Peter Taylor-Gooby, Professor of Social Policy and Programme Director,
Darwin College, University of Kent,
CT2 7NY, UK
P.F.Taylor-Gooby@ukc.ac.uk
http://www.ukc.ac.uk/ESRC/
Acknowledgements: This paper draws on research carried
out under the ESRC's Economic Beliefs and Behaviour research programme,
supported under grant no: L122341001.
Abstract
Enthusiasm for the expansion of markets in welfare reflects the
currency of assumptions derived from rational choice theory among
policy-makers. This article reviews recent evidence that calls
into question the basic tenet of the rational choice approach
- that individual choices are driven by instrumental rationality
- and argues that welfare markets require a normative framework
which in which trust plays an important role. Experimental evidence
from recent work in economic psychology indicates that individuals
often display a level of trust in market interactions that is
hard to explain on the basis of simple rationality, but that such
trust is fragile and easily undermined by egoistic action. Lack
of attention to normative issues which the rational choice approach
fails to capture may lead to the design of markets which are inefficient
in meeting the aims of policy-makers and which deplete the moral
legacy on which many welfare markets in practice depend.
Introduction
Since welfare outcomes are determined by the way people behave
in response to law, regulation, benefits and services in the context
of social expectations, norms, values and other factors, policy-making
is strongly influenced by guesses about why people do what they
do. A recent and influential article points to a 'fundamental
shift in policy-makers' beliefs about human nature and behaviour'
(Le Grand, 1997, 149). The traditional Beveridgean welfare state
model supposed that service planners, providers and professionals
were motivated by an altruistic concern for the good of the citizenry,
while tax-payers and service users were seen to be compliant and
trusting, willing to pay the taxes deemed necessary to finance
provision and relatively uninfluenced in their behaviour by the
availability of universal benefits. The conceptual framework
that underlies recent developments in welfare policy is suspicious
of the motives of both providers and consumers. It assumes that
the rational pursuit of self-interest replaces trust and altruism;
that tax-payers are reluctant to finance services unless they
think that they will benefit directly; that officials and professionals
will tend to regulate the operation of services to serve their
interests in a comfortable, interesting and rewarding life rather
than the needs of user; and that those entitled to benefits are
vulnerable to moral hazard, so that they will shirk responsibilities
to maintain dependants or seek employment if the state provides
maintenance on proof of need. The solution is the substitution
of the discipline of the market (through privatisation or the
use of quasi-markets in the state sector) and, where this is inapplicable,
direct control of behaviour through a stringent and punitive regime
in relation to benefit fraud, maintenance of the work ethic and
responsibility for defined dependants.
The new approach in welfare rests on rational choice theory
in social science, influenced by the work of Schumpeter (1944),
Niskanen (1973, 120) and Downs (1957) on political and bureaucratic
behaviour, Breton (1974) and Brennan and Buchanan (1980) on tax
payers' behaviour and Murray (1984) and Mead (1986) on the behaviour
of service users. While this work is controversial (for example:
Granovetter and Swedborg, 1992; Green and Shapiro, 1994; Dunleavy,
1991; Taylor-Gooby, 1995; Coughlin, 1991) the main political groupings
in the UK seem convinced of the desirability of sustaining the
shift towards market welfare and of tough measures to control
fraud. As an account of how people behave in social policy contexts,
the rational choice approach has won the practical argument.
This article argues that rational choice analysis is one of a number of accounts of market behaviour. Other approaches stress the importance of a normative framework in constraining the dysfunctionalities of too immediate an egoism. Norms supportive of trust are likely to be particularly desirable in many areas of market welfare, such as social care or medical insurance or inscrutable professional provision, since good information is hard to obtain, both for providers and service users. Evidence from economic psychology indicates that behaviour in market contexts is often in fact regulated by normative principles that transcend simple rationality. This point may be helpful to proponents of welfare markets, since it implies that the problem of sustaining trust within a market system is not insoluble. However the evidence also indicates that such a framework is vulnerable to rapid erosion if it is not reinforced in behaviour. Trust takes time to establish, but is easy to destroy. The risk is that over-reliance on a rational choice account of motivation in welfare markets may lead to over-emphasis on self-interest which will eventually deplete the normative legacy of welfare citizenship. This may not be immediately obvious, since the moral presumptions of collective welfare may persist for a time.
