Welfare and the Social Security Act of 1935 Author(s): Jill S. Quadagno Source: American Sociological Review, Vol. 49, No. 5 (Oct., 1984), pp. 632-647 Published by: American Sociological Association Stable URL: http://www.jstor.org/stable/2095421 Accessed: 16/09/2009 14:54

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http://www.jstor.org CAPITALISM AND THE SOCIAL SECURITY ACT OF 1935*

JILL S. QUADAGNO Universityof Kansas

A central concern of political theorists has been the relationship between the state and the economy, or more specifically, how political power gets translated into economic power. Recent debates have been shaped around critiques of the corporate liberal thesis, which contends that class-conscious capitalists manipulate the polity so that government comes to pursue policies favorable to capitalism. Alternative theories suggest that the state is capable of transcending the demands or interests of any particular social group or class. The Social Security Act of 1935, which represented the beginning of the in the United States, was a conservative measure that tied social insurance benefits to labor force participation and left administration of its public assistance programs to the states. In this paper the Social Security Act is used as a case study to adjudicate between several competing theories of the state. The analysis demonstrates that the state functions as a mediating body, weighing the priorities of various interest groups with unequal access to power, negotiating compromises between class factions, and incorporating working-class demands into legislation on capitalist terms.

A central concern of political theorists has synthesis of politics and economics. For been the relationshipbetween the state and the example, Kolko (1963)has arguedthat the reg- economy, or more specifically, how economic ulatory "reforms" of the , power gets translatedinto political power. Re- traditionallyexplained as a respose to muck- cent debates have been shaped around cri- raker's criticism, were actually desired by tiques of the corporate liberal thesis, which large industryas a way, not only of controlling stresses the strategies of class-conscious , but also of driving smaller com- capitaliststo manipulatethe polity. Alternative petitors out of . As O'Connor theories suggest that the state is capable of (1973:68)explains, "by the turn of the century, transcendingthe demands or interests of any and especially during the New Deal, it was particularsocial group or class. apparentto vanguardleaders that some form of The core agenda of those espousing some rationalizationof the economy was necessary. variantof corporateliberalism has been to ex- And as the twentieth century wore on, the plain how major economic interests manipu- owners of corporate generated the fi- lated the polity in the twentiethcentury, so that nancial ability, learned organizational skills, governmentcame to pursue policies favorable and developed the ideas necessary for their to capitalism (Domhoff, 1979; Kolko, 1963; self-regulationas a class."' O'Connor, 1973; Useem, 1983). According to In recent years corporateliberalism has been this perspective, capitalists rationallypursued attacked on the grounds that it oversimplifies a series of policies designed to allow them the more complex causal processes involved in control of the political process, resulting in a policymaking,that it cannot specify the condi- tions under which interventions by dominant corporate interests will occur, and that it ne- *L)irect all correspondence to: Jill S. Quadagno, glects to confront the fact that these inter- Department of Sociology, University of Kansas, ventions sometimes fail (Block, 1977a:353; Lawrence, KS 66045. Skocpol, 1980:169). Several alternative so- This research was supported by a grant from the lutions to the problem of explaining how the University of Kansas General Research Fund and by state serves the interests of the capitalist class a grant from the Kansas Committee for the have been posed. Block (1977b:10) argues that Humanities, an affiliate of the National Endowment there is a division of labor between those who for the Humanities. I am grateful to Gordon Streib, accumulatecapital and those who manage the Joane Nagel, Norman Yetman, Brian Gratton, state apparatus.While capitalists are generally William Tuttle, Sandra Albrecht, William Julius not what is to Wilson, and Theda Skocpol for helpful comments on conscious of necessary repro- an earlier draft of this manuscript, to David James duce the social order, state managers are and Georgia Walker for participating in extensive forced to concern themselves to a greater de- discussions, and to Jack Hayes for assisting in the gree because their continued power rests on search for archival materials. the maintenance of political and economic

632 American Sociological Review, 1984, Vol. 49 (October:632-647) WELFARE CAPITALISM 633 order. The central constraint upon the struggles" (Skocpol, 1980:200). State decision-makingpower of state managers is structures and party organizations have, ac- that of "business confidence." Individual cording to Skocpol, independenthistories and capitalistsmake investmentdecisions based on are not simply shaped in response to socioeco- such tangiblevariables as the price of laborand nomic changes, dominant class interests or the size of the market, as well as such intangi- class struggles. "States and political parties bles as the political and economic climate. within capitalism have cross-nationally and Business confidence falls during political tur- historically varying structures. These moil and rises when there is a restoration of structurespowerfully shape and limit state in- order (Block, 1977b:16). Since state managers terventions in the economy, and they deter- are dependent upon the investment accumula- mine the ways in which class interests and tion process, they will necessarily use what- conflicts get organized into (or out of) politics ever resources they possess to aid that pro- in a given time and place" (Skocpol, 1980:200). cess. Normally, state managers formulate Whatare these politicalconstraints on policy policies supportive of . formation'?They may include such factors as Duringa crisis such as a depression, however, existing national administrativearrangements, when the decline of business confidence is not governmentalinstitutions, the extent of elec- a potent threat, pressures intensify to grant toral democratization, patterns of political concessions to the working class (Block, partyorganization and competition,and degree 1977b:24-25). of bureaucratization.For example, in com- In Block's (1977b:22)view, class struggle is paring two New Deal measures, the Agricul- the primaryvehicle contributingto the expan- tural AdjustmentAct and The National Indus- sion of the state's role in capitalist society. trial Recovery Act, Skocpol and Finegold Class strugglearises from the desires of work- (1982) contend that the former succeeded ers to protect themselves from the ravagesof a whereas the latterfailed because the AAA was marketeconomy. Workersoperationalize their placed inside an existing federal department concerns throughpressures for reforms. State that had the administrativemeans to imple- managers must then weigh three factors in ment its programs. In contrast, the NRA, granting concessions-the fear of damaging which had no "well-establishedstate adminis- business confidence, the escalation of class tration knowledgeableabout and sympathetic antagonisms that might endanger their own to the needs and aims of the business self- rule, and their recognitionthat their own power regulators," foundered due to the lack of a and resources will grow if the state's role is strong bureaucracy (Skocpol and Finegold, expanded (Block, 1977b:23-24). When 1982:267). Similarly, the Social Security Act working-classdemands for reforms do get in- took shape as three separate measures- corporated into state policy, they are rarely national old age insurance and federal-state grantedin their originalform. Rather, they are programs for old age assistance and unem- geared to the needs of capital accumulation. ployment insurance-because of previously Block's argumentis useful in specifying the existing and potentially competing state-level mechanismthrough which economic interests programsin the latter two areas (Skocpol and influence state actions without reducing state Ikenberry, 1982:74). policy to the raw machinations of class- Poulantzas (1978:14) also rejects corporate conscious capitalists. He fails, however, to , arguingthat "the state really does provide a complete explanationof the relation- exhibit a peculiar framework that can by no ship between the polity and the economy, be- means be reduced to mere political domina- cause he neglects to analyze the complexities tion." Like Block, he sees policy as the result of the political constraints on state managers. of class contradictions,and like Skocpol et al., Skocpol, in contrast, specifies the political as he views the structureof the state as a central well as economic constraints that affect determinantof the outcome of policy. In his policymaking. terms, however, structureis not defined orga- Using several New Deal measures as a test nizationally or administratively. Rather, case of various theories of the