite inflation of the bubble?
The ‘Anglo-liberal growth model’ ... and ‘asset-based welfare’
__________________________
• Anglo-liberal growth model – or privatised Keynesianism – in which
citizens‟ access to debt (typically secured against rising property values)
boosts aggregate demand in the absence of public pump-priming
(traditional Keynesianism) – equity release fuels consumption;
• Asset-based welfare – the encouragement (and facilitation through public
policy) of the accumulation by citizens of appreciating assets (by
deferring consumption or through a financialised model of saving-asinvestment) to provide for future welfare needs (a privatised insurance
model);
• Both rely on stable asset-price appreciation, easy access to credit and
hence a low inflation-low interest rate equilibrium …. Good as long as it
lasted ….
Asset-based welfare … a public policy disposition
__________________________
Much has (rightly) been made of the distinctiveness of Britain‟s turn to
asset-based welfare, but there is a certain irony here ….
ABW has facilitated welfare residualism but arguably it is also a
manifestation of that residualism – for in substantive social/public policy
terms its content is quite limited. It has but four key elements:
1. Child Trust Funds;
2. The Savings Gateway;
3. The promotion of financial literacy (inc. in schools as part of the NC);
4. The promotion of the responsible investor citizen as welfare provider.
Child Trust Funds
__________________________
•
Announced in the 2001 Budget; first vouchers issued in January 2005;
•
Long-term private savings accounts for children (held by banks) – capitalised at
birth, maturing at 18, with the child only then granted access to the fund; no
end-use restrictions.
•
£250 initial payment by the state (£500 for children in low-income households);
a further state payment when the child is 7; tax efficient parental contributions
up to £1200 per annum.
•
Accounts opened by parents but owned by the child – a range of different types
of investment account (bonds, equities etc.) carrying different risks.
•
Accompanied by a linked programme of financial education (within the National
Curriculum).
•
Advertised (privately) in terms of providing capital for investment in human
capital, assets (deposit for a house), or business start-ups.
The significance of ‘asset-based welfare’
__________________________
1. A privatisation and individuation of responsibility for meeting welfare
needs; the burden shifts from the state (Beveridgean model) to citizens –
state‟s role is to provide financial literacy and opportunity;
2. A new model of welfare provision – with assets traded in for welfare
credits (access to higher education, residential care etc.) – consistent with
growing welfare residualism in Anglo-liberal welfare states;
3. Analytically interesting since it provides evidence of an awareness (in
the government & HM Treasury in particular) of the Anglo-liberal
growth model (as a background set of assumptions making possible the
transition to such a model of asset-based welfare).
Why the need for asset-based welfare?
__________________________
1. A response to demographic change (notably, an aging population) made
possible by Anglo-liberal growth and asset price appreciation;
2. Made necessary by (and facilitating of further) cumulative welfare
residualism;
3. This is typically masked in the aggregate data but very clear since the
mid 1980s in comparative indices of welfare generosity;
4. Worth looking (briefly) at that data ...
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
1947 1950 1960 1965 1970 1975 1980 1985 1990 1995 2000
UK
Sw
Bel
18 country mean
Figure 1: Divergence in retrenchment: unemployment benefits
as income replacement ratios, 1947-2000
Source: Hay and Wincott (2012); calculated from the SCIP database
(https://dspace.it.su.se/dspace/handle/10102/7)
Continental Mean
Nordic mean
20
00
19
95
19
93
19
90
19
85
19
80
19
77
19
75
19
70
19
65
19
60
60
55
50
45
40
35
30
25
20
15
Liberal Mean
Continental CV
Nordic CV
20
00
19
95
19
93
19
90
19
85
19
80
19
77
19
75
19
70
19
65
19
60
1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
Liberal CV
Figure 2: Regime cluster means and coefficients of variation
for unemployment benefits as income replacement ratios, 1960-2000
Source: Hay and Wincott (2012); calculated from the SCIP database
(https://dspace.it.su.se/dspace/handle/10102/7)
How dependent was asset-based welfare on Anglo-liberal growth?
_______________________________
1. ABW was, then, a mode of adaptation to demographic change in a
context of cumulative welfare residualism aligned with Anglo-liberal
growth;
2. This raises the interesting question of how much the iterative transition
to ABW has been thwarted by the bubble burst, the credit crunch and
global financial crisis;
3. To answer that we need to look in more detail at the Anglo-liberal
growth model itself ... And how it came unstuck.
Bubble burst: the UK experience I
______________________________
1. Not simply a story of contagion – a „crisis‟ of the Anglo-liberal growth
model, not (just) an American crisis.
2. Two distinct elements: (i) exogenous (contagion through exposure to the
US housing market); (ii) endogenous (the puncturing of the low
inflation-low interest equilibrium on which growth relied).
3. Contagion: (i) direct – UK financial institutions highly exposed to US
MBSs; (ii) indirect – the reliance of the UK growth model on access to
easy credit made it peculiarly exposed to the credit crunch which would
inevitably follow a loss of confidence in the US housing market (and
associated MBSs).
4. The size and systemic significance of the UK financial sector left the
government with little option other than to underwrite it with public
funds – the (temporary) re-nationalisation of privatised Keynenianism.
