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The Price of Citizenship

This updated edition of Michael B. Katz's seminal work, The Price of Citizenship, traces the evolution of the welfare state from colonial relief programs through the war on poverty and into our own age. It argues that in the last decades America has been propelled toward a future of increased inequality and decreased security.

The Price of Citizenship
Redefining the American Welfare State

Michael B. Katz

2008 | Updated Edition
528 pages | Paper $26.50
American History / Public Policy / Political Science
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Table of Contents

Prologue: The Invention of Welfare

1. The American Welfare State
2. Poverty and Inequality in the New American City
3. The Family Support Act and the Illusion of Welfare Reform
4. Governors as Welfare Reformers
5. Urban Social Welfare in an Age of Austerity
6. The Independent Sector, the Market, and the State
7. The Private Welfare State and the End of Paternalism
8. Increased Risks for the Injured, Disabled, and Unemployed
9. New Models for Social Security
10. The Assimilation of Health Care to the Market
11. Fighting Poverty 1990s Style
12. The End of Welfare
13. Work, Democracy, and Citizenship

Postscript: The Post-9/11 American Welfare State


Excerpt [uncorrected, not for citation]

Chapter One


By focusing attention on public assistance, the language of welfare has obscured the true size and scope of America's welfare state. In reality, it is neither public nor private, but an enormous structure that combines the two. A public branch with three divisions—public assistance, social insurance, and taxation—intersects in a myriad of ways with a huge private branch divided between the independent sector—charities and social services—and employee benefits. In the 1970s, fissures began to appear in the edifice of this rickety structure; by the 1980s, the fissures had turned into giant cracks. By the end of the twentieth century, the war on dependence, the devolution of authority, and the application of market models to social policy had infiltrated every one of its corners. To understand how this occurred, we must look back at how the welfare state was constructed and elucidate the forces that shook its foundation.

The Architecture of the American Welfare State

The term "welfare state" refers to a collection of programs designedto assure economic security to all citizens by guaranteeing the fundamental necessities of life: food, shelter, medical care, protection in childhood, and support in old age. In America, the usual restriction of the definition of welfare state to government programs mistakenly excludes the vast array of private activities that address economic security and the needs associated with poverty and dependence. Thus, "state," as in welfare state, means not only the agencies of federal, state, and local government; it includes both government funding of nominally private organizations to carry out public tasks and private activities heavily regulated by public authorities. "State" is a shorthand for a web of government programs and the quasi-public, quasi-private organizations they finance and regulate. Understood this way, a vast and intricate American welfare state emerges.

The American welfare state resembles a massive watch that fails to keep very accurate time. Some of its components are rusty and outmoded; others were poorly designed; some work very well. They were fabricated by different craftsmen who usually did not consult with one another; they interact imperfectly; and at times they work at cross-purposes. Neither a coherent whole nor the result of a master plan, the public and private programs of America's welfare state originated at different times and from different sources; they remain loosely coupled at best. Yet together they are the means by which America delivers security and support to its citizens. This modern welfare state touches everyone. Because few people can afford to pay the full cost of their medical care or retirement, some welfare state benefits—Social Security and Medicare—are universal and reach beyond the poor. Other programs extend into the ranks of the employed, where many people earn wages too low to lift themselves above poverty through work alone. The welfare state nonetheless has boundaries, however imprecise. Indeed, even though the national government provides huge subsidies to business and the wealthy, the concept of the welfare state should not include all government benefits. To embrace all government subsidies would rob the term "welfare state" of its historic focus on economic security, poverty, and dependence.

Welfare is as old as the Colonies and as American as Thanksgiving. Public assistance, the original component of America's welfare state, began with early colonial poor laws adapted from British practice. Variously called outdoor relief and poor relief, sometimes just relief, later general relief, and, as we have seen, after the 1960s, welfare, it has proved inescapable and unavoidable; for centuries, all attempts to do away with it have failed. The stigma attached to public assistance has proved equally enduring; its beneficiaries have consistently composed the "undeserving poor."

Public assistance is marked by two other characteristics. First, it has always been, and remains, administered and funded locally rather than federally, at least in part. Originally, counties and towns operating under loose state laws bore almost exclusive responsibility for poor relief. During the nineteenth century, states increased their involvement and oversight. The federal government, however, ran large public assistance programs for only a few years during the Great Depression. The two federal programs introduced in 1935—Aid to Dependent Children and Old Age Assistance—were administered by the states, which were allowed to set benefit levels, and which drew their funding from their own as well as federal treasuries. As a consequence, benefits varied greatly throughout the nation.

