[EXCERPTS FROM = ]
Welfare Policy and Industrialization
in Europe, America, and Russia
Gaston V. Rimlinger
[SAC editor has introduced boldface and hypertext links where these best fit the needs of our course. Here in the electronic text pages in the printed text are entered in brackets. For example, the transition from page 9 to page 10 is entered as [9/10]. To FIND the page number here, for example, page 10, FIND "/10]" (slash-number-right-bracket). For Rimlinger's scholarly apparatus, e.g., footnotes and bibliography, see the KNIGHT Library copy]
Table of Contents [with course-related guides] =
General introduction = Economic Development, Social Change, and Social Security
[Two trends = "contract" and "status"]
[Social Security defined]
[Influence of different ideas = Mercantilism, Malthusianism, Social Darwinism]
Chapter on America: Out of the Liberal Mold
The Impact of the Great Depression
[One of Rimlinger's central themes]
Chapter on Russia: From Patriarchalism to Collectivism
Protection of the Worker Before 1917
Social Security from the Revolution until 1921
Social Security During the NEP [New Economic Policy] (1921-1928)
Soviet Social Insurance Ideology
Economic Development, Social Change, and Social Security
A PROBLEM OF PUBLIC POLICY
For the first time in the history of mankind, enough material goods have been produced to enable entire nations to live in comfort, even in affluence. Until recently, it was the fate of all but a small ruling minority to spend their lives in or near deprivation. This momentous change in human history is the result of the last two hundred years of economic development. It offers unprecedented opportunities for the obliteration of harsh economic and social inequalities and for the self-realization of the common man. It creates new potentialities for the rights of the individual and points to new dimensions of social justice. This situation entails a new reciprocity between members of a society, new relationships between individuals and the state, new forms of social and economic organization. The opportunities that are created by the shift from scarcity to abundance thus have their counterpart in problems of social adjustment to change. Social change destroys old and creates new vested interests in ideas, power, and material things.
The dawn of abundance has not come suddenly, nor has it as yet reached all parts of the earth, but there is, at least, the hope that some day the life of affluence will be universal. Similarly, the opportunities and the problems of the new age have evolved over a considerable period of time and will continue into the future. This book is concerned with a major aspect of this continuing interaction between economic development and social changethe development of the individual's freedom from want. More specifically, it is concerned with the evolution of social measures designed to secure this novel right for the individual. It analyzes the roads toward [1/2] economic security chosen by a number of countries and the implications of alternative roads for equality and freedom.
Since the end of the Middle Ages, the developing nation-states of Western Europe have been confronted with the problem of poverty. Previously, this had been a matter of only local concern. With the emergence of national states and national economies, the problem of what to do with the poor necessarily became a matter of national significance. The national governments enacted laws and issued ordinances on how those who had become dependent on society should be treated. As a rule, the execution of the laws on poor relief, vagrancy, and begging were left to the local authorities. Characteristically, the laws were much more specific on punishments to be inflicted than on relief to be granted. But, basically, they did define certain reciprocal social responsibilities, such as the individual's duty to work and the local community's duty to provide work for the able and relief for the disabled.
This manner of disposing of the problem of the poor was eventually overcome by two major sets of forces put into motion during the second half of the eighteenth century. One of these sets was the Industrial Revolution, along with the economic and social changes it engendered. The other set of forces revolved around the radical new conception of the rights of the individual that was thrust on the world by the American and French Revolutions. Approximately one hundred years after these events, the modern form of social protection from wantsocial insurancewas introduced in Imperial Germany. From an eighteenth century perspective, Germany was an unlikely candidate for this social innovation. Other countries followed with poor law reforms and with social insurance programs of their own. The old repressive poor laws gave way to more humane public assistance and social service programs. Today these programs have become all but universal.
A recent worldwide survey by the United States Social Security Administration shows that 120 countries have one or more social security schemes in operation. The most extensive programs are in the more industrialized countries, but developing countries are eager to follow the same pattern. In many countries, social security rights have been incorporated into their constitutions.
A brief discussion of what is meant by "social security" is appropriate at this point. The term came into usage in the United States in the 1930s and has gained very wide acceptance in other countries in literal translation (Soziale Sicherheit, Securite Sociale, Seguridad Social). Almost inevitably, its [2/3] meaning varies somewhat from one national context to the other. Its common components have been summarized by the Social Security Administration:
The term "social security program" is usually reserved, in the first place, for programs established by public law, although administration of such programs may or may not be wholly in public hands. In the second place, it is usually considered to include programs that provide some form of cash payments to individuals to make up a loss of or a deficiency in earnings occasioned by such "long-term" risks as old-age retirement, permanent disablement (or invalidity) of non-occupational or occupational origin, and death of the family breadwinner; and by such short-term risks as temporary incapacity of non-occupational or occupational origin, maternity, and unemployment. It is also regarded as including programs that provide regular cash payments to families with children. Finally, public programs providing curative medical services to individuals (other than ordinary public health services), or that are concerned with the financing of such services, are also usually regarded as a type of social security program in countries where they exist.
Social security thus includes what we usually call social insurance (compulsory programs that are usually job related and financed, at least, partly from contributions), public assistance, family allowances, and state health insurance. It does not include those aspects of modern social rights that are primarily concerned with education, training, housing, children's services, and social case-work.
The adoption of a new policy of protection somehow has to be justified. The exercise of the state's power on behalf of some individuals, often at the expense of others, must have a basis of legitimacy. The question, therefore, must be answered as to what legitimizes social protection. To what extent is it the individual's responsibility to look after himself and his family, and to what extent is this a social responsibility? Clearly, the more emphasis a society puts on individual responsibility, the less room there would seem to be for social action. This, however, implies that only the interests of the individual are involved. In reality, social protection, whether it is poor laws or social security, is concerned with the interests of society as a whole as well as the ones of the individual. Even a highly individualistic society, one that stresses individual responsibility, may legitimize social protection for the common interest in social and political stability or in economic productivity.
If society recognizes the individual's right to protection, especially non-deterrent protection, this right also must be legitimized. There are two different tendencies in this legitimation. One looks on the right to benefits as something that the beneficiary has personally earned, either through payment of contributions or through performance of work. This is the contractual orientation of the right to benefits. The second kind of justification emphasizes status rather than contract. Some writers argue that the right to social security in modern society is inherent in the status of the wage or salary earner. It derives from the right to subsistence, and those who depend on their labor for subsistence have a social right to income if their working capacity fails or if no jobs are available. Others consider the right to income as a perquisite of citizenship. In this case all citizens are entitled to protection regardless of how they earn their living.
The manner in which social security rights are legitimized has important implications for social security policy. There are a number of crucial decisions that have to be made. The first is the decision as to who should be protected, which is another way of saying: Who has the right to protection, or who needs to be protected in the interest of the community? The protected group may be open or closed. An open program, such as the poor laws or public assistance, does not have a designated group of beneficiaries. It usually applies to all resident citizens. Social insurance programs, on the [4/5] other hand, apply to closed groups. The question then is how broad the covered group should be. Should it include only wage workers in certain industries, or wage and salary earners in all industries, or should it be extended to all citizens who work, including the self-employed, regardless of their level of earnings ? The question must also take into account the extent to which the dependents of beneficiaries are to be entitled to support. Obviously, the broader the conception of the right to protection, the more universal should be the coverage. Even under those circumstances, however, economic and administrative considerations may force a more narrow coverage than the country may wish to adopt.
After the decision is made about who should be protected, consideration must be given to the questions of how and against what risks. The historical trend has been to make protection more universal insofar as the coverage of persons is concerned, as well as more comprehensive with respect to the inclusion of protected risks. Different risks imply different degrees of involvement of the state in the affairs of the individual. Usually, it is easier to introduce compensation for industrial injuries. Programs that are relatively easy to administer and require only cash payments, such as old-age pensions, also can be readily accommodated. Unemployment and health insurance present more administrative difficulties and are more likely to offend strong vested interests. Wherever the medical profession is privately organized, it tends to resist the introduction of state health insurance schemes. Family allowances also involve issues on which there is division of opinion in most countries.
The question of how protection should be provided covers the whole range of issues regarding conditions of benefit payment, the level and structure of benefits, and their financing. All of these issues have implications that affect material and ideological interests. No society can afford simply to give away cash benefits or to render unlimited services. Some system of control must be established. One form of control is to pay benefits only in case of need and in an amount sufficient to meet minimum requirements. There are several types of problems associated with this procedure. One relates to the manner in which an individual's need is established; does it require a humiliating investigation of his personal and family situation, or is his need assumed from the size of his family, his age, or his income level without further investigation? The level of benefit that may be considered a necessary minimum is always open to debate. Should it prevent only physical hardship, or should it prevent "relative deprivation"? The latter takes into account what society can afford and what the poor may expect. Another form of control is to pay benefits on the basis of a specified length [5/6] of previous work or contribution. In this case it is the individual's previous record that establishes eligibility. The procedure may be liberal or restrictive, depending on prevailing attitudes toward social rights and the evaluation of economic and social or political consequences.
Whatever manner of controlling eligibility is adopted, the benefits structure may be egalitarian or differentiated. A system that pays the same benefit to all, according to an established national minimum, has great appeal to those who favor social and economic equality. A flat benefit is most consistent with the view that benefits are a social right to which all have the same claim. But if benefits are a flat amount, the level is almost necessarily low. To prevent abuse, it tends to be somewhat below what ordinarily can be earned through regular work. A low benefit level requires low taxes or contributions and, thus has the advantage of limiting the state's interference with the income allocation process. For this reason it may appeal to those who are concerned with the individual's freedom to allocate his earnings as he sees fit. Those who hold this ideological position, however, are normally also concerned with limiting income redistribution; they, therefore, tend to favor differentiated benefits, which may conflict with the desire to keep state interference with income allocation at a minimum. If the lower range of the benefit scale is to be adequate, benefits in the upper range are necessarily higher than what minimal state interference would demand. Differentiated benefits tend to require a deeper intervention in personal income allocation, but it may be a more market-consistent form of intervention insofar as it involves less interpersonal income redistribution. If benefits are related to previous earnings or contributions, they have more of a contractual than a social rights character. Although the contractual character may be found to be more suitable to a given country, its chief shortcoming tends to be social inadequacy at the lower income levels. There is always the danger that those who need protection most are able to earn it least. Society has to find the benefit structure that optimizes welfare by combining the incentive effects of differentiation with the adequacy guarantees of a stated minimum.
The question of who should pay for the benefits involves many of the same considerations as the benefit structure. The practical problem is how much of the burden should be borne by the beneficiaries themselves, their employers, or the state. The contractual approach emphasizes payments by employees and employers; in either case, the contributions may be looked on as being earned by the employees. The higher the contributions, the higher the benefits will tend to be, although in social insurance (unlike in private insurance) the relationship is hardly ever proportional. The emphasis on social rights tends to favor financing from general state revenue, which is presumably raised according to prevailing standards of distributional equity. Since social insurance programs almost always redistribute [6/7] income (not merely reallocate it through time), exclusive financing via payroll taxes tends to put an undue burden on the low income earners. The contractual ideology, by favoring commercial equity, thus exacts a price in terms of social equity. Opponents of contributions from the public treasury, however, stress the need to keep social insurance free from the dangers of government paternalism and of the politics of budget allocations.
A final problem area, which should be mentioned, is administration. The administrative issues which have relevance for this study are mainly the ones that relate to the use of social security institutions in the pursuit of ancillary social and economic goals. Since social security decisions affect the welfare of large numbers of people, the day-to-day administration of the programs may give opportunities to influence economic or political behavior. A country may choose a judicial type of bureaucratic administration ; or it may democratically involve the insured beneficiaries in the decision-making process; or it may exploit the system in an authoritarian fashion for the benefit of those in power.
A COMPARATIVE PERSPECTIVE
The preceding listing of problem areas is not intended to be a comprehensive enumeration of public policy issues. Its purpose is merely to indicate broadly the kind of social and economic questions that are involved in the development of social income protection. The following chapters analyze the nature of these problems and how they were resolved over time in different countries. The analysis has a historical contextthe history of industrializationsince modern social security is a by-product of the shift from agrarian to industrial society. It has also a comparative context. The problems of economic insecurity are similar in all industrializing countries, but the response to them differs widely. The main objective of this study is to explain the forces that have shaped modern social security systems; it is a comparative historical analysis of the responses to the challenge of insecurity in different environments. The countries compared are selected to reflect different economic, social, and political tendencies. They represent the traditions of liberalism and patriarchalism in the West and the tradition of Marxist socialism in the East. The time path of the study ranges from the pre-industrial era to that of modern industrialism.
An outline of the main themes that underlie this study is in order. One is the changing nature of the problem of want [or need] as we move from a pre-industrial society to mature industrialism. Widespread poverty is the rule in the traditional, preindustrial society. This is not looked on as a problem in itself; in fact, it may be looked on as a positive good. This was the view of the mercantilists. They spoke of the usefulness of poverty as a means of keeping the masses industrious. Poverty as such was a problem for them only to the extent that it endangered public peace. Poverty was something to be relieved but by no means to be abolished. During industrialization the problem of want changed. It had new causes and new victims. The traditional sources of hardship seemed to be God-given and immutable; people had always been poor; wars, pestilence, and bad harvests only made matters periodically worse. The industrializing society held out the promise of improved well-being but the fruits seemed unequally divided. Some quickly became rich but many more had to discover new sources of want. They had become dependent on the wage of the family breadwinner; any interruption of the ability to work or of the availability of a job spelled dire want. Having left the land, the family was no longer a production unit. The aged and the children became a greater burden. These hardships were no longer God-given: they all seemed to be man-made; they were social. The victims were no longer the traditional poor. They were now the industrial proletariat. As industrialism has matured, many of the basic hardships have been alleviated, but the tremendous wealth has created new conceptions of social rights and of freedom from want. The poor in a rich country like America suffer from "relative deprivation" because they can compare what they have with what is common in their society.
