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Otto von Bismarck pioneered the welfare state in Germany and Bismarck was/is greatly respected by Germans.
Pre-World War I British Liberal Party made welfare reforms after the 1906 general election. One of the reasons was that the success of social legislation in Bismarck's Germany made leading Liberals in the UK such as David Lloyd George and Winston Churchill want to put forward similar legislation (http://en.wikipedia.org/wiki/Liberal_welfare_reforms).
Post-World War II British Labour Party implemented welfare state policies after their victory in the 1945 general election. The economic result lagged Germany's. When Margaret Thatcher came into power, she reversed the welfare policies which did not seem to be working as expected and pushed through free market-oriented policies. On the other hand, today's welfare policies in Germany still remains Bismarckian in principle.
Why did the welfare state succeed in Bismarck Germany but lagged in 20th-century Britain?
There are probably several reasons, and it's likely impossible to answer without writing a book, and most of the reasons are not political but has rather to do with economics.
One of the major reasons is based in fundamental economics. The Bismarckian welfare state is based on social insurance, ie, the government pays for an insurance that the welfare recipient can use as they best see fit. The most clear example is in health care, where the Bismarckian health cases system has a tax-funded health insurance which you can use to pay for to a largely privately run health care system. This preserves competition and ensures efficiency better than the British system (often called the Beverige model), where the health care system is not funding individual health care, but instead funding state owned health care. This creates a monolithic bureaucratic system where the health care is overpriced. The result is typically that the rich pays for better private health-care, while everyone else are forced to endure long queues and waiting lists for operations, fueling resentment and dissatisfaction with the system.
The second major reason is political, and that is that the unions in Britain used their power to a large extent to block change and economic reforms. When industry was going badly, the Unions would not accept changes as this would have resulted in cut downs, instead they striked to prevent the cut downs, which just resulted in companies shutting down completely. This resulted in a conflict between the unions who were unrealistically blocking reform, and the union-supported government who tried to make reforms and still keep the unions happy at the same time.
This impossible situation and the resulting economic decline was then only reverted when a conservative government took over, as this government did not need nor want the support of the unions and went through with the economic reforms despite the unions opposition.
Countries with similar situations to the UK (like Denmark and Sweden) saw similar development. Both Denmark and Sweden has also, like the UK, made many free-market reforms, and both are busy improving their health-care problems by moving the a Bismarckian system (but not the UK, yet).
Bismarck's "welfare" was what Americans would call "workfare." The German version advocated pensions for retired people and health insurance for workers, both of which help people to work better.
The English version of the welfare state was "true" welfare. The idea was to use unions to allow workers to work LESS, while enjoying higher wages, not work more efficiently.
History's Missed Moment
Why did the greatest failure of laissez-faire capitalism since the Great Depression lead to a turn to the right rather than the left in both Europe and the U.S.?
The epic financial crash of 2007–2008 should have produced a massive political defeat for the conservative ideology whose resurgence began three decades ago. Its signal achievement, liberated finance, did not reward innovation, enhance economic efficiency, or produce broad prosperity. Rather, the result was a speculative bubble followed by a severe crash. Along the way, the super-rich captured a disproportionate share of the economy's gains, while other incomes stagnated. In the aftermath, ordinary people have suffered large losses of earnings, assets, social protections, and hopes for their children.
By any measure, therefore, 2008 was primed to be a political watershed on a par with 1932. History delivered a profound teachable moment for American progressives and European social democrats. But, to borrow from T.S. Eliot, between the idea and the reality fell the shadow. Three years after the financial dominoes toppled, right-wing ideas are ascendant and right-wing policies reign. Instead of reform and recovery, governing elites are delivering austerity. As the economy keeps sinking, the democratic left is in disarray nearly everywhere. In most Western countries, center-right parties govern and far-right movements are on the march.
The historian A.J.P. Taylor described the revolutionary year 1848-in which abortive liberal democratic revolutions across Europe were all crushed-as a moment when "history reached its turning point and failed to turn." It would not be an exaggeration to view 2008 as the most stunning missed moment in modern political history.
How could this have happened? If laissez-faire could not be reversed as a practical and intellectual failure after a second massive financial crash on the conservative watch, when can progressives ever expect to rebuild a broad popular constituency for a managed form of capitalism? The explanations cannot just be idiosyncratic or personal-Barack Obama's conciliatory temperament, Gordon Brown's dour manner, or Strauss-Kahn's predatory libido. The patterns are too pervasive. The story has to be deeply structural.
Many Americans look to Europe, long the home of a more social brand of capitalism, as a counterweight to American conservatism. A month of conducting interviews in six European countries, however, persuades me that Europe is afflicted by deep trends common to both sides of the Atlantic, though with instructive variations on the theme. If American liberals and European social democrats are ever to regain political momentum, we need to understand why we don't have it now.
Bismarck Tried to End Socialism’s Grip—By Offering Government Healthcare
It was 1881, and German chancellor Otto von Bismarck had a serious socialist problem. He’d passed the Anti-Socialist Law of 1878, which banned Social Democratic meetings, associations and newspapers, but he couldn’t remove the party outright from the Reichstag. The socialists still found favor with too many constituents.
The political climate of the era was a result of German unification, the period stretching across the 19th century and culminating in 1871, when 26 small states, principalities, duchies and territories formed the German Empire. But thanks to the German constitution, Bismarck didn’t have to worry about pleasing the populace his chancellorship was approved solely by Wilhelm I. But with the European economy in free fall, a nearly successful assassination attempt on the kaiser, and a short-lived but bloody socialist uprising in France, Bismarck was determined to undermine a party that he saw as a danger to the volatile new nation state. So the Iron Chancellor came up with a masterful plan: beat the socialists at their own game by offering health insurance to the working class.
“That was a calculation,” says historian Jonathan Steinberg, the author of Bismarck: A Life. “It had nothing to do with social welfare. He just wanted some kind of bribery to get social democratic voters to abandon their party.”
Bismarck didn’t care what the program—Krankenversicherungsgesetz—was called or how it was described, as long as citizens knew that the state—his state—coined the idea. “Call it socialism or whatever you like,” Bismarck said during the 1881 Reichstag public policy and budget debates. “It is the same to me.”
So in 1883, with the passage of the Health Insurance Law, Bismarck made Germany into a welfare state—all to stymie the socialists. The law was the first national system in the world, Steinberg says. Both employers and employees paid into insurance funds, and the German government verified workers’ enrollment by comparing employer records with fund membership lists, threatening employers of uninsured workers with fines.
Over the next several decades, the initial law would be expanded with accident insurance (1884), disability insurance (1889) and unemployment insurance (1927)—and before long, the rest of Europe had taken note of Germany’s program. (Great Britain, for example, went in a different direction its health care laws stipulated treatment be financed by the government through taxes.)
Bismarck’s insurance scheme wasn’t an entirely original idea. European governments had implemented public health measures since the 14th century, when the Italian city-states took measures to control the spread of bubonic plague through quarantines. And community organized health insurance groups—called “mutual societies” or “sick funds”—appeared around the same time in certain professions. Miners in Bohemia, for example, had Knappschaftskassen, whose members paid into a common pot. The money went towards hospitals and the care of widows and orphans of miners killed in work accidents. The idea only grew in popularity during the Industrial Revolution, which dramatically reshaped the workforce. By the time Bismarck got around to his proposal five centuries later, 25 to 30 percent of workers in northwest Europe had sickness funds.
“Factory work harmed worker health. There was a demand for healthcare that they needed to finance,” says John Murray, an economist at Rhodes College and the author of Origins of American Health Insurance: A History of Industrial Sickness Funds. “But a key part of the Industrial Revolution that’s overlooked is that once workers got paid in cash once a week or every few weeks, they had cash that could be spent on what we would call health insurance.”
In other words, the availability of currency in densely populated cities made it logistically much easier to organize sickness funds. Farmers and workers like domestic servants were often paid with the goods they produced or in room and board rather than with cash, which made paying into a sickness fund much more complicated.
Those hurdles in the way of universal coverage remained unsolved under Bismarck’s law. Anyone who earned a living through in-kind compensation (like farmers) weren’t required to join the insurance groups. But as the population grew in cities, coverage boomed. In 1885, the enrollment was 4.3 million Germans by 1913, that number had jumped to 13.6 million. And this came with a number of surprising repercussions.
In the 19th century, Germany had been one of Europe’s largest labor exporters, with more than 1 million leaving the country between 1851 and 1860 alone. Most made the U.S. their destination. “At the time, the combined effects of industrialization and the war against France had heightened a new sensitivity to the consequences of migration, both in economic and military terms,” writes economic historian David Khoudour-Castéras. By providing workers with government-mandated health insurance—something they couldn’t find anywhere else—Germany made itself more appealing to its citizens. Emigration decreased dramatically in the years leading up to World War I, in part because workers could take sick days if they stayed in Germany.
Meanwhile, the United States only started organizing mutual funds in the 1870s, and workers compensation in industrial accidents was limited before World War I. It wasn’t until the Social Security Act of 1935 that the federal government got involved in a meaningful way, and even then most health insurance was employment-based, not unlike the Bismarck system but without the government mandates. As Khoudour-Castéras writes, “The level of protection of American workers against the main threats… was very low before the Great Depression and virtually nonexistent before World War I. By contrast, most German workers were covered by social insurance mechanisms by 1913.”
