The Relevance of the Welfare State

At a time when extremes of riches and extreme poverty live side by side in many parts of the world, it is only a state with a compassionate heart that can make its own the defence and protection of those who are in real need in society

— Anil Gujadhur

Efforts were undertaken by members of the Mauritius Labour Party during colonial times to introduce the Welfare State in Mauritius. Those who had gone for studies in the UK in the post-War period saw how much governments were giving out welfare benefits to come to the aid of their people devastated by a ruinous war.

The question was why in a colony like Mauritius people who were as vulnerable, if not more so than in post-War Europe, should not benefit from welfare payments.

It is not without numerous difficulties and serial refusals that the colonial government was led into trickling down aid to the poor through what was then called the Poor Law Office. Thus, free primary education to those not affiliated with institutions dispensing education to confessional associations, was to be slowly extended by the state to remote regions of the country. Dispensaries were set up in some areas to give primary health care to those not covered by urban hospitals. Social assistance was to be extended to handicapped people unable to earn a decent living by their own efforts. It is thanks to these initiatives that the welfare state has come into being in Mauritius.

This philosophy of the state coming to the aid of those without the means to meet their basic needs was continued after independence. It was a sheer political choice that vulnerable members of society, not covered by any private contributory pension plan, will not be left to fend for themselves. The state will provide certain basic amenities to them which they cannot obtain by their own means. With succeeding governments, therefore, a system of universal basic retirement pension to all aged 60 and over is afforded by the state without discrimination or targeting of income levels. It is non-contributory. The state also provides monthly financial support to other vulnerable groups, including widows and handicapped people, as part of its welfare budget.

From 1975 onwards, with the set-up of the National Pensions Fund (NPF) and later the Employees Welfare Fund, a parallel system of contributory pension schemes has been introduced. In this case, both employers and employees contribute regularly to the pension fund a percentage of the monthly salary paid. This gives rise to a regular pension being paid to former employees after their retirement from service. In addition, private sector firms and parastatals have set up their own pension contribution schemes. Here again, the amount of pensions paid depends, as in the case of the NPF, on contributions made during active service by employers and employees to the autonomous pension funds set up for the purpose.

This means that we have in Mauritius the state-funded basic retirement pension which is non-contributory and which pays a monthly basic pension of around Rs 3,600 to pensioners aged 60 and above. On top of that, those who have contributed under specific pension schemes receive additional monthly pensions from contributory schemes such as the NPF and Private Pension Funds. Most of the state pensioners, some 180,000 of them, get their monthly basic retirement pension of around Rs 3,600 from the state. These people plan their future on the assurance that they will receive this amount of monetary aid each month.

The amount of this non-contributory state pension is revised from time to time at the time of tripartite wage adjustment negotiations involving the government, the private sector and trade unions, according to the recorded rate of inflation during the year. Thus, if the annual average rate of inflation led to a decision to compensate wage earners by, say 3%, during any particular year, beneficiaries of basic retirement pensions from the state would see their monthly pension of Rs 3,600 increased to Rs3,708, an increase by Rs 108 per month.

As we well know, the inflation rate is an average of multiple sectors’ price changes over a period. It is a statistic. The smaller the base on which compensation for inflation is computed according to this statistic, the less the adjustment; conversely, the bigger the salary, the higher is the amount of compensation.

In the example of the basic retirement pension being adjusted by Rs 108 per month for an annual inflation rate of 3%, the compensation is not much. A single item of day-to-day consumption, such as powdered milk, can see its price increase by about that amount during a given period. So, how does one cope with other increases? The pensioner whose sole source of support was the basic retirement pension has therefore to squeeze his other routine expenditures or give a lesser amount of support out of his pension amount to growing grandchildren if his pension was being employed partly for this purpose.

The feeling has therefore been created that those who depend entirely on the basic state retirement pension have to face the music more than others who have other sources of regular income, including enhanced pensions. It is true. Successive governments have therefore paid particular attention to protecting this vulnerable group from the erosion of its purchasing power. This is how the basic non-contributory state pension has got to its current Rs 3,600 level.

On the other hand, international financial institutions like the World Bank and the IMF, whose doctrine is grounded in market economics, have often advocated the reduction or even elimination of such handouts by the state. Their aim is to get the states to better balance their budgets by forgoing such “unproductive” expenditures. If only for them, they would prefer dispensation of education and the provision of health care to be totally in the private sector, i.e., market priced.

However, even rich countries in Europe and America have governments which take to heart the protection of the poor and vulnerable members of society through state assistance. This is where our welfare state comes in, especially at a time when strong inequalities are emerging between the economic elite and the poorer lot of the population. A driving force in economies such as India and China, as their economic growth rates accelerated, has been to take the poor out of their state of deprivation. When governments take stands like this, it is all to their glory. It was one of the cardinal principles behind the creation of the state itself that it will be the main facilitator of transfers of income from the better-off to the less well-off by taxes and subsidies. Pensions come into this aspect of the state’s role.

The British administrators of colonial Mauritius shrieked with horror each time the Labour Party came up asking for higher state support in favour of impoverished people or asked them for grants to be given as enablers out of poverty so less well-off people could aspire to better livelihoods. They claimed there were not enough resources to meet the associated expenditures. Ultimately, they gave in and this is why we have sustained the welfare state tradition in this country. Visitors to the country are amazed at our provision of free universal healthcare and education. It is something to be proud of: the underlying philosophy travels beyond balancing of budgets.

At a time when extremes of riches and extreme poverty live side by side in many parts of the world, it is only a state with a compassionate heart that can make its own the defence and protection of those who are in real need in society. The same kind of compassion could melt the heart of those who are personally sufficiently endowed to give their basic pensions voluntarily to state-funded initiatives to come to the support of those in real need. We have the capacity to make the numbers adjust beautifully so we can live up to the ideal of a sharing people, if only to increase the hopes of those who have nothing other than their basic retirement pensions to depend on.

* Published in print edition on 24 Ocotober 2014

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