Emergence of North America’s Liberal Welfare States

by astanhaus

Originally submitted for an independent research project comparing North America’s welfare states with Professor Antonia Maioni at McGill University.

    Industrialization turned what were once rural, intimate communities into urban, anonymous cities. Capitalism’s limitations became apparent to the unemployed, disabled and elderly, who were unable to add value to the capitalist system and were treated accordingly. As suffrage expanded, social policies began to emerge in the North American countries of the U.S. and Canada. These policies upheld North American liberalism and would reflect an integration of social rights into one’s understanding of citizenship.  By 1940, the liberal welfare states of The United States of America and Canada had emerged, as both countries attempted to correct the market limitations of capitalism by institutionalizing welfare.

          Capitalism’s invisible hand lacked a market solution for those who were unemployed, disabled or elderly. Marx would critique that a commodity’s value is a function of the amount of labor used in production.[1] Therefore, if one was unable to participate in the labor force, they were of no value to the capitalist system and were treated as such. Liberal democracies proceeded to institutionalize welfare production, discontinuing the welfare tradition of the private, familial sphere.[2] Capitalism created factory work that was standardized and impersonal, and so too would liberal democracies produce welfare in times of market failure.

        The welfare states that began to emerge as a reaction to industrialization embodied North America’s liberalism. As Banting and Myles explain, while liberal welfare states encourage citizens to rely on the market for economic security, liberal welfare states acknowledge the limitations of the private market, and provide a safety net for the poor.[3]  This development aligned with the power resources model, which describes institutionalized power struggles, “as a struggle between the logic of the market and the logic of politics.”[4] North American liberal welfare states emerged and provided for those unable to participate in the capitalist system’s labor force.

        The U.S.’s welfare state emergence is unique to its history. Following the Civil War, the federal government created a pension system for disabled veterans and dependents of slain soldiers. By the turn of the century, Orloff explains that this social program would morph “into de facto old-age and disability pensions that provided coverage for some one million elderly Americans.”[5] What started out as a necessity for reconstruction, became a political asset and patronage opportunity. Orloff notes that, the U.S.’s “mass electoral democratization preceded state bureaucratization…[therefore] the civil administration was not protected from partisan use, and parties could use government jobs and resources for patronage.”[6] Generally, as countries democratized, Pierson similarly notes, “there is a strong correspondence…between the coming of male universal suffrage and the earliest development of social insurance.”[7] Yet, due to lack of support from Progressive Era politicians, as corruption allegations made patronage systems politically infeasible, the Civil War pension system was not expanded upon and would not be replaced at the federal-level until the 1935 Social Security Act.[8] The Civil War pension system was the first glimpse of a liberal welfare state in the U.S..

           The North American liberal welfare states emerged by addressing income insecurity associated with the capitalist system. Orloff notes the western world’s debate at the time was, “over what the state should do in the face of the increasingly well-publicized problems of income insecurity.”[9] By 1919, thirty-eight states would implement workers’ compensation legislation.[10] According to Guest, “The Ontario Workmen’s Compensation Act of 1914 was Canada’s first piece of social insurance providing compulsory income protection against one of the major risks to the continuity of income in an industrial society– work-related sickness, disability, or death.”[11] Furthermore, enacting a workmen’s compensation law signaled a change in outlook–income security was a right, not an act of charity.[12] Even though this was a monumental reform, this simply was not the most that could be done. Guest notes Roy Lubove’s conclusion  “that compensation laws met the employers’ needs more completely than those of the wage earner, whose real need was for a comprehensive measure to protect him from the risk of earning loss arising from disability or disease regardless of the cause.”[13] Typical of a liberal welfare state policy, the U.S. and Canada tentatively corrected for market failures with workers’ compensation programs.

        Canada successfully enacted the national Old Age Pension Act in 1927. Rice and Prince describe this social assistance legislative milestone, as it provided a means-tested pension to Canadians over 70 years old and the federal government reimbursed 50% of a participating province’s  program expenses.[14] Kudrle and Marmor explain the difference in political timing needed to successfully enact an old age security program in Canada compared to the U.S.:

in Canada, the introduction took place at a time of relative prosperity, while in the United States it came only with the depths of the depression. The Liberals…went on record as favoring national pensions in 1915, and although a means-tested flat grant pension scheme was not actually introduced until 1927 by the Liberal Government of Mackenzie King, the idea had encountered little opposition. In contrast, only Theodore Roosevelt’s 1912 campaign presented social insurance as a national issue in the United States, and until the passing of the Social Security Act in 1935, pensions as a national policy were actively opposed by virtually all major politicians and trade union leaders.[15]

While the need and the political philosophy of a liberal welfare state was present in both countries, the nuances of ideology, party system and special interest groups resulted in Canada instituting the first national old age security program.