state, Skocpol structureis determinedby class contradictions (1980:199) finds support for Block's basic inscribed within it: "Each state branch or ap- premises but argues that no self-declared paratus and each of their respective sections neo-Marxisttheory takes "state structuresand and levels frequently constitutes the power- partyorganizations seriously enough." Rather, base and favored representativeof a particular these theories oversimplify political analysis fractionof the bloc, or of a conflictualalliance by attributingpolitical outcomes "to the ab- of several fractionsopposed to certain others" stract needs of the capitalist system, or to the (Poulantzas, 1978:132). These fractions may will of the dominant capitalist class or to the include big landowners, nonmonopolycapital, naked political side-effects of working class monopoly capital, and the internationalized 634 AMERICAN SOCIOLOGICALREVIEW bourgeoisie or the domestic bourgeoisie. The of principles. The Old Age Assistance (OAA) contradictionsthat exist between the dominant title of the act involved channeling federal fractionsimbedded in the state make "it neces- funds to the states for old age to sary for the unity of the bloc to be organizedby needy persons over 65, on a fifty-fifty matching the State." The state, then, is not a unified basis up to a maximum contribution of $15 a mechanismfounded on a hierarchicaldistribu- month (Schneider, 1937:82). Each state was tion of centers of power, but rathera mediating allowed to set its own standards for eligibility, body that weighs priorities,filters information and many states incorporated traditional given and, because of its autonomy from any poor-law criteria, such as means tests, familial given class or faction, integrates contradic- responsibility clauses and residency require- tory measures into state policy (Poulantzas, ments (Quadagno, 1984). In comparison, the 1978:132-35). Politics for Poulantzas is in- Old Age Insurance (OAI) title, which became teresting precisely because it involves media- the dominant program, was financed entirely tion between various power blocs to maintain from regressive payroll taxation with no gov- the . ernment contribution, and the original act in- An adequateresponse to the questionof how cluded no benefits for spouses or dependents political power gets translated into economic (amended in 1939 to include dependents' bene- power can be derived by analyzing how state fits). Payments were not to begin until 1942 managersrespond to differentpower blocs, by (amended in 1939 to begin in 1940), and bene- examiningthe existing economic and political fits paid to the first cohort of retirees were even constraintsunique to a particularperiod and to lower than those for recipients of OAA a particularstate action, and by assessing how (Schneider, 1937:79-80). Excluded from par- working-class demands get incorporatedinto ticipation in OAI were all those in farm labor, social policy. The Social Security Act of 1935 domestic service, employees of religious, representedthe beginningof a nationalwelfare charitable and educational organizations and state in the United States. As social legislation the self-employed (Schneider, 1937:82). In all, formulatedduring a major economic crisis to nearly half of the working population was ex- benefit workers throughits provisions for old cluded from coverage. Finally, the unemploy- age pensions and unemploymentinsurance, we ment insurance title also involved payroll con- would expect to find all of the dynamics that tributions and left criteria for eligibility to the various theories have specified-worker agita- states. tion for social reform, a decline in business Although the rhetoric surrounding the pas- confidence by capitalist interests, and in- sage of the Social Security Act described it as creased pressure on state managersto play a radical social insurance providing protection mediating role by restoring business confi- for workers from the cradle to the grave, it dence without increasing class antagonisms. offered little fundamental change in income re- This reformmeasure will be used to test these distribution, and in fact some researchers have various theories of the state. If corporate lib- argued that it redistributes income in the oppo- eralism is confirmed, then we can expect to site direction, from the poor to the rich find majoreconomic interests successfully ma- (Ozawa, 1976:216). Further, its benefit pro- nipulatingthe policy. Block would predictstate visions served several labor market functions. managers responding to business confidence The old age insurance provisions were set up while an organized working class presses for so that benefits would never be higher than social legislation. On the other hand, from minimum-wage levels and thus wouldn't inter- Skocpol' s organizational perspective en- fere with existing wage structures. The con- trenched bureaucratic interests would deter- tributory principle also reinforced the concept mine the success or failure of social security of earned benefits and tied old age security to legislation. Finally, Poulantzas would expect labor force participation. Finally, welfare ben- the state to act as a mediatingbody to preserve efits in the dominant old age insurance program and enhance capitalistinterests, with the com- were ideologically defined in terms of age, not position of the power bloc determining the need. This set the agenda for future policy de- shape of the compromise. bates in which arguments for reform and ex- pansion were structured around intergenera- than class conflict. ACT OF 1935 tional conflict rather THE SOCIAL SECURITY Most of the explanations of the Social Se- The Social Security Act brought the United curity Act can be interpreted as some variant States in line with other developed capitalist on the corporate liberal theme. They include nations by legislatingthe first nationalwelfare the view that the act was initiated as a means of program.Yet it was a complex piece of legisla- containing (Bernstein, 1968:273; tion that included three seemingly disparate Olson, 1982:44), that it was intended to benefit measures, each operatingunder a differentset business by expanding purchasing power WELFARE CAPITALISM 635

(Piven and Cloward, 1971:89; Graebner, dependent aged in and con- 1980:191),that it promised to reduce unem- cluded that pensions would have a number of ployment by removingthe aged from the labor undesirableeffects, includingthe impositionof force (Graebner,1980:184), and that it was the "a heavy tax burden on the industries of the result of the interventionof corporate liberals State" that would "put them at a disadvantage who defined the boundaries of the debate in competitionwith the industriesof neighbor- (Brents, 1983b:84).In this paper I will demon- ing states unburdenedby a system." In strate that the explanationfor the form of the addition, pensions would reduce wages, de- Social Security Act is contained within a stroy family cohesion, and would testify to the theory of the state that takes into account the failure of American economic and social in- role of working-class agitation, the economic stitutions (Report of the Massachusetts Com- limitations generated by the Depression, and mission on Old Age Pensions, Annuities and the political constraintsinherent in the federal Insurance, 1910:322). The commission con- system of government which embedded class cluded that "if any general system of old age interests into the state in a particularway. pensions is to be established in this country, Althoughthese issues would affect any piece this action should be taken by the national of New Deal legislation, it is also necessary to Congress and not through State legislation" recognize that the Social Security Act was a (Report of the Massachusetts Commission on public welfare program, shaped by the Old Age Pensions, Annuities and Insurance, traditional constraints on relief. The now 1910:322).Thus, in 1910when the federal gov- classic explanationof public welfare programs ernmentadministered no nationalwelfare pro- asserts that relief arrangementsregulate labor gram, the possibility of a federal pension was through periodic expansions and contractions not inconceivable to industry, which feared of benefits (Piven and Cloward, 1971:1). Relief unequal competition between industries in programs vary regionally, however, so that differentstates more than federal intervention. local officials can mesh eligibility criteriawith Couched in the ideology of preserving the local labor requirements,while the "less eligi- traditionalfamily, the commission preserved bility" rule keeps welfare grants from becom- the interests of manufacturersby not imposing ing competitive with wages (Piven and Clo- a tax that would reduce their abilityto compete ward, 1971:131).Thus, the relief functions of and by not guaranteeingwelfare benefits that social security must be incorporatedinto any might prove to be a disincentive to labor. theoretical explanationof policy formation. During the 1920s organizations associated The political and economic constraints on with the social insurancemovement argued for public welfare legislation that came into play pensions financed out of state taxes, and be- duringthe Depression were preceded by local tween 1923 and 1929 the majority of states welfare