For All These Rights: Business, Labor, and the Shaping of America's Public-Private Welfare Stateby Jennifer Klein, Gary Gerstle (Editor), William Chafe (Editor)
The New Deal placed security at the center of American political and economic life by establishing an explicit partnership between the state, economy, and citizens. In America, unlike anywhere else in the world, most people depend overwhelmingly on private health insurance and employee benefits. The astounding rise of this phenomenon from before World War II,
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The New Deal placed security at the center of American political and economic life by establishing an explicit partnership between the state, economy, and citizens. In America, unlike anywhere else in the world, most people depend overwhelmingly on private health insurance and employee benefits. The astounding rise of this phenomenon from before World War II, however, has been largely overlooked. In this powerful history of the American reliance on employment-based benefits, Jennifer Klein examines the interwoven politics of social provision and labor relations from the 1910s to the 1960s. Through a narrative that connects the commercial life insurance industry, the politics of Social Security, organized labor's quest for economic security, and the evolution of modern health insurance, she shows how the firm-centered welfare system emerged. Moreover, the imperatives of industrial relations, Klein argues, shaped public and private social security.
Looking closely at unions and communities, Klein uncovers the wide range of alternative, community-based health plans that had begun to germinate in the 1930s and 1940s but that eventually succumbed to commercial health insurance and pensions. She also illuminates the contests to define "security"job security, health security, and old age securityfollowing World War II.
For All These Rights traces the fate of the New Deal emphasis on social entitlement as the private sector competed with and emulated Roosevelt's Social Security program. Through the story of struggles over health security and old age security, social rights and the welfare state, it traces the fate of New Deal liberalismas a set of ideas about the state, security, and labor rightsin the 1950s, the 1960s, and beyond.
Winner of the 2004 Ellis W. Hawley Prize, Organization of American Historians
"[T]his book provides a fresh and compelling interpretation of some of the critical junctures in the development of old-age pensions and health insurance. This carefully argued and documented book is also invaluable for anyone wrestling with the question of 'what next?' for social security and health-care reform in the United States."Marie Gottschalk, International Review of Social History
"What makes this splendid book so enlightening is Klein's ability to see multiple actors in motion and to grasp how several complex dynamics intersected in the crucial years between 1920 and 1950. Policy makers, political actors, union leaders, rank-and-file workers, associations, employers, insurers: all played a key role in the pathdetermining decisions taken in these crucial years. Klein handles all of these actors with a sure hand. . . . By brilliantly illuminating the historical roots of today's growing crisis, she makes an enormous contribution."Joseph A. McCartin,American Historical Review
"[Klein] pull[s] no punches. By bringing political economy back in, [she] offer[s] the most complex and satisfying explanation to date of America's exceptional trajectory toward the public-private welfare state. . . . [This book] will have a lasting impact on the way policy scholars see the public-private welfare state."Beatrix Hoffman, Journal of Policy History
"For scholars of the welfare state, this book provides a fresh and compelling interpretation of some of the critical junctures in the development of old-age pensions and health insurance. This carefully argued and documented book is also invaluable for anyone wrestling with the question of 'what next' for social security and health-care reform in the United States."Marie Gottschalk, International Review of Social History
Joseph A. McCartin
- Princeton University Press
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- Politics and Society in Twentieth-Century America Series
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For All These RightsBusiness, Labor, and the Shaping of America's Public-Private Welfare State
By Jennifer Klein
Princeton University PressPrinceton University Press
All right reserved.
IntroductionEARLY in the twenty-first century some of America's best-known corporations went bankrupt or teetered close to the edge of economic viability. Among them were Bethlehem Steel, National Steel, Polaroid, Enron, Lucent Technologies, and WorldCom. As their financial solvency disintegrated, so too did the promise of social welfare support and long-term economic security these firms had offered workers and their families.