        As women gained political influence in society, which would lead to the expansion of suffrage, the welfare state expanded to include mothers’ pensions. Provinces began to expand suffrage to women in the early 20th century, and Guest notes, “it is hardly a coincidence that provincial schemes of mothers’ pensions … should follow in such short order the granting of the franchise to women.”[16] Similarly, by 1919, thirty-nine states had instituted mothers’ pensions, reflecting the steady expansion of  suffrage for women state-by-state; Berkowitz describes this justification: “mothers’ pensions supplied widows with money to keep the family going and functioned as an investment in ‘home life,’ ‘the highest and finest product of civilization,’”[17] Yet again, suffrage was correlated with the expansion of  North American liberal welfare states.

          The Great Depression exposed the extreme flaws of capitalism, and its legacy would further develop North American welfare states. Pierson explains the motivation to institutionalize welfare,  because extreme events of the Great Depression showed:

it was impossible to sustain actuarially sound social insurance under circumstances of profound economic recession… demand for social expenditure (especially unemployment compensation) was inversely related to the capacity of the economy to fund it… to respond to this problem by cutting social expenditure would simply intensify rather than alleviate these economic problems.[18]

Traditionally, social policy was a provincial responsibility, but the Great Depression was an extreme case and the federal government provided temporary unemployment relief.[19] The Great Depression discredited America’s traditional approach of welfare capitalism, yet President Roosevelt proceeded with caution.[20] Orloff elaborates on Roosevelt’s approach,

planning for social insurance initiatives was undertaken immediately, but no legislation was proposed by the administration. In contrast, the president introduced federal emergency relief legislation almost immediately upon taking office, thus responding to the plight of the unemployed–and to the not inconsiderable protests of [the overwhelmed] state and local welfare officials.[21]

 Berkowitz notes Roosevelt’s nuanced approach that would result in the creation of the Works Progress Administration: “if it was necessary for the government to provide relief, Roosevelt believed it should take the form of jobs, rather than straight handouts.”[22] The Great Depression drastically affected both countries; the reaction of each country reflected their own tradition of social policy development.[23] Kudrle and Marmor note Christopher Leman’s generalization: “Canada proceeds in a steady deliberate fashion…whereas the United States tends to move only with a ‘big bang.’”[24]  While following their own traditions, subsequent North American emergency relief embodied the principles of a liberal welfare state.

          Once emergency relief was implemented, Franklin Delano Roosevelt’s administration sought to implement long-term social insurance policies for both the elderly, as well as the unemployed; as Kudrle and Marmor would note, in “the depths of the depression.”[25] FDR and his administration’s members were products of the Progressive movement, and that experience would influence the good government and fiscal responsibility aspects of the social insurance programs they would create.[26] Berkowitz elaborates:

Roosevelt’s advisors regarded old-age insurance, their social insurance proposal, as a dignified alternative to the state pensions, such as the one in Ohio, that nonetheless would not bankrupt the government. Their plan would take the form of a guaranteed contract–an insurance policy–into which workers and their employers made regular contributions and from which they received regular monthly retirement benefits from the federal government beginning at age 65.[27]

Orloff explains the final product, “the U.S. social insurance program for the aged received no financial input from federal coffers, a logical outcome of Roosevelt’s concern to preserve a sharp distinction between social assistance and social insurance programs.”[28] In addition to social insurance for the elderly, the law also created an unemployment insurance system that was state operated and federally coordinated.[29] The Social Security Act of 1935 was the crowning achievement of FDR’s New Deal; America’s liberal welfare state had emerged, as both the unemployed and elderly had insurance for times of market failure.