programs, and state pension and un- enacted old age pension legislation. Nearly all employmentprograms, formulated in a context these laws incorporatedpoor-law of increasinglyorganized business opposition into their criteriafor eligibility, and a 1929 re- to any public pension. port by the Department of Labor concluded that the state pension system was "merely an THE DEVELOPMENTOF extension of the principleof poor relief' (U.S. Department of Labor, Bulletin No. 489, STATE WELFARE PROGRAMS 1929:75). In spite of the trend toward enact- At the beginning of the twentieth century ment of pension legislation by the states, as nearly all the programsfor relief were locally late as 1934only 25 states had laws in operation administeredand financed according to pre- (Quadagno, 1984). vailing poor-law customs, which varied sub- Many pension laws were passed in spite of stantiallyfrom state to state, county to county intense lobbying against them by industry, (Quadagno,1984). benefits did which became increasinglyorganized in its op- not exist, and with the exception of a few pen- position. The Pennsylvania Manufacturers' sions for teachers (Graebner,1980:93), pension Association (1927:1), an association of small benefits paid by the federalgovernment to vet- manufacturers,defeated a pension amendment erans, and a few pension programsin private in 1927, a "costly and vicious scheme" that industry(Latimer, 1932), people in need of re- would "make necessary a Manufacturers'Tax, lief were forced to apply to their local poor-law or an Income Tax, or both." authorities.The same criteriafor eligibilitythat In 1930 the House Committee on Labor applied to all workers, includingmeans tests, began consideration of a national noncon- family responsibilityclauses and residency re- tributoryold age pension proposalput forth by quirements, were applied to the aged. Representative William Connery (U.S. Con- In 1970 the Massachusetts Commission on gress, House Committeeon Labor, 1930).Rep- Old Age Pensions assessed the status of the resentatives from the National Association of 636 AMERICAN SOCIOLOGICALREVIEW Manufacturers (NAM)1 and other small- accounts. Since individualemployer tax rates business organizations argued against it, re- varied according to the amount of unemploy- versingtheir opposition to state pensions under ment experienced by a given , the the threat of the intrusion of the federal gov- profit motive of employers would serve to ernmentinto welfare legislation. As one NAM stabilize industry and reduce unemployment representativeasserted, "Now we have Con- (Cates, 1983:23). gress considering the matter of engaging in An alternative approach to unemployment helping the people by a Federal old-age pen- insurance,termed the Ohio approach,rejected sion, while not a State has been here saying it is the concept of prevention as unrealistic, since necessary to have Federal aid care for such the forces that caused unemploymentwere be- problems as may exist" (Testimony of Noel yond the control of individualemployers. The Sargent of the National Association of Manu- focus on prevention, it was argued, diverted facturers, U.S. Congress, House Committee attention from the real purpose of such sys- on Labor, 1930:192). tems: the provisionof adequatesupport for the When there appearedto be too much oppo- unemployed. Supporters of the Ohio school sition to a national program,Senator Clarence advocated pooled employer reserves that Dill proposed a modified plan before the Sen- spread the costs of ate for federal grants to states for one-thirdof among industries instead of passing them to their pension costs if they enacted state-wide, consumers, higher benefit levels, and the compulsorylaws (U.S. Congress, Senate Sub- financing of benefits out of general revenues committee of the Committee on Pensions, (Cates, 1983:23). Hearings on S. 3257, 1931). Both proposals By 1935 a total of 56 unemployment bills broughtfurther heated opposition from manu- were pending before state legislatures. Eight- facturers'associations, whose representatives een were modeled after the Wisconsinplan and argued that "employers ... can not be ex- provided separate employer reserves; 16 fol- pected to favor new taxes, which will simply lowed the Ohio plan of a pooled fund with increase productioncosts, add to the difficul- merit rating; seven had industry reserves; six ties of competition, and restrict were radicalbills of which two later emergedas and the welfare of industrial workers" (Tes- the Lundeen plan; six provided for a pooled timony of Noel Sargentof the National Associ- fund without merit rating (Smith, 1937:4). ation of Manufacturers,U.S. Congress, Senate Manufacturers'associations also ralliedagainst Subcommitteeof the Committeeon Pensions, state unemploymentmeasures because of their 1931:64). These taxes, they argued, particu- fears of interstatecompetition and because un- larly penalized those operating in employment benefits had the potential to highly competitive markets, whereas a undermineexisting minimum-wagelaws (Tes- monopoly could readily meet any new charge. timony of George Chandler,Ohio Chamberof After several more years of debate, a modified Commerce,U.S. Congress, Senate Committee Dill-Connerybill authorizinga federal appro- on Finance, 1935:1102-1104).Due to the influ- priation of $10,000,000 per year to pay one- ence exerted by these associations on state thirdof the cost of old age assistance extended legislatures, none of the pending bills was by states to aged dependents(H.R. 8461 and S. enacted. 493) passed the House Committeeon Labor in Althoughthe presence of state plans for un- 1934 and almost passed the Senate. employment insurance and old age pensions There was also strong momentumfor a na- could have served as a political constraint on tional unemployment measure. The only national policy measures, only Wisconsin had existing unemploymentplan had been passed an unemploymentprogram in operation, only by the state of Wisconsin. The Wisconsin plan half the states had pension laws, and among or Andrews-Commonsmodel, designed with them few pensions were actually given the help of businessmen Henry Dennison and (Quadagno, 1984). State welfare programsof- Edward Filene, was based on a philosophy of fered only a minimal impediment to national prevention to be achieved throughthe stabili- legislation. zation of industry (Schlesinger, 1958:328). taxes Benefits were to be financedby employer INDUSTRIAL PENSIONS AND collected by the state in individual employer WELFARE CAPITALISM While business associations in highly competi- I Until 1933 the NAM mainly represented small industries against any welfare pro- 1934 and 1935 it became tive fought manufacturers. Between that might raise taxes and interfere with dominated by large manufacturing companies gram (Burch, 1973:100). The opposition to a national pen- existing wage scales, monopoly sion came from the same individuals who had been had begun to implement their own welfare fighting against state pensions. capitalist programs,which served some of the WELFARE CAPITALISM 637 same functions of traditionalrelief measures, 489:290).Continuous-service clauses were also independent of state action. As Owen D. used to bar workersfrom takingpart in strikes. Young of GeneralElectric explainedto Bishop One limited pensions to employees who "have Francis J. McConnell,President of the Ameri- not been engaged in demonstrationsdetrimen- can Association for Old Age Security: tal to the company's best interests," while an- who leave to the other flatly stated that "employees I am not yet ready to commit myself ordersforfeit all claims of Government appropriationfor the service under strike principle (U.S. Dept. of Labor, It be necessary, and to the pension benefit" old age pensions. may No. 489:291). Further, some will be, to do somethingalong this 1929, Bulletin probably company to call upon retired line, but my feeling is that it should be only plans allowed the return to work as strikebreakers: for the last fringe of people who cannot workers to otherwise be provided for. I am deeply in- The employing company reserves the right terested in seeing that the industries them- to recall pensioners to the service of the selves establish programsby which at least company, in which event pensions cease industrial workers will never become a for the time being, and wages are paid in charge on the taxing power of the state, but accordancewith the standardwage rates for will be taken care of through the economic the occupation for which the pensioner has machinery of the industries themselves. been recalled. (U.S. Departmentof Labor, (American Association for Social Security 1929, Bulletin No. 489:291). Archives, 1928) Finally, employers paying hidden pension In 1929 a study by IndustrialRelations Coun- costs by continuingto employ inefficientolder selors found that 329 industrialprograms were workers could retire them at no extra cost. in existence. Eighty percent of covered em- Industrialpension plans also benefited cor- ployees were in railroads,public utilities, metal porations through tax savings. In 1916 corpo- trades, oil, banking and insurance, electrical rations were granted the right to deduct pay- apparatusand supply industries. In contrast, ments to retirees and their families as part of among the highly competitive