Overcoming child poverty, with the future in mind
By Peter Winsley, December 2016
Child poverty in New Zealand can be defined as an economic and sociological state that impedes children reaching their full potential.
Poverty in New Zealand is relative not absolute. Compared to other developed countries, New Zealand has good material consumption levels and inequality is not extreme (Grimes & Hyland, 2015a, 2015b; Perry, 2016).
In dynamic economies inequality is associated with high social mobility. It should reflect meritocracy, not impermeable class barriers. It should see people connected to the same country and its journey through history, rather than divide people.
High inequality is not a problem if the social mobility traffic stream is moving forward. Problems arise when the traffic becomes grid-locked. Inequality then becomes entrenched and frustrates expectations people have that life will get better. Child deprivation results from entrenched inequality, and perpetuates it into future generations.
This in turn can lead to socio-economic class segmentation and conflict. Norman Kirk once said people “don’t ask for much: someone to love, somewhere to live, somewhere to work, and something to hope for”. Without social mobility as “something to hope for”, people become alienated as they see fair society narratives ringing hollow, implicit contracts dishonoured, and trust in institutions decaying.
“Social class” is a self-defeating term in meritocratic societies with high social mobility. It is a descriptive term where economic stagnation, corporate and capital owner welfare and poor childhood environments impede mobility.
Class barriers can erode New Zealand’s fair society narrative and implicit social contract. This narrative and contract assume people can reach their full potential if they behave in certain ways, and there is a supportive environment. They delineate the rights and responsibilities of individuals, society and government. From these are derived laws and social norms.
Child deprivation damages health, learning, and leads to benefit dependency and crime. When people fail to reach their potential, New Zealand forgoes productivity gains, cultural achievements and community. Deprivation hurts us today, and its longer-term effects harm future generations. Addressing it effectively at the right lifecycle stages delivers exceptional returns. Why then is New Zealand as a society making so little progress on reducing child poverty?
Why are we making so little progress in reducing child poverty?
Reducing child poverty is impeded by:
Denial of key issues
Key issues are denied through opaque or vapid language, or silence. Since language is the medium of thought, this corrupts our ability to see issues clearly, and to think them through.
Examples include denial of the importance of family structure, that cognitive ability is partly heritable, that poverty degrades parental competencies, and that some cultural behaviours cause deprivation. There is a tacit ban on the term “social class”.
We deny the realities that some people will not learn from mistakes, that some are incapable of parenting, and that most child deprivation would disappear in a generation if people decide only to have children they will love, nurture, and can afford.
Failure to distinguish between situational and cultural deprivation
Child deprivation in developed countries can be considered as either situational or cultural, though there are inter-relationships between the two. Situational deprivation is effort-independent. It arises from events beyond individual control. These include downturns leading to job loss, changes in unavoidable costs such as housing, food or energy, or unexpected health problems. People are prepared to help others overcome situational deprivation.
Cultural deprivation is closely-related to individual effort, or lack of it. It results from bad parenting, poor values, weak self-control, and denial of personal responsibility. People are reluctant to help others manage this deprivation.
People innately sympathise with the situationally-deprived. Support for social welfare systems depends on whether people are perceived to be trying or not, and whether outcomes are effort-independent or not (Petersen et al, 2012).
There is an innate lack of sympathy for those whose plight is self-authored. The mind has modules for cheater detection and punishment. We innately resent free-riding and paying for the costs of other’s negligence, laziness, or weak self-control. It may also be rational to oppose resource transfers to those who will make poor use of them.
Insufficient distinction between today’s deprivation and avoiding it in future
To tolerate or reward poor parenting allows the behaviour to continue, get worse, and persist inter-generationally. However, it is morally bereft not to address today’s child deprivation, since children are dependent on adult care.
The public policy challenge is ensuring children have the best opportunities in life, without reinforcing poor parenting. For example, sanctions such as conditional obligations may be tough on parents, but they must not harm children.
Today’s child poverty must be addressed differently to how future deprivation is avoided. This means intervention must address today’s challenges, while creating incentives that shape a better future.
Deviation from socially productive resource allocation
Market workings can be subverted by those in powerful positions influencing policy and regulatory frameworks. This leads for example to policies that are pro-business rather than pro-market. It is associated with private capture of rents, and socialisation of losses.
