eSS Where Socrates Fears to Tread 12, 2011 · eSS Review, Pillai on Standing, Unni, Jhabvala and...

eSS Review, Pillai on Standing, Unni, Jhabvala and Uma RaniDecember 2011

Posted on: Dec 12, 2011

http://www.esocialsciences.org/Articles/showArticle.aspx?acat=Recent+Articles&aid=4632

Review Article

Where Socrates Fears to Tread……

Vijayamohanan [email protected]

Social Income and Insecurity: A Study in GujaratGuy Standing, Jeemol Unni, Renana Jhabvala, and Uma RaniRoutledge India, 2010 216 pages

It is said that Socrates used to advise his opponents in debates: “First, define your terms!”

Unless I know what you really mean by this or that, I will be at a loss to respond to you

properly. This advice appears all the more inevitable in a world of objective reality

coexisting with a subjective world, continuously created and revised by the thought process

of human being. In this subjective world, “a blunder committed yesterday may become for

the fool the ritual of today and science of tomorrow”, as the Malayalam poet Kumaranasan

quipped, as concepts change colour, form and content over time. Social sciences form a

fertile field for its recurrence, where definitions fail concepts, social income being a recent

example.

What I am presenting below is not a book review as such, but a review article on the concept

of social income, in the context of a book titled “Social Income and Insecurity: A Study in

Gujarat” by Guy Standing, Jeemol Unni, Renana Jhabvala, and Uma Rani (Standing et al.

2010). I will first go on to the substantial part of dissecting the concept of social income in

its historical evolution and then review the book briefly. The dissection is necessitated

because the book “sets out to develop and apply the concept of social income” on a survey

data (ibid. xviii), when that very concept has a very different original connotation in the

context of national income accounting; hence this note also is intended to serve as a caveat

against misappropriation and improper use in a different context of terms already in currency.


What is income?

“Economists have found income difficult to define.” So started Prof. Carl C. Plehn his

Presidential address delivered at the Thirty-sixth Annual Meeting of the American Economic

Association, held in Washington, December 27, 1923 (Plehn 1924: 1). He then continued to

exemplify the statement thus: “Professor Irving Fisher in his book on The Nature of Capital

and Income, published as late as 1906, characterizes economic opinion regarding the nature

of income as “deplorably confused and conflicting.” Professor Seligman, writing in 1911,

said: “The problem of defining income ...... is one that almost baffles the student.” Still more

recently, 1921, the staff of the National Bureau of Economic Research said, with reference to

income statistics, that “one of the most serious difficulties in working with these data is the

difficulty of definition,” and supported that statement by propounding a long series of

unanswered riddles concerning income.” (ibid.).

That the same difficulty has continued forever is evident from the changing definitions of

income over time. Income appears at two levels: individual and national or social. The

concept of social income is usually taken to be based on the corresponding definitions of

individual income with appropriate adjustments for aggregation. Individual income includes

“all the wages, salaries, profits, interests payments, rents and other forms of earnings

received... in a given period of time” (Case and Fair 2007: 54), that is, the factor payments for

labour, capital and land. This was the view held by the classical economists and codified by

Alfred Marshall. In his Principles of Economics (1890: Book Two: Some Fundamental

Notions – Chapter 4: Income, Capital) he started his discussion by comparing the concepts of

income in different historical contexts:

“In a primitive community each family is nearly self-sufficing, and provides most of its own

food and clothing and even household furniture. Only a very small part of the income, or

comings in, of the family is in the form of money; when one thinks of their income at all, one

reckons in the benefits which they get from their cooking utensils, just as much as those

which they get from their plough: one draws no distinction between their capital and the rest

of their accumulated stock, to which the cooking utensils and the plough alike belong.

“But with the growth of a money economy there has been a strong tendency to confine the

notion of income to those incomings which are in the form of money; including ‘payments in


kind’ (such as the free use of a house, free coals, gas, water), which are given as part of an

employee's remuneration, and in lieu of money payments……”

He continued his argument that “[a]nything which a person does for which he is paid directly

or indirectly in money, swells his nominal income; while no services that he performs for

himself are commonly reckoned as adding to his nominal income. But, though it is best

generally to neglect them when they are trivial, account should for consistency be taken of

them, when they are of a kind which people commonly pay for having done for them. Thus a

woman who makes her own clothes or a man who digs in his own garden or repairs his own

house, is earning income; just as would the dressmaker, gardener or carpenter who might be

hired to do the work….”.

In defining income, he “deliberately” adopted “the social, in contrast with the individual

point of view” by looking “at the production of the community as a whole, and at its total net

income available for all purposes.” And that meant to “revert nearly to the point of view of a

primitive people, who are chiefly concerned with the production of desirable things, and with

their direct uses; and who are little concerned with exchange and marketing. From this point

of view income is regarded as including all the benefits which mankind derive at any time

from their efforts, in the present and in the past, to turn nature's resources to their best

account.”

For him, the terms ‘Capital and Income’ were correlative from both the social and the

individual point of view. He justified Jevons in classing all commodities in the hands of

consumers as capital though from a purely mathematical point of view, and sought support

from Adam Smith who had said that a person's capital is that part of his stock from which he

expects to derive an income. And then he asserted that “almost every use of the term capital,

which is known to history, has corresponded more or less closely to a parallel use of the term

Income: in almost every use, capital has been that part of a man's stock from which he

expects to derive an income. By far the most important use of the term Capital in general, i.e.

from the social point of view, is in the inquiry how the three agents of production, land (that

is, natural agents), labour and capital, contribute to producing the national income (or the

national dividend…..); and how that income is distributed among the three agents.”

