How has the American welfare state responded to economic hard times throughout its history? For two reasons, the question is hard to answer. No consensus exists on the definition of the American welfare state, a concept that remains for many an oxymoron. Even more, the attempt to identify common responses among the components of a welfare state with a mixed public/private economy of local, state, and federal governments as well as private charities and employer-provided benefits appears presumptuous, if not mad. The question is important because the welfare state has played an important role in both moderating and exacerbating inequality. The task of designing social policy for the current age of inequality requires that we understand how. This article takes up the challenge aware of the pitfalls in the path of a coherent answer.

I begin with an overview of the origins and architecture of the American welfare state and take a broad, risk-centered view of welfare that embraces both public and private sectors. I then turn to the interaction of this welfare state structure with periods of economic recession. A short article such as this can only be suggestive, not definitive; a thorough examination of the topic would require a much longer and more detailed account. But the accumulation of research on the history of the American welfare state leads the author to conclude that none of the social science theories of welfare state development explain the history of America’s distinctive welfare state or its actions in economic hard times. Rather, the explanation lies in the responses of local, state, and federal governments to the configuration of four factors: the social structure of poverty and risk, political coalitions and alignments, preexisting policies and institutional structures, and ideas about poverty and political economy.

Together, the intersection of these four factors over time highlights the limits of America’s social contract and truncated version of social citizenship. There is no right to housing, work, income, or, yet, for adults under the age of sixty-five, to medical care. First-class citizens become party to the social contract by earning its benefits. Others remain outside, kept alive by the charity of the state and second-class medical care or by a penal system that substitutes for welfare. In hard times, these limits to the social contract become brutally clear.Footnote ¹

THE ORIGINS AND ARCHITECTURE OF THE AMERICAN WELFARE STATE

“Welfare” is the most pejorative term in the American social policy lexicon. It is applied in a narrow, disparaging manner and refers mainly to public assistance. But the common definition of welfare is myopic. “Welfare” originated as a positive term in the early twentieth century. It signified attempts to professionalize and modernize old practices of relief and charity. This positive connotation of “welfare” and “welfare state” lasted through the New Deal of the 1930s and even through the 1940s. In 1949, an editorial in the Saturday Evening Post cautioned critics to avoid the term in discussions of President Harry Truman’s proposed extension of social benefits. “The opponents of such a system,” the magazine wrote, “have an excellent case, but they do not help it by adopting precisely the words which put it in a favorable light. ‘Welfare’ is the key word. Who’s against welfare? Nobody. . . . Fighting an election by opposing welfare is on a par with taunting an opponent for being born in a log cabin.”Footnote ²

“Welfare” and “welfare state” came under attack in two stages. In the late 1940s and 1950s, as part of the Cold War, opponents associated them with European socialism and un-American ideas. Then, in the 1960s, as unmarried women of color with children began to dominate public assistance roles, “welfare” acquired the combined stigmas of race, gender, and illicit sex.Footnote ³

This narrow, pejorative use of welfare obscures its true meaning and inhibits understanding of the American welfare state. In their original sense—as used from the early twentieth-century through the post–World War II years—the terms “welfare” and “welfare state” referred to a collection of programs designed to assure economic security to all citizens by guaranteeing the fundamental necessities of life: food, shelter, medical care, protection in childhood and old age. The welfare state is how a society ensures against the risks inherent in human life—unemployment, poverty, sickness, and old age—that in one way or another confront everyone. This risk-centered, or economic security–centered, definition underlies the historical and structural interpretations in this article.

The American welfare state confronts universal risks with a distinctive architecture—much broader and more complex than is usually realized. It is not usefully described as either public or private. Instead, its economy is mixed, and its composition reflects American federalism—the division of powers between the federal government and the states. The American welfare state consists of two main divisions, with subdivisions within each. Each of the subdivisions is rooted in a different location in American history and to some extent has followed its own trajectory over time. The contemporary structure of the American welfare state only can be understood as a result of historical processes working sometime in tandem but more often independently over the course of the nation’s history. This history has produced a rickety, uncoordinated structure that defies rationality and that no sane person would have planned.Footnote ⁴ In the description that follows, the bracketed divisions are ones that I am in the process of adding to the welfare state architecture laid out at greater length in The Price of Citizenship: Redefining the American Welfare State.

