The Spark

“The emancipation of the working class will only be achieved by the working class itself.” — Karl Marx

United States:
Capitalism Tears Holes in Its Safety Nets

May 2, 1997

Last August 22 President Clinton came through with his campaign promise "to end welfare as we know it" by signing the "Personal Responsibility and Work Opportunity Reconciliation" Act of 1996, which is expected to cut 55 billion dollars from the federal budget over 6 years. The way had long been prepared for these cuts by the constant barrage of propaganda against those on welfare. Reagan used to spin tales of welfare queens in Cadillacs. And welfare had been blamed for every imaginable ill, from the budget deficit, to poverty, to a rising tide of "illegitimacy" ("the most important social problem of our time," according to Charles Murray in the 1993 Wall Street Journal).

"Reform" in the '90's: Going Backward

Of course, it goes without saying that Aid to Families with Dependent Children (AFDC), made to look so huge by all these attacks, is a tiny program, barely one percent of the federal budget. The federal budget deficit is 10 times larger than AFDC. As for ending poverty, if the federal government were really interested in that issue it would work to guarantee jobs and to vastly increase the so-called social safety net; it would not reduce them. And as for what is said about the rise of out-of-wedlock births among women on welfare, this is happening in all other strata of the society, in the U.S. and other Western countries, because of changing customs and social morés. Finally, where all those new jobs for those pushed off welfare will come from is anyone's guess, given the fact that there are already over eight million unemployed.

The new law is certainly epoch making. It reverses federal policy for the last 60 years, repealing the open-ended federal entitlement program, AFDC, and replacing it with a new program called Temporary Assistance for Needy Families (TANF). Time limits are placed on welfare recipients, and federal spending will be frozen while the states will be free to spend somewhat less, if they so decide. So, over time, benefits are cut and the rolls are reduced.

This "reform" also takes advantage of the anti-immigrant sentiment that has been carefully cultivated. The biggest cuts, an estimated half of the 55 billion dollars, come at the expense of legal immigrants, who, as of April 1, 1997 are excluded from receiving welfare, food stamps, Social Security, SSI and publicly funded non- emergency health care, if they cannot prove that they have worked in this country for at least 10 years.

Less publicized are the drastic cuts of food stamps and other nutritional programs for the working poor, as well as cuts in Supplemental Security Income (SSI) for 315,000 low income children over a period of 6 years. Throwing hundreds of thousands of handicapped children onto the scrap heap is something that most politicians prefer not to take credit for.

Ambitious for Bigger Projects, the Politicians Move On

Barely had the politicians caught their breaths from carrying out welfare "reform," then they began taking on their self-proclaimed duty to "save" the much bigger entitlement programs, Social Security, Medicare and Medicaid, that is, retirement and medical programs for the aged and the poor.

Neither the Democratic Executive Branch nor the Republican Congressional leadership have yet given any precise idea of what they intend to do. But here too, the politicians of both parties are preparing the way for whatever course they take with lies.

Lie Number One is that Social Security is in really bad shape. Never mind that Social Security is currently turning out surpluses of 60 or 70 billion dollars per year. Never mind that it is not projected to begin to run a deficit... for another 20 years. Obviously, they want the public to believe that up is down, and down is up.

What the politicians have actually done with the surplus is another sticky issue that the politicians would rather not discuss. Actually, the surpluses were used to offset the budget deficit in the federal government's general fund. In return, Social Security is paid a small, fixed rate of interest, only about one-third the going rate paid on regular treasury bonds. According to the politicians, Social Security money is safe and there is no need to worry. In fact, there is plenty to worry about, because the politicians have already spent the Social Security surpluses. The money is gone. And the only way to repay it in the future is out of general tax revenues, leading to enormous budget crunches.

Under the guise of "saving" Social Security, the politicians are preparing for that future by proposing to cut, not corporate subsidies and tax breaks, that is, the major burden of the federal budget, but Social Security. They have already openly proposed to gut the cost-of-living increase by "recalculating" the Consumer Price Index, so as to understate the level of inflation even more than it already is understated in this index. Cuts will be gradual – and cumulative.