Hence he proposed “to count as part of capital from the social point of view all things other

than land, which yield income that is generally reckoned as such in common discourse;

together with similar things in public ownership, such as government factories: the term Land


being taken to include all free gifts of nature, such as mines, fisheries, etc., which yield

income. Thus it will include all things held for trade purposes, whether machinery, raw

material or finished goods; theatres and hotels; home farms and houses: but not furniture or

clothes owned by those who use them. For the former are and the latter are not commonly

regarded as yielding income by the world at large, as is shown by the practice of the income

tax commissioners.” In harmony with this common practice, he took “Labour to include those

activities, and those only, which are regarded as the source of income in this broader use of

the term.”

Then followed his definition: “Labour together with capital and land thus defined are the

sources of all that income of which account is commonly taken in reckoning up the National

Income.

“Social income may be estimated by adding together the incomes of the individuals in the

society in question, whether it be a nation or any other group of persons.”

It is significant to note that Marshall leaned heavily on the common practice in income

taxation in formulating his definition of income. For example, he elaborated that “[t]he

Income Tax Commissioners count a dwelling-house inhabited by its owner as a source of

taxable income, though it yields its income of comfort directly. They do this, not on any

abstract principle; but partly because of the practical importance of house-room, partly

because the ownership of a house is commonly treated in a business fashion, and partly

because the real income accruing from it can easily be separated off and estimated. They do

not claim to establish any absolute distinction in kind between the things which their rule

includes, and those which it excludes.”

While this classical economics definition of income in terms of factor payments, or “the

benefits which mankind derive at any time from their efforts” represented the ‘production’

side of income, the later economists approached the issue from the opposite direction:

consumption. As income is entirely spent on consumption and saving, income is defined as

the consumption and saving opportunities available in a given period and expressed in

monetary terms (for example, Barr 1993: 132-136). It was mainly out of the need for

measuring income for the purposes of income taxation that there arose an analytical interest

in this light in the concept of income.


The measure of the income tax base equal to the sum of consumption and savings was first

advocated by German legal scholar Georg von Schanz (1896). His concept was further

developed by the American economists Robert M. Haig and Henry C. Simons; the former

defined income as “the money-value of the net accretion to one’s economic position between

two points of time” (Haig 1921: 27), while the latter as “the algebraic sum of (1) the market

value of rights exercised in consumption and (2) the change in the value of the store of

property rights between the beginning and the end of the period in question” (Simons 1938:

50).

Though Simons characterized Haig’s concept as “[s]imilar in content” (Simons ibid.: 61),

there are subtle differences in the respective underlying rationale for the definition. For Haig,

“the concept of income … is essentially an economic concept” (Haig 1921: 66). Hence he

started by observing that the “[m]odern economic analysis recognizes that fundamentally

income is a flow of satisfactions, of intangible psychological experiences” (ibid. 55), and

citing from, for instance, (i) Richard Theodore Ely (“income … has reference to the

satisfaction we derive from the use of material things or personal services during a period of

time” in Outlines of Economics, 1908: 98); (ii) Irving Fisher (“A flow of benefits during a

period of time is called income” in Elementary Principles of Economics, 1911: 34); (iii)

Edwin Robert Anderson Seligman (“We desire things at bottom because of their utility. They

can impart this utility only in the shape of a succession of pleasurable sensations. These

sensations are our true income.” in Principles of Economics, 1914: 16); and (iv) Frank

William Taussig (“all income consists in the utilities or satisfactions created” in Principles of

Economics, Vol. X, 1916: 134). On this firm foundation he defined income in terms of

welfare or utility:

“If one receives a dollar he receives something which he ordinarily can and does spend –

perhaps for a dinner. Is his income the dollar, or is it the dinner which he buys with the dollar,

or is it, at bottom, the satisfaction of his wants which he derives from eating the dinner – the

comfort and the sustenance it yields to him? If one spends his dollar for something more

durable than a dinner – say a book or a pipe – is his true income the book or the pipe, or the

series of satisfactions or “usances” arising from reading the book or smoking the pipe? There

is no doubt as to the answer to these questions. A man strives for the satisfaction of his wants

and desires and not for objects for their own sake.” (Haig 1921: 55).


Once the utility definition was secured, Haig then admitted that utility alone cannot be the

basis for economic analysis, which requires “something more definite and more

homogeneous”, because “psychic satisfactions” are difficult to quantify for even a single

individual and “impossible … to compare” between persons (Haig 1921: 56). In his attempt

to define income for tax purposes, he continued: “It is necessary as a practical proposition to

disregard the intangible psychological factors and have regard either for the money-worth of

the goods and services utilized during a given period or for the money itself received during

the period supplemented by the money-worth of such goods and services as are received

directly without a money transaction” (ibid. 58). In this light, he then defined income as “the

increase or accretion in one’s power to satisfy his wants in a given period in so far as that

power consists of (a) money itself, or (b) anything susceptible of valuation in terms of

money….. [Thus] [i]ncome is the money value of the net accretion to one’s economic power

between two points of time.” (ibid. 59)

Haig also considered the issue of imputed income on the strength of his “economic concept”

of income. If “true income” consists of “the flow of economic ‘usances’ and satisfactions

expressed in terms of money,” (ibid.), it need not matter for an ideal income tax whether the

goods and services that provide these satisfactions “actually have passed through the process

of a sale”, or whether they result from self-performed services, as far as they are “susceptible

of evaluation in terms of money” (ibid. 58). Quoting Alfred Marshall’s conclusion (in

Principles of Economics, 1890: Book II, Chapter 4, Section 2) that “… a woman who makes

her own clothes, or a man who digs in his own garden or repairs his own house, is earning

income just as would the dressmaker, gardener, or carpenter who might be hired to do the

work”, he remarked that “[f]rom the point of view of equity it is theoretically important that

all goods and services received without payment should be accounted for in case it is possible

to value them in terms of money” (ibid.). Considering “the fire-wood the farmer cuts from

his wood lot or the vegetables for his table which he gathers from his garden,” he argued that

“the fact that one man buys his firewood or his vegetables, rather than receives them without

the formality of a money sale, should not operate so as to increase the weight of his income

tax” (ibid.).

