Welfare Reform in the Global Economy

More than the embarrassment of his impeachment, Bill Clinton's legacy will be the disgrace of his welfare reform debacle. Elected initially to help safeguard the safety net and reforge a role for government in the economy he has, under the guise of forging a middle way, dismantled programs and disarmed the electorate as no Republican could have.

The lesson for the left should be that there is no such thing as slipping progressive reforms into a conservative agenda. AFDC wasn't repealed because it was an impossibly unpopular program. It was repealed because it was a beach head in a much larger economic, political, and social battle by capital to redistribute wealth, deregulate capital and labor markets, and disarm government as a tool for any purpose other than increasing profit. It is a battle in which personal responsibility has been made into a metaphor for economic virtue, national strength, and global competitiveness. Welfare, rather than standing for mutual responsibility, solidarity, and the primacy of human needs, has come to symbolize moral, economic, and social decay. Yet the problem is not so much that this battle is being fought. It is that the battle is so one-sided. Ultimately the right-wing attack is against the very notion of social solidarity and the foundation it provides for economic and political democracy, as we are now seeing from the attempts to privatize social security, and the intensified attacks on Medicaid, Medicare, public education, and social services. Yet despite the scope of the threat, in each phase of the battle the left has confined itself to defending programs that are so fragmented and poor they meet no ones needs. At worst, it has collaborated in undermining support for them. Throughout, it has failed utterly to respond to the neoliberal economic agenda with its own call for radical redistribution of wealth and income, re-regulation of capital and labor markets, and organization of the economy on the basis of equality and human need rather than free market competition.

To remake welfare into a symbol of social solidarity, the left needs to defend economic and political democracy. But it also needs to remake the concept of welfare. This means replacing the right wing's mythology of individual morality with an explanation that places class and the power of unregulated capital at center stage. It means countering race and gender scapegoating by transforming the problem of welfare from a problem of poor people—“those others”—to the right of all persons to basic human needs and physical and economic security. It means exchanging the dogma of competition for understanding the need for democratic control not only over the national, but the global economy.

The Poverty Of Welfare

Notwithstanding the right's claim that welfare is about individual morality, history shows that the U.S. welfare system has always been about controlling the low wage labor market. It has never been about eradicating poverty. It has never been about guaranteeing the social well being of working families. After World War II the European labor movements and their parties consolidated universal programs that benefited all workers: family allowances, universal health care, portable pensions, and paid family and educational leave. These programs formed part of the basis for the postwar boom in Europe by ensuring a distribution of income that could support robust consumer economies. Even today, these programs remain part of active labor market policies that raise wages, encourage worker education and training, and support social solidarity.

In the United States, the post war boom rested on the industrial capacity built during the war, the absence of significant international competition, and redistribution of income via collective bargaining. The welfare system remained what it had always been: a way to make unemployment and poverty so degrading that workers will take any job available, no matter how low paid or unsafe. This was as true in the late 19th century when poorhouses were used to herd dispossessed agricultural workers into the new industrial working class, as it was in the early 20th century when immigrants were forced, if they were lucky, onto home relief and if they were unlucky into workhouses.

New Deal policies that formed the core of the liberal agenda for almost 60 years did little to change this basic reality of poor relief. The welfare system enacted during the 1930s established a gendered and racially differentiated system of supports that deepened labor market inequalities, provided only the most meager benefits, and served as a prime tool for controlling the supply of low wage labor. By stigmatizing welfare, this system also laid the foundation for a class mentality in which workers believe themselves to be “middle class” as long as they are not “on welfare.”

Aid to Dependent Children, the precursor of AFDC, wasn't intended to decrease poverty, but to enable widows, and to a lesser extent divorced mothers, to stay home with children while also keeping them out of the labor force and leaving more jobs to men. Unemployment insurance was more effective in alleviating poverty. But because it tied benefit levels to earnings it mainly benefited those most likely to be employed: white males. It also institutionalized the family wage and the idea that the economic well being of women and families should depend on male breadwinners.

These gender divisions applied fully only to white workers. In a pact with Southern elites that bound the Democratic party to conservative Southern interests for more than 40 years, the Roosevelt administration agreed to exclude agricultural and domestic workers from eligibility for both unemployment insurance and social security, allowed states to set eligibility standards for remaining workers, and eliminated federal requirements that states pay benefits in conformity with “decency and health.” The scheme effectively prevented many southern blacks—men or women—from receiving benefits. For those not thus excluded, eligibility rules and low benefits could still be used to keep workers in or out of the work force, depending on the need for labor.

