Labor, Business, and the Politics of the Welfare State

Marie Gottschalk, The Shadow Welfare State: Labor, Business, and the Politics of Health Care in the United States. Ithaca: ILR Press, 2000, x + 288 pp.

Cathie Jo Martin, Stuck in Neutral: Business and the Politics of Human Capital Investment Policy. Princeton: Princeton University Press, 2000, x + 262 pp.

In 1993, with great fanfare and after an extensive policy-planning process, the Clinton administration introduced legislation to reform the health-care system, which many Americans believed was in crisis. While there was significant interest in a Canadian-style single-payer plan that would have totally revamped the delivery of health care and eliminated private insurers, Clinton's Health Security Act built upon the existing private employer-based system. Instead of the government taking over health care in order to guarantee coverage and control costs, the bill would have created a public-private partnership. The Clinton administration made important concessions to large companies and the insurance industry to enlist their support. Therefore, it anticipated that a powerful cross-class coalition, including unions, big business, the elderly, and health-care providers, would rally on behalf of health-care reform. Instead, many large employers, who had earlier expressed interest in national health reform, backed away from the Clinton legislation. Moreover, organized labor was divided and ineffective in the 1993-94 campaign for universal health care. Small business, small and midsize insurance companies, social conservatives, antitax groups, and the pharmaceutical industry emerged as the loudest and most organized voices in the health-care debate and successfully blocked reform. The two books under review use the struggle over health-care reform as a lens for understanding the role of labor and business in the development of the welfare state. Both authors see institutional structures as playing a key but not necessarily the determining role in shaping labor's and business' response to social policy initiatives.

Marie Gottschalk argues that the institutions of the private or "shadow" welfare state limited labor's capacity to mobilize effectively for universal health care. After World War II, the "shadow welfare state"--that is employer-provided nonwage benefits like paid vacations, health insurance, and pensions--expanded dramatically. Labor was initially ambivalent about company-funded pension and health schemes that evoked images of paternalism. But when a powerful coalition of business and conservative forces blocked passage of legislation that would have liberalized and federalized the American social welfare system, unions began bargaining successfully for job-based benefits. These benefits, combined with high wages, were the central features of the postwar social contract or accord between big labor and big business.

Several pieces of legislation shaped a private welfare state that ultimately bound the interests of organized labor closely to large employers and the insurance industry. Of importance here was the Taft-Hartley Act of 1947, which authorized the creation of what became multi-billion-dollar joint union-management administered health, pension, and welfare trust funds. Common in industries like construction, where union members worked for several employers each year, the Taft-Hartley fund plans "helped cement the commitment of the building trades and other unions to private sector benefits" (44). The Taft-Hartley Act put some unions in the insurance business, thus weakening potential labor support for a national health insurance system. The passage in 1974 of the Employee Retirement Income Security Act (ERISA) was the second act that helped keep labor attached to a job-based system of health benefits. It exempted self-insured employers and Taft-Hartley union funds from state-level insurance regulations. Finally, the insurance industry's "experience rating" system, which enabled large employers and Taft-Hartley funds to benefit from lower health insurance premiums, tended to create a community of interests between unions with Taft-Hartley plans, large employers, and insurance companies. Gottschalk identifies the legacy of the postwar labor-management accord as yet another institution that pushed labor toward cooperating with business on health...