The Third Pillar
Page 18
The city was divided into districts and further into quarters. A guardian of the poor was appointed for each quarter, and was expected to reside in it. People petitioned for assistance to their quarter’s guardian, who then took the case up to a district-level meeting of all guardians. Guardians could approve emergency assistance individually, but only to tide the petitioner over till the next district meeting.
The purpose of assistance was to get the poor back into work, hence applicants had to satisfy guardians that they were looking for work. However, assistance could be given for a variety of reasons, such as old age, illness, or large numbers of children, rather than just joblessness. Moreover, relief was provided as a top-up, after other sources of support, such as personal assets or family, had been exhausted. What made the system different from more modern government welfare departments was the enthusiastic and voluntary involvement of the community. The city’s industrialists and bankers occupied the highest policymaking positions in the system, while merchants, master craftsmen, and middle-class homeowners were recruited to be district guardians. Decisions were decentralized to the district-level guardians’ meeting, which ensured local responsibility and accountability.
To serve as a guardian was part honor, part obligation. In theory, those who refused to serve could be penalized with higher taxes, but since the effort the role required was demanding, the authorities looked for enthusiastic volunteers rather than reluctant draftees. Each guardian’s caseload was kept low, which gave them time to engage intensively.35 The guardian made periodic visits to the homes of relief recipients, trying to verify their true conditions even while giving them advice and opening doors to emerging opportunities. All this was supposed to be done by the guardian with “energetic love and the spirit of personal sacrifice.”
To the modern-day reader, the guardian’s role might seem paternalistic and intrusive—indeed, guardians were impolitely referred to as Pottkieker, or cooking-pot snoopers. There was a fundamental contradiction to these visitations—which were emulated by voluntary charitable organizations in the United States in the late nineteenth century and many welfare systems today—the ultimate aim was to render the recipient independent of the system, but the path there demanded unconditional obedience to the guardian and her suggestions. Nevertheless, the guardian was from the local community and brought community knowledge and social networks to bear in trying to improve the lot of the poor. Moreover, because the task was done with enthusiasm by volunteers, who were unlike the jaded overloaded professional caseworkers of most social welfare systems today, it was both inexpensive and had a greater chance of success. Indeed, in the decade following the implementation of the system, the share of the city’s population receiving public assistance fell to approximately 2 percent, and because the poor were thought to be adequately taken care of, almsgiving and begging reportedly disappeared.36 No wonder the Elberfeld system was adopted by 170 of the 200 or so major cities in Germany.37
As goods markets and the market for labor grew to span many communities within a country, such community-based solutions came under pressure. One problem had to do with those who moved from one community to another in search of work. Internal migration picked up as nation-states emerged and security improved, and as opportunities sprang up in distant parts of the country. Who was responsible for supporting the destitute migrant—the migrant-receiving community or the migrant-sending community? Even today, the European Union struggles with this question.
A second problem was that the size of economic shocks transmitted through manufacturing and finance across the increasingly integrated world economy continued to increase. Such large shocks could overwhelm entire groups of communities, leaving few in a position to hold out a helping hand to the fallen.
THE STATE AS BACKSTOP TO THE COMMUNITY IN RELIEF EFFORTS
The resolution to both these problems was to involve the state. For internal migrants, the state could set rules that would specify who would pay support, and who would fund any gaps. When it came to dealing with prolonged and widespread economic downturns, the state had an advantage over communities in that it had deeper pockets; it could spread the costs of support across all communities in the land, and even to future generations of citizens via public borrowing. Moreover, in times of widespread unemployment, there was little need to distinguish between the truly needy and the habitual malingerer, since the vast majority of those requesting assistance were obviously the former. The community’s local knowledge, at least at such times, was not required to channel assistance.
As with schools, once the state answered the call for help, it tended to nationalize the process and take it over entirely. This was not entirely without reason. As soon as the state became a backstop to communities, it had to worry that communities might neglect any preparation of their own, and rely much more frequently on the state. Much as a prudent government helps people hit by devastating floods fix their houses, but then requires them to sign up and pay for government-provided flood insurance so that they bear some cost of staying in flood-prone areas, the state felt that once it had intervened, it had to formalize the system and make it explicit. Across developed countries, the state implemented a variety of social support programs starting in the last quarter of the nineteenth century, often with public contributions.
The first industrializing country to adopt state-sponsored social insurance was imperial Germany under its chancellor, Otto Von Bismarck. Early in its industrialization, Germany already had a number of worker insurance plans run by municipalities. The global depression that started in 1873 overwhelmed municipalities with the number who needed help. Beggars and tramps (essentially the unemployed) flooded the streets of every city.
