Eight—
The Investments Approach

The investments approach to American public social provision is based on the five general principles introduced in chapter 2 and developed in subsequent chapters: reciprocity, supplementing efforts at self-help, inclusivity, social insurance, and social merging. Before detailing specific proposals to realize socioeconomic rights, I want to briefly review these principles.

Reciprocity is the foundation of the investments approach: Those who make constructive contributions to society may reasonably expect nurturing assistance from society with respect to basic needs when social hazards afflict their lives. The moral substance of this norm would probably not be questioned by most Americans. Popular reactions even to AFDC bespeak a willingness to help those who are really in need.^[1] However, applications of this principle are bound to create controversy and conflicts with important tenets of American political culture. To minimize such disharmony, I have narrowly defined constructive contributions as participation in the paid labor force; dependents of participants are also included. To recognize concurrent as well as prior participation, satisfactory performance in a training program is also deemed evidence of constructive contribution to the social product.

In developing the specifics of the basic level of support earned by citizens in exchange for their constructive contributions, I have tried to steer between the opposing reefs of classical liberalism and class-conflict theories. The contemporary libertarian interpretation of liberalism is hesitant about using large-scale public programs to provide nurturing assistance when hazards befall citizens

and resists the notion that these public benefits are rights.^[2] But most Americans are willing to relax classical liberalism and remediate some of the social hazards of contemporary advanced society.^[3] Mainstream political opinion recognizes the distressing limitations of both the labor market and community in a purely individualistic society.

Proponents of class-conflict theories, of course, will challenge the rationale of making social program benefits generally contingent on participation in the paid labor market, which they view as an instrument of exploitation. I have sympathy for this view. To be sure, there is little free consent on the labor side of the labor-management nexus.^[4] Nonetheless, this perspective will not be politically influential in America in the foreseeable future. Accordingly, it is only by partaking of certain socially approved activities that those on the fringes of society can hope to merge with the socioeconomic mainstream, thus achieving societal membership and earning personal dignity. And despite the inequities of the labor market, most Americans want the membership status and personal dignity that come from constructively taking part in society as others do.^[5] The investments approach would replace the stigmatizing aspects of public assistance with opportunities for dignified social merging.

My second principle is that social programs be designed as supplements to citizens' self-help efforts. Accordingly, benefits should be formulated to augment—rather than replace or discourage—a recipient's income. Two distinct implications follow from this principle. First, benefits should generally provide less than complete support. Recipients of income-maintenance benefits should be required to augment those benefits in order to live comfortably and should pay a share of the costs of medical services. Second, although benefits are earned, social programs should not be expected to readily supplement the incomes of well-to-do households that cannot reasonably be portrayed as suffering from a social hazard. A minority, but nevertheless a significant number, of social security households now pose problems in this regard. If retirement represents a period of luxurious leisure rather than a social hazard, the case for applying social program benefits is increasingly untenable. Rather than reducing or eliminating earned benefits through means or income tests, however, I recommend taxing

benefits in order to limit the public support that goes to wealthy households.

Inclusivity means that assistance in times of hazard will be accessible for all citizens who meet two criteria. First, the individual must have experienced a covered social hazard: disabling illness or injury; childbirth and child-rearing; aging; family dissolution due to death, divorce, or desertion; and unemployment. Second, the individual must have either made or be making the required contribution with respect to the labor force. In other words, a relevant need of assistance buttressed by the willingness to engage in constructive activity are the sole requirements to be certified. Broad measures of eligibility will make social programs useful to a wide portion of the population over time. Wide usage and the certification of recipients ought to prompt stronger support for these programs from the public and from powerful political figures.

These three principles—reciprocity, supplementation, and inclusivity—point us toward social insurance as a vehicle for resolving many resource inadequacy problems. The concept of social insurance, as we have seen, fits fairly well with American political culture, and the example of social security has set a successful precedent for social insurance using personal accounts. Thus my proposals rely heavily on social insurance programs.

Some resource inadequacy problems, however, do not lend themselves to programs requiring prior contributions. In these instances, social merging programs can extend the social insurance concept to allow for concurrent rather than prior efforts. Social merging programs that demand an effort-based quid pro quo rather than providing means-based public assistance also fit fairly well with American political culture. Their undeniable disadvantage is that they would inevitably force many people to accept undesirable jobs, thereby contributing to the exploitation of the economically weak by the economically powerful. But the advantages of this approach are nonetheless compelling: the effort requirement would allow recipients to maintain their dignity and societal membership; the provision of benefits to supplement recipients' self-help efforts would create incentives for recipients to act in socially approved ways; and the public perception that benefits were not handouts but earned assistance would reduce political attacks on welfare.

The heart of the investments approach resides in these principles, not in the specific proposals outlined in this chapter. Although the following proposals are indicative of my preferences for realizing socioeconomic rights, implementation of the investments approach could take many alternative forms.