Old-line steel companies, once the keystone of twentieth-century American capitalism, now claimed they could no longer survive under the weight of company health insurance and pension benefits. For Bethlehem Steel, for example, with 75,000 retirees on its pension rolls-more than five times the number of current employees-the unfunded retirement liability of the company stood at $2 billion, and unfunded health care costs at another $3 billion. The LTV Corporation simply liquidated itself, leaving 70,000 employees and retirees without the health care and pension benefits the company had proffered workers.
Some companies had failed to put sufficient funds in reserve to pay for future retiree benefits, yet the bill still came due. Other companies like Enron and Polaroid had used company stockto meet their retirement pledges-after all, there was always plenty of paper. Unfortunately, once their stock nosedived into worthlessness, paper was all the employees had left. The Houston-based energy company Enron Corporation had once been touted as the flagship of the "new economy," but in the fall of 2001 Enron's stock bubble burst, precipitating the nation's largest corporate bankruptcy. Just as the stock plunged, the company instituted a lockdown on employee 401(k) plans, blocking employees from shifting their retirement savings out of Enron stock. Thousands of employees were left with empty retirement nests. Kathleen Salerno, an Enron employee for seven years, found that her "personal [retirement] account amounted to $46. Another friend with almost twenty years service had $102 ... Now friends and co-workers have lost everything." Not only will former Enron workers receive no future supplemental retirement income from their years at Enron but many had to postpone immediate medical care for themselves and their family members. One laid-off worker cancelled his cancer surgery. Another stopped the therapy service for his three-year-old autistic son. Workers severed from the bankrupt Polaroid Corporation and the floundering Lucent Technologies told of similar personal tragedies. It was clear that even in the newest, most dynamic sectors of the economy company welfare schemes could not provide security against the risks of sickness, old age, and unemployment. Indeed, the very attachment of benefits to firms heightened their insecurity.
The Big Steel companies were unionized, so their welfare pledges could not be so easily dissolved. The health and pension benefits were embodied in legally binding contracts, some of them a half-century old. The steel industry called these obligations "legacy costs," but the question is, what is the exact nature of that "legacy"? Is it the legacy of "overly generous" union contracts, as financial analysts suggested, or is it the legacy of a persistent corporate political strategy? Since the late nineteenth century, American employers have relied on a program of welfare capitalism to deflect incursions into the workplace from the regulatory state or organized workers. Welfare capitalism encompasses social welfare benefits and health, safety, or leisure programs offered through the workplace, programs established and directed by the employer. In periods of labor upheaval and social reform American firms have relied on workplace social welfare as a private, managerial response to political pressure from the state and workers, especially when workers sought to use the state to improve working conditions and guarantee economic security. Ironically, the steel industry's burdensome health and pension obligations arose as a cost of their deliberate corporate strategy, designed to tip the balance of state power away from workers and toward business. The employee benefits programs that came to full fruition in the 1950s and 1960s represent a political settlement forged amidst the social upheaval of the New Deal and the growth of union power. These "fringe benefits" emerged from a political battle that American business leaders believed they had won since corporate executives had managed to thwart a more expansive welfare state, industrywide collective bargaining, workers' ability to turn to other sources for needs unmet by work and wages, and union control of firm-based insurance. Out of this conflict emerged a public-private welfare regime that relied heavily on private sources and permitted the distortions and inadequacies that have become so manifest in recent years. Any narrative of the American welfare state, therefore, must be told within the context of the century-long story of welfare capitalism.