In addition to imputed income from self-performed services, Haig also considered “the

income one really receives when he lives in the house he himself owns” (ibid. 72). In

practice, however, he admitted that “it may be futile and silly, from an administrative point of

view, to attempt to include in the income tax return a money estimate of the income which


the man receives when he lives in his own house” and concluded that “one might urge that no

tax be placed on the services which one actually enjoys when one lives in his own home

rather than a rented one. But …that recommendation should not be supported by the assertion

that this item is not income. It is income whenever it is susceptible of evaluation in terms of

money” (ibid. 65).

In sharp contrast to Haig’s initial conception of income as a “flow of satisfactions”, Simons

argued that personal income be conceived as “a purely acquisitive concept having to do with

the possession and exercise of rights … not with sensations, services or goods ….” (Simons

1938: 49). For him, “[p]ersonal income connotes, broadly, the exercise of control over the

use of society’s scarce resources” (ibid.). As the concept of income implies measurement

over a specific period of time, he also took personal income to measure “the results of

individual participation in economic relations for an assigned interval and without regard for

anything which happened before the beginning of that … interval or for what may happen in

subsequent periods” (ibid. 50). Thus the calculation of personal income, in his view, requires

an estimate: “(a) of the amount by which the value of the person’s store of property rights

would have increased, as between the beginning and the end of the period, if he had

consumed (destroyed) nothing, or (b) the value of rights which he might have exercised in

consumption, without altering the value of his store of rights” (ibid. 49). Hence his

conclusion: “Personal income may be defined as the algebraic sum of (1) the market value of

rights exercised in consumption and (2) the change in the value of the store of property rights

between the beginning and the end of the period in question” (ibid. 50).

Like Haig, Simons also included imputed income in an ideal income tax, but not on the

utilitarian basis that self-performed services, leisure and durable consumer goods produce

economic ‘usances’ and satisfactions expressed in terms of money, but on the grounds that

the exercise of these rights constitutes “control over the use of society’s scarce resources”

(ibid. 49) and consumption under his definition of income. So he argued: “[i]f a man raises

vegetables in his garden, it seems clearly appropriate to include the value of the product in

measuring his income.” (ibid.51-52). Similarly, he observed that “[m]ost economists

recognize housewives’ services as an important item of income.” (ibid. 52), and also “leisure

itself is a major item of consumption … income per hour of [which] … might well be

imputed to persons according to what they might earn per hour if otherwise engaged.” (ibid.)

Again, he argued that “when property is employed directly in consumption uses, there is the

strongest case for recognizing an addition to taxable income.”(ibid. 112.)


In practice, however, Simons refused to include all of these items in taxable income. In the

case of self-employed services, in fact, he went to question the extent to which various

activities can be characterized as “economic activity” that is properly subject to redistributive

taxation. (ibid. 51). For example, if a man shaves himself, “it is difficult to argue that the

value of the shaves must also be accounted for” (ibid. 52). On this line of reasoning, he

asked: “Do families have larger incomes because parents give competent instruction to

children instead of paying for institutionalized training? Does a doctor or an apothecary have

relatively large income in the years when his family requires and receives an extraordinary

amount of his own professional services? (ibid.) On the assumption that households with

significant imputed income from self-performed services are apt to have little imputed

income from leisure and vice versa, therefore, Simons was content to exclude both types of

imputed income from taxation.

This Schanz-Haig-Simons (S-H-S) definition of income (known as ‘the classic definition of

individual income’ thanks to Nicholas Barr (1993: 134)) thus runs in terms of consumption

and change in net worth; that is, “the amount a person could have spent while maintaining his

wealth intact” (Atkinson 1983: 39). They were concerned with estimating the ‘full income’,

that is, the accumulation of both monetary and non-monetary consumption ability of a

person/household (that could form a true tax base). Since the consumption potential of non-

monetary goods remains immeasurable, it is only the monetary income that is taken as (a

proxy for) full income, with the associated implications of underestimation in charting both

individual and social welfare. Thus “in practice money income as a proportion of total

income varies widely and unsystematically. Non-observability of full-income prevents a

complete characterization of the individual opportunity set, forcing us to use the unreliable

yardstick of money income. The notion of full income is useful less as a guide to policy than

as an explanation of why conventional definitions of poverty and inequality in terms of

money income have only limited validity as measures of individual welfare.” (Barr ibid. 135).

National or social income

An answer to the question: What is national income? Entails answer to either of two other

questions: What do we receive? Or what do we spend? If we couple savings with the answer

to the second question, the two approaches should lead us to the same end. It was the former

line of inquiry that Sir Arthur Lyon Bowley adopted in his estimate of the UK National

Income of 1911. Although not very successful, his initiative launched further attempts by


others to compile national income accounts. Bowley and Sir Josiah Stamp in their 1924 work

(The National Income) gave estimates for different types of income such as; “Aggregate

income, including war pensions, old age pensions, and employers’ contribution to insurance

funds. Disposable income, home and foreign, less income belonging to foreigners. Individual

and corporate income, including undivided profits. Earned and unearned income, ignoring

foreign debt and reparations. Social income, that is, aggregate income minus transfers

(transfers are pensions and national debt interest). Taxable income: this equals total income

arising within the United Kingdom plus income from abroad.” (Elsas 1942: 8).