The regulatory machinery, tax and property rights regimes can disconnect economic rewards from people’s real, socially valuable productivity contributions. For example, teachers are as skilled as Wall Street bankers and are more socially valuable, but are paid much less. Teachers do not cause macroeconomic crises, and when they fail they are dismissed, not bailed out.
Globalisation and technological change are welfare-enhancing so long as economic growth and returns on human capital are broadly dispersed and exceed returns on concentrated physical and financial capital. However, “trickle-down” policies and regulatory capture allow privileged people to turn income streams into concentrated physical and financial capital that amplifies their advantage and creates barriers to social mobility.
Corporate welfare, business environmental free-riding, weak regulation of financial markets, of building quality and of workplace safety, regulatory barriers to new business entries, and restrictions on new housing developments have typically favoured capital owners, at others’ expense. Largely middle class students have captured the benefits of interest-free student loans, depriving the school system of resources and impeding higher education access for many from poor backgrounds.
High-performing economies require human, financial and other resources being directed to socially useful effort that benefits people, and at the right life stages. This applies to government services, as well as to businesses delivering value to customers.
Value destruction results from ignoring this principle. The 2008 financial crisis partly resulted from banking system “innovation” that involved profit not service maximisation. It was exacerbated by government-mandated lending policies, and a failure to track property right transactions in a publicly visible way.
Product market companies such as Apple and Big Pharma businesses engaged in tax arbitrage, financialised their businesses through share buy-back and other activities, and ignored their product lines and customers (see Lazonick, 2014, 2015). This reduced innovation and productivity growth investment and led to massive output loss. Housing purchases focused on speculative gains, rather than on expanding housing supply.
Addressing child poverty means being supportive of well-regulated markets that allocate resources effectively, and for socially beneficial purposes.
Proposed ways forward
Ways forward for public policy depend on guiding principles.
These are that children’s interests are paramount, and in a fair society all can reach their potential. An individual child’s interests must prevail over ethnic, religious, cultural, kin or political identities and ideologies. This may mean overriding group ideologies relating, for example, to female education, blood transfusion, or child custody transfers between kin and non-kin groups.
Children should not suffer for societal or parental failings. Government should reinforce good parenting through services it provides and incentives it creates. Parents have primary responsibility for children’s well-being, and they have obligations as well as rights. Lifting children out of deprivation should not reinforce parenting harmful for children.
Addressing child poverty requires a multi-partisan strategy. This must be developed within a social cost-benefit rather than accounting frame. It must form part of an economic growth strategy with widely-shared benefits. The focus must be elevating the bottom and middle through productivity growth and new opportunities, rather than redistribution within a static zero sum game.
Investing in children can be delivered in ways that lift savings and capital formation rates. It can reduce crime and other social costs. It is associated with intergenerational transmission of education. It can counter the economic effects of an ageing population, address secular stagnation, lift future productivity and increase labour market participation. In short, our children are our future and are the best of all possible investments.
Specifically, two distinct but complementary strategies are proposed. One addresses today’s deprived children, whether victims of situational, effort-independent variance, or cultural, effort-dependent variance. It ameliorates deprivation through services best delivered by government, rather than by families themselves, while avoiding crowding out individual responsibility.
This strategy should invest in beneficiaries’ children on similar terms as those of working parent’s. Welfare to work strategies are good policy, and mechanisms such as in-work tax credits can have positive health as well as economic benefits (see Muennig et al, 2016). However, children’s interests are paramount and so links between work, tax advantages and other incentives should not be punitive. Therefore, resources delivered to non-working beneficiaries’ children should directly benefit children, and not reward parental disengagement from work.
This strategy needs to be reinforced by asymmetrical paternalism. This can benefit those suffering from bounded rationality and weak self-control, without imposing costs on others. Examples include contract “cooling off” periods, and framing of business promotions in ways facilitating informed consumer choices.
The second strategy focuses on avoiding future deprivation. This includes changing the calculus of parenting decisions in ways that avoid children being born into cultural deprivation in future. It includes a capability development approach to grow individuals’ future wealth-creating capabilities, rather than social welfare transfers to subsidise consumption. This aims to lift productivity through expanded human and other wealth-creating capital formation.