Social Insurance

My central suggestion here is to expand the social hazard coverage of the social security program to provide short-term income-maintenance benefits in the event of disabling illness and injury, childbirth, absence of the primary household breadwinner due to desertion or divorce, and unemployment. In order to fund these new benefits with minimal increases in payroll taxes, I offer three proposals to reduce social security outlays for retirement benefits.

Retirement

The current income-maintenance provisions for retirees and their surviving spouses are adequate. My proposals are directed at controlling the cost of these benefits.

First, I propose selectively raising retirement ages so that people in relatively sedentary jobs will retire later than people in jobs that are physically demanding. The range for eligibility to receive full social security benefits might extend from sixty-two to seventy. Such a system of scaled retirement ages would offset to some degree the bias of the current system in favor of white-collar workers, who begin work later in life and generally live longer. As a safeguard, career tracks could be defined such that people could not qualify for early retirement by shifting occupations late in life.

Second, I propose linking benefit levels to increases in the consumer price index after retirement, rather than the current system of continuous benefit indexing during future beneficiaries' working years. This change would have the practical effect of making social security less like a defined-benefit plan and more like a defined-contribution plan.^[6] Increases in initial benefit levels for succeeding cohorts of retirees would be left to the discretion of the political process. As they do now, benefit cash values would vary directly with earnings, and replacement rates would vary inversely with earnings.

Third, I propose taxing a progressively larger portion of retirees' benefits as household income rises. For example, a portion of

benefits would become taxable when a household's total income reaches one-half of the national median income. The portion of benefits subject to tax would increase with income, and all benefits would be taxable for households at or above the median income. Such an approach would assure benefits for those who have paid into the social security system but also reduce the net cost of public social provision for households with relatively comfortable incomes.^[7] This approach also reflects the basic purpose of social insurance, to mitigate social hazards. If little hazard appears, only minimal insurance needs to be applied.

Other proposals might be made to address such issues as the equitable treatment of couples as opposed to single persons, but these are beyond the scope of my intentions here.

Disability

The social security system now provides income-maintenance benefits for qualified workers who suffer a long-term total disability. I propose extending this program to cover short-term disability due to illness or injury. This coverage would supplant the income-maintenance aspects of workers' compensation and would extend protection to non–job-related illness or injury. Benefit levels would be determined under formulas similar to those now used by social security as amended by my proposals above.

With respect to long-term disability, I propose that we reexamine the concept of total disability, particularly for younger workers. It seems reasonable to retrain younger workers for whatever occupations their disabilities allow and to assist them with job placement.^[8]

Childbirth

I propose providing women workers with income-maintenance benefits for a brief period (say, three months) before or after childbirth. Restrictions could be placed on the number of times (twice?) a woman could use these benefits. Again, benefit levels would be linked to earnings histories.

Survivorship

Social security now provides survivorship benefits for dependents of qualified workers. These benefits seem appropriate for retirement-aged surviving spouses, but I propose restricting survivorship benefits for working-aged adults. Working-aged spouses would be allowed to collect benefits for no more than, say, five years, and children could collect benefits until age eighteen (age twenty-two for full-time students). These provisions would restore college benefits for children but require that spouses adjust to their new circumstances within a fixed period.

Desertion and Divorce

I propose that working-aged adults and children separated from their family's primary breadwinner by divorce or desertion receive short-term (perhaps one month) income-maintenance benefits at levels comparable to other social insurance coverage. (Longer-term provision is discussed in the following section on social merging.) As with childbirth benefits, eligibility could be restricted to two or three times in an individual's life.

Unemployment

I propose that short-term (perhaps one month) unemployment insurance benefits be offered through social security. (Again, long-term provision is discussed in the following section on social merging.) Limits on eligibility could be set at once every two or three years. This proposal would replace the current system of unemployment insurance.

Administrative safeguards

Some safeguards will be needed to prevent workers who have achieved initial eligibility for extended benefits from abusing the system by creating a series of illnesses, injuries, childbirths, family dissolutions, or unemployment episodes to avoid the workplace. One such set of safeguards includes my proposed limits on the duration of benefits and the number of times a worker could collect certain benefits.

In addition, a blanket rule could restrict the overall use of benefits to a specified portion of a person's working life (from the end of his or her formal education to retirement). This proportion could be expressed on a sliding scale, with younger workers eligible to receive benefits for a fairly high proportion (say, 30 percent) of their working life thus far, and older workers limited to a much lower percentage (say, 5 percent) over a roughly forty-year working life. This scale would accommodate the high incidence of legitimate hazards appearing early in life, while clearly implying that sustained periods of participation in the labor force are required to earn benefits.

Costs

I have suggested several ways to cut the current costs of social security benefits for retirement, long-term disability, and survivorship as well as outlays for current workers' compensation and unemployment provisions. Though no one can accurately predict the results, I suspect that these savings will be more than offset by the costs of my proposals to extend social security coverage to short-term disability, childbirth, and household dissolution.