Bismarck had an important political aim—to neutralize the growing allure of socialist parties that appealed to disgruntled workers and that wanted to start a revolution from below. He sought to undercut the socialists by offering workers a “gift” from the imperial government, a revolution from above, even while banning socialist political activity in 1878. He wanted workers to see the imperial government as their best chance for improved welfare. Unfortunately for Bismarck, the German Reichstag refused to raise the taxes that his proposals would entail, so he had to give up the idea of fully funded government programs.38
Instead, Germany passed three sets of laws in the 1880s, essentially making membership in insurance pools compulsory for specified worker groups, and adding employer taxes to the pool. The three risks insured were sickness, industrial accidents, and disability and old-age pensions for those who survived beyond seventy.39
The British Liberal government between 1906 and 1911 took the next big leap in state involvement with the passage of a number of important bills including old-age pensions (1908), the Labor Exchanges Act (1909), the Trade Boards Act (1909), which set minimum wages in a number of industries, and the Development and Road Improvement Funds Act (1909), which opened the way for public road works in times of mass unemployment. These efforts culminated with the enactment of unemployment and health insurance in 1911. The German and British reforms were indeed major steps in the creation of reliable nationwide safety nets that would buffer workers against market volatility, but they did diminish the role of the community once again.
SAFETY NETS IN THE UNITED STATES BEFORE THE GREAT DEPRESSION
As we saw earlier, the United States had systems of local poor relief, with the shadow of the poorhouse intended to keep the able-bodied from shirking. In the late nineteenth century, these were supplemented by a variety of private charitable organizations, voluntary workingmen’s insurance plans, “friendly” societies, as well as insurance companies. This safety net proved grossly inadequate when the Depression of 1893 hit the United States hard, with nationwide unemployment estimated at between 17 to 19 percent. Cities were especially badly hit—New York experienced unemployment of around 35 percent.40 With traditional modes of relief overwhelmed, municipalities tur
ned to public works.
Despite the enormous financial burden on municipalities at this time, the United States did not put in place a nationwide social safety net for its citizens. Even as the world entered depression again in 1929, the United States was the only major developed country without a system of government-supported social security. Compulsory insurance plans as in Britain or Germany were deemed “un-American,” and there was little appetite for taxpayer funding. Part of the reason may have been traditional American resistance to the state’s expansion, though too much can be made of this. Union Army veterans and their families got access to medical facilities from the Civil War onward. Disability pensions that had been given to wounded Union soldiers were extended to virtually every Union veteran in the 1890s, and became an important source of old-age support.41 The Progressives also managed to push workmen accident compensation plans through a number of states in the 1910s, paid for by employers, with state-level or private insurance plans available to small employers who feared being bankrupted by accident claims. It is therefore hard to attribute American resistance to the notion that government safety nets were “un-American.”
One reason for American reluctance to follow the Europeans was probably the sense that national programs in a large country like the United States would probably be unwieldy and unresponsive to local conditions. In addition, a wide variety of private organizations were engaged in providing health or insurance services, and were opposed to widespread government involvement, which might undercut their business.42
Perhaps the most important impediment, however, was the diversity of the American population, especially in cities. In 1910, approximately ten million foreign-born immigrants and twelve million of their locally born children lived in American cities. In most large cities, the children of immigrants outnumbered the children of the native-born. Furthermore, blacks had been migrating away from farms, first into the Southern cities, and then into the Northern cities.43 Unlike Europe, therefore, the United States, especially in the hard-hit cities in the 1890s, was not an ethnically homogenous population. Empathy, the psychological basis of the safety net, was much harder to generate under these circumstances, and it was far easier for native-born whites to believe that immigrants or minorities were unlikely to have a strong work ethic, and would likely become welfare cheats.
THE GREAT DEPRESSION AND THE SOCIAL SECURITY ACT OF 1935
Then came the Great Depression. At its deepest, the Great Depression was worse than the Depression of 1893. It was also longer-lasting. Right from his acceptance speech at the Democratic Convention in 1932, Franklin Roosevelt laid the grounds for his New Deal program, stating:44
“What do the people of America want more than anything else? To my mind, they want two things: work, with all the moral and spiritual values that go with it; and with work, a reasonable measure of security—security for themselves and for their wives and children . . . I say that while primary responsibility for relief rests with localities now, as ever, yet the Federal Government has always had and still has a continuing responsibility for the broader public welfare. It will soon fulfill that responsibility . . . Throughout the Nation, men and women . . . look to us . . . for more equitable opportunity to share in the distribution of national wealth . . . I pledge you, I pledge myself, to a New Deal for the American people.”
