Income Disparity and Welfare Economics Public Policy Essay

In the modern world, economic processes in most cases determine the development of states. The role of countries in the world market becomes decisive for the well-being of their citizens and can determine social processes that arise and progress within the state. The world market is unstable by definition, as are the economic processes that take place in this market. Therefore, there is income disparity both between countries and between different groups within specific countries. Governments are doing everything they can to ensure the prosperity of their citizens and one way for overcoming the ‘wicked problem’ of income disparity is a welfare policy. This policy may entail the use of various social assistance instruments like unconditional basic income, “social investment, passive transfers, and workfare policies” (Lister, 2020; Garritzmann et al., 2018, p. 844). This paper aims to address the problem of income disparity from the public policy perspective, applying the principles and methodologies used in philosophy, political science, and economics.

Why the Issue of Income Inequality is Important?

There are many reasons why the issue of income inequality is important. Income inequality or disparity is usually an indicator of an unstable economy and problems in a country, including economic, political, and social ones. For example, income disparities in China are viewed by economists as one of the main problems of the country’s economy, and as an indicator that this economy is still developing.

However, while income inequality is an indicator of problems, it can be seen as a clear indicator of instability. Scientists share this opinion, noting that “countries with the most stable and clear patterns in income distribution have distinct connections between the share of labor costs in GDP and successes in social and economic spheres” (Bilan et al., 2020, p. 429). The scholars also mention a positive relationship of equal income distribution with “human development level, property rights protection, GDP growth, possibilities for taxation and budgeting of social programs” (Bilan et al., 2020, p. 429). This is an argument in favor of the fact that the state should reduce the levels of income disparity if it strives for prosperity.

Another reason why income inequality is important is its impact on the banking system and the country’s economy. Although external economic factors are the root cause of the income disparity, this relationship works in both directions, and income inequality has a destructive effect on the economy. Therefore, most states implement social policies, providing various financial benefits for low-income groups of the population so that they can spend money and participate in trade.

Noteworthy, the active participation of all members of society in the economic processes of buying and selling leads to a greater saturation of the market and therefore has a positive effect on the banking system. The size of banking investments may differ from country to country, but for African emerging economies, “a threshold of 18.072 percentage coverage of public credit registries is needed to counteract the unconditional positive effect of banking system efficiency” (Tchamyou 2019, p. 317). In other words, reducing financial constraints is usually applied by the countries’ banking sectors to decrease inequality.

Income inequality is also important in terms of humanity and morality. In states with income disparities, the underprivileged groups may experience problems with access to housing, education, and health care. The lack of adequate government policies that would help these people solve their problems leads to poorly resolved social situations such as homelessness, growing state social and health expenditures, health disparities, and increased mortality rates. In other words, it is in the economic plane that one should look for the origins of social problems that arise as a result of income inequality. Although government policies to overcome this problem are probably utilitarian from the point of view of morality, it is also necessary to carry out information campaigns in support of the elimination of income inequality to reduce social tensions.

The Aspired Outcomes of the Welfare Policies

The welfare policies usually aim to reduce the negative effects of income disparities by using various instruments such as social investment, workfare policies, or passive transfers. Notably, the application of different policies has distinct implications for target groups and the communities in general. For example, comprehensive policies such as workfare policies are generally more effective than one-off payments or benefits to the public. In addition, direct payments can create negative perceptions among taxpayers if they are anti-propaganda, and can also lead to stigmatization of vulnerable groups.

Scientists note that compensations aimed at eliminating the income inequalities are applied by states, not as assistance to those in need, but to restore justice, since most people find themselves in difficult conditions due to circumstances that did not depend on them, such as origin, or health status (Lister, 2020). Nevertheless, there is a discourse where experts defend the position of the prevalence of humanity and social justice over the utilitarian vision of the problem, according to which social payments should oblige the recipients to take certain actions. An example of such actions may be the requirement to find a job, or the performance of volunteer tasks, but developed countries, especially the countries of Western Europe, consider this approach ineffective and unjustified from the point of view of morality and social philosophy.

