The Politics of Economic Security: Employee Benefits and the Privatization of New Deal Liberalism

Since the late nineteenth century, American employers have relied on a program of welfare capitalism to deflect incursions into the workplace from the regulatory state or organized workers. Welfare capitalism encompasses social welfare benefits and health, safety, or leisure programs offered through the workplace—programs established and directed by the employer. In periods of labor upheaval and political social reform, American firms have relied on workplace social welfare as a private, managerial response to political pressure from the state and workers—particularly when workers sought to use the state to improve working conditions and guarantee economic security. Where or when employers no longer faced these threats, managers reasserted their control over the terms of work, compensation, and security. Out of this conflict emerged a public-private welfare regime, heavily tilted toward private sources and based on the exclusion of those who most needed economic assistance. Any narrative of the American welfare state, therefore, belongs within the century-long story of welfare capitalism. ¹

The New Deal was a watershed in American political culture and political economy, establishing both a set of structural relationships between business, labor, and the state and a set of ideological expectations that governed their interactions. As a result of New Deal legislation, the national government, for example, would directly intervene in financial, agricultural, housing, energy, and labor markets. The state entered the formerly insular employment realm and compelled employers to pay minimum wages, old-age pensions, and unemployment compensation and to recognize unions and maximum-hours restrictions.

The federal government's new role in economic security matters had a ripple effect among community and economic institutions. With the passage of the Social Security Act, labor unions and community groups sought ways of building on its foundations, organizing local residents both to demand expansions of government income support and to build institutions that could provide social services. The late 1930s and early 1940s would be a period of innovation and creative experimentation in health-care projects, perhaps more so than in policy formulation, as trade unionists, leftists, African Americans, rural residents, women's auxiliaries, and physicians experimented with economic security programs that would have developed a base of security independent of employers. Subsequent historiography, by picking up the story in 1945, has missed the vitality of this earlier period. ² Yet it was the New Deal's promotion of security that impelled labor to seek new health benefits for its members—not the War Labor Board and not wartime tax breaks.

The social welfare institutions that such activists and community members hoped to construct would have been nonprofit organizations distinct from both employer welfare plans and commercial insurance policies. Contrary to political science arguments that have projected labor's late twentieth-century positions on private health plans back into this earlier period, ³ organized labor did not initially share the corporate design for firm-based health benefits. Even after World War II, organized labor promoted health programs that could have transcended the limits of firm-based collective bargaining and broken the links between benefits and the firm. Moreover, organized labor hoped to use the power of the federal government to bolster these efforts and provide resources, thus firmly connecting citizens to an expansive welfare state. In the political culture of the New Deal order, security entailed an explicit element of public power.

This story, of course, is more than one of unions and health plans; likewise it is a broader story than the determinative agency of professionals (physicians) or the state and the character of the state's institutional apparatus. ⁴ While the state is capable of independent action, we still have to consider how the state is bound up within a network of relationships among economic institutions (business firms and financial intermediaries), labor unions, and service institutions. Elsewhere I have written about the development of commercial group insurance and Blue Cross and...