The result was a system that privileged white male workers, stigmatized women and African Americans, and helped maintain the South as a low wage region. It also reinforced a distinction between benefits that were earned and therefore not welfare (those that went to white men), and benefits that were not earned, and so were undeserved—the assistance given to women and African Americans.

The stigma of welfare deepened as ADC, and later AFDC, became disproportionately black as white widows were siphoned off to get survivors benefits under social security, and the welfare rights movement gradually decreased discriminatory barriers to benefits. What made AFDC most vulnerable, however, was the changing economy. By the 1950s, the shift had begun from manufacturing to service sector employment. The rate of profit began to fall, and global competition increased, reaching full swing with the wave of plant closings of the 1980s. Capital saw its need as increasing the supply of low wage workers—particularly women—and decreasing wages. Lowering welfare benefits accomplished both. So did demonizing poor black women as “welfare queens.” The fact that benefits increased due to welfare rights activism at the same time that wages began their now familiar 20 year slide further undermined worker solidarity and sharpened the attack.

Corporations' success in shifting their tax burden to individuals—corporate taxes dropped from 25 percent to 12.5 percent of government revenues between 1959 and 1995—poured more fuel on the fire. By 1967, AFDC, which began as a program to keep women out of the labor force, was changed to include its first work requirements. By 1996, AFDC was repealed and replaced by Temporary Assistance to Needy Family, which requires increasing percentages of welfare recipients to work full time, and places time limits on lifetime support regardless of need.

Since the beginning of 1996, welfare rolls have dropped precipitously, yet there is little information on what has happened to those who left. What information is available is troubling. In New York, two- thirds of those dropped haven't found jobs. In Wisconsin, a state with one of the lowest unemployment rates in the country, out of a sample of 7,500 who left AFDC only 16 percent found jobs above the poverty level; there are 2.5 applicants for every entry level job in the state, and only 4 percent of low skill jobs pay a livable wage. Meanwhile, the Economic Policy Institute has projected that if all recipients leaving the rolls found jobs, wages in the bottom third of the labor market would be depressed 17 percent. The guiding principle may be “work first,” but for most recipients, work alone will not end poverty.

The Global Attack

In short, welfare reform as we know it is a lie. Yet the system it replaced was divisive, ineffective, and controlled the low wage labor market with scraps. It also failed to address the needs of the nearly one-quarter of all workers who work at or below poverty wages—often thinking of themselves as middle class—but still do not qualify for assistance. If the left is to have any success reestablishing a floor of support and rebuilding solidarity it needs to fashion a system based not on the needs of business for low wage labor, but on the needs of these workers for jobs, security, and basic dignity. It also needs to address the condition of the growing numbers of contingent workers—whether high paid consultants or as “temps”—who work under fear of job loss and without basic guarantees of health insurance, leave, or pensions.

This widespread insecurity is painted as the inevitable cost for remaining competitive in the global economy. To construct its agenda and advance it politically, the left must therefore first understand and deal with the global nature of the attack against welfare. Whether part of structural adjustment programs imposed on the third world, or right wing agendas in the U.S. and Europe, the attack remains remarkable the same: cutting back on public expenditures—particularly welfare-spending—to eliminate or sharply reduce government deficits; keeping interest rates high to discourage inflation; deregulating capital markets; and making labor markets more “flexible,” i.e., increasing the proportion of part-time temporary jobs while reducing or eliminating benefits and protections.

The justification for these steps is generally the need to increase economic growth by increasing market efficiency. In reality, the object of such policies is the transfer of wealth and income from wages and transfer payments to profits, and the maintenance of a favorable environment for finance capital. Growth, if it is achieved, is accompanied by rising unemployment, degradation of the environment, declining wages, and increased insecurity. Trade is based increasingly on lowering labor and social standards. It is a prescription for a global race to the bottom, one that makes the devotion of resources to social needs increasingly difficult.

The attack is global on another level—the level of values. The ideal of equality—always a foundation of democracy—is transformed from equality of treatment and condition to equality of opportunity. The moral value of risk and hard work—and the necessity of winners and losers—crowds out social justice and solidarity. Falling incomes and unemployment are due to lack of hard work rather than to the exigencies of finance capital. Competition, rather than labor, is the basis of wealth. Competition—more specifically, global competition and the increasing use of low wage labor—is also the enforcer. If we don't buckle down and share the pain, we will loose our jobs. We will loose our wealth. We will loose our national greatness.

