Social Rights in the Constitution and Economic Policy

Policy Paper No. 49

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A policy paper that offers an analysis of national priorities as reflected in the constitution or Basic Laws of 68 countries. It also puts forward arguments for and against the inclusion of social rights in a constitution, and concludes that social rights should be included in the constitution, especially the right to education and social security.

Since the founding of the State of Israel there has been considerable public debate concerning the need for a constitution. The Basic Laws passed since 1992 are important milestones in the development of the constitution, but do not include aspects that are customarily included in other constitutions. The “Constitution by Consensus” team established by the Israel Democracy Institute is working to develop a comprehensive proposal for a constitution. This volume provides the infrastructure for considering whether social rights should be included in the constitution, and if so, what should be the desirable level of commitment.

The inclusion of social rights in a constitution is a controversial issue, both in Israel and around the world. For two decades countries with constitutions have debated whether social rights should be afforded constitutional protection or left in the realm of ordinary law. In Israel several proposals have been drafted regarding the inclusion of social rights in a future constitution. The first of these was prepared in 1948 by the Constitution Committee of the Provisional Council of State, and included a broad spectrum of social rights. Most of the subsequent versions were less detailed and committed than the first proposal.

Renewed discussion of the place of social rights in the constitution requires clarification of the grounds in principle and practice; it is also appropriate to draw on the experience of other countries with constitutions. The first chapter of this book reviews the international landscape regarding the inclusion of social rights in the constitution, and presents quantitative indices of constitutional commitment to social rights in 68 countries. The large sample of countries makes it possible to address two questions: first, can groups of countries be characterized according to their constitutional model regarding social rights? Second, to what extentis the constitutional commitment to social rights translated into practice?

A constitution is not the only arrangement by which a system of government can influence social rights. Reinforcing the democratic process by providing due representation for the underprivileged may also serve to protect such rights. While the political power of the underprivileged may prevent excessive inequality in the long term, the opposite also applies. A low level of inequality tends to reduce social tensions, increase political stability, and stimulate economic growth.

It was once assumed that income equality may harm economic growth. The evidence of recent years has shown, however, that in most cases inequality hinders growth. Income equality, growth, and democracy thus go hand in hand. The second chapter of this book analyzes these interrelations as part of the infrastructure for examining whether social rights should be included in the constitution, andwhat the level of commitment should be.

The need for a constitutional commitment to social rights also depends on the level of inequality in society. Those advocating the inclusion of social rights in the constitution see this as part of the protective net of basic human rights, and one of the safeguards against excessive inequality. The need for such a safeguard is greater in a society characterized by profound gaps in wealth and opportunities. The third chapter examines the sources of inequality in Israeli society.

It is also important to ascertain the sources of inequality in Israel in order to adopt a stand regarding the level of constitutional commitment to social rights. Determining a scale for this depends on considerations of principle as well as on the access accorded under current arrangements in the absence of a constitution. The stand taken will depend on whether these arrangements ensure a high level of access to health services but relatively proscribed rights to education, for example.

The final chapter presents the various considerations presented, and concludes with the recommendation that a clear-cut commitment to social rights be included in the constitution of the State of Israel.

The main conclusions of each chapter are as follows:

Chapter A: Social Rights in the Constitution and in Practice - The Main Findings

In this chapter, we construct an index of the constitutional commitment to five social rights in 68 countries: the right to education, health, housing, social insurance, and workers’ rights.

The frequency with which rights are mentioned in a constitution varies. The right to social security, for example, appears in the constitutions of 47 countries, albeit with a relatively low level of commitment. Only 21 countries commit themselves to the right to housing, however.

Is there such a thing as a typical constitution as regards social rights? Two clear groups emerge among the countries examined. The first provides a high level of constitutional commitment to social rights, and this is typical of countries whose constitutional history derives from the tradition of French civil law. The second group, in which social rights are limited, includes countries whose constitutional history is based on the Common law legal tradition. The constitutional commitment to social rights in countries with a socialist past is closer to that of countries whose tradition is that of French civil law, while countries with a German or Scandinavian tradition are closer to the common law pattern.

We also examined whether the constitutional commitment, reflecting a society’s basic preferences, was translated into government policy, accounting for the effect of per capita income, demographic composition, and the strength of democracy. We found that a constitutional commitment to social security does in fact have a positive and significant impact on transfer payments. There is also a positive correlation, though not a statistically significant one, between a constitutional commitment to health and government spending on it. A constitutional commitment to health also has a significant impact on policy performance, as measured by life expectancy or infant mortality. However, a constitutional commitment to the right to education does not influence educational policy, as represented by the extent of participation of relevant age groups in elementary education, and is even negatively correlated with government spending on education.