As for the German economy, it did grow in the decades after Bismarck’s law passed whether that was a direct response to the increasing number of people covered by insurance is hard to say. “Yes, there was a correlation, but it’s not clear to me whether the growth caused greater insurance coverage or the other way around,” Murray says. He adds that part of the benefit to the economy and the government was that with insurance, workers who fell sick were less likely to fall into poverty and strain the government’s poor law institutions.
But did Bismarck’s new insurance actually improve worker health? According to economists Stefan Bauernschuster, Anastasia Driva and Erik Hornung, it did. Between 1884 and the end of the century, blue collar worker mortality rates fell 8.9 percent, they write in a recent study. “Surprisingly, the insurance was able to reduce infectious disease mortality in the absence of effective medication for many of the prevailing infectious diseases.”
The German model evolved over the 20th century, but remained effective and popular. When the system was exported to the Netherlands, Belgium and France during World War II, each of the countries kept the model, despite the fact that it was imposed under Nazi occupation.
All told, Bismarck’s system was a massive success—except in one respect. His goal to keep the Social Democratic Party out of power utterly failed. “The vote for the Social Democratic Party went up and by 1912 they were the biggest party in the Reichstag,” Steinberg says. Perhaps fortunately for Bismarck, he wasn’t around to see their rise. He died in 1898 without another chance to remove the socialists from power.
That Bismarck was able to create the system at all is thanks to a series of unlikely events, Steinberg says. After all, Bismarck only remained in power long enough to establish the law because of the longevity of Wilhelm I—who survived multiple assassination attempts and lived to be 90 in a period when the life expectancy was around 40. If the kaiser had died sooner, his heir would’ve immediately replaced Bismarck, probably with a less conservative chancellor, and who knows what would’ve happened with the healthcare law.
“[The insurance law] was manipulative, clever, worked well, and left a great inheritance,” Steinberg says. “But I think Bismarck never cared much that he was the founder of the welfare state in Germany.”
Editor's note, July 17, 2017: This article has been edited to clarify the type of government established in Germany during unification. Germany did not become a republic until after World War I.
Leviathan or Moloch? A brief history of state intervention in the economy: Part I | Sam Volkers
The Covid-19 pandemic and the corresponding global economic recession have set in motion a shift in economic and political thinking that would have been unthinkable only a few years ago. Where the European countries fought the 2008–2009 recession and the Eurocrisis that followed with a mix of bailouts and harsh austerity, the current crisis is fought with a hands-on approach by the state itself. Governments across Europe have re-asserted their control over the economy and decided to spend more instead of less. In France, prime minister Jean Castex announced the return of the Commissariat général du Plan, the country’s famous economic planning commission, while the Spanish government nationalized all private hospitals. In my country (the Netherlands), the government also pledged to take a greater role in the economy, with even the VVD — well known for their small-government and liberal views — now arguing for a stronger role of the state in managing the economy. Now that the state has begun to make its — in my opinion long overdue — return in the economy, the debate between those that view the state as a Leviathan that protects the interests of the people and country and those that view it as a Moloch that demands the sacrifice of freedom and individualism has heated up again. To understand this debate, it is important to understand why the state is needed in the economy and what its role should be.
Before discussing why the state should be involved in the economy and what its role should be, it is important to first give a brief historical overview of the relationship between the economy and the state in capitalist countries (non-capitalist examples such as the Soviet Union are excluded from this brief perspective as they deserve their own article).
Early economics & The Mercantilist Era
For as long as states and economies have existed, the former has influenced the latter. Early examples range from the public lands and mines in relatively laissez-faire ancient Athens, to the proto-mercantilist policies of Hendrik VII of England with which he aimed to break Flanders monopoly in the wool industry and in turn build up England’s own wool industry.
During the 17th and 18th centuries, the role of the state in the early capitalist nations of Europe expanded as the nations adopted mercantilist policies, with Britain and France being especially keen to adopt these policies in an effort to break Dutch hegemony. The mercantilists believed that a favorable balance of trade — exporting more than you import — was necessary for a nation to be wealthy and strong. In order to achieve this favorable balance of trade, states in Europe adopted policies not too different from those supported by Hendrik VII. To name a few: protective import tariffs, investments in infrastructure, state support for local industries, tax reforms and — in some countries — the establishment of overseas colonies (this last aspect is also one of the key differences between mercantilism and other forms of economic nationalism, such as protectionism and developmentalism, which opposed colonialism). Some famous mercantilist thinkers were Jean-Baptist Colbert, who served as France’s First Minister of State between 1661–1683 and after whom French mercantilism was named (Colbertism), and Antoine de Montchrestien, who is often viewed as one of first political economists.
Adam Smith & the Industrial Revolution
This mercantilist status-quo would be shaken up when, on the 9 th of March, 1776, Adam Smith’s book An Inquiry into the Nature and Causes of the Wealth of Nations was published. Smith rejected the mercantilist view of trade as a zero-sum game and argued that the invisible hand of the free market would be a better guide for the economy than any government management could be. In Smith’s view, the state’s role should be limited to providing national defense, public goods and ensuring that safety and justice prevail (this is of course an oversimplification of Adam Smith’s ideas, but this had to be done for the sake of brevity). Although Smith’s ideas were never fully implemented, with many nations — including Smith’s own country of Great Britain — combing his ideas with certain aspects of their old mercantilist policies (think of the Hamilton’s system in America), they did help usher in the industrial revolution.
The Social Question & Early managed capitalism
Although the industrial revolution brought a lot of economic growth and innovation, its spoils were not shared equally by all. While industrialists got rich, many of their workers lived and worked in terrible circumstances. These circumstances proved to be fertile ground for all kinds of radical theories, such as Marxism and anarchism. Although governments had already been used to helping stimulate and manage economic growth and commerce, they were not well versed on dealing with this new Social Question. Although hesitant at first, governments in Europe and the America’s slowly started the process of creating welfare states, such as seen in Theodore Roosevelt’s Square Deal or Bismarck’s welfare system.
Another issue that was created by the industrial revolutions was that of monopolization. Governments had trouble keeping up with economic growth and modernizations, and thus lagged behind in law-making and legislation. This allowed for monopolies to consolidate their economic power and use their financial treasures to influence politics in their own favor. Although this problem also existed in Europe, it was worst in the United States. There, during what would later become known as the “Gilded Age” (1870–1900), Robber Barons such as J.P. Morgan and John D. Rockefeller would consolidate their control over entire branches of the economy, and crush and/or extort money from smaller competitors, while using their money and influence to sway politicians to act in their interest. This would come to an end when the president, Theodore Roosevelt, began breaking up these trusts (monopolies), which would gain Roosevelt the nickname “Trustbuster” (Boswijk 2020: 59–61). Roosevelt also passed laws that ensured better working conditions and better quality of food and medication, while also supporting a protective trade policy and policies that ensured the protection and conservation of America’s environmental beauty.
This combination of trust-busting (breaking up monopolies), trade protectionism, labour laws, consumer protection, environmental protections and the creation of an early welfare state would serve as the beginning of a new era of managed capitalism.
The Great Depression, Keynes & the Post-War Consensus
The call for managed capitalism became even louder during the Great Depression of the 1930s. This global economic crisis would serve as another turning point in the relation between the state and the economy. As the economic crisis ravaged countries around the world, the people lost their faith in laissez-faire capitalism and would turn to supporting other ideologies, such as fascism and communism. To stem this radical political tide and fix their economies, leaders around the world realized the capitalist system needed to change.
It was during this period that the economist John Maynard Keynes published his magnum opus The General Theory of Employment, Interest and Money, in which he laid out his views on the economy and the state’s role in it. Unlike Adam Smith, Keynes envisioned an active role for the state in a capitalist market economy. Keynes argued that the state should manage the economy and raise government expenditure while cutting taxes to stimulate demand and pull the economy out of the economic crisis. Although this might create a budget deficit in the short-term, Keynes believed that in the longer-term this deficit could be paid back, because government spending has helped create new investments and stimulated consumption which in turn have led to an increase in production and jobs. This new economic growth means that the state can collect more taxes, which it can use to pay back the deficit (just like with Adam Smith’s ideas, this is an oversimplification of Keynes’ ideas for the sake of brevity).
After World War II — which had seen government management of the economy taken to an even higher level — Keynesian inspired managed capitalism became the norm in most Western nations. During the period (1945 — late 1970s) that became known as the ”post-war consensus”, governments across the West (and later also in Asia and some parts of Africa and Latin-America) would use Keynesian inspired policies such as deficit spending and forms of state planning in key sectors and regulations in the other sectors to keep the economy stable, while also expanding the welfare state on a grand scale. This is the period during which most countries saw the creation of, for example, universal healthcare systems, better labour regulations, pension systems and unemployment benefits. During this period, labour unions also became accepted and empowered as strong actors in economic affairs, often working together with the state and employer’s organizations to create a form of class-cooperation instead of the class conflict caused by laissez-faire capitalism and supported by Marxism.
This era would become known as capitalism’s golden age, because of its high economic growth rates, record low unemployment, rapid income growth and a rise of living standards to levels never seen before. For example, the average yearly GDP per capita growth in the rich and developed countries between 1960–1980 was 3,2% (Chang 2010: 80), while per capita incomes in the West grew with an average rate of 4,1% per year, with some countries — such as West Germany — having even higher yearly income growth (Chang 2014: 79). Living standards in general increased as well. People lived longer and more healthy lives, while also being introduced to new technologies such as washing machines, cars and new medicine, and higher education and healthcare became accessible for all people, not just the rich.
