Friedman's revenge: The reform of "liberal" welfare states in Canada and the United States

Politics and Society

Volumn 25, Issue 4, 1997, Pages 443-472

  Myles, John ^a   Pierson, Paul ^a  

^a NONE

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EID: 0031285858     PISSN: 00323292     EISSN: None     Source Type: Journal    
DOI: 10.1177/0032329297025004004     Document Type: Review

References (88)

1. Modern welfare states were largely created in the period from the 1950s through the mid-1970s. Few significant extensions of social insurance have been enacted since then. Countries like the United States that did not complete the process of welfare state building in this period continue to lack typical programs such as national health insurance and sickness benefits.
2. John Myles, "Decline or Impasse? The Current State of the Welfare State," Studies in Political Economy 26 (1988): 73-107.
3. See Paul Pierson, Dismantling the Welfare State? Reagan, Thatcher and the Politics of Retrenchment (Cambridge: Cambridge University Press, 1994); Paul Pierson, "The New Politics of the Welfare State," World Politics 48, no. 2 (1996): 143-79; John Stephens, Evelyne Huber, and Leonard Ray, "The Welfare State in Hard Times," in Continuity and Change in Contemporary Capitalism, ed. Herbert Kitschelt, Peter Lange, Gary Marks, and John Stephens (Cambridge: Cambridge University Press, forthcoming).
4. See Paul Pierson, Dismantling the Welfare State? Reagan, Thatcher and the Politics of Retrenchment (Cambridge: Cambridge University Press, 1994); Paul Pierson, "The New Politics of the Welfare State," World Politics 48, no. 2 (1996): 143-79; John Stephens, Evelyne Huber, and Leonard Ray, "The Welfare State in Hard Times," in Continuity and Change in Contemporary Capitalism, ed. Herbert Kitschelt, Peter Lange, Gary Marks, and John Stephens (Cambridge: Cambridge University Press, forthcoming).
5. See Paul Pierson, Dismantling the Welfare State? Reagan, Thatcher and the Politics of Retrenchment (Cambridge: Cambridge University Press, 1994); Paul Pierson, "The New Politics of the Welfare State," World Politics 48, no. 2 (1996): 143-79; John Stephens, Evelyne Huber, and Leonard Ray, "The Welfare State in Hard Times," in Continuity and Change in Contemporary Capitalism, ed. Herbert Kitschelt, Peter Lange, Gary Marks, and John Stephens (Cambridge: Cambridge University Press, forthcoming).
6. Sam Bowles and Herb Gintis, "The Crisis of Liberal Democratic Capitalism: The Case of the United States," Politics and Society 11, no. 1 (1982): 59-93.
7. We should note that just as it has led the way toward the NIT/GI alternative, Canada led the way in "ending welfare as we know it." The 1995 Canadian federal budget which replaced the Canada Assistance Plan (CAP) with the Canada Health and Social Transfer (CHST) anticipated many of the features of the 1996 Personal Responsibility Act passed in the United States with respect to block grants and weaker national standards for provincial social assistance programs.
8. For the classic statement on welfare for the poor, see Frances Fox Piven and Richard A. Cloward, Regulating the Poor (New York: Vintage, 1972).
9. It is important to stress that in Canada, this shift has occurred in policies for the elderly as well as for working-age families with children. To keep an already complex discussion within manageable limits, we have briefly noted the major trends in Canada but have not tried to systematically contrast the Canadian and American treatment of transfer programs for the elderly. Such an investigation would provide a very useful complement to the analysis offered here.
10. We use the term "liberal" in the classical sense to refer to policy regimes with minimal state provision and extensive means-testing. See Gosta Esping-Andersen, The Three Worlds of Welfare Capitalism (Princeton, NJ: Princeton University Press, 1990).
11. See, for instance, Michael B. Katz, In the Shadow of the Poorhouse: A Social History of Welfare in America (New York: Basic Books, 1986).
12. In the countries of Southern Europe, including France, where traditionally almost all social benefits were employment-based, modest "basic incomes" have been implemented (France, Spain, Portugal) or are under discussion (Italy) for those with no connection to the labor market. Britain has developed a program for working poor families. Family Credit, which resembles the EITC.
