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Keith Rankin
is a political economist and economy historian |
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Keith Rankin is a political economist and economic historian. |
The issue of common land and common natural resources is central to environmental economics. The matter of children as a common resource is less adequately addressed by economists. This imbalance leads us to think of human fertility as a social problem; children come to be seen as a private good and a public burden. In fact, in modern economies, the opposite is true.
In traditional western economies, private land was the finite resource of a family and common land was available to the whole community. 'Economically rational' family members would carefully husband their own land while exploiting the common land. By having more children than other families, a family would become a competitive user - an exploiter - of the common. Such abuse is called the "Tragedy of the Commons" by economists. Deforestation is a classic example.
In such traditional economies, the family is the central welfare institution. The elderly, the disabled and the unemployed depend on their own kin for support. Kin-based welfare systems have an inherent bias to overpopulation; we see the problem most clearly today in Asia. This bias becomes more pronounced once populations become landless. Parents on the margin depend on income from older children. Success in cottage industry depends on families having children do much of the work. Children are a critical private investment to such parents.
The British population grew in what was regarded as an unsustainable rate in the century to 1850. The classical economists were unsympathetic to the growing numbers of poor families. Not understanding why population growth was accelerating, they thought that helping the poor would encourage them to breed even more. They were dead wrong. The construction of a compassionate welfare state over the next 100 years removed the private economic incentive for having children, establishing a social contract between the employed workforce and the remainder of the population. A generation in retirement is sustained by a generation of working age; their children collectively, rather than their own children, and regardless of whether they have a public or a private pension. The workforce is a common resource, used by all, acting in concert with other resources to sustain us all.
The main throwback to traditional society is our way of supporting children, whom we still expect to be sustained by parental kin rather than by a generation-and-a-half of parents and childless adults. Children are treated as a common resource to their parents' generation, but parents are treated as a private resource to their children's generation. This combination promotes low fertility - perhaps too low. Children are a public asset and a private burden. For our reproduction, we rely on our adults being irrational from the bean-counters' point of view.
The whole population - including those who have made private provision for their retirement - will be in trouble if tomorrow's labour force, is tragically degraded through child poverty. It is the quality more than the quantity of next century's labour force that will be most important in maintaining the baby boom generation in retirement. Child poverty is a fouling of the public nest, literally. It is a recipe for social and economic chaos.
Economists call exploitation of a public resource 'free riding'. A government which heavily taxes families is a free rider. Affluent people seeking endless tax cuts and a tightly targeted welfare system are free riders, not strivers as Fran O'Sullivan of the National Business Review claims (TVNZ, Meet the Press, 26 May). Childless adults who do not contribute adequately to the raising of the children they will eventually depend on are free riders. The tax-benefit 'reforms' of the last 10 years have hit parents hardest, while the childless middle class have been amongst the major winners. It is parents struggling against the odds who are the real strivers. Not surprisingly, some fail. Against of the odds, many more do not fail.
With the availability of contraception, abortion and adoption in modern western societies, the historical problem of the unwanted child has been largely resolved. Children are a 'private consumption good' to their parents; and they are a private gift to the public domain. Parents are willing to invest in their children, as a bequest to the future of their communities, their nation, and to humankind. While the process is costly to parents, it is also a source of much parental enjoyment. Giving to the public domain and sharing in the happiness of children are enjoyable. Pleasurable work - diametrically distinct from exploitative work - is often the most productive work; productive from the point of view of the worker, the employer and the public. Like mountain climbing, parenting is hard but potentially rewarding.
Although today's parents should not expect an economic return on their reproductive endeavours, many adults now believe that there will be no public retirement income next century. Political talk about the superiority of 'Asian Values' - meaning kin-based welfare - may be encouraging Britons and Kiwis to have children as a form of private insurance against future destitution. Ironically traditional Asian values are breaking down in the face of modernity. Working age Asians are attracted to western values. Singaporean parents of the old school are having to file for maintenance from their adult children (Newstalk ZB news, midnight 2-3 June).