Second, public assistance has always been inexpensive. Governments complain about its cost, but it is a bargain compared to other programs, and its low cost is one key to its staying power. Throughout American history, it is hard to imagine a cheaper means of keeping people alive. Though public assistance has caught most of the hostility to welfare, it forms a very small part of the welfare state. In 1995, the total cost of AFDC was $22 billion, of which the federal government paid $12 billion and the states the rest. AFDC amounted to less than 1 percent of the gross domestic product (GDP). Together, in 1995, the three major federal and federal-state public assistance income support programs—AFDC, food stamps, and Supplemental Security Income—amounted to 4.4 percent of the federal budget. About 14 million individuals, more than 9 million of them children, received support from AFDC, 27 million from food stamps, and 6.5 million, roughly 80 percent of whom were disabled, from SSI. (The number of recipients of the program that replaced AFDC fell dramatically after 1996.)

The cost of social insurance programs dwarfs public assistance. Called "insurance" because they require the payment of "premiums" by individuals or employers, these programs provide uniform benefits to everyone who meets fixed criteria (such as age), regardless of income or assets. Public social insurance began with workers' compensation in the early-twentieth century. By the 1930s, a few states had taken tentative steps toward unemployment and old age insurance as well. With the Economic Security Act of 1935, often referred to as the Social Security Act, the federal government launched social insurance as a series of national programs—the first were Unemployment Insurance and Old Age Insurance. In 1956, Congress added disability insurance, and, in 1965, Medicare.

In the mid-1990s, workers' compensation amounted to about $43 billion a year, twice the cost of Aid to Families with Dependent Children. In 1995, unemployment compensation paid benefits to 7.9 million individuals at a cost of $21.3 billion. Medicare covered about 38 million individuals at a cost of $180 billion, and Social Security benefits reached 43.4 million individuals at a cost of $336 billion, or 21.8 percent of the U.S budget of $1.54 trillion. In 1995, Social Security alone cost five times as much as AFDC, food stamps, and SSI combined. Low to begin with, the real value of AFDC benefits had declined steeply—by 47 percent in constant dollars from 1970 to 1995—while Social Security benefits, which are indexed, kept pace with inflation.

Social Security and Medicare are national programs; benefits do not vary by state. All social insurance programs provide much more generous benefits than do any public assistance programs. "Insurance," however, describes them imperfectly because they are financed not by accumulated contributions but primarily with the payroll taxes of currently employed workers. Because they are universal and share, even if inaccurately, the mantle of insurance, they remain by far the most popular programs in America's public welfare state. And they deserve their esteem: Social Security has cut poverty among the elderly by about two-thirds, while Medicare has vastly improved the access of the elderly to health care.

Social insurance programs, like public assistance, also inscribed race and gender hierarchies into public policy. Social Security and unemployment insurance originally excluded agricultural and domestic workers—in other words, most African Americans and women, who found themselves relegated most often to public assistance, while state governments discriminated against blacks in awarding Aid to Dependent Children. Despite the expansion of "covered" occupations, unemployment insurance continued to discriminate against women and blacks, penalizing them for their customary work histories. And Social Security still tilts away from equitable treatment for married women and widows. Current formulas do not credit the contributions of many previously employed married women toward higher benefits, and they maintain a very large gap between the benefits of couples and of survivors. Nevertheless, Social Security has worked a revolution in the experience of elderly women, who compose the majority of its beneficiaries. African Americans confront the irony that programs that serve them less adequately than whites nevertheless assure many a level of regular support previously unknown and remain the only shield between them and economic disaster.

The public welfare state's use of taxation to promote economic security is much less well known and less appreciated or disliked than either social insurance or public assistance. With good reason, political scientist Christopher Howard calls taxation the "hidden welfare state." The tax code delivers benefits indirectly through incentives and directly through tax credits and deductions. Employers who offer health and retirement benefits are allowed to deduct their expenses from their incomes. (Of course, this benefits all workers, not just those with low incomes.) The tax code is designed to stimulate the construction of low-income housing and jobs by offering developers and businesses tax credits, such as the Low Income Tax Credit, worth $495.5 million in 1994. Tax-based incentives also underlie recent urban policies designed to revive inner cities by attracting businesses and investment. In 2000, Republicans proposed using tax credits to extend health insurance to many of the uninsured. The federal Work Opportunity Tax Credit, the Welfare to Work Tax Credit, and various other state subsidies and tax credits all encourage employers to hire welfare recipients. In 1993, the cost of "tax breaks for social purposes"—cash equivalents and deductions for pensions and private social benefits—was more than twice the amount spent on AFDC.

