F. Hayek, We need to avoid confusing support of the poor with social justice

Even at the beginning stage of “social insurance” in Germany in the 1880s, individuals were not merely required to make provision against those risks which, if they did not, the state would have to provide for, but were compelled to obtain this protection through a unitary organization run by the government. Although the inspiration for the new type of organization came from the institutions created by the workers on their own initiative, particularly in England, and although where such institutions had also sprung up in Germany—notably in the field of sickness insurance—they were allowed to continue, it was decided that wherever new developments were necessary, as in the provision for old age, industrial accidents, disability, dependents, and unemployment, these should take the form of a unified organization which would be the sole provider of these services and to which all those to be protected had to belong.

“Social insurance” thus from the beginning meant not merely compulsory insurance but compulsory membership in a unitary organization controlled by the state. The chief justification for this decision, at one time widely contested but now usually accepted as irrevocable, was the presumed greater efficiency and administrative convenience (i.e., economy) of such a unitary organization. It was often claimed that this was the only way to assure sufficient provision at a single stroke for all those in need.

There is an element of truth in this argument, but it is not conclusive. It is probably true that, at any given moment, a unified organization designed by the best experts that authority can select will be the most efficient that can be created. But it is not likely to remain so for long if it is made the only starting point for all future developments and if those initially put in charge also become the sole judges of what changes are necessary. It is an error to believe that the best or cheapest way of doing anything can, in the long run, be secured by advance design rather than by the constant re- evaluation of available resources. The principle that all sheltered monopolies become inefficient in the course of time applies here as much as elsewhere.

True, if we want at any time to make sure that we achieve as quickly as we can all that is definitely known to be possible, the deliberate organization of all the resources to be devoted to that end is the best way. In the field of social security, to rely on the gradual evolution of suitable institutions would undoubtedly mean that some individual needs which a centralized organization would at once care for might for some time get inadequate attention. To the impatient reformer, who will be satisfied with nothing short of the immediate abolition of all avoidable evils, the creation of a single apparatus with full powers to do what can be done now appears therefore as the only appropriate method. In the long run, however, the price we have to pay for this, even in terms of the achievement in a particular field, may be very high. If we commit ourselves to a single comprehensive organization because its immediate coverage is greater, we may well prevent the evolution of other organizations whose eventual contribution to welfare might have been greater. If initially it was chiefly efficiency that was stressed in support of the single compulsory organization, there were other considerations clearly also present in the minds of its advocates from the beginning. There are, in fact, two distinct, though connected, aims which a governmental organization with coercive powers can achieve but which are beyond the reach of any agency operating on business lines. A private agency can offer only specific services based on contract, that is, it can provide only for a need which will arise independently of the deliberate action of the beneficiary and which can be ascertained by objective criteria; and it can provide in this manner only for foreseeable needs. However far we extend any system of true insurance, the beneficiary will never get more than satisfaction of a contractual claim—i.e., he will not get whatever he may be judged to need according to his circumstances.

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