CREATING A CAPITAL INVESTMENT WELFARE STATE: THE NEW AMERICAN EXCEPTIONALISM* 1998 Presidential Address Jill Quadagno FloridaState University In the past few decadesforces such as globalization and internationalcompe- tition, rising public budgets, and aging populations have caused many na- tions to reexaminethe social programs they established at least a half century ago. Some nations have cut spending; others have reorganizedpriorities to provide supportfor dual-earnerfamilies, single mothers, or elderly people who need long-term care. The United States appears instead to be in transi- tion from a social insurance welfare state to a "capital investment welfare state " in which the objective is to increase savings and investment.This shift in U.S. public policy is most explicit in the ascendance of a neoconservative ideology, which depicts the welfare state as an impedimentto a free market. This ideology has lent credence to proposals for privatizing Social Security and is implicit in seemingly minor technocratic changes in Medicare, which nonetheless have inserted marketprinciples into a social insuranceprogram. Whethercurrent trends representthe most recent manifestation of American exceptionalism or a concurrent restructuring across nations can be deter- mined only by comparative research examining (1) how differentnations are responding to contemporaryfiscal pressures, and (2) if nations are redistrib- uting the social welfare burdenfrom the public to the private sector. A ccording to one side of a long-con- ist democracies. Grounded in a firm opposi- tested theoretical debate, the United tion to all forms of government intervention, States has a distinctive political culture that this classical liberal tradition honors private differentiates it from other Western, capital- property, distrusts state authority, and holds * individual rights sacred (Lipset 1996). This Direct correspondenceto Jill Quadagno, Pep- notion of American exceptionalism was first per Institute on Aging and Public Policy, Florida State University, Tallahassee, FL 32306 (jquadagn applied by socialist theorists at the turn of @coss.fsu.edu). I thank Robert Alford, Jill the century, initially to explain the weakness Bernstein,Pamela Larson, and John Myles for help- of working-class radicalism, then later to ex- ful comments on an early draftof this manuscript. plain why the United States was the only in- American Sociological Review, 1999, Vol. 64 (February:1-11 ) 1 2 AMERICAN SOCIOLOGICAL REVIEW dustrialized country that lacked a socialist ating agreements such as seniority provisions movement or a labor party. As the welfare that enhanced job security over the life state became the primary site of the civil course, and in supporting the expansion of functions of government, discussions of public social benefits. The recent decline in American exceptionalism focused on new unionization has reduced the ability of work- questions: Why, compared to other Western ers to negotiate working conditions and ben- capitalist democracies, was the United States efits and has made them more vulnerable to slow to develop national social benefits; why market forces. For example, between 1988 did it fail to offer programs provided else- and 1996 the percentage of large and me- where, such as national health insurance; dium-size firms that provided fully-financed why were U.S. benefits less generous than health insurance to their employees declined those in other Western countries? from 56 to 37 percent (Martin 1998). The In the past few decades, welfare states percentage of male workers covered by a have experienced increasing fiscal con- pension plan also has declined (Bloom and straints associated with globalization and in- Freeman 1994). ternational competition, rising public bud- The family is another social institution that gets, and aging populations. These trends has experienced significant change. In the have caused governments to seek ways to di- 1930s, most households had a male bread- vest themselves of fiscal responsibilities, winner who was the sole wage-earner.At that even as changes in the labor market, in the time, only 22 percent of women were in the family, and in demographic structures have labor force, and rarely did mothers work at created new needs for social protection over all. By 1996 nearly 60 percent of women the life course (Esping-Anderson 1999; were participating in the labor force, includ- Shalev 1996). Political theorists are now de- ing over 70 percent of women in their child- bating how the forces that contributed to the bearing years and 60.5 percent of single exceptionalism of the American welfare state mothers (U.S. Bureau of the Census 1997). are likely to influence public policy direc- This increase in the numbers of