Chapter B: Equality, Democracy, and Growth - The Main Findings

Democracy, economic equality, and the growth of per capita income are important objectives in western countries. In the past it was assumed that these goals were mutually contradictory, and hence it was considered necessary to distinguish between them. Studies undertaken in the 1990s of the relations between these variables have shown that in many countries they actually reinforce one another, while in others they coexist peacefully.

The resilience of democracy, as reflected in the electoral process and civil liberties, increased as standards of living and levels of education improved. Reducing disparities by providing the underprivileged population with a higher standard of living and better education serves to strengthen democracy.

The stronger the democratic foundation of a society, the greater the role of the underprivileged in the election process. This serves to increase government spending, including that on education. The shift in the allocation of resources helps to reduce inequality in income allocation, both in cash and in kind.

The influence of democracy on economic growth is complex, since this is evinced through several channels that have opposing effects. The more democratic a regime, the lower the level of economic inequality, the greater the extent of political and social stability; and the higher the level of human capital. All these channels increase economic growth. However, democratic countries also display a higher level of government spending, as well as lower incentives to invest in the means of production, thus impacting negatively on growth.

The various effects of the strength of democracy on growth neutralize one another. Whenever democratic rights are limited, however, an increase in democracy serves to accelerate economic growth.

All the studies but one show that reducing income inequality does not hamper economic growth, and in fact stimulates it. The correlation between equality and growth is reflected in three channels: (1) Greater equality enhances political and social stability, thus increasing the motivation to invest in the means of production; (2) Greater equality serves to increase investment in education for the population as a whole; note that investment in the means of production and human capital are the two key factors underlying growth; (3) A lower level of inequality dampens the incentive to adopt a policy aimed at changing income distribution by increasing taxation and expanding transfer payments and other social expenditure. While this fiscal policy may hamper GDP growth, no empirical evidence was found to support this view.

Chapter C: The Sources of Inequality in Israel - The Main Findings

Income inequality in Israel has risen over the past three decades, and Israel is now one of the countries with the widest economic disparities. This development is the result of factors that apply to all sections of Israeli society as well as to elements that are unique to specific populations: Arabs, new immigrants, and the ultra-orthodox.

The inequality ineducation ishigherthan in many other countries, despite the relatively large share of government expenditure on education.

The dire economic plight of the Arab population is one of the main sources of income inequality. This stems partly from discrimination against this population in education and the labor market. Inequality between Jews and non-Jews contributes approximately 16 percent to total income inequality.

The parlous economic condition of the elderly is another key factor behind the high level of income inequality in Israel. Many of the elderly came to Israel at a relatively advanced age, and had no pension rights from their countries of origin.

The government’s declining commitment to full employment, as evinced by the flow of migrant workers in recent years, is another cause of income inequality.

Although the ultra-orthodox do not contribute notably to income inequality in the sample, this segment nonetheless accounts for a higher poverty incidence

The disincentive to work inherent in welfare payments causes part of the population to remain outside the work force, leading to a very low level of income. While income inequality among employed persons is lower than for those who do not participate in the work force, the distinction is limited.

Alongside its high level of income inequality, Israel suffers from inequality in net income. Although this is somewhat greater than in most European countries, it is only slightly above its level thirty years ago.

The level of inequality in net income reflects the government’s intervention via taxes (income tax, health tax, and National Insurance contributions) and the system of welfare payments (particularly National Insurance payments). While the lower level of inequality in net income than in gross income reflects the government’s efforts to reduce this disparity, its contribution is purely technical. To date, no study has been undertaken to examine the government’s contribution incorporating the negative impact of welfare policy on the incentive to work.

Over the past two decades there has been a real increase in transfer payments, making a direct (technical) contribution to reducing inequality.

Alongside the expansion of transfer payments, in the last twenty years there has also been a substantial increase in the share of indirect taxes in total taxation, and a sharp reduction in subsidies. The low-income population bears a heavier burden of indirect taxes, but this has not been directly reflected in calculations of net income inequality.

Government intervention is also evident in education and health services, which influence both current and future income. Central Bureau of Statistics estimates indicate that these services are provided progressively. Given the findings regarding the achievements of the education system, however, further studies are needed in order to examine whether this is in fact the case.

Income inequality has increased in western countries, particularly the United States. Three main factors appear to explain this: skiled-bias tecnological change, globalization, and the decline of the labor unions. These factors are also evident in Israel, in addition to those specified above.

Chapter D: The Inclusion of Social Rights in the Constitution - Pros and Cons

The pros:

  1. Social rights are a precondition for maintaining human dignity. Civil and political rights can only be realized if social rights exist. The right to life is meaningless without a minimum income and access to health services.
  2. Most countries include social rights in the constitution, albeit with a relatively low level of commitment. Our study shows that the right to education is the most common, featuring in the constitutions of 51 countries out of 68. The level of commitment to this right also seems to be the highest. The right to social security appears in the constitutions of 47 countries, though with a relatively low level of commitment. Workers’ rights (29 countries) and the right to housing (21 countries) are the rarest.
  3. protecting social rights in the constitution may provide a safeguard against the excessive growth of inequality in the allocation of income and national wealth, as this inequality embodies social, political and economic dangers. Income inequality in Israel has risen over the past three decades, and Israel now has one of the highest levels of income inequality.
  4. The inclusion of social rights in the constitution may provide a safety net for minorities and augment their sense of security. The inferior economic situation of the Arab population in Israel is partly responsible for the high level of income inequality, and is due in part to discrimination against this population in education and the labor market. Income disparity between Jews and non-Jews accounts for approximately 16 percent of total inequality.