Another theme of this study is an emphasis on class relations as a determinant factor in the development of social protection. In the pre-industrial Western European society the lower classes were held in what John Stuart Mill described as a position of dependence and protection. The practical meaning of this varied widely, but the sentiment that those in power should reason and decide for the common folk was rather general. Those below owed obedience and deference, while those above owed protection and guidance. With the rise of liberalism, this conception of social inequality came under attack. Liberty and equality demanded that all legal privileges be abolished. All citizens were to be treated equally, which meant that none had any special claim to protection on account of his (low) economic and social status. Full citizenship implied the ability to look after oneself; dependence on others was not consistent with freedom and equality. Where this liberal concept of society triumphed (in England, France, and America), social protection was slow to develop. In Germany, where liberalism and individualism struck only shallow roots, the chances for social protection were that much [8/9] better. Indeed, the traditions of the Prussian patriarchal state and the paternalistic environment of the semifeudal pattern of German industrialization facilitated the pioneering efforts of Imperial Germany in social insurance. In the twentieth century, social income protection has lost much of its class attributes. The concepts of freedom and equality have changed from ideological barriers to justifications.
Closely related to class relations, as a determinant of social protection, is the nature of the political system. In the countries studied, the more democratic governments were slower to introduce social protection than the authoritarian and totalitarian governments. In democratic countries, public action depends on how various interest groups are represented and how well they are organized. There is a tendency for each group to seek legislation in its favor. Employer interest groups generally oppose the introduction of social security but labor groups favor it. This generalization, however, is a crude oversimplification. Certain labor groups, such as the American trade unions, the British friendly societies, and the German Social Democrats, were originally opponents of social insurance. German and Russian big business before World War I were generally in favor of it. The American Association of Manufacturers was an early supporter of workmen's compensation. In authoritarian and totalitarian countries the interests of the state, as seen by those in power, tend to take precedence over particular group interest. Bismarck was strongly motivated by the need to secure the loyalty of the industrial worker to the monarchy in his establishment of social insurance. Although he was acting in response to pressure from below, the system he created was guided by the interests of the existing political order. In the Soviet Union the interests of the ruling party have always been a dominant factor in the shaping of the country's social security programs, although the Bolsheviks were strongly committed to comprehensive social security even before the 1917 Revolution.
This study stresses also the role of economic factors in the development of social security. Aside from being a means to enhance welfare, social security programs also are measures that affect the quantity and quality of a country's manpower resources. The poor laws constituted a manpower policy that was fairly well suited for a time when labor was abundant and mostly unskilled. The main requirement then was the maintenance of work habits among the marginal elements of the work force. The administration of the poor laws was an attempt (not always successful) to instill discipline and industriousness. As industrialization progressed, labor became not only more scarce relative to capital, but it achieved a much higher level of skill; its spontaneous cooperation within large-scale organizations became very important. At this stage it became profitable, from the point of view of productivity, to develop and to maintain the capacity and the willingness to [9/10] work. The workers' physical strength and good will had become important assets. Social insurance became one of the means of investing in human capital. In the Soviet economy, social insurance has been an important means for the maintenance of industrial discipline. In market economies its explicit work-incentive role is less important, but its role as an automatic stabilizer is much more significant. This study is particularly interested in how various countries have adapted social insurance programs to their economic systems and to their national objectives.
Throughout this book, special attention is paid to the role of ideas. The changing views regarding the reciprocal rights and duties of the individual and the state are clearly important. Of particular significance are the ideas concerning the consequences of social protection. [...] The mercantilists typically assumed that the poor had a backward sloping supply curve of labor, which meant that an increase in income entailed less labor offered. Another mercantilist idea was that wages must be kept low for a favorable balance of trade. Both of these views militated against raising the level of welfare of the common man. At a later time, the Malthusian theory of population and Social Darwinism were important intellectual weapons against poor relief. The concept of investment in human capital and the theories of aggregate demand, on the other hand, were ideas favorable to social security. Another way in which ideas were important was through studies of the extent and causes of poverty. Especially in England, at the turn of the century, surveys of poverty helped to stir the social conscience of the middle and upper classes.
America : Out of the Liberal Mold
The European precedents had demonstrated the strengths as well as the weaknesses of social security, but until the 1930s America remained unconvinced. It could not follow in the footsteps of the patriarchal German tradition, nor could it accept the leveling kind of egalitarianism that inspired the origins of the British welfare state. At home the attacks on the liberal tradition, the attempts to formulate an indigenous ideology of protection, had been only partially successful. The enactment of workmen's compensation and limited assistance programs had not committed the country to the concept of mass protection through a compulsory system. There was still a strong, widespread belief that America was sufficiently different from Europe that this kind of curtailment of individual freedom was unnecessary and even harmful. The rather prosperous decade of the 1920s, although giving occasional cause for concern, had dampened the spirit of reform in America and had renewed faith in the free market system. It was only when the Great Depression revealed in a shocking manner the utter defenselessness of the citizen in the American industrial state that the still potent individualistic tradition could be overcome. The momentous change came when it became accepted that it was the task of the national government, rather than the job of merely state and local authorities, to provide economic security for the citizen. This chapter examines how the liberal tradition was finally overcome and, also, how its influence persisted in the shaping of the right to protection.
THE IMPACT OF THE GREAT DEPRESSION
The 1930s was an important turning point in American economic history. The whole system of capitalist free enterprise was suddenly on the defensive on a scale never before witnessed in America. The shock of the depression [193/194] was all the greater because it came so shortly after the champions of free enterprise had proclaimed that this system had achieved a new age of uninterrupted prosperity. In the 1930s the system built on individualistic foundations faltered and was failing, in a world in which collectivist methods were mastering for the first time in history the operation of industrial economies. The challenge to the American system was both internal and external, and at the heart of the challenge was the right of the individual to basic security of existence. The time had come for a redefinition of rights and for a restatement of public policy that would assure to the individual at least the elementary safeguards of economic survival.
The depression of the 1930s found the United States woefully unprepared to deal with the hazards of economic insecurity that are inherent in an industrial society. Aside from workmen's compensation, the American worker was left practically unprotected, in spite of the efforts of a small but dedicated group of social insurance enthusiasts. The almshouse was still the basic public form of protection for those who became dependent and had no relatives to support them. And the almshouse still bore all the stigmas of degradation, disgrace, and defeat. This humiliating method of protection could remain acceptable for as long as only a small fraction of society marginal social groups ran the risk of public relief. In a mature industrial society, where millions of wage-dependent workers were exposed to the risk of total loss of income, almshouses were not only inadequate, but the attitudes associated with them added insult to injury. The business community and labor organizations had long argued in favor of private instead of public protection. After half a century of industrialization, however, the achievements of these groups were still pitifully meager.
A quick survey of the extent of the protection against the major income risks is appropriate at this point. By 1930 the United States had a total population of approximately 123 million and a working population of 49 million. There were about 6.5 million persons over 65 years of age in the country. Unfortunately, we have only rough estimates of the number of aged persons who had any kind of formal income protection. At most, 10 percent of the aged were receiving either a public or private pension. The greatest majority of these pensioners, about 80 percent, were drawing pensions for military service. After three decades of discussion and a decade of agitation, there were nine states with old-age pension (old-age assistance) laws in operation. These programs, which were usually optional with the counties, cared for hardly more than 10,000 aged persons in 1930. Voluntary [194/195] industrial pensions had begun as far back as 1875. After the 1920s, a decade of welfare capitalism, their significance was still nominal. Approximately 420 industrial pension plans had about 100,000 superannuated workers on their rolls in 1930. A high percentage of the workers covered under these plans never became eligible for benefits on account of very long service requirements. Old-age benefits paid by trade unions were even less significant. An estimated 15,000 union members drew such benefits in 1930. On the number of persons drawing pensions under civil service, there are no accurate data for 1930. A great many jurisdictions had pension plans for government employees, teachers, policemen, and firemen. An incomplete survey for 1928 shows that there were about 70,000 persons drawing retirement income under these various plans. Nor are there any counts of the number of aged inmates of almshouses. A report for 1924 indicates that there were approximately 86,000 residents, living under generally wretched conditions. By 1930 this number must have risen to at least 100,000, which gave the almshouses the same numerical significance as the combined total of the industrial pension plans.
In the area of protection against loss of income due to unemployment, no social insurance plan had ever been adopted in the United States. There were some private plans in existence, but these covered less than 0.5 percent of the employees in nonfarm enterprises. Of the estimated 107,000 American workers covered by formal unemployment insurance plans in 1930, about 33,500 were under trade union plans, 65,000 under joint employerunion plans, and only 8500 were under unilateral employer plans. The attempts by a few progressive employers to stir up interest in this kind of protection during the 1920s had produced negligible results.
Protection against loss of income due to disability was widespread only with regard to industrial accidents. By 1930 all the states of the Union with the exception of four (Arkansas, Florida, Mississippi, and South Carolina) had workmen's compensation laws. However, this meant by no means that coverage of employees was complete. In 12 states the laws applied only to "hazardous occupations," and almost all states excluded certain industries, for example agriculture and domestic service, and exempted small enterprises. Perhaps an even greater weakness of the system was the many restrictions built into the laws of the various states. The 1931 Handbook of Labor [195/196] Statistics (p. 904) notes the seriousness of this shortcoming. "The result of the various restrictions has been computed as placing upon the injured worker about 50 percent of the burden of industrial accidents in the most favorable states and from 65 to So percent in those less favorable."
The extent of private disability and death benefit plans is difficult to establish, but there is no doubt that only a small fraction of the labor force was covered. A study of the Bureau of Labor Statistics discovered 214 companies that participated in mutual benefit associations paying general sickness and death benefits. There were 758,067 employees enrolled under these plans. In addition, there was a handful of trade unions that paid sickness and death benefits, but most of these union programs were on precarious actuarial foundations. Finally, there were, perhaps, a million workers enrolled in industrial group insurance plans, which typically paid death, sickness, and permanent disability benefits. All in all, less than one in ten of the 26 million employees in nonfarm enterprises was covered by any kind of private death or disability plan at the place of employment. And even those who were covered often had but a nominal and uncertain level of protection. The story of how the depression plunged millions of Americans into misery has been told many times and need not be repeated here. Some aggregative figures may give a useful indication of the magnitude of the problem of insecurity. Real gross national product dropped almost one third, from 181.8 billion dollars in 1929 (measured in 1954 prices) to 126.6 billion in 1933. It was not until 1939 that the 1929 level of real GNP was reached again but, in the meantime, the population had increased by nine million people. The impact on individual security was through both loss of income and loss of assets. For wage workers, unemployment is the most obvious index of income loss. A conservative estimate puts the peak level of unemployment in March 1933, at nearly 15 million, roughly 29 percent of the work force. For the decade of the 1930s, unemployment averaged 18 percent of the work force; it exceeded 10 million annually in 1932, 1933, 1934, and 1938. Even these figures understate the mass phenomenon of unemployment. On account of the turnover among the unemployed, much larger numbers of individuals were unemployed over the span of one year. Moreover, the data do not reveal the large number of individuals who were underemployed or working only part time.
The impact on individuals is impossible to convey through aggregative figures, especially since different groups were affected unevenly. For instance, [196/197] farmers, although not counted among the unemployed, were hit extremely hard. Their share in the shrinking national income decreased from 10.4 percent in 1929 to 7.5 percent in 1932. The price index of farm products dropped from 146 to 65, by more than half, between 1929 and 1932. The ratio of prices received to prices paid by farmers fell from 95 to 61. Although the farmers' real income did not drop as much as their money income, the strictly monetary decline cannot be dismissed because farmers were saddled with more than 9.5 billion dollars in mortgage debt in 1930. Among wage earners, the young, the old, and the Negroes suffered the heaviest unemployment rates. For the country as a whole, annual per capita disposable personal income, measured in current prices, fell from $682 in 1929 to $364 in 1933. In real terms, measured in 1964 prices, the drop was from $1273 to $938; the 1929 real per capita income was not reached again until 1940. The ability of the population to meet such income losses must take into account debts and savings. Unfortunately, we have no data on the distribution of individual liquid assets and liabilities, and national averages are not very meaningful. We know that there was a total of 6.4 billion dollars in consumer debt outstanding in 1929, reflecting the spread of installment buying during the preceding prosperous years. Much of this debt was probably owed by worker families. The majority of them had only negligible liquid savings. The analysis made by Seager 20 years earlier on the spending and saving habits in the industrial society was fully corroborated by a Brookings Institution study. Even some of those individuals who had savings deposits lost them in the avalanche of bank failures, and many others lost their homes and farms through foreclosure.