Interventions for today’s deprived children
Poverty degrades parental capabilities, leaving child development deficits that public interventions can address efficiently. Children are resilient to some deprivations, such as poor clothing and few holidays and entertainments. They are highly vulnerable to other deprivations, such as epigenetic risks and respiratory illnesses.
Interventions must be precisely targeted to where they can make the biggest difference. Key interventions include:
Investing early and at the right points in children’s cognitive and social development
Poverty causes stress, and can have biochemical effects on child development (see Gluckman, 2009; Gunnar & Quevedo, 2007). Children from stressful backgrounds can suffer from under-development of the prefrontal executive system and the brain’s language system (Noble et al, 2007; Farah et al, 2006). This harms working memory, task planning and impulse control, with low executive function especially harmful for self-regulation.
Early development of executive function shapes language abilities and predicts later academic achievement (Blair & Diamond, 2008). Language ability is critical, and high vocabulary correlates with real work ability (Hirsch, 2013). Low socio-economic status is associated with around 30% of variance in language ability (Noble et al, 2007).
Child cognitive and non-cognitive skills diverge at early stages between families of different permanent income (Heckman & Mosso, 2014). At least 50% of the variability of lifetime earnings is due to attributes determined by age 18 (Heckman & Mosso, 2014). Cross-fostering studies suggest that around 50% of IQ disparity in children is experiential (Capron & Duyme, 1989).
Cognitive skills are largely formed by around eight to ten years old, and the ability to change human neural circuitry is highest early in life and decreases with time (Knudsen et al, 2006). Investing early in children avoids poverty damaging cognitive and non-cognitive development. Cognitive ability and soft skill development can be improved through early intervention at key life-stages (Heckman & Mosso, 2014; Heckman & Kautz, 2012).
There are excellent returns from high quality early childhood education (Doyle et al, 2009). Advances in neuroscience, psychology and sociology, and growing data analytical capabilities, can allow interventions to be targeted effectively.
There is no equity-efficiency trade-off in investing in the capabilities of young children from low socio-economic backgrounds. However, adult education programmes to remediate earlier educational neglect produce poor results for most individuals (Knudsen et al, 2006).
Deal with failures in information, construal and response
Information failings underlie child poverty. These relate to complex epigenetic, pre-natal, child development, education and socialisation knowledge, through to nutritional understanding and financial literacy.
Government has a key role in some specialised knowledge-intensive services. Examples include diagnosing and treating health issues and learning disorders, helping people navigate educational processes, and delivering financial literacy programmes.
Government can regulate framing and choice architecture to make information construable and likely to be acted on (see Kahneman & Tversky (eds), 2000). Low cost psychological interventions can enhance aspiration for those from low income families (Yeager & Walton, 2011). The evidence suggests that cognitive performance is not a fixed resource, and it can be expanded if people believe it can be.
Focus on female education
Better educated parents and especially mothers have healthier children. A mother’s education is a key determinant of children’s later achievement and life prospects (Currie & Moretti, 2003).
Policy settings mean that for young, poorly educated females having children gives income and a social status. A transition from school to motherhood can appear attractive compared to unemployment or minimum wage, casual work.
Engaging young females in education builds their capabilities, flowing through to higher aspirations. It also delays fertility to an age when people have higher self-awareness and self-control. This is when better decisions are made on whether to have children, how many, and what obligations this entails.
Uplifting female education has transformative multi-generational impacts, thereby bridging today’s needs and tomorrow’s opportunities.
Focus on children’s health
This means free and accessible children’s health care, with a strong early stage and preventive orientation. It includes timely intervention to address such “third world” illnesses as rheumatic fever. It means that no smoking or drug abuse become fundamental lifestyle tenets.
Healthy diet must become a habit rather than an exception. Good diet is a parental, not a state responsibility. Breakfast programmes run by businesses or social agencies reinforce parental irresponsibility and the deprivation it gives rise to.
Government’s role is to ensure people have good nutritional understanding, and to nudge them to act on it. This is an informational role, and may require regulatory intervention, for example through sugar drink taxes. Government might also support cost-recovery school lunch programmes where parents are time-scarce and have poor nutritional understanding.
Children’s health also means healthy, quality, affordable housing.