13. National Council of Welfare, "A Guide to the Guaranteed Income," Pamphlet (Ottawa: National Council of Welfare, 1988).
14. Keith Banting, "The Social Policy Divide: The Welfare State in Canada and the United States," in Degrees of Freedom: Canada and the United States in a Changing World, ed. Keith Banting, George Hoberg, and Richard Simeon (Montreal: McGill-Queen's University Press, 1997), 267-309.
15. Effective July 1998, low-income families will be eligible for a maximum Canada Child Tax Benefit of $1,625 for the first child (a 59 percent increase) and $1,425 for the second and each additional child. The existing supplement of $213 for each child under age seven for families without child care expenses will be maintained, bringing the maximum Canada Child Tax Benefit for children under age seven to $1,838 for the first child and $1,638 for the second and each additional child. Maximum benefits will go to families with net incomes up to $20,921.
16. The legislation would also end the Working Income Supplement (WIS), a small income supplement for the "working poor" similar to the EITC.
17. Earnings replacement rates were lowered from 57 to 55 percent but raised to 60 percent for low-income earners. The addition of a Family Income Supplement for unemployed parents with family income under $25,291 raises this figure to 80 percent.
18. United States House of Representatives, Committee on Ways and Means, Where Your Money Goes: The 1994-1995 Green Book (Washington: Brasseys, 1994), 704.
19. Rene Morissette, John Myles, and Gamett Picot, "Earnings Polarization in Canada, 1969-1991," in Labour Market Polarization and Social Policy, ed. Keith Banting (Kingston: Queen's University Press, 1995), 23-50.
20. Rebecca Blank and Maria Hanratty, "Responding to Need: A Comparison of Social Safety Nets in Canada and the United States," in Small Differences that Matter: Labor Markets and Income Maintenance in Canada and the United States, ed. David Card and Richard Freeman (Chicago: University of Chicago Press, 1993), 191 -231; Roger Love and Susan Poulin, "Family Income Inequality in the 1980s," Canadian Economic Observer, September 1991,4.1-4.13.
21. Rebecca Blank and Maria Hanratty, "Responding to Need: A Comparison of Social Safety Nets in Canada and the United States," in Small Differences that Matter: Labor Markets and Income Maintenance in Canada and the United States, ed. David Card and Richard Freeman (Chicago: University of Chicago Press, 1993), 191 -231; Roger Love and Susan Poulin, "Family Income Inequality in the 1980s," Canadian Economic Observer, September 1991,4.1-4.13.
22. John Myles and Jill Quadagno, "The Politics of Income Security for the Elderly in Canada and the United States: Explaining the Difference," in Economic Security for the Elderly: North American Perspectives, ed. Theodore Marmor and Timothy Smeeding (Washington, DC: The Urban Institute, 1994).
23. Timothy Smeeding, Barbara Torrey, and Lee Rainwater, "Going to Extremes: An International Perspective on the Economic Status of the U.S. Aged." Luxembourg Income Study, Working Paper #87, 1993. For international comparisons, "poverty" is defined as less than 50 percent of adjusted median household income.
24. Esping-Andersen's important welfare state typology is a case in point. His is a historical typology derived from actual welfare states as they developed in the postwar decades. It does not exhaust the possible range of welfare states forms and hence may be less useful for identifying new and emergent models of welfare state provision.
25. R. Kent Weaver, "The Politics of Blame Avoidance," Journal of Public Policy, 1986; Pierson, "New Politics of the Welfare State."
26. R. Kent Weaver, "The Politics of Blame Avoidance," Journal of Public Policy, 1986; Pierson, "New Politics of the Welfare State."
27. On the politics of stealth, see Grattan Gray [Ken Battle], "Social Policy by Stealth," Policy Options (1990): 17-29, and Douglas Arnold, The Logic of Congressional Action (New Haven, CT: Yale University Press, 1990).
28. On the politics of stealth, see Grattan Gray [Ken Battle], "Social Policy by Stealth," Policy Options (1990): 17-29, and Douglas Arnold, The Logic of Congressional Action (New Haven, CT: Yale University Press, 1990).