Interestingly, different types of care also have different perceptions among the population. According to experts, “passive transfer policies are most supported by low-income, low-educated people, by individuals leaning towards traditional social values ​​and by those subscribing to left-wing economic attitudes” (Garritzmann et al., 2018, p. 844). At the same time, social investment policies receive support from populations “with higher educational backgrounds and left-libertarian views from all economic strata” (Garritzmann et al., 2018, p. 844). Moreover, workfare policies are the most preferred form of social support from the point of view of the highest income groups, conservative views, and authoritarian values. Therefore, when deciding on the choice of social policy, government officials and politicians should take into account all aspects of the issue, such as the welfare policy sustainability and the state’s ability to compensate for the required amounts.

Income Inequality Outcomes Are Public Policy Concerns

Income inequality outcomes are public policy concerns because society is an interconnected system, and the problems that the underprivileged groups have are reflected in society as a whole. For example, the costs of solving health problems for the population that arise from income disparities significantly exceed the costs of ensuring equal access to the health care system and the provision of necessary services. Likewise, the cost of providing education is greater than the cost to the economy due to the growing percentage of citizens with low levels of education. Finally, the economy gradually stagnates if a large percentage of the population is unable to shop due to low incomes. In other words, when the government introduces and implements the public policy, it concerns primarily the well-being of the country. Despite this, social payments and support are also the realizations of humanity’s aspiration for humanity.

It should be noted that in the past ten years, with the growth of globalization trends, scientists are actively discussing ways of sustainable development on a planetary scale, that is, those that would be acceptable to all states. Portes et al. (2017) discuss payment practices of the universal basic income, and the implementation of the universal basic services for all society members, including the underprivileged groups.

At the same time, the sharing economy, which finds wide support and response from the population, is one of the types of social policy that ensures the well-being of not only individual vulnerable groups but the entire social system (Cherry and Pidgeon, 2018). Sharing social practices are universal, as they include all members of society, and require their active participation not only in the form of paying taxes to the state but also in the form of participation in social practices of sustainable development.

These are practices such as water conservation, garbage disposal, energy conservation, and the use of alternative energy sources. Interestingly, participants in a survey conducted by Cherry and Pidgeon (2018) stated a positive attitude towards the sharing economy. Moreover, they declared that shared economy reflects their broader social values and desires to “foster social equality, concerning both the opportunity and benefits promised by the sharing economy; encourage and support the development of strong and independent local communities; and ensure that business practices operate fairly in the shared interest of business, consumers and the environment” (Cherry and Pidgeon, 2018, p. 939). Therefore, the public policy concerns regarding income inequality and other social issues express not only the desire of the state for prosperity but also the desire of members of society to show humanism and realize themselves in helping each other.

Unfortunately, the sharing economy is also rightly criticized for some aberrations from the original purpose of this tool of social development. The scholars argue that the sharing economy “reflects the intensification of an ongoing neoliberal trend that misuses the concept of entrepreneurship to justify certain forms of employment practices” (Ashan, 2020, p. 19). This observation is true when it comes to the common practice of private contractors, for example, Uber drivers, which was implemented within the framework of the shared economy concept.

It is difficult to disagree with the scholars that entrepreneurs use to view freelancers as independent contractors to avoid paying payroll taxes. Therefore, it is important to consider that any social practice can be implemented by members of society for private interests, especially when it comes to expanding business opportunities in terms of libertarian positions. Of course, the free functioning of the market as a whole is beneficial for the economic activity and health of the country, but it can be destructive for its social dynamics.

Prioritization of the Welfare Practices

Public policies that are implemented to address specific social problems are usually disclosed by the government in the media and are officially recognized as a priority. As noted above, the importance of the social public policies, including the welfare practices, is that preventing a problem works better than solving it. For example, ensuring equal access to education avoids high levels of unemployment in the future. Likewise, cancer screening and a healthy diet will help reduce the cost of medical insurance coverage for cancer chemotherapy or stroke treatment in the future. Finally, payments within the framework of support to entrepreneurs ensure that with the end of the crisis, the economy will return to normal, and payments for repayment of loans for individuals are the state hedge of the banking system and direct payments to individuals create the preconditions for the functioning of the economy. Therefore, the welfare practices receive priority, as they determine the future development of the state.

