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Social Policy and Welfare Reform in the United States — An Introduction

By Axel R. Schäfer

Reforming the welfare state is a prominent topic on the public policy agendas in both the United States and Germany. Critics of European systems of social provision frequently implore us to look to the U. S. for models of change in order to adjust to new global economic challenges. Defenders of European-style social provision argue that the very existence of social safety nets allows people to be flexible and innovative without fear of falling through the cracks. Admonitions about the pitfalls of the ‘Standort Deutschland’ are countered by warnings about ‘amerikanische Verhältnisse.’

However, the social policy debate in the United States is very different from the discussion in Germany. Terms such as “workfare,” “managed competition,” “welfare dependency,” and “devo­­­­­­lution” have no easy equivalent in German. The American welfare state also has many distinctive features that contrast with European systems of social provision. First of all, it is marked by a rigid distinction between public assistance and social insurance. While non-contributory assistance programs for the poor, such as Food Stamps, Aid to Families with Dependent Children (AFDC), Supplemental Security Income (SSI), and Medicaid offer meager support with many restrictions, social insurance, such as Social Security and Medicare, are “respectable” programs that serve a working and middle-class clientele.

Another main feature of the American welfare state is its decentralized nature. While Social Security is administered by the federal government, most assistance programs are controlled by the states, counties, and cities. In the same vein, there are many state-level programs that either go beyond or lag behind federal standards. For example, although President Clinton’s health care initiative failed to implement national health insurance, many states passed legislation establishing public health care funds.

A third important aspect is that the American social system relies greatly on charitable and philanthropic institutions. In the current drive for privatizing social services, both non-profit and for-profit providers vie for government contracts. Some scholars have even argued that the extensive network of private social agencies has spun a social safety net that is comparable to the European welfare states. While this thesis is controversial, many charitable agencies have expanded from single-purpose to multi-purpose operations. They combine, for example, providing shelter with job training, community development with self-help credit unions, and health services with legal support. Moreover, government funding for third-sector social services has increased dramatically since the 1960s.

Although many scholars would not even think of talking about an American welfare state prior to the New Deal in the 1930s, a distinct tradition of governmental social responsibilities had emerged by the late nineteenth century. On the federal level, the Civil War pension program had by 1890 developed into a quasi-universal system, which gobbled up a large percentage of the federal budget and was more generous and less discriminatory than comparable European systems. Nineteenth-century state governments did not confine their activities to the proper sphere envisaged by advocates of laissez faire, either, as railroad subsidies, the building of roads and canals, and inspection and licensing laws indicated. Likewise, city governments controlled by urban party machines offered jobs and a measure of social security to a working-class clientele in exchange for votes and loyalty.

Nonetheless, this legacy did not develop into a full-fledged system of social insurance. One reason was that the social reformers of the Progressive Era, who spearheaded the first concerted effort to expand the social responsibilities of the state, resented the patronage, inefficiency and corruption of nineteenth-century American government. They preferred regulation over redistributionist social insurance programs designed to address the injustices of the market. In turn, protective legislation for women and children, anti-trust policies, workmen’s compensation, railroad regulation and consumer protection became staple elements of early federal social policy. Today, regulatory agencies, such as the Food and Drug Administration, the Equal Employment Opportunities Commission, and the Environmental Protection Agency, are among the most powerful institutions of American government.

Twentieth-century warfare had a tremendous impact on the development of state systems of social security. During World War I, the United States set up numerous agencies to control production, regulate business, standardize products, and fix prices. In addition, war-time government mediated in labor conflicts, experimented with federal housing projects, and expanded federal insurance programs. Yet, federal intervention during the war was premised upon serving limited interest groups, not upon creating a system of broad-based social benefits. The expansion of governmental power during the war failed to create a lasting administrative legacy in the public sector. Nonetheless, war-time policies established a precedent of intervention and legitimized the use of the state as a restrictive police power. In the 1920s, this legacy was apparent in the moral reformism of prohibition and the cultural restrictiveness of immigration control. In addition, post-war government engaged in cooperative ventures with big business under the auspices of Herbert Hoover’s “associative state.”

The tide turned with the Great Depression. Reeling under the impact of a prolonged economic downturn that affected not only the poor, but also large parts of the working and lower-middle classes, federal social policy went significantly beyond strengthening traditional regulatory mechanisms. In the mid-1930s, Franklin D. Roosevelt’s New Deal legislation established Social Security, unemploy-ment insurance, and Aid to Dependent Children (ADC). These became the basic elements of a moderately redistributionist American welfare state designed under the conditions of economic decline.

Again, it was warfare that both redefined and fine-tuned social policy. War production, rather than the New Deal, ended the Depression, and in contrast to most predictions economic growth continued after the war. Although some expected the new fiscal benefits to translate into more money for social programs, post-war policy makers defined the role of government differently. Generous support programs for returning soldiers, reliance on company benefits negotiated by labor unions, and policies to stimulate economic growth became the staple elements of the post-war welfare state.

The most ambitious attempt to establish an American welfare state took place in the 1960s during a time of uninterrupted economic growth. It was President Lyndon B. Johnson’s goal to add the missing links to the American system of social provision. However, the plethora of programs he instigated during the “War on Poverty” left an ambivalent legacy. While Medicaid and Medicare established a rudimentary public health insurance system, and Food Stamps and AFDC laid the foundation for a right to welfare, the hopeful beginnings of the Great Society soon gave way to gloomier realities. The Vietnam war undercut funding for social programs, average Americans resented the rising tax levels, and the programs failed to establish a political coalition between the poor and the middle classes.

In the 1970s, the anti-welfare coalition that eventually forced the reforms of 1996 gradually emerged. Blue-collar workers, hit hard by inflation, social unrest, and deindustrialization, resented rising welfare costs. Christian fundamentalists and economic conservatives attacked moral permissiveness and big government. The result was a complete change in the way welfare was viewed. Rather than seeing welfare benefits as a way of helping those who would otherwise lose their social bearings, public assistance was blamed for sustaining socially destructive and morally reprehensible lifestyles. Many regarded welfare recipients, primarily single mothers, as promiscuous, lazy, and irresponsible. In turn, after the failure of the Nixon administration’s proposal for a guaranteed income, social policy focused on making public assistance dependent on work efforts.

Four main developments have dominated social policy since the 1970s. First, the raucous debate about welfare reform has questioned the underlying premise of decades of public assistance – that women should be able to stay at home with their children. Welfare programs, which were originally designed to enable poor mothers to raise their children at home, now stigmatized women for not being part of the work force.

Second, while assistance programs were being dismantled, the basic social security system in the United States has remained unscathed. In the 1980s, for example, the Reagan administration pushed for severe cuts in federal spending on assistance programs. Social insurance programs, however, which had a better organized lobby and enjoyed popular support, largely escaped retrenchment.

Third, federal waivers have allowed states to experiment with their own social policies, ranging from health insurance to welfare-to-work programs. The most innovative impulses, but also some of the most disparaging results of two decades of welfare reform can be witnessed on the state level.

Fourth, charitable and philanthropic agencies have grown on an unprecedented scale. The Great Society’s dramatic increase in the amount of money funneled into non-profit organizations through grants, tax exemptions, and purchase-of-service arrangements changed the entire structure of non-profit funding. Although the Reagan administration significantly cut federal funding, the precedent set by the Great Society remained a stable element of post-1960s relations between government and the non-profit sector.

This article first appeared in the Winter 1999 / Spring 2000 issue of the ASJ (no. 44).