The case for welfare markets
The case for the expansion of welfare markets can be made at both
a practical and a theoretical level. The practical argument claims
that markets are responsive to effective demand, that they facilitate
learning on the part of participants, and that they allow innovations
to be rapidly assessed, diffused or discarded. This claim presents
markets as particularly appropriate for contemporary economic
relationships that are changing rapidly as the result of the introduction
of new technology and the rapid growth of cross-national trade.
The success of market economies compared with former command
systems suggests that markets are best at producing what people
want. Similar arguments apply to the restructuring of welfare
systems to meet changing patterns of need as working and family
life become, for some people, more flexible and uncertain and
as the range of options available expands for some, with real
growth in living standards, and contracts for others as inequalities
grow wider and opportunities for less skilled workers become more
constrained. It highlights the importance of good information
for successful market choice.
The theoretical argument derives ultimately from the tradition
of welfare economics influenced by the work of Pareto. It can
be demonstrated that, providing certain conditions are met, a
competitive market system is capable of achieving social 'efficiency',
in the sense of a distribution of resources under which the circumstances
of no-one can be further improved without making someone worse-off
(for example Sloman, 1991, 363-73). In the progress towards
efficiency, the gainers can always (in principle) compensate the
losers and still have something left over. Thus competitive markets
in welfare promise to allocate resources in this area in an efficient
manner.
The main conditions assumed in this argument are three: that people
should behave rationally, in the sense of choosing activities
according to the extent to which anticipated gains exceed the
sacrifices involved, so that good information is essential, that
the markets should be competitive, so that there is no monopoly
or oligarchic power, and that there should be no externalities
- circumstances in which the costs or benefits of a transaction
fall on a third party, and are not brought home to the market
actors. In addition, it is recognised that market activity may
under-supply public goods (goods which give a relatively small
benefit to an individual in relation to their cost, and are non-rivalrous
and non-excludable in consumption). There is no obvious reason
why any individual should pay for such goods. Since it is not
possible to exclude someone from the good if someone else pays
for it, you might as well wait for them to do so. Some of the
outcomes of welfare states - civic order, public health, a general
reduction in stress, participation in a more competitive national
economy - may be seen as (partly) public goods, and there may
therefore be problems in ensuring adequate provision if welfare
is allocated through markets. Those interested in welfare will
also be concerned about the extent to which markets produce inequitable
outcomes and damage the interests of poorer groups, since the
better-off will always be able to reserve disproportionately more
of any good in relation to their numbers.
The case for markets as stated above rests on assumptions about
the rational direction of behaviour according to judgements of
interest similar to those identified by Le Grand in his account
of the ascendancy of rational choice approaches to welfare behaviour
in recent policy developments. The relevance of this notion of
instrumental rationality to market behaviour has been challenged
in recent years. Critical approaches may be grouped under two
loose headings. First at a conceptual level, it is hard to understand
some valued human activities in terms of the rational deployment
of means to an end - for example, going to sleep, being altruistic
or creative or spontaneous (Hargreaves-Heap et al, 14, Hollis,
1987, ch 12). There are also problems to do with the analysis
of rational activity over time. Preferences change, and the question
arises of which preferences should be used to analyze the rationality
of current choices. The situation is complicated by the fact
that some choices, particularly in areas like education, pension
provision, career, parenthood or membership of a religion, influence
the choice-sets a person will face at a later date, so that it
is difficult to separate the evaluation of options understood
as means from the ends of actions. Rationality may be understood
as expressive rather than instrumental, so that actions are taken
to embody a commitment to a way of life or to a system of values
rather than being a means to a particular end (Weber, 1922, 24-5;
Sen, 1979, 95). Further theoretical issues relate to macro-sociological
approaches which understand human motivations in different ways
- for example, Etzioni's communitarian blend of psychoanalytic
and rational elements in motivation (1988) or the range of high-modern
and post-modern accounts which interpret behaviour as increasingly
directed by a life-politics which is both expressive and instrumental
(Giddens, 1994, 90-2).