and largely un- necessary expenses. The tax benefits of pen- regulated manufacturing companies, only sion plans were extended in 1919 when the one-eighth of all employees were potentially InternalRevenue Service also allowed corpo- covered by a pension plan, and these were in rations to deduct employer contributions to the larger manufacturing establishments pension funds as long as they were placed in a (Latimer, 1932:42). For small manufacturers separate trust. The tax law was liberalized who relied on lesser amounts of workingcapi- even further in 1928 to allow deductions for tal beyond payrolls, whose ratio of payroll monies transferredfrom pension reserves to costs to of manufacturingoutput was trusts and for contributionsto newly created often higher than in larger companies, and pension plans (Graebner, 1980:134). who, in many cases, functioned seasonally In the 1920spensions were usually fundedas with a high degree of labor turnoverin the off an operatingexpense, makingthem highly un- season, the disadvantages of pension costs stable during business downturns. Sixty-nine outweighedany potentialadvantages (Mulford, new industrial pension plans were im- 1936:5). plemented between 1929 and 1932, but a Industrialpension plans served a variety of greater numberof existing plans were discon- labor control functions for welfare capitalists. tinued as the Depression grew worse, under- Nearly all had a length-of-servicerequirement miningthe "deferredwage" concept. As politi- which reduced the mobility of labor and de- cal pressure increased for some sort of federal creased rates of turnover among employees. action to provide a more secure economic re- Pensions were also justified by employers as a source for older people, big business mobilized deferred wage and thus became a means of to create a counterproposal,one regulatedby forcing workers to accept a lower wage scale. the federalgovernment but underthe control of Further, the majorityof company plans were industry. discretionary on the part of the employer. Several differentjoint government-industry Even if the workerfulfilled every conditionset, plans were proposed by members of the busi- the worker had no legal right of any kind to a ness community. The two most influential pension but received it as a gratuity which were those of Henry Harriman(1932) of the could be suspended, reduced or revoked at the New England Power Company and the U.S. employer's option (Brandes, 1976:105; Chamber of Commerce and Gerard Swope Graebner, 1980:129-30). For example, many (1932), Presidentof GeneralElectric and also a plans containedclauses designedto protect the prominentmember of the Chamber.Both plans employing company against increasing costs encompassedwelfare provisions under broader (U.S. Departmentof Labor, 1929, BulletinNo. programsfor economic recovery through the 638 AMERICAN SOCIOLOGICAL REVIEW stabilization of industry, coordinating produc- ment of the aged that placed the greatest pres- tion and consumption through trade associ- sure on the government to establish national ations. Included was a call for industry to set pensions. This movement, led by retired phy- aside "reserves to care for unemployment, old sician Frances Townsend, proposed a proto- age, sickness and accidents" (Harriman, Keynesian measure to solve both the nation's 1932:74). woes and the problem of insecurity in old age. Swope devised a joint employer-employee Townsend demanded that anyone over the contributory pension program to be adopted by age of 60 be paid a flat pension of $200 a month all members of trade associations, subject to from the federal treasury on the single condi- approval by a federal supervisory body. If an tion that the recipient spend the entire amount employee moved from one company to another within that month (Townsend, 1943). The pur- within an association or to a company in an- chasing power generated by the pensions other association, the funds accumulated would stimulate the economy and help produce would be transferred. Any employee leaving an economic recovery. Funds were to be gathered occupation covered by a trade association from a 2 percent tax on the "gross dollar value could withdraw the amount of his or of each business, commercial and/or financial her contributions plus the interest accrued (but transaction" and distributed to all older people, not the employer's contribution) (Swope, regardless of residency, number of living rela- 1932:167-68). A similar plan was set forth for tives, or income level (Committee on Old Age unemployment insurance, including a pro- Security, 1936:16). Hundreds of thousands of vision to reward companies with low unem- elderly people supported Townsend, and ployment rates by removing the one percent members of Congress were bombarded with charge to the employer (but not the employee) petitions from elderly constituents (Holtzman, (Swope, 1932:169). In stressing how his plan 1963:88). would contribute to the stabilization of indus- The Townsend plan created a political furor, try, Swope (1932:184) argued, "this plan seeks and the Roosevelt administration, through an to place the same social burdens on companies investigation by the Committee on Old Age competing in various parts of the United Security (1936), launched an attack on it, de- States." Industry had learned that if it had to scribing it as unworkable and financially un- pay the costs of pension programs, then it sound. All respected policymakers agreed, and needed to remove differential costs of pen- yet the Townsend plan was really a moderate sions. The solution could be found in trade measure. With its lack of progressive taxation associations under government that and its emphasis on the expansion of purchas- forced compliance. ing power, it was functionally compatible with Over the vigorous objections of the NAM, the existing . The only truly trade associations were established under the radical alternative was the Lundeen bill. Al- jurisdiction of the National Recovery Admin- though it attracted less public attention, it had istration. No industry-wide pension programs the potential to expand the boundaries of were implemented, however, and as the De- existing welfare policy and to alter significantly pression deepened, even those companies with the distribution of . The Lundeen bill welfare programs in operation found them- called for compensation equal to average local selves unable to maintain benefits (Berkowitz wages for all unemployed workers, for sup- and McQuaid, 1980:82). The Depression re- plementary benefits for part-time workers un- vealed the limits of voluntary business organi- able to secure full-time employment, and for zation for solving the nation's problems, and payments to all workers unable to work be- welfare capitalists now clearly understood that cause of sickness or old age, the source of their company programs required substantial funds being the general treasury of the United federal underpinning to be effective. States. Any further funds necessary were to be provided by taxes levied on inheritances, gifts THE CREATION OF THE and individual and corporate incomes of $5,000 SOCIAL SECURITY ACT a year or over (U.S. Congress, House Sub- committee of the Committee on Labor, Setting the Parameters of the Debate 1935:1-2). As the country moved toward a national pro- The Lundeen bill had the support of numer- gram of old age pensions and unemployment ous local unions and unemployment councils. insurance, competing factions attempted to set They argued for its passage on the grounds that the parameters of the debate. State managers it would maintain the standard of living of had to respond to the economic crisis gener- workers by providing benefits equal to average ated by the Depression as well as to labor un- wages, that it would protect workers from rest. Yet in the advocacy of welfare programs, being disqualified from benefits on the basis of it was not organized labor but a reform move- participation in strikes, that it provided for the WELFARE CAPITALISM 639