29. Our discussion in this section relies heavily on Rodney Haddow's superb Poverty Reform in Canada, 1958-78: State and Class Influences on Policy-Making (Montreal: McGill Queen's University Press, 1993).
30. Ibid, 82.
31. Croll's role in Canadian politics is similar to that of American New Deal Democrats such as Claude Pepper who cut their political teeth in the 1930s. Like Pepper, Croll headed numerous commissions and committees related to old age and poverty well into his 80s. In an interview with one of the authors, he reported that his key motive for advancing the GIS design in 1966 was his hatred of the "dole" of the 1930s - traditional means-tested welfare. Croll wished to establish a guaranteed income as a political right.
32. Haddow, Poverty Reform, 70.
33. Myles and Quadagno, "Politics of Income Security."
34. In the early 1980s, over 50 percent of seniors received some GIS benefit. The figure has subsequently declined to about 38 percent as a result of the maturation of the earnings-related Canada Pension Plan.
35. Administrative costs are mainly those associated with processing tax returns, calculating benefits, and mailing out benefit checks so that the entire process is easily computerized. With the dramatic decline in costs of computing time and data storage, administrative costs have declined further.
36. See, for example, Keith Banting, "Institutional Conservatism: Federalism and Pension Reform," in Canadian Social Welfare Policy: Federal and Provincial Dimensions, ed. Jacqueline S. Ismael (Montreal: McGill-Queen's University Press, 1985).
37. FISP would have been partially financed by cutting universal family allowances for middle-and upper-income families. Protests from the women who would have been adversely affected also played a role in defeating the proposal.
38. See Michael Mendelson, "Social Policy after the Referendum," Pamphlet (Ottawa: Caledon Institute of Social Policy, October, 1995).
39. Haddow, Poverty Reform, 185.
40. Ibid, 151.
41. Dennis Guest, The Emergence of Social Security in Canada (Vancouver: University of British Columbia Press, 1985), 200.
42. Stephen McBride, Not Working: State Unemployment and Neo-Conservatism in Canada (Toronto: University of Toronto Press, 1992), 175.
43. See Rodney Haddow, "Canadian Organized Labour and the Guaranteed Annual Income," in Continuities and Discontinuities: The Political Economy of Social Welfare and Labour Market Policy in Canada, ed. Andrew Johnson, Stephen McBride, and Patrick Smith (Toronto: University of Toronto Press, 1994), 350-66.
44. Ibid., 356.
45. The defeat was only partial, however. Wilson prevailed with respect to Family Allowances but backed down on Old Age Security in the face of large national protests from seniors and other groups. For details of this and the government's more successful initiative in 1989, see Paul Pierson and R. Kent Weaver, "Imposing Losses in Pensions Policy," in Do Institutions Matter? Government Capabilities in the United States and Abroad, ed. R. Kent Weaver and Bert A. Rockman (Washington, DC: The Brookings Institution, 1993), 110-50.
46. Ken Battle and Leon Muszynski, "One Way to Fight Child Poverty" (Ottawa: Caledon Institute of Social Policy, 1995).
47. Unlike the OAS "clawback," the income threshold for benefit reduction will be fully indexed against inflation
48. Indeed the design for the 1996 Seniors Benefit and the 1997 child benefit redesign were largely the work of Ken Battle, long-time director of the National Council of Welfare and, since 1992, president of the Caledon Institute of Social Policy.
49. On the significance of policy legacies, see, for example, Margaret Weir and Theda Skocpol, "State Structures and the Possibilities for 'Keynesian' Responses to the Great Depression in Sweden, Britain, and the United States," in Bringing the State Back In, ed. Peter Evans, Dietrich Rueschemeyer, and Theda Skopol (Cambridge: Cambridge University Press, 1985), 107-63.
50. See John Myles and Jill Quadagno, "Recent Trends in Public Pension Reform: A Comparative View," in Reform of Retirement Income Policy: International and Canadian Perspectives, ed. Keith Banting and Robert Boadway (Kingston: Queen's University School of Policy Studies, 1997), 247-71.
51. Peter Peterson, Facing Up: How to Rescue the Economy From Crushing Debt and Restore the American Dream (New York: Simon & Schuster, 1993). One notable exception is Canada's contributory Unemployment Insurance program, which has been income-tested since 1979.