Secondly, at an empirical level, practical evidence from economic
psychology indicates that people often do not behave as if motivated
by the pursuit of the kind of stable goals arranged in a consistent
preference order that the approach assumes. People discount the
value of goods irrationally (in other words at rates widely divergent
from the market interest at which they could presumably get or
lend an equivalent amount of money) over time (Chapman, 1996,
Hoch and Lowenstein, 1991, Thaler, 1992, 94). They assess the
same risk as of different significance according to the way in
which it is expressed or the standpoint they view it from (Beattie,
Bullock and Loomes, 1994, Jones-Lee and Loomes, 1996, Adams, 1995,
pp. 95-8), Sugden, 1996). They tend to be more aggrieved by loss
than delighted by an equivalent gain Kahneman and Tversky, 1979,
Thaler, 1980). They are frequently value the component parts
of a good at a greater rate than is implicit in their valuation
of the whole they constitute (Starmer and Sugden, 1993, Bateman
et al, 1996).
The manifest irrationality of choice in practice leads one commentator
to write 'there was a time when...the job of the economic theorist
seemed to be one of drawing out the often complex implications
of a simple and uncontroversial set of axioms. But it is becoming
clear that these foundations are less secure than we thought,
and that they need to be examined and perhaps rebuilt' (Sugden,
1991, 783). One important response is to challenge the basic
notion that individuals have direct access to a stable and consistent
set of preferences to which they refer in making economic decisions.
The view that choice is a more fluid, complex and socially-conditioned
process and that decision-making is influenced by circumstances
fits the above arguments. A review of current literature on choice
under uncertainty concludes: 'instead of trying to devise some
general theory of an essentially conventional..form, [modeling
'individuals as if characterized by some set of fully formed preferences
which they apply to every decision problem'] perhaps we should
switch our attention and our efforts to understanding more about
the processes by which people select and apply strategies for
dealing with particular forms of decision problem..'(Loomes, 1997,
11). One of the two originators of the leading psychological
theory of the evaluation of different options, prospect theory,
comments on assumptions about rational choice in market settings
in a recent review 'there is compelling evidence that the maintenance
of coherent beliefs and preferences is too demanding a task for
limited minds. Maximizing the experienced utility of a stream
of future outcomes can only be harder' (Kahneman,1995, quoted
in Hutton 1995, 230).
The case for welfare markets is compelling, in view of the practical
success of market economies and the theoretical possibilities
for enhancing responsiveness and innovation. The rational choice
account of market behaviour encounters difficulties. This directs
attention to alternative accounts, and particularly to accounts
of how social factors may influence people's behaviour in markets.
Accounts of market behaviour: the role of trust
Political economists point out that markets driven by purely egoistic
concerns require a regulatory framework to prevent them degenerating
into a Hobbesian conflict of each against all, in which the costs
of ensuring that transactions take place according to contract
becomes excessive. Most commentators have agreed that a minimal
framework of law, order and monetary regulation is efficiently
provided by government (for example, Friedman, 1966, ch. 2).
However, there are two additional circumstances in which further
constraint on the exercise of rational self-interest may be desirable.
These concern the provision of public goods and related ideas
associated with social capital.
