Oh yes we can (afford it)!

The Economic Effects of Universal Services

In addressing the assumption that providing universal services will (unaffordably) increase the tax burden (compared to the traditional benefits system) it is worthwhile to consider the actual impact on the economy of universal services, because this will reveal that assumption to be false.

Providing universal services actually has the following effects:
– Reduced waste
– Increased efficiency
– Increased output
– Broader tax base
– Reduced unit service costs
– Reduced labor rates
– Reduced pensions burden
– Increased resource efficiency

Let’s look at each of these impacts in a little more detail so that we can understand why it is that universal services are not as unaffordable as may at first appear to be the case.

Reducing Waste
Universal services, as opposed to benefit payments, do not allow for same degree of diversion of social spending to other than intended targets, reducing the wasteful misappropriation of public resources and eliminating the budget back-fill that is inevitably required to replace diverted and wasted funding.

Increased Efficiency
Very significantly, because universal services are not means tested, the administrative overhead, compared to means tested benefits systems, is much lower. This is amplified by removing the need to police the system – an economic efficiency and a social benefit.
Because core and essential services are delivered as public services by public agencies, at least that portion of the costs that would otherwise have been absorbed by the profits of commercial providers are retained to increase the quantity or quality of services for the same budget. For instance a Community Center kitchen can deliver healthy nutrition at cost.

Increased Output
The removal of poverty and benefit traps allow all universal service recipients to work and contribute without penalty, thus increasing production using otherwise immobilized resources. (Current benefits systems effectively force recipients not to work because the marginal benefit of earning small amounts is often negative.)
Further increasing output is the increased provision of marginal services and greater availability of marginal employment opportunities resulting from the reduction in basic labor rates (see below). 

Broader Tax Base
Because otherwise non-contributing resources are able to make marginal contributions to output, the monetized value of their output adds to the available income tax base (as well as wealth to the economy).

Reduced Basic Labor Rates
Universal services allow for the socialization of a significant portion of the basic labor charge, because market participants only value, in monetary terms, the marginal value of their contributions. They accept the value of the universal services as socialized income which delivers the same value to them as they would otherwise have had to demand in monetary form. This effect is most pronounced at the unskilled labor level, but continues to have some effect further up the skill ladder as well.

Reduced Unit Costs for Universal Services
The materialized cost of delivering a unit of universal services is reduced by the socialized value of labor inputs into the universal service delivery mechanisms. Because a significant portion of the labor content in universal services is more demanding of social skills, which are already often socialized (e.g. caring), the impact of reduced labor rates on the labor content of the cost profile of universal services is more marked than it is in the commercial sector, where enhanced skills always have, and will continue to, command very large premiums over basic labor rates.
Any necessary extensions of service will be absorbed by the reduction in the unit cost of delivering universal services that result from the reduced materialized cost of labor inputs, negating any need for increases in tax rates.

Reduced Pensions Burden
Pension recipients accept the value of the universal services in place of their market value without impact to their standard of living. The efficiencies of universal service delivery (see above) allow for the delta between the cost of service provision and the market value of those services to be removed from the tax burden.

Increased Resource Efficiency
The beneficial effects on resource efficiency resulting from the delivery of universal services come from three consequential outcomes:

  • Increased use of resource efficient mechanisms through the aggregation of demand, driven by the removal of barriers to adoption (pricing) and widespread accessibility, increases the scale, efficiency and penetration of those mechanisms, such as mass transport and efficient public housing.
  • The extension of manufactured goods’ useful lifetimes and significantly higher rates of reuse resulting from the wider availability, greater accessibility and low monetized costs of micro-services in local markets for repair, restoration and recovery. By reducing the cost of labor to its marginal rates, the repair of goods becomes a much more competitively priced option in the marketplace and the relative cost of material replacement is significantly elevated in comparison.
  • The wider availability of human energy makes it an attractive replacement for manufactured energy, reducing resource consumption.

Taken together the overall impact of universal services is to socialize some labor costs that would otherwise be monetized, and in so doing to reduce the tax burden of universal service delivery, because the tax burden is expressed in monetary terms. Consequential effects include deeper penetration of services, greater efficiency in service delivery and of resource use.

Astute fiscal observers might wonder what will happen to tax receipts if the basic rate for labor is reduced. The answer is that it will have a negligible, if any at all, impact on tax receipts because revenues from tax payers with incomes at or near today’s basic labor rates (minimum wages) are minimal, due to the current system of “allowances”. In fact the increased output resulting from the motivation of currently immobilized resources will likely result in larger increases in tax revenues than any revenues lost through the reduction of prevailing basic labor rates.

Ultimately the monetized burden (i.e. tax) on the economy of delivering universal services is likely to be similar to that of the benefits system, except with more effective outputs and substantial social and environmental advantages.

See also https://standardsoflife.wordpress.com/2009/03/17/universal-social-services-make-economic-sense/

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