But there are other proposals that could be smuggled through, which is the way these kinds of attacks are often carried out by the political world against the working population. The working period over which a retiree's benefits are computed could be increased from the current 35 years. This could especially hurt women workers, who took some time off to raise a family. Social Security benefits could also be taxed, not just for upper income retirees who are now taxed, but for retired workers as well. The retirement age, which was already raised back in 1983, could also be raised again, etc.

Of course, how Social Security money is "saved" is always an issue. Wall Street wants to privatize at least part of Social Security, obviously since privatization would produce fat administrative fees and brokers' commissions that could be worth upwards of 50 or 60 billion dollars per year, that is, every last dime of the surplus, and then some. This proposal was given some credibility by a January report from a blue ribbon commission appointed by President Clinton that had studied the "crisis" since 1994. Even the AFL-CIO gave conditional agreement to Wall Street's proposed partial privatization – as a way to prevent full privatization!

As for Medicaid and Medicare, the politicians are going through their regular ritual of "saving" these programs by instituting more big cuts in benefits. The Republicans are proposing 125 billion dollars in cuts for Medicare. Clinton has denounced these cuts as unnecessarily large, and is proposing instead to cut Medicare by only ... 110 billion dollars! The fact is, the elderly are spending a larger portion of their income today on health care than they did before Medicare was instituted in 1965.

But this problem is not what is being discussed. The discussion today revolves around how to make the elderly pay still more. How far the cuts and restructuring of Social Security and Medicare actually go remains to be seen. But obviously, the already inadequate "safety net" for the poor, infirm and aged is in for more shredding.

Compensating for the Ordinary Workings of Capitalism

The need for some kind of "safety net" comes out of the very workings of the capitalist system. Built into capitalism are periodic disruptions, crises and wars. Entire social strata, even populations, can be ruined or even wiped out. Sometimes, people accept this as their fate. Other times, they revolt. Sometimes, there are even revolutions. The capitalists accept the cost of social services, a safety net, as a way to prevent these outbursts, or at least to help restore order when they come.

In Europe, where capitalism developed first, relief systems originated in the mass disturbances that erupted during the long transition from feudalism to capitalism beginning in the sixteenth century. Peasants were being uprooted from the land, but were not absorbed into any work force. Masses of beggars and transients, "the dangerous classes," roamed the countryside and towns, bringing lawlessness and sometimes riots.

Localities first tried instituting severe penalties against begging. But when economic distress was especially severe and the numbers were so large, punishment failed. Consequently, localities began to augment punishment with provisions for the relief of the vagrant poor, through the church or through local governments. In Lyon in the 16th century, the destitute were given food or shelter, their children were sometimes trained for work. But help came with a price: punishment. They were not allowed to enter taverns. And any employables who turned to begging were chained and set to work digging sewers or ditches.

As capitalism developed, so did the continued ruin of the working classes and poor, and therefore the need for some sort of relief. As the historian Eric Hobsbawm wrote about 19th century England: "If compassion was not a strong enough force to make the ruling classes attend to the danger that the poor might starve, fear would certainly have made them think of the danger that the poor might rebel... Thus fear and pity united to sharpen the wits of the rich, and to turn their minds to the distresses of the poor."

Local systems of relief became the basis for more national systems, the poor houses, work houses and orphanages that degraded, humiliated and tortured the poor. Said Benjamin Disraeli, "It announces to the world that in England poverty is a crime." And the poor were treated as criminals.

By the end of the 19th century, the richer capitalist countries, further enriched by their imperialist division of the world, and under the pressure of a growing Social Democratic movement, began to introduce forms of national pensions for the aged and national sickness and accident insurance. This was done first in Germany under Chancellor Otto von Bismarck in the 1880s.