The United States has a mixed welfare system in which social provision is dispensed through public and private institutions. Designated groups within the population-veterans, the elderly, the long-term disabled, the medically indigent, and poor children-receive benefits through the public sector. Most of the able-bodied working population, however, depend on private sources, primarily business firms, to assist them in meeting the costs of sickness, hospitalization, vacations, and old age. More than two-thirds of the American population under age 65 depend on employer-sponsored health plans; job-based health insurance has remained the primary door to health coverage for nonelderly Americans. In 2000, employers spent $874 billion on employee benefits, including $186 billion on employee retirement programs and $300 billion on health insurance. Despite the overwhelming dependence of a majority of the population on employer-provided benefits, the development of this private system has been largely neglected. This book uncovers the historical emergence of a system of voluntary insurance and pensions based in employment and investigates its interaction with and effects on the public social insurance system. In addition, I show how strategic decisions about insurance benefits and income support were embedded within contests to define the ideological meaning of security-job security, health security, economic security-as this concern gained legitimacy in the wake of the New Deal.
By analyzing the historical development of private-sector insurance and corporate social welfare programs, this book offers a study of the closely linked politics of social provision and industrial relations. Although the New Deal was a watershed in American political culture and political economy, employer-provided welfare also represents a strand of continuity from the pre-New Deal period. Hence, this book spans the 1910s through the 1950s, reconnecting the threads of American labor relations with the struggle over economic security. Rather than viewing the 1930s as a definitive break, a chasm separating welfare capitalism from the welfare state and from collective bargaining, I emphasize continuity in the provision of social benefits from the 1920s into the post-New Deal period. Beginning with the origins of specific private social welfare plans within the welfare capitalist and scientific management movements of the 1910s and 1920s, I trace the development of group insurance through the Depression and the New Deal to the post-World War II period. Gauging business responses to industrial relations imperatives, both on the shop floor and in the wider polity, and to political developments in social policy, I show how these pressures affected the specific nature of the company social welfare plans themselves. In turn, I uncover the ways in which American labor relations and labor policy affected social policy.
The politics of the New Deal put security at the center of American political and economic life. The enactment of federal mortgage assistance, bank deposit insurance, minimum wages, Social Security, and laws bolstering labor's right to organize created social and economic entitlements that legitimized the modern state. Though initially excluding many women, Latinos, and African Americans, the entitlement to security was capable of being expanded upon, and indeed would be, as various groups of Americans mobilized to demand inclusion and full citizenship rights. Yet the New Deal did not simply create the welfare state; it launched a new economy of welfare in which the ideology of security proved a powerful construct. The New Deal's politics of security set in motion a rapid expansion of the insurance, health care, and income maintenance options offered by nonstate institutions. Insurance companies, seeking to preserve a commercial market in group insurance, aggressively marketed new lines, such as group retirement annuities, hospitalization insurance, and disability benefits, both to supplement and to compete with the incipient welfare state. This book traces the fate of the New Deal emphasis on social entitlement as the private sector competed with and emulated the values of the New Deal.
Life insurance companies would have to compete with a whole range of players who were stimulated by the politics of security. Labor unions, consumer cooperatives, hospitals, and new nonprofit agencies and alliances had begun experimenting with programs that would meet the demand for income support beyond the wage relation. Mobilized citizens and social movements had played a critical role in pushing security to the center of American politics in the 1930s. New Deal legislation, in turn, stimulated further citizen engagement, as workers and community residents took action to make these policies a living reality in their communities. After the passage of the National Labor Relations Act in 1935, incipient unions had to fight for recognition and power. With government housing funds available, labor groups organized to win federal funding for working-class housing. And with the passage of Social Security, unions and community groups sought to organize local residents, both to demand expansions of government income support and to build institutions that could provide social services. These activists and community members hoped to construct non-profit organizations distinct from both employer welfare plans and commercial insurance policies. In the 1930s and 1940s, trade unionists, leftists, African Americans, rural residents, women's auxiliaries, and physicians experimented with economic security programs aimed at generating security independent of employers. Even after World War II, organized labor promoted benefit programs that would have involved labor representatives and consumers as planners and would have broken the links between benefits and the individual firm, options they continued to push for well into the 1950s. Organized labor hoped to use the power of the federal government to bolster these efforts, thus firmly connecting citizens to an expansive welfare state.