America had weathered economic storms before the 1930s, but none had been as massive, none had lasted as long, and never had such large numbers been in so vulnerable a position. It was the duration of the depression that forced on the country new ways of thinking about economic insecurity. A report to the National Resources Planning Board in 1942 observes that "had the general decline in economic activity been short-lived, it is probable that the emergency might have been met by methods which had been used in the pastnamely, greater reliance on private[197/198] charity. . . the expansion of local public relief and occasional special emergency appropriations of public funds. . . ." '5 However, the severity of the depression vividly demonstrated the inadequacies of these traditional methods. It brought to light the extent of economic risk linkage in a highly interdependent industrial society. One economic misfortune breeds another; declining income leads to declining spending, which forces declining employment; unemployment increases unemployment as additional family members enter the work force in search of earnings, however small. The chain reaction of bank failures and the collapse of the credit structure undermined the sources as well as the spirit of private charity. In early 1933, Professor Slichter of Harvard reported that "the proportion of the unemployed who have exhausted their resources and the resources of their friends and relatives is rapidly rising." Since the beginning of the depression the burden on public relief had doubled every year. Even, when the number of unemployed began to decrease, after 1933, the relief burden kept rising because the proportion of those who had exhausted all private resources increased. In the meantime the ability of the local communities to bear the relief burden decreased, as a result of a shrinking tax base and of mounting tax delinquencies. There could be no more convincing argument for discarding the time-honored reliance on the local community. Nor were the individual states capable of meeting the financial crisis. The resources of the national collectivity had to be mobilized.
An important development like the introduction of a complex system of protection on a nationwide scale, perhaps, can be accomplished only in response to a major crisis. In a sense this was true in Germany in the 1880s [ID]. The crisis then was perceived mainly by the ruling bureaucracy, which believed that there was an imminent threat to the established order that stemmed from the discontent of an insecure working class led by socialist revolutionaries. The social and political nature of the American crisis in the 1930s was somewhat different. A brief examination of the aspects that relate to social protection is in order.
Probably the most shocking feature of the crisis, the aspect which greatly heightened the sense of deprivation, was the paradox of want in the midst of potential abundance. This applied to all industrialized capitalist countries but was most pronounced in America, the richest country with the greatest economic distress. Comparing the depression of the 1930s [198/199] with the ones of earlier periods, Walter Lippmann, a shrewd interpreter of the contemporary scene, told the National Conference of Social Work in 1932 : "This is the first time when it is altogether evident that man's power to produce wealth has reached a point where it is clearly unnecessary that millions in a country like the United States should be in want." This realization was one of the novel and highly disturbing elements of the depression situation. The United States had become an advanced industrial country and thereby had conquered mass poverty. But it had failed to eliminate economic insecurity, because it did not make the institutional adjustments necessary to control the flow of wealth and to protect the sources of income. Having escaped the necessity of poverty, America had become a victim of insecurity. Admittedly, views of this kind were still limited to a fraction of the total population.
Nevertheless, there was a conscious awareness on the part of nearly all thinking people in the 1930s that insecurity on the scale that confronted them was unnecessary and preventable. Very few still adhered to the old doctrine that slumps were economically invigorating . Those who insisted on the self-liquidation of depressions and predicted a quick and automatic return to prosperity were silenced or, at least, discredited. This marked a profound change in American attitudes. It called for a restatement of the economic functions of government. For many people it was no longer simply a matter of correcting abuses and of instituting specific reforms, as had been the case during the Progressive Era [ID]. The expectation now was that the government somehow had to take charge of the economy; it had to become responsible for the general performance of the system. There were widespread demands and innumerable schemes for "social planning." The general purpose of all of these schemes was the "management of plenty" by the state for the benefit of society. Again, Lippmann, in the 1934 Godkin lectures delivered at Harvard, took note of the new development in the responsibilities of the state. "The task of insuring the continuity of the standard of life for its people," he told his listeners, "is now as much the fundamental duty of the state as the preservation of national independence." From a quite different source came essentially the same message. The Very Reverend Monsignor Robert F. Keegan stated in his 1936 presidential address to the National Conference of Social Work: "Governmental programs protecting large social groups are imperative. They shall not [199/200] restrict our inherited personal liberty, but they shall surround it with a self-respecting security." The ability of the United States to postpone social protection on a large scale until advanced industrialism was a consequence of its individualistic heritage, which in turn was buttressed by political democracy, social mobility, and economic opportunity. These interacting forces had supported self-help. However, democracy works also in the opposite direction. "The more the political state was democratized," Lippmann argued, "the more imperative it was for private capitalism to give off continued prosperity."
We cannot review in detail here the many forms in which popular discontent expressed itself and the many remedies that were offered by all kinds of social healers, who ranged from outright demagogues like Huey Long to the serious social reformers, brought by the New Deal to positions of power and authority. The schemes that attracted large popular followings were those with roots in traditional American protest movements. At first glance it is surprising that there was so little revolutionary sentiment among the populace. A rather small number of individuals, mainly intellectuals, were converted to the doctrines of communism and fascism. Although there was not much proletarian class consciousness in America, there was still a good deal of populist sentiment. There was a strong element of populism in Huey Long's Share-Our-Wealth dream as well as in Father Coughlin's Union for Social Justice. Generally, the target of popular discontent was big business rather than the capitalist system. The recurrent themes of the protest movements were the overwhelming control by big business of the economy, excessive speculation and profits, and an income distribution that did not enable the masses to consume what industry could produce. Many sober thinkers shared these views. The study of the modern corporation by Berle and Means furnished ample evidence on the high degree of concentration of economic power in the United States [ID]. In Monsignor Keegan's [200/201] view, "continued control of property in the hands of a few can only mean one thinginterrupted social circulation, the feudalization of American Wealth."
An interesting feature of popular discontent was a tendency toward self-help, in contrast to the emphasis on assistance as a matter of social justice. Even the veterans of the Bonus Army marching on Washington did not ask for a handout. They wanted the government to make a payment, albeit premature, on service related certificates awarded to veterans by Congress in 1924. Representative Wright Patman of Texas helped to set the march in motion by introducing a bill in early 1932 that provided for immediate payment of the maturity value of the certificates. Most veterans undoubtedly would have accepted a discounted payment. Around the country the unemployed started many self-help organizations in the early 1930s. The Seattle Unemployed Citizen's League, the Los Angeles Unemployed Cooperative Relief Association, and the Salt Lake City Natural Development Association were outstanding examples. Consistent with American political practice, these organizations typically developed into political pressure groups.
In the context of the development of social protection, surely the most interesting phenomenon of the 1930s was the emergence of the Townsend movement. The first public statement of the Townsend plan for old-age pensions appeared in a letter to the Long Beach Press-Telegram, on September 30, 1933. The lively response to the letter, entitled "Cure for Depressions," surprised even its author, Dr. Francis E. Townsend. Within a few weeks, letters debating the merits of the plan daily filled an entire page of the paper. The good doctor was soon besieged with requests for guidance on how to apply the marvelous cure that he had invented. Barely a month after he had published the outline of his plan, he found it practical to devote full time to the leadership of the movement that he had launched in an astonishingly brief period and with very little effort. By December 1933, petitions calling for the enactment of the pension plan in the United States Congress were gathering a large number of signatures in California. Thereafter the movement continued to gather momentum, and Townsend clubs were organized all over the country. By the time of the 1936 elections, the leaders of the movement claimed to have from 10 to 30 million followers. There were no accurate membership records, and the claim was undoubtedly a wild exaggeration. Holtzman [in The Townsend Movement:35] estimates that in 1936 there were probably 2.2 million active club members, about two-thirds of whom were past the [201/202] age of 60. In the absence of an accurate count, this number was large enough in any case to give the appearance that the Townsendites and their sympathizers held the balance of power in many elections. After 1936 the movement weakened; it briefly gathered strength again in 1939 but continuously lost ground thereafter. In 1939, when discontent with the original old-age provisions of the Social Security Act of 1935 had become acute, the paid-up club membership stood at 761,624; by 1953 it had dropped to 22,101.
The plan that attracted such a following was amazingly simple. The original letter suggested that the United States Government pay a pension of $150 a month to every citizen who had reached the age of 60, on condition that he quit working and spend the money immediately. The funds to finance this proposal were to be raised through a sales tax. The whole scheme rested on the idea that spending by the pensioners would pump money into the economy, reactivate consumer purchasing power, revive economic activity, and move the entire country from depression to prosperity. The petition circulating in December mentioned a figure of $200 a month to be paid to every citizen having reached 60 and "whose record is free of habitual criminality." It also substituted a transactions tax for a sales tax. The higher pension was justified primarily on the ground that this amount was necessary in order to have the desired effect on the economy. The first two bills embodying the Townsend plan were introduced in the United States House of Representatives in 1935. Many bills of this kind followed in subsequent years, but the legislative process robbed the original plan of its seductive simplicity.
Although highly attractive in the context of the early 1930s, the basic idea of the plan was not original. As Holtzman points out, monetary radicalism, consisting in naive manipulations of the money supply, had strong historical roots in America and was present in a number of the economic salvation plans advanced during the depression. At least, in a superficial way, there was a resemblance between the monetary panaceas and the ideas of leading economists such as J. M. Keynes [ID] and Irwing Fisher. Townsend was able to build up a mass following overnight mainly because, in a hopeless situation, he came forth with a formula for an instant welfare state.
From the point of reference of this book, the most interesting aspects of the Townsend movement are the ones that reveal it as a product of the [202/203] American environment. Holtzman stresses the fact that only in America did a mass political movement of the aged develop. Other industrial countries introduced old-age income protection long before the demographic changes that accompany industrial maturity had made the aged such a sizeable minority. Cultural differences made the aged in America a much more isolated group than in other countries. In other industrial countries the aged were not left to fight their own battles; European labor movements did not abandon the aged as did American trade unions. In America there was not a strong enough political left capable of either enacting protective legislation or of forcing the conservative right into passing it out of fear of losing control. Another point brought out by Holtzman is the radical-conservative nature of the Townsend plan, which has something typically American about it. It was a radical nostrum, but it did not seek radical changes in institutions. It had an evangelistic, conservative approach to American institutions. Although it pursued a radical goal, it proceeded strictly along the time-honored legislative path. Behind the ideas of the scheme was an innocent confidence in the productiveness of the American economy and in the adaptability of the profit system. Another strikingly American characteristic was the straightforward "practical" nature of the plan, without elaborate ideological justification. In a sense it was another form of self-help. After all, its basic emphasis was not what society owed the aged, but on what the aged, through their spending of pensions, would do for society. The scheme was not designed to make the rich support the poor; actually, the probable incidence of the transactions tax and the lack of income qualification for pensioners would have made the poor help support the rich. Even though none of the Townsend bills ever came close to passage, the movement had a major impact on the development of social protection in America. For the first time there was a mass movement that made social protection its principal goal. It dramatized, as nothing else had done before, the need for social income protection. It forced the government to take action, not by threatening the social order, but by mobilizing enough votes to make legislators responsive to its wishes. The Townsend movement was one of the major factors making for inclusion of old-age protection in the Social Security bill. After hesitating on an old-age pension program, Roosevelt told his Committee on Economic Security: "We have to have it.... The Congress can't stand the pressure of the Townsend Plan unless we have a real old-age insurance system. . . ." Again in 1939 theTown- [203/204] sendites played a crucial role in bringing about amendments that liberalized the Society Security Act of 1935. Their activities illustrate how, in America, pressure groups instead of a class-conscious proletariat were instrumental in the development of social protection.
However, it would be erroneous to conclude that there were no class-conscious activities and proposals in the drive for social security. There was, in fact, a rival to the Townsend scheme that was radical not only in the economic but also in the social and political sense. This was the so-called Workers' Bill for Unemployment and Social Insurance, which was sponsored chiefly by Ernest Lundeen, a farmer-laborite from Minnesota. From 1934 on this bill was introduced for a number of years and gathered substantial support. Its initial introduction, however, was mainly at the instance of the Unemployment Councils, which were under the control of the Communist party. It was reported later, by highly placed Communists, that Lundeen was actually a paid undercover Communist agent and that the original bill had been drafted by the Communist party. Whether this was the case is less important than the fact that the Lundeen bills became the focal point of the social security demands of the radical left.
A common characteristic of the Townsend and Lundeen bills was that they disposed of tremendously complex issues in a very simple manner. The historic neglect of social protection in the United States was bound to breed this kind of approach in a crisis situation. In less than 400 words the first Lundeen bill offered a comprehensive social security system, which included protection against unemployment, disability, maternity, and old age for all workers and farmers who were unemployed "through no fault of their own."" It did not specify who was a worker or a farmer, but the intention was clearly to have universal coverage of all who earn an income from work, whether manual or mental. Benefits were to be the same for all and "equal to average local wages." But in no case were unemployment benefits to be less than $10 a week plus $3 for each dependent. Individuals became eligible for benefits as soon as their income stopped, without any waiting period and regardless of the previous employment record. This meant that all those unemployed at the time the bill passed could immediately start drawing benefits. The bill did not contain a revenue clause. It stated simply that "such [204/205] insurance shall be provided at the expense of the government and of the employers," and "no tax or contribution in any form shall be levied on workers." Furthermore, it declared that "it is the sense of Congress that funds to be raised by the government shall be secured by taxing inheritance and gifts and by taxing individual and corporation incomes of $5000 per year and over." The administration of the system, on the other hand, was to be in the hands of elected commissions composed of "rank-and-file members of workers' and farmers' organizations."
The radical parentage of these provisions is obvious. They bear a striking resemblance to the proposals advanced by German socialists around the turn of the century [ID] and to ideas that were popular in Soviet Russia during the 1920s [ID]. The Lundeen bill was essentially a crude and unworkable scheme for redistributing income from the rich to the less well off. Guaranteed benefits at average local wages, of course, were preposterous, since that was a direct incentive not to work for all those whose earnings were below the average. Professor Eveline Burns observed correctly that "such a guarantee is incompatible with the present economic system." As the lowest paid workers quit their jobs, the average local wage and, consequently, benefit levels would have to keep moving up. Similarly, control of the system in the hands of the beneficiaries, without an effective check from those responsible for financing it, was another invitation to widespread abuse. The cost of the program and its adverse economic effects would almost necessarily have led to serious economic consequences. I. M. Rubinow, the veteran social insurance statistician, estimated in 1934 that "a complete confiscation today of the total surplus of individual and corporate incomes over $5000, applied to this purpose alone, would not be enough to foot the Lundeen bill for unemployment."