The first division is the public welfare state. Its subdivisions are public assistance, social insurance, taxation, public education, and veterans’ benefits. Public assistance, the oldest form of “welfare,” consists of means-tested programs. Its origins lie in the Elizabethan poor laws, which the colonists brought with them in the seventeenth century. Embodied in “outdoor relief,” aid given to people in their homes rather than in an institution, public assistance has a long and controversial history. For centuries, it has been widely despised; local governments at times abolished it, but, always, driven by human misery, it managed to return. Although subject to state law, public assistance, with a few exceptions, was administered locally, usually by counties. In the early twentieth century, state governments introduced a new form of public assistance, mothers’ pensions, small amounts of money given to a limited number of worthy widows. During the Great Depression of the 1930s, the federal government for the first time introduced two public assistance programs paid for with matching state-federal funds. They were Old Age Assistance, by far the largest until it was superseded in the 1950s by the expansion of Social Security (discussed below) and Aid to Dependent Children, a federalization of state mothers’ pensions, which in 1962 became Aid to Families with Dependent Children (AFDC), or what most Americans referred to as “welfare.” State and local governments also have administered their own public assistance programs. Usually referred to as “General Assistance,” these programs, already narrowly bounded and mean, were drastically reduced in the 1980s and never recovered.

A fierce critic of public assistance, President Richard Nixon surprised both his supporters and critics by proposing to replace AFDC with the Family Assistance Plan, a variant of a negative income tax or guaranteed annual income. Opposed by conservatives, who objected in principle, and welfare rights advocates, who thought its benefits inadequate, the plan died. Instead, in 1974, Congress bundled public assistance for the indigent elderly, blind, and disabled into a new program, Supplemental Security Income.Footnote ⁵

In 1996, welfare reform legislation—the Personal Responsibility and Work Opportunity Reconciliation Act—was passed overwhelmingly by both the House of Representatives and Senate with bipartisan support and signed into law by President Bill Clinton on August 22. The legislation capped a long process of negotiation between Clinton and the Congress and drew on widespread hostility to public assistance. The legislation, which reoriented public assistance around what was called the transition to work, abolished the quasi-entitlement to public assistance embodied in AFDC. Its overarching goal was a job in the regular labor market. States could meet this goal by contracting out welfare administration to private providers.

The law replaced AFDC with a program called Temporary Assistance for Needy Families (TANF). TANF has two major components. Both are block grants to states intended to help families leave welfare. One gives cash to families in need to support their children while they look for work and discourages them from having any more children outside marriage. The other bundles together money for major child-care programs for low-income families. Two features of the new legislation attracted the most attention. One time-limited public assistance to a lifetime benefit of five years, although states could set shorter limits if they wished. The other took benefits away from legal immigrants who had been in the United States less than five years; again, states could impose even harsher restrictions on immigrants than the federal government. (Prodded by President Clinton, Congress restored some, but by no means all, of these benefits to immigrants in 1997 and 1998). One other important aspect of the bill was its emphasis on increasing payment of child support by absent fathers.

Following the new legislation, welfare rolls dropped by more than half. Supporters of “welfare reform” hailed this decline as testimony to the bill’s success. With little debate, Congress inserted even tougher work requirements into the legislation’s reauthorization, included as part of the Deficit Reduction Act signed by President George W. Bush on February 8, 2005. Many observers, however, were not sure that the drop in the welfare rolls resulted only from the new rules or that it should be the measure of the success of welfare reform. The decline, which had begun before the passage of the 1996 bill, reflected three major influences: job growth in a strong economy, individuals either discouraged from applying or sanctioned off the rolls, and work incentives. Moreover, leaving welfare did not mean escaping poverty. Many of the jobs held by former public assistance recipients paid poorly, lacked health and retirement benefits, and did not offer avenues for advancement. In short, a very large proportion of poor women with children exchanged public assistance for working poverty. Some researchers estimated that at most 10 percent to 20 percent of former welfare recipients earned enough to leave poverty permanently.Footnote ⁶

Social insurance, whose origins lie in nineteenth-century Europe, constitutes the second subdivision in the public side of the American welfare state. Social insurance programs are not means-tested. They provide benefits to everyone who meets certain fixed criteria, such as being sixty-five years of age. They are based on a rough insurance analogy because potential beneficiaries pay premiums in advance. They have been either federal, state, or federal-state programs. Always much more generous than public assistance, their benefits increased at a more rapid rate over time. The result is that the gap between them and public assistance has progressively widened.

States, not the national government, introduced the first social insurance programs, beginning with Workers’ Compensation in the early twentieth century. A few states developed old-age or unemployment insurance. Federal social insurance emerged in a burst during the Great Depression with the Social Security Act of 1935, which introduced a complicated federal-state program of unemployment insurance and a federal program of old-age insurance known as Social Security. Workers’ Compensation remained a series of state programs. At first, the new federal programs were restrictive. Social Security excluded agricultural and domestic workers, which meant most African Americans and women, and did not pay benefits until 1940. Initial benefits were low. Subsequent amendments extended Social Security to survivors (mainly widows) and to previously excluded groups. Congress added disability benefits in the 1950s; benefit levels rose markedly in the 1960s; and in 1972, Congress linked them to inflation.