Should it be necessary to further increase revenues, my preference is for a progressive social security tax on all wages. The

rate for a worker's first $10,000 of annual income could be held at the current rate (7.51 percent) or even reduced a bit, with slightly higher rates for each tier of income, defined in increments of $10,000. In conjunction with the progressive taxation of social security benefits, this proposal would require ever closer coordination between the Social Security Administration and the Internal Revenue Service.

Social Merging

The heart of my proposals to facilitate social merging lies in expanding the incentives, opportunities, and capacities for self-support for those persons near or beyond the fringes of the labor market. Complementary measures are intended to enhance the capacity of the existing labor market to provide these people with full-time employment.

Incentives

In order to increase the incentives for self-support and decrease the "unintended rewards" that our current system sometimes provides for not working, I propose limiting public assistance to Supplementary Security Income (SSI) and including only persons with certifiable total physical or psychological disabilities and elderly persons not covered by social security. We should be fairly hard-nosed about admitting people to this program, but those who do meet the criteria should also be entitled to more intensive therapeutic and custodial care than is now typically available. Such care might be entrusted to private charities that accepted federal guidelines, perhaps with some public funding assistance.

Rather than terminating much of current public assistance in one motion, we could gradually phase out assistance to various categories of recipients, beginning with those who have the surest prospects for success in social merging programs.

Opportunities

First, to assist unemployed working-aged adults in increasing their opportunities for self-support, we can reinvigorate our system of public employment services so that they serve more adequately as labor exchanges.

Second, to facilitate parents in entering the labor force and contributing to the support of their households, I recommend establishing a social insurance program of universal supplementary chid

allowances. In contrast to the social insurance programs mentioned in the preceding sections, these allowances would be sharply income-variable and would involve substantial vertical redistribution. Since this is the least conventional of my proposals, I will describe it in greater detail.

Let us consider a program that would provide income-variable supplementary benefits for up to three children per household. This program would cover all American households, including the vast majority of the children now served by AFDC, without subsidizing undesirably high birthrates. Households with annual pretax incomes up to that resulting from full-time work at the minimum wage (currently about $6,700) would be eligible for the full benefits; there would be no work disincentive for these low-income families. Benefit levels would be sharply staged so there would be minimal incentives for new births. And benefits would be taxed as income, further reducing the income-variable benefits for middle-and upper-income families.

Full benefits would be set at $175 a month for the first child, $125 a month for the second child, and $75 a month for the third child—for a maximum of $375 a month, or $4,500 a year. Thus a household with wages equal to those derived from full-time employment at the minimum wage and three children would have a total pretax income of $11,200 ($6,700 + $4,500), placing it at approximately the current federal poverty level for households of this size.

Households with income above the level provided by full-time employment at the minimum wage would see their benefits reduced dollar-for-dollar down to a universal minimum benefit of $75 a month for three children ($35 for the first, $25 for the second, and $15 for the third).^[9] This scaling would keep benefits extremely modest for middle- and upper-income families, although it might reduce incentives for low-income families to increase wages modestly. But these graduated levels of benefits would concentrate public social provision on households with the greatest need for child allowance supplements; that is, this program would have high target efficiency.

This program would be financed by a progressive payroll deduction on all wage earners. In addition to involving a substantial degree of vertical redistribution, this program presents an unusual

case of life-cycle redistribution, since child-rearing characteristically comes fairly early in adulthood.

It is possible that the benefit levels I have suggested would allow some rural households to subsist with little or no labor-market participation or would encourage families to migrate to rural regions.^[10] Should these consequences become problematic, benefits could be adjusted to discourage such activities, although moderate levels of migration might well be preferable to current inner-city conditions.

There are other means of striving to assure minimum levels of support to children. Indexing the minimum wage to the consumer price index and enforcing child-support court orders to noncustodial parents are frequently discussed. While neither of these options would contradict the general principles of the investments approach, neither would as efficiently and thoroughly accomplish the ends served by the child allowance system I have described. Indexing the minimum wage is not likely to concentrate resources such that single parents with limited skills can support more than one child. Increasing the rigor of child-support payments, as Wisconsin and other states are doing, will not facilitate household support for children whose noncustodial parent is unidentified, incommunicado, unemployed, or destitute. Thus I see these two options less as alternatives to child allowances than as sensible additional measures serving related, but distinct objectives.

My third concern regarding opportunities is that we cannot reasonably insist that parents, particularly single parents, work full time unless affordable child-care is available to them. Here, we have several alternatives in addition to commercial child-care centers: subsidies to employers who create child-care facilities in their workplaces, public child-care extended through the public school system, and reimbursements to parents for the costs of paying relatives or neighbors to look after children. The crucial point is that, while child-care raises the costs of social merging, many parents—especially single parents—cannot contribute to the support of their households in the absence of some provision for child-care. Whatever specific measures we adopt, we must make child-care available at subsidized rates for low-income families.

Collectively, the proposals in this section are designed to enhance individual opportunities by: (1) improving information about work

opportunities, (2) supplementing the financial returns of work on the fringes of the labor market for households with children, and (3) facilitating employment through the provision of adequate, affordable child-care.