The Neoliberal Shift
The post-war consensus would come to an end in the 1980s. Its sudden decline came after two oil crises during the 1970s caused stagflation, a combination of stagnation and inflation. The post-war consensus was replaced with neoliberalism, first in the United Kingdom under Thatcher and in the United States under Reagan, but later also in the rest of the West and other parts of the developed world. In these countries, the state would shift from the aforementioned Keynesian inspired economic policies to neoliberal policies such as deregulation, tax cuts, cuts to government spending, and a tighter control of the monetary supply. The role of the state would shift from being the protector of public and national interest to the protector and creator of new markets.
Although some of the neoliberal policies had success at first, they failed to recreate the growth rates see during the post-war consensus era, with the average yearly growth rates reaching only 1,4% per year (Chang 2010: 80). The new neoliberal system also caused a lot of economic and social problems, with many of the problems seen during the industrial revolution and Gilded Age — think of monopolization, weak labour unions, rising poverty rates, high economic inequality etc. — returning.
Another negative effect of neoliberalism is that it has caused a sharp increase in economic crises. First the 1997 Asian financial crisis, then the 2007 Great Recession followed by the Eurocrisis. Right now, we are facing another economic crisis, which, combined with the Covid-19 pandemic and the great geopolitical shifts of the last years, forces us to rethink how we view our economy and what kind of role the state should play in it.
American Exceptionalism and the Entitlement State
I f social policy were medicine, and countries were the patients, the United States today would be a post-surgical charge under observation after an ambitious and previously untested transplant operation. Surgeons have grafted a foreign organ &mdash the European welfare state &mdash into the American body. The transplanted organ has thrived &mdash in fact, it has grown immensely. The condition of the patient, however, is another question altogether. The patient's vital signs have not responded entirely positively to this social surgery in fact, by some important metrics, the patient's post-operative behavior appears to be impaired. And, like many other transplant patients, this one seems to have effected a disturbing change in mood, even personality, as a consequence of the operation.
The modern welfare state has a distinctly European pedigree. Naturally enough, the architecture of the welfare state was designed and developed with European realities in mind, the most important of which were European beliefs about poverty. Thanks to their history of Old World feudalism, with its centuries of rigid class barriers and attendant lack of opportunity for mobility based on merit, Europeans held a powerful, continentally pervasive belief that ordinary people who found themselves in poverty or need were effectively stuck in it &mdash and, no less important, that they were stuck through no fault of their own, but rather by an accident of birth. (Whether this belief was entirely accurate is another story, though beside the point: This was what people perceived and believed, and at the end of the day those perceptions shaped the formation and development of Europe's welfare states.) The state provision of old-age pensions, unemployment benefits, and health services &mdash along with official family support and other household-income guarantees &mdash served a multiplicity of purposes for European political economies, not the least of which was to assuage voters' discontent with the perceived shortcomings of their countries' social structures through a highly visible and explicitly political mechanism for broadly based and compensatory income redistribution.
But America's historical experience has been rather different from Europe's, and from the earliest days of the great American experiment, people in the United States exhibited strikingly different views from their trans-Atlantic cousins on the questions of poverty and social welfare. These differences were noted both by Americans themselves and by foreign visitors, not least among them Alexis de Tocqueville, whose conception of American exceptionalism was heavily influenced by the distinctive American worldview on such matters. Because America had no feudal past and no lingering aristocracy, poverty was not viewed as the result of an unalterable accident of birth but instead as a temporary challenge that could be overcome with determination and character &mdash with enterprise, hard work, and grit. Rightly or wrongly, Americans viewed themselves as masters of their own fate, intensely proud because they were self-reliant.
To the American mind, poverty could never be regarded as a permanent condition for anyone in any stratum of society because of the country's boundless possibilities for individual self-advancement. Self-reliance and personal initiative were, in this way of thinking, the critical factors in staying out of need. Generosity, too, was very much a part of that American ethos the American impulse to lend a hand (sometimes a very generous hand) to neighbors in need of help was ingrained in the immigrant and settler traditions. But thanks to a strong underlying streak of Puritanism, Americans reflexively parsed the needy into two categories: what came to be called the deserving and the undeserving poor. To assist the former, the American prescription was community-based charity from its famously vibrant "voluntary associations." The latter &mdash men and women judged responsible for their own dire circumstances due to laziness, or drinking problems, or other behavior associated with flawed character &mdash were seen as mainly needing assistance in "changing their ways." In either case, charitable aid was typically envisioned as a temporary intervention to help good people get through a bad spell and back on their feet. Long-term dependence upon handouts was "pauperism," an odious condition no self-respecting American would readily accept.
The American mythos, in short, offered less than fertile soil for cultivating a modern welfare state. This is not to say that the American myth of unlimited opportunity for the rugged individualist always conformed to the facts on the ground. That myth rang hollow for many Americans &mdash most especially for African-Americans, who first suffered for generations under slavery and thereafter endured a full century of officially enforced discrimination, as well as other barriers to self-advancement. Though the facts certainly did not always fit the ideal, the American myth was so generally accepted that the nation displayed an enduring aversion to all the trappings of the welfare state, and put up prolonged resistance to their establishment on our shores.
Over the past several decades, however, something fundamental has changed. The American welfare state today transfers over 14% of the nation's GDP to the recipients of its many programs, and over a third of the population now accepts "need-based" benefits from the government. This is not the America that Tocqueville encountered. To begin to appreciate the differences, we need to understand how Americans' relationship to the welfare state has changed, and with it, the American character itself.
AN AMERICAN REVOLUTION
The road to our modern welfare state traces its way through northern Europe, most notably through Bismarck's social-insurance legislation in late 19th-century Germany, Sweden's pioneering "social democracy" policies during the interwar period, and Britain's 1942 "Beveridge Report," which offered the embattled nation a vision of far-reaching and generous social-welfare guarantees after victory.
Over the first three decades of the 20th century, while welfare programs were blossoming in Europe, in the United States the share of the national output devoted to public-welfare spending (pensions, unemployment, health, and all the rest) not only failed to rise but apparently declined. The ratio of government social outlays to GDP looks actually to have been lower in 1930 than it was in 1890, due in part to the death of Civil War veterans (of the Union army) and their dependents who had been receiving pensions. Thirty-six European and Latin American countries &mdash many of which lagged far behind the U.S. in terms of educational attainment and socioeconomic development &mdash already had put in place nationwide "social insurance" systems for old-age pensions by the time the United States passed the Social Security Act in 1935, establishing our first federal legislation committing Washington to providing public benefits for the general population.
Suffice it to say, the United States arrived late to the 20th century's entitlement party, and the hesitance to embrace the welfare state lingered on well after the Depression. As recently as the early 1960s, the "footprint" left on America's GDP by the welfare state was not dramatically larger than it had been under Franklin Roosevelt &mdash or Herbert Hoover, for that matter. In 1961, at the start of the Kennedy Administration, total government entitlement transfers to individual recipients accounted for a little less than 5% of GDP, as opposed to 2.5% of GDP in 1931 just before the New Deal. In 1963 &mdash the year of Kennedy's assassination &mdash these entitlement transfers accounted for about 6% of total personal income in America, as against a bit less than 4% in 1936.
During the 1960s, however, America's traditional aversion to the welfare state and all its works largely collapsed. President Johnson's "War on Poverty" (declared in 1964) and his "Great Society" pledge of the same year ushered in a new era for America, in which Washington finally commenced in earnest the construction of a massive welfare state. In the decades that followed, America not only markedly expanded provision for current or past workers who qualified for benefits under existing "social insurance" arrangements (retirement, unemployment, and disability), it also inaugurated a panoply of nationwide programs for "income maintenance" (food stamps, housing subsidies, Supplemental Social Security Insurance, and the like) where eligibility turned not on work history but on officially designated "poverty" status. The government also added health-care guarantees for retirees and the officially poor, with Medicare, Medicaid, and their accompaniments. In other words, Americans could claim, and obtain, an increasing trove of economic benefits from the government simply by dint of being a citizen they were now incontestably entitled under law to some measure of transferred public bounty, thanks to our new "entitlement state."
The expansion of the American welfare state remains very much a work in progress the latest addition to that edifice is, of course, the Affordable Care Act. Despite its recent decades of rapid growth, the American welfare state may still look modest in scope and scale compared to some of its European counterparts. Nonetheless, over the past two generations, the remarkable growth of the entitlement state has radically transformed both the American government and the American way of life itself. It is not too much to call those changes revolutionary.
The impact on the federal government has been revolutionary in the literal meaning of the term, in that the structure of state spending has been completely overturned within living memory. Over the past half-century, social-welfare-program payments and subventions have mutated from a familiar but nonetheless decidedly limited item on the federal ledger into its dominant and indeed most distinguishing feature. The metamorphosis is underscored by estimates from the Bureau of Economic Analysis, the unit in the federal government that calculates GDP and other elements of our national accounts. According to BEA figures, official transfers of money, goods, and services to individual recipients through social-welfare programs accounted for less than one federal dollar in four (24%) in 1963. (And, to go by BEA data, that share was not much higher than what it had been in 1929.) But by 2013, roughly three out of every five federal dollars (59%) were going to social-entitlement transfers. The still-shrinking residual &mdash barely two budgetary dollars in five, at this writing &mdash is now left to apply to all the remaining purposes of the federal government, including the considerable bureaucratic costs of overseeing the various transfer programs under consideration themselves.