Since market actors have no incentive to provide public goods,
the provision of such benefits may be seen as a legitimate role
of government by advocates of market freedom, legitimating state
involvement in, for example, public health, communication and
education (Freidman, 1966, ch.2). The notion of social capital
developed by Coleman (1990, 304) and Putnam (1993) refers to 'features
of social organisation, such as trust, norms and networks, that
can improve the efficiency of society by facilitating co-ordinated
actions' (Putnam, 1993, 167). The interesting feature of this
argument is that it refers to factors which that cannot be provided
directly by government, but are not obviously created by immediate
market self-interest. Putnam illustrates the point in his influential
account of the superior economic development of northern as against
southern Italy as resulting from a socio-political framework which
enabled individuals to develop economic relationships, confident
that contracts would be honoured and that individuals would recognise
a common interest in ensuring that supportive economic institutions
worked. The accuracy of this account in relation Italian regions
is controversial (Sabetti, 1996, 40; Bagnasco, 1996, 365). Putnam's
own example of social capital (also employed by Coleman) is a
rotating credit association, and it is open to dispute whether
market-oriented banking will fill the role of such an institution
with greater or less efficiency. The question of whether social
capital in this sense can be generated adequately by the institutions
of civil society or whether the state also has a role to play
is also subject to debate (for example, Levi, 1996, 50-52).
The extent to which markets are facilitated by social capital
is an empirical question. The idea that a certain level of general
trust will aid the operation of market systems is plausible.
It can be identified in the work of the founding fathers of political
economy (see for example Hume's argument that the observation
of market self-interest is bound up with 'universal and inflexible
observation of the rules of justice'- 1739, 585-6, reflected in
Smith's notion of sympathy in Theory of the Moral Sentiments
- 1759, see especially, 191-2, and echoed more recently by Coleman
- 1986, 316). Smith also saw normative factors - 'habit, custom
and education' - as essential to maintain the social division
of labour which sustained The Wealth of Nations (1776,
120). More recently, Fukuyama argues that a high degree of trust
contributes to the competitive advantage of the leading capitalist
nations (1995, 18 - see also Hirsch, 1977, 137; Hutton, 1995,
298-300). All these arguments imply that an internalized mechanisms
of normative regulation as well as external legal control help
markets to operate efficiently, and that trust makes a powerful
contribution to such 'social capital'.
The argument has merit at face value. Individuals who trust each
other are better equipped to reduce the transaction costs involved
in the detailed and continual checking of contract compliance
and can invest in the future with greater confidence that obligations
will be honoured. Thus the benefits of egoistic rationality may
best be realized when it is accompanied by its contrary. Governments
cannot legislate for trust directly, but they may be able to encourage
its growth and penalize self-interested defections from trust.
Trust and welfare markets
The market transactions involved in the new welfare policies generate
three contexts in which the role of norms in governing behaviour
appear likely to be significant:
In relation to lay consumer judgement, the argument
that service users simply have to trust professional providers
appears at its strongest. In health care, consumers and potential
consumers encounter serious information problems. They are simply
unable to predict their future needs (Arrow, 1963). Some theoreticians
generalise the argument to suggest that the diffusion of 'active
trust' (trust which cannot be taken for granted on the basis of
institutional relationships, but 'has to be actively produced
and negotiated') is a defining characteristic of post-traditional
societies precisely because we are increasingly dependent on experts
but increasingly aware of the shortcomings of guarantees such
as those provided by membership of a profession (Giddens, 1994,
93). Service users find it difficult to understand complex technical
information or weigh the advice of different doctors, are typically
not at leisure to compare different providers, may fear that a
mistaken choice will produce irreversible consequences and may
be influenced by emotions. Similar arguments apply to those confronted
with choice between different social care providers (Baldock and
Ungerson, 1994, 53-4).
The information requirement may be more nearly met in relation
to education. Many people have strong ideas about the quality
of schools and there is often a considerable measure of agreement
on which are best (David, 1993). However, the capacity to assess
and utilise information varies between different social groups,
so that middle-class people are advantaged in the education market
(Barr, 1993, 375). It is also difficult to disrupt a child's
education and network by withdrawal so that an exit option will
only be used sparingly.
In the area of insurance judgements the problems
of information and equity have been extensively discussed. If
information is not equally available to the firm providing the
policy and the person seeking insurance cover, problems of adverse
selection and moral hazard can result. In practice individuals
may have a better idea whether they are a good or a bad risk than
the insurers do, and those aware of a higher degree of risk will
be attracted by a policy written on an 'average need' basis.