Popular support for the Lundeen plan was not nearly as extensive as that of the Townsend Plan. The initial supporters were mainly radical groups, such as the National Unemployed League, the National Unemployment Councils, the Communist party, and the Conference for Progressive Labor Action. Before very long, however, many nonpolitical groups came out in favor of the Lundeen plan, including labor organizations, "a surprisingly large number of social workers," and some economists. Officially, the American Federation of Labor rejected the plan, but in 1935 the Lundeen bill was endorsed by six state federations and 2500 locals.
The motivations of these various groups no doubt differed considerably.
The rank-and-file were probably unaware of the far-reaching implications of the plan. Most of them readily accepted the naive economic argument that underconsumption was the cardinal weakness of the economy and that income redistribution was a mailer of both social justice and economic necessity. Workers who had been exposed to radical propaganda were attuned to the social significance of the Lundeen bill's emphasis on income redistribution. Perhaps they were aware also that politically this was something quite different from the Townsend plan. A fundamental difference between the Townsend and Lundeen campaigns lay in the objectives of the initiators and intellectual backers. For Townsend, the pensions themselves were the chief objective. For most of the thinkers behind the Lundeen plan, the ultimate objective was broad social and economic reform. It did not matter much, therefore, that the plan itself was demonstrably unworkable. The Communists seized on it as a useful propaganda prop. Herbert Benjamin, a prominent Communist, said at a Congressional hearing: "Our purpose is to organize the workers in unions, lodges, and neighborhoods, and build them up in such a formidable force that they will compel Congress, willingly or unwillingly, to meet such a measure." In 1936 the Lundeen plan was included in the Communist and Socialist election platforms. It would have served the purpose of most radicals if the bill had been enacted and, as a result of ensuing economic difficulties, had led to extensive government economic intervention. Paul Douglas, who was very active at the time in the unemployment insurance movement, observed, that in the minds of some advocates there was an "unquestionable desire to use the Lundeen plan as an initial wedge to obtain the socialization of industry."
Some looked on the plan as the formulation of a new conception of individual rights. They hoped that the adoption of this conception would open up a new era of reform. This was the position of Mary Van Kleeck, a well-known and highly respected social worker. Her endorsement of the plan raised many an eyebrow [1934de12:The New Republic, no.81]. She was too well informed not to recognize its technical defects, but she defended its basic principles. She wrote:
It's significance rests upon this different concept of social insurance. . . . Mass provision by government and industry to provide for mass insecurity is the new definition of social insurance. The demand is put forward that compensation shall be sufficient to prevent the lowering of standards of living. There should be no contributions from workers, since such contributions are essentially a [206/207] deduction from workers' income for living standards and compel workers to share in compensating themselves and other workers for losses that are beyond their control.
Miss Van Kleeck accepted the argument that workers are not paid sufficiently to buy the goods they produce and, hence, she had no difficulty in accepting the financing and administrative arrangement of the Lundeen plan. "Unemployment insurance is a kind of deferred wage bill. As such, it is to be administered by workers for the same reason that they control their own wages after they are paid. She believed that the country could afford the plan but did not expect it to achieve economic security: "Economic security is probably unattainable except in a planned economy. She noted that the Lundeen plan did not call for a "change in the economic system, but it certainly sets up a challenge to its power to protect the general welfare against the hazards of insecurity." Presumably, if the system failed to pass this test it was due for a change, which was but another way of using insurance as the road to social reform.
REVIVAL OF THE OLD-AGE PENSION MOVEMENT
The Townsend and Lundeen plans were really outside the mainstream of the American social security movement. [...]
For several years, welfare organizations, especially the American Association for Old Age Security, had been advocating federal grants-in-aid to state pension plans in lieu of the old demand for federal pensions. In 1930, hearings were held before the House Committee on Labor on bills providing for a countrywide pension program with federal participation. This plan became associated with Senator Clarence C. Dill and Representative William P. Connery, who were its chief sponsors from 1932 to 1934. Committees of both houses reported favorably on the Dill-Connery bill, but it never came to a vote on the floor. President Roosevelt never gave it his full support. In the meantime, the pension movement remained strong at the state level. In 1933 a record number of ten states enacted new pension plans. By the end of 1934, an off-year for regular legislative sessions, twenty-eight states and two territories (Alaska and Hawaii) had old-age pensions. The remaining states joined in subsequent years. In a number of instances the delay was caused by the need to alter state constitutions. In March 1938, Virginia was the last of the forty-eight states to adopt a pension program for its needy aged.
Of course, the chief impetus on the laggard states was the enactment of the Social Security Act of 1935. Under this act, the federal government paid one half of the state pensions up to $30 a month, provided that certain minimum standards were met. Thus, after several decades of a growing need [208/209] and sporadic campaigning, the needy aged were finally given protection rather quickly, considering the number of legislative bodies that had to take action.
The depression brought to the surface and intensified the movement for old-age protection. An unmistakable sign of the shifting tide of public opinion, even before the depression, was the changing attitude of the American Federation of Labor. The Federation had endorsed the "principle" of protection for the needy aged for many years, and in 1923 it even urged its Ohio affiliates to support the state's pension referendum. But not until 1928 did the top labor leadership in the country give any indication that it might work for the enactment of pension laws in all states. After several years of debate and study, the Executive Council of the Federation went as far as to recommend that year that Congress be petitioned "to authorize a commission on old age incomes to study the problem and make a report." By 1929 the organization had grown bolder. With only one dissenting vote, the AF of L Convention adopted an executive council report that recommended the inauguration of "an active campaign for the inauguration of such laws in every state."
Although resistance to state old-age pensions for the needy did not vanish, the economic factor involved was necessarily a powerful influence on ideologies. Business interests could be convinced of the economic [210/211] rationality of pensions only if the pensions were hard to get. In a 1930 pamphlet the National Association of Manufacturers still argued against the cost of pensions and still found them "paternalistic" and "injurious to individual virtues." Actually, the states that passed old-age pensions usually insisted on rigorous eligibility requirements. In America, unlike in other countries with noncontributory pensions, eligibility usually required the absence of a close relative capable of furnishing support. Under these circumstances, even the National Association of Manufacturers was inclined to approve of pensions. A 1932 report of its Committee on Employee Retirement Annuities stated:
Insofar as state or municipal old age pensions or relief acts make possible the more humane and more efficient care of aged and impoverished citizens, such acts when properly safeguarded by rigid eligibility requirements and restricted to relief of the indigent, serve a valid social purpose and are not detrimental to the interests of American business.
It was fortunate for the needy aged that a more humane treatment was also more economical.
[Table 6-1 is not included here]
The most important political leader who fully appreciated the [211/212] implications of the position of the aged was Franklin D. Roosevelt. An attack on the New York State poor law and the substitution of old-age pensions in place of it was one of the themes of his 1928 gubernatorial campaign. He told how oppressive it was for him to visit the county poorhouse. "Somehow it tears my heart to see these old men and women there. . . ." In a speech to the New York Women's Trade Union League (June 8, 1929) he stressed the fact that the poorhouse system "is not even an economical solution to the problem. It is the most wasteful and extravagant system that we could possibly devise. It belongs to that past barbaric age when we chained our insane to the walls of our madhouses." It would be idle speculation to try to disentangle Roosevelt's political and humanitarian motivations. It should be observed that he had entered politics as a Progressive [ID] and had long favored social legislation. He steadfastly proclaimed his view that it was the duty of the state to look after the welfare of the citizen, but he was equally steadfast in his opposition to welfare programs that smacked of the dole.
As Governor of New York (1929 to 32), Roosevelt had an opportunity to put his welfare ideas to the practical test. In his first Annual Message to the Legislature he called for the extension of workmen's compensation and the creation of a commission to study the problem of old-age insecurity. In a special message, on February 28, 1929, recommending the creation of this commission, he analyzed the nature of the old-age problem.
Poverty in old age should not be regarded either as a disgrace or necessarily as a result of lack of thrift or energy. Usually it is a mere by-product of modern industrial life. An alarmingly increasing number of aged persons are becoming dependent on outside help for bare maintenance . . . No greater tragedy exists in modern civilization than the aged, worn-out worker who after a life of ceaseless effort and useful productivity must look forward for his declining years to a poorhouse. A modern social consciousness demands a more humane and more efficient arrangement.
Roosevelt made clear in his message that he was looking not only for old-age assistance for the needy but also for a contributory old-age insurance program. He underlined for the cost-conscious legislators the high cost of the existing poorhouse arrangement and the need to find a more economical means to provide for the increasing number of aged.
The New York Commission on Old Age Security recommended only a standard noncontributory pension scheme for the needy, which was enacted into law in 1930. The governor was disappointed with the limited scope of the commission's recommendation; he called the proposed old-age pension law an "extension of the existing welfare or poor laws." He argued that the commission had not gone to the "real root of the needs," by which he meant that it did not appreciate the rising economic burden of the aged even under a pension scheme. He now was more direct and positive in stressing the need for old-age insurance in addition to noncontributory old-age assistance. In commenting on the commission's report he noted:
The most successful systems are based on what might be called a series of classes by which a person who has done nothing in his or her earlier life to save against old age is entitled only to old age care according to a minimum standard. Opportunity is offered, however, under these systems for wage earners to enter other classifications, contributing as the years go by toward increased incomes during their later years. In other words, a definite premium should be placed on savings giving the workers an incentive to save based on the prospect of not only food and shelter but on comfort and higher living standards than the bare minimum.
By inducing wage earners to provide for themselves, the burden on the state, that is on the taxpayer of the higher income groups, would be that much lighter. Roosevelt seemed to feel instinctively that some day social insurance would protect the rich from the demands of the poor. He was aware of the economic advantages of the social insurance provision for old age, as demonstrated by experience abroad, but there is no indication that he was aware that he was advocating a principle of social protection that was entirely new in the American context. This principle was that social protection should be extended to include people who were not necessarily in need and to secure for them a level of living above the bare minimum. By the time of the 1930 gubernatorial campaign he was committed to this idea and was prepared to show that this was fully consistent with American individualism.
I look forward to the time when every young man and young woman entering industrial or agricultural or business activity will begin to insure himself or herself against the privations of old age. The premiums which that young man or young girl will pay should be supplemented by premiums to be paid by the employers of the state, as well as by the state itself. In that way, when the young man or young girl has grown to old and dependent age, he or [213/214] she will have built up an insurance fund which will maintain them in comfort in their years of reduced activity. In this way their assistance will be a result of their own efforts and foresightedness. They will be receiving not charity, but natural profits of their years of labor and insurance.
Here, Roosevelt expressed a theme that became a central one of American social insurance ideology: the beneficiaries protect themselves through their own efforts and foresight. This may be self-help through compulsory collective effort, but self-help nevertheless. And as such it was suited for American conditions, since it was protection without dependence.
THE ENACTMENT OF SOCIAL SECURITY
Before discussing the nature of the social security system that emerged in 1935, let us examine briefly the course of events leading to the Social Security Act. On entering the White House, Roosevelt was faced with the enormous tasks of immediate relief and recovery. Social insurance, which was not an emergency measure but a long-run reform, could not be given immediate attention. As pointed out previously, Roosevelt did not share the views of those who wanted to postpone reform until after recovery, but he hesitated to take immediate action. Many of the friends of social insurance became critical of him when he failed to give full support to the Dill-Connery and WagnerLewis bills. Those who worked with the President, however, have testified to his conviction that a piecemeal approach would be unsatisfactory and that a fairly well-rounded program had to be worked out first.
The first step in this direction was taken on June 8, 1934, when he sent his historic social security message to Congress. For the first time in history an American president declared publicly that the Constitution implied the right to individual economic security, "If, as our Constitution tells us," said Roosevelt, "our Federal Government was established among other things 'to promote the general welfare,' it is our plain duty to provide for that security upon which welfare depends." Much like the Roosevelt who had preceded him in the White House, Franklin D. Roosevelt argued that his novel sounding proposals were not designed to change but to conserve traditional American values and virtues. "Our task of reconstruction does not require the creation of new and strange values. It is rather the finding of the way once more to known, but to some degree forgotten, ideals and values." The message spelled out Roosevelt's basic principles of social insurance. He wanted a program that dealt simultaneously with the major sources of economic insecurity but "especially those which relate to unemployment and old age." No specific mention was made of health insurance. With regard to the distribution of the burden, he clearly favored payment by or on the direct behalf of beneficiaries instead of a reliance on general revenue. As he phrased it: "I believe that the funds necessary to provide this insurance should be raised by contributions rather than by an increase in taxation." He stressed also that the program had to be national in scope and based on federal-state cooperation.
Three weeks after this message went to Congress the President created the Committee on Economic Security and the Advisory Council on Economic Security. The committee, under the chairmanship of the Secretary of Labor, Frances Perkins, was ordered to report not later than December 1934 "its [221/222] recommendations concerning proposals which in its judgment will promote greater economic security." Professor Witte was appointed Executive Director of the Committee on Economic Security. On his shoulders fell the chief responsibility for preparing within a rather short period of time the proposals for a very complex piece of legislation. Under Witte's guidance the committee drafted a social security plan that followed closely the principles laid down by the President. The final version of the committee's report was not delivered to the President until January 17, 1935, the day on which he sent it to Congress with a special message on social security.