Thus did the great experiment begun in the Constitution devolve into an entitlements machine &mdash at least, so far as daily operations, budgetary priorities, and administrative emphases are concerned. Federal politics, correspondingly, are now in the main the politics of entitlement programs &mdash activities never mentioned in the Constitution or its amendments.
THE ROAD TO WELFARE
Scarcely less revolutionary has been the remolding of daily life for ordinary Americans under the shadow of the entitlement state. Over the half-century between 1963 and 2013, entitlement transfers were the fastest growing source of personal income in America &mdash expanding at twice the rate for real per capita personal income from all other sources, in fact. Relentless, exponential growth of entitlement payments recast the American family budget over the course of just two generations. In 1963, these transfers accounted for less than one out of every 15 dollars of overall personal income by 2013, they accounted for more than one dollar out of every six.
The explosive growth of entitlement outlays, of course, was accompanied by a corresponding surge in the number of Americans who would routinely apply for, and accept, such government benefits. Despite episodic attempts to limit the growth of the welfare state or occasional assurances from Washington that "the era of big government is over," the pool of entitlement beneficiaries has apparently grown almost ceaselessly. The qualifier "apparently" is necessary because, curiously enough, the government did not actually begin systematically tracking the demographics of America's "program participation" until a generation ago. Such data as are available, however, depict a sea change over the past 30 years.
By 2012, the most recent year for such figures at this writing, Census Bureau estimates indicated that more than 150 million Americans, or a little more than 49% of the population, lived in households that received at least one entitlement benefit. Since under-reporting of government transfers is characteristic for survey respondents, and since administrative records suggest the Census Bureau's own adjustments and corrections do not completely compensate for the under-reporting problem, this likely means that America has already passed the symbolic threshold where a majority of the population is asking for, and accepting, welfare-state transfers.
Between 1983 and 2012, by Census Bureau estimates, the percentage of Americans "participating" in entitlement programs jumped by nearly 20 percentage points. One might at first assume that the upsurge was largely due to the graying of the population and the consequent increase in the number of beneficiaries of Social Security and Medicare, entitlement programs designed to help the elderly. But that is not the case. Over the period in question, the share of Americans receiving Social Security payments increased by less than three percentage points &mdash and by less than four points for those availing themselves of Medicare. Less than one-fifth of that 20-percentage-point jump can be attributed to increased reliance on these two "old age" programs.
Overwhelmingly, the growth in claimants of entitlement benefits has stemmed from an extraordinary rise in "means-tested" entitlements. (These entitlements are often called "anti-poverty programs," since the criterion for eligibility is an income below some designated multiple of the officially calculated poverty threshold.) By late 2012, more than 109 million Americans lived in households that obtained one or more such benefits &mdash over twice as many as received Social Security or Medicare. The population of what we might call "means-tested America" was more than two-and-a-half times as large in 2012 as it had been in 1983. Over those intervening years, there was population growth to be sure, but not enough to explain the huge increase in the share of the population receiving anti-poverty benefits. The total U.S. population grew by almost 83 million, while the number of people accepting means-tested benefits rose by 67 million &mdash an astonishing trajectory, implying a growth of the means-tested population of 80 persons for each 100-person increase in national population over that interval.
In the mid-1990s, during the Clinton era, Congress famously passed legislation to rein in one notorious entitlement program: Aid for Families with Dependent Children. Established under a different name as part of the 1935 Social Security Act, AFDC was a Social Security program portal originally intended to support the orphaned children of deceased workers it was subsequently diverted to supporting children from broken homes and eventually the children of unwed mothers. By the 1980s, the great majority of children born to never-married mothers were AFDC recipients, and almost half of AFDC recipients were the children of never-married mothers. The program's design seemed to create incentives against marriage and against work, and it was ultimately determined by bipartisan political consensus that such an arrangement must not continue. So with the welfare reforms of the 1990s, AFDC was changed to TANF &mdash Temporary Aid to Needy Families &mdash and eligibility for benefits was indeed restricted. By 2012, the fraction of Americans in homes obtaining AFDC/TANF aid was less than half of what it had been in 1983.
The story of AFDC/TANF, however, is a one-off, a major exception to the general trend. Over the same three decades, the rolls of claimants receiving food stamps (a program that was officially rebranded the Supplemental Nutrition Assistance Program, or SNAP, in 2008 because of the stigma the phrase had acquired) jumped from 19 million to 51 million. By 2012 almost one American in six lived in a home enrolled in the SNAP program. The ranks of Medicaid, the means-tested national health-care program, increased by over 65 million between 1983 and 2012, and now include over one in four Americans. And while the door to means-tested cash benefits from the Social Security program through AFDC/TANF had been partly (though not entirely) closed, a much larger window for such benefits was simultaneously thrown open in the form of Supplemental Security Income, a program intended to provide income for the disabled poor. Between 1983 and 2012, the number of Americans in households receiving Federal SSI more than sextupled by 2012, over 20 million people were counted as dependents of the program.
All told, more than 35% of Americans were taking home at least some benefits from means-tested programs by 2012 &mdash nearly twice the share in 1983. Some may be tempted to blame such an increase on increasingly widespread material hardship. It is true that the American economy in 2012 was still recovering from the huge global crash of 2008, and unemployment levels were still painfully high: 8.1% for the year as a whole. But 1983 was a recovery year for the U.S. economy, too the recession of 1981 and 1982 was the most severe in postwar American history up to that point, and the unemployment rate in 1983 was 9.6%, even higher than in 2012.
By the same token, although the official poverty rate was almost identical for the two years &mdash the total population estimated to be below the official poverty line was 15.2% in 1983 and 15.0% in 2012 &mdash the proportion of Americans drawing means-tested benefits was dramatically higher in 2012. By 2012, there was no longer any readily observable correspondence between the officially designated condition of poverty and the recipience of "anti-poverty" entitlements. In that year, the number of people taking home means-tested benefits was more than twice the number of those living below the poverty line &mdash meaning a decisive majority of recipients of such aid were the non-poor. In fact, by 2012 roughly one in four Americans above the poverty line was receiving at least one means-tested benefit.
How could this be? America today is almost certainly the richest society in history, anywhere at any time. And it is certainly more prosperous and productive now (and in 2012) than it was three decades ago. Yet paradoxically, our entitlement state behaves as if Americans have never been more "needy." The paradox is easily explained: Means-tested entitlement transfers are no longer an instrument strictly for addressing absolute poverty, but instead a device for a more general redistribution of resources. And the fact that so many are willing to accept need-based aid signals a fundamental change in the American character.
THE MORAL FABRIC
Asking for, and accepting, purportedly need-based government welfare benefits has become a fact of life for a significant and still growing minority of our population: Every decade, a higher proportion of Americans appear to be habituated to the practice. If the trajectory continues, the coming generation could see the emergence in the United States of means-tested beneficiaries becoming the majority of the population. This notion may seem absurd, but it is not as fanciful as it sounds. In recent years, after all, nearly half of all children under 18 years of age received means-tested benefits (or lived in homes that did). For this rising cohort of young Americans, reliance on public, need-based entitlement programs is already the norm &mdash here and now.
It risks belaboring the obvious to observe that today's real existing American entitlement state, and the habits &mdash including habits of mind &mdash that it engenders, do not coexist easily with the values and principles, or with the traditions, culture, and styles of life, subsumed under the shorthand of "American exceptionalism." Especially subversive of that ethos, we might argue, are essentially unconditional and indefinite guarantees of means-tested public largesse.
Some components of the welfare state look distinctly less objectionable to that traditional sensibility than others. Given proper design, for example, an old-age benefit programs such as Social Security could more or less function as the social-insurance program it claims to be. With the right structure and internal incentives, it is possible to imagine a publicly administered retirement program entirely self-financed by the eventual recipients of these benefits over the course of their working lives. The United States is very far from achieving a self-funded Social Security program, of course, but if such a schema could be put in place, it would not in itself do violence to the conceptions of self-reliance, personal responsibility, and self-advancement that sit at the heart of the traditional American mythos. (Much the same could likewise be said of publicly funded education.) Moral hazard is inherent, and inescapable, in all public social-welfare projects &mdash but it is easiest to minimize or contain in efforts like these. By contrast, the moral hazard in ostensibly need-based programs is epidemic, contagious, and essentially uncontrollable. Mass public provision of means-tested entitlements perforce invites long-term consumption of those entitlements.
The corrosive nature of mass dependence on entitlements is evident from the nature of the pathologies so closely associated with its spread. Two of the most pernicious of them are so tightly intertwined as to be inseparable: the breakdown of the pre-existing American family structure and the dramatic decrease in participation in work among working-age men.
When the "War on Poverty" was launched in 1964, 7% of children were born outside of marriage by 2012, that number had grown to an astounding 41%, and nearly a quarter of all American children under the age of 18 were living with a single mother. (In the interest of brevity, let us merely say much, much more data could be adduced on this score, almost all of it depressing.)
As for men of parenting age, a steadily rising share has been opting out of the labor force altogether. Between 1964 and early 2014, the fraction of civilian men between the ages of 25 and 34 who were neither working nor looking for work roughly quadrupled, from less than 3% to more than 11%. In 1965, fewer than 5% of American men between 45 and 54 years of age were totally out of the work force by early 2014, the fraction was almost 15%. To judge by mortality statistics, American men in the prime of life have never been healthier than they are today &mdash yet they are less committed to working, or to attempting to find work, than at any previous point in our nation's history.
