Consumer Information About Public Goods and the Workability of the Welfare State

Martin Pfaff, University of Augsburg and INIFES [International Institute for Empirical Social Economics (INIFES), Haldenweg 23, 8901 Leitershofen, Federal Republic of Germany.]
Ernst Kistler, INIFES [International Institute for Empirical Social Economics (INIFES), Haldenweg 23, 8901 Leitershofen, Federal Republic of Germany.]
ABSTRACT - The modern welfare state is faced by fiscal crises. Commonly scientists consider an inflation of wants the principal cause thereof. Consumer information on the public transfer system as one part of a most urgently needed consumer policy for the public sector can on the one hand cause more demand, it can help, on the other hand, to create a more rational and effective transfer system. This paper deals with the consequences of an extension of information on public goods and services. It concludes that increased understanding of and more information about public transfers is needed on normative as well as practical grounds.
[ to cite ]:
Martin Pfaff and Ernst Kistler (1981) ,"Consumer Information About Public Goods and the Workability of the Welfare State", in NA - Advances in Consumer Research Volume 08, eds. Kent B. Monroe, Ann Abor, MI : Association for Consumer Research, Pages: 527-529.

Advances in Consumer Research Volume 8, 1981      Pages 527-529

CONSUMER INFORMATION ABOUT PUBLIC GOODS AND THE WORKABILITY OF THE WELFARE STATE

Martin Pfaff, University of Augsburg and INIFES [International Institute for Empirical Social Economics (INIFES), Haldenweg 23, 8901 Leitershofen, Federal Republic of Germany.]

Ernst Kistler, INIFES [International Institute for Empirical Social Economics (INIFES), Haldenweg 23, 8901 Leitershofen, Federal Republic of Germany.]

[Research supported by the Federal Ministry of Research and Technology (VER006).]

ABSTRACT -

The modern welfare state is faced by fiscal crises. Commonly scientists consider an inflation of wants the principal cause thereof. Consumer information on the public transfer system as one part of a most urgently needed consumer policy for the public sector can on the one hand cause more demand, it can help, on the other hand, to create a more rational and effective transfer system. This paper deals with the consequences of an extension of information on public goods and services. It concludes that increased understanding of and more information about public transfers is needed on normative as well as practical grounds.

THE FISCAL CRISIS OF THE WELFARE STATE

In capitalist as well as in socialist countries discussions have arisen about the efficiency of social policy as it is practiced. Inefficiency and ineffectiveness, suboptimality in allocational, distributional, and aggregative matters have been diagnosed. During the period of world wide prosperity and growth these effects could be tolerated more readily; however, during the last few years there are definite symptoms indicating limits in the willingness of financing such inefficiencies. The reduction in economic growth thus has lead to suggestions such as privatization. Not only the New Left speaks of such boundaries in financial means and of the workability of the public sector. Today social policy, in its dependence on tax revenues is faced with the sheer impossible task reconciling actual or perceived wants with available economic and social resources. Irrespective of the actual causes thereof we have to realize the dangers brought about by excessive burdens on the public transfer system. The suggested possible alternatives need further investigation. The supply of public goods, however, is not only limited in terms of economic feasibility. There are furthermore doubts, whether the goods and services provided really meet the true needs and wants of the consumer. Empirical studies show (e.g. Katz et al. 1975) that frequently people do not or cannot realize claims on certain real or monetary grants. Other urgent problems are the growing tendencies towards bureaucratic failure and the lack of critical participative and complaining behavior by public sector consumers.

Some social scientists (Scherhorn 1975, Young 1978) suggest an introduction of consumer policy instruments into the public sector and increased education, information, and participation of consumers may solve the aforementioned problems to a large extent (INIFES 1979). This short paper cannot deal with the limitations and advances of a consumer-oriented perspective of public transfer policy. It is confined to the very specific aspect of consequences of increased consumer information for the public budget.

THE PROBLEMS

Two antithetic theses can be stated when we discuss the effects of consumer information: l) A theory of inflation in aspiration and demand, or 2) A theory of more effectiveness of public grants. Unquestioned, however, by proponents of both points of view and irrespective of secondary effects, we expect that more and better informed consumers imply an increase in consumer sovereignty.

An inflation in demand, leading to an overburdening of the public budgets, must be expected when we proceed from the principles of traditional economic psychology and assume strictly egoistic behavior. Consumers or representatives of interest groups in the wake of getting more information and insights into the transfer system would tend to ask for more public goods and transfer payments. On the one hand they will attempt to receive transfers hitherto de facto or formally confined to other groups; a growing awareness of feeling handicapped in comparison to other groups leads to attempt to acquire privileges for themselves as well.

On the other hand more information concerning public goods might bring about increased utilization of transfers for which they had been eligible before, for which, however, they had not exercised their rights - leading to excessive burdens on public budgets.

In contradistinction to the aforementioned arguments one can suppose that increased information - and corresponding to this more feed-back, e.g. in the form of complaining behavior - may bring about greater effectiveness in public transfers and to reductions in public spending. Not only would increased information sharpen the awareness of capacity limits of the budget; citizens may become especially aware of the character of the transfer systems as a zero-sum-game. Consumers might reduce their demands in spite of the high level of self-financing.

