Proof of welfare's multiple failings

Opinion Article

2011 March, 5

After 10 years looking to North America and Britain for reform inspiration in the fight against poverty, I come to the conclusion we are looking in the wrong places. There is a country in our own region from which we have more to learn: Singapore. 

When we began our crusade in Cape York Peninsula, we were in part inspired by the reforms in the US under president Bill Clinton when congress enacted the Personal Responsibility and Work Opportunity Reconciliation Act in 1996. Conditionality in welfare and strong work obligation requirements were obvious lessons from the US experience. 

We also looked to prime minister Tony Blair's less conclusive attempts in Britain, where the rhetoric of social inclusion was resonant but little concrete reform ensued. In Australia, Julia Gillard is an enthusiast of such New Labour concepts and as deputy prime minister established a Social Inclusion Board soon after Labor came to power in 2007. 

The problem with Australian policy-makers and leaders looking to the US and Britain for solutions to problems of poverty and social misery among disadvantaged people is there is scant evidence of success.

The Clinton reforms reduced welfare rolls at a time of high employment and a buoyant economy, but the US is hardly a paragon of poverty elimination and mobilisation of the lowest classes. The same goes for Britain. 

Why are we looking to these countries for policy solutions when the story of decades past shows they are struggling with the same problems without making much of a fist of them? 

Yet when you look at the story of Singapore since 1965, when it gained independence, you see a society whose success in achieving the broad-based uplifting of its people is unparalleled. Income levels and rates of home and apartment ownership in Singapore speak of a people rising out of the Third World and into the First.

It is probably hard to think of a less analogous situation to remote and undeveloped Cape York Peninsula than that of the modern city-state of Singapore, peopled by an enterprising population of Chinese, Indians and Malays exploiting the special blessings of their geography, but I contend the policy lessons are germane. 

Before I identify those lessons, let me outline the Singapore story. 

In his fascinating memoirs, former prime minister Lee Kuan Yew says he and his fellow leaders aimed to create for their country "a fair society, not a welfare society". Lee recognised from the beginning the form of welfare provisioning the advanced Western nations were implementing would produce problems, and his country explicitly pursued a different philosophy and a different path. 

He writes: "Watching the ever-increasing costs of the welfare state in Britain and Sweden, we decided to avoid this debilitating system. We noted by the 1970s that when governments undertook primary responsibility for the basic duties of the head of a family, the drive in people weakened.

"Welfare undermined self-reliance. People did not have to work for their families' wellbeing. The handout became a way of life. The downward spiral was relentless as motivation and productivity went down. People lost the drive to achieve because they paid too much in taxes. They became dependent on the state for their basic needs." 

The great difference between the Singaporean approach and that of the welfare states of the Western world was, as Lee writes: "We chose to redistribute wealth by asset-enhancement, not by subsidies for consumption." 

There is in fact a great deal of redistribution in Singapore: it is just that it is strictly aimed at the asset and wealth development capabilities of its citizens. 

Central to the entire approach is the compulsory savings system of the country's Central Provident Fund. The leaders of Singapore built around the CPF an array of individual and family solutions for home and apartment ownership, retirement funds and healthcare co-payment insurance funds. They mandated family-based solutions to welfare while subsidising those things that enhanced the earning and asset accumulation capacities of individuals. 

By mandating a universal approach to compulsory savings and home ownership, Singapore included everyone in the society. The denizens of the shanties were not left to their own devices.

They, too, were obliged and supported into apartment ownership. 

Lee writes of the transition phase, when families used to living in shanties first moved into apartments, taking their ducks and chooks with them. Singapore did not lock a certain section of society out of the development pathway; it developed the support structures to allow a broad-based mobility. 

The following lessons can be drawn from what is sometimes called a Confucian approach to development. 

First, the Singaporeans upheld the primacy of individual and family self-interest to climb to a better life. Lee writes: "I work on the basis that all men and women first work for themselves and their families, and only then will they share a portion of it with the less fortunate." 

Australians may find Lee's philosophical starting point here a bit disturbing, but a proper self-reflection on our mundane motivations should disabuse all of us from of our moral recoil. In our cups, we are similarly motivated.

Second, they established strong supports to guide individuals and families to climb to greater prosperity. Our metaphor of the staircase of opportunity that individuals climb in pursuit of their own interests is supplemented by a set of railings. The railings represent a support system that requires everyone to make provision for a full range of fundamental needs, including the need to save and get into home ownership. 

Third, the Singaporeans aimed to put everyone on the development path and did not want an underclass to develop. The most astounding thing is how the former union lawyer turned founding father of modern Singapore maintained such a hard-nosed commitment to an egalitarian society based on market capitalism rather than socialism. 

Fourth, they redistributed money to promote wealth and asset development, not consumption. The lesson here is subsidising consumption is fatal. By doing so you neutralise the most important incentive to strive and work. 

Finally, they maintained a paternalistic approach to social order and responsibility. 

It is this last feature that dominates the Western caricature of Singapore and obscures a proper appreciation of its achievement and, more importantly, how they did it in countries such as Australia. Lee's paternalism is sourced in Confucius rather than Mao. Singapore is a story of paternalism, not authoritarianism. 

Singapore's national success writes large the principle articulated by American welfare reform theorist Lawrence Meade: "He who would be free must first be bound." 

In other words, for Singapore to free itself from poverty the people first had to bind themselves to certain disciplines. 

I will not persuade those who think Singaporeans' journey out of the mud of Third World poverty into the advantages of the First World should have been accompanied by the perfect freedoms and licences enjoyed by their Western contemporaries. Cosmopolitan liberals forget the freedoms they enjoy are the outcome of a struggle for development in previous times. 

Conceding that Singapore-style paternalism is not feasible in a liberal country such as Australia, it is nevertheless imperative that we consider the applicability of a developmental paradigm to the problems endured by those parts of Australia where inter-generational disadvantage is entrenched.

Discrete indigenous communities are obvious, but so are postcodes where white and immigrant underclasses predominate. The context could not be more dissimilar but the reform principles underpinning Singapore's path out of poverty are universal. 

Singapore went through stages of development over 50 years, and they were led by patriots who cared about the place and its people: the sacrifices, the thrift, the hard work and the determination were part of a national undertaking. 

Western nations such as Australia that are developmentally mature nevertheless have people and places that suffer from unacceptable and unnecessary levels of stagnation and poverty. 

These require a people and place-based developmental approach. Can we conceive ways of tackling these postcodes of disadvantage by mobilising the patriots of these places to embark on the road to development?

Noel Pearson is director of the Cape York Institute for Policy and Leadership. This is an edited extract from his 2011 Sir Robert Menzies Lecture delivered in Melbourne this week.

Proof of welfare's multiple failings