Arthur J. Altmeyer
SOCIAL SECURITY--SAFETY NET OR FEATHER BED?
An Address by Arthur
Chairman Social Security Board
At The Commonwealth Club
San Francisco, April 2, 1943
Hardly a decade ago the very term "social security" had not come into existence. In those days, that now seem so remote, the discussions ranged around the question of whether we should even embark on a social security program for this country. Now social security is an accepted goal of the democracies, I might say the chief goal of the democracies, and discussion now centers upon precise ways and means of improving our social security program.
Ernest Bevin, the Minister of Labour of Great Britain, has termed social security "the main motive of national life, both in wartime and in the peace to follow." So has Jan Smuts in far off Africa. The Atlantic Charter, endorsed by the 32 United Nations, proclaims that "they desire to bring about the fullest collaboration between all nations in the economic field with the object of securing, for all, improved labor standards, economic advancement and social security."
But there is some danger that the term social security has come to have such an inclusive meaning that its usefulness as a term to describe a specific program of action maybe impaired. In its larger sense I think we would all agree that social security must mean above all full employment and full production. I think we would all agree that it must also include decent housing, education and health, as well as the elimination of destitution.
I do not propose to discuss with you social security in this larger sense of the term. I shall discuss social security only as a specific program designed to eliminate want by preventing the loss of current income. Regardless of how completely and quickly we achieve the goal of social security in the larger sense, it is not only feasible but vitally necessary that we establish a specific program for the elimination of want in this country of ours.
I say that it is feasible to eliminate want in this country because the actual production of goods and services before we entered the war was sufficient to eliminate want. I say that it is necessary to provide a system designed to eliminate want, even though we achieve the goal of full employment and full production, because the working people of this country will still be confronted with the great economic hazards of sickness, physical disability, old age, and death, as well as intermittent unemployment. All of these great hazards mean interruption of earnings, and loss of earnings will still spell want even in a land of plenty.
I mention intermittent unemployment as a continuing major cause of loss of earnings because under a system of free enterprise, which we are fighting to preserve, we must encourage invention, improvement, elimination of waste, variety, and continual adaptation to changing ideas and circumstances. This must mean that as the processes of production and distribution change individuals will be forced out of one employment and be obliged to seek another. This is the price, if it can be called a price, that we pay for maximum production, free enterprise, and free labor.
Of course, to the extent that we fail to achieve full employment and full production, a system of social security designed to eliminate want is all the more necessary. Nor should we overlook the fact that a system designed to eliminate want also does actually make a great contribution to the maintenance of full production and full employment by assuring the maintenance of mass purchasing power, upon which mass production must depend.
I do not propose to present a statistical case to establish the need for a system of social security in this country. I need only remind you that at one time, not so long ago, there were 28 million people who were dependent upon their government for the necessities of life. Not so very long ago, there were 12 million workers unemployed through no fault of their own. Even today there are over 5 million people who are still dependent upon their government to supply them with the necessities of life and there are still approximately 1 million workers unemployed through no fault of their own. On this very day, we know that there are 7 million people who are unable to work because of sickness or physical disability of some sort and that 3 million of these are permanently totally disabled. We know that almost 50 percent of the persons examined under the Selective Training and Service Act have physical defects which caused their rejection for general military service and which must affect their earning capacity in private life. Whether or not we establish a social security system, as a civilized and progressive nation we shall still have these problems and their economic consequences to solve and we will undertake to solve them. A social security system merely undertakes to solve these problems in a systematic, effective and economical manner.
When we undertake to establish a social security system designed to eliminate want we are not striving for strange and new ideals, nor is it even necessary for us to depend upon strange and new methods. We have a world history and world experience upon which to base our planning and our action. Indeed, we already have in our own Social Security Act the fundamental elements of a program of social security designed to eliminate want. It is only necessary for us to extend, expand, and improve upon our present Social Security Act in the light of the experience and thinking that has developed since that act was passed in 1935.
Since the security of the large majority of people is dependent upon their earnings, the focal point of our efforts should be to provide reasonable protection against interruption of income due to sickness, accidents, old age, death, and unemployment. In other words, we should strive to devise a system which will spread income over periods of non-earning as well as over periods of earning. This can be accomplished to a large extent by a system of social insurance under which benefits are paid to compensate for a reasonable proportion of the wage loss sustained. The cost of such benefits should be financed out of contributions made by the workers of this country and by their employers, supplemented ultimately with some contribution from the government, representing the entire community.