The Impetus for the Creation of a U.S. Safety Net

In the United States even the rudiments of relief developed much more slowly. For one thing, except for the South, agriculture was conducted mainly by independent farmers on their own land. There was no large rural proletariat as in England. For another, when industrialization did set in, it grew rapidly, more or less absorbing the growing population. Nor did economic distress, which periodically deepened, ordinarily lead to such serious outbreaks of disorder as to provoke relief concessions, partly because the open land of the frontier served, until the late nineteenth century, to drain off some of the deprived and discontented, and partly because such outbreaks as did occur were not especially disruptive in so sparsely settled a country. Therefore, as late as the 1920s, the only relief systems were local: charity from local collections from the population, from the churches, and small amounts of relief from local and state agencies.

With the 1930s Depression, the richer U.S. society could no longer escape from the full-blown ills of capitalism that had long been felt in the other industrialized countries. By 1932, unemployment had ballooned to 25% of the work force. Without work, a way of life began to collapse. People could not support their families, they lost their farms and their homes, the young did not marry, and many took to the road with signs of disaster on all sides. Millions were in desperate shape. Anger and protest escalated. The Depression thus gave rise to enormous movements of the employed and unemployed. Already by 1930, marches and demonstrations in local communities and state capitals, involving thousands of people, had become commonplace.

Events quickened. In March 1932, the Communist Party led the Ford Hunger March, in which thousands of jobless marched from downtown Detroit to the Ford River Rouge plant, where they were met by a fusillade from police that left four dead. In May, a group of World War I veterans set off from Portland to Washington D.C. to plead with Congress for earlier payment of a bonus for wartime services due to them by law only in 1945. This became known as the Bonus Expeditionary March. In June, 20,000 veterans were camped on the marshy banks of the Anacostia River in Washington waiting to be granted an audience. Instead, the Army, with cavalry, infantry and tanks, cleared the camp. Men, women and children fled as their shacks were burned behind them.

These were just the precursors of much bigger events: in 1934, there were general strikes in Toledo, Minneapolis, San Francisco; a general strike in textiles also swept the country, involving hundreds of thousands in the North and South. Several years of factory occupations in the industrial Midwest began in 1935. At the same time the movement of the elderly led by Francis Townsend demanded a 200 dollar per month pension for those too old to work. This movement grew to include millions of people.

Small local relief collapsed under the rising tide of unemployment and misery, and the government and ruling class could not just rely on the violence of the state to restore order. After Franklin Roosevelt took office in March 1933, federal emergency relief began to flow. The Civilian Conservation Corps provided subsistence wages for 250,000 men out of the 15 million unemployed. The Public Works Administration was larger, but was slow getting under way. But it was the Federal Emergency Relief Administration that broke all bounds in American relief-giving. By the winter of 1934, 20 million people, one-sixth of the population, were on the dole. Monthly grant levels rose from an average $15.15 per family in 1933 to an average of $29.33 in 1935.

1935: Social Security, Its Pluses and Minuses

By 1935, the Depression had stopped its free-fall and unemployment was slowly beginning to shrink. Broader emergency relief programs gradually gave way to a much narrower form of government aid that was spelled out in the Social Security Act of 1935. The simple absence of money was no longer sufficient to justify coverage: more restrictive criteria for eligibility were established. As a result, only some of those who could not work or who had been laid off were eligible. In other words, government aid was set up so as not to restrict the labor supply for capital.

Social Security was first of all a pension for the aged, although the program's benefits were inadequate, only $15.00 per month, and they didn't start until 1942. Also, whole sections of the work force were excluded from benefits, starting with agricultural workers, tenant farmers, domestics, and the wives of workers. Thus there was no protection for the most vulnerable and oppressed parts of the work force and working class.

However, considering that a majority of the elderly were living in conditions of dependency on their families, if they had any, or just abject poverty, the start of a national pension plan was certainly a step forward.

Second, under the Social Security Act, AFDC was set up. The absence of one parent was imposed as a condition for the aid of children. This program was also very slow in getting started, and remained highly restricted until the 1960s.

Finally, under Social Security, unemployment insurance was set up, allowing a worker who was laid off to get some temporary aid.

