Dilemmas in distribution policy

The legacy of apartheid, combined with financial constraints, calls for a careful consideration of the means to be used in order to reach the goal of more even dis-tribution of services. In order to minimise inequalities, resources have to be made available and new institutions have to be created to ensure the delivery and distri-bution of welfare. Yet, with close to half the budget already allocated for social serv-ices, the main challenge is to maximise the value of each Rand being used. At the same time, we must bear in mind that resources made available will have different effects depending upon the initial level of welfare. In other words, the resources and organisation required to build a system from scratch are different from those required to maintain already existing systems. Furthermore, in the process of finding the right instruments and institutions to meet welfare needs, several dilemmas have to be faced. In the next section, we focus on some of these dilemmas: public or private welfare; universal or selective services and central or local welfare administration.⁵

Public or private welfare?

A particularly important element in the building of welfare regimes is the blend of publicly provided rights and private initiatives. In most countries, the state and the private sector are both engaged in welfare delivery, but with differing degrees of responsibility. While in Scandinavian countries, the state is the main welfare pro-vider, in others, like the United States, private welfare is most widespread. How-ever, even though various countries have different traditions and opinions on the demarcation between public and private welfare, services such as health care and education are generally regarded as a public responsibility, at least when it comes to assuring a minimum for the whole population.

During the past ten to twenty years, western welfare states have been criticised for being too expensive and/or badly organised. Many view privatisation as the answer to both these problems. The division of labour between private and public

5 The choice between benefits in cash or benefits in kind, will be discussed later on in the re-port.

solutions is therefore an important question to take into account when (re)building welfare systems. Yet, the public-private debate concerns several aspects of service delivery. Are services to be regulated, funded and/or provided by the government or the private sector? As a minimum, most governments regulate and provide the le-gal minimum rights concerning welfare provisions. In many cases, the service itself is also financed by public funding, and provided by public servants. In others, the service itself may be provided by private providers and paid for by the users them-selves. In most countries, private and public systems operating alongside each oth-er to delivoth-er health and education, except in the Scandinavian systems, whoth-ere pri-vate sector involvement has usually been tightly regulated and/or restricted. Even where private health care exists, governments would still usually have a say as to how private hospitals must operate. Health authorities would set the rules and stand-ards for health services, the minimum qualifications for health personnel, etc, even though services are paid privately through the patients’ own contribution, insur-ance schemes, and/or public contributions.

Another example is old-age pensions. In some countries, the government both regulates and provides old age pensions. In others, pension provision is completely outside governmental control, and is controlled by insurance companies or employers (as in Japan). The most common situation is, however, probably a “welfare-mix”, where the government provides at least some basic pension, and regulates the de-livery of other pensions by insurance companies, employers, and/or private contri-butions.

We take it for granted that outsourcing the regulation of welfare services to the private sector is not an option for South Africa. What remains to be discussed are the advantages and disadvantages of private or public financing and provision.

Freedom versus equality

Equality and freedom are usually juxtaposed in the private/public welfare debate.

The main argument in favour of heavy public influence is the equality argument.

Equality, implying equal access to welfare services and benefits, is an ideal in many societies. The argument goes that people have a right to equal opportunities in life and that equality encourages social integration and feelings of interdependence and solidarity among citizens (Walker 1984). Private welfare solutions will not be easi-ly available to all, and a private system is thereby seen as violating principles of equality.

There are, however, several circumstances that challenge this equality ideal. First, many would argue that full equality has never been achieved. People with money and power have always managed to obtain advantages. To avoid massive class dif-ferences, many would argue that the public and private sectors should co-operate

to ensure the best service for the welfare recipient. Second, even within a public welfare system, equality may be more of an illusion than reality. The Norwegian health system serves as an example. Research shows that there are clear tendencies towards skewed distribution and occasional variation in the supply of welfare, in spite of a public system aimed at equality (Jensen and Bomann-Larsen 1991). Some state that the best medicine to prevent inequalities within a public welfare system is to supplement or replace public with private solutions. Others argue that the only cure is to strengthen public services.

Another argument in favour of public welfare provision is that private solutions will interfere with public priorities and create skewed distribution. Furthermore, private welfare providers such as hospitals may drain public hospitals of key per-sonnel, which will lead to more inequality and, in the worst cases, to a deteriora-tion in the quality of public services.

The most important argument in favour of private welfare arrangements the

“freedom” argument: people should be allowed to spend their money at their own discretion and according to own priorities. However, the standard objection is that this kind of freedom will benefit the few more wealthy and powerful. Furthermore, the liberal argument relies on problematic assumptions when it comes to the infor-mation available to and the rationality of the welfare recipient. To be able to make rational choices, the consumer of services must know the markets, several suppliers must be present, and it must be possible to assess the different supplies. This as-sumes that it is easy to evaluate the quality of different services and that services are used so frequently that comparisons are possible. Such assumptions that are under-mined by limited access to information, etc.

