As usual, Ted Lowi manages to be provocatively right and provocatively wrong-sometimes in the space of a mere two sentences. It is true, as he states in his penultimate paragraph, that the Social Security system (broadly considered) was a Bismarckian strategy to cushion the insecurities of industrial capitalism in the interest of preserving it. But it is hardly the case, as Lowi claims in the very next sentence, that the welfare state was "a temporary social order, a brief social movement." European welfare states have been remarkably durable for a century, and the American social security system is the New Deal's sturdiest and most successful innovation.
Yet Lowi is surely correct to believe that what he calls the "security approach" to social order is currently at risk. Moreover, because I believe, as he does, that the "insecurity approach" is certain to fail, the fate of the security approach is tied directly to the future of American capitalism.
I would argue that properly understood, contemporary threats to the security approach are related to only two of Lowi's targets: federalism and the ideology of privatization. Those threats have little to do with globalization. Although the latter question is just beginning to be studied seriously, the existing evidence offers no support for the notion that increased global integration will (or must) be associated with the decline in social safety nets. But that is a story for another day.
To get a clearer picture of where the real threats are, consider the "security" problem for American workers as a life cycle phenomenon. In childhood and early adulthood the major threat to security is low wages. One quarter of American children between birth and six years of age live in poverty. They live in poverty because they live in families with poverty-level incomes. The vast majority of these children and their families are not on welfare. They are poor because their wages are low.
In the middle working years, the major risks seem to be risks of illness, disability, involuntary unemployment or the death of the family's principal breadwinner. In nominal terms these risks appear to be well-covered in the American social insurance system. In reality, they are not.
Because of various monetary and non-monetary restrictions on eligibility, only about 40 percent of American workers are eligible for unemployment benefits during any particular spell of unemployment. All forms of disability insurance, public and private (including worker's compensation), combine to offset a scant 25 percent of the income losses due to disability in any particular year. Social Security's form of life insurance-survivor's insurance-is increasingly irrelevant to those families who have lost their principal breadwinner through divorce or abandonment, not by death. Meanwhile, health insurance is tied precisely to success in the marketplace. For most Americans, to lose their job is to lose their health insurance. And, of course, the better your job, the better your health insurance coverage is likely to be.
The American social safety net that was meant to provide security against the standard risks to family income streams is showing a lot of wear and tear. Falling through a hole in this net is not difficult, and understanding the reasons for the safety net's poor state of repair is not so difficult either.
The crucial fact about most Social Security programs for young and middle-aged Americans lies in their structure: they are either state and local programs or tax-benefitted private arrangements. Like all attempts to engage in redistribution at the sub-national level, state programs are plagued by a race-to-the-bottom syndrome. Rather than expanding to meet obvious needs they tend to contract as a part of state and local competition to create attractive "business climates." And it is the very nature of private insurance markets to seek out and destroy "cross subsidies" that result in redistributions from low risk to high risk clienteles.
The simple truth about the American social safety net-other than the safety net for the elderly-is just this: our heavy use of private and state provision virtually assures that those facing the greatest risks will have the worst coverage. Whether this "defective" design is part of a strategy to regulate the labor force through economic pressure is debatable. That thesis fits Lowi's description of state politics as conservative politics, and it also fits the history of many existing programs, such as welfare and unemployment insurance, that were left in state hands to appease southern Democrats in the 1930s. In any event, to the extent that the social safety net is meant to share the gains of American capitalism with its casualties, our current arrangements for children, younger workers, and even workers in their middle years are not very effective.
By contrast, our provision for the elderly through Social Security pensions and Medicare has been quite successful. The major risk in old age is that we will not have had a sufficient income to accumulate savings over a working life-or that we myopically will have failed to do so. And there is also the considerable risk that our medical expenses will be highest just when medical insurance is least affordable. While life on Social Security alone can be pretty sparse, the combination of Social Security and Medicare addresses these risks pretty well. Real coverage is nearly universal. Many pensioners live off nothing more than their Social Security benefits and poverty rates among the elderly (other than the old, old) are below the average for the general population. Notwithstanding its regressive tax structure, the Social Security pension system has worked to eliminate poverty because of a substantially progressive benefit schedule.
Enter ideology stage right. The major threat to Social Security and Medicare is privatization. This is not to say that the "privatization" of old age pensions and medical insurance (through medical savings accounts) would make all seniors worse off. Far from it. But this is not the place to debate the pros and cons of various pension financing arrangements.
The crucial thing to notice about the privatization debate is its ideological dimension. If current governmentally-supplied insurance were replaced by mandated "private" accounts, two state-centered birds would be killed with one stone. First, the largest single expenditure in the federal budget would disappear. Measured purely in fiscal terms, American government would shrink by nearly half.
Second, and more importantly, every American who now looks to the government
for security in old age would be looking to the stock and bond markets instead.
With every person's financial security tied to the success of financial markets,
the major role of government (if it is not that already) would be to sustain
those markets. I do not mean to assert that the government would be capable
of sustaining the financial markets in the face of the inevitable ebb and flow
As a tactic for securing the hegemony of market capitalism over state provision,
the campaign to privatize Social Security and Medicare has no close competitors.
Success in this effort might well cement the victory of the "social insecurity"
strategy that Ted Lowi sees as already dominant. I suspect that it would also
shred the social compact that has made the inequalities and insecurities of
market capitalism socially tolerable over most of the twentieth century.