No one can prove (or disprove) that the entitlement state is responsible for this rending of the national fabric. But it is clear that the rise of the entitlement state has coincided with these disheartening developments that it has abetted these developments and that, at the end of the day, its interventions have served to finance and underwrite these developments. For a great many women and children in America, and a perhaps surprisingly large number of working-age men as well, the entitlement state is now the breadwinner of the household.
ENTITLEMENTS AND EXCEPTIONALISM
Changes in popular mores and norms are less easily and precisely tracked than changes in behavior, but here as well modern America has witnessed immense shifts under the shadow of the entitlement state. Difficult as these shifts may be to quantify, we may nevertheless dare to identify, and at least impressionistically describe, some of the ways the entitlements revolution may be shaping the contemporary American mind and fundamentally changing the American character.
To begin, the rise of long-term entitlement dependence &mdash with the concomitant "mainstreaming" of inter-generational welfare de-pendence &mdash self-evidently delivers a heavy blow against general belief in the notion that everyone can succeed in America, no matter their station at birth. Perhaps less obvious is what increasing acceptance of entitlements means for American exceptionalism. The burning personal ambition and hunger for success that both domestic and foreign observers have long taken to be distinctively American traits are being undermined and supplanted by the character challenges posed by the entitlement state. The incentive structure of our means-based welfare state invites citizens to accept benefits by showing need, making the criterion for receiving grants demonstrated personal or familial financial failure, which used to be a source of shame.
Unlike all American governance before it, our new means-tested arrangements enforce a poverty policy that must function as blind to any broad differentiation between the "deserving" and "undeserving" poor. That basic Puritan conception is dying today in America, except perhaps in the circles and reaches where it was already dead. More broadly, the politics surrounding the entitlement system tends to undermine &mdash by and large deliberately &mdash the legitimacy of utilizing stigma and opprobrium to condition the behavior of beneficiaries, even when the behavior in question is irresponsible or plainly destructive. For a growing number of Americans, especially younger Americans, the very notion of "shaming" entitlement recipients for their personal behavior is regarded as completely inappropriate, if not offensive. This is a strikingly new point of view in American political culture. A "judgment-free" attitude toward the official provision of social support, one that takes personal responsibility out of the discussion, marks a fundamental break with the past on this basic American precept about civic life and civic duty.
The entitlement state appears to be degrading standards of citizenship in other ways as well. For example, mass gaming of the welfare system appears to be a fact of modern American life. The country's ballooning "disability" claims attest to this. Disability awards are a key source of financial support for non-working men now, and disability judgments also serve as a gateway to qualifying for a whole assortment of subsidiary welfare benefits. Successful claims by working-age adults against the Social Security Disability Insurance (SSDI) program rose almost six-fold between 1970 and 2012 &mdash and that number does not include claims against other major government disability programs, such as SSI. There has never been a serious official effort to audit SSDI &mdash or, for that matter, virtually any of the country's current entitlement programs.
The late senator Daniel Patrick Moynihan once wrote, "It cannot too often be stated that the issue of welfare is not what it costs those who provide it, but what it costs those who receive it." The full tally of those costs must now include the loss of public honesty occasioned by chronic deception to extract unwarranted entitlement benefits from our government &mdash and by the tolerance of such deception by the family members and friends of those who commit it.
Finally, there is the relation between entitlements and the middle-class mentality. An important aspect of the American national myth is that anyone who works hard and plays by the rules can gain entry to the country's middle class, regardless of their income or background. Yet while low incomes, limited educational attainment, and other material constraints manifestly have not prevented successive generations of Americans from aspiring to the middle-class or even entering it, the same cannot be said of constraints emanating from the mind. Being part of the American middle class is not just an income distinction &mdash it is a mentality, a self-conception. To be middle class is to be hard-working and self-sufficient, with self-respect rooted in providing a good life for oneself and one's family. Can members in good standing of the American middle class really maintain that self-conception while simultaneously taking need-based government benefits that symbolically brand them and their family as wards of the state?
It is no secret that the American middle class is under great pressure these days. Most commentary and analysis on this question has focused on "structural," material reasons for this phenomenon: globalization, the faltering American jobs machine, widening economic differences in society, difficulties in keeping up the pace of mobility, and many others. Conspicuously absent from this discussion have been the consequences of enrolling a sizable and still-growing share of the populace in welfare programs intended for the helpless and needy. With more than 35% of America receiving means-tested benefits, should it really be surprising that over a third of the country no longer considers itself "middle class"?
THE END OF EXCEPTIONALISM
The worldwide spread and growth of the social-welfare state seems strongly to suggest that there is a universal demand today for such services and guarantees in affluent, democratic societies. Given the disproportionate growth almost everywhere of entitlements in relation to increases in national income, it would seem that voters in modern democracies the world over regard such benefits as "luxury goods." In one sense, we might therefore say there is nothing particularly special about the recent American experience with the entitlement state. But as we have also seen, there is good reason to think that the entitlement state may be especially poorly suited for a nation with America's particular political culture, sensibilities, and tradition.
The qualities celebrated under the banner of "American exceptionalism" are perhaps in poorer repair than at any time in our nation's history. There can be little doubt (to return to our medical metaphor) that the grafting of a social-welfare system onto our body public is in no small part responsible for this state of affairs.
And there is little reason to believe that the transplant will be rejected any time soon. To date the American voter's appetite for entitlement transfers appears to be scarcely less insatiable than those of voters anywhere else. Our political leadership, for its part, has no stomach for taking the lead in weaning the nation from entitlement dependence. Despite tactical, rhetorical opposition to further expansion of the entitlement state by many voices in Washington, and firm resistance by an honorable and principled few, collusive bipartisan support for an ever-larger welfare state is the central fact of politics in our nation's capital today, as it has been for decades. Until and unless America undergoes some sort of awakening that turns the public against its blandishments, or some sort of forcing financial crisis that suddenly restricts the resources available to it, continued growth of the entitlement state looks very likely in the years immediately ahead. And in at least that respect, America today does not look exceptional at all.
Nicholas Eberstadt holds the Henry Wendt Chair in Political Economy at the American Enterprise Institute. This essay is adapted from his chapter in the forthcoming volume The State of the American Mind, edited by Mark Bauerlein and Adam Bellow (Templeton Press).
Bismarck's realism showed at a fairly early age. He abandoned religion at about age of 16 when he was confirmed. He writes, "Not out of indifference, but as the outcome of mature conviction, I abandoned the practice to which I had been accustomed since early childhood, and gave up saying my prayers, for prayer seemed to me to be in conflict to my view as to the nature of God. I said to myself that either God ordained everything in virtue of his omnipresence, that is to say, independently of my thought and will . oe else, that if my will be independent of God, it would be arrogant . to believe that God could be influenced by human petitions." Later as Chancellor he would adhere to the outer trappings of religion, knowing otherwise would upset King Wilhelm.
The economy, 1870–90
The empire was founded toward the end of two decades of rapid economic expansion, during which the German states surpassed France in steel production and railway building. By 1914 Germany was an industrial giant second only to the United States. After the establishment of the North German Confederation (1867), the impediments to economic growth were quickly removed. The usury laws and fetters on internal migration disappeared. A uniform currency based on gold was adopted by Bismarck and his National Liberal allies. An imperial central bank was created, and the tough regulations hindering the formation of joint-stock corporations fell by the wayside. Combined with the euphoria over unification, these changes led to an unprecedented boom between 1870 and 1873. The Gründerjahre (“founders’ years”), as the years after unification were called, saw 857 new companies founded with a capital of 1.4 billion talers—more new companies and investment in the private sector than in the previous 20 years. Dividends reached an astounding 12.4 percent. The railway system almost doubled in size between 1865 and 1875. Tens of thousands of Germans invested in stock for the first time to demonstrate both their patriotism and their faith in the future of the new German Empire.
These halcyon years came to an abrupt end with the onset of a worldwide depression in 1873. The prices for agricultural and industrial goods fell precipitously for six successive years the net national product declined. A sharp decline in profits and investment opportunities persisted until the mid-1890s. About 20 percent of the recently founded corporations went bankrupt.
In agriculture, the deeply indebted Junker elite now faced severe competition as surplus American and Russian grain flooded the German market. Among the more immediate consequences of the crash was a burst of emigration from the depressed provinces of rural Prussia. During the 1870s some 600,000 people departed for North and South America this number more than doubled in the 1880s. As a result of the depression, social and economic questions increasingly preoccupied the Reichstag, while constitutional and political issues were put on the back burner.
It would be incorrect to draw the conclusion that the economy remained in the doldrums for an entire generation. While the 1870s and early 1890s were depressed periods, the 1880s saw significant recovery in industry, if not in agriculture. The British, who had paid scant attention to Germany’s emergence as an industrial power, began to respect their competitor during this decade.
In adjusting to the depression of the 1870s, Germany’s leaders chose to return to a regulated economy after a generation of increasingly free trade. The hallmark of the new age was concentration Germany became the land of big industry, big agriculture, big banks, and big government. The two areas in which the trend toward a controlled economy was most evident were tariff policy and the formation of cartels. Cartel agreements, which were sanctioned by the state, apportioned markets, set standards for manufactured goods, and fixed prices. It is not coincidental that Germany, where the guild system prevailed into the 19th century, should have given birth to the cartel. Cartels arose rapidly in the steel, coal, glass, cement, potash, and chemical industries. Between 1882 and 1895 the total number of business enterprises grew by 4.6 percent, but the number employing more than 50 workers grew by 90 percent.