However, even a comprehensive contributory social insurance system cannot provide complete protection under all conceivable circumstances. Certainly an insurance system cannot insure against hazards that have occurred prior to the establishment of the system. Therefore, there is also need for a basic and comprehensive system of public assistance to meet the needs of individuals and their families which cannot be met out of their own resources.
I believe that the respective responsibilities of the Federal and State Governments are markedly different in the case of social insurance and in the case of public assistance. The cost of social insurance is borne by contributions based on payroll and the benefits are paid on the basis of wage loss without a needs or means test. The cost of public assistance is borne out of general revenues and assistance is granted only on the basis of an investigation as to the individual's need.
Since the cost of social insurance is related to payrolls, it is important that employers not be subjected to unfair interstate competition because of varying rates of contributions in the various States. In the case of public assistance there cannot be this unfair interstate competition because the cost is borne out of general revenues.
The benefits under social insurance are related to wage loss. Thus there is an automatic adjustment to the presumptive need of the beneficiaries and an automatic adjustment to varying wage levels throughout the nation. Therefore, there is no necessity for investigation and determination of individual need in the light of local circumstances as is true in the case of public assistance.
At present, as you know, we have a Federal old-age and survivors insurance system administered wholly by the Federal Government and an unemployment compensation system administered by the States but largely induced and sustained because of Federal legislation. I believe that there should be added to the benefits presently provided by the Federal old-age and survivors insurance system, insurance covering a reasonable proportion of the wage loss and other costs of permanent total disability, sickness, and non-industrial accidents sustained by the insured workers and their families. I further believe that the present Federal-State program of unemployment compensation should be combined into a single comprehensive Federal system of contributory social insurance. We would than be covering all of the major economic hazards to which workers of this country are subjected.
Under such a unified comprehensive system of social insurance there would be no gaps, no overlaps, and no discrepancies in the protection afforded. Such a system could operate with a maximum degree of simplicity and efficiency, since there would be only one contribution, one report, one record, and one local office to which employers and employees could go to ascertain their rights and duties. I believe that it is sound public policy, as well as in the interest of the insured workers, that workers share with employers the combined cost of all of the benefits proposed instead of the employer bearing the entire cost of certain benefits and the workers bearing the entire cost of other benefits.
During the next ten years it is probable that the current costs of all of the benefits suggested would be more than covered by a total combined rate of contribution on payrolls of 10 or 12 percent, depending on the exact benefits provided. This would include both employers' and employees' contributions. The total combined rate at the present time is 5 percent. However, even under the present Social Security Act the combined rate automatically becomes 7 percent next January, and 9 percent by January 1, 1949.
Since general taxes are insufficient to meet the costs of the war and other necessary government expenses, they should not be relied upon at this time to pay any part of the cost of a contributory social insurance system. On the contrary, a sound contributory social insurance system should levy payroll contributions sufficient to yield a large surplus in a period of full employment, such as we are experiencing now, in order that the system may be prepared for a period of declining employment when income from payroll contributions will decline and benefit payments will increase.
In 1939 Congress amended the Federal old-age insurance system so as to provide for dependents' allowances. I believe that all of the various types of social insurance recommended should also provide for dependents' allowances. By providing for dependents' allowances a social insurance system can be made more adequate in meeting the actual needs of beneficiaries without increasing the total cost of the benefits. While insured workers with dependents would receive more than persons without dependents, every insured person would receive his money's worth in insurance protection. This is possible because a larger proportion of employers' contributions would be used to pay benefits to those with dependents than to those without dependents.
I fully appreciate that my suggestion that the present Federal-State unemployment insurance systems should be made a part of a single unified comprehensive social insurance system would represent a very important change that should of course be given most careful consideration. However, I believe that it is of vital importance, not only to the success of a social insurance program but also to success in coping with post-war problems, that the Federal Government assume direct operating and financial responsibility for the payment of unemployment benefits.