The Earned Income Tax Credit is a dramatic example. It delivers benefits directly: individuals receive checks for the amount owed to them by the federal government. As a result of President Bill Clinton's expansion of EITC, in 1996 the federal government predicted that 18 million people would claim the credit, at a cost of $25.1 billion. The EITC, which paid money to more people and at a greater cost than that of AFDC, emerged as the federal government's primary means of boosting the working poor over the poverty line. With virtually no opposition, the Clinton administration engineered a massive increase in an income transfer program at a time when other forms of social welfare faced only real or proposed cutbacks.

The private welfare state is as complicated and varied as the public one. The charity and social services sphere, or "independent sector," encompasses everything from small soup kitchens to the massive Catholic Charities USA, with an annual budget of about $2 billion. It also includes foundations, social services like Meals-on-Wheels and foster care, and organizations devoted to single issues, such as the American Heart Association. Although the independent sector has never met all the needs of poor or otherwise dependent Americans, its essential components—charity, voluntarism, and philanthropy—can claim a long history and an essential role in American social welfare. In the mid-1990s, the best estimate put the independent sector's annual cost at $568 billion (roughly the cost of Social Security and Medicare combined) and the number of its institutions at more than one million?.

Employee benefits exceed even those of the independent sector. Most Americans receive their health care and part of their retirement income through this private welfare state. To be sure, benefits contingent on employment and, to some extent, on the goodwill or enlightened self-interest of employers are an imperfect replacement for universal public entitlements. But they amount to significant spending that in other countries often comes from the public treasury. International comparisons of U.S. social spending frequently fail to include private benefits. At 7.82 percent of GDP, America's 1993 "voluntary private social expenditures" far exceeded those of other advanced nations: 3.19 percent in the United Kingdom, 0.97 percent in Sweden, and 1.47 percent in Germany. The importance of the private welfare state cannot be underestimated, not only because of its impact on the security and well-being of Americans, but also because of its cost—in 1992, $824 billion.

American social policy has always carried out public purposes through private agencies. In the early-nineteenth century the state of New York contributed public funds to a private philanthropy for the education of New York City's poor children. Some state governments tried to meet the growing demand for secondary education by chartering and subsidizing private academies. State governments paid private orphanages to care for needy children and hospitals to treat the sick. They granted private agencies—the Society for the Prevention of Cruelty to Children, for instance—police powers to intervene in cases of suspected child abuse and neglect. American government, in Alan Wolfe's trenchant phrase, has always operated partly as a "franchise state." It is the way the nation builds missiles and delivers social services; increasingly, it is the way it punishes convicted criminals. Indeed, in recent years social service agencies and charities have drawn even closer to public authorities as providers for the state. Nor is the private welfare state of employee benefits exempt from government influence: enormously complicated regulations and legislation govern the administration of private pension plans and other benefits, such as health and family leave policies.

America's welfare state not only retains a mixed economy, it also remains remarkably local and decentralized. Recent welfare reform not only preserved the vast variation in benefit levels among states, it encouraged yet more variety by devolving significant authority to state governments, which, in turn, are at liberty to cede much of the administration and rule setting for public assistance to counties. Although Social Security, Medicare, food stamps, and the Earned Income Tax Credit are national programs, two crucial components of social insurance—workers' compensation and unemployment compensation—are partially or wholly state programs that differ widely in eligibility rules and benefits. Medicaid, a key component of the public assistance safety net, is also a joint federal-state program that allows states discretion in setting benefits and reimbursement amounts. Block grants for child welfare are another example of the way the federal government promotes local variation in the welfare state. And, of course, the private welfare state provides benefits and services through literally millions of agencies and employers, which, despite federal and state regulations and the strings attached to grants, retain a great deal of autonomy.

Its links to employment, as well as its decentralization, distinguish the American welfare state from its counterparts in other industrial nations. For most nonelderly Americans, access to health care depends on having a job with medical benefits, or being a dependent of someone who does. In no other modern industrial nation is health care an earned privilege rather than a human right. Throughout American history, welfare reformers have tried to couple public assistance and private charity with employment by devising work tests to separate the deserving from the undeserving poor. Nineteenth-century Charity Organization Societies sent men who applied for help out to cut wood or break stone. Poorhouses tried, without much success, to put their inmates to work. During years of great industrial upheaval, public officials and the leaders of private philanthropy demonized out-of-work men as lazy tramps. For many years, the opposite was true for working mothers: advocates of mothers' pensions in the years 1910-19 and Aid to Dependent Children in the 1930s hoped public benefits would permit mothers to stay at home with their children, or at least work only part-time. They viewed fulltime work among mothers as a source of family pathology, not a means for overcoming it. In recent years, of course, all this has changed. With the passage of "welfare reform" in 1996, the links between employment and public assistance tightened. Welfare reform transmuted survival itself into a privilege contingent on work.