In the burst of social spending during the Great Society years from the mid-1960s through the early 1970s, Congress passed a major extension to social insurance: Medicare, health insurance for the elderly, along with Medicaid, a medical public assistance program for the poor. Largely as a result of Social Security’s benefits, the elderly, who, as late as 1960, had a poverty rate three times that of any other age group, by the late 1970s were the least likely to be poor, while Medicare and Medicaid transformed access to medical care for the elderly and poor. In recent years, the rising cost of health care, the decline in the proportion of former workers receiving pensions, and the stock market collapse have combined to erode the economic security of older Americans among whom the inequality trend has reversed direction and started to increase.

Taxation is the third division of the public welfare state.Footnote ⁷ Low-income people receive benefits indirectly through tax credits given to businesses and real estate developers to create jobs and housing. But the most important program is the Earned Income Tax Credit. Started in 1975, the EITC was expanded greatly under President Bill Clinton in the 1990s. It supplements the income of workers whose earnings fall below a predetermined level. The EITC costs more than AFDC ever did and more than TANF does now. It has effectively boosted people from slightly below the poverty line to just above it. The national government also uses tax credits to encourage the construction of low-income housing and to try to entice businesses and industries into the deindustrialized cores of American cities.Footnote ⁸

Tax breaks also are the major source of middle-class welfare. They operate through the deductibility of home mortgage interest from income taxes and the exemption of employer-provided medical benefits from taxation. These are huge benefits. The home-owner mortgage deduction is much larger than the amount spent on housing subsidies for people with low incomes.Footnote ⁹ Forgone taxes on medical benefits amount to many billions of dollars. In one way or another, at some point in their lives, if just through Social Security, the welfare state touches every American. Only it touches some Americans with more generosity than others.

(The public welfare state contains two more divisions: public education and veterans’ benefits. Both have long histories. In its modern form, public education originated in the second quarter of the nineteenth century. Veterans’ benefits date to the early days of the republic, but they first became a major and controversial program after the Civil War.Footnote ¹⁰ Their origins and subsequent history have shaped the features of both public education and veterans’ benefits today. Each constitutes a huge, redistributive package of benefits that share characteristics with both public assistance and social insurance. My first attempt to integrate public education into the welfare state, “Public Education as Welfare,” is in the summer 2010 issue of Dissent; I plan to add veterans’ benefits in the near future.)Footnote ¹¹

The private welfare state has two main subdivisions. The first consists of charities—some of which stretch far back into American history—and social services. Contrary to American myths, this private welfare state never has been adequate to relieve the needs of individuals and families without adequate health care, income, or housing. American governments operate relatively few services themselves. Instead, they have responded to social needs by funding private agencies. In the nineteenth century, for instance, many nominally private orphanages were supported primarily by state government funds. Some charities are old, stretching far back in American history; others are much newer, while social services expanded as a consequence of federal legislation in the 1960s. As they began to receive a large share of their budgets from federal, state, and local governments, the character of nominally private agencies and social services changed. In effect, they have become government contractors, dependent for survival on government support.Footnote ¹²

The second subdivision in the private welfare state consists of employee benefits.Footnote ¹³ More than six of ten Americans receive health insurance through their employers. Many receive retirement pensions as well. Although a few businesses and governments provided pensions before World War II, employee benefits developed into mass programs only in the 1940s and 1950s. They were the product of strong trade unions, which were legitimized in 1935, when Congress passed the Wagner Act. Trade unions’ decision to fight for a private welfare state for union members rather than for universal public programs cemented the link between benefits and employment, but it also gave unionized American workers an unprecedented standard of living and economic security.Footnote ¹⁴ Fought for by trade unions, employee benefits received government sanction from 1949 decisions of the National Labor Relations Board, which required employers to bargain over (though not to provide) them. Employee benefits fit within the framework of the welfare state because they have been encouraged by the federal government, which allows employers to deduct their cost from taxes, and are regulated by federal legislation. Without them, the public welfare state would have assumed a strikingly different form. In recent decades, the percentage of workers covered by health insurance and retirement benefits has decreased. Employees pay much more for their health care than in the past and receive it through some variant of a group health-care plan. In the private sector, most pensions now require defined contributions, which leave future benefits to the vagaries of individual investment decisions and the market, rather than as in the past offering defined benefits, which guaranteed the income employees were to receive in retirement.