American corporations fought aggressively to sever the links between the workers and the state. In the post-World War II period company health benefits, disability payments, and pensions were part of a major offensive by employers to regain the ideological high ground in American society. Employers recognized the social and political premium placed on security as vividly as did the Democratic Party, the labor movement, and the architects of federal Social Security. After World War II, the National Association of Manufacturers called on business leaders to enlist in "the competition for leadership in a welfare economy." As one business executive proclaimed in 1949, "Now ... it is high time for business leaders of the United States to get back into the act and enter this competition in a big way for the greatest of all stakes." As the public welfare state expanded together with the union movement, American business firms and commercial insurance companies became partners in creating and expanding nonstate alternatives to public social insurance. Using the public Social Security program as a foundation, large firms came to offer supplemental pensions, disability wages, and unemployment benefits. Employers also provided paid sick leave, hospital insurance, medical insurance, and, less often, retiree health benefits. At the apogee of this system, in the late 1970s, private pensions covered 49 percent of the private wage and salary workforce (40 million people), while private hospital and surgical coverage reached more than 80 percent of Americans. When it comes to the United States' unique mix of private and public social welfare, business and government cannot be thought of as inversely proportional levers. Private welfare schemes have developed, expanded, and contracted in tandem with public ones.
The terms public and private are not mutually exclusive. Private economic arrangements are always sustained by an element of state support. Private nursing homes and hospitals, for example, receive public funding from various sources. Further, because of the economic and political power of big business in the United States, public social legislation could often be turned into public mandates for business-controlled programs. From Progressive Era workmen's compensation laws enacted in the 1910s to managed care companies' contracts with Medicare in the 1990s, public programs have been used to promote the commercial insurance trade. Thus, we have to consider two questions: In what historical moments did public legislation substantively challenge employers' prerogatives over the conditions, compensation, and security of employment? And how did the ensuing political struggles between business, labor, and the state turn this result around, enabling business to use government to facilitate its ability to insulate and control such ostensibly public matters?
The politics of security involved a political struggle between business and labor; commercial insurers and nonprofit, community- or labor-controlled means of social provision; the state; and private capital. What differentiates the period after the New Deal from the previous era is that workers had an opportunity to transform employer gratuities into employee rights. The New Deal did create new working-class entitlements and did democratize the nation's political and economic life. What happened, then, to the social democratic possibilities unleashed by the New Deal, the Congress of Industrial Organizations movement, and World War II? This book uses the story of struggles over health security and old-age security, social rights, and the welfare state to answer this question and thus to trace the fate of New Deal liberalism-as a set of ideas about the state, security, and labor rights-in the 1950s, the 1960s, and beyond.
We will see, for example, how commercial cash-indemnity health and disability insurance emerged dominant over nonmarket alternatives such as union-based health centers, community health cooperatives, and service-based health plans (the original Blue Cross model). Despite a presumptive "labor-management accord" in the postwar years, management often implemented welfare plans without consulting a union or labor representative. Management offered insurance coverages that met the imperatives of industrial relations more than the security needs of American individuals and families. Additionally, the emphasis on medical insurance eclipsed the orientation toward community public health and occupational health that had characterized earlier group health center approaches. These choices in favor of cash-indemnity insurance and private pensions not only affected the balance of power in post-World War II labor-management relations; they also influenced the direction of governmental social policy and the increasing fragmentation of the American welfare state.
Excerpted from For All These Rights by Jennifer Klein Excerpted by permission.
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What People are Saying About This
Dorothy Sue Cobble, Professor of Labor Studies, Rutgers University
Rashi Fein, Ph.D., Professor of the Economics of Medicine, Emeritus, Harvard Medical School
Michael B. Katz, Walter H. Annenberg Professor of History, University of Pennsylvania
Colin Gordon, University of Iowa, author of "Dead on Arrival"
James Morone, author of "Hellfire Nation" and "The Democratic Wish"
Meet the Author
Jennifer Klein is Assistant Professor of History, at Yale University.
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