The way that work is rewarded is central to organizations, and pay is only one part of it. Associated benefits such as pensions, maternity and paternity pay, and sick pay are also highly important. Sick pay in particular makes a huge difference to security and quality of life. I know this very well from personal experience. When I was a child in the 1960s and 1970s my father was self-employed. He had no savings, six children, and a wife whose work – looking after these children – was not paid. If he was ill, as he sometimes was, or if for some other reason there was no work for him, as was often the case, we felt the consequences within a day or two: there was no food to eat.
So I was struck today by a news story that the British government are considering the idea that workers should fund their own sick pay by paying into an individual savings account. There are no details yet – it isn’t a policy announcement – but seems to be based on similar systems in the United States and in Singapore. It has also been explained in a paper by – predictably – the free market think tank, the Adam Smith Institute (ASI). The idea seems to be not so much a savings account per se, but a combination of savings and private insurance policies.
The logic, if one can call it that, seems to be the same as that in the debate about NHS funding, which I discussed in a recent post. It is that state welfare is unaffordable and so must be replaced by private provision. That is nonsense because it still has to be paid for: if I can’t afford to pay the tax or national insurance to fund sick pay, how can I magically afford to pay an insurance premium to a private provider? Actually, as with health, the situation is worse than this. State-run insurance systems pool risk across the entire population, making them cheaper. Private insurance systems don’t just pool risk across a smaller population (the customers of the company) but are also inherently prone to sub-divide those populations. Thus, as we see most obviously with car insurance, companies segment their customers into risk groups and charge differentially accordingly – hence the very high premiums charged to young and old drivers. The commercial logic is obvious: those most likely to claim have to pay a higher premium. Translated to sick pay the logic is equally obvious: those most likely to need it have to pay more to insure against it. And, pretty quickly, they become uninsureable.
Perhaps the logic is that private providers will do the job better than a state system. This standard neo-liberal claim for private provision is, predictably, made in the ASI paper (as an aside, if the ASI ideologues read the writings of Adam Smith they might be less naïve). It founders on the now massive evidence of how in the personal finance sector in particular inefficiencies and rip-offs abound. Consider the massive mis-selling of private pensions, endowment mortgages and personal protection insurance (PPI), which have given rise to billions of pounds of compensation claims and huge heartache along the way, since compensation never really compensates and, often, arrives too late to do so at all as in the case of the Equitable Life pension scandal. Most of this arose from precisely the deregulation of financial services and of state provision of welfare. It doesn’t take a genius to work out that if sick pay goes the same way there will be massive scandals a couple of decades down the track. And, if so, then as with PPI a second wave of scandals around scam sales of compensation services will emerge.
But suppose all that is too pessimistic, and a private market in sick pay insurance accounts did not fall prey to scandals and rip-offs. If so, then at best we would have yet another extension of the paradoxically controlling nature of choice, which I discuss in the book (p.75) drawing on the more extensive, and brilliant, discussion in Barry Schwartz’s (2004) book The Paradox of Choice. For, now, we will have to monitor, evaluate and switch between the providers of sick pay accounts alongside our same (unpaid) work choosing electricity, gas, water, phone, pension providers and so on. The extension of choice as an unquestioned good into every area of life re-constitutes us as perennial choosers. An image of, say, shopping around the market for the nicest or cheapest vegetables, becomes elevated to a cardinal and unique principle. Making the wrong choices means you only have yourself to blame, but the consequences will not just be a less than nice dinner; they will be destitution.
It is tempting to think that those advocating such measures are well-intentioned but naïve, over-attached to the theoretical nostrums of page one of the Economics 101 textbook. It is not so. They know exactly what they are about. As the ASI report that provides the intellectual ballast for this idea bleakly puts it:
“The new system must overturn any idea that society collectively is responsible for the future needs of its members; that future provision is for themselves to determine by their actions now.” (p.13)
Or, as Margaret Thatcher so chillingly put it as long ago as 1981: “Economics are the method: the object is to change the soul”.