"The Future Will Require Concessions": An Interview with David Stoesz

Weekly Article
June 30, 2016

Is a dynamic welfare state possible in the United States? And what would it look like? And how might we create it?

Kean University’s David Stoesz set out to examine some of these questions in 2013, publishing the policy paper The Rise of The Dynamic Welfare State in concert with New America. The piece served as a book manuscript, as Stoesz was selected to continue his research on the topic as a Fulbright Scholar at the University of Birmingham. In this capacity, he wrote the book The Dynamic Welfare State, published early 2016. Tracing the rise of social programs in 20th century America and their precipitous post-Reagan decline, Stoesz argues in his book that a new kind of social safety net has taken shape in their place: Social markets, described as systems combining free market capitalism with the distribution of social goods and services, have become a defining feature of how the U.S. pursues its citizens’ welfare. Established by the Affordable Care Act, state health insurance exchanges are just one example of this design. Though vulnerable to manipulation by powerful interests, Stoesz sees hope in this pluralistic system. He maintains, however, that for the welfare state to function with greater efficacy—or dynamism—certain reforms of social and political economy are needed.

We spoke briefly with Stoesz about what those changes would be.

In your book The Dynamic Welfare State, you theorize that the evolution of the welfare state in the U.S. has occurred in three phases. Could you give some background on these stages?

In the book, I frame the development of the welfare state in three parts. Welfare 1.0 was borne out of the Progressive Era, a hundred years ago. It consists of social insurance programs, such as Unemployment Insurance, Medicare, and Social Security—programs designed to be universal and self-financing. Welfare 2.0 began with the [Lyndon B.] Johnson Administration in the 1960s, and consisted of public assistance programs specifically for low-income households. These programs, including [Temporary Assistance for Needy Families, Supplemental Security Income, and Supplemental Nutrition Assistance Program], are often operated and funded in part by states. Consequently, they tend to be fragmented in how they operate and the benefits that they provide.

Welfare 3.0 can also be traced back to the Johnson Administration. Wanting to provide healthcare to people, but on the cheap, Johnson agreed to having private physicians reimbursed for caring for Medicare and Medicaid patients. One result of this was that health industry investors realized that there was a huge market. They began creating hospital management firms and exploiting it. Now, certain sectors that weren’t conceivable decades ago, from welfare to corrections, are awash with private actors in what I describe in the book as social markets.  

Would you care to explain how the rise of private firms exploiting social markets has affected policy making (i.e. the political pressure system: think tanks, lobbyists, PACs, etc.)? What are some reforms that could address this issue?

Commercial operators want to make money off of social services and it’s possible given the free market. Eventually, to protect their interests, they develop trade associations, which hire lobbyists to influence public policy. Big harma and others have used lobbyists and campaign contributions to alter the dynamics through which we have traditionally created policy in order to make a profit. Instead of reflexively opposing capitalism, advocates of social welfare would better consider hybrid approaches, such as social entrepreneurship, to achieve progressive ends.

In an open society, any number of institutions can be employed to advance social welfare—government, nonprofits, and corporations—the future will be defined on how creative we are in undertaking that task. In the book, I propose three themes—mobility, empowerment, and innovation—along with specific policy proposals. It’s important to recognize that the future will require concessions from liberal Democrats as well as conservative Republicans.

You note that social programs, apart from Social Security and Medicare, are problematic in that they have sometimes harm to those they are intended to help. Consequently, many initiatives have lost credibility with the public. Would you provide an example of how the welfare state has failed to achieve desired outcomes? Could you elaborate on how such issues could be mitigated in the future?

Take asset limits in public assistance, for example. In most states, to receive benefits you can’t have more than $2,000 in assets. That includes life insurance, a burial plot, savings, and sometimes even the value of a car. The result of this policy is that once a person is even minimally prosperous their benefits are cut off, which contributes to the poverty trap.

Another example is the deinstitutionalization movement in the treatment of mental health. A network of community health centers were supposed to replace deteriorating hospitals, but that never materialized. Instead, jails became the de facto public institution through which we treated mental illness. As public institutions, they faced chronic underfunding. States addressed this through the privatization of the prison system, which we now know contributes heavily to the school-to-prison pipeline and disproportionately impacts young men of color.

To address flawed social programs, we have to acknowledge when they have failed and eliminate them. Though most were created with good intentions, we must be more rigorous in our examination of social programs and admit when they have caused harm. Going forward, we should apply an evidence-based approach to the development of policy.

On the other hand, private enterprise doesn’t always have the public interest at heart. In your book, you discuss the rise of for-profit universities and alternative financial services as a response to the new markets stemming from increased financial fragility. How do we ensure that social markets are on the level?

There are three options that I mention in the book. The first is prohibition. But, as history can attest, the results of prohibition are usually not optimal. We can use regulation. With this, hazards arise that are similar to those of prohibition. A hazard accompanying regulation is regulatory capture in which agents of regulated industries are hired to be sentinels, an obvious conflict of interest; but a more ominous possibility also evolves, which is state capture where government becomes an instrument of corporations. In regards to for-profit universities, regulation, like prohibition, doesn’t address the issue of demand. For example, people with low incomes have a difficult time accessing traditional higher education. If you’re part of the rising precariat, the commitment of time and resources required to attend a four-year institution may not appear to be a wise investment. Whereas, low-income people may see for-profit colleges as providing a benefit that will pay off reasonably well in the short term.

Inclusion is the third option, which I believe should be the default option because it deals with what citizens believe will address their aspirations and lead to upward mobility. Inclusion might involve a form of self-regulation. Industries could develop best-practices and guidelines and hold members accountable. In addition to meeting demand, this has the appeal of increasing the legitimacy of those participating. If inclusion doesn’t work in a particular industry, regulation may be necessary.

Another issue with the welfare state that you point out is that it was designed in the industrial era by individuals who couldn’t have anticipated the demographic and economic realities of the 21st century. You say it’s time to modernize the welfare state. What does that look like to you? What are the benchmarks of success?  

Well, that’s my next book. Talking about strategies [for creating social policy] is easy, developing the specific policies can be a challenge. For one, we’re going to need to address the legacy commitments to older Americans like Medicare and Social Security. How I focus on doing this in the book that I’m currently writing is by transitioning [from a welfare state model] to an investment state [model], which is common among European nations.

We’re also going to need to think about the shift from an industrial economy to a service economy. Right now, the working poor are left to fend for themselves to access disjointed benefits programs. These programs are incredibly inadequate and inefficient, but maintained at public expense. Have you ever been to a welfare department? They’re a bureaucratic nightmare. If we charter public schools, why not welfare departments? We could put together community organizations interested in accelerating the mobility of the community; create something resembling a credit union to manage welfare offices. Otherwise, we have a minimum wage, why not a minimum benefit [plan]? And, periods of employment for 3 or 5 year segments might reduce some volatility in the labor market. There are a range of options and significant room for innovation.

This conversation has been condensed and edited for clarity.