participation of trade unions in the administra- notably absent. It took no position on this bill tion of benefits, and that it put the financial and instead argued for of the burden on those most able to pay (Testimony Wagner-Lewis payroll-tax plan for unemploy- of Elmer Johnson, representing the Chicago ment insurance. Why did the AFL take this Branch of the American Federation of Labor, stand when so many smaller unions endorsed U.S. Congress, House Subcommittee of the it'? In part, the ambivalence of the AFL na- Committee on Labor, 1935:522). A pending tional leadership toward national welfare mea- Wagner-Lewis unemployment bill was rejected sures was related to its long-standing opposi- by these same organizations, because it ex- tion to both employer and government welfare cluded the presently unemployed from cover- programs, which they had seen used against age, because it made employees pay through labor and which they believed were designed to the tax on wages and through the increased discourage the formation of unions. Union cost of commodities, and because the cost of benefits provided an inducement to workers to insurance would not be determined by the ca- join unions, whereas government-sponsored pacity to pay (Testimony of Frank Trager, plans, even those gained under pressure from Chairman of the People's Unemployment labor, potentially undermined this inducement. League of Maryland, U.S. Congress, House The CIO was even less involved because union Subcommittee of the Committee on Labor, leaders at this time were most directly con- 1935:534). Further, the Wagner-Lewis bill left cerned with issues of organization maintenance provisions for unemployment relief under local and establishing rights to . control, a system that was still used as a means Thus, the foundation of the welfare state was of manipulating labor. As Thomas Crawford of constructed with minimal input from organized the Agricultural and Cannery Workers Indus- labor.2 trial Union explained: Roosevelt thus had before him the Lundeen bill, the Dill-Connery bill, and the Wagner- In Deerfield Township, the head of the relief Lewis bill as three separate welfare measures. administration was Mr. Seabrook who is the As Governor of New York, Roosevelt had biggest farmer-owner in the East. When the sponsored a contributory pension bill which C.W.A. was started ... Mr. Seabrook, who was not passed, so the contributory philosophy was overseer of the roads during the winter was not unfamiliar to him (Chambers, months gave the jobs to the people on his 1963:166). On March 8, 1934, Roosevelt invited own farm instead of to the workers who were Gerard Swope, author of the Swope Plan, to unemployed. ... He gave the jobs, too, to lunch to get his views on unemployment insur- the small farmers that were close to his farm, ance and old age pensions. Swope described to in order to keep the agricultural workers Roosevelt GE's own joint contributory pension down at the point of starvation. This was so plan, in which both employer and employee that he could then hire them at very low had a vested interest (Loth, 1958:235). Before wages when the season started. This is the the luncheon was completed, Roosevelt-his it is done all over south Jersey. (U.S. way political imagination triggered by Swope's pro- House of the Congress, Subcommittee posal for a federal system that provided cover- Committee on Labor, 1935:65) age from the cradle to the grave-asked Swope Also rejected was the Townsend plan, be- to summarize his ideas. Two weeks later, cause its advocates "direct various kinds of Swope presented the completed proposal to verbal attacks against capitalists even while the president, a detailed statistical document they bend all their effort to the task of saving that included plans for unemployment, dis- the capitalist system." Further, it only pro- ability and old age pensions. Roosevelt im- vided insurance for those who reached the age mediately began pushing for a comprehensive of 60 and not all who needed it (Testimony of social security measure that incorporated both Herbert Benjamin, executive secretary, Na- unemployment and pensions (Loth, 1958:236). tional Joint Action Committee for Genuine So- In a speech on June 8, 1934, he clearly dis- cial Insurance, U.S. Congress, House Sub- carded income redistribution as a goal of Social committee of the Committee on Labor, Security and committed himself to a contribu- 1935:183). tory plan, declaring, "I believe that the funds By linking the Lundeen bill with the necessary to provide this insurance should be Townsend plan, critics were effectively able to raised by contribution rather than by an in- represent both as fantastic and unworkable crease in general taxation" (Roosevelt Papers, schemes. The opposition of the AFL's national Official Files, 494a, Box 1). Thus, the parame- leadership to the Lundeen bill also contributed to its defeat. Although representatives from 2 In contrast, the first old age pension bill in En- several locals testified before the House com- gland was passed because of direct pressure from mittee, the national leadership of the AFL was organized labor (Quadagno, 1982). 640 AMERICAN SOCIOLOGICAL REVIEW ters of the debate were narrowedto contribu- 105). From the administration'sperspective, tory measures that had already been used by the stabilizationof the economy, not the wel- monopoly industriesand that did not affect the fare of workers, was the goal of national wel- existing distributionof wealth. fare programs-a goal that coincided with the Organized labor's struggle for bargaining interests of monopoly capital. power and union survival precluded its in- Arthur Altmeyer, former secretary of the volvement in social welfare issues, so the Wisconsin Industrial Commission, which potential pressure from workers for a radical supervised the administration of unemploy- income-redistribution welfare program was ment relief in that state, and formerDirector of lost. Townsendites, who rallied the most ef- the LaborCompliance Division of the National fective political constituency, based their IndustrialRecovery Administration,was given argumentson the issue of age ratherthan class, the task of organizing the CES and later be- a strategy that focused the debate on pensions came Chairman of the Technical Board on for the aged ratherthan adequateprotection for Economic Security, one of the subcommittees workers. An age-based rather than a class- to the CES (Altmeyer, 1966:xi).Altmeyer was based movement in effect gave state managers not only well schooled in the Wisconsin the freedom to shape welfare programs in a philosophy but had also worked closely with way that was functionallycompatible with the businessmenin the NRA, who approvedof his existing economic structure. selection. As Folsom (n.d.:95) recalls in his memoirs "I naturally liked Altmeyer's ap- proach because he came from Wisconsin.... The Creation of the Committee on and they were on an individualreserve basis.' Economic Security Altmeyer invited Edwin Witte, former stu- In order to implementthis program,Roosevelt dent of John Commons and secretary of the selected the members of the legislative plan- Wisconsin IndustrialCommission, to chair the ning committee, the Committee on Economic CES, and Witte was given the task of selecting Security(CES), to exclude all adherentsto any other staff members. Before making these school of thought advocating a more radical, selections, he consulted with a number of redistributorysocial welfare policy. Instead, people who had some part in the development supportersof the Wisconsin approachwho be- of the program"or who were reportedto me to lieved in a preventative, business-centered have valuable ideas on the subject" (Witte, philosophy and who supported contributory 1963:16).At the specific request of Roosevelt, pension plans were chosen. Prevention, ac- he made a special trip to consult with Gerard cording to Princeton economist, J. Douglas Swope, John Raskob of General Motors and Brown, could be achieved throughthe individ- WalterTeagle of StandardOil, all members of ualization of benefit rights, which related the the Business Advisory Council. In trying to preventionof old age poverty "to the individu- decipher the will of the President, Witte's first al's customaryway of life and the normalcosts impression was that Roosevelt had only con- of sustainingthat way of life" (Brown, 1977:5). sulted with Perkins and his advisor Raymond In other words, social insurancewas not to be Moley prior to the creation of the CES. He used to redistributeincome; existing inequities later learnedthat Roosevelt had also discussed in income need not be leveled through the the subject with Swope, Raskob and Owen mechanismof old age pensions. Young (Witte, 1963:19). Thus, the main pur- Secretary of Labor Frances Perkins, Harry pose of Witte's visit to the industrialistswas to Hopkins, Director of the Federal Emergency "get from them their ideas on what ought to be Relief Administration, and Secretary of Ag- done, which they had previously presented to ricultureHenry Wallace were given the task of the President" (Witte, 1963:19). As Witte selecting the membershipof the CES. In tes- (1963:89)recalls. the Senate Finance Committee, timony before I had several conferences with Mr. Harriman which held the hearings on what came to be Perkins [Presidentof the United States Chamberof called the Social Security Act, repre- the fall and im- sented the administration'sviewpoint. Welfare Commerce] during again the mediatelypreceding his testimony before the benefits, she argued, would help to resolve Senate Finance Committee. Mr. Harriman's economic crisis, for "by payingover moneys to have general attitude was that some legislation on persons who would otherwise not any social was inevitable and that busi- are security income, you creating purchasing power ness should not put itself in the position of which will after and month regularly,year year attempting to block this legislation, but after month, sustainthe purchaseswhich are to should its efforts it the and concentrate upon getting be made from great manufacturing into acceptable form. mercantilesystems of the country"'(U.S. Con- gress, Senate Finance Committee, 1935:104- In addition to the technical board, an Advi- WELFARE CAPITALISM 641 sory Council on Economic Security was The OAI provisions thus representedthe ac- created to assist the CES. The membersof the ceptance of approaches to social welfare Advisory Councilselected by Roosevelt from a created by private businessmen.They retained list preparedby Altmeyer and Witte included the joint contributory format reminiscent of