Readings:The Welfare State That Nobody Knows, by Christopher Howard

W. E. Smith, Editor, The Social Democrat

Any analysis of social democracy will inevitably include a discussion of the welfare state. And indeed, the welfare state, broadly defined as a polity in which the state is committed to insuring, or at least advancing, the welfare of its citizens, is a key component of social democracies. So integral is the welfare state to the social democracy project, in fact, that for many the two terms are practically synonymous. For a meticulously crafted description of the modern American welfare state, one could scarcely do better than College of William and Mary government professor Christopher Howard’s 2007 volume, The Welfare State that Nobody Knows.

Over the course of the last generation there has developed a solid body of research comparing welfare states cross-nationally—and especially across the nations of the Organization for Economic Cooperation and Development, or OECD. The mother of these studies, and a foundational source in social democracy discourse, is Danish sociologist Gospa Esping-Andersen’s volume, The Three Worlds of Welfare Capitalism (1990). Esping-Andersen classified the welfare states of the OECD into three categories: the Nordic model, featuring high cross-class solidarity and generous, universal (given to all, regardless of income) benefits; the Anglo-Saxon model (includes the U.S.), with more means-tested social spending targeted only at the poor, along with a preference for pushing other social expenditures off on the private sector; and the Continental model, with solidarity limited to occupational status and benefits somewhere between the Anglo-Saxon and Nordic models. In this and other typologies, as well as informed discussion of welfare-state models generally, the United States is revealed to be an outlier, a reluctant spender on social welfare programs, with many needs unmet and many citizens  going without the support that more mature social democracies offer.

Professor Howard’s purpose in The Welfare State Nobody Knows is to go beyond received wisdom and classic typologies and look at the United States welfare state in all its strange uniqueness, free of preconceptions. In a treatment informed by a microscopic familiarity with America’s social programs, Howard reveals that the U.S. devotes considerable resources to what can broadly be defined as welfare-state programs. He does not conclude, however, by finding this a cause for celebration. For though he takes issue with classic descriptions of the American welfare state (“little effort, little progress”) his analysis reveals that while much effort has indeed been expended, there has still been “little progress” in important areas.

Howard begins with a thorough comparison, backed by hard data, of the U.S. welfare state with our OECD counterparts. He shows how, when measured by direct social spending (as has traditionally been the case) the U.S. welfare state ranks at the bottom of the 17 OECD nations he uses as his comparison base. (As a portion of GDP, U.S. social spending in 1997 was 15.8%, while it was 33% in the Nordic countries.) But this is where things begin to get complicated. Many countries tax more of their social benefits than does the U.S., and when these taxes are accounted for, U.S. social spending drops only slightly, to 15% of GDP, while the Nordic countries slip to 27%—leaving not as wide a spread. There is also the matter of tax expenditures. The U.S. government promotes many social goals—most especially health insurance, home ownership and pensions—through forgoing tax revenue on moneys spent for these purposes by private individuals and businesses:  these are what is known as tax expenditures. When these amounts are figured in, the spread between the U.S. and Denmark, a social spending leader, closes to 16.4% to 26.7%. So, with this more accurate way of measuring total social spending, the U.S. is not as far outside OECD norms. However, the U.S. is still spending only 75% as much on social welfare as the median for all other OECD countries in Howard’s sample.

But Howard is not finished yet—and here is where the fractured, scattered nature (as well as Howard’s detailed knowledge) of the U.S. social system becomes apparent.  Howard notes how yet other tools used by U.S. policy makers over the year to address social needs complicate the picture further. Minimum wages, for example, which are higher in the U.S. than in many OECD nations, put the onus on employers to support incomes rather than the state: though these laws increase wages, they do not show up as government expenditures on standard comparisons. Howard also discusses legislation such the Americans with Disabilities Act, which forces private enterprises to make workplaces disabled-friendly: European governments, by contrast, typically address disabled access with direct grants to employers for accommodations in their workplaces. Again, in the European system these moneys show up as government expenditures; in the U.S., the government has merely placed a mandate upon private enterprises to make the necessary expenditures to accommodate the differently abled. Another more exotic tool for social policy in the U.S. are loan guarantees, such as FHA-guaranteed mortgages, or guarantees of employee pensions. Here again, government meets a social policy goal without direct, up-front expenditures  from government to citizens. Howard even discusses tort law, where OECD plaintiffs typically receive lower awards than in the U.S., due to settlement caps. Once all of these various forms of government action are tallied up, Howard places U.S. social spending (including “tax expenditures,” loan guarantees and government-mandated private spending) among the top third of his 17-nation survey—rather than at the bottom.

A second pillar of received wisdom about the U.S. welfare state challenged by Howard is the notion of the “two-tiered” welfare state. According to this widely accepted formula, social welfare programs in the U.S. can be divided into two tiers. Those in the top tier enjoy secure, ongoing and comparatively lavish funding, are universal rather than means-tested and are broadly popular. The classic example of such a top-tier social program is Social Security. By comparison, those in the bottom tier, targeted specifically at the poor, are poorly funded, means-tested and unpopular with voters. The classic example for bottom-tier programs is welfare (TANF, formerly AFDC). Observers of America’s welfare state have typically employed this two-tiered model to explain why the U.S. fails to provide greater support to low-income citizens than other OECD countries. Howard, however, takes apart this two-part schema by demonstrating that some “bottom-tier” programs, such as Medicaid and the Earned Income Tax Credit, have in recent years enjoyed steady funding increases and large measures of public support, while certain “upper-tier” programs (upper-tier because they benefit all citizens, rather than just the poor), especially workers compensation and unemployment benefits, can be quite skimpy, depending on the state one lives in.