The picture is incomplete and contradictory, but it has the force of explanation. We vastly underestimate the optimism embedded in this mythology and how appealing it is to many people—including not least many low wage and blue collar workers. The message that “Everything will be all right if we only work hard and return to the basics we know to be true and right,” can be enormously comforting—even to some who may be working longer hours, receiving less pay, and seeing family life fall hostage to the demands of economic survival.

Rebuilding Solidarity

It's easy enough to cite data to show everything is not all right and won't be all right. Between 1979 and 1994 family income for the bottom two-fifths of U.S. families fell by 12 percent, and the next fifth barely held even. Almost one-third of all workers earn wages that would be below minimum wage if the minimum wage had kept its 1973 value. Meanwhile, unemployment rose from almost 5 percent between 1950 and 1975 to nearly 7 percent between 1975 and 1995.

Yet in light of the neoliberal rhetoric that conceptualizes economic success as individual virtue, more is needed than facts about growing income disparities and how eliminating welfare lowers wages. The real axe over everyone's head is the global economy, and the only agenda for how to deal with it comes from the right wing. The left needs both to unmask the destructiveness of the neoliberal agenda as an answer to the global economy, and to set forth an alternative vision that is rooted in sound economics, basic human values, and workers' needs.

Constructing this agenda requires clarity. Neoliberalism is not the answer to globalization. It is also not the cause. The problem of globalization lies in the dynamics of capitalism. Left to its own devices, capitalism is not capable of maintaining full employment, as Keynes has argued and as the neoclassical theory of the “natural rate of unemployment” implies. Nor does capitalist growth automatically translate into development. Capitalism has to move ahead like a shark or find itself dead in the water. The result is a constant tendency toward overcapacity and a fight to maintain profits at the expense of citizens well being.

Since the late 1960s when the rate of profit began seriously dropping capital has increasingly relied first on speculation in worldwide financial markets, and second on intensifying wage competition through globalized production processes. Governments have responded to the already huge supply of circulating capital created through these activities by deregulating capital flows even more. Consequently global finance capital can now set economic policy virtually worldwide by manipulating exchange rates through currency transactions. Countries are forced to pursue low inflation by setting high interest rates to prevent runs on their currencies—but at the expense of lower growth and higher unemployment. Trade is increasingly skewed by competition based on wages and exchange rates.

Under these circumstances, there is an increasing disjuncture between profits and wages. There is also increasing instability and the threat of worldwide depression, as we are now seeing with the so-called Asia crisis. We have moved from an era of national economies and national governments that worked to regulate the worst excesses of capitalism, into an era of a worldwide economy without a worldwide system of regulation.

The role of the left in these circumstances is not simply to wait for cataclysm and hope that some new system emerges. Cataclysm may not happen, and if it does, what emerges may not be democratic. The role of the left is to understand and critique the dynamics of globalization, which is to say capitalism, and explain why capitalist competition can provide neither full employment nor global stability. It is to help build a base of popular support for an economic agenda that places the need for human development and security before profit. And it is to build understanding of the need to place limits on capital's schizophrenic race to the bottom in pursuit of growth.

In the more limited context of welfare reform, defending welfare would mean, at the very least, defending Social Security from privatization, and addressing the most pressing needs faced by those struggling to enter or stay in the labor market. This would mean policies such as reforming unemployment insurance to prevent low wage and part time workers from being excluded by earnings requirement; increasing the minimum wage and liberalizing the earned income tax credit; guaranteeing medical care and child care; providing transportation and housing assistance; enhancing rather than limiting educational and training opportunities; guaranteeing welfare recipients the basic rights of workers to organize; and raising benefits and extending or eliminating time limits.

Redefining welfare would mean rejecting the prescription that it is workers (high wage or low wage) who must pay the price when corporate profits dip; fighting for a radical redistribution of wealth and income; and insisting that corporations feel the pain of adjustment as well as workers. It would mean building programs to ensure that no worker—with or without a job—would have to go without health care or housing or food for their family. It would mean insisting on a real full employment policy, but rejecting the logic that human beings exist in order to work and that work is an end in itself—so that any job is better than no job—and embracing the principle that not only work, but the organization of the economy itself, is a means to the end of human welfare. And it would mean taking seriously the right to reproductive freedom—whether by poor women or rich women, recognizing reproduction as a form of work, and supporting that work socially.