As we have already seen, for Marshall “Social income may be estimated by adding together

the incomes of the individuals in the society in question, whether it be a nation or any other

group of persons.”1 The later economists followed him in this aggregation. Thus Plehn

referred to “national or social income” as some “kind of summation of your income, my

income and his or her income”, “in short, private incomes” (Plehn 1924: 7). His “wealth

definition” (income as a “flow of commodities and services, that is, the wealth itself”) was

poised against Fisher’s “service definition” (“income as a flow of services from wealth and

human beings”), given in his 1906 book (Hewett 1925: 239). Fisher himself acknowledged,

in his comment on Plehn’s address, the wealth definition as “of high practical, but low

theoretical, value” (Fisher 1924:67), and admitted “the impracticability of the service

definition’s application for such problems as the taxation of incomes and the measurement of

the size of the national social income” (Hewett 1925: 240). Following Plehn, William

Wallace Hewett defined “social income [as the] flow of commodities and services annually

accruing to society from which consumption goods, capital replacement, and capital additions

must be drawn” (ibid.).

The motivation for such enquiry into a national or social accounting was the need for

accurate measures of aggregate economic activity; and that necessity had a historically

compelling background with the Great Depression and the subsequent Keynesian

1 And of course, he cautioned that “[w]e must however not count the same thing twice.”

Moreover, he drew a line of distinction between personal income and social income: “income

consists chiefly of commodities in a form to give pleasure directly; while the greater part of

national wealth consists of the means of production, which are of service to the nation only in

so far as they contribute to producing commodities ready for consumption.”


macroeconomic stabilization policy initiatives. Starting from the late 1920s, the exercise was

pioneered by Colin Clark and Simon Kuznets. At the start of the first chapter of his 1932

book, The National Income, 1924-31, Clark defined national income for any period as

consisting “of the money value of the goods and services becoming available for

consumption during that period, reckoned at their current selling value, plus additions to

capital reckoned at the prices actually paid for the new capital goods, minus depreciation and

obsolescence of existing capital goods, and adding the net accretion of, or deducting the net

drawings upon, stocks, also reckoned at current prices.”2 He appears in general to have

chosen not to use the term social income.

An attempt at a distinction between social income and national income appeared in NBER’s

Studies in Income and Wealth, Volume 1 (1937); there Copeland characterized national

income as “a special case of social income”, where “Social income = the value of goods and

services consumed by ultimate consumers plus savings (or plus the increase in social

wealth)” (Copeland 1937: 32). However, most of the intellectual and empirical exercises at

NBER seem to have been preoccupied with national income only.

It was John Richard Hicks who took up later on the issue of the valuation of social income

from a theoretical perspective, even though he appears to have used the term (social income)

to refer to national income, with little distinction. For him, “the Social Income including

public services equals: all private incomes + Indirect taxes – Subsidies – Pensions.

Substantially, this is the National Income as calculated by Mr. Colin Clark.” (Hicks 1940:

117). However, he pointed out the difference between “the Social Income as a measure of

productivity” and “the Social Income as a measure of Economic Welfare” (that “comes as

rather a shock”) (ibid. 122). The shocking difference flows from market imperfections. “If

2 It should also be noted that way back in 1915, Willford Isbell King in his book, The Wealth

and Income of the People of the United States, wrote (p. 124): “From our farms and forests,

out of our mines and rivers and lakes, from our shops and factories, and from our theatres,

our schools, and our churches flows forth a constant stream of finished commodities and

services ready for consumption by the people. . . . In addition to this stream, whose annual

flow constitutes the national dividend, there is produced, each year, a quantity of new capital

goods, much greater than that used up by the industrial processes. This additional capital

represents the savings of the nation. These savings, together with the national dividend,

constitute the national income – the total product of the efforts of the citizens” (quoted in

Warburton 1937:71). Compare this with Clark’s definition.


competition were perfect, and if state activities were so designed as not to disturb the

optimum organisation of production, marginal utilities and prices and marginal costs would

all be proportional, so that the same valuation which gave us the social income as a measure

of economic welfare would also give us the social income as a measure of productivity…. It

is the departure of the system from the optimum, whether as a result of indirect taxation or as

a result of imperfect competition, which upsets the equivalence and makes the measurement

of economic welfare a different thing from the measurement of productivity.” (ibid.).

Hicks further clarified that the Fisherian definition of social income (excluding investment) is

far more plausible as a measure of current economic welfare, as it is only consumption that

contributes directly to current welfare; the contribution of saving is of doubtful

comparability. “However, if we do decide to include saving in our Welfare index, the

appropriate concept of individual income can be nothing else but what the individual thinks

he can consume without making himself worse off. This is purely subjective, incapable of

objective measurement; so that in order to get a statistical measurement of this sort of income

we can only proceed by taking some conventional rule about what the individual ought to

reckon as his income.” (ibid.: 123).

Though this remark on the concept of individual welfare based income did not unfortunately

receive much recognition, the income concept thereafter evolved in two distinct perspectives:

national income, mainly to reflect economic growth and total personal income, the one

already referred to as ‘full income’, to account for individual welfare. Interestingly, the latter

concept started to appear in different names, the first prominent one being ‘social wage’.

‘Social Wage’

The context for the emergence of this concept was marked by substantial social concern over

poverty and unemployment reflected in terms of social security provisions by the welfare

states in some hidden recognition of a legitimate function.