The President's personal desire, as expressed to Secretary Perkins, was for a "cradle to grave" social insurance system. However, in his January message he stressed the danger of trying to do too much at once, which meant that he considered the proposed legislation merely a beginning toward a more comprehensive program. The legislation that he asked to be passed "with a minimum of delay" dealt with four areas: unemployment, old age, dependent children, and public health. With regard to unemployment insurance, his message deviated from the committee's report in the stress that it put on the need for a system that would induce private industry to stabilize employment. On old-age security the President went along with the committee's proposal for a three-layer system of protection: noncontributory pensions for those too old to build their annuities, a basic system of compulsory annuities, and a supplementary system of voluntary state annuities. Aid to dependent children and public health assistance were to be in the form of federal grants to the states. The President observed that he was not recommending health insurance "at this time" but that the subject was still under study. In general, he strongly stressed again the desirability of a system that was self-supporting through contributions. There was no hint of any desire to use social security as a means of income redistribution from rich to poor. It was to be a means that would enable workers to look out for themselves and their fellow workers, not a vehicle for reducing economic inequality among social classes, or for increasing the responsibility of the rich for the poor.
There is no need here to retrace the sinuous path of these proposals through Congress, since excellent first-hand accounts by participants are available. The Social Security Act, which Roosevelt signed into law on [222/223] August 14, 1935, followed in its essential provisions the recommendations of his January message. Nevertheless, several significant changes were made during the legislative process. The original proposal for a supplementary voluntary system of social insurance pensions was dropped, mainly on the argument that such a program would compete with private enterprise, even though private companies did not write comparable policies at the time. On the plus side, a new program, aid to the blind through federal grants in aid to the states, was added on. There was a lively controversy within Congress over the desirability of exempting employers from the government old-age system if they were willing to substitute a more liberal private plan for their employees. Organized labor, which had shown little interest initially in the Social Security bill, perceived the danger of a proposal of this kind. The unions finally went to work to defeat the proposal and to help with the passage of the bill. The business community was still divided. The United States Chamber of Commerce favored the bill, but the National Association of Manufacturers and its branches in some of the leading industrial states expressed vociferous opposition.
Let us now examine the Social Security Act in the light of the ideas and attitudes about social protection that it reflected. Although, no doubt, it was a major step forward in the development of American social rights, it revealed also that there were still many hesitations and reservations. Certainly, the country and Congress was not ready for the "cradle to grave" protection, about which Roosevelt spoke, and there were many barriers to such a system in Roosevelt's own thinking. In spite of its multiple program character, the 1935 act fell far short of universality of coverage and comprehensiveness of insured risks. This was only partly due to legislative prudence, which counseled against trying to to do too much at once.
In any country, the principles adopted to include and exclude certain groups from coverage tend to reflect prevailing ideas about social equality. We recall that the original German system was designed to protect the manual working class in industry. Therefore, it excluded white collar workers. The American social security system never recognized this distinction of social status. In contrast to the common European concept of working-men's insurance, the guiding American idea was that of insurance for the citizen, regardless of social status or level of income. The major groups excluded from both old-age pensions and unemployment insurance were farm and domestic employees, casual workers, employees of nonprofit organizations, and the self-employed. In addition, unemployment insurance was restricted to individuals employed in establishments with 8 or more [223/224] employees during 20 weeks in any given year. The chief reasons for these exclusions were technical, usually administrative, or constitutional complications. However, in the background there were also ideological considerations. When Altmeyer, the Chairman of the Social Security Board, urged the inclusion of farm workers in 1939, the Chairman of the House Ways and Means Committee told him: "Doctor, when the first farmer with manure on his shoes comes to me and asks to be covered, I will be willing to consider it." Similar attitudes prevailed with regard to the self-employed, especially the professional groups.
Although the American Social Security Act never formally recognized a status hierarchy among citizens, it left the door open to many inequalities of protection, especially as between the residents of different states. Until the 1930s social insurance thinking had been mainly in terms of state rather than federal action. The size of the country, differences in standards of living, sectional interests, and a heterogeneous population militated against uniformity in protection. For political, constitutional, and sometimes administrative reasons, considerable discretion had to be left to individual states to determine the social rights of American citizens. Only with regard to old-age contributory pensions did the Social Security Act create a uniform national program. This was dictated by the long-term vested interests of such a program and the high mobility of the population. In the case of unemployment insurance and public assistance programs, Congress refused even the establishment of minimum levels of benefits.
The public assistance programs of the Social Security Act (assistance to aged and blind persons and to dependent children) made the need of the recipient a condition of benefit receipt, but Congress did not define "need." The states consequently varied widely in their definition of need and in the measures taken to establish its existence. There have been wide variations in the extent to which the resources of relatives or fixed assets are taken into consideration in establishing need. In this manner, inequalities in social rights were brought about within as well as between states. It is interesting to observe that the original draft of the act had specified that state old-age pension programs must as a minimum assure "a reasonable subsistence compatible with decency and health." This requirement was virtually eliminated by the House Ways and Means Committee when it specified that the requirement had to be met only as far as practicable under the conditions of a given state. In the Senate Finance Committee all references to minimum standards compatible with health and decency were eliminated. "One reasons for this change," Douglas noted, "was the fear on the part of many Southern Senators and Representatives that the earlier provision might . . . compel the Southern states to pay higher pensions to aged Negroes than [224/225] the dominant white groups believed to be desirable." This is a pointed illustration of the manner in which social inequality within a country may be a barrier to equal and sometimes adequate social protection.
In the case of unemployment insurance, inequality and inadequacy of protection were natural consequences of incompatible structural objectives of the program. The Social Security Act did not directly set up an unemployment insurance system. It provided for a federal payroll tax and for related rules and standards that were designed to induce the individual states to establish unemployment insurance programs. The federal tax incorporated the offset provision discussed earlier with reference to the Wagner-Lewis bill. This arrangement was consistent with Roosevelt's desire for a pluralistic federalstate cooperative system. The act accommodated also Roosevelt's wish to use unemployment insurance for stabilization purposes. To do this, the federal law allowed lower taxes to be levied on employers who succeeded in stabilizing employment. The states were left free to take advantage of this feature. All but a few immediately adopted the "merit-rating" system, under which the tax rate was based on the employment record. The handling of reserves varied widely from single-employer accounts to statewide pools, including combinations of these two arrangements.
From the point of view of protecting the social rights of the workers, competing merit rating systems inevitably had unfortunate consequences. The lawmakers failed to appreciate fully the paradoxical situation that they were creating. On the one hand, they tried to prevent interstate competition by passing a federal law but, on the other hand, they restored competition by allowing individual states to determine the effective rates of taxation. It mattered little that this freedom was left to the states for the purpose of creating stabilization incentives. Under the pressure of competition from other states, it became extremely difficult to resist the demands for lower taxes within any given state. The result was a serious weakening of unemployment insurance all over the country because of the lack of adequate resources. Thus, in the end, those who had opposed the individualistic trend in unemployment insurance thinking saw their fears come true. One way of preventing this from happening would have been through a minimum contribution rate imposed on all states. A recommendation to this effect had [225/226] been made by the President's Committee on Economic Security, but Congress refused to accept it. The tradition of freedom of action once more defeated the purpose of collective protection.
Closely related to equality of protection is the concept of the right to protection. Both are indications of the kind of claim to protection a society acknowledges through its social security system. The limitations of this right can take many subtle forms, including the manipulation of benefits, the eligibility conditions, and the administrative procedures in order to enhance the power of those in authority.
The Social Security Act reflected the dominant American attitude that favored guaranteed individual rights. It is interesting to notice, however, that the strength of this guarantee and the means of legitimizing protection varied between different programs. In old-age insurance the right to benefits was from the beginning conceived to be of a quasi-contractual nature. An individual had title to benefits because he had earned them. We shall return later to the implications of this manner of legitimizing protection. Unemployment benefits were on a weaker ideological foundation. They were legitimized as a form of compensation for income losses involuntarily sustained by the worker. The weakness of the economic system, not the effort of the individual, legitimized the benefits. Therefore, there was no need to insist on worker contributions nor to stress the link between contributions and benefits. In fact, this form of legitimization made worker contributions seem to be unwarranted. A worker earned his benefits by being an active member of the work force, which meant that the state laws had to include a test for his attachment to the work force.
Public assistance was still justified, as it had been in the past, on what was essentially the principle of social solidarity, or the common good. Its financing was, therefore, from general revenue. By dramatizing the fact that individuals often became dependent without any fault of their own, the depression had strengthened the country's sense of social solidarity. This change in attitude contributed to a strengthening of the right to public assistance. To induce the development of a nationwide system of old-age assistance, the Social Security Act offered a financial inducement to the states by reimbursing them for one half of their expenditures, subject to a maximum of $15 per person per month. The act established certain minimum standards that state laws had to meet in order to be eligible for federal [226/227] subsidies. Until then, most state old-age assistance laws were optional with individual counties and often made available only under humiliating circumstances. "The Social Security Act," as Altmeyer rightly stresses, "really represented a radical change in the character of these laws. Not only did it require that they be in effect throughout the state, but it also required that assistance must be in the form of money payments and that individuals whose claims had been denied must be given a fair hearing." These requirements illustrate the contrast between the new conception of the citizen's social rights, as incorporated in the Social Security Act, and the old conception of the right to relief that was implicit in the poor laws.
Although the entrance of the federal government into the welfare field greatly strengthened social rights, it also engendered pressures to limit the scope of federal action. In America the issue of federal control became a screen for the resistance of the business community to the extension of social rights. We learned earlier that this resistance prevented the establishment of minimum benefit standards. It hindered also the establishment of adequate administrative standards in old-age assistance. Congress specifically denied the Social Security Board control over the selection, compensation, and tenure of the personnel of the state assistance agencies. An unfortunate consequence of this restriction was the insinuation of local political considerations in the appointment of personnel and the award of benefits. The Social Security Board made serious efforts to eliminate abuses which lessened administrative efficiency and impaired the social rights of the American citizen. Its most notable battle was against political interests in Ohio, which were the worst offenders."
In unemployment insurance the safeguards of the right to protection depend heavily on the interpretation of certain eligibility conditions. To preserve labor discipline and the willingness to work, benefits must be limited to involuntarily unemployed persons who are available, able, and willing to work. Does willingness to work imply that a man has to accept any job offered regardless of working conditions and rate of pay ? Clearly, a rigid interpretation of this requirement could easily eliminate almost any kind of protection.
This was an area where common standards were necessary. Under the standards established by the Social Security Act an otherwise eligible worker did not lose his right to benefits if he refused work under the following conditions : (1) if the position offered was vacant because of an industrial dispute; (2) if wages, hours, and working conditions were substantially less favorable than the ones prevailing in the community for similar work; and [227/228] (3! if the job required joining a company union or resigning or refraining from joining a bona fide labor organization.
The social and economic objectives of these standards are evident and significant. Although their purpose was to maintain neutrality in disputes between workers and employers, they also favored independent unions. Nothing was said about protecting a worker from having to join a bona fide trade union as a condition of employment. Logically, the standards were one-sided, but they were consistent with prevailing views on labor policy. Another objective was to prevent unemployment insurance from becoming a means to depress wages and working conditions. In addition to the federal standards, the state laws protected individual rights through definitions of involuntary employment and suitable work. The latter definition was necessary in order to protect individuals from having to accept jobs far below their skills. These standards and their application have varied over time and between states, but their general objectives have been the sale-guarding of the individual's rights of protection and of the community's welfare against abuse by individuals. It has never been the policy to use unemployment insurance as an instrument of industrial discipline. This is in sharp contrast to the objectives of Soviet social insurance in the 1930s.
Let us now examine the old-age insurance program. This was the most far-reaching measure of the Social Security Act, but ironically there was little popular demand for it, in contrast to the popularity of noncontributory old-age pensions. "Congress," Witte explained, "acted on its own judgment rather than in response to an overwhelming public demand." In fact, it was mainly at the insistence of President Roosevelt that the old-age insurance provisions were kept in the Social Security bill when opposition developed in the House Ways and Means Committee." Since his days as Governor of New York, Roosevelt had argued that old-age assistance alone would be unsuitable. He considered compulsory old-age insurance the most important part of the entire bill, but this was also the part chat encountered the most resistance within the House and Senate Committees. This is not surprising, since it meant imposing a system of compulsory insurance on millions of free citizens, regardless of their individual needs." On the other hand, the studies prepared by the staff of the Committee on Economic Security could not fail but to impress Congress with the growing economic [228/229] burden of old-age dependency." Realistic alternatives had to include an increasing social responsibility in meeting this burden.
Congress could be expected to have a natural affinity for forms of protection that were reasonably consistent with the dominant values of self-help and of rewards related to individual effort. The proposals worked out by the Committee on Economic Security met these requirements. A staff member of the Committee, Professor Douglas Brown, explained: "We wanted our government to provide a mechanism whereby the individual could prevent dependency through his own efforts." This was a shrewd formula, for it covered the inevitable element of social compulsion with a veneer of individualism. The central idea, pointed out earlier, was that the individual would earn his benefits and in this manner establish his rights as a beneficiary on a quasi-contractual basis. Frances Perkins, the Secretary of Labor and and Chairman of the Committee on Economic Security, proclaimed that protection was to be afforded "as a matter of contractual right." The emphasis on contractual rights was of strategic significance: in an individualistic society the individual was not to be left dependent on the benevolence of the ruling powers.