    The greater the level of income inequality, the greater the social upheavals, and hence the graver the threat to the stability of the democratic system. Social unrest may also assume violent forms, at both individual and social levels. At the individual level, economic gaps may generate crime, particularly against property. A milder manifestation of instability occurs when groups organize to secure benefits at the expense of others. Particularly great disparities may lead to demonstrations and even riots. Maintaining social stability in Israel is particularly important given the many schisms within society.
  5. Numerous studies have shown that the greater the level of inequality, the greater is social and political instability, thus impairing economic growth.
  6. Studies show that a more equal society has a faster growth rate, since the investment in education per child is greater.
  7. Alongside the high level of income inequality, the inequality in net income is only slightly higher in Israel than a typical European country. One of the main reasons for the high level of inequality is the disparity in education between different sections of the population. Accordingly, it is important to develop a scale of social rights that prioritizes education. Investment in education is the most effective way of enabling individuals to escape from the cycle of poverty, reducing reliance on government support in generations to come.
  8. The inclusion of social rights in the constitution will create an educational and political tool that limits the tendency of the legislature to harm groups that are too weak to exert direct political power.
  9. Many of the arguments against the inclusion of these rights in the constitution may be neutralized or diminished by restricting judicial review, as well as by enacting legislation that accords the legislature and government extensive discretion alongside binding constraints.
  10. All the comparative studies show that the courts are extremely reluctant to extend judicial protection to issues that require the allocation of substantial resources.
  11. Israel’s constitution should mention social rights, since the Basic Laws passed in 1992 provide constitutional status for property rights and the freedom of vocation, thus creating a clear imbalance regarding the legal status of social rights.

The cons:

  1. While reflecting the preferences of society, the realization of social rights, but must be subject to the limited resources available to the economy and the desired extent of government expenditure. Protecting social rights is important, but may ultimately impair social welfare by harming other values, such as the right to property or the ability of the individual to realize his or her full potential. In certain circumstances, awarding far-reaching social rights is liable to act as a disincentive to work, thus depressing economic growth and preventing a rise in standard of living.
  2. Priorities change from time to time, and this may also require changes in the rights granted by the state. Tying the hands of the policy-makers will make it difficult to adjust policies to meet changing conditions. For example, a commitment to a particular level of pension is liable to prove difficult to maintain if the share of the elderly in the population increases significantly, as has been the case in Europe over the past 50 years. Realizing this right will place an unreasonable burden of taxation on the working population.
  3. To a large extent, the constitution grants the Supreme Court authority in all matters relating to controversial social rights. The legal arena is not the appropriate forum for expressing changes in public preferences or understanding the needs that arise from changing economic circumstances. Ensuring that a decision of this kind is supported by all citizens, and in a democratic system by their elected representatives, will make a response to changing economic circumstances and public preferences possible.
  4. Such civil rights as freedom of speech or religion are absolute and inalienable. Social rights, by contrast, are more quantitative in nature. This is difficult to phrase in the verbal form customary in a constitution, however clearly worded. Civil rights also have a quantitative dimension, but to a much lesser extent. Thus, in order to realize the right to vote, an election budget is required, although its scope is relatively insignificant. Social rights, on the other hand, should find expression in the extent of government expenditure on various services and transfer payments to those in need. Even if the way a particular social right is formulated in the constitution is sharp and binding, its practical application may still vary widely. An examination of the effect of a reference to social rights in the constitution on total government expenditure yielded mixed results. Our study shows that some countries succeeded in formulating their constitutional commitment to social security in a manner that was manifested in practical terms. However, our findings also indicate that a high level of commitment to education, as manifested in the explicit declaration that this will be provided gratis, does not ensure its practical implementation, since it may be expressed via fewer or more study hours, a lower or higher quality of teachers, and a larger or smaller number of students per class.

The first three chapters of this book do not yield a clear conclusion on whether social rights should be included in the constitution, although they argue both for and against the inclusion of social rights in the constitution. The ultimate conclusion must be based on weighting and summarizing these arguments, as well as on value judgments.

The decision for or against the inclusion of social rights in the constitution will be the outcome of the relative weight attributed to each of the various contentions. We believe that the sum total of arguments tends in favor of including social rights in the constitution, first and foremost the right to education and social security, however without judicial review of primary legislation.