labor, citizen and employer representatives. private pension plans and did little to redistri- The employers selected were a group of mod- bute income. Only those with employment erate welfare capitalists, including Swope, records received benefits, insuring that Marion Folsom of Eastman Kodak, and America's social welfare system would con- Teagle, along with Morris Leeds, president of tinue to be connected with the private labor Leeds and Northrup, and Sam Lewison, vice market.Further, benefit levels were set low so president of Miami Copper Company. as not to compete with existing wage levels. Roosevelt had preferred to have Swope or In contrast to OAI, the unemployment in- Young chair the council, because they were surance portion of the Social Security Act businessmen who recognized the inevitability stimulated great debate among the various of social security legislation, but was advised committees charged with creating the legisla- by Perkinsthat this would be politicallyunwise tion. The technical board proposed three pos- ("Suggestions for an Advisory Council," sible options: an exclusively federal system in Altmeyer Papers, CES File 2, Box 1). Instead, which the federal government would collect a Southerner,Frank Graham,president of the payroll taxes and provide uniform compensa- Universityof North Carolina,was selected as a tion to workers;a federalsubsidy plan in which means of restrainingsome of the expected op- the federal government would collect payroll position from the South. taxes and distribute them to states operating unemployment compensation systems ac- cordingto acceptablenational standards; and a Business Reaction federal tax-offset plan, comparable to the In its official capacity the Advisory Council Wagner-Lewisbill, in which the federal gov- had little impact, but the employer members ernmentwould assess payrolltaxes but forgive exerted considerable influence on the legisla- 90 percent of them if employers paid required tion in a variety of unofficialways. One of the contributionsto insurance systems set up ac- majorconcerns of the employers was to obtain cording to each state's standards (Altmeyer, as much federal control over the legislation as 1966:17).Since Roosevelt had virtually elimi- possible to regulate competition from com- nated the possibility of an exclusively federal panies who might otherwise find ways to cir- plan, the choice was really between the sub- cumvent the proposed taxes. As Brown ex- sidy plan, which gave the federal government plainedin testimony before the Senate Finance the power to regulate the states to insure uni- Committee (1935:284) hearings on social se- formity in state laws, and a tax-offset plan, curity, the benefit of the employercontribution which gave the states greater flexibility in es- was that tablishingtheir own programs. The Advisory Council as a whole was di- it makes uniform throughout industry a vided and voted 9 to 7 in favor of the subsidy minimumcost of providingold-age security plan, which was unanimouslyfavored by the and protects the more liberal employer now employer members. They preferred the sub- of providingpensions from the competition sidy plan because it could incorporatecontri- the employer who otherwise fires the old butions by both employer and employee into person without a pension when superanu- its formatand "because they operatedin many ated. It levels up the cost of old-age pro- states and didn't want to be caught in the vari- tection on both the progressive employer ations and the requirements of the separate and the unprogressiveemployer. states" (Altmeyer, Memoirs:151). In contrast, Business leaders were satisfied with the the tax-offset plan required only employer shape of the old age insurance(OA1) portion of contributions. Employee contributions were the act, for it involved complete federalcontrol viewed as a way of keeping employer costs over the impositionof employer and employee down (WilburCohen, telephone interview). contributions.In fact, when this plan ran into When it appearedthat the CES favored the opposition by CES members because it was tax-offset plan, the employer members of the national in scope, "help came from an unex- Advisory Council made several attemptsto in- pected source, the industrialexecutives on the fluence the direction of the proposed legisla- Committee's Advisory Council . . . their prac- tion. After a meeting between members of the tical understandingof the need for contributory Advisory Council and the CES in which it ap- old age annuities on a broad, national basis peared that the CES was not going to take the carried great weight with those in authority" Advisory Council recommendationsseriously, (Brown, 1972:21). members of the Business Advisory Council 642 AMERICAN SOCIOLOGICAL REVIEW

(which included Leeds and Teagle, who were Roosevelt because it was the only part of the also Advisory Councilmembers) leaked a story entire social security measure that provided to the New YorkTimes reportingthat the Advi- employers with incentive to reduce unem- sory Councilfavored the subsidy plan and that ployment. Initially rejected by the House Ways this was an upset for the administration(New and Means Committee, it was unanimously re- York Times, December 7, 1935). The employer stored by the Senate Finance Committee and members of the council also made a direct at- further liberalized to favor monopoly indus- tempt to obtain the agreement of Witte and tries. In its restored form there were fewer Stewartby invitingthem to a private dinnerat limitations on additional credits for employers, the Hotel Shorehamon December 6. As Witte and states were not required to establish (1963:60)recalls: pooled funds (Witte, 1963:141). The employers did lose a major battle, be- I was invited by Mr. Teagle to have dinner cause the subsidy plan they favored, which with him that evening and found that all em- ensured uniform costs and allowed the possi- ployer membersof the advisorycouncil were bility of employee contributions, was not present, plus Dr. Stewart, and that the pur- adopted by Congress. The inclusion of merit pose of the meeting was to talk over the rating, however, did provide more stable com- position the employer members should take panies a distinct advantage over companies on the several controversialissues affecting with greater yearly fluctuations in unemploy- unemploymentinsurance. I excused myself ment rates. According to Schlesinger as soon as I decently could do so following (1958:314), "merit rating increasingly placed the dinner, but Dr. Stewart remained. the burden of unemployment compensation on which Finally, the BAC prepared a confidential the industries least able to bear it; costs in- memorandumentitled "PreliminaryMemoran- might have been socially distributed were further dum on Insurance" stead assessed in a way which Unemployment presenting When the merit- their position, which was also leaked to the weakened the already weak." newspapers. Given a great deal of publicity, it rating clause was introduced into the bill, the reasonably satisfied and caused the CES considerable embarrassment employers were (Witte, 1963:90). dropped their support for the subsidy plan When the employers realized that the sub- (Wilbur Cohen, telephone interview). sidy plan might fail, they expressed their con- Why did the employers lose the battle for the cerns in a joint letter to Frances Perkins on subsidy plan? The main reason was the heated December 15, 1934,proposing a substituteplan opposition from manufacturers associations, to reduce unemploymenttaxes for companies such as the National Metal Trades Association with low rates of unemployment,i.e., a system (of which United States Steel was of merit rating. Companiesthat stabilized un- not a member), the Illinois Manufacturing As- employment,they argued, should be rewarded sociation, the Connecticut Manufacturer's As- by lower contributionsto the fund, for if com- sociation, and the Ohio Chamber of Com- panies with lower unemployment rates were merce, who represented manufacturers in forced to subsidize competing or highly competitive industries. One concern of plants, "there would arise a species of unfair these manufacturers was that numerous other competition that might even force out of busi- costs could still vary from company to com- ness the truly low cost concern" (Altmeyer pany, depending on such factors as prevailing Papers, 1934, CES File 1, Box 1). As Folsom wage rates and access to raw materials, even costs be explained in his defense of a plan that would though welfare might equalized. penalize companies with high unemployment Further, monopoly industries had a buffer that rates: protected them from the costs of the proposed taxes in the form of a greater percent of work- We're saying that if the needle trades indus- ing capital beyond payroll costs, whereas try can't operate any other way besides nonmonopoly manufacturers were unlikely to having periods of idle time, that ought to be have cash working capital greater than 10 per- reflected in the price and chargedto the con- cent of the total annual payroll. According to sumerand not be made a burdenon the other Illinois Manufacturing Association representa- industries in the state . . . We say, it's the tive John Harrington (U.S. Senate Committee consumer's fault if they have this seasonal