In their testimony before congressional committees the staff members of the Committee on Economic Security observed that they had studied European social insurance models but that the measures they were proposing deviated from European practice where it seemed "appropriate to our background and present situation." In England, contributory old-age pensions had evolved as an outgrowth of noncontributory old-age assistance, which in turn had been a modification of relief under me poor laws. In this evolution the focus had remained on social needs, and they in turn governed the character of the protective measures. The English reliance on flat benefits must be viewed in this light. In America, on the other hand, old-age insurance marked a completely new departure, not an emendation of old-age assistance. Its model was private insurance or, more precisely, the industrial pensions that the more progressive corporations had established for their workers.
This orientation was characterized by an undue concern with contractual means, as opposed to an emphasis on social ends, which was a way of putting the cart before the horse. Before the House Ways and Means Committee, Brown argued that worker contributions were desirable because "by contributing the individual worker established an earned contractual right to his annuity through his own thrift." He mentioned also that worker contributions encouraged "the development of an adequate system of retirement annuities independent of employer control." It is interesting to note that justification of employer contributions avoided any reference to the paternalistic duty of the employer to look after the welfare of his workers. It stressed instead that the employer's contribution was an "automatic method of meeting the depreciation charges on the human factor cooperating in production similar to the usual accounting charges for depreciation of plant and equipment." This is strikingly consistent with the proposition that the worker earns his benefits as a factor of production and contrasts with the view that the worker deserves protection because he is economically weak and occupies a dependent position in the organization of society. Once again, we notice how social income protection is being shaped by market-oriented values.
The Social Security Act provided for equal employer- and worker-contributions to old-age insurance. The original bill drafted by the Committee on Economic Security had envisaged government contributions, but President Roosevelt insisted that the plan must be self-supporting. There was to be no taxing of wealth for the maintenance of worker incomes. Brown explained to the Ways and Means Committee that government contributions would be appropriate because for many years the plan would pay much larger annuities than would be paid for by the first generation of recipients. This arrangement was necessary to avoid postponing far into the future the date when benefits would begin to be adequate. The shortened maturation of old-age insurance was clearly in the public interest, but Congress was no more inclined than the President to meet any of the expenses involved from public revenue.
The emphasis on "contractual" over "social" rights had mainly ideological instead of legal significance, but this ideological dimension was by no means irrelevant. Beside introducing a bias in favor of contributory financing, it put the accent on equity among beneficiaries, which required that benefits be differentiated according to contributions. But the framers of the plan were well aware that the social purposes of old-age insurance could [230/231] not be achieved through strict adherence to contractual equity principles. It was impossible to meet basic social needs without some redistribution of income. Under the adopted method of financing, this redistribution was mainly from one low-income group to another, and the gainers were not necessarily poorer than the losers.
This result becomes obvious in a brief examination of the benefit formula. First, we must observe that an upper limit was imposed on taxable wages. This limit was $3000 a year from a single employee. Benefits were based on aggregate lifetime taxable earnings. Monthly benefits were equal to 1\2 percent of the first $3000 of aggregate earnings, plus 1/12 percent of the next $42,000, plus 1/24 percent of the next $84,000. The average wage in 1935 in nonfarm employment was about $100 a month. The benefit formula enabled a man earning $100 a month to retire with a pension equal to slightly more than 50 percent of his monthly wage ($51.25 to be exact) when he reached the legal retirement age of 65 and had 40 years in covered employment at the same wage. A pension of 50 percent of wages was the level that had been introduced by the more progressive corporations in their industrial pension plans. Interestingly, it was this standard that influenced the thinking of the staff of the Committee on Economic Security.
The formula was a compromise between the principles of equity and adequacy. It clearly favored the lower income groups and those who retired in the early years of the program. However, with a minimum monthly benefit of $10 and a maximum of $85, there could be no doubt about the planners' desire to maintain an incentive differential. By making benefits dependent on total taxable earnings, the benefit level in part reflected the length of work in covered employment. But diminishing returns were built into longer employment. An individual earning the maximum taxable wage would build up credits for a monthly pension of $15 during his first year of work. During his next 14 years he would add only $2.50 each year to his monthly pension, and during the following 28 years he would add only $1.25 to his monthly pension for each year of work. The depression mentality, which was concerned with clearing the labor market of older workers, seemed to counteract the desire to keep benefits proportional to earnings. The same mentality was also a factor in making actual retirement a condition of benefit receipt.
It should be pointed out that the minimum monthly benefit was not automatic for covered workers who reached retirement age. Those who had earned less than the $2000 in aggregative wages needed for a $10 monthly pension were entitled to a lump sum equal to 3.5 percent of their taxable wages. The minimum pension was thus a matter of administrative convenience instead of an attempt to establish a minimum level of protection. In the lump sum provision, which was akin to a savings withdrawal, we again are made aware of the individualistic, contractual line of thought. But the weakness of the plan's social concern was most pronounced in its failure to take into account the family responsibilities of the workers. The law provided nothing for a pensioned worker's wife or other dependents. Nor were there any insurance benefits for widows and orphans. These shortcomings can be traced to the values of a society that idealized the cash nexus, but the needs that were thereby left unmet could not be ignored indefinitely, although this meant further compromises of the contractual ideal.
AMERICAN SOCIAL SECURITY DEVELOPMENTS AFTER 1935
One of the central themes of this chapter has been the historical conflict between the need for socially assured income protection and the dominant individualistic values of American society. For a long time the balance of forces in this conflict delayed the enactment of a general social security system. It took an economic crisis that called into question the principles of the existing order to shift this balance enough for a victory of the forces seeking social income assurances. Success was only partial since it still allowed only an inadequate system of protection but there is no question but that this partial success was a major achievement. A major shift in public attitude was brought about; a broad public demand for social income protection was created, and those in political control had come to accept the idea of a fundamental federal responsibility in this area. [...]
Russia: From Patriarchalism to Collectivism
PROTECTION OF THE WORKER BEFORE 1917
Although Russia was still overwhelmingly an agricultural country in 1917, it had a good start on the road to industrialization. From 1885 until 1900 the [245/246] country experienced remarkable economic development [ID]. Growth lagged in the early years of the century, but regained new momentum in the period from 1907 to 1914. By 1915 about 75 percent of the country's population was still tied to agriculture and approximately 85 percent lived in rural areas. The number of wage workers was nevertheless considerable. It had grown from about four million in 1860 to nearly 18 million in 1913. Of these, 3.1 million were employed in factories and mines and 4.5 million were agricultural laborers. Industrialization had not yet transformed the country, but it had gone far enough to pose problems of social protection of the wage-dependent worker. The extent of protection remained limited at the outbreak of World War I. It was nevertheless more extensive than that which, at that time, existed in the United Statesthe leading industrial country in the world. In autocratic Russia, as in autocratic Germany, conditions were more favorable for the protection of the worker than in countries with a strong liberal tradition.
Feudalism was still a vital force at the onset of Russian industrialization. [CF=White on "Russian feudalism".] Serfdom was not abolished until 1861 [ID], and naturally many of the attitudes that had developed during centuries of serfdom were carried over into the post-reform era. [...]
In the late seventeenth and early eighteenth centuries, Western and homegrown mercantilist ideas regarding the treatment of the poor began to influence the attitude of the government. One of the earliest landmarks of Russian thought on public relief is a memorandum addressed to the Tsar in 1682. Its spirit was completely in harmony with the one that prevailed in Western Europe at that time. It strongly stressed the need to separate the able-bodied from the aged, infirm, and children. The memorandum suggested that Russia follow the example of other countries by locking up able-bodied beggars and by putting them to work. For homeless children, it proposed the establishment of special homes in which they would be taught a trade useful to the prosperity of the state. In true mercantilist fashion, the memorandum argued that by putting the idle to work and by teaching them useful trades, the country could manufacture many things that were being imported. In this way, poor relief could help make the country prosperous and independent of foreigners.
The proposals of the memorandum were not enacted into law. The beginning of public regulation of poor relief, like many other things in [247/248] Russia, had to wait until the reign of Peter the Great [ID]. Peter's outlook was thoroughly mercantilistic. In a series of decrees he ordered all able-bodied beggars to be beaten with a rod and sent back to their masters. Village elders who were lax in their discipline and anyone who supported able-bodied beggars were to be fined. In case of second offenses, beggars were to be condemned to forced labor. Alongside these repressive measures, Peter defined for the first time officially who was responsible for the support of the poor. In the countryside, it was the obligation of the seigniors and other landowners to furnish work to able-bodied indigents and to furnish bread and clothing to those unable to work. In villages where the inhabitants were free peasants owning their own land, the support obligation was imposed on the community. In towns the municipality was charged with the building and maintenance of hospitals and other charitable institutions. Monasteries were charged with providing relief to indigent former sailors and soldiers. On the whole, Peter's action probably did little more than put the sanction of the state behind what was already the usual practice. This meant that for the first time the state officially acknowledged society's obligation toward the poor without, however, creating public institutions for poor relief.
The general pattern of obligations established by Peter I remained in force until the twentieth century. Toward the end of the eighteenth century, under Catherine II, there was a noticeable decline in the emphasis on repressive measures, comparable to similar developments in Western Europe. At that time and during the early nineteenth century a number of charitable foundations were created under the auspices of the crown, which lasted until the 1917 revolution. With the abolition of serfdom in 1861, a reorganization of public responsibility became necessary. This was facilitated by the creation of the zemstvos (provincial [and district] assemblies) in 1864 [ID] and by the new regulations concerning municipalities [cities] in 1870 [ID]. The zemstvos were charged with regional administrative responsibility, but their efforts were severely restricted by the lack of funds and by a constant interference from the tsarist bureaucracy. In spite of these difficulties the zemstvos made commendable progress in poor relief, as well as in public health and education. Given the size of the country (a population of approximately 130 million in 1900), the total public assistance effort remained extremely modest. The zemstvos' budgets for 1900 allocated 1.5 million rubles for public assistance, and the municipalities allocated about 3 million. According to one estimate, modestly adequate care of the needy in zemstvo [248/249] provinces in 1912 would have required 300 million rubles; the zemstvos, however, spent only 4.5 million.
When we turn from the study of public relief to an examination of the programs for industrial workers, we find more extensive legislation, although the laws on the books did not always achieve practical significance. The tsarist government was torn between conflicting tendencies regarding special wage-earner protection. Certain conservative elements within the bureaucracy insisted, at least until 1905, that Russia had no industrial labor problem that required special legislation; other factions insisted on the need for detailed legislative regulation and for the administrative supervision of industrial relations. A law of June 3, 1886, established what has been called the "First Russian Labor Code" [ID]. It was partly a response to the growing restlessness among industrial workers over arbitrary fines and dismissals. The law provided for certain elementary forms of protection for the wage worker, but its enforcement by an understaffed contingent of factory inspectors left much to be desired.
In the area of social insurance the three most noteworthy laws passed before World War I were: (1) the law of 1866, which required all factories to furnish free medical treatment for their workers; (2) the law regarding industrial accidents passed in 1903; and (3) the Health and Accident Act of June 23, 1912 [ID]. Old-age pension programs existed only for government employees. There was little in the way of private voluntary programs. We must keep in mind, however, the fact that the Russian government had many employees, since it owned many large enterprises, including the railroads.
The 1903 act was passed in the wake of considerable industrial unrest and huge strikes. It was primarily an employer's liability act, administered by the factory and mine inspectors, without compulsory insurance. [...]
[...] In 1892, the 1866 law was extended to apply to mines and to metallurgical establishments [ID]. A survey made in 1908 showed that in 1907 about 84 percent of the workers in establishments under state inspection enjoyed some form of medical care through their place of employment. About 44 percent of the 1.5 million protected workers were in establishments with their own hospitals. In the countryside, medical care had become a responsibility of the zemstvos. Although considerable progress was made in providing medical care for the peasants in the early part of the century, the level of care remained rather low. The significance of these measures, however, lies in the establishment of precedents and in pioneer efforts in group medical care. Mark Field has observed that the Soviet regime did not have to start from scratch. "Rather, it continued and amplified, while at the same time it modified and adapted, a pattern which had existed in Russia for more than half a century. . . .
SOVIET SOCIAL INSURANCE IDEOLOGY
An important difference between social security systems is the extent to which the rights to protection are granted as a matter of statuseither to all citizens or to specific status groups and the extent to which the rights have to be earned in a contractual manner. In America, the dominant emphasis was on the contractual aspects of social insurance rights. This preference was consistent with the individualistic character of American society and with the emphasis on market-determined reciprocities. In the Soviet Union, on the other hand, the contractual element does not enter into social insurance. The abolition of private ownership of the means of production (with minor exceptions in agriculture and handicrafts) gives the state the power to control the income of all citizens. The planners can determine how much, and in what manner, personal income is to be tied to work performance or to status. Under these circumstances, it is easy to treat welfare benefits as a gift from the state to the citizen.
Soviet social welfare distinguishes between the right to income main- [253/254] tenance and the right to benefits that aim to raise living and cultural levels, such as health and education. As in many other countries, the latter benefits are available to all citizens. Income maintenance benefits, however, have traditionally been available only to those who perform hired work. They are the relevant status group. Until 1964, the whole mass of collective farmers was excluded from the public pension program and were left to their own mutual assistance schemes. Although Soviet social insurance is wage related, Soviet theorists insist that it does not involve the contractual concept of an exchange of benefits for premium payments. In the words of one author [1951de29:CDP#3,46:6]:
mutuality and reciprocity. . . are not to be found in the mutual relation of the parties in state social insurance. The obligation here lies not on both parties, but only on one the agency of state social insurance is under obligation to issue funds and to set and pay pensions or other forms of subsistence . . ., whereas the worker or employee has no reciprocal obligations to the agency of state social insurance.