dual-earner tions in the twenty-first century. and single-parent households has increased the need for benefits for working families (Esping-Anderson 1999; O'Connor, Orloff, THE CONTEXT OF WELFARE STATE and Shaver 1998). FORMATION Finally, the nation's demographic profile Since the New Deal, when the first perma- has shifted significantly as a result of an ag- nent federal social programs were created, ing population. Between 1930 and 1996, the significant changes have taken place in the percentage of the population age 65 and nation's social, political, and economic ar- older increased from 6.0 to 12.5 percent, and rangements. In the labor force, sectoral is predicted to increase to 20 percent by dominance has shifted from the manufactur- 2030. Life expectancy has increased most ing sector to the service sector. In the 1930s, rapidly among the "old-old," people 85 and 32.5 percent of the labor force worked in over, who have the greatest needs for health manufacturingindustries, and only 59.4 per- and long-term care benefits (Hobbs and cent in service-producing industries. By Damon 1996). 1990 only 17.4 percent of workers were em- Other countries have responded to these ployed in manufacturing, while 77.3 percent same trends by reorganizing their national were in services (Goldin forthcoming). priorities. Some have reduced social expen- One major consequence of this sectoral ditures. Sweden, for example, recently cut shift in employment has been a decline in benefits for unemployment and reduced its trade union membership, down to only 16.2 pension promises to retirees. Other countries percent of the workforce in 1996 (U.S. Bu- have added new programs to meet new reau of the Census 1997). The heavy manu- needs. Germany has added a national long- facturing industries were the site of trade term care program, as has Austria (Smeeding union mobilization in the 1930s. Subse- 1998; Weaver 1998). quently, unions became an importantforce in In the United States, the public policy expanding private sector benefits, in negoti- agenda appears to be moving in confusing CAPITAL INVESTMENT WELFARE STATE 3 directions. The Personal Responsibility and all workers who contributed would be eli- Work Opportunity Act of 1996 eliminated gible for benefits and that lower-income Aid to Families with Dependent Children, a workers would receive a higher level of in- program that consumed less than 1 percent come replacement. Thus, along with the in- of the federal budget, and transferredrespon- surance function, Social Security incorpo- sibility for poor women and their children to rated a redistributory,anti-poverty function. the states. Yet few changes have been made The Social Security Act also included two in the more costly entitlement programs- means-tested programs available only to the Social Security and Medicare. poor-Old Age Assistance and Aid to De- Appearances can be deceiving, however, pendent Children-which left decisions for a transition in the American welfare state about eligibility and benefit levels to the is taking place-a shift toward what I call the states. "capital investment welfare state." This tran- Because the legislation could not win a sition is visible, first, in efforts to restructure majority in Congress without the support of public benefits to coincide with trends in the southern Democrats, a compromise was private sector, second, in efforts to reduce reached: Southerners would support the So- collective responsibility for social welfare cial Security Act as long as labor arrange- needs and increase individual responsibility, ments in the South were left undisturbed. and third, in proposals to transform public The compromise meant that agricultural welfare programs from cash benefits and di- workers and domestic servants (three-fifths rect services into incentives for personal sav- of all black workers in the South held such ing and investing. These changes represent jobs) would be excluded from the social in- the onset of a thirdrealignment of social wel- surance programs. Instead these workers fare policy; the first two were the New Deal would be eligible only for the means-tested and the Great Society. benefits. Thus, a two-tier benefit structure was inserted into the welfare state, which re- inforced the racial divide in American soci- THE FORMATION OF THE ety (Quadagno 1988). AMERICAN WELFARE STATE The New Deal also included incentives in the tax code, termed "tax expenditures," that The New Deal encouraged employers to provide pensions The American welfare state was created in for their employees. Firms could set aside two, widely separated,"big bangs" of reform these "deferredwages" as a nontaxable busi- (Weir, Orloff and Skocpol 1988). The first ness expense and recapture nearly half of permanent