Thus ended the first cycle that produced some kind of safety net. Social turmoil produced a massive federal direct relief program. Although part of that relief had been withdrawn, what was left, Social Security, established the principle of a safety net. In the following years, sections of the working class, through their individual struggles, were able to build on this. During and after World War II, industrial workers were able to win private pensions. This was done first by mine workers, who, because of massive strikes, were granted a pension fund as a way to get around the World War II wage freeze. In 1949 after a long strike at Ford, auto workers began to win private pensions, signaling their spread to other sectors of the work force.

The establishment of private pensions then drove some increases in Social Security. The fact that companies were responsible for paying into a pension fund led them to urge the government to hike Social Security benefits. Higher Social Security benefits meant that what private pensions paid out was smaller, which in turn allowed companies to cut what they forked over to maintain the pension funds.

At the same time, Social Security pension coverage was gradually spread to larger sections of the work force. And the government continued programs which gave assistance to the vulnerable poor – the old, the blind or otherwise severely disabled, and the orphaned. The able-bodied poor who were victimized by long term unemployment were flat out of luck.

1960s: The Safety Net Is Extended – Again

After World War II, a new crisis developed. The pace of modernization of agriculture accelerated, hitting especially hard the black population that depended on the tenant farm system in the South's Black Belt. The poverty of tenant farmers had always been severe. Now that they had become economically superfluous, their poverty became desperate. However, despite this dislocation, welfare benefits to the Southern poor were brutally restricted. Modernization did not mean that low paid marginal labor was not needed. It only meant that fewer were needed. In 1964, for example, non-white farm workers in the South worked an average of 77 days for total average annual earnings of 502 dollars. Any extension of government-paid benefits might have led to the demand for higher pay.

The only alternative to starvation was migration. All told, 20 million people left the land over a period of 30 years, one of the greatest mass dislocations in U.S. history, comparable to the movement of 22 million immigrants who came to the United States in the 40 years between 1890 and 1930. As for the black population, in 1940, only half of all black people lived in urban areas. The figure reached 62% in 1950, 73% in 1960, 80% in 1965. Currently, only 5% of 22 million black people still live in the countryside.

In the cities, even at the height of the 1960s economic boom ("the good old days"), a large portion of black people met untold economic hardship. In 1966, the national figures for black sub-employment, that is unemployment and transient employment, was 21.6% compared to 7.6% for white people. That was the national rate. In such big city ghettoes as New York, Philadelphia, St. Louis, New Orleans, Boston, the average was about 33%. And as in the South, there was also no government relief.

These conditions of deep poverty, dislocation and discrimination helped fuel the black movement. The first phase, the Southern civil rights movement, gained two major legislative victories, the Civil Rights Act of 1964 and the Voting Rights Act of 1965, neither of which had much direct impact on poor black people in the cities. But the dramatic and prolonged struggle did indirectly win some economic concessions. Suddenly, state welfare agencies began loosening the purse-strings: restrictive qualifications were either scaled back or ignored; the amounts paid went up. In the first four years of the 1960s, the welfare rolls rose by 31% nationally. The increase was even greater in the cities, where they rose by 80% between 1960 and 1964.

The biggest impact came between 1964 and 1968, the years of the big urban explosions. To restore order, the government relied first of all on repression. But it also moved to expand the safety net. Welfare rolls gained another 58%. In the "big five" urban counties, the rolls more than doubled (up 105%) during that time. The South saw its first significant rise in 15 years, an increase of 43%, which took place after 1964.

Washington's purse strings loosened up for other projects as well. In 1964, President Johnson declared his "War on Poverty," which meant that for the next few years, billions of dollars in federal money went to job training, housing and advocacy programs for the poor. It was not just the poor that benefitted from the growth of social programs. So did the elderly and the infirm. In 1965, two big programs, Medicaid and Medicare, were created. They were joined by another big program, food stamps. In 1966, Social Security benefits, dependent on occasional increases granted by Congress and therefore relatively low, were increased by 13%. In the Nixon years, the increases were larger. Congress raised benefits three times between 1969 and '72 under Nixon. In 1972 an automatic cost-of-living adjustment was added. The benefit for widows and widowers was also increased to 100% of the benefits due to the spouse who had been insured. Finally, in 1972 SSI was started.