(A vast, complicated array of informal social protections constitutes the third division of the private welfare state. Philadelphia’s “recovery houses,” described by Robert Fairbanks II in How It Works: Recovering Citizens in Post-Welfare Philadelphia, provides an example.Footnote ¹⁵ Fairbanks unearths a set of nominally private institutions that serve some of the city’s most impoverished and marginalized residents. The recovery houses have no legal standing. They exist beyond the framework of city- or state-administered regulations. Yet they perform a vital role by saving money for the city government, which, in their absence, would need to find some means of preventing recovery house residents from starving or freezing to death. They also serve a police function by containing and monitoring potentially disruptive or unlawful activities. Thus, they are at once agents of survival and social control. Although they are private, their revenue derives almost entirely from government: residents turn over their state welfare checks, SSI payments, and food stamps. The operators of the houses, often themselves former addicts, aggregate these to buy food and meet operating expenses. Informal social protection of course is not unique to the present or to the United States. Examples can be found throughout modern history, and today it is ubiquitous throughout the world and has been written about most interestingly by scholars who focus on non-Western countries.)Footnote ¹⁶

In the 1980s, public social policy coalesced around three great objectives that began to redefine the American welfare state. The first objective was ending dependence—not only the dependence of young unmarried mothers on welfare, but all forms of dependence on public and private support and on the paternalism of employers. The second objective was to devolve authority, that is, to transfer power from the federal government to the states, from states to counties, and from the public to the private sector. The third was the application of market models to social policy. Everywhere, the market triumphed as the template for a redesigned welfare state, attenuating the already fragile social contract. Used loosely and often unreflectively as the organizational model toward which public programs should aspire, the market model emphasized competition, privatization, and a reliance on supply and demand to determine policies and priorities. Examples are the replacement of AFDC with TANF and the shift to managed health care and defined contribution pensions; other examples are found everywhere throughout the public and private welfare states.Footnote ¹⁷

None of the forces redefining the welfare state originated in the 1980s, but in those years they burst through older tendencies in public policy and joined to form a powerful and largely bipartisan tide. With only a few exceptions, political arguments about the welfare state revolved more around details than great principles. An exception was the battle over the future of Medicare and Social Security, which escalated during the administration of George W. Bush. Conservatives wanted to move both programs toward privatization, which would fundamentally change the model on which they were built, but massive public opposition prevented Bush’s plans for Social Security from reaching the floor of Congress.

With Medicare, Bush had partial success. On December 8, 2003, he signed the controversial Medicare Modernization Act, which introduced a prescription drug benefit known as Medicare Part D. Instead of a uniform benefit administered by Medicare, the Bush scheme relied on private insurers to offer plans that fit the program’s guidelines. The legislation forbade Medicare to negotiate directly with drug companies for lower prices, as the Veterans Administration did. It exempted low-income seniors from premiums, moving those eligible for Medicaid into the new drug program and reducing premiums for others with near-poverty incomes, but it handed extra dollars to insurance companies for seniors—many of them Medicaid recipients with little choice—enrolled in Medicare Advantage Plans (managed-care plans that combined medical and prescription benefits). Medicare paid these private health plans about 12 percent more than it would cost to care for the same patients in the traditional Medicare program. In its first year in office, the Democratic congressional majority proved unable to lift the prohibition on negotiating drug prices or to scale back the advantages granted private insurers. It did not even attempt to alter the complicated prescription drug plan, which left many seniors still paying thousands of dollars each year for their medications. The escalation of health-care costs combined with growing numbers of uninsured and underinsured Americans pushed health care to the top of the national domestic agenda, making it a key issue in the 2008 presidential election. President Barack Obama promised to bring national health insurance to Americans, an accomplishment that had eluded every American president with the same goal, starting with Harry Truman. In April 2010, with passage of the Patient Protection and Affordable Care Act, he succeeded. (Among its many provisions, the act will close the infamous “doughnut” hole in the Medicare prescription drug plan and scale back the privileges of Medicare Advantage Plans.) Health care, nonetheless, remained firmly in the market, its expanded benefits to be delivered through private insurance companies, albeit with their freedom to reject applicants with preexisting conditions, drop clients, and raise premiums at will curtailed.

Its history left the American welfare state with a set of distinctive characteristics. These were a mixed public/private economy; benefits shaped and constrained by constitutionally based federalism; a sharp division between public assistance and social insurance, with the most generous benefits reserved for the latter; a preference for delivering benefits through the tax code; and a link between benefits and work in the regular labor market. Together, these features worked to equate full citizenship and membership in the social contract with market work and, thereby, to stratify Americans into first- and second-class citizens, leaving those in the second class particularly vulnerable to hard times.

WELFARE IN HARD TIMES

The features of America’s rickety, uncoordinated welfare state originated from so many different points in the nation’s past and developed along such independent routes that it would be unreasonable to expect a singular interpretation of its response to hard times. None of the theories of welfare state development advocated by political scientists or sociologists explains the messy, complicated whole. By picking selectively, one could argue that welfare benefits expanded and contracted in keeping with economic cycles.Footnote ¹⁸ Or, one could root welfare state development in a “path dependent” process linked to the development of governmental institutions.Footnote ¹⁹ A third approach would capture welfare state history within a typology of national political regimes.Footnote ²⁰ Another would see gender as the key to the story, another America’s diversity and the reluctance to extend kindness to strangers.Footnote ²¹ All these interpretations are useful and heuristic, but partial. Exceptions render them less than universal. A more promising approach to unraveling the connections between the welfare state and hard times begins on the ground, looking closely at historical cases. This approach unearths a series of conditions whose configurations shape the links between welfare and economics at different points. These are the social structure of poverty and risk, political coalitions and alignments, preexisting policies and institutional structures, and ideas about poverty and political economy. One generalization that does seem to hold, however, is that fiscal crises of the local state are bad for public assistance—and, as a consequence, for the poorest Americans.