Framework to Frame the Problem

Another reason for prioritization of the welfare practices regards the philosophical and political-economic framework. The welfare practices aim to decrease the income disparities and alleviate poverty, which is “an urgent problem of justice” (Lehmann et al., 2018, p. 265). Moreover, the welfare practices are aimed to meet particular benchmarks that determine the justice – “sufficientarianism, egalitarianism, and participatory approaches” (Lehmann et al., 2018, p. 265). In other words, the welfare policies are implemented within the framework of conformity with the theoretical frameworks of state governance, which dictate the need for prioritization of these practices.

The implementation of the welfare practices is therefore inextricably related to applying the philosophical traditions as a framework for its prioritization. The theoretical frameworks are used by researchers of the global change community and scientists to develop the normative positions for the practices and programs’ implementation. The scholars refer to five major philosophical traditions that determine the utilization of social justice concepts: “liberal egalitarianism, cosmopolitanism, the capabilities approach, libertarianism, and critical perspectives informed by Marxism and feminism” (Biermann and Kalfagianni, 2020, p. 100049). These theories consider the concept of planetary justice, which probably underlies welfare practices.

Interestingly, liberal egalitarianism and cosmopolitanism perceive planetary justice through the prism of people’s every day free choices, on the national level for liberal egalitarianism, and the global level for cosmopolitanism. The capabilities approach suggests introducing planetary justice relying on people’s capabilities and striving to achieve the common good. Then, libertarianism implies that planetary justice is introduced through the freedom of choice on the global free market that is not regulated by the government. Finally, the critical perspectives informed by Marxism and feminism argue that “planetary justice is about human emancipation from the globally oppressive structures that constrain it” (Biermann and Kalfagianni, 2020, p. 100049). More precisely, the scholars determine three aspects of the framework – “the central subjects, principles, and mechanisms of planetary justice” – that are perceived in particular ways in the framework of the presented theories (Biermann and Kalfagianni, 2020, p. 100049). These theories are universal and can be applied to other social practices since they consider general social functioning.

Scholars have criticized how these clear philosophical models are applied in practice, in particular in the implementation of the programs of the 2030 Agenda for Sustainable Development, and the Future Earth research platform. In their opinion, libertarian mechanisms should not be used to fulfill the cosmopolitan aspirations integrated into the program’s agenda. They also add that the capabilities “cannot be promoted by global distributive principles” (Biermann and Kalfagianni, 2020, p. 100049). This notion is particularly true for many global statutory documents, although their implementation may utilize other frameworks during program implementation.

There is also the specific framework developed by the scholars to solve the ‘wicked problems.’ However, since these problems are usually perceived as special category issues, they may be overestimated in their complexity. Therefore, the scholars recommend approaching the ‘wicked problems,’ like the income disparity, “on different levels of analysis and using a range of instruments,” and stop looking for one best solution as there is no one (Head, 2019, p. 180). It is also suggested to analyze the nature of the policy problems and consider the main stakeholders to find the applicable programs of action for each particular case.

Addressing Income Disparity through Public Policy

There are many ways to combat poverty and income inequality. For example, some states are addressing regional income inequality by expanding infrastructure. Thus, the trans-state railway was built, which expanded the possibilities of remote areas of China and attracted investments there. As a result, the regions have become a new hub for thriving businesses, brought jobs, allowed for the creation of new companies, and generally had a positive impact on economic dynamics. Income disparities exist all over the world and there are income disparities between regions. Dev (2018) examined the problems of income inequality in India, which is the second-largest in the world after South Africa for this indicator. Remarkably, the author emphasizes that income inequality implies both inequalities of outcomes and inequality of opportunities.

The scientist suggests addressing the inequalities through “redistribution measures, macro-policies, sectoral policies and impact on employment, social policies such as education, health, hunger and malnutrition, social protection, corruption, gender disparities and climate change” (Dev, 2018, p. 1). The presented list suggests a fairly comprehensive set of policies from which the most effective ones can be identified. The income disparities cannot be considered in isolation from the concrete reality, so income disparities in the UK can be discussed, which apparently were one of the most important factors that contributed to the massive pro-Brexit vote. To overcome these differences, it is necessary to focus on introducing fundamental changes in universal basic services to implement redistribution measures. You should also use the tools offered by the theoretical concept of the sharing economy.