The New Deal had three main objectives—relief (of the destitute unemployed and poor), recovery (of the economy from the Depression), and reform (so that these conditions were not repeated). The administration tried to accomplish these goals through a variety of programs and legislative efforts—at some level, it appeared that the government was willing to try anything, for nothing seemed to be working. Indeed, it was only with the ramping up of production for war in 1939 and 1940 that the United States really exited the Depression. Nevertheless, government action had some effects. Enormous public works, such as the construction of the Lincoln Tunnel and what came to be known as LaGuardia Airport, gave relief through paid employment and helped prevent an even greater collapse in activity. Financial sector reforms such as the Banking Act and the Securities Act, both enacted in 1933, brought stability to financial markets.
Perhaps the centerpiece reform was the Social Security Act of 1935. It established a system of contributory retirement pensions called Social Security, created state-level unemployment insurance plans, and established welfare benefits through the states for poor children in families without a father and for the indigent elderly.
What prompted Roosevelt to propose the program, and what led to its passing? It is important to recognize that the Social Security Act was not part of the initial flurry of plans to facilitate relief or recovery, but was, as is evident from Roosevelt’s speech at the Democratic Convention, part of his longer-term reform agenda. Roosevelt was well aware of the historical role of communities in providing support, but believed that these were no longer up to the task. In a message to Congress on June 8, 1934, laying the grounds for social security, he recognized that “security was attained in the earlier days through the interdependence of members of families upon each other and of the families within a small community upon each other. The complexities of great communities and of organized industry make less real these simple means of security. Therefore, we are compelled to employ the active interest of the Nation as a whole through government in order to encourage a greater security for each individual who composes it.”45
As to which level of government would be involved, Roosevelt was clear that “social insurance should be national in scope,” although the states should “meet at least a large portion of the cost of management, leaving to the Federal Government the responsibility of investing, maintaining and safeguarding the funds constituting the necessary insurance reserves.”
Roosevelt’s insistence that social security be funded through individual payments and payroll taxes—essentially new taxes in the midst of a depression, which could further depress activity—suggested he did not want the pension or unemployment insurance to be a gift from the state but a property right. As he said later, “We put those payroll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program.”46
Roosevelt, therefore, was determined. Why did the political establishment go along then, but not earlier in the 1890s? For one, the latent populism in the United States was being kindled to life again by the terrible economic conditions in the 1930s. The charismatic and somewhat authoritarian Governor Huey Long of Louisiana, who inveighed against privilege, wealth, and Wall Street while extolling the virtues of the forgotten common man, unveiled his “Share Our Wealth Society” plan in 1934. This proposed to confiscate large fortunes, raise income taxes significantly on the rich, and pay the collected sums as a lump sum to every American family, giving each $5,000, enough to buy a home, a car, and a radio (all the better to hear his very popular broadcasts with). In addition, each family would have a guaranteed minimum annual income of $2,500. The math was suspect—the plan was simply infeasible because of the enormous spending that it entailed and could not be financed even with the radical measures he proposed—but the politics were just right.
Roosevelt and the Democrats feared that Long would get enough votes if he stood for election in 1936 to spoil Roosevelt’s chances and throw the election to the Republicans.47 America’s deep sense of democratic egalitarianism, expressed through populism, once again was clashing with its fundamental desire to reward success. Roosevelt understood that he occupied the middle ground, between the apparent insouciance of the previous Republican administration and the radicalism of the emerging alternatives. In pushing social security, he exploited fears of what might happen if Congress did not act to appease the radicals.
Moreover, some of the earlier institutional opponents of social security, such as the insur
ance companies, were also recipients of government aid during the Depression in the 1930s. It was hard for them to call social security “un-American” as they had in the past, when they themselves were feeding at the government trough. By contrast, universal health care did not become part of the social security safety net, in part because of the continued opposition of doctors in the American Medical Association. Doctors, unlike insurance companies, were not dependent on a government bailout.48
Perhaps most important, though, population diversity and fears of the undeserving poor, which were significant issues in the Populist and Progressive era, were less of an issue with the Social Security Act. For one, the draconian Immigration Act of 1924, building on a previous act passed in 1917, had limited immigration significantly, and then too, primarily to Western Europeans. It banned Asian immigration entirely. A decade after its passage and enforcement, the native-born public’s earlier concern that safety net benefits would go to “undeserving” immigrants was therefore more muted.
As for African Americans, the single largest domestic nonwhite group, the Social Security Act specifically left out agricultural and domestic workers, thus ensuring two-thirds of employed blacks had no part in unemployment or old-age insurance. Moreover, the operation of the schemes, and the design of some, were left to the states, with the full knowledge that Southern states wanted the freedom to discriminate.49 Indeed, in a recent study of welfare payments by states in the United States, Harvard economists Alberto Alesina and Edward Glaeser conclude that “states with a larger number of blacks are much less generous [with welfare payments] than states with fewer African-Americans.”50