In primitive societies, the deprived were provided for by the families and communities. In

different historical stages, as other relationship patterns developed, such as master-slave,

lord-serf and master-servant, the welfare responsibility of the subordinate was increasingly

tied to his superior as well as to the group to which the individual belonged. With the

commercial and industrial revolutions, the conception of welfare provision also underwent

changes. With the division of the society into distinct antagonistic classes of workers and


capitalists, there emerged conflicting philosophies as to the functions of the state and

responsibility of employers and individuals. The most appealing and hence with potential

threat were of the socialists. Largely inspired by them, the working class solidarity

successfully fought for its due share of some of the indispensable rights. The state, in addition

to its being an agency to facilitate accumulation, had another basic but contradictory function

of legitimating: maintaining the conditions for social harmony, which necessitated increasing

assumption of welfarism by the state (O’Connor 1973). Thus by the end of the 19th century,

there appeared in much of Europe and in the US, an acceptance of a mode of public

responsibility for welfare provision, conditioned of course by a philosophy of individual

responsibility. The German prototypes of social security provisions in the 1880s and

Wohlfahrstaat in the 1920s were in fact the results of attempts to attach the workers to the

state. The miraculous growth of the Soviet system and the granting of welfare rights (the

rights to education, to work, to rest and leisure, to provision in old age, and to aid in sickness

and disability) by the Constitution of the USSR in 1936 further contributed to the genesis of

welfare state as an effective counter to the socialist threat. Stephens (1979) and Therborn

(1984) have well documented the correlation between labour movement strength and national

and temporal variations in social expenditure.

Such emergent interest in social security benefits also occasioned to kindle the old concept of

‘social minimum’, the bundle of resources that a person needs in order to lead a minimally

decent life in the society. Robert Theobald (1963) called this ‘basic economic security’

(BES), an income adequate for human dignity to every member of society through payments

from the federal government; which was later on rechristened ‘guaranteed minimum income’

(GMI). An enthusiastic proponent of such guaranteed income was Martin Luther King J.,

who wrote in his final book Where Do We Go from Here: Chaos or Community?: “I am now

convinced that the simplest approach will prove to be the most effective – the solution to

poverty is to abolish it directly by a now widely discussed measure: the guaranteed income”

(King J. 1967: chapter entitled “Where We Are Going”). GMI was conditional on citizenship,

a means test and either the availability of the beneficiary for labour market or her willingness

to perform community services. GMI with only the citizenship condition represented a higher

ideal called ‘basic income’, available to all citizens irrespective of their income level. This

income is often proposed in the form of a citizen’s social dividend (a transfer) or a negative

income tax (a guarantee). “With the Social Dividend schemes a minimum-standard allowance

is paid out weekly to everybody rich or poor through the Post Office or other similar


administrative arrangements; and it is then the job of the tax authorities to extract revenue

according to the level of the other income of the citizens concerned. With the Negative Income

Tax and Minimum Income Guarantee schemes a single tax authority has to pay out in income

subsidy, or to levy in income tax, a given net amount according as the citizen’s income falls

below or above a pre-determined level. ….. With the Social Dividend type of arrangement

everyone is guaranteed the minimum-standard income every week; there is no problem of

people not taking up their rights; and the means-tested adjustment is then carried out solely by the

taxation of their other income through the accepted machinery of the income tax authorities on

a basis which does not require the same degree of precise, prompt response to meet a sudden or

irregular change of income flow.” (Meade 1972: 311-313). It should be noted that “[e]ven the

doyen of economic fundamentalism, Milton Friedman (1962) suggested the United States of

America adopt a form of income guarantee – Negative Income Tax.” (Tomlinson 2001: 10)

Thus the welfare state was intended to provide some income supplement to individuals over

and above their earnings in order to lead a minimally decent life in the society. Remember

that the concept of ‘full income’ was used to refer to the accumulation of both monetary and

non-monetary (in cash and in kind) consumption capability of a person/household. In that

sense it must include (in addition to the individual/household earnings) the benefits from

public expenditure including that on social security provisions. These benefits were taken to

make a claim to some new title and thus appeared the new term ‘social wage’. It represented

all the benefits to workers other than the wage component of their pay packets including

medicare, superannuation, child care and family payments such as maternity allowance, in

short, the value of all of these forms of social spending that accrue to (poorer segments of)

the population. Interestingly, “[t]here is no consensus about exactly what the social wage

consists of, how it can be measured, or the extent to which it is to be an instrument for

achieving greater equality.” (Harding1982: 21). “Some would regard all government

expenditure as the social wage, on the grounds that all public expenditure is ultimately for the

benefit of the entire community. Others would adopt a much narrower definition and view it

as expenditure on education, health, social security and housing” (ibid. 13). One would

indeed wonder about the need for such ambiguous concept at all, particularly such a new

bottle for some old wine.

Rob Watts took the concept of social wage as “the value per capita of federal social services”

(Watts 1987: ix), while Keith Norris, admitting that “there are no clear criteria for deciding

which goods and services to include as part of the social wage”, identified “education, health,


housing, culture and recreation, and roads” for his empirical estimates of the social wage

index (Norris 1985). Saunders too followed the same line: “In principle [the social wage]

encompasses all government transfers and services, even though it is often difficult if not

impossible to quantify the size of all of the effects. Government spending on defence, law

and order, or subsidies to industry, all provide benefits which raise living standards, yet none

is included in conventional accounts of the social wage. The rationale for their exclusion is

not based on any clear principle ... The more one searches for a [conceptual] solution, the

more difficult the issues one uncovers. Rather than pursue this further, a pragmatic approach

is adopted which includes the social wage expenditures in the areas of education, health,

social security, welfare services, and housing and community amenities.”(Saunders 1994:

163-164).