In a modern welfare society, parents have children in accordance with an implicit 'gift exchange' social contract: we (the public) accept all children as gifts, and in return for the children you (parents) give us, we will provide you with a social wage which will include public health, education and benefits to cover misfortunes such as accident, unemployment, disability, parental separation. Thus the prime responsibility for any additional costs incurred in the gift exchange should be borne, out of self-interest, by the beneficiary of the gift, on a no-fault basis.
It is the role of public institutions to support families so as to minimise the risk of family misfortune, and to minimise the damage when misfortune strikes. Otherwise the gift exchange fails, at a loss to the public. Children raised in a culture of poverty are, on average, a public debit, an asset of negative value. The problem is the culture of public poverty, not the parents.
Because of the globalisation, the world's most competitive exploiters - the elites of all countries - may yet be able to live well for several generations, free riding the international commons, just as the affluent British population a century ago was easily supported by workers and resources from across the globe. Meanwhile, in the Third World with its traditional family welfare systems, the land is being exploited due to overpopulation. The children of the world constitute a vast common resource, substantial in quantity but deteriorating in quality as governments retreat from their role as managers of the commons and ally themselves with their nations' private elites.
Should there be an imbalance in New Zealand's
population structure next century, it will be resolved through
immigration. Any rich country with many old people and few young
people - excluding the major creditor nations which will be able
to buy much more from the rest of the world than they will need
to sell to it - will have liberal immigration policies. It is
likely that New Zealanders will, to an increasing extent, free
ride on the education and health systems of countries poorer than
ourselves.
By combining the principles of social wage accounting (ref. "So Little Relief" April/May 1996) with those of the intergenerational social contract, we can establish that everyone is entitled to equal tax credits, that supplementary benefits should favour those who are not of working age (or who are providing direct care for those not of working age or unable to work through disability), and that there should be no income-tested barriers to public services such as health care. The issue is not one of affordibility; it is an issue of economic principles, and of acknowledgment. It is public recognition that caregivers need before all else. The size of tax credits and benefits is of course a matter of affordibility - and for political debate.
The issue of a social wage entitlement for children arises; ie an income for children in addition to payments to caregivers. It is important to acknowledge the social wage of children in the public accounts, even if the money is not actually paid to children or their caregivers. While at present children's social wages can be seen as a contribution to their education, future economic growth should be able to provide additional investment funds for children. Such funds could be held in trust for each child, with the possibility of funding such things as early childhood parental leave, or being capitalised to help fund a family home.
Child Support is a touchy subject because many women hoped that it would act as a means of redressing real and alleged economic imbalances between men and women. The reality is that many women and children are victims of the Child Support Act (CSA), and the principal beneficiaries, once the gross cash flows generated by the Act are fully netted out, are the government and employed step-fathers. An understanding of the contractual issues involved, recognising that it is the public not the parents who gain economic benefits from children, can resolve the problem; indeed can show that the CSA is one means through which the public reneges on the social contract.
Parental separation is just one form of family misfortune that children face; albeit an important form. The modern social contract requires automatic support from the public - the benefiting party - for all children so affected. The Domestic Purposes Benefit (DPB) is part of that support, and is entirely separate from the secondary issue of private maintenance. The public can save money on the DPB, not by using non-custodial parents for benefit recovery purposes, but by properly managing the common resource; ie by addressing the financial causes of parental separations, through paying all adults the tax credits to which they are entitled as co-owners of the public domain, and by providing unconditional backup support to all families under stress.
In addition to the social contract is the implicit contract between the parents. In a modern society, sexual activity occurs in a variety of voluntary, coercive and commercial contexts. We cannot say that sexual activity in itself constitutes a parental contract (notwithstanding the views of the Business Roundtable, expressed with much recent media fanfare through David Green2). Furthermore, parental contracts take place without sexual activity on the part of the contracting parents; eg adoption and artificial insemination. We can probably say without too much controversy that children conceived, for example, through prostitution or to single women through artificial insemination are conceived without a parental contract between two parties. On the other hand, children of a marriage can be regarded as the result of a parental contract; a contract which provides for an equal sharing of the private burden regardless of the lack of private benefits.