I do not believe that this would constitute an invasion of states' rights. It is doubtful whether there would be a single state unemployment compensation law in existence today were it not for the fact that the present Federal Social Security Act creates such an irresistible inducement for the States to act. As a matter of fact, it was contended by opponents of unemployment compensation in 1935 that this federal inducement constituted coercion and an invasion of states' rights. Certainly, those who so contended in 1935 cannot now logically argue that relieving the states of an obligation allegedly forced upon them in 1935 is an invasion of states' rights. However, such discussions get us nowhere in deciding the basic question of what kind of unemployment compensation system is best from the standpoint of simplicity, adequacy and financial soundness.
The causes and cure for mass unemployment are beyond the control of individual States. The Federal Government in the past has been obliged to assume prime responsibility for coping with the problem of mass unemployment and undoubtedly will have to do so in the near future. It is vital that there be no division of that responsibility, in order that the related approaches toward a solution may be completely integrated. Government stimulation of private enterprise, public works, and unemployment compensation are all necessary to cope with the problem of unemployment. What is done or not done in one respect has a profound effect on what can or must be done in the others. During the post-war period, the policies followed in the demobilization of the armed forces and in the termination of war contracts will vitally affect the volume of unemployment compensation payments. On the other hand, the adequacy or inadequacy of unemployment compensation benefits must be taken into account in determining the policies to be followed in the demobilization of the armed forces and in the termination of war activities. Under such circumstances, division of responsibility may well lead to failure to act consistently and effectively.
There is no question in my mind that combining the present state-by-state unemployment insurance system into a unified comprehensive contributory social insurance system would result in far simpler, more effective, and more economical administration. At present there are 51 jurisdictions collecting contributions and requiring reports from employers, and 51 systems of records. An employer operating in all of the jurisdictions must submit 209 separate reports in the course of a single year. If unemployment compensation were made a part of a comprehensive Federal social insurance system, such an employer would be required to submit, at most, 4 reports in the course of a year and perhaps only one. And the same record could be used not only for unemployment compensation but also for all the other types of insurance as well.
But of still greater importance than these administrative advantages is the fact that a truly national system of unemployment insurance would be much safer and sounder because of the wider spreading of the unemployment risk and the more effective utilization of reserves. Therefore, such a system would be far better able to cope with any severe depression resulting from the termination of our war production program.
A Federal unemployment compensation system could also provide much more adequate benefits for workers generally, because of the wider spreading of the risks and the more effective utilization of reserves. It is most important that unemployment compensation benefits be made more adequate than they are at the present time. The weekly benefit rates in many States are insufficient to cover a reasonable proportion of the weekly wage loss that an unemployed worker suffers. Most serious of all is the fact that in most States the duration for which benefits are payable is so limited that a very high proportion of workers in receipt of unemployment compensation benefits exhaust their benefit rights before finding another job. For the country as a whole, even in a period of good employment, such as 1940 and 1941, 50 percent of the workers exhausted their benefit rights before they found another job. In some States the proportion ran as high as 65 and 75 percent. In a period of considerable unemployment these percentages would of course be still higher.
A national system of unemployment insurance as a part of a comprehensive social insurance system would not only be safer and sounder and more adequate; it would at the same time possess the necessary flexibility to meet varied situations in different parts of the country. Since unemployment compensation benefits like all social insurance benefits would be based on the individual's past earnings, they would automatically reflect differences in wage rates in the various parts of the country. The administration of the entire social insurance system would be decentralized. Representative advisory councils and appeals boards would be established in the several States to make certain that the administration was in fact kept close to the persons affected.
There is some fear that a comprehensive federal social insurance system would mean a huge bureaucracy, controlling the daily lives of our people. However, it should be borne in mind that what is being proposed is really a government insurance company which would collect premiums and pay benefits in accordance with a specific schedule fixed by Congress. It would have no regulatory powers whatsoever.
If a single social insurance system is adopted covering all of the hazards that have been mentioned, it of course becomes increasingly desirable and necessary that the coverage of such a system be extended as widely as possible, since all of the population of this country is subject in varying degrees to these hazards.
The main groups of employees now excluded from protection are agricultural laborers, domestic servants, and employees in non-profit organizations. In addition, self-employed persons such as small business men, professional men, and farmers are also excluded. From an administrative standpoint there is no longer any reason why any of these groups should be excluded and from the standpoint of providing protection there is every reason why they should be included. In the case of workers for small employers it is administratively feasible to extend coverage through the use of a stamp book system. Under such a system the employee would be furnished with a stamp book in which stamps would be placed by his employer evidencing contributions made by the employer and employee. In rural areas the employer could purchase these stamps from the mail carrier and in urban areas they could be purchased at post offices.