In 1878–79 Bismarck initiated a significant change in German economic policy in conjunction with his new alliance with the two conservative parties at the expense of the National Liberals. Protective import tariffs were introduced on iron and the major agricultural grains the latter were raised in 1885 and again in 1887. This departure from liberal economic policy addressed complaints from industrialists, estate owners, and peasants about the terrible impact the depression was having on their respective incomes. Only Britain held out against the protectionist tide that swept Europe in the 1880s. Bismarck’s shift, nevertheless, had serious political implications. It signified his opposition to any further evolution in the direction of political democracy. The grain tariffs provided the Junker estate owners of Prussia, who constituted the main opposition to full political emancipation, with subventions that insulated them somewhat from the international market. Thus, the landed elite, major industrialists, the military, and the higher civil service formed an alliance to forestall the rise of social democracy, prevent further political liberalization, and make sure that the uncertainties of the market did not weaken the elites.
Social Security: A Brief History of Social Insurance
Note: This entry is a portion of Special Study #1, a lecture Dr. Bortz, the first SSA Historian,developed as part of SSA’s internal training program. Up until the early 1970s new employees were trained at SSA headquarters in Baltimore before being sent to assume their new duties in offices around the country. As part of this training, Dr. Bortz presented a curriculum on the history of Social Security. This lecture, developed in the early 1970s, was the core of that curriculum. It features an extensive overview of social policy developments dating from pre-history up to the passage of the Social Security Act in 1935.
Social Insurance: Social insurance developments in Europe, though not widely known, did influence the thinking of persons concerned with social reform in this country. Of significance is: How in France, Germany and Great Britain, there was a patchwork development. This was true elsewhere in Europe, too. It applied to the compulsory or non-compulsory features to differences in categories of workers eligible to proportions paid by whom -employer, employee, and Government to regulations which differed from country to country to the amount of benefits and to their effects. It was true of sickness insurance, workmen’s compensation, old age pensions, in fact, social insurance, in general.
In Germany, Bismarck took advantage of the expanding mutual aid movement there (among trade unions – friendly societies, some few employers) and made acceptable the thesis that compulsion was inevitable, that State control of social insurance was indispensable and that State subsidies were desirable.
Germany enacted a compulsory sickness insurance law in 1883 (Workmen’s compensation in 1884), followed by Austria, with a compulsory sickness insurance law in 1888 Hungary in 1891 Great Britain and Russia did the same in 1911 (Great Britain’s workmen’s compensation had come in 1880 the Netherlands enacted a compulsory sickness insurance law in 1913
France did not enact a compulsory sickness insurance law until 1930, yet in 1905, it had approved voluntary unemployment insurance.
In the case of Germany and its sickness insurance law, 2/3 of the contributions were from the employer and 1/3 from the employee.
In 1889, Germany enacted compulsory old age insurance -which included invalidity insurance. Here contributions were split between worker, employer and Government. Yet, to emphasize the patchwork development, Germany did not have unemployment insurance until 1927. Other countries that enacted old age insurance were Luxembourg and Austria in 1906, France in 1910, Rumania in 1912, and Sweden in 1913.
As already noted the compulsory method spread from Germany to countries under German cultural influence. While it met with success in these States, there was considerable resistance to the method of compulsion in the Latin countries of the continent and in Great Britain.
The two most important systems — the German and the French — were similar in their efforts to cover the working class population, to combine old age and invalidity insurance, and to subsidize premiums through employer contributions and a State supplement to each matured pension.
They differed in their method of computing premiums, the amount of pension and administrative arrangements.
Denmark, in 1891, was the first nation to institute a national old age pension system. In 1897, France adopted an optional system of State subsidies to departments or communes which provided pensions (it was followed in 1910 by a compulsory act). England established its national pension system the same year, climaxing three decades of discussion and yet not until 1925 did it add a system of contributory old-age insurance.
By 1911 — despite constraints of voluntarism and the work cult England established an economic security system no less compulsory than the German. Following the return of the Liberal Party to power in 1906, Lloyd George and Winston Churchill became committed to social insurance as a means of advancing their political fortunes, while coping with the social problems of these times. True, they were unencumbered by the Federal and constitutional obstacles which existed in the United States.
As for unemployment insurance, Great Britain enacted such legislation in 1911. Incidentally, Winston Churchill also played a key role in the enactment of unemployment insurance. Between 1919 and 1927 Italy, Luxembourg, Austria, Australia, the Irish Free State, Bulgaria, Poland, Germany and several Swiss cantons followed suit.
All of this legislation and the experience gained from it were observed and studied by Americans interested in getting such laws enacted and systems established in this country.
I believe it can be said without too much fear of contradiction that the concept of social insurance in America had its real beginnings in the 20th century -in a wage centered, industrial economy. Social insurance was proposed as an alternative to the existing but inefficient system of economic assistance. Operating independently of the poor law, it would respond predictably and adequately, said its proponents, in the event of an individual’s exposure to the long and short term risks which interrupted income flow–accident, sickness and maternity, old age and invalidity, unemployment or death resulting in impoverished dependency. So the social insurance movement tried to transfer the function from the private to the public sector and provide a new definition of the role of Government in American life.
Why was social security so long in coming to the United States? Federalism does complicate the whole issue in the United States, yet, the Imperial Germany of Bismarck was also a Federal State and there it had not been much of a barrier to hurdle.
Political and social factors contributed to the lag in the United States. By the beginning of the 20th century, the concept of individualism had become so well entrenched that any social action seemed a threat to personal liberty. Voluntary effort was regarded as more appropriate and more in accordance with national character.
Social insurance proposals, therefore, were not considered simply in the light of the needs they served, but as an entering wedge in the process of extending State power that would ultimately curtail individual freedom.
Yet, as we know today when enacted, social security neither damaged the liberty of the citizen nor eliminated the voluntary aspects of community action. Instead, it provided a support that invigorated both.
But earlier in this century, social insurance had to contend with the idealization of voluntary institutions which are deeply rooted in the United States. Voluntary associations performed the function of mediating between the individual and mass society and Government.
Private charitable, philanthropic and mutual aid societies flourished in the context of voluntary association. They were often tied to sectarian and ethnic group aspirations and they helped mediate between the immigrant and the strange, often hostile, American environment. It led to the assumption by private groups, of responsibility for collective action which in other countries was delegated to Government or elite groups. It was in the broadest sense an alternative to politics and governmental action. It made it possible for groups of all kinds to exert an influence and seek their distinctive goals without resort to the coercive power of Government. Thus, it served a number of indispensable educational, social and moral ends.
Social insurance, it was argued, places an excessive burden on industry or the state, or both. It results in demoralization, lack of foresight, destruction of the habit of saving and even deliberate malingering. The latter is especially true for unemployment and sickness – for these may more easily be simulated than industrial accidents, old age or widowhood.
Besides, social insurance, it was argued, was an alien importation – if not a foreign conspiracy, from Germany and even had Marxian taint. In addition, it was a threat to industry established funds, trade union benefit funds and fraternal, mutual and commercial insurance, went the argument.
Social insurance advocates tried to point out that compulsory insurance was inevitable. Voluntary groups had been strong in Europe, yet there they, too, were forced to turn to compulsory insurance to help solve their problems.
Social insurance proponents interpreted the compulsory factor in social insurance in a technical, instrumental sense simply as a device to maximize coverage and cost distribution, a means to protect those who most needed but could least afford insurance. Critics, however, invested the term with moral attributes.
Another facet inhibiting the movement toward social security or social insurance came from our pioneering tradition– the unusual emphasis placed upon individual initiative and self-reliance — the unprecedented accumulation of surplus wealth. So long as the large reserves of surplus wealth could be canalized into social services, there existed neither the demand nor the inclination to develop the agencies of public welfare.
Moreover, the growth of centralized public welfare service was prevented by the existence of a high degree of local government autonomy and by the early suspicious attitude of social workers toward governmental relief and particularly outdoor relief, a position traceable in large part to the corruption of American politics and to the lack of opportunity for trained social workers to participate in and direct the Government services.
New organizations and leaders in the 1920’s, too, aided the movement for social justice. Among these were the Fraternal Order of Eagles, I.M. Rubinow and Abraham Epstein. The Eagles established many local committees, carried on legislative and publicity campaigns and exerted grass roots pressure and offered legislation that was introduced in Montana, Rhode Island, Ohio and elsewhere.
Isaac Max Rubinow was an outstanding if not THE outstanding American theoretician on social insurance. He was the author of several outstanding works in the field.
Abraham Epstein served as research director of the Pennsylvania Commission on Old Age Pensions for 1920 and except for 1922-1923, when he was employed by the Eagles, worked for the Pennsylvania Commission on Old Age until 1927. In that year with the demise of the Pennsylvania Commission, he organized the American Association for Old Age Security which broadened its program in 1933 and became the American Association for Social Security. (So far as we know, this is the FIRST TIME the term social security was really used in modern times.) Mr. Epstein, too, was the author of several important works in the field of social insurance.
We might note here an acceptable definition of the term “social security” might be this: a specific Governmental program designed to promote the economic and social well being of individual workers and their families through providing protection against specific hazards which would otherwise cause widespread destitution and misery.
