Neo-Liberals versus Social Democrats in Security and Tax

What are the different views of neo-liberals versus social democrats with regards to social security and taxation?

One of the most important features of democracy, that allows it to be such a successful form of government is the diversity of political stances. Social democracy is a political ideology that supports both economic and social interventions. Neo-liberalism however offers juxtaposing economic liberalization policies such as privatization and reduced government spending. Social security and taxation have always been a large topic of discussion, I look to explore the contrasting views held by these two ideologies focussing on the effect that has on the population in UK history.

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Neo-liberalism has only been around for about thirty years, ‘liberalism’ refers to economic and political ideas based on the political economy of Adam Smith and ‘neo’ means a new form of liberalism. Neo-liberalism is associated with laissez faire economics which follows the beliefs that “the world is a self-regulating system and there is no need for the involvement of government. Government involvement, according to this economic theory, would include any type of regulation, minimum wage, taxation, or oversight. Laissez-faire economists see taxation on companies as a penalty for production.” (Investopedia.com, 2003) The popularity of neoliberalism is arguable but was used in many economic policies adopted in the UK and US by political leaders such as Margaret Thatcher and Ronald Raegan in the 1980’s. Their main aim is for the market to become dominant as it increases the general performance of the business which puts more money into that countries economy and reduces the role of the state. When public companies become private the general public can buy shares which creates a positive incentive and makes the general public money. In the UK, the shares rocketed in value as soon as they were issued, “giving these new shareholders an instant profit of anything between 20% (British Gas) and 85% (British Telecom).” (veronica, 2015) With this being the focal point of the policy, it is clear to see that neo-liberalism accentuates economic climb as opposed to social justice. It is argued that this leads to an “increase in inequality as the government were selling state assets, which were owned by everyone to a wealthier subset of people which in turn increases the gap between the rich and the poor.” (veronica, 2015b) The neoliberal practice of giving public wealth to a small wealthy elitist privatized group, approving tax cuts for the rich and reducing wages for the less fortunate majority is why neo-liberalism is such a controversial political stance.

Social democracy was the main political standing held by the public and the government in the UK after the world wars. It supports social and economic interventions, a political movement advocating a “gradual and peaceful transition from capitalism to socialism by democratic means.” (Merriam-Webster, 2017) William Beveridge is one of the most influential people is social democratic history, his belief in the community and that the well-off should support those in society who are in need and less able started the creation of the welfare state. Social democratic political standing has a far-left ideology, they believe in democratic government and individual freedoms. They highlight the need for the protection of the poor and minority groups, support trade unions, free education and strive for gender equality. Social democrats believe in rewarding talent and hard work rather than privilege which is beneficial as it doesn’t waste the talent of individual citizens, which in turn encourages society to become more integrated. In contrast to the beliefs of the neo-liberals, social democrats do not believe that the privatized market is positive asset to the government as its undemocratic. Companies are owned by very few wealthy individuals and as it is not self-regulated which can end in economic crisis with high levels of unemployment and unreasonable inflation which many people can’t afford. The welfare state is a “safety net for the flaws of free market, it aims to provide a level of social security for many people by redistributing the wealth of the market by taxation.” (veronica, 2015c)  

Taxation is the amount of money paid to the government by citizens and businesses that is then redistributed into the wider society. The main types of taxation in the UK is: income tax, national insurance, VAT and corporation tax. A tax system that takes a higher proportion of tax from the income of rich than poor is known as a progressive system. Under a regressive system, the poor pay a higher proportion of their income in taxes than the rich. Income taxation is a progressive system, while indirect taxes e.g. VAT tend to be regressive as poorer groups spend a higher proportion of their incomes on VAT. Where social democrats would implement the funding of taxation in systems such as healthcare services and the welfare state, neo-liberals have a very different set of standing views on taxation, seeing high tax as a negative thing for the economy. One of the main goals of many neo-liberals is to privatize public companies with the belief that if privatized, citizens will not have to pay tax towards the company and only those who use it will have to pay (e.g. privatizing the railway in 1990) making the economy fairer. The idea that cutting taxes will leave room to stimulate economic growth however often leads to public services being exploited for profit, and redesigns systems to become more elitist, something social democracy aims to avoid. In both the UK and the US during the 1980’s a political movement that neo-liberalists would view as innovative was implemented. In the US Ronald Raegan reduced the top income tax rates from “70% to 50% and then a 25% reduction in income tax for everyone, in the UK income tax was reduced to 25% for lower and 40% for higher earners.” (Ferrara, 2011) Whilst the intent of Mrs Thatcher, a figurehead for neo-liberalism, during this movement was to minimalize the discouraging effect of high tax to those who work hard what transpired was a huge increase in the inequality of financial divide as income tax dropped VAT rose in order to restore balance to funding, allowing easier purchase for wealthy citizens but not the poor. This is a prime example of how neo-liberalism aims to use taxation to give more responsibility to the individuals of the public by ‘rolling back the state’, but often leads to benefiting social and financial hierarchy. Neo liberals judge state intervention as problematic and strive for it to be minimised and conceive taxation to be a burden, often critiquing the high taxes put in place by social democrats. Margaret Thatcher famously said: “The trouble with Socialism is that eventually you run out of other people’s money.” (Mikkelson, 2014) Social democrats believe that the state has a responsibility of its own to look after the public who are lesser abled through the funding created by tax thus showing a clear difference in view.