Capacities

My recommendations here comprise measures intended to improve unemployed and underemployed workers' capacities for greater labor market participation. First, we need public work programs for young unskilled workers. Such programs could take many forms, including the model of the Civilian Conservation Corps (CCC). These would not be expensive or extensive training programs designed to teach sophisticated skills, but rather programs intended to instill basic work habits (attendance, punctuality) and to provide participants with an employment history.^[11] In effect, these programs would certify participants as good bets for subsequent employment and training by private employers. Small-scale work programs would be particularly appropriate in remote areas; in that context programs would be minimally disruptive of local economies.

Second, we should offer sophisticated training, retraining, or education programs to adults with satisfactory records of employment (say, encouraging work histories of at least five years) who face sudden labor market problems—such as layoffs in declining industries—and to parents (generally mothers) in households that experience changes in membership that compel them to enter the labor market. Giving individuals in these two categories opportunities to upgrade their labor market capacities is a social investment more than likely to return its costs, as participants' subsequent income tax payments are apt to exceed training expenditures. Among all high-unemployment groups, for example, single-parent homemakers have been the most successful in taking advantage of training opportunities to move on into full-time employment.^[12]

By satisfactory progress in these training programs, participants would also earn temporary income-maintenance support, in effect a scholarship to subsidize their vocational education. The amount of this support would equal that provided for unemployment or family dissolution under social insurance.

Complementary measures

To further expand the demand for unskilled, semiskilled, and entry-level workers, the federal govern-

ment could create more low- and midlevel positions as well as provide subsidies for state and local governments that wish to do the same. These efforts would help to replace the decent-paying jobs lost in manufacturing and thus increase the capacity of the labor market to provide positions capable of supporting households, particularly for the residents of central cities.

Demand could also be enhanced by offering employers in the private sector tax incentives for creating new low- and midrange positions. For example, a sharp tax break could be available to employers who increased their payrolls by a small percentage. This percentage would deliberately be relatively small to minimize displacement and training problems.

Implications for Housing and Education

Although housing policy and education are not an integral part of my analyses and proposals, the investments approach holds several important implications for public services in these areas. Chief among these is the principle that the public provision of basic goods and services needs to be tailored as closely as possible to the peculiarities of our nation's political culture. In many other advanced industrial nations, for instance, direct public provision of housing units is widely practiced and accepted. But in the United States such programs are generally aspects of public assistance and, with the exception of projects categorically limited to the elderly, residents often feel stigmatized.

Housing subsidies

Consistent with current trends in American policy,^[13] approaches that help recipients of public assistance participate in the regular housing market are desirable. This preference is not so strong as to mandate massive and abrupt changes in housing policy. And in specific urban areas, and perhaps other locales, expanded direct provision of accessible public housing units remains essential.^[14] But overall I would suggest that housing is best regarded as an aspect of income maintenance and that we continue to reduce the direct public provision of housing units, as feasible.

The use of housing vouchers, rather than cash payments, is an option that has achieved some support in recent years.^[15] Vouchers involve more complicated administrative services than cash, but

they may be more politically acceptable to citizens who raise suspicions about how public program recipients use their benefits. Vouchers are compatible with an approach to housing as an income-maintenance matter as long as the vouchers are legal tender for housing, and recipients are allowed some flexibility with respect to rents. For instance, households eligible for income-maintenance payments under social merging programs might be given a housing voucher worth one-half of their monthly cash benefits. Thus benefits for housing would amount to one-third of the income-maintenance total. Recipients could choose whatever housing they preferred, paying higher rent or home payments out of their pocket. This feature would be particularly helpful for families who do not want to move or sell their homes during a short-term disruption of income. And we ought also to continue giving recipients cash rebates for rents that do not consume a stipulated portion of their income-maintenance benefits.

Education

My analyses and proposals also hold interesting implications and opportunities for expanding the public school system. First, the system could be expanded to provide more vocational education for adults. Such programs would facilitate my proposal to offer training for experienced workers and would also create good jobs in the public sector.

Second, as mentioned in my discussion of child-care, one mechanism for providing affordable child-care would be to extend the public school system to include preschool programs for younger children.^[16] This suggestion would also serve to create new jobs in the public sector.

Together these two programs would also link people's lives more thoroughly to the public school system. And public support for the schools might increase as schools expanded their service capacity and became a focus for family and community services.

Finally, the principle of using social policy to reinforce desirable activity could be applied to stem the tide of parents' transferring their children from public to private schools. A particularly troubling aspect of this trend is that many parents who have opted out of the public school system are precisely the concerned activists who, had they stayed, would have expressed their dissatisfactions to teachers and school administrators, and thereby would have instigated changes and improvements.^[17] One way to encourage par-

ents to keep their children in the public schools would be to give students who attend public schools some degree of preferential treatment with respect to public financial aid for postsecondary education.