Another frequently used argument in favour of private welfare provision is the efficiency argument. Private welfare providers are supposed to function more effi-ciently than public. For example, it is argued that if private hospitals are able to run their business more efficiently than public hospitals, the whole society will benefit, not only their patients. The reasons why private hospitals are claimed to be more efficient are the level of specialisation and a more limited bureaucracy. Private hos-pitals may, for instance, specialise in certain types of operations and don’t need to admit emergency patients or casualties. This optimises treatment as well as cost savings. Germany is an example of a country where there is a permanent division of labour between private and public hospitals. Health care is mainly performed by public general hospitals, but these are supplemented by a lot of privately operated specialist hospitals (Bogen, Dahl and Karlsen 1996).

Public-private mix

Most countries rely on a public-private mix in the welfare sector. What keeps the different systems apart is the degree of private supplies. Demographic changes and increased dependency ratios, together with increased levels of education, higher purchasing power and more information about services, increase the demand for welfare services, which in turn place constraints on public delivery. If we choose to solve (or prevent) a crisis of demand by opening up to a high degree of private welfare, we have to consider what effect this may have on the support for public welfare and, in turn, on the ability and willingness to finance public supply. Will the middle class and the relatively better off be willing to pay taxes in order to fi-nance a public welfare supply for the lesser well off, if they themselves buy the goods and services they want in a private market?

When our goal of delivery is to level out huge differences in welfare, a private system alone will not be sufficient. Poor people will not be able to purchase welfare in an open market. On the other hand, if public welfare supplies are developed to meet only the needs of the worst off, and/or there is a parallel better quality private system in existence, major problems of financing may arise and differences in qual-ity be re-inforced. This brings us to another important dilemma in the welfare de-bate, namely the antagonism between universal and selective services.

Universalism versus selectivism

In a universalistic welfare state, welfare delivery covers everyone, rather than resources being targeted towards particular problem groups. Social policy is actively employed in the pursuit of a more egalitarian society. A selective welfare state will, on the other hand, target only parts of the population, for example those whose needs are great-est (the poorgreat-est), or those who supposedly deserve it most (for example those who have worked longest, or paid most taxes etc.) The former will be directed towards the poor and underprivileged, while the latter may well uphold already exciting social inequalities.

Specific services, such as education and health, are usually universalistic every-where in that every citizen has a right to a certain level of education, while private or selective systems may be put in place to add to the basic levels. Similar mixtures are often found when it comes to income maintenance. In some countries, a uni-versal old age pension will be provided to all citizens by the government, no matter what the citizen has been doing or earning before reaching pensionable age. Pri-vate solutions are, however, often developed in order to generate extra pensions. Or public solutions can even pay out an extra income-related pension. In other coun-tries, the government will only pay an income-related old-age pension to people who have been working. Other models are based on employers providing pensions or

the state paying out pensions only to people who have been in employment and who have therefore contributed to pension funds. A final possibility is that the old-age pension is means-tested or targeted. This would usually be called “social assist-ance” rather than “pensions”.

An important argument in favour of a univeralistic system is that is promotes equality of status. All citizens are endowed with similar rights, irrespective of class, age, race, gender or market position. The system is meant to cultivate solidarity across class and other cleavages. Furthermore, universalism does not entail stigmatisation. And finally, universal models contribute to higher political support for welfare policy and contribute to investing people’s interests in the state.

Important counter-arguments are, first, that universalism may promote dual-ism in the welfare system, because the better off turn to private insurance or pri-vate service deliverers. The universal benefit (or service) may not accord with ac-customed standards of welfare (Esping-Andersen 1990:25). Second, universalism means that citizens who are quite capable of paying for their own welfare needs are also covered, and, thirdly, there is a risk that univeralism sees to the welfare of the middle-class, while the worst off do not get their needs taken care off.

Central or local delivery?

Another big issue in debates around infrastructure and service delivery-projects, is which level of decision is the most appropriate – national, provincial or local gov-ernment. There is no easy answer to this question. Local governing represents the freedom to have the final decision in matters of concern to the individual citizen.

Central governing, on the other hand, represents the ideal that all citizens should have the same rights and obligations, irrespective of where they live. The immedi-ate interpretation is that leaving welfare tasks to local authorities will strengthen local democracy, and thereby more efficient decision-making and service-delivery. Nar-rowing the gap between welfare recipients and welfare providers will make it easier to fulfil needs. Local and provincial authorities which are allowed to make their own priorities may, on the other hand, make decisions that are at odds with national priorities, which in turn may lead to regional welfare inequalities.

In most countries, national authorities will have say when it comes to regulat-ing local welfare delivery. In addition, much of the fundregulat-ing for local welfare deliv-ery will be granted from national budgets. How to balance local and central wel-fare-delivery will probably vary with the services/benefits distributed. And here, as in most of the others distribution dilemmas, what kind of organisation one prefers will depend upon political and ideological points of view.