Under some circumstances, individual behaviour may influence the
degree of risk, so that the fact of being insured inclines individuals
to act in ways that increase the likelihood of suffering a problem
and making a claim - for example, someone who has insurance against
unemployment will be less anxious to find a job quickly, and again
the average need approach will encounter problems (Barr, 1993,
119-122).
Insurance companies tend to respond to these problems with caution.
Policies are offered with a large number of restrictions, or
only at high premia, particularly in areas where market actors
have acquired little experience. A recent review shows that policies
for mortgage protection in the event of unemployment, permanent
health insurance and long-term care carry extensive exclusion
clauses and appear to charge higher premia than is actuarially
justified (Burchardt, 1997, 8, 15, 35, 74), points confirmed by
Parker for care insurance (1988) Munro for mortgage protection
(1988) and Calnan, Cant and Gabe for medical insurance (1993,
15). Good information on the likely risk of needing social care
in the future is not available for people of working age in the
UK who might be likely to consider insurance. Most UK policies
are in fact written either on the basis of US experience or using
evidence on the proportion of different age and gender groups
actually in receipt of care, which is not necessarily related
to need (Parker and Clarke, 1995, 19-20).
Burchardt's study concludes 'the complexity of the products and
the difficulty of estimating the risks that one might face in
the future mean that the assessment of the value for money offered
by a policy is in many cases impossible' (1997, 76). In practice
much insurance provision is unattractive. A national sample
survey of 1000 individuals by Parker showed that while most of
those interviewed overestimated their risk of needing social care
in old age (roughly 75 per cent thought they would need care by
the age of 85, while the current proportion receiving care is
less than 25 per cent) only six per cent expressed interest in
purchasing policies on current terms. Similarly, an interview
study of 800 households seeking to buy or sell houses in Bristol
and Glasgow carried out by the programme found that very few people
regarded the terms on which mortgage protection insurance policies
were written as sufficiently attractive to purchase them (Munro,
1998). Under these circumstances, a high degree of trust in the
product is necessary to enable insurance provision to make headway.
Private pension provision is well established. However, recent
developments have diminished confidence. Debate sparked off by
the well-publicised Maxwell case (in which occupational pensioners
were effectively defrauded by default on unsecured loans from
the pension fund of the publishers companies) has severely damaged
public confidence in the insurance industry (Goode Committee,
1994). The situation has been exacerbated by the selling of inappropriate
pensions to large numbers of purchasers of personal pensions and
the weakness of compensation arrangements (OFT, 1997).
In relation to welfare entrepreneurship among budget
holders, commentators often argue that relationships of trust
improve the efficiency of markets for services where a high degree
of professional expertise is essential to check the quality of
a service that itself involves considerable professional discretion
- such as health care. The transaction costs of checking quality
otherwise become inconvenient. Recent studies indicate that trust
is important in facilitating the 'high-discretion' work involved
and that relationships between professionals that are closer to
those of a network than a contract are more appropriate (Walsh,
1995; Flynn, Williams and Pickard, 1996, 142-4). These arguments
draw on a broader literature about industrial organisation (for
example, Fox, 1974, 30-37).
It is at present uncertain how forcefully such arguments apply
to recent quasi-market reforms in the UK welfare state. A recent
literature review indicates that although the evidence on which
to base a full assessment of the market reforms in the NHS is
not yet available, there may be real benefits in terms of cost
reductions which may compensate for the increased transaction
costs required to maintain trust (Dixon and Glennerster, 1995,
311). The response of GPs to the opportunities and pressures
of fundholding appears to be diverse (Glennerster, Cohern and
Bovell, 1996, 55; Ennew and Whynes, 1996, 3). The particular
role played by the normative framework in the success of the system
is unclear.
These arguments suggest that, while markets in which behaviour
is motivated by instrumental rationality may have theoretical
advantages in promoting the efficient use of resources to meet
people's needs, their operation in practice is likely to be complicated
by difficulties in ensuring that good information is available
to all participants, and by problems in safeguarding equity.