Medical Care

Some crucial aspects of the provision of medical care—gaining the requisite cooperation from physicians and other medical-care providers—lie outside the primary focus—socioeconomic rights of citizens—of the investments approach. Unfortunately in light of this, other aspects of medical-care provision—assuring people financial access to medical care—remain integral concerns of the investments approach. It would be much simpler to follow the libertarians by limiting ourselves to an income-maintenance system;^[18] however, such an approach will not assure citizens protection from common social hazards. The need for medical care is highly intermittent for most people, but the costs—once care is needed—are frequently quite high. These features make it infeasible to cover the provision of medical care through income-maintenance means. Instead, health insurance that assures access to care at manageable cost—the technique adopted by the contemporary American upper middle class—is the appropriate tool.

The process of assuring access to medical care in such a fashion need not entail confronting the providers of medical services with intolerable changes. What I have in mind is a system similar in some respects to the decentralized, quasi-public national health insurance of the Federal Republic of Germany. This system should have the following general features. With respect to depth of coverage we need to develop a reasonably comprehensive national minimum. In most areas of provision this minimum could be similar to the current Medicare. But we should place some feasible, income-graduated maxima on out-of-pocket annual expenditures (for incomes below $10,000, $500; for incomes between $10,000 and $20,000, $1,000; and so on). With respect to breadth of coverage, this program should represent an integral aspect of employment. The carriers themselves would be the existing private insurance companies. And coverage would be extended throughout the working population by public subsidy for certain groups of employers

and employees. Households with children, even those with no employed adult, would be served through the deduction of the relevant insurance premiums from the universal child allowances. These broad features leave the practice of medicine relatively unchanged for most providers. The basic changes are the extension of access to medical care through the requirement that employers offer their employees insurance coverage meeting the minimum criteria and the use of public subsidies to help pay for coverage.

With this brief overview behind us, let us look with greater care at the specifics. My guess is that developing this sort of coverage requires as a prerequisite the establishment of a national bargaining council, as discussed at the end of chapter 7. This council, operating within general guidelines such as those outlined in the previous paragraph, would create an initial version of the specific rules about prices and limits. Existing providers could expect to continue their activities as relatively autonomous units as well as to receive their customary incomes. Public officials in return would gain assurances about future cost increases. I would anticipate that limitations on provider practices would initially be fairly modest and would grow with time, experience, and the gradually broadening recognition that the providers of medical care in America form an industry, and that, as is the case for other important service industries, some degree of public regulation is necessary.

The most important aspects of the initial measures involve extending access to medical care to working-aged Americans and their dependents. The basic mechanism here involves a program of subsidies to low-income employees, and as necessary to small-scale employers, that allows employees to join a system of compulsory medical-care insurance meeting minimum national criteria. The employees of small-scale employers might, for instance, be consolidated into several groups for which risks are shared by private carriers with federal subsidies.^[19] Employers could be required to offer a choice of plans varying in coverage, expense, and manner of care—HMO or traditional fee-for-service. And a variety of cost-control features should characterize minimum coverage as is increasingly the case for existing private group insurance. The central objective of this coverage would be to place feasible upper limits on the annual out-of-pocket medical expenses of families in varying income ranges. Conventional practices with respect to deductibles

and coinsurance would not be excluded—only limited—by this goal. Whether coverage would extend to all known treatments would have to be debated in the bargaining council. These aspects as well as other facets of coverage limitations would be subject to change and, as with other rights' limits issues, would represent public decisions about cultural conventions.

Households with children would be covered under this program, regardless of the employment status of their adults, by virtue of an automatic system of deducting the relevant insurance premiums from the child allowances. This practice is consistent with the conception developed in chapter 2, that children are not responsible for their predicaments and should have support extended to them on the basis of need. Collectively, these two proposals would cover employed households and households with children. Unemployed single adults and childless couples should be able to join this insurance scheme at subsidized rates similar to those available for employed persons. These high-risk individuals could be spread across insurance carriers so as to minimize the problems of specific companies.

Individuals for whom an episodic social hazard did not mean an end to employment would be covered by the system described above. Those whose hazards spelled an end to employment—retirement or long-term total disability—would be picked up by the Medicare program. This program would also serve those enrolled and making satisfactory progress in job training programs. People whose disabilities placed them in the residual SSI program would also come under Medicare, but hopefully under expanded provisions that allowed appropriate human-intensive care.

Existing Medicare provisions can generally stand. But I do propose some changes that would bring Medicare into line with my other medical-care proposals. First, I propose an out-of-pocket ceiling for covered care similar to that for the households of working-aged adults. Second, we should extend limited coverage of low-intensity care for chronic conditions. Third, I propose cutting back the degree to which public programs support prolonging the lives of terminally ill patients.

