Let beneficiaries choose their own welfare

Why is there so much poverty and not enough private charity, that government needs to provide welfare? The large numbers of needy people and their apparent dependence on welfare assistance are direct consequences of government's high taxation, labour policies and other interference that has caused poverty and unemployment. If government would stop causing poverty, the few who would still 'slip through the cracks' could readily be cared for by private charity or state handouts.

South Africa is widely viewed as seriously short of housing. So it is a welfare goal of high priority that government should provide more and more low-cost housing. But what is the real need?

Imagine a place, never too hot or too cold but rather rainy, where some people live in crude palm-leaf shelters. Their government built them low-cost housing, but still they preferred their palm-leaf shelters. This happened in the Seychelles where the people were given houses but would obviously have preferred to spend the money on something else, perhaps consumer goods or training or medical treatment. They were not given a choice.

Deciding welfare priorities for others is a thankless task. By definition it is patronising, and in practice it is usually wasteful. Yet governments insist on imposing their own 'supply side' preferences on the population instead of letting consumers demonstrate their 'demand side' preferences by choosing for themselves.

Surely public welfare funding should not dictate spending patterns? After all, state pensioners are given the cash to use as they see fit. Why should government trust the aged to make their own spending decisions, but trust no-one else? Nobody would be so cynical as to suggest that the state wants pensioners, as 'unproductive liabilities', to smoke and drink themselves into an early grave and 'off the books'. No, obviously the state recognises that most pensioners can look after their money themselves.

It is true that pensioners who become incapable of looking after themselves are placed by the state in the care of a curator, guardian or institution. But most people qualifying for welfare assistance would not be considered incapable of looking after themselves, and so do not need state supervision.

Yet government provides or subsidises a host of housing, transport, medicines, clinics, schooling, policing, and other infrastructure and development projects. All this welfare provision requires constantly second-guessing consumer choice and imposing government preferences about which services to provide.

A strong case can be made for government redistribution of wealth to help needy people. A means test, which should probably be called a 'needs test', could analyse critical aspects such as age and infirmity and allocate points towards a cash entitlement for the recipient to use as he or she chooses.

But should government be offering desirable items like cheap houses? There are few arguments in favour of government provision of unsubsidised services in open competition with private service-providers. Government would inevitably be offering a lower quality service at a higher price and would not be able to compete. Government is simply not good at business. It is the private sector that provides every service ever more cheaply, efficiently and effectively, forever driven by the free choices of its customers, and constantly disciplined by loss of business for poor service or high prices..

Let welfare recipients spend their own benefits, like pensioners do. Then every redistributed tax rand can satisfy its recipients' high priority needs. No more state paternalism, guessing and waste. Give welfare beneficiaries the cash and allow them to purchase their requirements from competitive private providers.

Source: Leon Louw is the Executive Director of the Free Market Foundation. This article may be reprinted without prior consent but with acknowledgement. The views expressed in the article are the author's and are not necessarily shared by the members of the Foundation.

FMF Feature Article / 30 May 2001 - Policy Bulletin / 18 August 2009