Bubble burst: the UK experience II
______________________________
1. Contagion can account for the constriction of the supply of credit
that had been drip feeding the economy ...
2. But it cannot account for the timing of the bubble burst in the UK
housing market.
3. By the onset of the credit crunch in the US, housing market
transactions had already fallen by a quarter from their peak in late
2006.
4. This suggests the importance of endogenous factors – they aren‟t
difficult to find.
200
6
180
5
160
140
4
120
100
3
80
2
60
40
1
20
0
0
2005Q2 2005Q4 2006Q2 2006Q4 2007Q2 2007Q4 2008Q2 2008Q4 2009Q2
Brent Crude $US
Housing transactions
Bank rate
Figure 3: Interest rates, the price of oil and the UK housing market
220
200
1300
180
1100
160
140
900
120
700
100
80
500
number of transactions
value of transactions
1500
60
300
2002
40
2003
2004
2005
value of housing transactions
2006
2007
2008
2009
number of housing transactions
Figure 4: The value and volume of housing transactions, 2002-2010
Source: HM Revenue and Customs Annual Receipts
(monthly values, 000s and £Ms)
The transmission through the economy
______________________________
1. Trend in the value of housing transactions followed that for
volume with a c. 6 month time lag.
2. Having grown at 12 per cent p.a. since 1992, residential property
prices were falling at 20 per cent p.a. by the end of 2008; worse
still in the commercial property market.
3. Despite the widening lending spread, new credit was very difficult
to secure; but there was little demand for it anyway.
4. A very significant transformation in personal fortunes was
underway ….
220
200
1300
180
1100
160
140
900
120
November
700 2006
100
• Av. house price = £200k;
80
December
2008
500
• Av. earnings
= £30k;
60
• Av. house price = £195k;
• House price inflation = 11% p.a.
• House300
price deflation = 19 % p.a.
40
• Wealth effect of HPI = ¾ of pre-tax
• Loss of housing
124 %2005
of pre-2006 2007 2008 2009
2002 equity
2003 of2004
av. earnings
tax earnings in a year
• 2004-2006 - credit-based consumption
number of housing transactions
= 4-6% ofvalue
GDPof housing transactions
number of transactions
value of transactions
1500
Figure 5: The value and volume of housing transactions, 2002-2010
Source: HM Revenue and Customs Annual Receipts
(monthly values, 000s and £Ms)
6
4
2
0
-2
-4
1995
2000
House Price Inflation
2005
-6
2010
Output Growth (Y-on-Y
Figure 6: Output growth and house price inflation, 1990-2010
Source: HM Pocket Book Data Series, various years
Output growth
House price inflation
25
20
15
10
5
0
-5
-10
-15
-20
-25
1990
The anatomy of a bubble burst: the UK case
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1. UK economic woes were compounded by the credit crunch but were not
caused by it.
2. By 2007, financial services contributed 10.8 per cent of GDP (cf. 5.5 per
cent in 1986) (Tomlinson 2010: 71).
3. If the sector resumes the importance it had in 2000, GDP will be reduced by
c. 2% (Weale 2009: 3); that is about the same value as the release of equity.
4. Together, they constitute a cavernous hole at the heart of the growth model –
and this is before we consider the impact of the public sector recession that
is now starting to unfold (though spending cuts have lagged fiscal
measures).
Responding to the crisis: before 2010
______________________________
1. The Brown government had a „good‟ recession – it acted swiftly,
decisively and with some degree of innovation; the return to the
language of Keynesianism owed much to Brown himself.
2. But this was a temporary bout of inter-paradigm borrowing
intended to shore up the existing paradigm („foul weather
Keynesianism‟).
4. Gamble: “politicians are still attempting to respond to the crisis
within the intellectual frameworks that defined the orthodoxies of
the past 20 years” (2009: 459) – as true today as then.
Responses to the crisis: the Cameron-Clegg coalition
______________________________
1. And what of the Coalition? No carriers of an alternative
paradigm/growth model (as they were in 1979).
2. Yet this is, for them, a crisis – but a „debt crisis‟ not, primarily, a
crisis of growth.
3. As yet they offer no alternative growth model, other than the idea
that it must be based on savings (instead of debt), investment
(instead of borrowing), net exports (instead of net imports), and a
reduced dependence on financial services – Modell Deutschland?
4. And they largely disavow the kind of intervention to make any such
transition.
The impediments to growth …
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Three clear impediments to the resumption of growth in the UK in
the years ahead.
• The difficulty of making the transition to export-led growth;
• The sensitivity of growth to interest rates and of interest rates to
oil price trends driven by speculative dynamics;
• The public sector recession still largely yet to come.
Conclusions: the implications for Asset-based welfare
___________________
1. On the one hand, the commitment to welfare residualism – arguably
the principal motive force in the shift to ABW – is reinforced
(through a debt crisis discourse and deficit reduction);
2. Yet an acknowledgement that the ALGM a busted flush – hence no
strategy to re-secure the stable (predictable) asset-price appreciation
that financialised welfare investors need;
3. The painful irony is that, through short-selling strategies, the
financial market actors on whom the ABW investor subject is
modelled are generating dividends – they never made their money
out of asset accumulation;
4. The logic would suggest a rather different model of financialised
welfare investment based on pure speculation!