Realizing these provisions would assuredly add to the proportion of GNP that is funneled into the medical-care sector of the economy, and it would add as well to the costs of public programs

directed at medical-care problems. For these reasons it is crucial that the provisions follow the efforts described in chapter 7 to create cost-control structures by both public regulation and market means. I suspect that no one could predict with any accuracy the cost increases that these proposals would involve, but I will identify major components. Extending minimum national medical-care insurance coverage to working-aged adults and their dependents will involve the largest single cost increase. I have suggested a way of placing limits on these increases by explicitly raising the possibility of placing some new, expensive, and exotic treatments beyond the limits of this minimum coverage. Coverage for these treatments should be available for those who want and can pay for it, but it need not be included in the initial basic minimum public coverage. Within Medicare, expenses would rise as a consequence of realizing these proposals, primarily due to the addition of new beneficiaries—participants in job training programs and SSI beneficiaries. The three recommendations that I made with respect to the existing Medicare provisions offset one another. Adding annual out-of-pocket payment ceilings and limited low-intensity care for chronic conditions would both increase expenses, but these increases would be largely offset if substantial cuts were made in the use of Medicare to prolong the lives of the terminally ill. The overall increases in public medical-care expenses that these proposals entail would add to the case for building progressive tiers into social insurance payroll tax deductions.

The Investments Approach and American Values

Anyone can, of course, trot out a series of social policy measures that sound encouraging to sympathetic ears. That is, however, not the point of the foregoing. Rather these proposals not only address a broad range of the social hazards prominent in contemporary America, but they do so in a fashion consistent with the five general principles discussed at the outset of this chapter. These principles are, in turn, consistent with important values of the American political culture. I will argue the case for these claims by applying the questions used in the case studies of chapters 5–7 to these proposals. Since my proposals cover a broader gamut than

any of the individual programs examined earlier, I will only sketch out the highlights, both encouraging and discouraging.

Distributive Justice

As important as any characteristic that this package of proposals offers is a set of criteria for the distribution of benefits that is more rigorous than either contemporary public assistance or some aspects of American social insurance. The dominant distributive criterion realized through these proposals is the exertion of effort in the paid labor market. Benefits are earned through prior or concurrent contributions of effort, which are recorded in individual accounts. The investments approach thus affords vulnerable citizens a dignified means for coping with a variety of social hazards. The distributive criterion of results (vertical equity) characterizes these proposals as well, since benefit levels reflect past earnings, just as current social security benefits do. This effect, however, is diluted by the taxation of benefits paid to middle- and upper-income households. Taxation also reinforces the fairly strong linkage of benefits to the provision of basic resources, a tie established by the supplementary character of the benefit levels. That benefits are intended to supplement recipients' efforts at self-support both precludes total dependency and enhances dignity.

Considered collectively, these proposals involve enough vertical redistribution to represent an assault on property more extensive than that entailed by existing social programs. Both the child allowances and the medical-care proposals, for example, address distinct concerns by redistributing resources toward our most vulnerable and needy populations. But these proposals temper vertical redistribution with the constructive-efforts requirement for working-aged adults; only children and the severely disabled are excused from this rule.

In summary, these proposals do not assure every citizen of support; rather, benefits are a quid pro quo. In this regard, these proposals have more in common with the market than with a system of distributive justice based on need. But whereas the market represents a results-oriented struggle, the survival of the most capable, these proposals operate on the basis of effort. Under the invest-

ments approach, market forces are supplemented by a measure of public provision so that people who apply themselves to support their households will have a much better chance of being able to afford basic goods and services.

Negative Liberty

One drawback of relying more heavily on social insurance is that its compulsory character would pervade life more thoroughly. As noted in chapter 5, however, the compulsory nature of social security has not provoked even moderate opposition. Indeed, in chapter 7 we found an example of people jumping at the chance to participate in a voluntary program of publicly subsidized insurance, SMI (Part B of Medicare). We do need to keep in mind, of course, that most social security beneficiaries to date have received far more in benefits than they have paid into the program,^[20] and far more than they might have reasonably expected from committing similar amounts to private investments. But, for the programs I am proposing, the ratio between contributions and benefits will be less heavily weighed in favor of benefits, which may create more reluctance about compulsory participation. The breadth of social hazard coverage and its inclusivity regarding potential recipients may, in turn, offset this reluctance to some degree. Apart from compulsory taxation, these proposals do not restrict the liberty of recipients in formal ways.

The private professionals most obviously affected by these proposals are physicians and other providers of medical services. My proposals require that, in return for reasonable income guarantees, these providers will increasingly have to share decision making about the ends and means of medical care with public officials. Like other basic service industries, the medical-care industry will become increasingly regulated.

Additionally, these proposals have disconcerting consequences for social workers. Apart from the scaled-down program for psychological and physiological disability, my proposed programs do not call for caseworkers. The role of caseworkers in the public sector would be reduced to activities in the criminal justice system and medical institutions.

Economic Efficiency

These proposals embody strong work and savings incentives. By and large, contributions in the form of paid labor would be necessary for program eligibility, and benefit levels would be designed to supplement household efforts at self-help. The proposed limitations on the use of individual hazard provisions and the blanket maximum-use provision represent safeguards against abuse and malingering.

The starkness of the work incentives would appear to strengthen the hands of corporate managers and entrepreneurs, although program costs would offset to some degree whatever advantages accrue to managerial risk-takers. The higher payroll taxes would surely increase the cost of doing business in the United States, but they would not raise such costs beyond those now incurred by some of our important international competitors—the Federal Republic of Germany, for instance.