Lastly, Howard questions the standard history of the development of social democracy in America. According to the traditional story, social democracy—or welfare state development—in America occurred chiefly in two great bursts: during the New Deal and then again in the 1960s under LBJ. While not discounting the importance of the strides made during those two key eras (Social Security, welfare, public housing under FDR; Medicare, Medicaid, Food Stamps under LBJ) Howard fills in the picture with a discussion of social democracy programs that were put in place before the New Deal, between the New Deal and the 1960s, and since the 1960s. In all, he identifies “about fifty major social programs created during the twentieth century.” There is a great deal in Howard’s discussion on the historical development of the American welfare state for the social democracy enthusiast. Did you know, for example, that the home mortgage interest deduction, as well as the deduction for property taxes, were put in place with the passing of the first national income tax in 1913? Or that most states had established workers comp programs as early as 1930? Congress created VA-backed mortgages in 1944, and in 1954 made employer-provided health insurance tax-deductible. Bringing the story forward to the 21st Century, Howard particularly mentions the Earned Income Tax Credit, established in 1975, which is now the “single largest cash transfer to the poor and near poor.” Along with the Pension and Benefit Corporation, which guaranteed private pensions (1974), college loan programs of the 80s, the Americans with Disabilities Act (1990) and the Child Tax Credit (1997), Howard demonstrates that no decade of the 20th Century was without some measure of welfare-state building, broadly defined.

Having freed the American welfare state from its standard caricature, Howard devotes the remainder of his volume to exploring why some social programs enjoy ample and continuing support while others struggle. If a simple two-tier explanation (programs for the broad middle class receive ample and consistent support; those for the poor are stingy and vulnerable to cut-backs) is not supported by the evidence, Howard asks, what explains why some programs thrive and others do not? And if social programs have been established not only in those rare epochs where Democrats controlled both Congress and the presidency (1930s, 1960s) but also in eras of divided government, what key elements made progress possible? Finally, if the U.S. social system is cobbled together from direct grants, expenditures imposed on private enterprise, loan guarantees, tax credits and multiple other strategies, Howard poses the essential question: is the system serving our citizens as well as it should?

The major take-aways from Howard’s study are that (1) the U.S. welfare state is substantially more complicated than you thought, and (2) there has been no single strategy, nor one single motive for the American welfare state’s development. In his discussion of old-age pensions, for example, Howard shows how even employer-provided pensions in the U.S. are quasi-government efforts, given the “intricate network of programs” designed to protect employee benefits. His description of the multi-year effort to pass these pension protections, culminating in the 1974 ERISA legislation, reveals how great a role specific historical circumstances can play in the promulgation of social democracy legislation in the U.S. In the case of ERISA, Senator Jacob Javits, a member of the now extinct species of “liberal” Republicans, was spurred to advocate for reform after American car manufacturer Studebaker’s bankruptcy left nothing to pay the pensions it had promised its employees. A congressional study found that Studebaker was not an isolated case, but that “the vast majority of people who worked in firms that offered pensions never received a penny in benefits [italics mine].” Despite the indignation created by the study’s findings, the road to government protections and guarantees for private pensions was not easy. The Nixon administration, allied with business interests who claimed that the proposed reform’s regulation of business practices would “stifle growth” (sound familiar?), was lukewarm. But here two historical quirks entered the equation. First, Senate rule changes made it harder for Senate Finance Committee Chairman Russell Long, who opposed the reforms, to block the bill emerging from his committee. Second, writes Howard, “the largest increase in benefits in Social Security’s history [made] guaranteeing private pensions more attractive to business.” This was not to be the first time that conservatives would back a social democratic program they didn’t like in order to prevent the expansion of one that they liked even less.

For all of Howard’s deconstruction, at the head of his study, of standard accounts of American exceptionalism, he confirms much of the established wisdom: for example, that social programs are far more likely to emerge when Democrats hold the levers of power; that programs controlled mainly by states generally fare more poorly than those under complete federal control; that programs that chiefly benefit Americans of African ancestry receive less support than those that do not. As to the anomalies of Medicaid and the Earned Income Tax Credit which, though both means-tested and targeted at low-income citizens, have seen consistently increased support in the last decades, Howard finds the explanation in core values at the heart of the (modern) American collective psyche: we support government programs that are perceived to assist either the helpless or those who make an effort to help themselves (Social Security, Medicare, Children’s Health Insurance Program, Medicaid, Earned Income Tax Credit); but support is not nearly as strong for programs designed to assist those who are perceived as able-bodied adults who could be working (welfare).

The story that Howard tells supports social democracy scholar Harold Wilensky’s depiction of the U.S. as a “reluctant welfare state,” with our national myth of self-reliance, our fragmented political system and, in recent years, an increasing partisan gamesmanship which renders consensus more difficult than ever. Nonetheless some impressive social programs have been enacted, even if we still have much to do to build a true social democracy in America. And the evidence Howard presents indicates that substantial majorities of Americans support social programs targeted at those whom they feel deserving of assistance. The goal for we promoters of social democracy is to find ways to frame the debate which play upon both Americans’ generosity, as well as upon their sense that individuals should be willing to make a solid effort to help themselves.

W. E. Smith, June, 2017