Once it was beer that made Milwaukee famous. But in the last few years, welfare reform has put the city-and its state of Wisconsin-on the world map. Nowhere has such an ambitious attempt been made to reduce the welfare case-load; nowhere have there been so many visits by policy makers armed with clipboards and laptops, keen to catalogue the results.
Yet so far the most revealing result of the "Wisconsin Works" scheme has been the diversity of interpretations of the evidence. To some observers, the state has simply saved money by pushing vulnerable people into useless jobs or into philanthropically provided shelters for the homeless. To others, Wisconsin proves that "compassion with a tough edge" can infuse a dependent welfare population with the values of personal responsibility and moral strength.
Observers have focused almost all their attention on the sticks with which the state beats welfare recipients: in particular, no one receives a welfare cheque without working for it. Some, too, have noticed the state's use of carrots, such as heavily subsidised childcare, to woo recipients off welfare.
But while carrots and sticks have a bearing on Britain's current welfare debate, the most interesting questions are raised by a piece of the Wisconsin package which is usually ignored: privatisation of welfare administration.
The efficiency potential of reformed welfare administration is immediately apparent on a visit to one of the agencies responsible for implementing the Wisconsin Works scheme. In South Milwaukee, the franchise for running the scheme has been given to a private company called Maximus. Entering its office as a welfare-dependant single mother, you are not led to a quiet corner of the room to fill out a form. Nor are you given a cup of tea and a chat. You are counselled and cajoled; you are treated to evangelical lectures on the attitudes required to succeed in the labour market; you are dressed for success and introduced to employers-all on the one site.
Maximus, whose staff are often former welfare dependants, has every reason to apply this treatment: it seems to work. The better it works, the more the company earns. Eventually the contracts which the state signs with franchisees such as Maximus will simply pay a fixed fee to cover all costs-benefits as well as administration. Moreover, remuneration will be based on how many welfare recipients hold jobs as well as get them. As a result, Maximus only deals with employers paying at least $7 an hour; and only countenances temporary work if this leads to a permanent job.
It is hard to tell to what extent a new culture of administration can change the welfare system on its own. But if it does make a big difference, should we not try it in Britain before considering more radical surgery? Why are we arguing about controversial and difficult reforms -such as cutting entitlements or spending more on subsidising people into work-when there is an easy and obvious reform to try first?
In Britain, we have a good reason for considering reform of welfare administration. Although we have already made important changes to the structure of our social security system, these do not seem to have produced the desired outcome. Without effective implementation, structural reforms simply do not work very well.
For example, the Jobseeker's Allowance (JSA) was designed to tighten eligibility requirements for unemployment-related benefits, in order to ensure that only those who seemed to be genuinely trying to find a job would obtain benefits. It was modelled on the idea of a contract between the state and the recipient: the one gives benefits, the other takes work if available, even if it is not particularly well paid or pleasant. The idea behind JSA was fine: it aimed to minimise the cost of unemployment-related benefits while protecting the incomes of those most in need; and it aimed to maintain the insurance basis of our social security system while minimising the disruption to personal incentives to take work.
But because the system is administered by the same people who dealt with the old income support and unemployment benefits, the outcome has been modest. For one friend, quietly financing his way through a vocational course with unemployment benefits and some casual employment, the introduction of JSA has meant no more than a home visit in which a sympathetic benefit officer sanctioned his continued receipt of benefit.
This is hardly compassion with a tough edge. In London, a city enjoying a minor boom in which a stream of foreigners seem to have little difficulty in finding work, we still have a large number of able-bodied long-term welfare recipients.
That number could be reduced. More sassy enforcement of the rules would screen out those who should not be on the books. Also, many benefit recipients are scared of confronting the labour market; many undoubtedly believe that no suitable job is available. A more intrusive and supportive job service might guide these people into work; it might challenge them to realise their potential; it might allay their fears by holding their hands and treating them more personally.
Why does the existing employment service not adopt a bolder strategy towards its clientele? Possibly because this would require a different management, staff, premises and internal organisation. It might require better qualified staff on substantially higher rates of pay. It might require several days a week of one-to-one support for recipients. An incumbent state bureaucracy has no natural endowment of skills or attitudes necessary to put these techniques to an effective test.
Moreover, without more commercial incentives-in which "good" social security administrators gain market share and the bad are forced out-it is unlikely that the innovation, the risk-taking and the management necessary to run an improved system would be forthcoming. Without a reward structure which allows a provider to keep some of the benefits saved by steering a person into work, there will be no incentive to think constructively about the potential trade-off between savings on benefit pay-outs and increased investment in administration.
Introducing some competition and better incentives, in order to run the existing welfare system more effectively, has attracted curiously little attention in Britain. This is because the political right is usually more interested in scaling entitlements back. It wants to remove the state from welfare decision making as much as possible; not by privatising the administration, but by privatising the choices we make in opting for different standards of welfare.
The left has always been seduced by a system of core public services to be run by public sector providers. It is scared of allowing decision making to be corrupted by financial incentives. Indeed, in the US there are plenty of critics of companies such as Maximus, arguing that commercial welfare administration will drive the genuinely needy off the books altogether. But that would happen only if the incentive structure is poorly designed and monitored.
It is not what we do, but the way that we do it which matters in welfare-not just in social security but perhaps in health and education, too. This represents a fruitful approach to public spending and the welfare state which is distinct from both the smaller-state right, and the status quo left.