One Reply to &ldquoSocial Security: A Brief History of Social Insurance&rdquo
Having worked in Insurance for many years I think that when pepole don’t have home insurance it is a money issue they take the chance that they won’t have a big loss and that saves them x number of pounds a year.I was insured through a major insurer for about 15 years reasonable rates, so we renewed with them each year. Then we had a claim and the service was terrible. I have now changed to another insurer but won’t know what their service is like unless we have another claim. I am in the lucky position of not having to watch every penny that I spend, so for me the service is more important than the cost (within reason).
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The former Prussian royal family’s effort to recover riches lost after the Second World War hinges on one question: did their ancestors’ support help Hitler and the Nazis take power?
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On 29 August 2020, German demonstrators protesting against Covid restrictions tried to storm the Reichstag building in Berlin. Unlike their counterparts in Washington, DC on 6 January, they did not succeed there were far fewer protesters, and there was no head of state to goad them. It was startling to see some of the Berlin mob waving flags and banners in the colours of pre-1918 imperial Germany – black, white and red – in the same way that the Washington crowd waved flags of the Confederacy.
These are also the colours Hitler used when he designed the Nazi Party’s flag. They stand for a distinctively authoritarian concept of Germany, in contrast to the black, red and gold of the 1848 Revolution, the Weimar Republic from 1918 to 1933, and today’s national flag.
There is no chance of a monarchical restoration in Germany. The far-right Reichsbürger (Reich Citizens) movement, founded in 1985 by a former railway traffic superintendent, has fewer than 20,000 adherents, including those who were brandishing the imperial German flags in front of the Reichstag. The refusal of the Reichsbürger to recognise the legitimacy of the modern German state has led to sporadic acts of violence, including the fatal shooting of a policeman in 2016. But when they are not engaged in activities such as issuing their own “Reich” currency and postage stamps, the members spend their time quarrelling with each other and are not taken seriously even by other parts of the German far right.
The idea of restoring the German Reich has only a limited appeal in Germany. The Hohenzollerns, the royal family of Prussia and then, following the unification of Germany in 1871, the German Reich, are not going to make a comeback, nor, surely, would they ever want to. But they have recently emerged from decades of obscurity to make headlines again.
This time it’s not so much about politics as about property. The Hohenzollern family is headed by Georg Friedrich, “Prince of Prussia”, the great-great-grandson of Wilhelm II, the last Kaiser, who reigned between 1888 and 1918. Georg Friedrich is a businessman who, among other things, has launched a variety of beer called Prussia’s Pils (drinking it, the advertising copy claims, is a “majestic pleasure”). It seemed an obvious business move to try to recover, or obtain compensation for, some of the family’s former property lost during Germany’s turbulent 20th century.
In 1918, a socialist revolution forced the Kaiser off the throne following Germany’s defeat in the First World War. Wilhelm II went into exile, taking with him 59 railway wagons laden with his possessions, including furniture and works of art, which he used to furnish a manor house in the Netherlands, where he spent the rest of his life.
After the Second World War, all this was confiscated by the Dutch state on the grounds that the ex-Kaiser and his sons had supported the Nazis, and in 1953 it transferred the house and its contents to a specially created foundation, which has kept it as a museum. In 2014 the Hohenzollern family began proceedings through the international law firm Eversheds to have it returned to their possession. But in May 2015, the Dutch government rejected the claim, and there the matter has rested.
Far more extensive, however, were the family’s properties in Germany itself, confiscated in the 1918 Revolution. In 1926 the Hohenzollerns managed to reclaim a sizeable portion of their property through an agreement signed with the government. Post-1945, their possessions and estates were mostly located to the east of the Iron Curtain, where they were confiscated again, this time by the Soviet Union. After its creation in 1949, the German Democratic Republic, a Soviet puppet state, nationalised the possessions along with most other private property. So when the Berlin Wall fell, they were appropriated by the reunited German state. Faced with millions of claims from individuals, families and businesses, the German parliament allowed the return of property confiscated by the East German state and then, in 1994, it passed a measure permitting compensation for the loss of property confiscated by the Allies between 1945 and 1949.
But there was a catch. The 1994 law acknowledged the validity of compensation claims only if the previous owners had not “significantly promoted the National Socialist or the Communist System”. So in 2011, Prince Georg Heinrich commissioned the Cambridge historian Christopher Clark to produce a confidential report on the question of whether or not his ancestors had lent significant support to the Nazis.
Regius Professor of History at Cambridge, Clark is a household name in Germany. The German edition of his history of Prussia, Iron Kingdom (2006), was a bestseller and brought him into contact with Prince Georg Heinrich, whose lavish wedding celebrations he is rumoured to have attended in 2011. A year later he published The Sleepwalkers, a gripping narrative of the outbreak of the First World War, which appeared in German in time for the centenary commemorations and topped the bestseller lists for weeks. It earned him national fame, media appearances, interviews with politicians, and invitations on to chat shows, where he would gladly sing revolutionary songs from the year 1848 in an agreeable light tenor and in perfect German. Since then he has fronted four popular history series on German TV, the most recent involving visits to Unesco World Heritage Sites.
Clark owes his popularity in Germany not just to his compulsively readable histories, or his impressive articulacy and charm. It is also because his books are widely understood to lift the guilt many felt about the history of Prussia, abolished in 1947 as the cradle of militarism, and the outbreak of the First World War, which the 1919 Treaty of Versailles blamed on Germany.
It is not that Clark’s books are biased. As he rightly says, it’s time to move on from finger-pointing and treat these as historical topics like any other. Prussia stood for more than simply militarism, particularly during the Enlightenment, and all the countries involved in the catastrophe of 1914 had territorial ambitions, not just Germany. That Clark is Australian-born and teaches at Cambridge was taken in Germany as a sign of his lack of parti pris. When he was knighted in 2015, it was for services to Anglo-German relations, and on the recommendation of the then foreign secretary Philip Hammond, who had heard good things about him from his German counterparts.
It is a curious fact that if you say Germany was not exclusively or even primarily responsible for the outbreak of war in 1914, you are regarded as left wing in Britain and right wing in Germany. When I dared to suggest in 2014 that the war was not about the British defending democracy against the Kaiser’s attempt to crush it in Europe, Michael Gove denounced me as someone peddling “left-wing versions of the past”. In Germany, Clark has been equally misunderstood as advocating a right-wing version of history biased in favour of the Hohenzollerns. But anyone expecting him to say nice things about them in his report on their relationship with the Nazis must have been disappointed.
Clark made it clear that, after his abdication in 1918, the ex-Kaiser wanted his throne back. When the National Socialists started to win electoral support from the end of the 1920s, Wilhelm put his faith in Hitler as a means of bringing about a Hohenzollern restoration. The ex-Kaiser approved both of the decision of his fourth son August Wilhelm to become a Nazi stormtrooper in 1930, and his wife’s attendance at the Nuremberg Nazi Party Rally. Deeply anti-Semitic, Wilhelm blamed his overthrow in 1918 on a Jewish conspiracy and declared Jews, “a poisonous fungus on the German oak tree”. He declared they should be exterminated. “I believe,” he said privately, “gas would be best.”
Eager for support from monarchists, the Nazis reciprocated. Leading Nazi Hermann Göring travelled to the Netherlands for a meeting with Wilhelm in January 1931, and again in the summer of 1932. But the law did not permit the ex-Kaiser to return to Germany, whereas his son, “Crown Prince” Wilhelm could come and go as he pleased. In the second round of the presidential election in April 1932, the Crown Prince publicly declared he would vote for Hitler against the sitting president, Paul von Hindenburg. After the election, which Hitler lost, the Crown Prince boasted that his support had nevertheless won Hitler two million extra votes. He also wrote to Hitler in September 1932 expressing his hope that the Nazi leader would come to power in a coalition cabinet with conservatives (which he did in January 1933). In meetings with the Crown Prince in 1926 and 1932, Hitler encouraged him to think that if he came to power, the Hohenzollerns could be restored after the death of the aged Hindenburg.
However, when Hindenburg died in 1934, Hitler declared himself head of state, and both the Crown Prince and his father realised that the Nazi leader had no intention of facilitating a Hohenzollern restoration. Dim-witted and unpopular, the Crown Prince, Clark concluded in his report, was a playboy, fond of fast women and fast cars, and famous for the affairs and flirtations which the writer Lion Feuchtwanger pilloried to comic effect in his novel The Oppermanns (1933). He was, Clark wrote, “a twit”, and while he was undeniably pro-Nazi, the help he gave the Nazis was not “substantial”.
Armed with Clark’s report, Prince Georg and his lawyers launched their restitution and compensation claim in 2014. Their demands were reported to include the permanent right of rent-free residence for the family in the 176-room Cecilienhof, and involve some 15,000 items of property. Prince Georg withdrew his claim to reside at the Cecilienhof but the rest remained. They also requested “institutionalised participation” in state-owned “public institutions” (museums, castles and the like) to which they had made permanent loans of items.
Initially, a local authority in the state of Brandenburg, where most of the property was located, granted the Hohenzollerns compensation of €1.2m, but this was overruled by the state government’s finance ministry, which commissioned two further historians to provide reports.
The first of these was Peter Brandt – son of the Social Democratic chancellor the late Willy Brandt – who is best known for his 1981 book on the social history of old Prussia the second, Stephan Malinowski, is an expert on the history of the German aristocracy who teaches at the University of Edinburgh. Both provided evidence to show that the Crown Prince was an admirer of Benito Mussolini’s fascist dictatorship in Italy, where King Victor Emmanuel III remained on the throne as formal head of state. The Crown Prince thought this provided a model for a future dictatorship in Germany. His public backing for the Nazis in 1932 and 1933 was, Brandt and Malinowski concluded, a significant influence in persuading large numbers of monarchist Germans to vote for Hitler and support the Third Reich thereafter.