Because the social structure of poverty and risk shapes responses to economic hardship, the first policy question is, Who is poor? Are they like us, or are they different? What markers do we use to distinguish between the deserving and undeserving poor?

The distinction between the deserving and undeserving poor stretches far back into history. The identity of the undeserving poor has changed with the times, but the assumption that they have brought their poverty on themselves has endured.Footnote ²² By definition, the undeserving poor have not evoked much public sympathy. The goal of public policy, for the most part, has been to keep them alive at the lowest possible cost and, when possible, to improve their morals and change their behavior. Both public officials and representatives of charity have worried endlessly about moral hazard, fearing that too generous benefits would encourage laziness and dependence. The principle of less eligibility, the idea that benefits offered the dependent poor never should allow them to live as comfortably as the working poor, has hovered over responses to need for centuries, defining one boundary of America’s social contract. The great villain was outdoor relief, the practice of aiding individuals in their homes rather than in institutions, relabeled “welfare” in the second half of the twentieth century.

The relentless war against outdoor relief intensified during economic hard times. The economic recession of 1819–21, for instance, was the backdrop for the first major push to substitute public poorhouses for outdoor relief. It was a policy only partially successful. In fairly short order, virtually every county in the United States had a poorhouse, but outdoor relief remained ubiquitous, while the cost of housing the dependent poor in poorhouses proved more costly than aiding them in their homes. “Scientific Charity,” a movement that attempted to substitute “scientifically” administered private charity and behavioral reform for outdoor relief, flourished during the first fifteen years or so of the long depression of 1873–96. Proponents of Scientific Charity succeeded in persuading ten of the nation’s fourteen largest cities to abolish outdoor relief; by the early twentieth century, though, these cities had discovered that relief was indispensable and reinstated it.Footnote ²³ Jumping nearly a century for the next example, the real value of AFDC benefits, federal-state public assistance to women with children, began their downward slide during the stock market crash of 1973 and subsequent recession. Rather than evoke sympathy for the dependent poor, hard times worked in the opposite way, with a new war on the poor escalating in the early 1980s during the presidency of Ronald Reagan, a time when states were slashing General Relief, the term for state-level outdoor relief.

Race and gender reinforced antipathy toward the dependent poor. In the antebellum years, the color of dependency often was Irish—Irish immigrants were seen as racially distinct. After the 1960s, the color was largely black and female. Today, it increasingly includes Mexican. Xenophobia, racism, and gender bias all have been at work in viewing the dependent poor with hostility, even fear, rather than with compassion. They remain strangers, the “other,” outside the orbit of our reflexive sense of responsibility and the terms of the nation’s limited social contract with its citizens.Footnote ²⁴

In some time periods, economic hardship has traveled up the social ladder. In these years, public policy has responded differently. When hard times hit just the poor, the welfare state contracts; when they sting the middle classes, benefits often expand. This is an irony of welfare state history. When people like us, indeed our families and ourselves, have been in trouble, innovations in the structure of public benefits and amendments to the social contract, not just extensions of public assistance, have resulted. The first example from American history is the Social Security Act of 1935, enacted during the worst depression in American history. What made the Great Depression so devastating was its reach. It cut the economic rug out from under professionals, business owners, and white-collar workers who never had experienced downward mobility on such a massive scale. It exposed the risks inherent in modern business cycles; unemployment clearly was not just a consequence of moral failure—and in the life course—the desperate circumstances of widows with young children and of the elderly whose lack of savings could not be attributed to lack of thrift.

President Franklin D. Roosevelt first responded to economic crisis with massive and unprecedented programs of federal relief. But within a few years, his administration replaced them with temporary programs based on work relief and erected the scaffolding of the federal welfare state. In the process, he cemented the distinction between public assistance and social insurance in public policy. The two major social insurances were Unemployment Insurance and Social Security. The new social structure of poverty and risk—its extension up the social ladder—had provoked the New Deal’s expansion and redefinition of the welfare state.

