Reciprocity and respect

After a long voyage from Portsmouth, Edward J. Moore and his wife, Beatrice, disembarked in Sydney in June 1846. The couple stood fretfully on the wharf with neither money nor friends until a stranger appeared. He offered Edward his hand and gave him a secret handshake. The young couple relaxed; they were confident this stranger would help them find shelter and employment in their new country-and their optimism was not misguided.

Moore and his benefactor were "brothers" in the Grand United Order of Oddfellows, one of many "friendly societies" that provided members with companionship and various services, including healthcare, medicines, housing loans, unemployment benefits, and funerals. Members-primarily, but not only, men-banded together because they shared a common occupation (the Brickmakers and Labourers Accident and Provident Society), a religion (the Australasian Holy Catholic Guild), or because they were neighbours (Friendly Society That Meets at Mr Smith's Half-Moon Tavern on Winchester Hill). The societies operated through democratically governed chapters called lodges. The lodges were examples of Edmund Burke's "little platoons," people with a natural affinity voluntarily joining together to benefit their families and communities.

From reciprocity to government welfare

During good times, friendly society members contributed to a mutual insurance fund, which they drew on when circumstances required. Today's needy recipient could easily be tomorrow's donor. Such reciprocity is the basis for the Golden Rule and is universally viewed as equitable and just.

Although friendly societies served admirable purposes, some people criticised their secret handshakes, strange rituals, and exclusionary membership rules. Moreover, friendly societies could never provide for all of the nation's welfare needs. People who were unable to make contributions because of unemployment, a failed business, or chronic illness were largely excluded. So too were those considered not "suitable" for lodge membership. Even at their highest point, the lodges covered only 30% of the population. The remaining 70% were forced to rely on family, charities, or the government when in need of help.

At first, government support was minimal, but, over time, publicly provided welfare expanded, crowding out many charities. Today, the government has co-opted most friendly societies; those that remain functioning look to the government for a substantial portion of their funds. Other nations followed a similar path, but the transition from mutual assistance to public welfare was exceptionally rapid in Australia, where people have historically viewed the government as a "vast public utility" designed to meet all of life's vicissitudes.

Believing that voters despise effortless entitlements, many governments tried to retain some semblance of reciprocity in their welfare arrangements. As the British welfare state creator, Lord Beveridge, famously put it, "Benefit in return for contributions, rather than free allowances from the State, is what the people…desire." Like friendly societies, Beveridge's system required workers to share their risks by contributing to a mutual insurance pool, which could be accessed for assistance when needed. To support people in retirement, the USA and most European countries also created social security systems in which contributions determined the size of entitlements.

The problem with social insurance is the same one faced by friendly societies-how to provide for the needs of those who are unable to make contributions for one reason or another. To ensure that no one was left to starve, governments invoke a social "solidarity principle," which requires all citizens to share the responsibility of looking after society's most needy people.

No country has a purely contributory welfare system; for humanitarian reasons, all nations redistribute some resources to those who have not made sufficient contributions. Such redistribution is unavoidable, but it leads to tensions because the contributory and solidarity principles reflect different conceptions of fairness.

Two ideas of fairness

Everyone is in favour of fairness, but people differ about what is fair. Consider a hypothetical case. After 20 years of work, Stan loses his relatively well-paid job. He lives alone, has some savings, and owns a home. Samantha, on the other hand, lives in rental accommodation. She has worked very little in her life, and she has neither savings nor investments. In addition, she is single-handedly raising a four-year-old child. Both Stan and Samantha are seeking assistance. Who should have precedence?

According to the contributory principle, Stan has the better case. He has worked and paid taxes for years, while Samantha has hardly worked. Giving more significant support to people like Sam provides people with an incentive to work. From the viewpoint of the solidarity principle, Samantha has the stronger case. She has no financial resources and a child to look after. Stan can get by on his savings, at least for a while, while Samantha has nothing to fall back on.

As already noted, no nation concerned with its citizens' welfare would ignore Samantha's plight. However, countries that wish to highlight reciprocity might provide her with a lower level of support than Sam. The Netherlands is an example. An unemployed worker who has made contributions for decades is entitled to a higher unemployment benefit than someone who contributed for fewer years or never contributed at all. Other European countries have similar arrangements, but reciprocity has largely eroded in many English-speaking nations.

Australia is an extreme case. Apart from compulsory personal retirement savings-which receive significant tax subsidies-there is little relationship between what citizens put in and what they take out of the welfare system. Unlike the Netherlands, Australia's primary unemployment benefit does not assign a more significant amount to those with a more extensive work history. Just the opposite is true. Including rental assistance and parenting allowances, Samantha would receive more help than Stan. Depending on the size of his savings and investments, it is even possible that Stan would receive nothing at all.