It would of course not be feasible to insure self-employed persons against unemployment or temporary disability because there would be no employer-employee relationship or specific wage loss to serve as a test of entitlement to benefits. However, it would be perfectly feasible to insure self-employed persons against the other economic hazards mentioned.
It is most essential of course that the social insurance rights of workers entering military service be fully protected. Under the present law workers entering military service suffer the same reduction and eventual extinction of any social insurance rights they may have developed, as do other employees who leave insured employment to enter uninsured employment. In the case of unemployment insurance most of the States have frozen any rights which persons entering military service may have possessed prior to entering such service. However, a great proportion of persons entering military service either had developed no rights whatsoever or very meager rights. Therefore, the best solution would be to count the period of military service as a period of insured employment so that when these men return to civil life they not only will have suffered no loss of benefit rights but will have also built up greater benefit rights to assist them in making the difficult transition. This would be an act of simple justice to men who have been asked to sacrifice so much.
Even with the comprehensive social insurance system which I have suggested it would be too much to expect that all destitution would be eliminated. As I have previously pointed out, no system of insurance can insure against hazards that have already occurred or can provide adequate protection under all conceivable circumstances. Therefore, I believe that we should not only maintain but greatly strengthen our present system of public assistance.
As I have already indicated, I believe that public assistance should continue to be administered by the States and not by the Federal Government. However, I believe that the Federal Government should make grants to the States for assistance rendered to any needy persons, not only to the needy aged, the needy blind, and dependent children, as is the case at the present time. There is great need for a system of Federal grants-in-aid to relieve distress among persons who are not eligible for assistance under the existing Federal-State categories of the aged, the blind, and dependent children. This arises out of the fact that many States and localities have inadequate resources with which to meet the total relief problem and the further fact that the resources they do have are used disproportionately to help needy persons who are eligible under the three categories for which the Federal Government now grants aid, as against other needy persons who are not eligible under these limited categories. The termination of the food stamp plan and of the distribution of surplus commodities by the Federal Government has further reduced the adequacy of the assistance being rendered those needy persons. Most of the families now dependent upon public assistance do not include any person who could be employed even under very favorable employment conditions. Moreover, studies show that there are many needy families receiving no assistance whatsoever. Therefore, even with the general increase in employment, the States and localities will continue to have a large burden to meet.
A plan of Federal grants-in-aid to the States for aid to all needy persons should not be looked upon as a substitute for Federal work programs in periods of widespread unemployment. On the contrary, the adoption of such a plan would make work programs more effective, since they would be relieved of pressure to meet the needs of persons who may be cared for better in another way. Moreover, such a plan, adequately financed and properly administered, could assist in restoring to the labor market a substantial number of needy persons, thus rendering them self-supporting.
I believe that it is also essential to supplement the present system of uniform 50 percent Federal grants-in-aid with additional Federal aid that would not have to be matched by States whose per capita income is low in relation to that of other States. I believe that it would be possible to establish such a system of additional Federal aid on an objective basis which would utilize existing governmental data measuring the per capita income of the various States.
In addition to the two major changes that I have suggested, namely, Federal grants-in-aid for assistance rendered needy persons not falling within the present categories and special Federal aid for States with low per capita income, I believe that there are several other ways in which the present Federal grants should be liberalized. However, time will not permit me to discuss these.
I believe that the expanded social security system which I have outlined can play a vitally important role in the economic readjustment and reconstruction that will be necessary when the war ends. On the one hand, it can provide protection to individuals and their families against the loss of income which they may suffer for one reason or another after the war, when a decline from the high levels of wartime production will increase the burden of the various hazards. On the other hand, from the standpoint of the economic system as a whole, social security can aid in maintaining consumer purchasing power when the national income exhibits a tendency to shrink and thus can assist in maintaining employment at a higher level.