The collapse of middle-class welfare distinguishes the recession that began in 2007 from all others in the post–World War II era. With the burst of the real estate bubble, home prices eroded; with the stock market plunge, pensions lost their value. This undermined the principal assets held by most Americans. The crisis in the automobile industry rippled through the economy, throwing not only skilled, previously well-paid auto workers out of work but also executives, salespeople, suppliers, and owners of dealerships. At the same time, the financial industry imploded, casting huge numbers of financial analysts and other well-educated, high-salaried employees out of their condos as well as their jobs. Unable to pay their monthly mortgage bills, increasing numbers of families lost their homes, while financial institutions that had purchased their mortgages teetered on the verge of collapse, rescued only by federal corporate welfare. The escalating cost of health care, which also reached far up the social-class ladder, worsened the impact of collapsing assets and growing professional and managerial unemployment. Even individuals with health insurance faced not only rising premiums but limitations on covered services that left them with huge bills; as a result, medical expenses led all causes of personal bankruptcy.Footnote ²⁵

The collapse of middle-class welfare accelerated the march away from the Republican Party and left voters responsive to the promise of an activist government offered by all the 2008 Democratic candidates for president. Middle-class anxiety also fueled the drive for health-care reform. The proposal put before the House of Representatives in July 2009 called for mandatory insurance with subsidies for small businesses, a public option, and the continuance of Medicaid for Americans too poor to afford health-care premiums. The unwillingness of even the House, whose bill was more generous than the Senate’s, to break down the barrier between public assistance and social insurance in health care spoke volumes about the class structure of America’s welfare state and of its social contract as well.Footnote ²⁶

It spoke volumes, too, about the politics of welfare state history. How the American welfare state responds to economic hard times depends on political alignments as well as on the class structure of poverty and risk. A case in point is the occasional coincidence of interest between business and labor. Workers’ Compensation laws passed by state governments early in the twentieth century offer the first example. Businesses found themselves sued successfully and with increasing frequency by injured workers. Workers wanting compensation for injuries had to endure a long, expensive legal process. With neither business nor labor able to predict expenses or benefits, their mutual interests provided the impetus for state governments to enact Workers’ Compensation laws. However, because the power of the parties was asymmetrical, the new laws favored business. To be sure, labor’s situation improved, but business held the upper hand.

Today, both business and labor share a joint interest in national health insurance. The president of Wal-Mart and the president of the SEIU, the national service workers’ union, a pair normally at odds, joined forces to mount a national campaign.Footnote ²⁷ While the cost of health care hurts ordinary working Americans, it also consumes an enormous share of business costs—the cost to General Motors of making cars in the United States is higher than in Canada, where employers do not pay for employees’ health care.Footnote ²⁸ With the resources of big business and labor yoked together, unprecedented momentum grew for some variant of national health insurance, although, as in the case of Workers’ Compensation, asymmetries of power left labor with less than it wanted and excluded a public option, which could have checked the advantages of private insurers.

Other examples of the interaction of political coalition building with welfare state development are legion. In fact, throughout American history, politicians periodically have used relief and welfare to forge electoral coalitions. When the votes of the poor, minorities, or trade unions mattered, politicians appeared solicitous of their needs and interests. The iconic image of local political machines dispensing patronage in return for votes undoubtedly reflects urban political democracy, especially in the nineteenth and early twentieth centuries. Decades later, the Democratic Party’s need for black votes in the cities influenced President Lyndon B. Johnson’s decision to launch a war on poverty. (Even though the mid-1960s was in general a time of prosperity, for African Americans it continued the hard times that had marked their history from the origins of slavery through the centuries that followed.)

In the Great Depression, the Democrats’ reliance on working-class votes fueled the passage of the Wagner Act, the legislative charter of trade unionism, and, in 1938, the Fair Labor and Standards Act, which introduced the minimum wage and regulated hours of work. However, by the mid-1950s, as labor’s political power began its long decline, trade unions lost much of their influence on the development of the American welfare state. In Congress, unions could not stave off anti-union legislation. The decline in union density, under way in the 1960s, accelerated after 1980 in the face of a virulent corporate-led attack manned by a new professional army of specialists in preventing and decertifying unions. As a result, unions found themselves virtually without the ability to halt the decline in real wages or the reduction in medical and retirement benefits. The only benefit the unions won during subsequent recessions was an extended duration for unemployment insurance benefits.Footnote ²⁹

When the votes of the poor, minorities, or trade unions do not matter so much politically, politicians reconfigure their sympathies and seek support by attacking the waste, fraud, and abuse that allegedly corrupt public assistance and other welfare state programs. For a long time, politicians have ridden to power on antirelief or welfare platforms. In the nineteenth century, for example, Seth Lowe’s leadership in the campaign to abolish outdoor relief in New York City during the economically depressed 1870s helped set him on the course that led eventually to the mayoralty of Brooklyn and then of New York City. In the 1960s, in depressed Newburgh, New York, the mayor’s antiwelfare militancy, which garnered national media coverage, boosted his local political popularity.Footnote ³⁰ On a national scale, in 1980, antiwelfare rhetoric proved part of presidential candidate Ronald Reagan’s appeal and it helped Republicans, whose 1994 “Contract with America”—an ironic twist on the usual understanding of the social contract—slashed ferociously at welfare.Footnote ³¹