Further important evidence was supplied after the last, semi-free elections of the Weimar Republic, on the Day of Potsdam on 21 March 1933. Here, Hitler staged a reconciliation with the old order at the opening of the newly elected parliament. At this point, the Nazi leader had not yet established a full dictatorship. He needed conservative support for a majority in the Reichstag. But many German conservatives, from the old elites, the business world, the armed forces, landed society, and the churches, worried about the violence of Nazi stormtroopers and the “socialist” rhetoric of the party’s propaganda chief Joseph Goebbels.
The Hohenzollerns turned up to the Day of Potsdam in force. Broadcast on national radio, celebrated in the middle-class nationalist press, and reported abroad, the ceremony marked the symbiosis of nationalist traditionalism and National Socialist radicalism. As the historian Karl Dietrich Bracher noted in his classic 1960 account of the Nazi seizure of power, the ceremony was important for “the number of those who used it to justify their fellow-travelling with the new order the phenomenon of the “March violets” [the middle-class Germans who joined the Nazi Party in 1933] is also as closely connected with it as possible”.
As Ulrich Herbert, a leading German historian of Nazism, concluded, it was difficult to sustain the argument that the Crown Prince was a marginal figure after Malin- owski and Brandt had presented their evidence. For Heinrich August Winkler, doyen of historians of the Weimar Republic, there was no doubt that: “Merely by calling on people to vote for Hitler in the second round of the Reich presidential elections in April 1932, the Crown Prince had performed an important contribution to making Hitler acceptable to conservative Germans loyal to the Kaiser.” Winkler showed that two million more people voted for Hitler in the second round compared to the first, and the overwhelming majority of these were conservative, middle-class electors who treasured the memory of the Bismarckian Reich.
In the light of these new findings, Clark changed his mind, conceding that “the Crown Prince had energetically worked to overcome the reservations of conservatives about dealing with the Nazis, also after the seizure of power”. He had supported the Hohenzollerns’ claims in his report, he said, because he thought they only involved “a few landscape paintings and family heirlooms”. Had he known how extensive their restitution efforts were, he said, he would never have “placed my pen at their disposal”. Queried on his change of position, he pointed out quite correctly, “That’s what happens in history: we find out new stuff, we change our mind.”
In the meantime, in 2015, Prince Georg and his lawyers had commissioned a fourth confidential report, this time from Wolfram Pyta, a history professor in Stuttgart, and author of a major biography of Hindenburg. It went much further than Clark, portraying the family as actively anti-Nazi, scheming with General Kurt von Schleicher, Hitler’s predecessor as Reich chancellor, and with leading Nazi Gregor Strasser, to try to stop Hitler by forming a coalition of Nazis and conservatives. But Pyta was unable to disprove the conclusions to which the Crown Prince’s public backing for Hitler inevitably led. Pyta’s arguments were dismissed by leading specialists as “bizarre”.
By this point, the case had gone to trial before an administrative court in Potsdam but the federal government in Berlin now paused the trial in order to attempt an out-of-court settlement. In July 2019, details of the behind-the-scenes negotiations between the Hohenzollerns and the federal government were leaked to the German news magazine Der Spiegel.
Then, in November 2019, a well-known German comedian, Jan Böhmermann, devoted a whole issue of his regular TV show to the Hohenzollerns’ claim. The programme’s title was “Balls of Steel” – the equipment Böhmermann considered necessary for the prince to have brought the claims. A large part of his polemic consisted of contrasting the wealthy Hohenzollern clan with the persecuted victims of German colonialism in Namibia before the First World War: powerful stuff, but in the end, irrelevant to the issues at stake. Of more direct importance was Böhmermann also getting hold of the four expert reports and posting them online for all to read.
As a result, the federal government sanctioned the renewal of the Potsdam trial, though the case has been postponed to autumn 2021 to give the parties more time to prepare their cases.
Prince Georg’s lawyers are reported to have filed more than 120 writs against journalists and historians, bloggers, broadcasters, politicians, lawyers and others, threatening them with fines or up to six months in prison if they persist in making what the family regard as false claims about its ancestors’ sympathy for the Nazis in the 1920s and 1930s. The recipients include Malinowski, as well as the chair of the German Historians’ Association Eva Schlotheuber, and the Marburg professor Eckart Conze, who was served with a writ because he had complained that the Hohenzollerns were issuing too many writs.
The Hohenzollerns have not been without their defenders, notably Benjamin Hasselhorn, author of a 2018 study of Wilhelm II arguing that if the Kaiser had died a hero’s death at the end of the First World War, he could have rescued the German monarchy. Quoting Winston Churchill, Hasselhorn has presented constitutional monarchy as the best system of government. But there was no way that the Kaiser was ever going to put himself in the way of physical harm and the possibility of his family, given their antidemocratic views at the time, accepting a constitutional monarchy after 1918 was remote. Hasselhorn’s defence of the Hohenzollerns before parliamentary hearings has not been endorsed by many historians, but it has convinced some politicians at least that historical opinion is too divided to allow a decisive verdict to be reached.
Another defender of the Hohenzollerns, Frank-Lothar Kroll, a specialist in the history of Prussia, has condemned Conze and Schlotheuber for what he sees as their bias and their inclination towards “political correctness”. Kroll pointed out that the Prussian monarchs had believed it was the duty of the authorities to care for the welfare of the poor. It was wrong, he said, to equate the Hohenzollerns with “Prussianism” and Nazism. They had a good side as well.
His intervention highlighted some of the wider issues in the controversy, sparked by the coincidence of 18 January 2021 being the 150th anniversary of the proclamation of the German empire, following Bismarck’s triumph in the Franco-Prussian War. While some liberal historians, notably Conze, have portrayed the empire of 1871-1918 as a kind of antechamber to the Third Reich – authoritarian, militaristic, racist, even genocidal with respect to its colony in Namibia – others, such as Hedwig Richter, author of a recent history of democracy in Germany, have seen it as an example of modernity – technologically advanced, and home to radical social movements such as feminism and socialism.
The truth is that it was both. While there was an active political and electoral culture, the government was authoritarian, appointed by the Kaiser and not responsible to the legislature. The military had enormous influence, and although there was a large feminist movement it moved decisively in a conservative-nationalist direction even before 1914. As such, the debate resembles the present “culture wars” over the British empire, and is about as useful to genuine historical understanding.
The Hohenzollern case has also become politicised. The Green Party – a significant political force in Germany – and the post-communist Left Party are leading the enquiries and hearings being held before committees in the federal parliament. Angela Merkel’s party, the Christian Democrats, are inclined to be more understanding of the Hohenzollerns’ claim, along with the small, business-friendly Free Democratic Party, which sees the issues at stake largely in terms of property rights. Merkel’s main coalition partners, the centre-left Social Democrats, have failed to take a clear stance, reflecting their general political helplessness and disorientation over the past few years. The strongest supporters of the Hohenzollerns are the Alternative for Germany, the far-right party that has strong backing in the former East and has been arguing that Germany should no longer apologise for its past. It’s an endorsement the Hohenzollerns could really do without.
Der Spiegel reported that at the end of January 2021, the family’s representatives threatened to withdraw the thousands of items placed on permanent loan to museums, galleries and buildings in Brandenburg unless negotiations, which have been suspended for a while, are reopened. There are, they say, plenty of institutions in other parts of Germany that would be happy to display them.
However, the state governments of Berlin and Brandenburg are not inclined, as Berlin’s senator for culture Klaus Lederer, a member of the Left Party, has said, to give in to this kind of ultimatum. The consensus view of historians, he continued, was that the Hohenzollerns had substantially aided the Nazis. The Hohenzollerns continue to dispute this. A number of well-known conservative German historians have signed a letter in support of their claim, and the Aberdeen-based historian Thomas Weber, an acknowledged expert on the rise of Hitler, has also lent his support. The federal government has ruled that until the governments of Berlin and Brandenburg can agree that the case can be taken forward, it is not minded to reopen negotiations on a settlement out of court. These two state governments have also declared they are not inclined to settle out of court.
Prince Georg now regrets having (briefly) demanded the right to live in the Cecilienhof. He has said he is reflecting in a self-critical way whether he should have filed the writs, given the public criticism this has aroused. Meanwhile, the Superior Court in Hamburg has dismissed an appeal against a lower court rejecting the Hohenzollerns’ case against Malinowski. The ruling, from which there is no further appeal, stops the family and their representatives from accusing Malinowski of making up the evidence he has presented. It has been greeted by the press as a significant clue to the fate of the lawsuits still in progress. There are in any case only two of these, and no new writs have been issued for several months.
The wider implications of the affair are more troubling. The Hohenzollerns are not just any family. They come with a heavy historical baggage. A decision in their favour would mean in effect ignoring their ancestors’ collaboration with the Nazis, even if such help was not substantial enough to bar restitution of some of their former property. It would undermine the Federal Republic’s continuing and, so far, largely successful effort to come to terms with the Nazi past. There were important continuities between the German empire and the Third Reich – militarism, authoritarianism, nationalism, anti-Semitism – as well as differences. It was not by accident that Hitler designed the Nazi flag in the imperial colours.
Richard J Evans is regius professor emeritus of history at Cambridge University, and the author of The Third Reich in History and Memory (Abacus)
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