Remaking welfare would mean putting the goals of full employment and a human economy in their true global context. Welfare reform in the advanced industrial countries is the counter-part to structural adjustment in the third world, and both are a means to increase profit at the expense of human well-being. Limited reforms may be possible on a national level, particularly in the United States that is—at least for the time being—still comparatively insulated from the global economy by the use of the dollar as the world's currency. But as the Euro evolves and the results of the worldwide economic crisis increasingly hit home, even the strength of the dollar is no longer certain. In any case, no progressive reform is stable without building democratically controlled international structures capable of stabilizing, and constraining the destructiveness of global capital.

Just as a healthy national economy requires that workers have a substantial share of income and wealth, a healthy global economy requires worldwide economic development. Intensifying competition between so-called first and third world workers only proves the point. Increasing workers wages and social supports in the first world is directly linked to development in third world. Real economic development for both means activists becoming economically literate and understanding how institutions like the International Monetary Fund (not to mention the World Trade Organization, the World Bank, and the proposed Multilateral Agreement on Investment) threaten first as well as third world workers when they help to impose structural adjustment programs. It means gradually building new institutions that can redistribute global income; restructure trade so that it takes place on equal footings rather than on the basis of wage differentials; place limits on capital flows and speculation; and establish social charters so that human need and development become paramount in economic activity.

Building Capacity on the Left

Only an agenda that transforms the fight over welfare reform into a fight over the principles on which to base the global economy can hope to meet the right wing on the scale on which it is attacking. But setting out these ideas skips the main job of working to overcome the deep divisions between those who need to become allies—divisions between white and minority workers, men and women, employed and unemployed, organized and unorganized, U.S. workers and immigrants, U.S. and foreign workers.

The fissure between organized and unorganized workers, especially between the so-called middle class and working poor, has for the past 40 years been one of the most important divides in U.S. political life. It also mirrors racial and gender divisions in society. During the 1930s, the labor movement overcame an orientation towards skilled trades workers to organize lowly industrial workers, yet unions remained overwhelmingly white and male. Despite supporting every piece of major social legislation in the past 60 years, unions continued their primary focus on private collective bargaining as the basis for members' well being. The result was a kind of private welfare state, and uncritical support for U.S. capitalism in exchange for what were for many years the fruits of globalization for U.S. workers: expanded profits for U.S. corporations during the so-called golden era, and favorable terms of trade in which the U.S. exported manufactured goods while the third word exported cheap commodities.

Since the 1970s, increased competition and loss of many higher paying industrial jobs to other countries has begun to wake unions and their members up to the need for increased international solidarity. In its present incarnation—forcing workers into the low wage labor market, and often into previously unionized public sector jobs—welfare reform has also stimulated awareness of the need to organize welfare recipients and guarantee their rights as workers. In combination, these two developments make an active alliance between labor and the working poor imaginable for the first time in decades. What unions bring to the equation is an institutional structure and resources with which to address many of the international issues that can only be taken on through direct communication with workers and activists in other countries. They also bring resources for organizing welfare recipients domestically, and pushing political demands for adequate supports. The barriers to successful organizing are, however, the same for unions as for many advocacy groups. The tendencies to decide what the needs of low wage workers or welfare recipients are, rather than spending time in dialogue. And the narrowness of pre-existing agendas. In the case of unions, pre-existing agendas included a focus on avoiding displacement of public sector members by workfare participants, rather than job creation, adequate income support, community development needs, or the right of poor women to reproductive freedom. In the case of both unions and many community based organizations, there has also been a tendency to focus on the immediate objectives—whether helping to improve job skills or providing counseling or other support—while ceding the larger terrain. These issues can only be addressed by dialogue with all relevant groups, especially organizations of welfare recipients.

The last point is the most difficult, because it involves the problem of developing a true political opposition. What is needed is to shift the terms of the entire debate and the struggle over the economy. Neither the Democratic nor the Republican Party is remotely open enough to permit discussion of what needs to be explored. Indeed, the Democrats gave us Bill Clinton, who paved the way to passage of welfare reform as no Republican could have—by making it part of the price for a Democratic Presidency. At the very least, this fact should be enough to make us forever skeptical of relying on the process of legislative compromise through the current political parties to remake the terms of the debate. It should also put the question of a new party of the left squarely before us.                                                    Z

Katherine Sciacchitano is a former labor lawyer and organizer. She is currently a labor educator at the George Meany Center for Labor Studies. Her articles have been published in In These Times, The National Reporter, The Capital Times of Madison, and Newsday. This article was written for the Back To Basics Conference.