Most of the time, politicians do not need the votes of poor people, and since the mid-1930s the Democratic Party has taken their support pretty much for granted. Poverty evokes little public interest or political response. It has remained off the national political agenda for a long time. As an issue, it lacks traction, as candidate John Edwards’s abortive attempt to inject poverty as a core issue into the 2008 presidential election revealed. Most Americans appear indifferent or hostile or have other issues they consider more important. In fact, in hard times, state and city governments put meager cash benefits and services directed to the poor on the chopping block, as in New York City’s mid-1970s fiscal crisis, or in cash-strapped California in 2009, when Governor Arnold Schwarzenegger threatened to cut state welfare grants for children and old people, or in Philadelphia in 2008, when the mayor, confronted by a budget crisis, proposed to close eleven public libraries, all in poor sections of the city where residents relied on them for access to computers as well as books, or in states that scaled back tax credits for low-income families.Footnote ³²

Aside from the search for votes, the threat of unchecked populism, social disorder, and violence have moved politicians to extend public benefits. In the early 1930s, militant unemployed workers councils, often organized by the American Communist Party, influenced the speedy implementation of federal relief programs.Footnote ³³ The popularity of right-wing populists like Huey Long and Father Coughlin added urgency to the administration’s search for ways to dampen public anger and lessen misery. In the same years, the hardships of old age precipitated a movement demanding national pensions. The far left advocated for the radical Lundeen Bill. The Townsendites garnered support in Congress as well as among the elderly for a pension of $200/month given to all individuals sixty-five and over on the condition that they spend it during the month. Fear that the Townsendites could prevail in Congress accelerated the administration’s introduction of the Social Security bill.Footnote ³⁴ In the 1960s, the War on Poverty and Great Society programs resulted from both Democrats’ need to capture black urban votes and from the fear of violence and disorder that pervaded American life in the wake of massive urban riots.

State response to working-class militancy has taken rougher forms, too, with repression substituting for relief. During the Gilded Age, employers hired private armies and state governors called out militias to repress striking workers brutally, shooting many dead. In the wake of urban disorder in the 1960s and early 1970s, city governments militarized their police forces and ramped up surveillance. State governments passed draconian sentencing laws, built new prisons (welfare for the construction trades), and pushed the United States’s incarceration rate to number one in the world. Prison became the new welfare state for black males, who remained for the most part ineligible for public benefits.Footnote ³⁵

Beside the social structure of poverty and political imperatives, preexisting policies and institutional structures have helped shape welfare state development. Architects of welfare benefits never design on a blank slate. Political scientists use the terms “path dependence” and “policy feedbacks” to highlight the influence of past experience, political coalitions, and already existing institutions and policies on the construction of welfare state programs.Footnote ³⁶ Political scientist and sociologist Theda Skocpol, for instance, advocates a “structured polity” or “political process approach,” which emphasizes a process she and other students of American political development call “policy feedback,” the way in which “policies, once enacted, restructure subsequent political processes.” Policy feedback works in two ways: first, by transforming or expanding “the capacities of the state,” new policies “change the administrative possibilities for official initiatives in the future, and affect later prospects for policy implementation.” Second, “new policies affect the social identities, goals, and capabilities of groups that subsequently struggle or ally in politics.” The importance of policy feedback means that any attempt to explain social policies must be historical, “sensitive to processes unfolding over time.”Footnote ³⁷

Even economic crises do not allow public officials to innovate without constraints. The structure of American federalism, for instance, constrained virtually every one of the New Deal’s legislative initiatives. New Dealers worked in the shadow of a Supreme Court that had found state regulation of workers’ hours unconstitutional. How could they design relief policies and social insurance programs that would not break on the constitutional limits of national power as defined by the courts? The architects of the New Deal maneuvered carefully to avoid successful constitutional challenges to Social Security, Unemployment Insurance, Old Age Assistance, and Assistance to Dependent Children.Footnote ³⁸ The strange shape of the programs that resulted reflected this effort to fit new federal initiatives, unforeseen by the Constitution’s fathers, into a form that would pass muster with the Supreme Court.

In the 1960s and 1970s, path dependence also channeled the expansion of social services through the historic network of private charities. The national government did not create new public agencies to deliver services; instead, it funneled most new money into private agencies. More recently, path dependence and existing structures constrained the debate over health insurance. Long-standing hostility to anything thought to smell of “socialized medicine” kept a single-payer system of health insurance off the negotiating table.Footnote ³⁹ Instead, political viability required reform plans to deliver most benefits through existing private insurance companies, even though their administrative costs, far higher than the administrative costs of public programs, add huge expense to a system whose costs must be contained. Examples could be multiplied, but the point should be clear. Welfare state responses to economic hard times depend on the prior history of policies, the structure of existing programs, and constitutional and political constraints.