Piketty (2014) hypothesised rising economic returns accruing to capital compared to labour. However, much of the evidence reflects housing ownership and higher imputed rents to home owners, rather than entrepreneurship, venture capital or new wealth-creating endeavours (La Cava, 2016). Wilkinson & Jeram (2016) also highlighted the impact housing prices have had on inequality and deprivation.
Housing must be seen more as a foundation for life, family and bringing up children in a good environment, rather than as a store of wealth or a speculative investment.
Reducing regulatory restrictions on housing supply would expand affordable housing stock and reduce deprivation. It would make it easier for people to move from low to higher productivity regions, delivering a productivity and incomes dividend.
Social housing development should replicate the housing conditions of well-functioning families, including household stability. There is room for social housing innovation for middle class New Zealanders, as well as for the lower income.
A social housing model could be developed based on permanent leases with rents set on a fixed ratio to the cost of rates. This could promote secure tenure for families within a predictable rental band, without requiring home ownership. It could foster similar household stability to that which home owners enjoy. It would give tenants an incentive to participate in local government elections to ensure value for money for rates-funded services.
Unlike home ownership, a permanent tenure social housing model would not act as a store of wealth that could be liquidated. However, tenants/leaseholders would have similar tenure stability as home owners. Such a model would allow individuals to invest more in the productive sector, such as through entrepreneurial and equity investments, rather than invest in inflating the price of a fixed housing stock.
Removing temptations and stresses from the financially and time-poor
George Orwell in Road to Wigan Pier, and economists such as Mullainathan & Shafir (2013) noted how poverty degrades self-control and rational behaviour.
Energy, time and computational ability are scarce resources that can be depleted. Rich and poor people have the same basic psychology. However, poorer people’s self-control is more depleted because of the greater stresses they face, rather than because of moralistic failings.
Poorer people have fewer margins for error, and face worse consequences when self-control fails. More automatic behaviours demand less self-control than active choices (Baumeister et al, 1998). Under stress, people can “downshift” and rely on automatic responses rather than rational decision-making. Poorer people may face unexpected repair, health or other unbudgeted expenses that wealthy people can easily handle, but which can push deprived households further into difficulty.
Interventions can reduce the space within which poorer people make bad decisions. They can remove temptations that erode self-control. The approach is to “tie Odysseus to the mast”. Fresh food-free zones can be replaced with junk food-free zones around schools. Pokie machines, fringe lenders and food trucks can be banned from vulnerable neighbourhoods. This means they will disappear, as they cannot survive in self-determining places.
Avoiding deprivation in future generations
Key interventions include:
Fostering responsible decisions on parenting and family structures
Large families were associated historically with high infant mortality, old age insecurity, patriarchal control, religious and traditional strictures and poor education.
Family size has declined as a result of better education, lower child mortality rates, enhanced women’s rights, and changing cultural and religious beliefs.
We now have universal sex education and access to birth control. High quality health care, housing and nutrition have dramatically reduced infant mortality. Superannuation, ACC and other safety nets reduce adult dependence on children’s support.
Fewer children mean more can be invested in their education and capability development, removing deprivation risk. Having children is a choice. Having a large family reflects recurring choice, with the consequences becoming increasingly obvious. It is a fundamental obligation for parents to have only those children they can nurture to their full potential.
High fertility in low income families now largely reflects poor decision-making capabilities, and vertical transmission of behaviours through deprived families, not rational choices and responses to horizontal learning from wider sources (see Zakharenko, 2016).
Some people are incapable of good parenting, yet they still have children without being held accountable for the resulting deprivation. Where past behaviour predicts likely future bad outcomes then there is no longer a moral right to have children. Some potentially capable parents fail because of weak obligations on them to treat parenting as their most fundamental human responsibility. Their behaviour can change in response to high societal obligations, and to conditionality in government services and resource transfers.
Society must encourage the right parental understanding and decision making on fertility and parental obligations. These go beyond legal obligations. They mean active, concerted parenting, not just meeting basic needs and then leaving children to their own devices.
Currently, disengaged parenting and child neglect are “sins of omission”, while child abuse is a “sin of commission”. Child neglect through passive and disengaged parenting should be progressively reframed as a sin of commission. We will know we have succeeded when we no longer see children and young people hanging around unaccompanied, lacking parental guidance or other mentorship.