The main practical significance of this is the fact that the right to benefits is in no way dependent on the payment of contributions into social insurance funds. The obligation to pay contributions rests entirely on enterprises, but unlike the situation in many countries, the failure to pay does not jeopardize the right to benefits. "Section 179 of the Labor Code expressly states that failure to pay the contribution may in no case deprive a worker of insurance benefits."
Soviet ideology stresses that social security benefits are a gift from the statea genuine act of governmental benevolence, a true manifestation of socialist humanism. The head of the trade unions, N. M. Shernik, told a meeting of union activists in 1938: "Take any figure in the state social insurance budget; every one of them breathes the warmth and paternal care which our leader and teacher Comrade Stalin manifests daily and hourly toward all people, great and small." The nature and circumstances of many pronouncements of this kind indicate that welfare programs play an important role in official Soviet propaganda, both at home and abroad. [...] Hardly an occasion is missed to underline the state's and the party's concern for the welfare of the workers and to remind them of the debt of loyalty they owe the rulers.
The reciprocal rights and obligations of the state and the workers in the [254/255] Soviet Union are spelled out in its constitution. Article 120 of the 1936 constitution states in part: "Citizens of the U.S.S.R. have the right to maintenance in old age and also in case of sickness and disability." An important corollary of this article is Article 12, which states: "Work in the U.S.S.R. is a matter of duty and honor for every able-bodied citizen, in accordance with the principle 'He who does not work, neither shall he eat.'" The Soviet literature emphasizes that social insurance along with the right and duty to work are fundamental principles of socialism.26 It is certainly not accidental that a constitution that guarantees the worker's maintenance and right to work also imposes on him the duty to work.21 And conversely, the duty to work implies a right to maintenance that goes beyond any individual merit of support, since the maintenance of the worker becomes akin to the maintenance of capital. The state has an almost proprietary interest in the investment in human capital. Its position does bear a resemblance to the one of the slave owner. "In the society founded on labor," writes Krasnopolskii, "where the exploitation of man by man has been eliminated...where people are treated as the most valuable capital. . . comprehensive care of aged and disabled members is natural and inevitable."28 The significant difference between this society and slavery, as far as treating humans as capital is concerned, is mat in Soviet society there is presumably no conflict of interest between the rulers and the ruled. This may not always be the case, but it is part of the official ideology that shapes the relationships between individuals and the state. Those who deviate from this ideology are called "parasites" and "speculators."29
As the foregoing discussion indicates, there appears to be at least five major themes in Soviet social security ideology:
- Comprehensive social security is an integral part of socialist society and expresses its inner harmony.
- It is a gift of the state as well as a fundamental right of the citizen.
- It is a corollary of the duty to work and, in a general sense, a reward for loyal performance of this duty but not a payment for work done.
- Its aim is to maintain income and to uplift the material and cultural level of the working population.
- It influences the workers' standard of living directly as well as indirectly, through its impact on the capacity and zeal for work.
SOCIAL SECURITY FROM THE REVOLUTION TO 1921
[In 1914, elected worker representatives to the Social Insurance Council, established by the law of 1912, drafted a proposal for new social-insurance legislation. They submitted it to the Social Democratic faction of the Imperial State Duma and called on workers around the country to agitate for its passage.]
Coverage was to be nearly universal; it included all who worked for hire as well as self-employed peasants who did not own land, regardless of sex, age, race, religion, nationality, or citizenship. The major exceptions were capitalists and landlords. The list of insured risks was comprehensive. Cash benefits were provided in cases of sickness, accidents, maternity, unemployment, and death. There were also disability and survivorship pensions, but not separate old-age pensions. At the relatively young age of 50, insured individuals became eligible for a disability pension. Another major benefit was free and complete medical care for all covered individuals. In addition, all aged beneficiaries were entitled to institutionalized care, as well as all children and orphans whose parents or guardians desired it. Finally, the bill stipulated obligatory preventive measures against illness and accidents. The level of benefits and pensions was set equal to earnings, subject to an annual maximum of 2400 rubles, which was roughly nine times the average wage in the country. The financing of these generous benefits was to be at the expense of the rich. The bill specified that the funds were to be obtained through the imposition of a progressive tax on property and inheritance, and on the incomes of enterprises and individuals. Exempted from this tax were small enterprises, properties and inheritances, and individual earnings below 2400 rubles a year. An important feature of the scheme was the self-administration of the insured through elected representatives. The administration was to be in the hands of local, regional, and all-Russian social insurance councils. The bill made all conditions, provisions, and payments subject to regulations by the All-Russian Workers" Insurance Conference. It stated specifically that neither the government nor the employers had a right to be represented or to take part [257/258] in any of the administrative organs of social insurance. Furthermore, the bill expressly prohibited any deduction from earnings of employees to finance the program, and it provided stiff penalties for any interference by employers or public officials with the work of social insurance representatives.
[...] During the months following the February Revolution [ID], the Bolsheviks kept agitating for universal and comprehensive social security. They were highly critical of steps taken by the Provisional Government [ID], which they considered totally inadequate.
Five days after its seizure of power, on November 12, 1917 [oc30:NS], the Bolshevik Government issued a communiqu announcing a radical new social insurance program. Recognizing past commitments, the communiqu stated: "The Russian proletariat has put on its banners comprehensive social insurance for all wage workers and for the city and village poor." It pointed out that previous governments had failed to satisfy the workers' aspirations and promised that the Workers' and Peasants' Government would immediately prepare social insurance decrees based on the proposals advanced by the workers. It reiterated the five Leninist principles that would govern the program: (1) the coverage of all workers and all city and village poor, (2) the inclusion of all risks of income loss, (3) all the costs to be borne by employers, (4) the unemployment and disability benefits to be at least equal to wages, and (5) the full control of administration to be in the hands of the insured. This was the program the militant workers had been clamoring for since 1914. Its practical realization was a different matter.
In the months following its seizure of power, the Bolshevik Government passed a large number of decrees relating to the economic life of the country. But it had practically no machinery to enforce its economic regulations. The only effective decrees were the ones that recognized the developments that were taking place spontaneously, for instance, the spreading of workers' control and the nationalization of enterprises. Unfortunately, a social security system cannot be created in such a manner. The [258/259] dislocation of the economy and the breakdown of labor discipline would have made the rapid introduction of any new program of social insurance extremely difficult, even if the government had had the required administrative apparatus at its disposal.
The laws passed during the early years of the Bolshevik regime, therefore, had little significance, other than they reflected the aims of the new government. The first law (December 11, 1917 (no28:OS)) established the first unemployment insurance program in Russia. It applied to all temporarily unemployed wage earners, with the exception of those who earned more than three times the average local wage. Benefits were a flat amount, equal to the average local wage, but not exceeding the previous earnings of the unemployed worker. The law stated that funds would ultimately come from progressive taxation of income and property, but until then employers would have to bear the full cost.
A second law, passed December 29, 1917 (de16:OS), provided for a program of cash sickness benefits, birth and burial grants, and free medical care. It covered all who worked for hire; financing was about the same as under the previous law; cash benefits in case of illness were set equal to previous earnings. It is significant that in neither case was there any requirement of a specified length of previous employment. Presumably, it was enough to establish one's status as a worker, which was consistent with traditional socialist thinking. To regulate and supervise the programs, the government decreed the establishment of national and regional social insurance councils. These councils were dominated by representatives of the insured workers, the trade-unions, and the factory committees. This was an attempt to implement the notion of a social insurance system in the hands of the insured population. Within less than a year the councils were abolished (if, indeed, they had ever come to life), and the control of social insurance was taken over by various government departments. Although the workers were still represented in the insurance organs, this was a retreat from the earlier Bolshevik ideal of an autonomous worker-managed system. A more significant shortcoming, however, was the failure to enact the promised protection against invalidity, old-age, and survivorship.
By the summer of 1918, the Bolsheviks had entered the phase of War Communism. The state took complete control of all industrial and commercial activities of any significance. Industries were nationalized on a vast [259/260] scale without compensation. The private ownership of land and buildings in cities was abolished. Land was declared to belong to the toilers, and all natural resources were declared to be national property. The first Bolshevik constitution, adopted in July 1918, announced that the Soviets aimed at "abolishing all exploitation of man by man . . ., eliminating completely the division of society into classes, and ruthlessly crushing exploiters. . . ." As the civil war progressed, labor became increasingly militarized. The constitution had proclaimed the universal obligation to work. Strikes were declared illegal, industrial discipline was tightened, and men and women were conscripted for labor in designated industries. [Follow "revolutionary civil war" 5-hop LOOP from April through October, 1918, in SAC]
It was in this context of national crisis that a completely new social security program was enacted. By a decree of October 31, 1918, social insurance, or, as it was now called, social security (sotsial'noe obespechenie instead of sotsial'noe strakhovanie), was extended to cover all those who were gainfully employed, as long as they were not employing hired labor. This included wage and salary earners as well as self-employed peasants, artisans, and others, and the members of their families. The covered risks included all the major contingencies of life. There was protection in cash and kind in case of illness, permanent disability, unemployment, old age, and the loss of breadwinner. There were also maternity benefits and burial grants. Cash benefits and pensions were egalitarian; they were geared to the average wage in a locality instead of to the previous earnings of the beneficiary. The main source of financing was employer contributions. This program of universal and comprehensive protection was consistent with the universal duty to work that had been decreed in 1918 and that became embodied in the Bolshevik Labor Code of 1919. An individual was either working or incapable of work and, therefore, was entitled to support. Unfortunately, very little information is available on the application of this program. In all likelihood it remained a dead letter, especially in view of the fact that most income payments soon had to be made in kind because of hyperinflation. During 1920 and 1921 the government repeatedly ordered that confiscated property be turned over to the local social insurance agencies to enable them to make payments in kind. It was not until after the country pulled out of the economic morass of War Communism that realistic social insurance programs could be established.
SOCIAL SECURITY DURING THE NEP (1921 TO 1928) [ID]
The Tenth Congress of the Communist Party, meeting in March 1921, officially adopted the New Economic Policy. This policy, proposed by Lenin, inaugurated a new economic system for the country. The abandonment of [260/261] War Communism, an unsuccessful experiment with instant socialism, was dictated by the threat of economic disintegration just after the threat of destruction by force of arms had been overcome. The elimination of the market under War Communism had brought about a system of direct supply allocations that rested ultimately on a confiscatory requisition of food from the peasants [ID]. A couple of years of drought added to the woes of the peasantry. By 1920, an epidemic of peasant riots spread through the countryside [EG], especially in the South and the East. In the cities, which were already beset by shortages, strikes were becoming a frequent occurrence [EG] and absenteeism was rapidly increasing. In addition to the collapse of labor discipline, the chaotic state of an overgrown administrative apparatus had become a factor in the economic disruption. The revolt of the Kronstadt sailors [ID], a bastion of the revolution, left no doubt in Lenin's mind that a radical shift in policy was in order.
The New Economic Policy created a system of state capitalism in industry and left agriculture, handicrafts, and retail trade to private enterprise. It was an acknowledged retreat from socialism. The state retained ownership of the means of production, including the land tilled by the peasants. However, they were free to operate their holdings as they pleased and to sell their surplus in the market. A tax that was based on this surplus replaced the earlier method of compulsory requisitions. All but the largest industrial establishments were freed from exclusive state control. Some establishments were organized into decentralized trusts, others were given even more extensive administrative and financial independence. Small enterprises were taken over by private businessmen or cooperatives. Although the nature of state control and participation changed during the 1920s, the emphasis during the whole period remained on the application of commercial principles. Private and public managers of industry sought to operate their enterprises at a profit.
From the point of view of the workers and the trade unions, the New Economic Policy created a new and rather ambiguous situation. The state still owned the means of production and exercised various degrees of control, tut the introduction of commercial principles, coupled with various degrees of enterprise autonomy, left the door open to genuine conflicts oT interest between management and labor. The breakdown of discipline at the end of War Communism had produced dissension among the trade-union leaders and grave misgivings within the party. Lenin and his associates were prepared to carry out reforms, but they would not tolerate indiscipline and dissension. Therefore, it was necessary to subjugate the trade unions, but [261/262] also to allow them enough scope of action to enable them to function as effective intermediaries between the party leadership and the working class. This ambiguous role of the unions, and hence of the position of the worker vis--vis the state, was spelled out in the resolutions adopted by the party's Central Committee in January 1922.
Lenin, who is credited with authorship of the resolutions, began by explaining that the New Economic Policy was a phase of transition from capitalism to socialism that contained features of both systems. It was socialism in the sense that ownership of the means of production remained in the hands of the proletarian state. On the other hand, there were free markets, and socialized establishments were operated on the basis of commercial principles. According to Lenin:
. . . this situation inevitably produces, as far as working conditions are concerned, a certain amount of class conflict between the laboring masses and the directors of state enterprises and their superiors. This is especially the case when account is taken of the need to raise labor productivity and to operate each state enterprise without loss, at a profit, and also in view of the inevitable divisional administrative interests and exaggerated administrative zeal. With regard to socialized enterprises the trade unions therefore absolutely have the duty to protect the interests of the workers and insofar as possible contribute to the raising of their living standard by continuously correcting the mistakes and exaggerations of economic units to the extent that such bureaucratic excesses stem from the state apparatus.