An Upward Pressure on Wages

The creation and extension of all these programs were an important factor in the fall of the poverty rate, to some extent directly, and even more so indirectly.

The expansion of income maintenance programs in the late 1960s and early 1970s partially insulated wages from the effects of rising unemployment. Tens of millions of elderly people could stop working because of the extension of Social Security coverage to virtually all occupations, and because of the rise in benefits. The program for disabled workers also produced a sizeable drop in labor force participation: the number of recipients rose to 2.5 million in 1975, and many of the people who dropped out were of prime working age. As for impoverished single mothers, they could apply for welfare. Three million women were on the AFDC rolls by the early 1970s. The food stamp program, enacted in 1965, reached 16 million recipients of all ages by 1975, including the elderly poor, the disabled and AFDC mothers, as well as a small number of working poor and some of those receiving unemployment compensation. Even striking workers could get food stamps.

At the same time, those of the unemployed who remained in the labor market and continued to search for work could get unemployment benefits. In the decades since 1935, unemployment coverage was extended to include 91% of all employed persons, and benefits were liberalized, most importantly by extending the duration of coverage during periods of high unemployment. In the recession of 1973-74, when unemployment rose above 10%, the basic 26 week period of coverage was extended to 65 weeks. (Many workers also received Trade Readjustment Assistance, which often paid thousands and tens of thousands of dollars per person.) As a result, two out of three of the unemployed received benefits. And this often gave the unemployed many months to pick and choose from jobs that were available, thus tightening the labor supply.

All these public income-maintenance programs taken together had a large impact on the labor market. Economists estimated that the social programs reduced the total hours worked by all workers between 4.8 and 7%. Social insurance for the poor, the infirm, the elderly, the blind, those with mental disabilities, and the unemployed, amounted to social insurance for the entire working class.

The Downward Cycle Takes Hold

Faced with multiple crises – the Viet Nam War and the black movement in the cities – Johnson and Nixon had opened the purse strings of the federal government. Given the economic boom, the government was in a better position to pay for "guns and butter." But the end of the war corresponded to the tailing off of social movements.

The end of the war also corresponded to the beginning of economic stagnation and mounting budget deficits. Economic stagnation soon began to squeeze profits. And the capitalists demanded of the U.S. government, like governments everywhere, that they guarantee the capitalists' profits through increased subsidies and tax breaks. This led to a still larger deficit, and fiscal pressure to cut social programs.

However, the problem of entitlements for the capitalists and the government went beyond the budget deficit. For the capitalists looking to boost their profits in a stagnant economy on the back of the working class, the social programs, which had helped to insulate wages, had to go. Thus, the hue and cry against entitlements began.

Of course, the propaganda and prejudices against those on welfare had never really subsided. In the 1960s, Reagan successfully ran for governor of California and Nixon for president based at least in part on this "backlash." This propaganda grew harsher in the 1970s. Not surprisingly, many workers, white and black, bought into these arguments, at least partially, endorsing attacks that would come back to haunt them in many, many ways.

The first program to come under attack was, not surprisingly, welfare. After the 1960s, the welfare rolls were slashed mainly through administrative means, with more cumbersome criteria and procedures added progressively. Eligibility verification procedures were similarly elaborated. As a result, between 1970 and 1990, the proportion of people officially defined as poor who were receiving AFDC fell sharply. At the same time, benefits received were allowed to drift down in relation to inflation. The rule of thumb of government bureaucrats was that welfare, obviously, could not pay more than what those in low wage jobs earned. Even greater cuts were made in General Assistance programs, providing cash payments to more than one million single persons and needy families who were not qualified for either AFDC or SSI.