These difficulties can be mitigated by a framework of trust, so
that lay individuals can have a greater degree of confidence in
decisions made on their behalf by professionals in quasi-markets
and in the advice that professional suppliers who are in competition
with other suppliers give them about both current health, social
care and educational needs and their risk of needing provision
at some stage in the future; that parties to insurance contracts
can have some confidence that the information supplied by the
other party is not misleading; and that service users can have
confidence that suppliers are adequately regulated. It is often
suggested that the operation of markets in which professionals
and managers as budget-holders bargain with suppliers of services
on behalf of consumers are facilitated by a high degree of trust,
but it is not yet clear on the basis of UK experience whether
the possible benefits in responsiveness and innovation outweigh
the costs of checking transactions.
A normative framework of trust is particularly desirable in welfare
markets, and the above arguments suggest that such a climate might
function as a sort of social capital sustained in a successful
market welfare system and facilitating the efficient operation
of networks of interaction between the various participants.
It is difficult to see how instrumentally rational participation
in a market driven by egoistic rationality will generate such
capital since it depends on mutual interactions from which the
other may defect on self-interested grounds. How can one be certain
that the previously trust-worthy personal financial adviser will
not sell over-priced health insurance to get the commission, the
school misrepresent its academic standards by excluding marginal
children from GCSE, the applicant for care insurance conceal a
family history of chronic dependency? Drawing on the suggestion
that choice is not simply driven by pre-defined preferences but
is amenable to contextual influences, the question arises of whether
particular circumstances incline individuals towards the development
of a framework of trust in market interactions. We consider some
recent evidence from economic psychology.
Norms and the market
Recent work in experimental economics has investigated the production
of social capital. The results indicate that people often construct
and follow normative systems to achieve a preferable outcome to
that available from the exercise of individual instrumental rationality.
However, learning by experience is capable of undermining as
well as reinforcing this process. A simple game, based on the
notion of an ultimatum, addresses the question of rationality
directly. One of two players holds a stake (provided
by the experimenter) which must be divided as follows: the holder
proposes an allocation. If the non-holder accepts, the division
is adopted - and paid out (in real money). If the proposal is
not accepted, neither gets anything. From a rational perspective
the allocator holds the whip hand. The most that the recipient
can get is what is offered and that by accepting it, so the way
to maximize one's return is to accept. Following this logic the
rational allocator should offer the minimal concession to maximize
their own return, confident of acceptance on the part of the co-player.
In fact, most recipients will not accept less than a certain amount
(between a quarter and a third of the money) and will cut off
their nose to spite their face at offers below that (see reviews
by Güth and Tiertz, 1990, and Camerer and Thaler, 1995).
The finding is repeated in studies funded by US foundations in
third-world and Eastern European countries where stakes that are
substantial in real terms can be offered due to differences in
the purchasing power of the dollar (Bolle, 1990). This finding
is widely interpreted to imply that individuals do employ extra-rational
normative principles to guide economic decisions and that these
principles are not immediately undermined by the rationality of
circumstances (for example, Bethwaite and Tompkinson, 1996, 269-71).
This suggests that a helpful normative framework can be sustained
in a welfare market driven by rational choice.
This point has been disputed by game theorists committed to the
importance of instrumental rationality. One of the most prominent
UK researchers in this field has extended the game to two rounds
to allow substantial opportunities for learning. When the players
exchange roles in the second round the amounts offered and accepted
fall substantially. The experimenters conclude that individuals
tend to choose an equal division when faced with a new problem,
because it is 'obvious' and an 'acceptable compromise', but that
'such considerations are easily displaced by considerations of
strategic advantage, once players fully appreciate the structure
of the game' (Binmore et al, 1985, 1180). Similar findings are
reported by Weg and Smith (1993) and Suleiman, 1996). In a variant
of the game (the Dictator game) in which one player simply allocates
the stake and the co-player has no veto and cannot prevent the
allocator getting the stake minus the offer to the other player,
participants tend to be more egoistical. This implies that norms
about fairness are more salient in negotiation than in simple
allocation (Hoffman et al, 1994). The conclusion from this work
is that people can follow norms of fairness when they seem appropriate
and when they are reinforced by the social context in which they
operate, but are also capable of learning rapidly to pursue rational
self-interest.