52. From the 1970s to the early 1990s, child poverty and income inequality moved up and down with the business cycle but showed none of the secular increase evident in the United States. Preliminary evidence for 1995 does indicate, however, the possible beginning of an upward shift in child poverty. See Garnett Picot and John Myles, "Social Transfers, Changing Family Structure and Low Income Among Children," Canadian Public Policy 22 (1996): 244-67.
53. Quadagno, Color of Welfare, 171.
54. For good discussions of FAP, see Christopher Leman, The Collapse of Welfare Reform: Political Institutions, Policy and the Poor in Canada and the United States (Cambridge, MA: MIT Press, 1980); Timothy Conlan, New Federalism: Intergovernmental Reform from Nixon to Reagan (Washington, DC: Brookings, 1988), 19-91; Quadagno, Color of Welfare, chap. 5.
55. For good discussions of FAP, see Christopher Leman, The Collapse of Welfare Reform: Political Institutions, Policy and the Poor in Canada and the United States (Cambridge, MA: MIT Press, 1980); Timothy Conlan, New Federalism: Intergovernmental Reform from Nixon to Reagan (Washington, DC: Brookings, 1988), 19-91; Quadagno, Color of Welfare, chap. 5.
56. For good discussions of FAP, see Christopher Leman, The Collapse of Welfare Reform: Political Institutions, Policy and the Poor in Canada and the United States (Cambridge, MA: MIT Press, 1980); Timothy Conlan, New Federalism: Intergovernmental Reform from Nixon to Reagan (Washington, DC: Brookings, 1988), 19-91; Quadagno, Color of Welfare, chap. 5.
57. Jill Quadagno, "Race, Class, and Gender in the U.S. Welfare State: Nixon's Failed Family Assistance Plan," American Sociological Review 55 (1990): 19-20.
58. Quadagno, Color of Welfare, 131.
59. For a good discussion, see Jill Quadagno, "From Old Age Assistance to Supplementary Security Income: The Political Economy of Relief in the South, 1935-192," in Politics of Social Policy, ed. M. Weir, A. Orloff, and T. Skocpol (Princeton, NJ: Princeton University Press, 1988). For evidence on how these southern interests affected efforts to nationalize various antipoverty programs in the United States, see Paul Pierson, "The Creeping Nationalization of Income Transfers in the United States, 1935-1994," in European Social Policy: Between Fragmentation and Integration, ed. Stephan Leibfried and Paul Pierson (Washington, DC: Brookings, 1995), 301-28.
60. For a good discussion, see Jill Quadagno, "From Old Age Assistance to Supplementary Security Income: The Political Economy of Relief in the South, 1935-192," in Politics of Social Policy, ed. M. Weir, A. Orloff, and T. Skocpol (Princeton, NJ: Princeton University Press, 1988). For evidence on how these southern interests affected efforts to nationalize various antipoverty programs in the United States, see Paul Pierson, "The Creeping Nationalization of Income Transfers in the United States, 1935-1994," in European Social Policy: Between Fragmentation and Integration, ed. Stephan Leibfried and Paul Pierson (Washington, DC: Brookings, 1995), 301-28.
61. Quadagno, Color of Welfare, 129-30.
62. Liberal opposition to FAP had complex roots: contempt for Nixon, confidence that time was on their side since a Democrat would soon be in the White House, and fear of alienating critics on their left (including the National Welfare Rights Organization, which termed FAP "an act of oppression"). A desire to preserve state-level programs in more liberal states also played an important role. Northern liberals argued that given their comparatively generous state-level programs, their constituents would gain nothing from FAR In retrospect, the liberals' arguments look seriously flawed. The anticipated liberal revival never appeared. Northerners badly miscalculated the prospects for maintaining generous benefits in a decentralized welfare system. At the time, however, it must have seemed difficult for liberals to back a radical reform of welfare that appeared to promise so little for the northern poor.
63. As the bill became more liberal in the course of congressional deliberations, Nixon's support also became tepid at best.
