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.