Social security is all forms of financial support provided by the state, it is an essential part of every government however other forms of social security can include aspects not paid by the state .e.g. sick pay. In the UK, the concept was introduced in the early 1900’s. “It is a system put in place to insuring against the risks of particular events in life, such as unemployment and short-term sickness, relieving poverty or low income, redistributing resources across people’s lifecycles, especially from working age to retirement, redistributing resources from the rich to the poor, ‘compensating’ for some types of extra cost (such as children or disability) and providing financial support when ‘traditional’ families break down.” (Fox, 2016) Social democrats argue that social security and state intervention is vital to reduce inequality’s and combat social injustice, the belief they hold is every person is interdependent and we will all during our lifetimes pay taxes and receive some form of social security benefits. Social democrats aim to put in place a universalised system of social benefits and security which means that all services are available to all citizens, this eradicates the need for means tested benefit’s which can be embarrassing and bureaucratic for those who are entitled to claim them; they believe that universal benefits are easier to administer and more effective. “For social democrats, the low take up of means tested benefits is an important failing of the current social security system. In 1980, no means tested benefit had more than an 80% take up.” (Limited, 2015) The main figure head for social security in the UK was Sir William Beveridge, his push for the creation of a universal and compulsory welfare state and social security system to eradicate inequality by creating a shared and orderly society. There are also many negatives about universal social security the main being the high cost which is the main reason the UK implements less of a universal system today. Neo-liberals have very contrasting view, they see universal provision of benefits and social security as “nonsensical; it gives to those who don’t need it and wastes resources. Child benefit, for example, costs nearly £5 billion a year (1988), going to 6.8 million households with 12 million children regardless of income.” (Limited, 2015) Neo-liberals ideally want the welfare state and social security to be in line with the ‘residual model’ which only gives social security and welfare benefits to the deserving poor, the individual’s right at the bottom of society. Means testing is a vital part of neoliberal governing, it limits the needs for goods and services by charging for things like dental checkups so will reduce the demand for these services. In the eyes of neo-liberal’s, poverty is seen as something that is caused by the idleness of the individuals at the bottom of society and isn’t considered to be an economic problem to be combatted by the government. Welfare and social security recipients tend to become ‘welfare dependent’ so become complacent and do not try to earn money in the marketplace relying on the ‘safety net’ of the state.

The contrasting views of social democrats and neo-liberals are obvious. Neo liberals focus on the economic development of a country where as social democrats view social justice as the paramount feature of governing society. There are many drawbacks and needs for both political stances in UK history, where neoliberalism is seen to be the main driving force behind globalization producing wealth for the economy it is argued that it is also the main driving force behind inequality and treats citizens as consumers for the privatized market. Social democrats however reduced inequality by creating state run systems that act as a preventative measure for social ills but this created an economic crisis as the surplus of wealth could not fund the social security and welfare of state run systems so taxes had to be increased and the economy was severely damaged. Taxation and social security will always be a major discussion point in global politics, there will always be a need to both as they are co-dependent in order to be effective. The only way to achieve a fair democratic system is to compromise between both neo-liberal and social democratic political stances, both considering the economy and social justice as a means to achieve a fully functioning government.

References

Ferrara, P. (2011) Reaganomics vs. Obamanomics: Facts and figures. Available at: http://www.forbes.com/sites/peterferrara/2011/05/05/reaganomics-vs-obamanomics-facts-and-figures/#30c60c963a1d (Accessed: 20 January 2017).

Fox, Paul (2016) Available at: https://studentcentral.brighton.ac.uk/bbcswebdav/pid-2833560-dt-content-rid-5267320_1/courses/SS407_2016/SS407%20Seminar%20taxation%20and%20the%20public%20purse.doc (Accessed: 20 January 2017).

Investopedia.com (2003) ‘Laissez Faire’, in Available at: http://www.investopedia.com/terms/l/laissezfaire.asp (Accessed: 20 January 2017).

Limited, S.Y.M. (2015) Social policy: Philosophies of welfare. Available at: http://www.s-cool.co.uk/a-level/sociology/welfare/revise-it/social-policy-philosophies-of-welfare (Accessed: 20 January 2017).

Merriam-Webster (2017) Definition of SOCIAL DEMOCRACY. Available at: https://www.merriam-webster.com/dictionary/social%20democracy (Accessed: 20 January 2017).

Mikkelson, D. (2014) Margaret Thatcher on socialism. Available at: http://www.snopes.com/politics/quotes/thatcher.asp (Accessed: 20 January 2017).

veronica, risie (2015a) The advantages of Privatisation. Available at: http://www.s-cool.co.uk/a-level/economics/privatisation/revise-it/the-advantages-of-privatisation (Accessed: 20 January 2017).

veronica, risie (2015b) The disadvantages of Privatisation. Available at: http://www.s-cool.co.uk/a-level/economics/privatisation/revise-it/the-disadvantages-of-privatisation (Accessed: 20 January 2017).