The obvious question which will occur to many who may agree with the inherent desirability of having a comprehensive social security system available at the end of the war is whether the present is a practical and appropriate time for action. The enormous outlays and the vast administrative undertakings now necessary for the prosecution of the war may appear to suggest that action be deferred until after the war is won. The answer is that unless action is taken now there is grave danger that the post-war period will arrive before a well-rounded social security system can be put into successful operation. A successful social security system cannot be improvised overnight.
As a matter of fact, the extension of social security now would not only not interfere with but would greatly aid in the successful prosecution of the war. The greater sense of security which would result would make the people of this great nation more effective defenders of democracy. This has been amply demonstrated in Great Britain, where social security was extended even while the bombers roared overhead and where it is now proposed that there be far greater extension.
Entirely apart from the increased well being that would result, the fact is that immediate expansion of the social security system is highly desirable from the standpoint of the nation's economic and fiscal circumstances. Two of the major economic problems of the war effort are to control inflation and to obtain revenues through taxation or borrowing, or both. The enlarged excess of contributions over disbursements which would occur during the war period would curtail current purchasing power and serve as a potent force in the fight against inflation. Investment of the excess in Government obligations would make corresponding sums available to the Treasury. These investments would aid in financing the war just as do the war savings bonds purchased by individuals. Moreover, the establishment of an expanded social security system now would make the people of this country better able to pay war taxes and buy war bonds because they would have some protection against loss of current income due to the hazards insured under the contributory social insurance system.
As President Roosevelt has said, "This is one case in which social and fiscal objectives, war and post-war aims are in full accord. Expanded social security, together with other fiscal measures, would set up a bulwark of economic security for the people now and after the war and at the same time would provide anti inflationary sources for financing the war."
I should like to emphasize that the program suggested would provide only a minimum basic security for the people of this country. It would provide a safety net protecting the people of this country against major economic hazards, not a feather bed releasing them from the necessity of helping themselves. It would be an effective system because the benefits would be related to proven wage loss or proven need. It would be a system which would provide a maximum amount of security at a minimum cost.
In fact, in a very real sense the costs of insecurity are now being borne by the individual citizens of this country. A sound social security program makes these costs more bearable by distributing them more systematically and equitably. This is true of both the public assistance and the social insurance phases of the social security program, although it is more apparent in the case of social insurance.
There are some who fear that social security will destroy individual initiative and thrift and enterprise. There are some who believe that providing a minimum basic security for the people of this country will merely encourage them to rely upon the government instead of upon themselves. I submit that such fears arise out of a basic lack of confidence in democracy and the common man. I believe that assuring people a minimum of subsistence will encourage them to strive for something still better for themselves and their families. I do not believe that we can expect the helpless and the hopeless to practice the prized virtues of independence.
Because only a minimum basic security would be provided, there would be every inducement to the individual to provide still better security for himself and his family through individual savings and private insurance. This has already happened in the case of the Federal old-age and survivors insurance system. The amount of group annuity business written since the Social Security Act was passed is three times the amount written in all the previous years. As you may have noticed from advertisements and the radio, there are several large life insurance companies that are basing their sales promotions largely on the feasibility and desirability of additional insurance to supplement the basic insurance protection provided under the Government system. I am confident that insurance companies generally believe that this government system educates and induces the public to obtain additional protection through private insurance.
Let us also not forget that under a contributory social insurance system the workers of this country and their employers would pay for the benefits that are received. It is not a plan for giving everybody something for nothing but a plan for organized thrift. As Prime Minister Churchill said the other day, the essence of social insurance is "bringing the magic of averages to the rescue of the millions."
In the case of public assistance, I am merely proposing that we do better what this Nation from its inception has always accepted as a public responsibility, namely, the care of the poor who would otherwise lack the necessities of life. We cannot and we will not let people starve in this country.
I do not pretend that the program I have outlined will usher in Utopia; I do not even contend that it will eliminate poverty in this country; but I do believe and contend that it will abolish want. Is this too ambitious a goal for a great and powerful nation? I do not believe that it is and I trust that you will agree.
This Nation should emerge from this war a richer nation not only materially but spiritually. We have learned how to provide full employment. We have learned how to increase our production tremendously. We have learned lessons of cooperation the hard way. Our future problem is not a problem of resources but of unity of purpose. I am confident that with unity of purpose we have demonstrated that we have the ability to accomplish our purpose. Certainly there can be no higher purpose then to promote the welfare of human beings.