They also depend on ideas. Economic crises become intellectual crises. Events overwhelm existing paradigms. As economic theories crumble, their replacements necessitate rethinking explanations of poverty, the role of the state, the nature of the social contract, and the design of welfare. The depression of 1893, for instance, imploded the theory of Scientific Charity, discrediting moral definitions of poverty, blanket hostility to public relief, and exclusive reliance on private charity. The nascent social sciences emerged out of the ashes of failed ideas inadequate to comprehend the emergent urban-industrial world. A more contextual approach to poverty, the modern concept of unemployment, advocacy of a more vigorous public role, the professionalization of social work, and the first tentative steps toward social insurance replaced the paradigm of Scientific Charity.Footnote ⁴⁰

The Great Depression of the 1930s undermined economic orthodoxy, paving the way for Keynesianism and the bundle of programs associated with New Deal liberalism. But the economic crisis and stagflation of the early and mid-1970s discredited both of them, clearing a path for the conservative economic and political theory that had been quietly developing for decades.Footnote ⁴¹ The new paradigm justified rolling back as much of the welfare state as possible, devolving public responsibilities to the private sector, attacking dependency, and applying a market template to social policy

In the worldwide economic and financial crisis that began in 2007, this market fundamentalism, to use George Soros’s term, collapsed under the weight of its own inadequacy, the victim of its own success.Footnote ⁴² Only this time no counter theory commanding wide consensus was waiting just offstage. The successful penetration of both political parties by market orthodoxy left alternatives undeveloped.Footnote ⁴³ Still, the widespread recognition that markets have limits and the renewed willingness to believe that government might be the solution, not the problem, clears the ground for a more robust and inclusive idea of social citizenship and an expanded social contract. Whether the opportunity will be seized or squandered remains to be seen.

History is not a predictive discipline. Although it is essential for understanding the present, history grants no special expertise at discerning the future. Even so, the current configuration of the four factors accounting for the response to hard times by America’s rickety, poorly coordinated, incomplete, and class-skewed welfare state provides some analytic purchase on figuring out where it might go during this economically bleak era. So I will go out on the predictive limb that, usually, I refuse to straddle.

The current recession has altered the social structure of poverty and risk by undermining middle-class welfare and eroding working-class wages and benefits. Not since the Great Depression of the 1930s has economic insecurity moved so high up the economic ladder.Footnote ⁴⁴ The new class dynamic of risk already has prompted initiatives to address some of the underlying sources of economic insecurity, notably in health care but, as well, through the economic stimulus program and proposed consumer protection agency. If the middle class does not recover lost ground, we can expect to see more direct interventions, but if these fail, the public backlash could be ferocious. The capture of a Massachusetts Senate seat could be just the beginning.

The most significant new political alignment joined corporate and labor leaders around the demand for national health insurance. With this coalition behind it, some form of national healthcare reform became more likely to pass than at any earlier time, although it did not seriously erode the favored position of private health insurers or replace the link between employment and health benefits. It did, however, preserve the two-tier pattern of benefits that separates social insurance and public assistance, with the nonworking and dependent poor still stuck in second-class citizenship, where they are likely to remain indefinitely.

Corporate and labor leaders may support national health insurance, but they part company on labor law reform. Without strong trade unions, workers are unlikely to reverse the slide in wages and benefits that they have endured since the mid-1970s. Unions have pinned their hopes on the Employee Free Choice Act, which would make it easier and less dangerous for workers to unionize. But the coalition supporting the EFCA is not as broad or strong as the one that promoted health-care reform, and it is vigorously opposed by business interests that have invested huge amounts of money in its defeat. The EFCA will be a hard sell, even though, in the long run, it may be the single most powerful tool, short of public financing for elections, available for expanding the role of the welfare state in protecting working Americans.

Preexisting institutional structures are sure to guide most of the programs responding to economic hardship. The national government is rescuing and propping up the existing banking and financial system, surrounding it with new regulations, to be sure, but leaving its core unscathed; similarly, as noted already, the existing employer-provided system of health insurance, administered through private insurance companies, provides the template for most health-care reform. There is no move toward revamping public assistance, for instance, by replacing it with a guaranteed income. Instead, rubbing some of the roughest edges off TANF will be about as far as public assistance reform will go. More change will happen in programs that combat homelessness. Here a body of sophisticated research and examples of successful programs point to likely new directions for policy. Besides, local governments want to get the homeless off their streets.

Liberated by the discrediting of market fundamentalism, the middle-class welfare state may emerge stronger from the current hard times; protection against some risks may improve; the boundaries of the social contract may relax a little. With luck, some benefits will spill down the class ladder and better the conditions of the poor as well. But we can be pretty confident that at the end of the recovery that will follow the recession, the poor, in large numbers, will still be with us.