Enhancing wellbeing and equality: Welfare economics and effective social policies

Dr (MD) Ahmed ElBarawi, Lecturer/Executive Assistant of the Provost at Berlin School of Business and Innovation, turns the focus on welfare economics and effective social policies that enhance wellbeing and equality

The study of how resources are distributed to maximise welfare is the focus of the economics subfield or branch known as welfare economics. Human wellbeing, which is defined as the utility or satisfaction gained from consuming or any other economic activity like resource allocation, trade, or distribution, continues to be the core of welfare economics.

Welfare economics and effective social policies

Welfare economics teaches us to consider utility and pleasure as personal preferences that can be quantified or, at the very least, ranked despite these concepts being abstract and primarily used to support theoretical postulates.

Here, the idea of wellbeing is divided into two categories: societal welfare and individual welfare, with the former being considered the sum of the latter (Waglé & Koirala, 2014), and this is a suitable way to see welfare economics and its relation to social welfare from a very simple and logical point of view.

By comprehending the principles of welfare economics and its connection to social welfare, it becomes evident that equality is necessary in any given society to achieve the Human Development Index (HDI). The HDI, which is currently enhanced by an inequality-adjusted HDI and indices measuring multi-dimensional poverty and gender inequality, indicates progress in both social and economic welfare.

This leads to whether promoting equality should be pursued through broad welfare and public policy policies. Then, the answer would be if the growth is not reinforcing equality. It needs to be promoted through both channels, “the general policies in welfare and public policy”, and particularly as understood in the literature and practice through health and education, and according to the International Monetary Fund Organization, “spending on health and education, has offered the better opportunities for reducing income inequality over the long term.” (Economic Issues No. 16 – Should equity be a goal of economic policy? 1999b).

Welfare and public policy: Education and health

Now, for both education and health, taxes are one of the main financial resources out there for those two development engines. And also, taxation itself is one of the tools for income redistribution. It also helps reduce inequality, which means that laws and legislations are always considered to guarantee that those of the least fortunate benefit from the taxation system to maintain that balance.

However, no rule or policy regarding particular necessities such as rice, housing/rent, water, and electricity can be applied across the board. Yet, when attention is paid to the healthcare sector in particular, there is some evidence that worse health outcomes are linked to higher relative prices for healthcare, which tends to drive up health spending.

Welfare and wellbeing

According to the Australian Institute of Health and Welfare, “A person’s wellbeing can be bolstered by the help they receive in times of need” (Understanding welfare and wellbeing, Australian Institute of Health and Welfare, 2021); for example, unemployment support, disability services, aged care services, child protection services and benefits, social housing, etc., and this means that spending is linked to the types of benefits attached to health by nature, like housing, not the spending itself.

To encapsulate it, social benefits and services directly affect human health, which is having the financial resources mostly from taxes, which in turn requires balanced legislation to guarantee those of lower incomes receive the benefits to reduce inequality.

In this way, by protecting both health and education, the sustainable solution for reducing inequality and better Human Development Index measurements are achieved, which explains welfare economics and its relation to social welfare.

References

1. Economic Issues No. 16 – Should equity be a goal of economic policy? (1999a). Available at: https://www.imf.org/external/pubs/ft/issues/issues16/
2. Understanding welfare and wellbeing – Australian Institute of Health and Welfare (2021). Available at: https://www.aihw.gov.au/reports/australias- welfare/understanding-welfare-and-wellbeing
3. Waglé, U.R. and Koirala, B. (2014) ‘Welfare economics’, Encyclopedia of Quality of Life and Well-Being Research, pp. 7029–7032. https://doi.org/10.1007/978-94-007-0753-5_3209.