on Finance, 1935:686), "50 percent of the man- lay-off. Why not let the consumerpay for it'? ufacturers in Illinois are today reduced to a (Folsom, Memoirs:105-106) hand-to-mouth basis as regards cash-working capital." These companies also had a poorer The idea of merit rating, which intensified ability to pass the taxes on to the consumer; individualemployer responsibilityfor the op- since this involved a period of adjustment they eration of the economy, was favored by would have to finance themselves out of their WELFARE CAPITALISM 643 immediate working capital.3 Finally, busi- (Wolters, 1975:194).4 The structure of the nesses that were primarilylocal wanted direct legislationleft most black workerswith old age assurance that unemploymentbenefits would assistance as the only source of support. not undermine prevailing minimum wages. Southerners, who packed the powerful Thus, they argued"that a person who declines House Ways and Means Committee,raised the to accept the wage provided in the minimum greatest objections to the old age assistance wage laws or in industryin which a minimum title, which threatenedto set federal standards wage agreement is in effect, should not be a that would intervene in existing local regu- beneficiaryof the fund" (Testimonyof George lations. The particular focus of concern of Chandlerof the Ohio Chamberof Commerce, Southerncongressmen was a clause specifying U.S. Senate Committee on Finance, that states had to furnish assistance sufficient 1935:1104). to provide 'a reasonablesubsistence compati- While nonmonopolycompanies preferredno ble with decency and health."'High rates for legislation, if legislation was inevitable, then old age assistance grants would, they feared, they arguedfor as much state control as possi- subsidize the children of aged blacks, who ble. The legislationthat was eventually passed would then be more independentand less will- reflected the sensitivity of congressmen to the ing to perform farm labor for low wages local business community, whose supportwas (Roosevelt Papers, Official'Files494a, Box 1). more critical for their continued political sur- Further, Southern industrial wage scales, vival than that of monopoly capitalists operat- which were in fact considerably lower than ing on the national political scene. Northern wage scales, could also be under- Monopoly capitalists could use direct inter- mined. For example, the ratioof payrollsto the vention with national state managersto shape value of output was 33.9 percent in Massachu- federalwelfare programs to conformto business setts, but only about 25 percent in Georgia, standards,whereas companies in the competi- North Carolina and South Carolina in cotton tive sector of the economy asserted their dif- manufacturing(Mulford, 1936:17). ferent goals throughpolitical pressure on their In response, black leaders arguedfor greater congressional representatives. Clearly, there federal control of standards, explaining that, can be no single one-to-one relationship be- "In many communities there is a prevailing tween the interests of capitalists and the form idea that Negro persons can have such a rea- of the state when different groups within the sonable subsistence on less income than a business community disagree on economic white person,' and that local standardswould goals. Each group may exert political influ- become the rationale"'to give less assistance to ence, but the means at their disposal varies. aged Negroes than to aged whites" (U.S. Sen- State managers, who vary in their position in ate, Committee on Finance, 1935:489). the state hierarchy,have different constituen- Further, the residence requirementsfor OAA cies to respond to and differentbarometers of were likely to be particularlyunfair to blacks business confidence to weigh in decision mak- engaged in migratorylabor since they could be ing. used to deny benefits. Southern congressional support, however, was necessary for passage the and blacks had no political power. The Southern Comnpromuise of act, The "decency and health" provision was As of 1935 no Southern state had passed any eliminated, leaving the states free to pay pen- pension legislation, and the aged poor in the sions of any amount and still recover 50 per- South had only the poor law. Because both the cent of the costs from the federal government. unemploymenttitle and the old age insurance States were also granted the right to impose title of the Social Security Act excluded ag- additionalprovisions to make criteriafor eligi- riculturaland domestic labor and because ap- bility more stringent than those stipulated in proximately three-fifths of all black workers the bill. Finally, unlikeOAI, recipientsof OAA were employed in these categories, most black could remainin the labor force as long as their workers were not covered by either program wages were low enough for them to qualify for assistance under locally established criteria. I A study conducted by the Bureau of Research Thus, OAA could be used as a supplementto and Statistics in 1936 concluded that "there is a basis earnings and continue to function as a for the claim of inequality in the pay-roll taxes . . . traditionalform of labor control. between major industries." The profits of industry would not be seriously affected, however, because ''ultimately it is believed the employer's share will be 4 Austria, Belgium, Bulgaria, Czechoslovakia, practically entirely passed in some manner either to France, Great Britain, Italy, the Netherlands and the consumer in the form of higher prices or back to Spain all had coverage for agricultural workers and labor in the form of suppressed wages" (Mulford, domestics in their pension plans (U.S. Senate, 1936:38). Committee on Finance, 1935:51). 644 AMERICAN SOCIOLOGICAL REVIEW The absence of state pensions in the South the Social Security Act allowed Kodak to ex- rather than the presence of state pensions tend its coverage to its subsidiaries, secure in elsewhere was the more significant factor in the knowledge that competing companies had shaping national legislation. It was not an en- the same costs. trenched bureaucratic structure but an en- The strongest reactions against the Social trenchedplanter aristocracy that made OAA a Security Act came, not from the business locally administeredprogram. community,but from those who had advocated more radical measures. Members of the Social Security The Aftermath American Association for claimed that many states had turned"their old A poll taken by Fortune magazine in 1939 age pension system into sinks of corruption," asked businessmen to evaluate the New Deal. that the residency requirements had to be Overall, business reaction to the Social Secur- changed "to- permit pensioners to migrate ity Act was moderate.Only 17.3 percent felt it freely from state to state without loss of pen- should be repealed, while 2.43 percent were sion privileges," that the benefit structurewas satisfied with it in its present form and 57.9 inadequateand did not include wives of pen- percent wished some modifications(Fortune, sioners, and that it was "socially unfair and 1939:52). In contrast, over nineteen percent economically dangerousfor the governmentto wanted to see the Federal Housing Authority shift its responsibilityfor the accumulatedbur- repealed, 21.4 percent the Wages and Hours den of old age dependency to the workers" Law, 44.4 percent the WorksProgress Admin- (Epstein, 1938:2-3). The 1939 amendmentsto istration, 40.9 percent the Wagner Act, and the Social Security Act increased the size of 66.2 percent the undistributed-profits tax benefits, extended them to dependents, and (Fortune, 1939:52). None of those who wanted advanced the date on which they were to the Social Security Act repealed were large begin. They were supported by social- manufacturers(Fortune, 1939:90). insurance advocates who found themselves Big business had good reason to react posi- curiously aligned with members of the Busi- tively. When the Social Security Board faced ness Advisory Council and the insurance in- its first major task of establishing 26 million dustry. accounts for individuals, they consulted with What led business leaders to supportexpan- BAC members, and Marion Folsom helped sion of the program'?The critical issue was the plan the creation of regional centers. In July impact of the build-upof the large reserve of the board, assisted by the BAC, hired the di- accumulatedinsurance funds on the economy. rector of the IndustrialBureau of the Philadel- Between 1935 and 1938, welfare capitalists phia Chamberof Commerce to serve as head Leeds, Filene and Dennison did a study of the registrar,and the BAC insistedon startingregis- causes of the Depression. In their report, enti- tration as soon as possible (McKinley and tled "Toward Full Employment," they advo- Frase, 1970:347).At the suggestion of Gerard cated a Keynesian solution based on compen- Swope, J. Douglas Brown was appointedchair satory fiscal policy (Brents, 1983a:17).Insur- of the new Advisory Council(Brown, 1972:23). ance executives also expressed concerns about Thus, businessmenhelped select the personnel the build-upof a huge reserve on the grounds for a major federal welfare program. that it would induce unwarrantedexpansion Businessmen also found that there were de- of the program(U.S. Congress, Senate Com- cided