The universal basic services (UBS) introduction in all spheres of social life provides a framework for comprehensively addressing income inequality. The provision of educational services creates the preconditions for the non-occurrence of similar problems in the future, for example, high unemployment or the inadequacy of large groups of the population to the requirements of the modern market. Then, available housing and healthcare policies cater to the immediate basic needs of those stranded. Available housing as a whole should be a basic human right, such as the right to water and food, and without realizing this right a person cannot change their destiny for the better and become a less aggravating burden for the rest of society. Finally, timely receipt of medical services is the key to improving the health of the population and is also a preventive measure to reduce the incidence of diseases in the future. Therefore, the scholars recommend the implementation of the UBS as the only way to create an egalitarian society.

At the same time, the redistribution of resources may include changes in consumption composition, which echoes the ideas of the sharing economy. Gough (2017) notes that re-composition of consumption “entails making a distinction between goods and services that are necessary for a basic level of well-being, and those that are surplus to this requirement (p. 20160379). On the one hand, the introduction of such public practice will reduce the negative impact on the environment, including greenhouse gas emissions, which is critically important given the current environmental situation. On the other hand, consumption revision practices have advantages for vulnerable groups of the population, as they introduce them to new opportunities for improving their lives. The introduction of the minimum bundle of necessary consumption items and identifying the maximum bundle for sustainable consumption will also improve the situation with the income disparities in the UK since the universal basic income can be calculated based on these indicators.

Funding –Who Pays for the Public Policies?

Introducing public policies like UBS or universal basic income (UBI) requires the participation of the government as the main decision-maker and the entire society as the main source of resources. Obviously, the state has no other resources, except for those that society produces, including financial and material resources, as well as intangible resources. As a rule, social payments are one of the important items of state budget expenditures and can account for up to 20% of total expenditures. It is noteworthy that scientists recommend innovative practices for the full provision of the population, which has certain unmet needs. This would require 41% of the budget to be spent annually, which is probably an excessive amount (Portes et al., 2017). Therefore, such models are discussed only in theory, while in reality, European countries spend on average about 20% of the state budget on social needs.

There are many inspiring examples, for example, the social practices of Finland and other Scandinavian countries, which rely not so much on the financial component, but also provide the recipients with information and methodological support to achieve their goals. For example, unemployed people can not only receive monthly payments, but also consultations with coach managers, psychologists, and other professionals who help them understand their personal problems and find a suitable occupation. There are also practices of support for young families who receive support packages, not in the form of money, but in the form of goods for the child during the period of his growing up. These examples demonstrate that aid does not have to be expressed in monetary terms, but nevertheless the costs will be reimbursed from the state budget.

An alternative source of funding is international foundations or non-governmental organizations that meet the primary needs of the population, which can be called human rights – the right to clean drinking water, food, shelter, and medical care. These organizations are funded through charitable donations from corporations or through charitable donations from states such as the member states of the European Union, which are funded by many international charitable institutions. The role of politicians in implementing effective public policies should not be underestimated. Scientists recognize that politicians are outstanding decision-makers and tend to enforce their policies in society (Sheffer et al., 2018). Therefore, the implementation of public practices can have a much better chance of success if it is carried out with the support of specific political parties or individuals.

How the Public Policy Delivery Will Be Achieved

The delivery of UBI and UBS is usually carried out within the framework of government programs. After the development of the plan for the program and its approval, the responsible institutions, for example, ministries, or specific organizations begin to implement the program. For example, the ministry of health may conduct a marketing campaign promoting coronavirus vaccination among vulnerable populations as well as all other groups. This marketing campaign may consist of several stages, such as the release of a vaccine as a result of intensified research, the announcement of a low or free vaccination price, the delivery of the vaccine to vaccination points accessible to all interested citizens, and the announcement of an opportunity or obligation through the mass media.