The assault against the other income maintenance programs got started under the Carter administration, which began to cut unemployment benefits and made them partially taxable. But it was taken up in earnest under Reagan. The result was that those covered by unemployment dropped sharply. In 1975, 81% of the unemployed received benefits. By 1987, the proportion was driven down to 26%, the lowest rate since the program was first introduced in the 1930s. The consequence was greater poverty among the longer-term unemployed. The Comprehensive Education and Training Act (CETA) was repealed, and 400,000 more people were forced into the private labor market. The disability rolls were slashed by half a million although 200,000 were later restored by court order. Changes in the food stamp program cut its cost by almost 20%, and participation rates in food stamps among the poor were slashed from 61% in 1981 to 55% in 1991.

The attack on the social programs undoubtedly helped fuel the large-scale movement of women into the labor force – along with the reduction in men's wages. The resulting cut-backs in social programs that supplement wages, such as health benefits and food stamps, made women all the more vulnerable to onerous working conditions. And restricted access to unemployment benefits or disability benefits or AFDC benefits intensified the fear of being fired, thereby increasing employer power.

Nor was Social Security spared. In the early 1980s, the cost-of-living increase was postponed for one year. However, when Reagan proposed bigger cuts, he was met by an outraged public. So, in 1983 a commission led by the future chairman of the Federal Reserve, Alan Greenspan, recommended large tax hikes in the Social Security rates. The excuse given was that Social Security was in trouble. In fact, Social Security's main problem in funding had been the successive recessions that had led to lower contribution levels. The tax hike from 6.05% to 7.65% produced big surpluses, which were then applied to the federal budget deficit. The tax burden was being shifted from income taxes to extremely regressive Social Security taxes. The portion of Social Security taxes rose from 31% to 37% of federal budget revenues, while income taxes dropped from 60% to 55%. At the same time, income taxes themselves were being made less progressive. Taken together, this meant that the tax system came to weigh much more heavily on the working population, to the benefit of the wealthy and their corporations.

The Impact of the Cuts

Not surprisingly, poverty increased. By the official measure, poverty had fallen from 22.4% in 1959 (39.5 people) to a low of 11.6% in 1977 (24.7 million people). But then it rose to 14.2% in 1991 (35.7 million people), the highest level in a quarter century.

But that was not the worst of it, since the official poverty measure greatly underestimated real poverty. When the poverty line was calculated in the 1960s, the average family spent one-third of its income on food and the poverty line was set at three times food costs. But by 1990, food costs had dropped to one-sixth of the family budgets because other components – such as housing – had inflated at far higher rates. Thus, in reality, by the early 1990s, poverty had soared to almost twice the numbers shown by the official indicator to 25.6%, or 62.8 million people.

Obviously, this downward spiral is continuing with downsizing, outsourcing, wage and benefit cuts in the private sector, in addition to the cuts in social programs.

Today, the typical welfare family draws only $370 per month, that is, less than what rent alone costs, with another $195 in food stamps. And yet, the typical welfare household spends $876 a month, that is, $311 more than the average package of welfare and food stamps. The difference is made up by off-the-books jobs, or what can be begged, borrowed or stolen, literally.

Ostensibly, low-wage work brings more money than welfare. But the difference is eaten up by work-related expenses like clothing, child care and transportation. In addition, 40% of working mothers lack health insurance, while women on welfare receive Medicaid. That is, working mothers are even more prone to hardship; while they may be a little less likely to go hungry, they and their children are much more likely to go without needed medical care. In fact, working mothers have to raise more money from second jobs, boyfriends, relatives and absent fathers in order to survive. In effect, it takes access to a relative who can help out to be able to hold a low wage job – a younger sister or an aunt to baby-sit or a mother to help with car bills. That is, it takes a private safety net.

For the capitalists to go on cutting wages, it becomes imperative that the government cut social benefits even more. All this increases the desperation... and poverty of working people.

And so it continues – until the next social explosions begin. Or until the working class, once and for all, puts an end to capitalism whose very functioning creates such desperation.