2-17-05, 8:51 am

The New Deal did not establish a new social contract in a formal way, but legislation that both dealt in the short-run with a far-reaching economic and social crisis and established new institutional protections and guarantees, in effect social subsidies, for the general population. The term 'safety net' is a later postwar invention. The Social Security Act, along with the Wagner Act, was passed in 1935 in the midst of a vast increase in labor organizing and militancy that had begun the year before and would last until 1938, leading to the formation of the CIO, the great sit down strikes, the organization of millions of new workers into both old and new unions and the spread of class conscious ideologies and policies through the society.

The New Deal surfed and often sought to moderate that wave. It did not, unlike previous governments, use force to drive it back. Its policies were always oriented toward saving and reforming capitalism and Social Security was part of that. But its definition of the system it was seeking to save was different than not only the present administration, but much of postwar American politics, where programs like Social Security were contained, trade unions were initially contained then sharply reduced in both influence and in the percentage of workers who belong to them, 'alternative benefit programs' were established in the supplementary pensions, private insurance based medical insurance, subsidized educational loans, to substitute for what Western Europe and other parts of the world came to call a 'welfare state.'

The present political context in the US is radically different from both the New Deal and postwar cold war influenced context with one important exception. Those who literally from the 1930s on sought to eradicate the New Deal in its entirety, to deregulate everything, demonize and eliminate social welfare institutional reforms, are moving ahead with their policies. This trend was revived in the 1980 but was only partially successful: freezing rather than abolishing minimum wages, raising social security payroll taxes and resisting benefit expansion rather than privatization. Today they are moving ahead, given what they see as their control of all branches of the federal government.

Some argue that social security is no less secure than other government programs. One could say that about the FDIC, which could collapse in a huge banking crisis, regardless of the guarantees that it makes to those with bank accounts. But should the FDIC guarantees be eliminated for that reason? Many things can be done politically to reorganize social security: from radical things of a socialist nature, for example, 'nationalizing' the various corporate and union pension funds and adding them to a reorganized system, to liberal re-establishment of a progressive tax structure and using that structure to take some of the burden of payroll taxes off current wage earners, to the fairly conservative increasing of payroll taxes and raising the age at which full benefits can be received.

One can also undertake radical right solutions of the kind that have been advocated but rarely taken seriously since the 1930s and with which Barry Goldwater flirted in 1964 with disastrous political consequences for him – some form of full or partial privatization. The brutal Pinochet dictatorship in Chile did this as part of a policy of destroying unions and basic economic and social rights that Chileans had won over generations and which Pinochet associated with the Allende government that he had just overthrown in a terroristic coup. The choices are not limited to collaborating in one way or another with the Bush administration or simply resisting it in the name of defending the status quo. We could say that social security was a social insurance plan that in the long run would and did benefit lower income people who would and did gain significantly more in benefits than they would put into the system in premiums. Abstract 'free market' speculation about how much more they would have earned if they had put the money into private investments is completely unrealistic. Most people have no investments and the increased funds that they would have had without this 'forced savings' plan would in all likelihood have gone into purchasing more consumer goods. Also, without the growing and influential labor movement which was important in both creating the program and in protecting it from those who sought to destroy it, lower income workers might not have had the extra income anyway. Even if they had managed to get an increased income, our mass consumer society fueled by endless advertising and credit (more so than in any society on earth) assures more spending than saving and investing.

We can also say that Bush’s privatization plans would reduce benefits for most workers. A rising stock market might increase benefits for higher income workers. But then this recreates, at least partially, the mutual fund and private annuity based plans of the 1920s, which along with the general bank collapse wiped out the retirement savings of large numbers of people who had invested in such plans.

Recently, British scholar Norma Cohen, published a scathing critique of the Thatcher pension privatization policy in the UK. Apparently it is rife with extensive and corrupt profiteering by British stock market firms and has caused real damage to the pensions of lower income workers, and an overall destablization of the system. In Chile, where 'privatization' was the policy of a brutal military dictatorship tutored in its economic policies by members of the 'Chicago School' of free market economists, there have also been great losses.

Indeed, 'privatization' schemes, where they have been tried in recent decades, have made matters worse. Also, except for Chile where 'privatization' was instituted at the point of a gun, the case for privatization was made based on aging populations, greater numbers of retirees, and crises in the future – crises that were based on dire predictions which, as with Thatcher’s arguments, proved false.

Of course there is an industry of Heritage Foundation/American Enterprise Institute scholars, who will open fire on such contentions. Unfortunately, these are the people who provide media with the greatest number of 'talking heads' and are now making their arguments before Congress. But these arguments can stand the fire in my opinion and hopefully contribute to decelerating the administration’s anti-social security blitzkrieg.

Also, although this may sound utopian, it might be worthwhile to raise the possibility of funding the Social Security through general revenues, thus relieving the payroll tax burden on workers and small employers, as a way to make it both more equitable and more sound.

--Norman Markowitz is a contributing editor of Political Affairs and can be reached at pa-letters@politicalaffairs.net.

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