“Risk” may be a central idea of the early 21st century, just as “globalisation” was the dominant idea of the 1990s. The fact that individuals and families are vulnerable to a wide range of social, economic and other risks — and that collective action is needed to help reduce and manage these risks — has long been an important theme in social-democratic thinking.

In the third part of a serialised paper first published by the Centre for Policy Development, University of Queensland economist John Quiggin writes that an improved understanding of risk can contribute to the development of a modernised social democratic model.

Government as the ultimate risk manager

The past is inevitably viewed through the prism of the present and the imagined future. Just as happened with globalisation a decade ago, it is necessary to reassess the experience of the 19th and 20th centuries in the light of new ways of thinking about the present.

David Moss, When All Else Fails: Government as the Ultimate Risk Manager (2002), surveys two centuries of American history, in which he presents the state as ‘the ultimate risk manager’. Moss distinguishes three phases of public risk management in the United States. Although the United States is atypical in important respects, Moss’ three-phase model provides a useful framework for discussion.

Moss’ first phase, ‘security for business’, encompasses innovations such as limited liability and bankruptcy laws, introduced in the period before 1900. The institutions of bankruptcy and limited liability have been established for so long now that they seem like a natural part of the capitalist order of things. Yet, as Moss shows, before their introduction they were vigorously opposed by defenders of the free market, who saw them as undermining the principle of individual responsibility and promoting what is now called moral hazard.

Moss’ second phase, ‘security for workers,’ was produced by the shift from an economy dominated by agricultural smallholdings to a manufacturing-based economy in which most households depended on wage employment. In this phase, workers received systematic protection from the impact of industrial accidents, through workers’ compensation, and from the risk of unemployment, the natural counterpart of wage employment.

Historically the phase includes Progressive initiatives such as workers’ compensation and the core programs of the New Deal like unemployment insurance and social security. These developments were less extensive in the United States than in most other developed countries. Although European countries developed the welfare state further, it is arguable that Australia, with its ‘wage-earners’ welfare state’ fits Moss’ model even better.

The third phase, ‘security for all’, is still underway and includes such diverse initiatives as consumer protection laws, environmental protection and public disaster relief. These may be seen as responses to the ‘risk society’. Risks of environmental degradation and natural disaster are inherently social in their nature, and the success or failure of a society in responding to these risks is a measure of the capacity and responsiveness of its government. Both the failure of Japanese authorities to respond adequately to the Kobe earthquake and the even more catastrophic failure of the US government in the aftermath of Hurricane Katrina prompted fundamental questioning of the nature of social arrangements and the adequacy of social protection.

Tomorrow: The great risk shift