Where there is a contract between two parents, both parents automatically become guardians. As such, genuine guardianship should be seen as the contractual basis for child support. In a modern society, a guardian should be someone who is able to derive consumption benefits - 'enjoyment' - from parenthood. Thus someone who for good reason renounces guardianship - for example a mother who has her child adopted - should not be liable for child maintenance. Parents deprived of access to their children are not effective guardians, and should not be liable for child support.
Child maintenance, therefore, is a payment from a non-custodial guardian to a custodial guardian, reflecting a breech of the contract between the parents; it is entirely separate from the social contract between the parents and the public. In a complex, pluralistic modern world - a multicultural world of sole-custody, nuclear, reconstituted and extended families - broken parental contracts cannot be redressed by a crude income-tested formula. Maintenance is thus just one part of a unique settlement between separated parents (in addition to custody, access and the division of property) and should be resolved through the mediation of a child advocate, allowing for review when the circumstances of either parent change. The Child Support Agency does have a role in enforcing maintenance contracts; that is the problem that Parliament did have a mandate to address.
Child Support is another surtax on families3. Custodial parents and children being supported by a benefit receive less financial and non-financial support from the non-custodial parent than they would otherwise receive, on account of the additional liability of the non-custodial parent to the Inland Revenue. In addition, the resident families of liable parents are directly taxed by the Child Support Agency. These are probably the most disadvantaged group of working poor that are now so prevalent, and not only in the United States.
Where the income of an NCP has fallen by more than 15 percent, an estimate of current income can be used to assess his Child Support liability. Thus when an NCP loses his job and takes on another at a lower rate of pay, he will switch to the lower assessment. His current income will be used for two assessments, the current year and two years hence. The result is that, for two years, his effective tax rate on additional gross earnings will be in the range 60% to 150%4. Furthermore, in a recession, custodial parents receiving child support are likely to find their payments going down just when the incomes of themselves or their partners are falling.
The matter of step-parents is interesting. In all areas of income support, except Child Support, step parents are regarded as financially responsible for the children in their households. A mother receiving Child Support will be relieving the step-father of a potentially large chunk of his burden. What happens if such a step-father loses his job? The family loses its main source of income. By going onto the unemployment benefit, the family also loses its Child Support payments and its new Independent Family Tax Credit (IFTC) and its July 1 tax cut. There is no incentive for either party to take on a substantial part-time job, given the huge abatement rate faced by unemployment beneficiaries. If the mother was a student she would also lose her student allowance. The couple would be entitled to family support, but probably no accommodation supplement on account of the step-father's assets. If the youngest child is over 14, from 1997 the mother will be required to seek full-time work, even if she is in the middle of a university degree.
If the mother can persuade the step-father to leave, however, her situation improves. She becomes 'deserving poor', where she had been 'undeserving poor'. She will be entitled to a DPB5. She will avoid the full-time work test. She will be able to keep almost all of her DPB. She will get an accommodation supplement. If she chooses not to accept the DPB, she will regain her Child Support payments.
The above anomalies represent the kinds
of head-banging situations that New Zealand families are having
to put up with from a public expecting to be supported in old
age by today's children yet refusing to abide by a rational social
contract. We urgently need to think through the theory of the
social wage and the intergenerational social contract. We urgently
need to recognise that we create horrendous problems for ourselves
if we do not manage the future workforce as a common national
resource.
Immigrants may be able to support us, and their parents,
at some cost to their children. But, next century, we will still
have to support the many New Zealand raised young adults who will
not be able contribute much to the support of their grandparents
generation, because they will have become victims of the culture
of the poverty trap6.
© 1997 Keith Rankin
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