A related family of games investigates the capacity to construct
normative social capital in terms of an outcome that exceeds the
initial contributions of the players. The process can be thought
of as mimicking the positive sum process of investment leading
to economic growth. A typical game gives participants a stake
and invites them to invest in a common pot which is then increased
proportionately by the experimenter and distributed equally among
the players, including non-investors. Thus individuals create
and augment a common resource which has the non-excludability
characteristic of a public good and is non-rivalrous in consumption
in the sense that although it is divided, the proportion each
gets is fixed by a predetermined rule, not by competition. The
optimum solution for all is that all should invest and get the
biggest increment to their investment which is then equally divided.
The problem is that those who invest must share stake and product
with those who do not. An egoistic non-investor keeps their own
stake and then gets a share in the investment of others plus its
product. If every one is egoistic, there is no investment and
no product. Instrumental rationality reaps no benefit.
Variations on the game can be devised to examine the impact of
differential investments and returns, learning in repeated trials
of the game, opportunities for communication between subjects
and other factors. The findings of various studies show that,
in one-shot games, there is an irrationally high rate of contribution
- 40 to 60 per cent (except among economics students where a well-known
experiment indicates a lower rate of 20 per cent, Marwell and
Ames, 1981). However, in repeated trial games the rate falls
to about 16 per cent. If those taking part are allowed to communicate
either before or during the game, the rate of contribution increases
substantially (Thaler, 1992, 9-15). These findings have been
interpreted in different ways. A conclusion common to all interpretations
is again that norms of cooperation exist, but that individuals
are capable of learning where their own rational self-interest
lies in a context where other people are assumed to pursue rational
self-interest.
The problem of coordinating instrumentally rational choices to
achieve an advantageous mutual outcome which is precluded by egoism
is well-recognized. An example is voluntary subscription to build
a hospital - what any one individual can afford provides little,
and the incentive is to keep it, unless convinced that everyone
else will act cooperatively and also subscribe. In experimental
games based on the 'prisoner's dilemma' and similar problems players
often in fact cooperate to achieve the best mutual outcome. However,
such cooperation is typically vulnerable to rapid erosion if player's
feel that it is not reciprocated (Lave, 1962, Rapoport and Chammah,
1965; Sen, 1979, 106; Thaler, 1992, 20; Sugden, 1991, 775). In
one well-known experiment the most successful strategy was simply
to repeat what the co-player did in the previous round, and to
punish lack of trust by lack of trust and reward confidence by
confidence (Axelrod, 1984). Again supportive norms are not unattainable,
but learning can undermine them at least as effectively as it
can reinforce them.
These findings are in some ways supportive of the welfare market
project. They imply that market structures do not immediately
impose a crude rationality on their participants, so that the
normative framework which is desirable to reduce transaction costs
and to enable the welfare market to function effectively will
not necessarily fall victim to egoism. At the same time, people
learn rapidly in market contexts and will respond appropriately
to behaviour founded on contrary norms. There is a real fragility
to the normative frameworks in which welfare markets flourish.
Positive action on the part of government may be required to
sustain them.
Some empirical evidence
It is difficult to evaluate the impact of the shift to a market-oriented
welfare system, since many changes are recent. Work on attitudes
to tax and spending, to the provision of care for older people,
to owner occupation and social housing and to social security
fraud in the Economic Beliefs and Behaviour programme indicates
two things: first, the attitudes that people express do not simply
reflect the instrumental rationality which Le Grand points out
is assumed in the new welfare model. Secondly, there is considerable
disquiet about many of the new measures. The relation between
such attitudes and behaviour is however complex.
The British Social Attitudes survey study of attitudes to public
spending concludes 'although people are less likely to advocate
large increases in public spending when the personal tax consequences
are spelled out to them, a comfortable majority nonetheless supports
increases in spending on at least one or more of the core areas
of health, education and universal welfare benefits. There is
no evidence either that richer people are less in sympathy than
poorer ones with increases in public spending, even if they are
asked to pay a higher share of the tax burden to finance them'
(Brook, Hall and Preston, 1996, 200). Access to private alternatives
to state education and health care makes little difference to
attitudes (197-8).