benefits to the legislation. Folsom mittee on Finance, 1937:14-15). The passage (1939:42) wrote an article explaining how he of the 1939 amendments mollified social- integrated the Eastmen Kodak pension plan insurance advocates' demands for liberaliza- with social security: tion of benefits, while simultaneouslyreducing the amount of the full reserve. We adjustedour plan so that the cost to the company remained practically the same as before and the employee received the same CONCLUSION benefits from the contributionhe company Several conclusions about how economic previously received, part coming from the into can Government power gets translated political power and part from the insurance be drawn from this analysis. In regardto cor- company. We have since 1936 adopted sup- porate liberalism,there is certainly ample evi- plementary plans for several subsidiary dence in the historical record of substantial companies. welfare-capitalistinvolvement. Business exec- Accordingto Folsom (1939:41),pensions were utives had a direct impacton the Social Secur- good business, for they allowed employers to ity Act by serving on policy-formingcommit- eliminate the hidden pension costs of keeping tees and by testifying before Congress. They on older employees, and the help afforded by also exerted influence in a less formal manner WELFARE CAPITALISM 645 through a variety of interactions with state to the determinantsof investment decisions; managerswho held varyingdegrees of power. rather they are directly expressed in political Tactics included informal discussions with decisions resultingfrom direct pressures from Roosevelt and committeemembers, letter writ- factions that organize. ing, proposal development, and attempts to This analysis also demonstrates the inade- coopt lesser figures. quacy of Skocpol's model (Skocpol, 1980; Althoughthese business executives were di- Skocpol and Finegold, 1982; Skocpol and rectly involved in the policy-formationpro- Ikenberry; 1982), which argues that organi- cess, they were only partiallysuccessful in in- zational or administrativefactors such as pat- fluencingthe shape of legislation. Their lack of terns of political party organization,degree of success on the issue of unemploymentinsur- bureaucratizationor the presence of existing ance in particularreflects the divergence in state programs are primary policy determi- interestsbetween monopoly and nonmonopoly nants. The fact that states had local poor laws, companies. Monopolycorporations, which op- pension plans, and unemployment insurance erated on a multistate and often multinational proposals already in operationor pendingwas basis, were unconcerned with traditional a factor in shaping the outcome of the Social means of labor control reflected in state and Security Act. But by 1935few states were ac- local welfare policies, such as unemployment tually giving out old age pensions and only and old age pension laws, because many had Wisconsin had actually implemented unem- already implementedmore sophisticated mea- ploymentinsurance. The reason why there was sures through company-sponsoredunemploy- such concerted resistanceto the idea of federal ment and pension schemes. In contrast, busi- intervention was because of the threat such nesses operatingin highly competitive markets intervention posed to local control of labor. with great seasonal or cyclical fluctuationsand More important than existing bureaucratic lesser amountsof workingcapital feared losing structureswere political pressures exerted by the more traditionallabor-control mechanisms locally dominant economic interest groups. that supported the needs of local economies. Dominant groups won't support state actions They also feared the imposition of taxation that aren't in their best interests, and state ac- which would further hamper their ability to tions cannot succeed without this support. compete. Not having direct access to national Political structuressimply cannot be analyzed state managers, they pressured their congres- as autonomousentities but must be considered sional representativesand fought to keep the in terms of their underlyingeconomic dimen- proposed welfare legislationunder state rather sions. than federal control. It is also importantto explain why a piece of In a hierarchical state structure, capitalist legislation with such a high level of "class groups with varying economic interests content,' i.e., a social-welfare measure, was exerted their influenceat differentlevels in the implemented with almost no working-class hierarchy.State managerscould not act auton- input. This can be partially explained by the omously, but were, as Block (1977b) has fact that the pension debate was structured argued, highly responsive to business confi- around age-based rather than class-based is- dence. Business confidence, however, was not sues. The Townsend movement, not organized a single variable. National state managers labor, was the source of pressure for reform, operating within the broad constraints of the and the argument the Townsendites used to economic crisis of the Depression were more advocate a national pension did not challenge immediately responsive to the goals of the prevailingideology on how to resolve the monopoly capitalists, but the implementation crisis of the Depression.According to Towns- of those goals was confined within the param- endite arguments, pensions would preserve eters of a federal system in which non- the free-market system by stimulating the monopoly corporations could exert pressure economy throughthe expansion of purchasing on local state managers. Since no legislation power. Organizedlabor, ambivalentabout the could pass without congressional support, a benefits of a national welfare system, focused "states rights" agenda served to maintainthe its concerns instead on issues more directly confidence of the rest of the business commu- involved with organization maintenance and nity. Economic power, then, gets translated never supporteda radicalalternative that could into political power through the direct inter- have expanded the limits of the debate and led vention of corporate liberals and through the to a majorredistribution of income. Thus, state hierarchical structure of the state, which managersremained free to lay the groundwork allows competing factions to petition state for a social-welfareprogram that could sustain managersfor direct agendas in social policy. and enhance the conditions for capitalist eco- State managers'concerns with business confi- nomic activity. Their mediating or organi- dence are not just reflected in their sensitivity zationalfunction was not between workersand 646 AMERICAN SOCIOLOGICALREVIEW capitalistsbut between divergentgroups within Pension-Industrial Plans folder. Ithaca, the capitalist class. NY: Cornell University. The most complex issue to resolve still is Bernstein, Barton J. whether class interests are imbedded within 1968 'The New Deal: the conservative the state or whether various factions operate achievements of liberal reform.' Pp. 263-89 in Barton J. Bernstein (ed.), outside the formal structureof the state. What Towards a New Past. New York: Random was at stake in the debate surroundingthe So- House. cial Security Act was the nature of the state Berkowitz, Edward and Kim McQuaid itself. Organizedlabor, nonmonopoly capital, 1980 Creating the Welfare State. New York: and Southern agricultural interests were Praeger. strugglingto keep social-welfaremeasures out- Block, Fred side the jurisdiction of the state, whereas a 1977a "Beyond corporate liberalism." Social core group of influentialmonopoly capitalists, Problems 24:352-61. 1977b "The ruling class does not rule: notes on the nationalstate managersand various citizen co- Marxist theory of the state." Socialist Rev- alitions argued for increased centralization. olution 33:6-28. The outcome of this battle was a reorganization Brandes, Stuart of the state in a mannerthat expanded its role 1976 American Welfare Capitalism. Chicago: and incorporatedpreviously fractionated inter- University of Chicago Press. est groups more firmly within its jurisdiction. Brents, Barbara In the final analysis, this case study provides 1983a "Business and government intervention in substantialsupport for Poulantzas'sthesis that the economy 1900-1938." Paper presented the state functions as a mediating body, to the Midwest Sociological Society, Kan- weighing the prioritiesof various power blocs sas City, April. 1983b "Policy formation in capitalist society: the within it. While Block's distinction between Social Security Act of 1935." Unpublished corporate leaders and state managers is rele- M.A. thesis, Department of Sociology, vant, state managersdo not respond to a un- University of Missouri, Columbia. ified set of concerns centering solely around Brown, J. Douglas business confidence. Rather they are respon- 1972 An American Philosophy of Social Secur- sive to the interests of competing factions un- ity. Princeton: Princeton University Press. equally representedwithin the state. Dominant 1977 "Philosophical basis of the National Old economic interests operate at a higher level Age Insurance Program." Pp. 1-13 in Dan McGill (ed.), Social Security and Private within the state hierarchy,giving them greater Pension Plans. 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