Making it all make sense: Globalization, Program Financing & Budgeting, and How Services are Delivered
The Global Economy • Everything (policy, economic behavior, poverty, immigration etc) is inter-connected. • Economic activity and control of international organizations contribute to migration and poverty in others. • Industrialized countries purchase raw materials (lumber, minerals, agricultural products from others) and products from others. Workers can be exploited by large corporations and growers. Have few economic opportunities in home country. • U.S. and other industrialized nations need immigrant labor in order to produce products at low costs.
Free Trade • Often trade agreements such as the North American Free Trade Agreement NAFTA permit industrialized countries to operate unregulated (wages and safety) industries in countries such as Mexico. This allows U.S. corporations to make the products they need because they can pay people less in these countries. In addition, there are fewer jobs for U.S. manufacturing and service industry workers because these jobs have been relocated. • U.S. corporations may purchase products made in countries such as China and El Salvador and then look the other way when workers are mistreated. Some political candidates, unions, and other advocacy groups have proposed that NAFTA be amended to provide worker protections in other countries. • Large corporations may flood foreign market with products or agricultural goods that drive prices in those countries down and limit economic opportunities.
Interest Rates • The Federal Reserve bank sets the amount it costs individuals and corporations to borrow money. • When interest rates are low, more people can borrow and corporations are more likely to borrow money to expand their businesses. When some businesses expand, they hire more people. However, businesses can choose to use this money for more technology or to relocate overseas. • When interest rates are higher, people who save rather than spend money are better off. Some economists think that saving is better for the country than spending because it creates a pool of money that the government can borrow to cover deficits. • Rationale for the economic stimulus package is that people will use the money to purchase products and therefore businesses will be able to expand and hire more people. Some economists argue that instead of an economic stimulus package should focus on infrastructure development (such as building roads and bridges). This would contribute to more people being hired for good paying jobs in the U.S. • Mortgage crisis is happening because large lenders such as banks and mortgage brokerage firms sold home mortgages to people who might not have qualified for large loans or offered loans with no down payments in which the interest rates were adjustable. This means that the interest rates were set higher the longer the person had the loan. As house values decreased, many people owed more money than the value of their house.
U.S. Economic Policies: Internal & External Implications • U.S. Government typically runs at a deficit, they don’t take in enough income to cover all yearly expenses. • The Federal government “borrows” funds from the Social Security System and also borrows money at low interest rates from countries such as China and Germany unless there is enough money at low interest rates for them to borrow in the U.S. • The accumulated deficit from year to year is called the debt. The U.S. must repay the debt and pay interest on it. The money comes from the yearly income of the Federal government. Consequently, payment on the deficit takes money away from other social programs. • Because of relationships among U.S. and foreign businesses and debt re-payments, financial instability in the U.S. contributes to financial instability in counties that the U.S. owes money to such as China and some of the European countries. However, some analysts argue that China has contributed to the current problems in the U.S. because the trade deficit with China is so big, that China has been able to invest some of the surplus funds in the U.S. and destabilized some aspects of the financial market place.
Economic Philosophy and Government Regulation of the Economy • Economic Policy is based on a mix of political and economic philosophy and research on the economy. • Some of the guiding principles of a conservative approach to the economy are in the book “Wealth of Nations” written in the 18th century by Adam Smith. Smith’s argument was that under capitalism, “market forces,” the act of selling and buying automatically creates the best economic conditions. Government should not interfere with the market – some very conservative economists believe that interference includes regulation of the financial sector (including banks) and the provision of welfare services. • One alternative approach, Keynesianeconomics, views government efforts to stimulate the economy (through building roads and other types of improvements) as essential for a healthy economy. • Some critics of government policy have argued that government typically will intervene in the economy to assist large corporations rather than middle and low income people. Some types of government programs are believed to offer subsides to businesses even when they have been established to help the poor. For example, in the Central Valley, the availability of welfare and Medi-cal benefits for eligible farmworkers (citizens and legal immigrants) permits ranchers to offer only seasonal employment to farm laborers. The food stamp program and other government food programs also benefit agriculture.
Impact of the Global Economy on Impoverished Nations • U.S. and other western industrialized nations control large funds that provide development assistance to 3rd World Nations – International Monetary Fund and the World Bank. • In order to qualify for loans, the non-industrial countries, must reduce government expenditures. However, many of these nations are so impoverished that what they really need to do is spend money on roads, education, and other improvements that will aid economic development. • The World Bank and IMF policies are beneficial for the U.S. and other industrialized nations.
Immigration Policies • Industrialized countries hire immigrants to work in jobs that require skills or for low wage work. • Therefore the economy is dependent on a supply of labor for this source. • However, industrialized countries differ in terms of policies on legal immigration and access to benefits such as welfare and health care. Legal immigrants (such as skilled workers and refugees) are treated differently that people with few job skills or undocumented immigrants. • Often immigration controls are implemented when people become fearful of people who are different from them. • Recent immigration reform proposals in the U.S. (i.e. mass deportation or enforcement of immigration laws) has failed because employers have a vested interest in maintaining a low wage, unregulated work force.