The American welfare state also stands out for what it lacks. America has what I have called a "semi-welfare state"; others have referred to it as incomplete or truncated or have called America a welfare laggard. Whatever the label, the evidence is clear and familiar: America, unlike other advanced nations, lacks national health insurance. It has no family allowance. It permits more of its children to remain in poverty than does any comparable country. It offers unmarried mothers less help with either day-to-day survival or the transition to independence than do most other industrial nations. It provides far fewer of its citizens with publicly supported housing than do European nations, and it restricts what Europeans calls "social housing" to the very poor. It spends far less on active labor market policies, such as job training and job creation. In 1990, among eight advanced countries, only Japan, at 11.2 percent of GDP, ranked lower than the United States at 11.5 percent in public outlays on pensions, health insurance, and other income maintenance. For France, spending amounted to 23.5 percent of GDP and for Germany, 19.3 percent. Although European nations have recently moved in the direction of American practice, the distinction between continents remains unmistakable, at least for the present. With the United States considered as 1, the 1993 ratios of public social spending were:

United Kingdom	1.50
Sweden 2.54
Germany 1.91

However, with private social benefits included, the ratios drop and the United States seems less of an outsider, although it still ranks last compared with advanced European nations.

United Kingdom 1.16
Sweden 1.73
Germany 1.35

Including tax deductions and credits would reduce the disparity even more. Still United States remains distinct because it spends less on social programs and because it calibrates the balance between public and private in a different way than European nations do.

The results of public intervention in labor markets highlight other differences between U.S. and European social policy. In the 1980s and 1990s, U.S. unemployment rates remained consistently lower than those in most western European countries. This enviable situation, it was usually argued, resulted from the lighter hand of government and freer markets—specifically, the far less regulated American labor market and a low and falling rate of unionization. In Europe, the theory went, unionization kept wages artificially high and depressed employment, and welfare states that influenced the supply and demand of labor had the perverse effect of increasing unemployment.

Contrary to this conventional story, however, official unemployment rates in the United States appear lower only because they omit inmates of prisons and jails. The United States incarcerates a far higher proportion of its population than does any western European country. The average rate of incarceration in sixteen Organization for Economic Development and Cooperation countries in 1992-93 was 78 per 100,000 population. In the United States it was 519—1,947 for blacks and 306 for whites. This extraordinary U.S. figure bears no relation to differences in violent crime rates. Rather, it reflects changes in criminal justice practices, including tougher sentencing and the criminalization of drug-related activity. By correcting unemployment for incarceration, Bruce Western and Katherine Beckett have shown that the U.S. rate rises by about 2 percentage points. This corrected rate approaches rates in some European countries and exceeds those of others. Factoring in incarceration also raises the rate of joblessness and qualifies the image of economic recovery in the 1990s. About 40 percent of African American men over the age of twenty have been out of the labor force at all times during the last two decades, through prosperous times as well as recessions.

This high rate of incarceration does more than mask real unemployment and joblessness; it contributes to both by reducing the job prospects of ex-convicts. Not surprisingly, they have more difficulty finding work, and they often end up back in prison. This perverse effect of imprisonment proves especially long lasting for youth. It is true that European welfare states reduce labor force participation by making it possible to live without work. But in the process they also redistribute income and increase equality. In Europe, tax and transfer policies lift about half the nonelderly poor out of poverty. In the United States, where the figure is much lower, the dynamic is reversed. There, the impact of incarceration registers most heavily on those with the least power in the labor market—young, unskilled minority men, who are imprisoned at a far higher rate than that of any other group. As a consequence, America's de facto labor market policy, administered through the penal system, heightens poverty and increases inequality.

Still, the frustrating limits that hobble America's welfare state should not obscure its achievements. Compared to the situation at the start of the last century, public programs have dramatically alleviated the consequences of poverty and dependence. In America's cities, millions of women and men who at the start of the twentieth century would have suffered desperate poverty now, at the turn of the next century, live with a sense of security and in modest comfort. Others, although they remain poor, find survival incomparably more assured than they would have a century ago. Without Social Security and Medicare, old people suffered extraordinary poverty and lacked access to adequate health care. Without AFDC or food stamps, single mothers with children could only beg a pittance from the suspicious agents of charity. Without unemployment insurance, workers' compensation, and disability insurance, employees injured on the job or thrown out of work lacked any public source of assistance other than tiny, sporadic amounts of relief, accommodation in a poorhouse, or temporary lodging in a police station or homeless shelter; they found it hard, if not impossible, to locate private charity, which remained uncertain and inadequate. Poverty and dependence in America have never been easy or pleasant to endure, but a century ago they were immeasurably worse.


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