64. Very little work has yet been done on the EITC. This discussion draws primarily on C. Eugene Steurle, The Tax Decade: How Taxes Came to Dominate the Public Agenda (Washington, DC: Urban Institute Press, 1992); Christopher Howard, "ATruly Exceptional Social Program: The Politics of the Earned Income Tax Credit" (paper presented at the 1992 meeting of the American Political Science Association, Chicago); Pierson, "Creeping Nationalization."
65. Very little work has yet been done on the EITC. This discussion draws primarily on C. Eugene Steurle, The Tax Decade: How Taxes Came to Dominate the Public Agenda (Washington, DC: Urban Institute Press, 1992); Christopher Howard, "ATruly Exceptional Social Program: The Politics of the Earned Income Tax Credit" (paper presented at the 1992 meeting of the American Political Science Association, Chicago); Pierson, "Creeping Nationalization."
66. Very little work has yet been done on the EITC. This discussion draws primarily on C. Eugene Steurle, The Tax Decade: How Taxes Came to Dominate the Public Agenda (Washington, DC: Urban Institute Press, 1992); Christopher Howard, "ATruly Exceptional Social Program: The Politics of the Earned Income Tax Credit" (paper presented at the 1992 meeting of the American Political Science Association, Chicago); Pierson, "Creeping Nationalization."
67. Committee on Ways and Means, U.S. House of Representatives, Background Material and Data on Programs within the Jurisdiction of the Committee on Ways and Means (Ways and Means Committee Print 102-9) (Washington, DC: U.S. Government Printing Office, 1991), 901.
68. Robert Greenstein, Center on Budget and Policy Priorities fund-raising letter, 6 October 1993, Center on Budget and Policy Priorities Archives, Washington, DC, p. 1.
69. Republican support has been revealed on a number of occasions. The White House included EITC expansion in its initial tax reform proposals in the mid-1980s (key advisor Richard Darman reportedly "loved" the tax credit). Representative Thomas Petri (R-Minnesota) spearheaded an effort to substitute EITC expansion for a Democrat-proposed increase in the minimum wage in 1987. Petri and others succeeded in convincing the party to endorse EITC expansion in the 1988 Republican platform. Howard, "Exceptional Program," 28, 30-1.
70. See James Milton Harmon, "Mega-Bills and Ideas in the Growth of the Earned Income Tax Credit" (undergraduate thesis, Harvard University, March 1994).
71. On the causes and consequences of these budget-centered "mega-bills," see Joseph White and Aaron Wildavsky, The Deficit and the Public Interest: The Search for Responsible Budgeting in the 1980s (Berkeley and Los Angeles: University of California Press and Russell Sage Foundation); Steuerle, The Tax Decade. On the case of the EITC, see Harmon, "Mega-Bills," and Christopher Howard, "Happy Returns: How the Working Poor Got Tax Relief," The American Prospect 17 (Spring, 1994): 46-53.
72. On the causes and consequences of these budget-centered "mega-bills," see Joseph White and Aaron Wildavsky, The Deficit and the Public Interest: The Search for Responsible Budgeting in the 1980s (Berkeley and Los Angeles: University of California Press and Russell Sage Foundation); Steuerle, The Tax Decade. On the case of the EITC, see Harmon, "Mega-Bills," and Christopher Howard, "Happy Returns: How the Working Poor Got Tax Relief," The American Prospect 17 (Spring, 1994): 46-53.
73. On the causes and consequences of these budget-centered "mega-bills," see Joseph White and Aaron Wildavsky, The Deficit and the Public Interest: The Search for Responsible Budgeting in the 1980s (Berkeley and Los Angeles: University of California Press and Russell Sage Foundation); Steuerle, The Tax Decade. On the case of the EITC, see Harmon, "Mega-Bills," and Christopher Howard, "Happy Returns: How the Working Poor Got Tax Relief," The American Prospect 17 (Spring, 1994): 46-53.
74. On the causes and consequences of these budget-centered "mega-bills," see Joseph White and Aaron Wildavsky, The Deficit and the Public Interest: The Search for Responsible Budgeting in the 1980s (Berkeley and Los Angeles: University of California Press and Russell Sage Foundation); Steuerle, The Tax Decade. On the case of the EITC, see Harmon, "Mega-Bills," and Christopher Howard, "Happy Returns: How the Working Poor Got Tax Relief," The American Prospect 17 (Spring, 1994): 46-53.
