When the unexpected happens, who are you going to call? One of the important social functions of religion is that it operates as social insurance. For example, someone who cannot afford groceries, rent, or some other staple like their utility payment might contact their local church leader and ask if there is possibility for assistance during this difficult time. At this point, some might be saying, “They shouldn’t have to do this. The government should provide a safety net for these people.”
There is certainly a connection between the social insurance function of the government and churches. For example, Daniel Hungerman (2004) uses the 1996 Welfare Reform Act to document that the church and state are substitutes in the provision of social services. Part of welfare reform was to restrict welfare payments made to immigrants. Therefore, churches in states with a larger share of immigrants should see a greater decline in welfare payments and, if the church and state are substitutes, a larger increase in church spending on social activities. That is exactly what Hungerman finds. For every one dollar reduction, churches increased spending by 20 – 38 cents.
Obviously churches did not fill the void one-to-one. But, to provide security to their members (and the broader community) they may not need to. Social insurance through churches is arguably more effective than government programs with similar aims because there are informational advantages to helping people you know. First, you may have a better sense of what would be helpful to the person. Second, you can monitor that person to better ensure the help is channeled into fruitful directions. Although this is on the topic of foreign aid, William Easterly’s Planners v. Searchers dichotomy in White Man’s Burden (p. 6) is a helpful illustration of this point,
“In foreign aid, Planners announce good intentions but don’t motivate anyone to carry them out; Searchers find things that work and get some reward. Planners raise expectations but take no responsibility for meeting them; Searchers accept responsibility for their actions. Planners determine what to supply; Searchers find out what is in demand. Planners apply global blueprints; Searchers adapt to local conditions. Planners at the Top lack knowledge of the Bottom; Searchers find out what the reality is at the Bottom. Planners never hear whether the Planned got what they needed; Searchers find out if the customer is satisfied.”
Bottom-up solutions in communities take advantage of information that the government does not possess either because it cannot access that information or the cost is too high. In addition to these informational advantages, there is at least some thought that civil society institutions like the church could provide some competition to government provision of similar goods. For example, Richard Cornuelle in Reclaiming the American Dream writes (p. 79),
“[Government] isn’t wasteful because it is manned by wasteful people. C. Northrcote Parkinson’s wry books on bureaucracy don’t indict people; they describe life in any monopoly. Without competition, the bureaucracy can’t make government efficient or even sensibly decide what it needs to do.”
The provision of security through the insurance of the church could be a powerful improvement in the lives of many people. Sadly, the church has declined in these activities. Part of this is due to what economists call “crowding out”. The logic is as follows: When the government provides more food stamps, I reduce private donations to my church food bank. Gruber and Hungerman (2005) estimate that for each dollar spent in the New Deal, donations to faith-based charities fell by 30 cents. Since then churches have served a lesser and more complementary role.
Perhaps a complementary role is the correct role. However, there are losses from the church taking a less prominent role. In a laboratory experiment I conducted with Mark Isaac in the late 2000s we found that when private donations to finance goods for a community are low, individuals turn to taxes to provide those same goods. That is the case even though taxes in our experiment are inefficient. This suggests that if people care deeply about poverty, and the church is not taking a leading role, people will turn to other institutions like the state to solve those problems. Even if a steep price must be paid to use those alternative institutions. Moreover, the process of crowding-out described above suggests the church will play an ever smaller role in this arena going forward.