A consumer-oriented transfer policy must be oriented towards the preferences of consumers which, in turn, requires that consumers be well informed and able to participate in decision processes. Consumer information - in that sense -could help to improve the efficiency and effectiveness of transfer policy. The advantages of more consumer sovereignty in a "voucher-system' (Beyme 1977, p. 115) and the improvements in consumer-technology (Skarpelis-Sperk, 1978) may help overcome the selective preclusion effects brought about by lack of information. Both schools of thought mentioned before would concur on this point.

The following discussion deals with some indications regarding the validity of these hypotheses in terms of practical experience. Some conclusions for consumer policy in the public sector are drawn.

DANGERS OF INFLATION IN DEMANDS

The recent discussion of the distributive effects of public transfers indicates that some of the assumptions of fiscal theory on the nature of public goods have to be reconsidered (Pfaff 1978). Certain groups are often excluded from the receipt of certain transfers and often rivalness in consumption does, in fact, exist; these effects are group-specific.

The common models of political decision-making, especially those of new political economy, proceed on the assumption of a truly economic man. The economic psychologists, too, believe, that people vote especially for those transfers that benefit primarily themselves. Farmers vote for farm-subsidies and turn down projects to improve urban infrastructure; the poor want more public income maintenance payments and less subsidized theatres - because they rarely visit theatres; all voters vote against higher expenditures for underdeveloped countries.

Better understanding of and information about the transfer budget, one's own and others' benefits and burdens could increase the common feeling of being treated unjustly and could further selfish motivations leading to increased demands on the system. In a parliamentary democracy the consequence would be an inflation of wants; the budgetary limitations may well lead to a neglect of urgent needs, especially of underprivileged groups which would be suppressed in the process of democratic competition. This argument seems self-evident. But in spite of this some aspects suggest that further consideration is required.

Table 1 shows the results of a 1978 opinion poll on public transfers. This table shows weighted and aggregated indices of public performance concerning monetary transfers. The specific differing interests of different groups become evident; however, we also discern, at the same time, that to a large extent people accept transfers benefiting other persons or groups. Other surveys as well indicate a high level of general endorsement on public transfer and social policy (Deimer, Kistler 1980); quite obviously, there is no complete absence of something like compassion or acceptance of the needs of the underprivileged, something like an insight into the necessity of the need of the public aid to other persons and groups - a sense of identity with others.

TABLE 1

SELFISHNESS OF GROUPS REGARDING PUBLIC TRANSFER SYSTEM: PEOPLE'S OPINION ON REDUCING PUBLIC EXPENDITURES (IN %)

POSSIBLE WAYS OF IMPROVING THE EFFECTIVENESS OF TRANSFER POLICY

These arguments indicate that more information especially about the situation of other people and groups could lead to a reconsideration and reevaluation of one's own relative position compared to that of others with regard to the public budget constraints. There is a chance to induce more understanding of the limitations in financing public transfers and the connections between taxes and transfers. Understanding the necessity to assume burdens and to aid others could curb an excessive inflation in demand.

"Consumers better understanding of the interdependencies of needs, their causes, their changing, and their satisfaction" as a "prerequisite of critical cooperation" (Czerwonka, Sch÷ppe, Weckbach 1976, p. 279) could lead to a more effective and rational supply of and demand for public transfers.

This assumption which is the central argument in favor of more participation of citizens/consumers in urban planning, administrative decision-making, etc. is based on diverse empirical evidence.

With regard to our specific question we shall cite two results that suggest demand-reducing or at least satisfaction-increasing effects of increased information far consumers.

A 1980 survey of young persons in the city of Augsburg showed a highly significant (.01!) relation between the satisfaction concerning transfer policy and the satisfaction with informational policy about city planning. Table 2 shows that of the persons satisfied with the informational practices only 27.4 percent are dissatisfied with the policy measures for the young. However, 47.9 per cent of the ones dissatisfied with urban information policy are also dissatisfied with the supply of public goods.

TABLE 2

CONNECTION BETWEEN SATISFACTION WITH PUBLIC INFORMATION POLICY, PUBLIC TRANSFER PERFORMANCE, POLITICAL INTEREST AND DEMOCRATIC APATHY - THE CASE OF POLICY MEASURES FOR THE YOUNG IN THE CITY OF AUGSBURG (IN %)

Considering that there is only a limited connection between the satisfaction with public information and political interest, and that political apathy and lack of belief that democratic engagement can be of any influence, are higher with dissatisfied people (28.3 per cent) than with satisfied ones (21.2 per cent), we can conclude that consumer information is an important prerequisite for systems performance.

Similar considerations may apply to other groups and other transfers. In some investigations, for example, we find the assumption that better information may reduce moral-hazard behavior within the social insurance. Kruse (!979, p. 134) reports in an inquiry that 64 per cent of the persons insured in the Public Health Insurance believe that more and better information may reduce necessary and irresponsible demand for medical services.