Basic Principles –Government Budgeting • Programs for the poor (means-tested programs) constitute a small proportion of the federal budget. • Government entitlement programs constitute a large proportion of state budgets because of the “matching” requirements in federal legislation (TANF, Medi-Cal). States also spend a large proportion of their budgets on education and prisons. • President/Governor proposes budget. Legislative branch may change and must approve the budget. President/Governor may veto the budget. Usually detailed negotiations take place. • Fiscal budget year starts October 1 for the federal government and July 1 for the state.
Social policy discussions have increasingly targeted three demographic groups for reductions in service: • Immigrants – tightening immigration requirements – refusing services to undocumented people; limiting services to permanent residents who are not citizens. • Women – requiring work for single mothers on welfare. Limiting benefits to welfare mothers who have more children. Funding programs to promote marriage. • People with disabilities – Supreme Court decisions have limited the ability of people to sue for reasonable accommodation. Some cuts in Federal and state services for children and adults with disabilities have been made or are proposed.
To analyze government budgets • Look at the percentage of funds allocated by program type and for whom these services are intended. • Look at whether allocations for specific expenditures increase or decrease from previous years. • Remember that because inflation affects the value of a dollar’s purchasing power, no increase or a small increase may actually represent a decrease in funds allocated for a specific program. • No tax pledges mean that funding must come from exiting revenue sources, an increase in fees for some services, and cuts in some government programs and services. No spending curbs with tax cuts may increase yearly deficits and the national debt.
Other recent developments in how the Federal and state governments allocate funds include: • Privatization – using nonprofit and for-profit contractors to deliver some services. • Using faith-based organizations to deliver government services. • De-emphasizing the role of professional service providers in the delivery of some services. • Requiring that all government funded organizations use performance based measures in assessing whether private contractors are doing their job. Reimbursement is based on performance– sometimes this leads to the exclusion of people with severe problems from the service system (creaming).
Chambers & Wedel identify three questions that a policy analyst should ask about financing: • Where does the money come from (funding categories; is it distributed equitably). • What is the amount of funding (how much money is spent; is it adequate to meet needs)? • What approaches are used to fund programs? How is the money appropriated/allocated or reimburse? Is the funding mechanism efficient or effective?
Types of Funding for Social Welfare & Services • Private Market Place (selling and buying services) • Private Giving (Individuals, Bequests, Service Clubs, Corporations/Unions, Foundations, Federated/Consolidated Funding [example United Way]. • Benefits paid to workers (health insurance, pension, other fringe benefits) • Social Insurance (Social Security; Medicare, Unemployment Benefits). Sources: tax on employees and employers. • Public/Government funding
Sources of Government Funding • Federal income taxes on individuals and corporations. • State income taxes on individuals and corporations. • Local income taxes in some states. • Real estate taxes (local government; school funding)** • Fees and other revenues
Issues in Financing Benefits • Whether the Social Security and Medicare systems can continue to pay for themselves. • Whether employers will continue to cover the cost of employees’ health insurance. • Whether employers will continue to cover the costs of employees’ pensions – shift to 401k plans – this puts risks on employees. • Equity of reliance on property taxes for local schools.
Service Delivery • Organizations must have decision-making structures. • Designated Executive Director, CEO, or management team. • Most organizations have centralized decision-making structures – decisions made by one or a handful of people. • Administrators are the point of the organization’s contact with external environment. • Consequently, most organizations are hierarchies.
Typical Organization: • Administrators Control Decisions • Limited Staff/client participation in management decisions • Emphasis in social service organizations on professional staff; some organizations, however, may prefer non-professional staff, volunteers, or a mix of all three. • Organizations may be client-centered (responsive; oriented toward client advocacy) or client/consumer controlled.
Decision on organization structure may be determined by: • Funding source • Ideology • Who founded the organization and the organization’s purpose • Nature of the service provided • Auspice (public, nonprofit, for-profit, etc).
Example of policy model that focuses on service delivery (adapted from Gilbert & Specht by Hardina)
Chambers & Wedel Model for Evaluating How Services are Funded: • Fragmented vs. Integrated or Continuous System (does applicant need to obtain services from more than one program or reapply) • Degree of access to services • Degree of program accountability • Procedures that preserve due process (procedural rights) • Degree of citizen participation in service decisions
Chambers & Wedel Criteria for Evaluating Eligibility Rules: • Do the eligibility rules make sense in terms of targeting a specific population group for inclusion in the program. • Is there ideological consistency between how the social problem is defined and the eligibility rule. (For example, emphasis on individual versus social responsibility). • Will social stigma affect utilization? • Coverage – can people receive benefits if they are not members of the target group? • Trade-offs associated with the rule. For example, do we have to spend more to cover everyone or can we accept that some people will be excluded if we keep costs down. • Potential for under and over utilization of services.