Another example is the implementation of a policy of social benefits for vulnerable groups of the population – those who lost their jobs due to a lockdown, people employed in small private businesses, and in the restaurant business. Such payments may be subject to certain conditions and clauses and come with other perks, such as a reduction in rent for a house or office. Reservations may include visiting a job center, or reviewing existing vacancies, or negotiating with HR managers, and visiting businesses that offer jobs for interviews.

Another type of social policy is the provision of health services for vulnerable groups of the population. For example, older people often need care and attention, and doctors visit them at home, providing free counseling and prescribing necessary medications if patients have some chronic illness. Nursing is usually covered by insurance, and this type of health care is usually provided as part of traditional social policies, such as pensions for older people, or free medicine for vulnerable groups.

In addition, people may need free housing and food if they have lost their homes as a result of a natural disaster or adverse event. Homelessness is an extremely negative indicator for the health of society, and its elimination is possible only by providing affordable free housing and food for those who need it. The resettlement and registration of migrants is a separate issue, a social policy that can be called controversial and attracting excessive public attention, which, however, is fair, given the cases of inhuman behavior towards migrants by representatives of the border services of Eastern and Central Europe or coastal maritime patrols.

In other words, there are many effective public policies, and most of them are aimed at overcoming the income disparities, since a good income essentially allows people to solve any problems, but when these problems arise, the state can choose direct ways of influence without using money directly. The implementation of these policies depends on their goals, concept, and other features, but, in general, can be carried out in several stages, one of which is informing the population about the program or service. Other stages of implementing social policies include finding a place to implement the policy, providing social services or products for free or at a greatly reduced cost, initially developing a strategy, program policy, or initiative, and the last stage – bringing information to the general public for feedback.

Key Outputs along the Way

Any public policy usually has objectives, inputs, and outputs, which can be very specific and measurable. The UBS including the educational, healthcare, transportation, and housing services can set intermediate goals that are achieved in the implementation of program policy. For example, a program for vaccinating the population against coronavirus may include intermediate outputs like vaccinating an older population group from 65 to 80 years old, and from 55 to 65 in a certain percentage, then vaccinating health workers, and other groups that are more at risk of infection, and then statistically vaccination of the entire population will be determined. Notably, through the achievement of the outputs, the vaccination program will also monitor policy implementation.

Outputs usually differ depending on the goals and type of the public policy. For example, a refugee resettlement policy will have different goals than a cancer screening policy. But all these goals are likely to be aimed at improving the general social situation and solving the specific problems due to which the policy was developed. These outputs will be measurable so that policy implementation can be effectively monitored and understood by policymakers to guide and guide them during the implementation process.

How the Success is Measured

Therefore, success can be measured by meeting the measurable objectives of the policy. These measurable points may include not only outputs but also inputs and outcomes. Basically, the outcomes will be used to measure success, since they are the initial purpose of the policy or the reason why it was performed and developed. The success, therefore, will also depend on the particular policy. For example, if the government decides to vaccinate 99% of the older population, and meets this goal, the policy is perceived successful. In other cases, for example, if the policy is aimed at reducing homelessness, the success can be measured through the number of quarters built.

Consequences of Failure

The consequences of failure will usually be less dangerous and frightening than the consequences of inaction. Therefore, policy development is a dynamic process that can include some of the adjustments made during the implementation of program policy. However, in case of failure, in some cases, the consequences can be serious. For example, if a program to vaccinate the population against coronavirus disease fails, the consequences could include maintaining the death rate, that is, the loss of thousands of lives. Failed HIV prevention policies or cancer screening policies pose a similar threat. Less risky policies such as educational programs can have long-term consequences and less pronounced risks.

Thus, the problem of the income disparity was addressed from the public policy perspective, applying the principles and methodologies used in philosophy, political science, and economics. Income inequality is a serious problem and is an indicator of the health of a society or the presence of serious problems in it. Overcoming income inequality can be done through various policies such as UBS or UBI, within a theoretical framework using concepts from the fields of philosophy, politics, and economics. Income inequality is primarily an economic problem, but also a political and philosophical issue, therefore, solutions to the problems posed by the implementation of public policies aimed to reduce the income disparity should be complex and comprehensive. Therefore, income disparity is a complex issue inherent in most state economies that can be overcome using various public policies and welfare practices.

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