The most eloquent among the social wage advocates was Keith Rankin (1997). According to

her, “[t]he term ‘social wage’ is used frequently in a journalistic sense, to mean the provision

of an ill-defined set of public services which invariably include education and health care.”

She claimed to propose “a careful and comprehensive definition of the social wage,

recognising that ‘wage’ is a word for the remuneration for a factor of production and that

‘social’ implies universal coverage. Thus the social wage comes to be seen as a form of

collective property income, including ‘royalties’ for the use of natural and intangible

‘sovereign’ resources that are not subject to freehold ownership. As such, the social wage

constitutes all public expenditure, including an income support system that pays pensions,

benefits, subsidies and tax concessions.” (ibid. Abstract).

It is a pity that these ‘analysts’ conveniently forgot that ‘wage’ as remuneration of a

production factor itself is a concept full of ‘social’ ramifications, as production perforce

entails social relations, and hence the term ‘social wage’ is simply tautological. Again the use

of the term wage to mean the benefits from public spending itself is questionable, as both the

terms have disparate historically set connotations. It is moreover not at all clear why we

should have another term for the given term ‘public expenditure benefits’, especially when

the new term is clearly ambiguous in its meaning and coverage. Attempts to modify the

concept however were unfortunately goaded by the problems of only the coverage, and hence

led to another unnecessary emergence of still ambiguous term, thanks to the semantic

fabrication of Guy Standing (1999, 2002).


‘Social Income’ in a new guise

Standing, along with his ILO colleagues, started with considering social wage in the context

of ‘minimum incomes’ and found that the “notion of the social wage is even harder to

conceptualise, let alone measure” (Standing et al. 1996: 212). Therefore he proposed the

concept of social income originally as a compromise in view of social wage’s insoluble

valuation problems, defining the former as the total income received (wage and non-wage) by

households and their members (Standing 1999: 88 – 89). And he readily admitted that the

concept of social income “would be hard to translate into empirical form” (ibid. 89). As in the

case of social wage, the qualifier ‘social’ referred here also to the political economy of

income generation and distribution processes, the inescapably political nature of the division

of total income between private and public uses. Thus he finally defined social income as the

flow of resources acquired by an individual, reflecting the underlying social relations of

production and distribution and the networks of social support (Standing 2002: 15). In this

context, he put up the concept as a measure of ‘decommodification’, referring to the political

aspiration of social democrats for a “welfare state capitalism [in which] there was to be a

gradual shift of total income towards state benefits, occupational welfare and publicly

provided social services” (ibid. 14). If democratic control over benefits, welfare and social

services is possible, then this goal will be progressive, whereas ‘monetisation’ will be

conservative.

For any employed individual, Standing defines ‘social income’ (SI) as follows:

SI = OP + W + CB + EB + SB + PB,

where

OP = self-production (whether self-consumed, bartered, or sold);

W = the money wage received from labour;

CB = the value of benefits or support provided by the family, kin, or the local community;

EB = the amount of benefits provided by the enterprise in which the person is working;

SB = the value of state benefits provided, in terms of insurance and other transfers, including

subsidies paid to workers directly or through firms;

PB = private income benefits, gained through investment, including private social protection.


He further suggested that the components W, CB, EB and SB of SI might be disaggregated

as:

W = (Wb + Wf +Wd),

where

Wb = base or fixed wage (wage that the worker believes he/she will be paid at the outset if the

work specified is performed;

Wf = flexible part of wage (piece-rate pay, bonuses, etc.);

Wd = deductions to wages (legal or illegal fees, wags lost due to rejections, non-payment of

contracted wage, etc.);

CB = (FT + LT),

where

FT = family transfers;

LT = local community transfers, including any income from charity, non-governmental

organizations, etc;

EB = (NWB + IB),

where

NWB = non-wage benefits provided by firms or by contractors to their workers;

IB = contingency, insurance type benefits provided by firms to their workers; and

SB = (C + IS + CT + D),

where

C = universal state benefits (citizenship rights);

IS = insurance-based income transfers from the state in case of contingency needs;

CT = conditional, means-tested transfers;

D = discretionary transfers from the state.


Thus his ‘social income’ in full becomes

SI = OP + (Wb + Wf +Wd) + (FT + LT) + (NWB + IB) + PB] + [(C + IS + CT + D) + PB.

This decomposition, according to him, is significant in that “the pattern of remuneration

indicates the degree to which a person is subject to labour market forces and the degree to

which a person has income security. Thus one can assess the degree to which the person’s

labour is commidified (determined and rewarded by the money wage or price) and the extent

to which he or she, as a worker (labour power), is commodified” (Standing et al. 2010: 3).

It should be remarked that commodification is historic-context-specific, and Standing rightly

acknowledged this fact when he tried to contrast the pre-globalisation era of welfare statism,

(when there had been “a general trend involving a shift from W to other forms of social

income so that up to the 1970s there [had been] a withering of the money wage”) and the

current post-globalisation period, (when “in almost every part of the world, there was a shift

back to W, and within W, to more flexible and insecure forms of W” (ibid.)). To this extent

of empirical simplicity, his concept of ‘social income’ has an added edge over ‘social wage’.

However, the real, substantial, problem remains: why we need another new bottle for the

same old wine? We have already a concept of ‘full income’ at the individual level (both in

cash and in kind) that a person is entitled to in his capacity as a citizen as well as a worker;

why not modify it in its empirical coverage? We have already a concept of social income, as

the sum of your income, my income and his or her income; why not leave it in its original

fold of national income accounting?