A less sanguine possibility is that these proposals might reinforce either of two disturbing trends in the labor market: the bifurcation of the labor market between highly skilled, well-paid workers and relatively unskilled, minimum-wage workers or the exportation of jobs offshore.

Without doubt, these proposals would cost more than we now spend for social security, Medicare, Medicaid, AFDC, unemployment benefits, workers' compensation, and SSI. One cannot predict how much more. While the social insurance components would dominate expenditures, the greatest proportional cost increases are likely to come in the social merging programs. Relying more heavily on social insurance would shift the costs of public social provision more thoroughly to those who enjoy its benefits; the increased costs of social merging would represent the price of dignity, the price of creating conditions that facilitate dignified self-help.

The heavy reliance on social insurance and the supplementary character of benefits would create a life-cycle redistribution pattern. Substantial vertical redistribution would be injected by the child allowances, the proposals to expand the labor market, and the benefits for adults enrolled in training programs. These elements are essential for social merging, however, and each requires

formally or informally some type of quid pro quo from program recipients.

Through their inclusivity these proposals generally avoid the problems associated with focusing public social provision on particularly disadvantaged groups. Even the child allowance program is universal, albeit income variable, thus affording higher target efficiency.

Administrative Complexity

The social insurance proposals would require a substantial escalation of administrative activities within SSA and related bureaucracies. For this reason, the programs should be phased in over time rather than implemented simultaneously.^[21] The income-maintenance programs call for precisely those activities we already accomplish fairly well; they would require an increase in the quantity of administrative activities, but not a change in their nature. Other proposals, such as job training and child-care in particular, would require a greater degree of decentralized complexity. In dealing with particular recipient groups, these programs are likely to confront the difficulties identified in chapter 4. But even here we have some encouraging experience in each of these areas,^[22] and my proposals are generally tailored to these experiences.

Overall, these proposals attempt to come to grips with the major limits and harmonization issues. With respect to limits, different mechanisms apply to income maintenance and medical care. For the former, the principle of supplementary benefits and the progressive taxation of benefits assure that most benefits will be used to purchase basic material resources and that households with high incomes from other sources will receive only limited benefits.

In the case of medical care the limits problems are more severe. Rapidly expanding technological capabilities and growing uncertainties about the cost-benefits of existing practices create systematic dilemmas about the appropriate limits of medical care, particularly the public provision of care. Social programs cannot resolve these problems, but my proposal for a bargaining council provides a mechanism for focusing national policy discussion of limits issues. More importantly, the bargaining council's initial

recommendations and decisions—controversial and inadequate as they might be—could prompt a much-needed ongoing national debate on these issues.

One harmonization benefit of the investments approach lies in the complementary nature of the distinct provisions. The independent programs mesh together to avoid gaps or duplication of coverage and to provide consistent incentives for self-support.

But other harmonization issues may be exacerbated by the investments approach. The cost will create new budgetary difficulties, and the denser public policy environment may provoke unforeseen problems. Additionally, these proposals would stimulate aggregate demand and employment, thereby raising inflationary pressures. Despite selective measures to constrain these pressures—the supplementary character of benefits, the focus on high-unemployment populations, and the regulation of medical costs—these proposals are inflationary.

Overall, however, the investments approach represents a practical realization of the five principles central to American values in the area of socioeconomic rights. As national programs, though, these proposals do not operationalize concepts of limited and local government.

Conflicts of Interest and Compliance

For beneficiaries the investments approach provides broad humane incentives for cooperation in that programs would respect and reinforce the dignity of individual beneficiaries and their membership in society. Inclusivity and reciprocity should also reduce conflicts of interest between public officials and beneficiaries, while enhancing popular perceptions of public social provision. All constituencies would realize that prospective beneficiaries would include a broad cross-section of the American voting population, not just small categories of the particularly disadvantaged, and that through social programs the nation's public policy would be encouraging responsible behavior.

Conflicts of interest between private providers of medical care and public officials over costs and professional autonomy are likely to be aggravated, however. The best that the investments approach offers physicians, hospital administrators, and insurance com-

panies is the tradeoff of fairly lucrative financial returns in exchange for a loss of autonomy with respect to the ends and means of medical care.

While social workers may protest their reduced role in the new programs, these programs would expand opportunities for third-party providers of employment, job training, and child-care services.

Prospects

On balance, the investments approach represents an improvement over existing social programs with respect to core American values. It is reasonable to ask whether this approach will work. Clearly, no set of proposals will meet each and every person's needs. But within the context of American political culture, the programs I have recommended would demonstrably facilitate and supplement socially desirable efforts at self-help.

It is also reasonable to ask whether the investments approach is a neat theory that bears little relation in practice to the day-to-day lives of taxpayers, program beneficiaries, program bureaucrats, or prominent public officials. The investments approach, it might be argued, is just labeling. But in political matters, labeling and perceptions are crucial. And from the standpoint of the personal dignity and societal membership of program recipients, an earned income supplement is far preferable to an imposed work-fare assignment or public assistance that is viewed by fellow citizens as a handout.