          During the Great Depression, Canada also sought to implement a long-term program to provide income security to workers during times of a market failure’s unemployment. Prime Minister Bennett’s Employment and Social Insurance Act of 1935 was primarily a system of unemployment insurance copied from the British legislation of 1935.[30] Specifically, Guest explains, “the act required compulsory coverage of all employees over the age of sixteen and earning less than $2,000 per year…A minimum contribution period of forty weeks within a two-year period was required before the worker could claim thirteen weeks of benefit.”[31] This legislative milestone reflected the changing mindset of the time, as unemployment became a national, economic problem, not a local, personal problem.[32] Yet, the Supreme Court of Canada and the Privy Council of Great Britain declared this act unconstitutional, finding that the federal government had intruded on what was a provincial responsibility.[33] Canada recognized the necessity for a federal role in social insurance, so in 1940, Section 91 of the British North America Act was amended; Guest explains that now “the federal government [had] exclusive jurisdiction over legislation in the field of unemployment insurance, the first modification of the original distribution of social service responsibilities.”[34] Following this amendment, the liberal government of Prime Minister Mackenzie King enacted the Unemployment Insurance Act of 1940, which was very similar to both Bennett’s and British legislation, except that “benefits and contributions were wage-related, as opposed to the flat-rate system.”[35] The Great Depression of the 1930s exposed the need for federal involvement in social policy; Canada’s “steady deliberate fashion” coincidentally instituted yet another social policy during “a time of relative prosperity,” namely 1940.[36] Once the British North America Act was amended to reflect the modern federal role in social policy, unemployment insurance became a reality for Canadians.

          The North American countries of the U.S. and Canada revolutionized and institutionalized welfare production, as their countries industrialized and market limitations of capitalism became apparent. The emergence of North America’s  welfare states signaled a collective change in conviction; T.H. Marshall explains that in the twentieth century  social rights were incorporated into the status of citizenship.[37] FDR’s “Four Freedoms”  speech, which would prepare Americans for the notion of entering World War II, echoed this understanding of social rights, “freedom means the supremacy of human rights everywhere. Our support goes to those who struggle to gain those rights or keep them. Our strength is our unity of purpose. To that high concept there can be no end save victory.”[38] The U.S. and Canada created their own unique liberal welfare states to correct the market limitations of capitalism; their advanced view of social rights would contribute to a justification to enter–and positively impact the outcome of–World War II.

[1] Christopher Pierson, Beyond the Welfare State? : The New Political Economy of Welfare (Cambridge: Polity, 2006),12.

[2] Dennis Guest, The Emergence of Social Security in Canada ( Vancouver: University of British Columbia Press, 1980), 2.

[3]Keith Banting and  John Myles, “Introduction: Inequality and the Fading of Redistributive Politics,” in  Inequality and the Fading of Redistributive Politics, eds. Keith Banting and  John Myles (Vancouver: University of British Columbia Press, 2013), 4.

[4] Pierson,30-1.

[5] Ann Orloff, “The Political Origins of America’s Belated Welfare State,” in The Politics of Social Policy in the United States, eds. Margaret Weir, Ann Orloff and Theda Skocpol  (Princeton: Princeton University Press, 1988), 38.

[6] Ibid, 44.

[7]Pierson, 112.

[8] Orloff, 39 & 59.

[9] Ibid,52.

[10] Ibid, 53.

[11] Guest, 39.

[12] Ibid.

[13] Ibid, 46.

[14] James J.Rice and Michael J. Prince, Changing Politics of Canadian Social Policy (Toronto; Buffalo: University of Toronto Press, 2000), 52.

[15] Robert Kudrle and Theodore Marmor, “The Development of Welfare States in North America,” in The Development of Welfare States in Europe and America, eds. Peter Flora and Arnold J. Heidenheimer (New Brunswick: Transaction Books, 1981), 92.

[16] Guest, 51.

[17] Edward D. Berkowitz, America’s Welfare State: From Roosevelt to Reagan (Baltimore: Johns Hopkins University Press, 1991), 96.

[18] Pierson, 121.

[19] Guest, 87.

[20] Orloff, 65.

[21] Ibid, 69.

[22] Berkowitz, 15.

[23] Kudrle and Marmor, 91.

[24]Ibid.

[25] Ibid, 92.

[26] Orloff, 70.

[27] Berkowitz, 20.

[28] Orloff, 73.

[29] Kudrle and Marmor, 95.

[30] Guest, 88.

[31] Ibid.

[32] Ibid, 89.

[33] Ibid, 106.

[34] Ibid.

[35] Ibid.

[36] Kudrle and Marmor, 91 & 92.

[37] T. H. Marshall, Class, Citizenship, and Social Development (Garden City: Doubleday,1964), 96.

[38] Franklin D. Roosevelt, “Four Freedoms,” Franklin D. Roosevelt Presidential Library and Museum, January 6, 1941, http://www.fdrlibrary.marist.edu/pdfs/fftext.pdf.