October 08, 2023

Income Protection and Neoliberalism

Sanjay Roy

CHANGING production structures, pervasive intermittent employment and rising income inequalities have necessitated a discussion on income protection in different forms. Sometimes it is designed for a particular group or segment of population on condition of satisfying certain social behaviours or fulfilling human development goals. In others they are conceived as unconditional and universal claiming to protect a minimum income for the citizens at large. Undoubtedly in the context of increasing fragmentation in the production structure and labour being in a state of flux, such income protection seems to be a matter of solace.

The breaking down of the post-world war social compact, the Keynesian welfare regime and its various diluted incarnations in developing countries are all being displaced by the neoliberal pursuits of market society. And anything that ensures some provisioning for the poor and the underprivileged offers some relief in the midst of rising misery and uncertainty. By design it has become an imperative for capitalism to strike some balance between production and consumption particularly when the requirement of direct human labour is diminishing fast in the context of the advent of new technology.


In a society driven by exchange values, the only rationale to transferring purchasing power to an individual has to be a payment made against work offered and the person receives wages/salaries of an equivalent value of the labour power sold. If for some reason the society does not require the available human labour and makes huge number of labour force redundant, then the transferring of income has to be done by other means to ensure realisation of the value produced in the economy. To put it simply, some transfer of surplus has to take place via the State in the form of income protection of some variety or the other so that people would be able to buy the goods and services produced in the economy. There is hardly any possibility in today’s world of transferring population to new found lands as was done during the end of the eighteenth century in Britain and by which they could wipe out the unemployment problem at least temporarily despite huge number of people being displaced due to mechanisation. The question of political sustainability becomes particularly important when such huge number of people become redundant or undervalued in the current regime of capitalist accumulation. Capitalism had to reconcile this by compromising its canonical claim of exchange through equivalence of value and transfer income independent of work performed. But making such provisions effective, so as to augment aggregate demand needs taxing the rich. This however once again goes against the ethos of neoliberalism which essentially pledges for a low wage-low tax regime.

Therefore, the desired options for neoliberalism boils down to instituting a regime that ensures freedom for capital, so that they can take the advantage of flexibility of hire and fire, pay low wage to their workers in the name of competition, deny all the existing structures of entitlements of severance pay or social security and also pay low taxes to the state. While the workers bear the brunt of competition and forced to accept low wages and insecure working conditions, they seem to be compensated by a small amount of cash transfer from the State as income protection. Such provisions definitely help them to sustain but more importantly by this design capitalist State ensures a steady supply of low waged labour and political stability by using revenue generated from taxes collected directly or indirectly from the rich as well as from the poor. In the advanced economies various models are being tested such as earned income tax credit, negative income tax or various modes of recognising participatory income as against socially useful work.


Interestingly proponents of free market philosophy including FA Hayak and Milton Freedman talked about income protection from the perspective that it indirectly sets the context of deregulating market and get rid of unwanted interventions such as minimum wages and so on. In other words, people being provided some little income are supposed to organise their life with that bit, go to market and buy what is affordable and therefore no need of asserting a minimum wage claim. Neoliberalism favours income protection on the pretext of large scale income deflation and dispossession. Such schemes carry the tag of welfare funded by the citizens at large without putting extra burden on the rich, particularly on their inflated profits. It frees the employers from the hassles of paying minimum wages or other benefits to their workers as the society endorses the flouting of such laws while upholding provisions of little cash transfer to the poor. This also comes with an additional twist, that is, payments are delinked from work. The persons who are eligible for such transfers are citizens or particular groups of citizens and not necessarily ‘workers’. This helps atomisation and individuation of workers, build a patron-client relationship between the State and the individual citizen and tend to distract the making of the collective identity of the worker based on their shared experience of exploitation and oppression in the work place.


Income protection in the current context appears to be the preferred mechanism to ensure minimum levels of purchasing power when capitalist accumulation requires less and less direct labour. But this may be responded by different segments of the work force and employers in different ways. For instance, if the economy is growing fast with rising demand for labour, wages may increase as workers have the option to opt out relying on alternative source of income guaranteed by such protections. If the economy is slowing down with declining demand for workers, income protection may be used by the employers as a rationale to reduce wages in their workplace. In such cases State provisions act as a subsidy to employers who uses income protection provided by the government as a plea to reduce reservation wages. Particularly such provisions affect the bargaining power of middle level workers who could not opt out from work depending on the State provisioning of cash transfer but faces low wage competition in the labour market that denies all institutional protection of entitlements. The rights and entitlements achieved through long years of struggle, establishing the norms of standard employment appear to be privileges of the few and the social sanction tends to tilt in favour of citizen based welfare expenditure instead of work linked entitlements. Income protection in a milieu of entrenched patriarchy may also reduce female workforce participation rate as such provisions may be once again used to push female family members towards household unpaid work having been supported by some income transfer from the State.

The most important consequence of income transfer without political mobilisation is a pervasive sense of gratitude towards the State for being favoured by transfers that are not attached to any work. This sense of gratitude not only gives high political pay-offs to ruling parties but transforms the mass into passive beneficiaries who do not see their protected incomes as claims and lack the political power to enhance their rights. This essentially leads to a trap of subsidised subsistence and creates a huge void of agency disempowering the masses. Such a state of low-wage-high profits-low tax together with passive mass is what enables neoliberalism sail through democratic systems. Voting rights without an effective voice from below or a subservient mass grateful to the State for being benefitted by transfers from social funds, which includes revenues generated from indirect taxes also and not by enhanced taxes paid by the rich, is what can be called the desired moment of bliss for neoliberalism. And a deeply individuated mass, dissolved of their collective class identities creates the pretext of redefining identities that invoke the past instead of building solidarities that enable people to face their current challenges. A framework of rights and an institutional mechanism of contestation with a vibrant political movement can only augment the social sanction of income for the working people without which income protection on behalf of the State actually offers a subsidy to the capitalist employers.