Review on “Social Income and Insecurity”

The authors reflect in the ‘Preface’ that the book represents the result of “several years of

research on the causes and nature of economic insecurity” and is based on the “perception

that people have multiple sources of income and variable support” in periods of personal and

social contingency. “It combines an interest in the design and implementation of social

protection policies, a desire to determine which forms of community best defend people’s

economic and social interests and a recognition that conventional social, labour and economic

statistics rarely allow social scientists to identify and explain” the local dynamics of


personal/household income and well-being (ibid. xvii). This has led the authors to base their

study on an integrated survey conducted in 2007-08 (Gujarat Social Income and Security

Survey: GSIS), consisting of a household survey (on demographic and livelihood aspects of

the whole household) and an individual questionnaire for randomly selected adult individuals.

This has in turn been supplemented with a set of case studies and a Village Survey, covering

47 villages that were sampled.

The book is structured in nine chapters. Chapter one gives a brief sketch of ‘social income’

(in its new misappropriate sense), globalization and the current world of unending

uncertainty. Chapter two presents Gujarat as a distinctive development model and the social

and infrastructural conditions of the survey respondents. The analytical part starts with

chapter three that focuses on the money income component (OP + W) of ‘social income’ in

Gujarat and provides a money income index. Though it is a vital part of total income, it is

rightly argued here that the general attention is often paid exclusively to this money

component in total disregard of other equally vital components. The next four chapters deal

with these other components: enterprise benefits (EB), community benefits (CB), state

benefits (SB) and private benefits (PB). It is worth noting here that in Standing’s definition,

these other components, unlike in an expected contrast to the above money income, are not at

all just non-monetary; they do include monetary benefits; to him, it is simply that money

transfers do not constitute part of money income! If so, why not call the component (OP +

W) properly as ‘labour income’ instead of ambiguously as ‘money income’?

Now coming back to the chapters; chapter four discusses the enterprise benefits. The benefits

considered here include not only monetary payments or the common social security benefits,

but also food, paid leave, access to cheap loans, medical assistance, help with training, etc.

As expected, it is the workers in the organized (government or corporate) sector that receive

most of the benefits. Thus the entire system stands to cushion higher income earners and

hence to widen income inequality. The chapter closes with a brief analysis of a normalized

enterprise benefit index constructed using six forms of benefits.

Chapter 5 deals with community benefits, a “complicated and intrinsically vague concept”

(ibid. xviii). Here community is defined as the larger economic environment outside the

immediate family (those who live together under one roof), and consists of the extended

family (of uncles, aunts, in-laws and cousins), neighbourhood networks (neighbours and

friends), local identity organizations (caste panchayats, caste-based organizations, political


and religious organizations) and local economic organizations (SEWA, SEWA Bank, Mandi,

self-help groups and cooperatives). As the immediate family is not considered part of

community, the benefits and support from it are classified as private benefits. The analysis

reveals “a puzzling story” (ibid.): the extended family and neighbourhood networks, though

under strain, continue to be supportive during periods of contingency, but the support

structures of the identity organizations are very week. Though the economic institutions are

capable of providing social assistance and mobility to members, the poor remain largely

excluded from effective access to even such institutions, with the unexpected result of

increasing inequality.

The primary question chapter six seeks to answer is whether state benefits help to reduce the

level and incidence of income poverty and bridge income inequality. The income that a

person receives from the state (federal, state and local authorities) includes universal benefits

(thanks to citizenship rights), insurance benefits (thanks to paid contributions), means-tested

benefits, other selective conditional benefits, and discretionary benefits. It is argued that the

worst features of state benefits in Gujarat are that they are paternalistic, complicated,

inefficient, and far from transparent.

Though the authors have recognised private benefits, the theme of chapter 7, as ‘unearned

income’, they have chosen the term ‘private income’, as their aim is “to measure the various

sources of income that come from savings and private investment, from outside the process

of production and labour” (ibid.). The study has found that the better-off salaried households

with higher levels of education had higher private benefits, with inequality increasing effect.

Having analysed the components of social income, the study then turns in Chapter 8 to an

examination of the experience of being plunged into financial crises and the ways of coping

with income insecurity and the ability to recover from it at the local level. The analysis starts

from the hypothesis that both the structure and the level of social income help to determine

the answer to all aspects of this experience. The most effective defence against the crises has

been found to come from private benefit income that is exactly what most of the poor

families lack. And coupled with this dismal situation is an erratic mechanism of inadequate

and inequitably distributed state benefits.

The final chapter (nine) seeks to evaluate the policy implications of restructuring ‘social

income’ by means of universalising economic security and strengthening community. It also

aims to compare the extent of social income inequality with that of inequality as measured by


money income alone. The study concludes by reflecting that “[s]ocial income is

fundamentally a perspective, a means of forcing us to think of income as an integrated

process of building entitlements and security.” And the authors admit that “[a]t no point in

this book has it been asserted that with the existing concepts and empirical methodology, one

can measure social income in precise money terms”, but they claim that “it gives a

framework that enables the analyst to weave a story that is richer than could be conveyed by

simple measures money income alone” (ibid. 203). Remember the money income they speak

of is nothing but labour income and the so-called social income, full income.

It is commonly held that research per se is incomplete without regression, and this book is no

exception. Again, it is commonly practised that regression results are reported without any

results of the model adequacy (residual diagnostic) tests, and again this book is no exception.

Note that regression analysis is based on certain fundamental assumptions about the residuals

of the model under study; only if these assumptions are satisfied, can we accept the estimates

of the model parameters as valid, non-spurious. Hence the significance of model adequacy

tests. Unfortunately, empirical researchers tend only to flirt with regression, with little care

for this significant step in analysis.