Surveys of 800 home-owners and buyers in Bristol and Glasgow carried
out in 1995 showed that, while there was strong evidence of self-interest
(for example, 76 per cent of the sample disagreed with the phasing
out of mortgage tax relief) there was also strong support for
more altruistic policies. Eighty-six per cent of those interviewed
believed that the government should expand the provision of social
housing (Munro, 1996, 4). Sixty per cent of a representative
national sample interviewed for the study of the finance of care
for elderly people, felt that the state should pay for care either
for everyone or for those who could not afford it. Of these 84
per cent agreed that the state should pay if this led to a tax
increase of £100 a year and 57 per cent if it led to an increase
of £500 a year (Parker and Clarke, 1996b, tables 5 to 8).
These findings are more difficult to interpret since the motives
for supporting state provision may be self-interested (concerned
with the risk of needing care) rather than altruistic (concerned
to meet the needs of others). There was no obvious relationship
with obvious indicators of need such as age, health or family
structure. However, individuals do appear willing to pay tax
increases necessary to finance support, implying that they do
not follow rational self-interest to the extent of seeking to
free-ride on state services financed by others.
Evidence of disquiet about the spread of market relations in welfare
emerges in the concern about privatization and the individualization
of responsibility expressed in discursive interviews in these
studies (Taylor-Gooby, 1998, ch.1) and, most strongly, in the
attitudes expressed in qualitative research on petty social security
fraudsters in Luton and Brixton, carried out in 1995. This survey
showed that for the most part, Income Support and Housing Benefits
fraud was opportunistic rather than instrumentally rational.
Typically, individuals had discovered that it was possible to
claim while working casually, and did not plan and execute fraud
as a response to economic incentives. They felt unhappy and anxious
about the role of fraudster and that their citizenship was effectively
impoverished by the punitive regime and meagre benefits offered
by the welfare state (Dean , 1996, 20).
Conclusions and implications
This article points to two problems with the assumptions about
the motives and behaviour of individuals making choices within
welfare markets current in the mainstream of policy debate: first,
individual capacity for instrumentally rational choice is constrained
by psychological and practical factors which are likely to result
in lower levels of future provision than are necessary to meet
the needs people recognize. Secondly, markets in welfare are
likely to depend to an even greater extent than elsewhere on a
normative framework of trust, due to the importance of professional
judgments, inscrutable to the lay user, and the difficulty of
assessing relevant future risks and products available to meet
them. Findings from the ESRC programme imply that normative principles
more appropriate to universal citizenship provision than to individual
responsibility for meeting one's needs in a competitive market
are current among many users of welfare services.
These findings point to four conclusions. First, it is striking that rational choice approaches have become popular in policy-making just as evidence challenging rational choice accounts of market behaviour is increasingly influential among academic commentators. Secondly, it is unclear how far the welfare markets at present in operation are sustained by a moral legacy from the culture of welfare state citizenship and whether instrumental logic will deplete that legacy over time, so that the markets become less efficient. Thirdly, if expanded market systems are to serve the traditional equity concerns of welfare, compulsion will be required, since many people will not choose to provide adequate cover for themselves. Fourthly, markets should be designed to foster rather than erode inclusive normative frameworks which assist them in achieving welfare goals. Suggestions are: a strong and transparent regulatory framework to encourage trust; limitation of the capacity of the most successful players to control resources, so that inequalities between provision in leading and lagging schools or hospitals is minimized; and the design of mechanisms to diffuse the achievements of the leaders. The Labour manifesto proposal (1997, p.21) to substitute area-based 'commissioning' in primary health care for individual fund-holding, so that the most successful and innovative GPs would lead in setting standards in contracts applicable to the patients of all local GPs, points in this direction. The resistance of fund-holders to this change shows how difficult it is to dismantle a structure of incentives once it is established.
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