The Fallacy of Public Sector Affordability

   2   0 Blog, Inequality & Democracy

jwIn this guest blog Professor John Weeks, author of Economics of the 1%, explores the assumptions behind the idea that key public services, xincluding education and pension provision are unaffordable. 

In my new book, The Economics of the 1%, I deconstruct the ideological arguments for fiscal austerity. Prominent among these is “public sector affordability”, a fallacy that looms large in the neoliberal assault on social spending.  This fallacy appears virulently in the polemics over deficit reduction in the United States, Britain and continental Europe.  The mainstream media treats it as established fact rather than the ideological dogma that it is.

It manifests itself in the United Kingdom in assertions that if university education were made available to a large portion of the population the public sector could not afford to deliver it.  Therefore, substantial fees are not barriers to broadening tertiary education, but serve as the vehicle to democratize access to education.  The demonstrable absurdity of this proposition has not brought it the ridicule it deserves.

The neoliberals apply the same argument in very area of social expenditure, major or minor.  With an ageing population, “the public sector cannot afford” to pay more than a safety net pension; and cannot afford to provide all the drugs and care needed by that ageing population, and so on.

The fallacy comes obvious when we consider society as a whole.  Only a tiny minority of people would argue that primary education should be a matter for individual families to decide and fund privately.  The overwhelming majority in most countries hold to the conviction that children have a right to be educated.  This is not only an individual right.  Fostering an educated and informed public is essential to a democratic society.

Conviction, not finance, determines the provision of primary education by the public sector,  for everyone, regardless of income or status.  If some wish to contract for private education, they may do so, but they must pay their taxes to help support education for all.  The social consensus on public provision of secondary education is equally broad (for everyone), though number of years provided varies (lower in Britain than most developed countries).

How do we identify the appropriate coverage and to what level the public sector should support tertiary education?  Here we find no consensus.  Those who believe that people have no right to higher education usually avoid taking that potentially damning position, seeking cover under the affordability argument: “I wish we could provide everyone with a university education, but we cannot afford it, and  in any case, people gain personally from higher education, so they should pay for it themselves to the extent that they can.”

The public sector can only afford to help the poor to university, and if you are poor and clever you will find funding, or so goes the argument.  The implication of this “equal opportunity” of the neoliberals is that the rich can be dumb and fund themselves to a higher degree, while the poor must qualify as “clever”.  Elitism in education is fostered, not diluted.

The affordability fallacy takes most pernicious form in its application to pensions and health.  In any civilized society children have a right to education and the old should live their final years in decent conditions with dignity.  The consensus supporting a decent life for the elderly exposes “affordability” as grotesque.  The question is, in light of a country’s economic development and productive resources, what level of decency can and should society provide to everyone past a certain age?

Once the level is set, it remains to decide the institutional mechanism by which society delivers it.  Considerable empirical evidence indicates that provision of pensions through the public sector has the lowest resource cost (i.e., saves money).  Unlike private insurers, the public sector need charge no risk premium.  The combination of social consensus and economic growth should guarantee the revenue to fund a pension system be it public or private, and the form is the cheaper and more equitable.

Equally obvious should be the fallacy of the affordability argument for health care.  With the appalling exception of the United States, in every high income country the electorate accepts the principle that everyone has the right to adequate medical care.  By accepting this principle, the debate must focus not on financial affordability, nor on coverage (everyone qualifies).

The affordability argument perpetuates a profoundly anti-social and anti-democratic fallacy.  Whoever makes it asserts, as Margaret “Iron-Lady” Thatcher did, that there is no society and people have no obligation to fellow human beings beyond an absolute minimum that social decency forces upon even the most reactionary.  Reducing people’s sense of social decency represents the long term project of those who peddle the affordability fallacy.  People exist as a loose collection of isolated individuals, taxpaying consumers, in a marketized state of nature where it is each for her/himself.  As Hobbes told us, in the state of nature without the social contract life is “solitary, poor, nasty, brutish and short”.  Not a bad description of what the one percent would have for the rest of us.

Oliver Wendell Holmes, US Supreme Court Justice for thirty years, famously wrote in a 1927 opinion upholding a tax on a tobacco company, “taxes are the price we pay for a civilized  society”.  Though this statement is too defensively negative, it moves considerably closer to social reality than affordability arguments.

If the public sector does not provide social goods and services, then a burden does indeed fall upon the household and individual.  Each person must bear the necessity to seek private provision considerably more expensive than public delivery would be.  Taxes are not merely the price we pay for civilized life, they are the vehicle to achieve a humane society.

Related Posts

New research on key role major economies play in global tax avoidance

offshore-network_colorcorrectedAn important new study on Offshore Financial Centres (OFCs) from the University of Amsterdam has made some fascinating discoveries, challenging, as the Financial Secrecy Index has, the popular misconception that tax havens are only palm fringed little islands and exposing that in fact major economies play a key role in global tax avoidance. Specifically they’ve […]


Launch of international research collaboration, #AltAusterity

alt austerityToday is the launch of #AltAusterity, a new, international research collaboration of which Tax Justice Network is a partner.  The project aims to stimulate public debate on the subject of austerity though high quality research. It is a response to the lack of evidence which has underpinned the current policy agenda on austerity. The project […]


RB tax avoidance – company calls for public country by country reporting after Oxfam report reveals profit shifting

pictureOxfam has today released a report on tax dodging by RB, the company formerly known as Reckitt Benckiser and the maker of thousands of well known household products. The report looks at the 2012 restructuring of the company which saw it set up ‘hubs’ in the Netherlands, Dubai and Singapore, all well known corporate tax […]


Half measures mean Mauritius will continue to be a tax haven for the developing world

MauritiusThere was news this week that Mauritius has signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI). This is an initiative from the OECD to allow countries to take measures designed to stop tax avoidance by multinational companies and put them into their existing network of […]


G20: Pressure rising on tax haven USA

HamburgWhilst the eyes of the world focused on the isolation of the US from the ‘G19’ position on climate change, something remarkable played out elsewhere in the process. Following closely the common EU position that we highlighted a few days ago, the G20 communique devotes important space to tax justice. It’s so good we quote […]


About The Author

John Christensen

Trained as a forensic auditor and economist, he has worked in many countries around the world, including a period of working in offshore financial services with Touche Ross & Co. For 11 years he was economic adviser to the government of the British Channel Island of Jersey. In 2003 he became what the Guardian has described as “the unlikely figurehead of a worldwide campaign against tax avoidance.” His research on offshore finance has been widely published in books and academic journals, and John has taken part in many films, television documentaries and radio programmes.
View all posts by

2 thoughts on “The Fallacy of Public Sector Affordability

  1. Patrick Trombly says:

    This is a rant with no supporting data or logic.

    Debt doesn’t pay for itself.

    • Nick Shaxson says:

      errr. . . generally the purpose of taking on debt is that it pays for itself. Borrow to invest, etc. Public sector does it, private sector does it. Or are we misunderstanding your comment?

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to Top