Compared to current practices in other advanced industrial societies, my proposals may be criticized as being too narrow. The child allowances, for example, assure only poverty-level incomes for parents who work full time. This degree of generosity is not exactly stunning. And American society would probably be the better for it if we could bring ourselves to be more generous, by including, for instance, rearing children and housework among the contributions to the social product that would merit support. However, our political culture would not accept the establishment of the broader programs that many other advanced industrial societies take for granted.

I conclude that we have the moral, political, and economic tools

necessary to reduce social problems through the improvement of social insurance and the development of social merging programs. I will now turn to the question as to whether we will choose to use these tools. Can we expect a set of proposals such as these to be adopted in the near future?

For several reasons, I think the best we can expect is a slow incremental reform of current policies and procedures. One source of opposition to the investments approach will come from people committed to a highly limited state. People for whom market distribution, negative liberty, and the economic efficiency of unadorned market operations are extremely important will be far less impressed by the proposals offered here than people for whom these values represent only a portion or a limited conception of "the good." Further, although the design features of the proposed programs fit important American values, experience has shown us that compatibility or incompatibility is not a good predictor of the ease in adopting new social programs. Despite its compatibility with American values, Medicare faced decades of opposition, while the notably incompatible AFDC was adopted far earlier. Value compatibility does appear to have eased problems for Medicare's operation once it was adopted, however.

Yet even if we set aside lingering value conflicts, my proposals would have to compete with a host of meritorious projects for scarce public resources. The dollar cost of the investments approach is high, and so, too, therefore is the opportunity cost of implementing it. Successful adoption of the investments approach would require a fairly broad cross-section of prominent American public officials—the president and key members of Congress—to place it high on their priorities and political agendas. But a constellation of factors makes a broad consensus on reform a relatively rare event in American politics. Some of these factors are cyclical. Samuel P. Huntington describes sixty-year cycles in American politics that involve impressive reform efforts at one juncture, but he conceives of these reform periods largely in terms of attacks on state power.^[23] (For that reason, he does not include the New Deal—an effort to use state power to solve social problems—among his reform periods.) Even if Huntington is incorrect about the duration or motive of reform movements, clearly the mood of American political elites during the last decade has not been sup-

portive of social program reform in any sense other than cutting costs.^[24]

Hugh Heclo detects another historical pattern, identifying four periods in the development of social programs in advanced industrial societies: experimentation (1870s–1920s), consolidation (1930s–1940s), expansion (1950s–1960s), and reformulation (1970s–?).^[25] The dates fit Western European history better than American, but the last two phases of this pattern are relevant to recent American experience. The United States expanded social provision sharply in the late 1960s and early 1970s, and it did so in ways that fit poorly with American political culture. As would be expected, these expanded activities—at odds with cherished values—have drawn increasing attention and raised a hue and cry for reformulation. But these dissatisfactions began precisely at a time when the postwar economic boom yielded to the stagflation of the mid-1970s. As a consequence, social programs have had to compete for resources in a more constant-sum economic environment.^[26]

Yet another set of obstacles to comprehensive social program reform is posed by the relatively meager capacities American national political institutions have for sorting out diverse claims and forging a coherent national agenda.^[27] As social programs have become more prominent in American politics, their development has become a focus for more numerous interest groups, none inclined to compromise.^[28] In this light the interlocking character of my various proposals probably represents a political liability. Failing an unexpected cataclysm,^[29] such as war or depression, the current political environment is much more likely to allow piecemeal changes rather than a systematic renovation of American social programs.

The relative impotence of American political parties further muddles the characteristically American situation of highly fragmented, competing priorities and agendas among prominent political officials. A determined president joined by key congressional leaders could, for instance, establish the bargaining council that is prerequisite to national medical-care insurance. But the presence of a private insurance system for the upper middle class and well-organized workers siphons off much of the voice that would help prompt such widespread determination among preeminent political officials.^[30] And while social programs sometimes draw unex-

pected benefits from the interaction of competing elites,^[31] it is unlikely that the side effects of contention will produce an integrated scheme of proposals.

For all these reasons, the best we can expect is that any new policy increments will follow principles more in accordance with important American values than was characteristic of the changes enacted in the mid-1960s and early 1970s. This forecast may frustrate proponents of public social provision, but it would certainly be preferable to the recent calls among political elites for a general retreat from social programs. The call to retreat is hardly worthy of political theories and practices that profess to place significant value on the individual. Weaknesses in social programs do not discredit the underlying needs that socioeconomic rights address, and we have seen that these rights are crucial to individuals living in an advanced industrial society. In a rush to rectify poorly designed programs, we must be careful not to abdicate our responsibility or abandon our principles about defending individuals. Rather than retreat from the difficult issues of public social provision, we need to make more careful determinations of what forms of defense are appropriate, supported by a clearer vision of the limits of state capacities.