Society can augment parental capabilities and enrich children’s lives through expanding green and public space and cultural services. These influence positively the environment in which children develop. Their non-rivalry and openness to all encourages wide public support for their provision.
Family structure is a key determinant in child well-being. Many children are born without a formal family structure being in place. Mitchell (2016) noted that the proportion of children born to married couples fell from 95% to 53% between 1961 and 2015. Between 1968 and 2015 the proportion of Maori children born to married parents fell from 72% to 21%. Around 51% of children in poverty live in single parent households.
Fundamental in psychology is the importance of symbolic and substantive commitment devices that force parties to think about their obligations and which pose a psychic cost to reneging on them. Moral commitment is needed to engaged parenting and to family structures that support good childhoods.
A marriage is a commitment with legal standing, symbolic power and moral heft. Marriage breakups, single parent and blended households may not be damaging to children when parents are educated, responsible, and in good financial shape. They can lead to child deprivation when parents have weaker capabilities. While many marriages will fail, commitment to a socially and legally mandated family structure will reduce child deprivation.
Reductions in corporate and special interest group welfare
Rent-seeking behaviours, special interest groups and the regulatory barriers that entrench them create private but not social value.
Business and capital owner welfare must be challenged. Wilkinson & Jeram (2016) cite the one billion dollar bail-out of South Canterbury Finance. Rose (2014) also sought to quantify corporate welfare. Some income support can subsidise employers and keep downwards pressure on wages. There is significant non-compliance with minimum employment conditions in some sectors.
New Zealand is rightly an open society with a permissive immigration system that welcomes diversity. However a factor in low skill migration is business owners wanting cheap labour, and home owners and landlords wanting housing price inflation and higher rents. Immigration could focus on the highly skilled and innovative, and for humanitarian reasons on refugees whose motivation to do better compensates for any language or skill deficits.
Rising house prices and rental costs have exacerbated effort-independent child deprivation. Removing barriers to new housing developments would make a huge dent in child deprivation. Funding for accommodation supplements should be used to expand housing supply, not to subsidise landlords and indirectly inflate property prices.
These issues require changed policy settings that avoid corporate and capital owner welfare, and improve resource allocation.
Shifting from social welfare transfers to capability development
Social welfare transfers that maintain consumption rather than expand capabilities effectively keep people in poverty.
Addressing cultural (as opposed to situational) deprivation with income transfers erodes personal responsibility and makes people passive. Dependency-based welfare can make life devoid of meaning, leading to higher morbidity, suicide rates and other social ills than in less developed countries.
Subsidies for consumption without reciprocal obligations guarantee child deprivation. They should be replaced progressively by an education, capability development and asset creation approach to children’s development. The aim is to avoid deprived childhoods turning into deprived adulthoods.
The best way to reduce child deprivation is to lift economy-wide productivity. Investing in children must be a part of economic growth strategy. It needs to benefit the wider society as well as individual children. In the same way, compulsory savings can help to both lift individual net worth and create investment capital to drive economy-wide growth.
Children could have vested in them at birth an account to be used only for their capability development. Eligible expenditures might include early child through to tertiary education costs, health expenditures, home ownership, investment assets, and net worth enhancement.
Child poverty discourse largely excludes net worth, though recent work (Chapple et al, 2015) is starting to address this. Net worth creates financial leverage and supports self-determining mind-sets. Holding assets is associated with better socio-economic outcomes (Brynner & Paxton, 2001) and with children’s educational attainment (Zhan & Sherraden, 2003).
Child capability development accounts could serve wider purposes such as macroeconomic stability, smoothing out lifecycle incomes, and fostering retirement saving. These accounts could be universal, with government and other contributions being weighted to the poor.
Capability development accounts would expand human and investment capital. By lifting future earnings capacity and net worth they would be a form of pre-distribution rather than re-distribution. They could therefore be core to a strategy to reduce inequality.
A capability development strategy can attract multi-partisan support, since education and capital asset formation contribute to higher productivity and therefore wider societal benefits. Crucially, it means investment in children’s capabilities, not subsidies for parental consumption.
We will see optimum investment in deprived children when it is seen to benefit all, and when it reinforces the right parental behaviours. Failing these, child deprivation will persist, get worse, and degrade opportunity and our fair society narrative even further.
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