75. Ways and Means Chair Al Ullman (D-Oregon), another harsh critic of guaranteed annual income proposals, was also influential. Howard, "Exceptional Program," 13-14.
76. On the recent politics of the EITC, see R. Kent Weaver, Ending Welfare as We Know It (Washington, DC: Brookings, forthcoming), chap. 12.
77. See Paul Pierson, "The Deficit and the Politics of Domestic Reform," in New Democrats and Anti-Federalists: The Politics of Social Policymaking in the 1990s, ed. Margaret Weir (Washington, DC: Brookings and Russell Sage Foundation, forthcoming).
78. Though commonplace in the literature, identifying such programs as Beveridge-inspired is somewhat misleading. The flat-rate Beveridge design implemented in Britain was based on the contributory principle not citizenship.
79. See Jill Quadagno, "Social Security Policy and the Entitlement Debate in the First Clinton Administration: The New American Exceptionalism," in Clinton and the Conservative Agenda, ed. Michael Schwartz and Clarence Lo (New York: Blackwell, forthcoming).
80. On European trends, see Myles and Quadagno, "Recent Trends." One of the chief concerns of the U.S. Advisory Committee on Social Security is the low "rate of return" on contributions for middle-and upper-income contributors. Thus the aim of many Committee members is to restore "equity" to the system either through privatization or the creation of personal security accounts so that middle-and upper-income earners get their "money's worth" out of the system. For a good nontechnical discussion of the various Committee proposals, see Joseph Quinn, Entitlements and the Federal Budget: Securing Our Future (Washington, DC: National Academy on Aging, 1995).
81. On European trends, see Myles and Quadagno, "Recent Trends." One of the chief concerns of the U.S. Advisory Committee on Social Security is the low "rate of return" on contributions for middle-and upper-income contributors. Thus the aim of many Committee members is to restore "equity" to the system either through privatization or the creation of personal security accounts so that middle-and upper-income earners get their "money's worth" out of the system. For a good nontechnical discussion of the various Committee proposals, see Joseph Quinn, Entitlements and the Federal Budget: Securing Our Future (Washington, DC: National Academy on Aging, 1995).
82. In both countries, UI benefits have had a less sacrosanct status, both because fewer citizens expect to receive them and because concerns about work incentives have made the "deservingness" of recipients less unambiguous.
83. In the past, higher EITC benefits for the working poor were won partly as an offset to higher contribution rates (FICA taxes) for Social Security. Again, however, existing contribution/benefit structures create much less room for the United States than Canada to move toward more NIT-type programs. Relative to Canada, U.S. payroll taxes for Social Security (and Medicare) are very high, offering less opportunity for future trade-offs of this sort.
84. Canada's welfare state has also been shaped by the interests of regional economic actors, but the heavy reliance of Canada's poorest regions on seasonal, resource-extraction industries has led these areas to favor generous national social benefits, especially unemployment benefits, which support workers during slack periods. Thus the Canadian economy has not developed regional pockets where firms attempt to gain an edge by keeping social wages lower than those of their competitors in other regions.
85. Michael C. Wolfson and Brian B. Murphy, "Kinder and Gentler: A Comparative Analysis of Incomes of the Elderly in Canada and the United States," in Economic Security and Intergenerational Justice: A Look at North America, ed.Theodore R. Marmor,Timothy M. Smeeding, and Vernon L. Greene (Washington, DC: Urban Institute Press, 1994), 227-61.
86. Battle and Muszynski, "One Way to Fight Child Poverty."
87. Picot and Myles, "Social Transfers." As indicated earlier, this may now be changing. Child poverty rose as expected following the recession of 1990-1991. The rate fell in 1994 as recovery set in but rose unexpectedly once again in 1995.
88. Indeed, this process is now underway. Traditional means-tested social assistance programs have been cut in many provinces since the early 1990s. Further downward pressure is expected as a result of the 1995 federal budget, which ended the Canada Assistance Plan and replaced it with the Canadian Health and Social Transfer (CHST). Reduced unemployment benefits and sharp reduction in UI coverage will also increase demands on the new programs for children.