For almost three decades the intellectual platforms the whole world over have been densely

resonated with the three terms: globalisation, liberalisation and privatisation, each with its

distinct connotation, despite their interconnection. However, the shattering effects of the last

two are identified in the book as those of globalisation. This confusion sets in because the

book has not, in its peculiar context, set out to define globalisation as including the other two

reform initiatives. This is when one is of necessity reminded of that Socratic dictum: “First,

define your terms!”

References

Atkinson, A.B., (1983) The Economics of Inequality, Oxford: Clarendon Press.

Barr, Nicholas A. (1993) Economics of the welfare state. Second edition. Stanford, California: StanfordUniversity Press.

Case, Karl E. and Fair, Ray C. (2007). Principles of Economics. 8th edition. Upper Saddle River, NJ:

Pearson Education.

Copeland M. A. (1937) ‘Concepts of National Income’, Studies in Income and Wealth, Volume 1, NBER: 2– 63.


Elsas, M. J. (1942) “The Definition of National Income” Chapter 1 in Bowley, Arthus L (Ed.) (1942)Studies in the national income 1924-1938. Cambridge: Cambridge University Press.

Fisher, Irving (1924) “Comment on President Plehn's Address”, The American Economic Review, Vol. 14,No. 1 (March): 64-67

Friedman M, (1962) with the assistance of Friedman, R. Capitalism and Freedom. Chicago: University ofChicago.

Haig, Robert M. (1921). "The Concept of Income—Economic and Legal Aspects". The Federal IncomeTax. New York: Columbia University Press. pp. 1–28.Harding, Ann (1982), “An introduction to the Social Wage”, Social Security Journal, December.

Hewett, William Wallace (1925) “The Definition of Income”, The American Economic Review, Vol. 15,No. 2 (June): 239-246.

Hicks, J. R (1940) ‘The Valuation of the Social Income’, Economica New series, Vol. 7, No. 26, (May):105-124.

King J., Martin Luther (1967) Where Do We Go from Here: Chaos or Community? New York: Harper &Row (http://www.progress.org/dividend/cdking.html).

Kuznets, Simon (1948) ‘On the Valuation of Social Income - Reflections on Professor Hick’s Article’ Part1, Economica, New Series, Vol. 15, No. 57 (February): 1-16

Marshall, Alfred (1890) Principles of Economics: an introductory volume. London: Macmillan and Co.,Ltd.

(http://www.econlib.org/library/Marshall/marP8.html#Bk.II,Ch.IV; accessed in October 2011)

Meade, J. E. (1972) ‘Poverty in the Welfare State’ Oxford Economic Papers, New Series, Vol. 24, No. 3(November): 289-326.

Meth, C., (2004) What has happened to poverty in South Africa as unemployment has increased? Version 4,unpublished report, School of Development Studies, University of KwaZulu-Natal.

Norris, Keith (1985) “Taxes, Transfers, and the Social Wage in Australia 1975-84”, Australian Bulletin ofLabour 11(4):212-235.

O’Connor, J. (1973) The Fiscal Crisis of the State. New York: St. Martin’s Press.

Plehn, Carl C. (1924) “The Concept of Income, as Recurrent, Consumable Receipts”, The American

Economic Review, Vol. 14, No. 1 (March): 1-12.

Rankin, K., (1997), The social wage as a definitive component of political parties’ philosophies, revisedversion of a paper to the Conference of New Zealand Political Studies Association, 8-10 July, 1996,downloaded from http://keithrankin.co.nz/krnknsocw_wp.html on 1November, 2011.

Saunders, Peter (1994) Welfare and Inequality: National and International Perspectives on the WelfareState, Cambridge University Press.


Schanz, Georg von (1896). "Der Einkommensbegriff und die Einkommensteuergesetze". FinanzarchivVol. 13: 1–87.

Simons, Henry C. (1938). Personal Income Taxation: the Definition of Income as a Problem of FiscalPolicy. Chicago: University of Chicago Press. p. 49.

Standing, G. 1999. Global Labour Flexibility: Seeking Distributive Justice. Houndmills, Basingstoke:MacMillan Press.

Standing, G. 2002. Beyond the New Paternalism: Basic Security as Equality. London: Verso.

Standing, Guy, Jeemol Unni, Renana Jhabvala, and Uma Rani (2010) Social Income and Insecurity: AStudy in Gujarat. New Delhi: Routledge.

Standing, G., Sender, J. and Weeks, J. 1996. Restructuring the labour market: The South African challenge(An ILO Country Review). Geneva: ILO.

Stephens, JD. (1979) The Transition from capitalism to Socialism. London: Macmillan.

Theobald, Robert (1963) Free Men and Free Markets, New York: C.N. Potter.

Therborn, G. (1984) ‘The Prospects of Labour and the Transformation of Advanced Capitalism’, New LeftReview 145, May-June: 5 – 38.

Tomlinson, John (2001) Income Insecurity: The Basic Income Alternative, Queensland: School ofHumanities & Human Services, Queensland University of Technology

Warburton, Clark (1937) ‘Accounting Methodology in the Measurement of National Income’ Studies inIncome and Wealth, Volume 1, NBER: p. 64 – 108.

Watts, Rob (1987) The Foundations of the National Welfare State, Sydney: Allen and Unwin.

eSS Where Socrates Fears to Tread 12, 2011 · eSS Review, Pillai on Standing, Unni, Jhabvala and...

Documents

Transcript of eSS Where Socrates Fears to Tread 12, 2011 · eSS Review, Pillai on Standing, Unni, Jhabvala and...