The conclusion that informed consumers would help create a more rational transfer policy and reduce selfish aspirations surely is obvious, but difficult to prove. General practice certainly suggests that consumer information is considered important - also in the public sector. How else would we explain the flood of fancy information brochures emanating from diverse agencies.

Such information campaigns take place in all areas from energy-saving to more economy in demand for medical care. The belief in the rationality of consumer behavior goes hand in hand with the hope that better information via more extensive participation may result in a transfer system that is better geared to consumer needs.

This aspect of higher effectiveness in public supply and individual demand is also directed towards the third of the assumptions discussed above based on the theory and practice of planning.

The idea of consumers as informational or even economic and social resources of decision-making and production of human services (see for example Gartner 1980) is based on the normative premise that consumers know best what's good for them (Pfaff 1977).

THE NEED FOR CONSUMER SOVEREIGNTY IN THE PUBLIC SECTOR

Transfer and social policy procedures in Western countries differ from those in socialist countries; in the latter transfers are allotted while in Western countries extensive steps on the part of the recipient in terms of applications, provision of documents and contacts with offices are necessary before receiving transfer payments. This presumes a high degree of competence and information on the part of the consumers/citizens. Especially because of these necessities some public transfers, such as public aid and assistance programs to the poor or preventive medical examination are not fully used, especially by people who really need them most.

Consumer sovereignty is dependent on a high level of knowledge - especially in the public sector.

Only informed consumers are able to realize their rights to make the best of public transfers and to articulate and perhaps to assert their needs.

Apart from the whole range of effects of more information and on the public budgets it is certain that such procedures will help consumers in their roles as potential transfer recipients.

CONCLUSION

This discussion could lastly not prove - especially in quantified and monetary figures - the consequences of improved information activities on the budget, last not least because secondary effects (for example employment effects in the service sector) remain outside the consideration.

However, when we view the public sector not only as a system with satisfying and pacifying tasks, but more as a "democratic social provider" ("Demokratischer Sozialstaat", Art. 20, Constitution of the Federal Republic of Germany), as a viable democratic society, there most be criteria of evaluation referring especially to the third of the hypotheses discussed above.

Under normative aspects the ongoing practice of guaranteeing rights to public transfers without providing the potential recipients according to their limitations with the necessary aid to exercise those rights is grossly deficient. Such ways of public supply, relying upon the nonrealization of existing rights are not at all satisfactory. Furthermore, it is wrong to expect that if public agencies publish more booklets about their activities that this will necessarily lead to better information.

Discussions about the workability of the welfare state cannot convince unless they also take into consideration the perversions of social policy by the lack of information on the part of consumers. Transfer policy requires an elaborated information system. Even if an increase in demand for public payments were to be triggered especially within existing programs, we cannot accept the argument that more extensive information provides dangers to the workability of the welfare state.

The budget might be burdened further, however, efficiency and effectiveness of transfer policy would increase -especially with regard to distributional objectives. The workability of the welfare state increases when hidden poverty is reduced and nonrealized rights are exercised equally by all.

Consumer policy in the public sector might help!

REFERENCES

Beyme, Klaus, v. (1977), Sozialismus oder Wohlfahrtsstaat?, Mnnchen: Piper.

Czerwonka, Christine, Schoppe, Gunter and Weckbach, Stefan (1976), Der aktive Konsument: Kommunikation und Kooperation, G÷ttingen: Schwarz & Co.

Deimer, Klaus and Kistler, Ernst (1980), Verbraucherperspektiven in der Sozialpolitik. Paper presented at the International Symposium 1980 in Augsburg (will be published in the proceedings).

Gartner, Alan (1980), Private and Cooperative Alternatives to the Public Transfer Policy, Paper presented at the International Symposium 1980 in Augsburg (will be published in the proceedings).

INIFES (1979), Der Einflub verbraucherpolitischer Instruments bei staatlichen Anbietern, Unpublished Interim Report, Leitershofen.

INIFES (1980), Zusammenstellung von subjektiven Indikatoren zum Transfersystem, Unpublished Manuscript, Leitershofen.

Kate, Daniel et al.(1975), Bureaucratic Encounters, Ann Arbor: University of Michigan Press.

Kruse, Udo (1979), 'Meinungen und Einstellungen der Bev÷lkerung zur GKV", Sozialer Fortschritt, 6, 131-134.

Pfaff, Martin (1977), "Who Decides What is Good for Whom?", Journal of Consumer Policy, 2, 138-142.

Pfaff, Martin, Ed. (1978), Problembereiche der Verteilungs-und Sozialpolitik, Berlin, Mnnchen: Duncker & Humblot.

Scherhorn, Gerhard (1975), Verbraucherinteresse und Verbraucherpolitik, G÷ttingen: Schwartz & Co.

Skarpelis-Sperk, Sigrid (1978), Soziale Rationierung ÷ffentlicher Leistungen, Frankfurt, New York: Campus.

Young, Dennis R. (1978), "Public Sector Consumer Problems: A Reply to the Responses", Journal of Consumer Policy, 3, 265-277.

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