Although the party recognized the basis of economic conflict, it was careful to limit the workers' freedom to protect their interests. Lenin stressed that the prevailing situation was fundamentally different from the one under capitalism. The ultimate aim of strikes under capitalism, he argued, is to destroy the state and to overthrow the ruling class, but under existing conditions the final aim of all mass worker actions can be only the strengthening of the proletarian state by combating bureaucratic excesses and capitalistic vestiges. In defending the interests of the workers, the unions were enjoined not to harm the interests of other groups. Strikes were clearly not to be tolerated:
The only correct, healthy, and appropriate method for eliminating frictions and conflicts between individual parts of the working class and the organs of the workers' state is a mediatory participation of the trade unions. Through their relevant organizations they may either engage in negotiations with the interested economic units on the basis of carefully formulated demands and proposals, or they may appeal to higher state offices.
The rights and duties of the workers under the New Economic Policy were clarified by the RSFSR Labor Code, adopted in November 1922, which became a model for the rest of the country. With the introduction of NEP the compulsory labor service was abolished, and conscripted workers were demobilized. The Labor Code recognized this restoration of a free labor market; it was silent on the right to work and restricted the duty to work to emergency situations. The return to the free labor market was accompanied by increasing unemployment and mounting inflation, which undermined the workers' standard of living. The code specified that hiring had to be done through the local offices of the Commissariat of Labor and that no terms of engagement could be worse than the ones contained in the Labor Code, in collective agreements, and in the rules of the internal order of the enterprise. Wages were to be determined through collective and individual agreements, but they could not be lower than the state-established minimum for a particular occupation. "In return for a guaranteed wage, the Code demanded a guaranteed output." Output quotas were established by the mutual agreement of the trade unions and management. Under Article 57 of the Code: "An employee who fails to achieve the established norm, through his own fault and under normal working conditions, will be paid proportionately to the amount of work done; however, he will not receive less than two-thirds of the standard rate."
Along with other regulations of the employment relationship, the code contained the provisions of social insurance applicable under the new economic system. To some extent, this was simply a restatement of laws that had been enacted the previous year. As indicated earlier, the all-inclusive program enacted during War Communism never acquired practical significance. During me transition to the New Economic Policy, more realistic laws were enacted. They marked the effective beginning of the functioning of Soviet social insurance. Consistent with the reestablishment of the free labor market, the idea of universal protection (excluding capitalists) was abandoned. The new laws applied only to those who sold their labor, thus excluding the whole mass of self-employed peasants, artisans, and professionals. Although the number of covered persons was thus restricted, the new system, as specified in the Labor Code, was very comprehensive as far as the coverage of risks was concerned. It provided for free medical care, temporary disability benefits (payable also in cases where the care of a sick family member prevented a person from working), unemployment benefits, invalidity pensions, survivorship pensions (applicable also in cases where the breadwinner had disappeared), and finally for supplementary assistance, payable to nursing mothers, sick persons, and for burials.
Benefit levels and the duration of benefits varied according to the cause of inability to earn a living. Generally, the conditions were most favorable in the case of temporary physical incapacity. The law on sickness benefits enacted on October 14, 1921, provided for benefits equal to full pay for a period not exceeding four months. The 1922 Labor Code specified that sickness benefits should equal the wage rate for the occupation of the insured at his place of employment and should in no case be less than his earnings before becoming disabled. A separate article of the code, however, states that the central administration of social insurance has the right to reduce benefits temporarily, but not below two thirds of the relevant rate, in cases where there is a lack of funds. This provision strongly reflects the absence of the contractual notion in Soviet social insurance. Amending the earlier law (October 14, 1921), the code made sickness benefits payable from the day of illness until recovery or the beginning of a permanent disability pension. Although a 1934 law introduced a maximum on sickness benefits levels, this was of little importance during the 1920s." No minimum level was introduced until 1955.
The unemployed were treated less generously than the sick. Unemployment benefits were more in the nature of assistance payments to the needy. But the individual's work record was taken into account. Under a law of October 3, 1921, unemployment benefits were payable to persons registered as unemployed with the department of labor who had no other means of subsistence. Skilled persons dismissed from state enterprises were entitled to benefits equal to the local minimum wage; unskilled workers discharged from state enterprises were entitled to benefits ranging from one-third to one half of the local minimum if they had three years of service. Benefits for other unemployed workers were left to be determined by the social security bodies. The Labor Code merely added that benefits were dependent on the skill of the worker and on the length of his previous employment, and that they must in no case be less than one sixth of the local average wage. In 1921, unemployment benefits were payable for 15 continuous weeks or for a total of 26 weeks in one year. Under Article 186 of the 1922 Labor Code, the duration of unemployment benefits was left to be determined by the social insurance authorities depending on the worker's skill and previous length of work. The maximum benefit period was set at six months.
With regard to permanent disability and survivorship insurance benefits, the law of Decembers, 1931 and the Labor Code were rather vague. In general, these benefits were made to depend on the cause and degree of [264/265] disability and the availability of other resources. As in the case of unemployment benefits, a needs test was involved in the granting of pensions. However, it seems that under the unfavorable economic conditions of the early 1920s these provisions were never implemented. During the following years a system of disability and survivorship pensions was created "that was little influenced by these provisions of the Labor Code; it was supplemented at the end of the decade by a complicated system of old-age insurance." It was not until 1928 that a separate old-age insurance program was introduced, with benefits related to previous earnings. Under a law passed in 1924. pensions for industrial accidents were tied to previous earnings; they ranged from 50 to 100 percent of earnings for the incapacitated and from 33 to 75 percent for dependents." In 1926 the pensions for disability due to general causes also were tied to previous earnings and, thereby, lost some of the public assistance character. According to the estimates of Professor Minkoff, the average monthly pension paid in the years 1924 to 1928 ranged from 31 to 36 percent of the average monthly wage, whereas temporary disability benefits were about 95 percent oi the average wage. With the exception of temporary disability benefits, there was a tendency toward an egalitarian benefit structure during the NEP era.
The Labor Code contained especially strong protection for women. Maternity leaves with full pay were granted to working women and were paid as prescribed by the code. Women doing physical labor received a leave of eight weeks before and eight weeks after giving birth, and other working women were entitled to a leave of six weeks before and six weeks after giving birth. Insured working women as well as the wives ol insured workers were entitled to "supplementary benefits," which included a layette grant amounting to one month's local average wage and a nursing grant for nine months at a rate of 25 percent of the local wage. This is the kind of benefit that is particularly meaningful for low-income groups. Until 1927 there was no income restriction on eligibility. The income limit that was introduced at that time was well above the average wage, so that the great majority ol working class women remained eligible.
Our review of the coverage and of the benefits granted during the NEP era shows that, on the whole, the system was geared to the regular industrial workers, with some preference for those who were skilled and employed in state enterprises. Certainly, this group was of most consequence to the party. The exclusion of the peasants may have violated the spirit of the revolution, but the peasants' attitude, especially toward the end of War Communism, had made amply clear that they could not be relied on for the building of a [265/266] socialist state. The less favored treatment of the unemployed than the temporarily disabled, no doubt, was related to the greater administrative problems connected with unemployment insurance. This involved the question of eligibility as well as the thorny question of incentive to work.
During the NEP the Soviet leaders never clearly confronted these questions, partly no doubt because their thoughts ran in terms of eligibility as a matter of social class. The tendency was to treat various risks in a different fashion. With respect to cash sickness or industrial accident benefits, there was never any work requirement during the 1920s. This simply meant that if a person became disabled while a hired employee, he was automatically eligible. With respect to maternity leave, the issue was a bit more critical. A pregnant woman had every incentive to take a job and, then, shortly thereafter collect 12 to 16 weeks' leave. It was this kind of consideration that led to a law in 1927 that limited the right to maternity leaves and birth grants to women who had six months of uninterrupted work immediately prior to the time that they became entitled to leave. The objective of this law, explains a Soviet authority, "was to prevent the resources of state social insurance from being spent on people who did not belong to the permanent cadre of the working class." The law, however, never attained practical significance. It was soon discovered that its enforcement was more expensive than the savings that could be realized. In addition, it was declared to be unfair to young women who had entered the work force for the first time.
In the case of unemployment insurance, no specific previous work record was ever required. To be eligible, however, a worker had to be discharged from a covered job and had to register with the labor exchange within a short period after becoming unemployed. The refusal to accept a job offer from the labor exchange usually disqualified a worker for benefits, except in the case of skilled workers who could show that the job would damage their skill. In most countries, unemployed workers are at least temporarily disqualified if they quit voluntarily or are fired for disciplinary reasons. In the Soviet Union this was not taken into account until 1927, at which time persons who had quit voluntarily were denied benefits for one month. At that time the needs test also became more severe. These measures, taken in the mid-1920s, reflected a tightening of labor discipline and a decrease in the industrial labor surplus.
At the beginning of the NEP period there was some feeling that there should be a long period of service as an eligibility condition for general disability pensions. Understandably, if someone is to be supported for the rest of his life, he should have more than a passing membership in the [266/267] eligible group. A decree of December 8, 1921 established an eight-year work requirement for permanent disability pensions, which included old-age pensions. The Labor Code of 1922 eliminated this requirement, except in cases where disability was primarily the result of old age. An oldster had to have eight years of continuous service immediately preceding retirement to be eligible for an old-age disability pension. In practice, this distinction between general disability and disability due to old age inevitably led to obvious difficulties. By the middle of the decade there was considerable pressure to tighten up on eligibility conditions. With regard to general disability, a 1925 regulation stipulated that the disability had to occur while the insured individual was employed, or not more than a year after he left work. The following year, it was further specified that the disability had to be reported within two weeks after quitting work. The chief objective was still the prevention of abuse.
The requirement of a [work] stage, not only for the aged but also for invalids, showed itself to be a realistic means for "keeping insurance funds away from persons who had no right to social insurance," The proposed reform became all the more essential because in the years 1925-27 the resources devoted to invalidity insurance were substantially increased.
The seventh congress of trade unions, meeting in December 1926, recommended the introduction of a work requirement for permanent disability pensions. This was done in March 1928.
In the meantime, there was considerable discussion about the advisability of a separate old-age pension program. Under a 1925 law a person was eligible for a pension if he was 50 years of age, incapable of work, and had worked continuously during the preceding 8 years. Presumably, in such cases the disability requirement was less stringent than in general disability-cases. The first separate old-age program in the Soviet Union was introduced in 1928, but initially it was restricted to textile workers. The retirement age was set at 60 for men and 55 for women. In addition to age, a 25-year work record was required for pension eligibility, but there was no longer a disability requirement. Gintsburg notes that this marks the beginning of the use of the work record as a measure of an insured individual's contribution of "useful work" to society. This is highly significant because it represents an important shift in thinking with regard to the right to social security. Previous work requirements mainly were intended to assure that an individual belonged to the status group entitled to protection. Now, apparently, an individual also had to be personally deserving by having contributed to society. The main reason for the shift in thinking, as we shall learn, was the change in economic conditions caused by the onset of rapid industrialization.
Before discussing this new phase of Soviet economic development, we must examine at least one more important characteristic of Soviet social insurance, namely, the role of the insured in the administration of the system. We recall that an administration by the insured, without employer participation, was one of the key demands of the Bolsheviks before the revolution. In the early days of the Bolshevik regime, social insurance was in the hands of representative insurance councils. During War Communism it had come under direct control of the state. At the beginning of the NEP, there were trade-union leaders who believed that the unions should manage social insurance, in the place of the former workers' councils. This was contrary to party policy; it was categorically rejected at the Fifth Soviet Trade Union Congress (September 17 to 22, 1922), which resolved that:
The concentration of social insurance and labor protection matters in a single state organ under unified management and under trade union control is the best means of achieving the designated goals. Therefore, any tendency to turn social insurance into a separate form of the labor movement and to create organizations independent of the state organs is wholly unacceptable.
The nature of the control to be exercised by the trade unions was clarified a month later by the Central Council of Trade Unions. It covered the following aspects:
1. The policing of contribution payments by the employers (who apparently were often in arrears). 2. The reporting of irregularities in contribution payments. 3. The assistance to enterprises in registering with the insurance organs and in explaining to workers that only those in registered enterprises were entitled to benefits. 4. The organization of worker cooperation with the insurance agencies. 5. The lectures on insurance questions to workers. 6. The delegation of experienced trade union members to work with the state insurance organs. 7. The assistance in the improvement of medical services. 8. The assistance in the placement of unemployed workers. 9. The training of staff for labor inspection.
All of these functions were clearly of an ancillary nature and indicate that the unions had little direct authority for making decisions.
Under the 1923 constitution of the USSR the regulation of labor conditions was entrusted to the Commissariat of Labor, which included a department for the central administration of social insurance. At the lower level, the system was organized on a territorial basis, with a social insurance [268/269] office serving a particular geographic area. Although these offices were governmental, the executive personnel were selected with the cooperation of the unions and, in theory, were responsible to the unions. The regional office was under the supervision of a committee elected by an inter-trade-union conference of the region. The extent to which this arrangement satisfied the traditional socialist demand for worker-administered social insurance is not clear, especially since the unions themselves had to surrender most of their autonomy to the state. Ironically, the reversion to a higher degree of union authority in social insurance matters came about not as a consequence of a resurgence of worker control in industry, but as a result of a more thorough subjugation of the unions to the aims of the party and of the government. This occurred during the forced draft industrialization which began in 1928 [ID].