A ripple of economic anxiety passed through middle America this spring when a bankrupt United Airlines ditched its pension obligations and General Motors announced it would cut 25,000 jobs. That's capitalism, you may say: Individual companies rise and
fall, and America's prosperity should never be equated with their fortunes. But United's abandonment of its pensions and GM's deepening troubles highlight a larger worry that ought to be a focus of our politics.
The old corporate America that took responsibility for workers' pensions and health care is dying, and the nation's political leadership has hardly taken notice of the implications.
The rise of corporate social protection had a huge impact, and so will its decline. Conservatives long touted employer-provided pensions and health plans as the private alternative to big government -- the very epitome, supposedly, of the American way. Liberals were ambivalent: Although employer beneﬁts provided security for many workers, especially in unionized industries, corporate America's New Deal left out millions of other Americans and weakened support for national health insurance.
Now corporate social protection is shrinking -- for many Americans, simply disappearing -- and there is no immediate prospect of public programs ﬁlling the void.
The conservatives' remedy is to take privatization one degree further by transferring obligations for retirement and health insurance from corporations to individual employees. The 401(k) plans and health savings accounts exemplify this approach; both enable employers to shed risks they assumed decades ago and are being sold to the public as ways of creating more “choice.” And, of course, the president wants to move Social Security in the same direction, transferring even more risk to individuals.
The trouble with these approaches is that individuals have much less ability than a large fund to spread risks, whether of failed investments or of failing health. Although some workers may invest their 401(k) accounts brilliantly, others make disastrous errors such as not diversifying; the evidence shows that, on average, professionally run pension plans get better returns.
The story on health savings accounts is worse. Health insurance works only because the healthy subsidize the sick; individual accounts enable those who are lucky enough to stay healthy to accumulate their own insurance money, separate from the pool. But just for that reason, the unlucky who get sick have to pay more out of their own pockets, or go without care. If your idea of health-care reform is to shift costs from the healthy to the sick, the health savings accounts are for you.
The individual-account model has had one great success: It has enabled conservatives to pretend to be reformers. But, amid the decline of employer-provided beneﬁts, there is little chance this approach will provide a genuine, long-term solution to the problems of health-care costs and retirement security.
The decline of corporate social provision, however, is also a problem for liberal reformers who have sought to build on private-employer plans. It is one thing to propose building on a stable employer-based system, but quite a different thing when that system is failing, as it is in health care. Many companies have given up hope of controlling health costs and want a way out of their intermediary role; 5 million fewer jobs brought health coverage in 2004 compared with three years earlier. The Detroit automakers have long said they spend more on health care than on steel, and that the expense is a big competitive disadvantage. It's not all their fault: The U.S. health system is by far the world's most expensive, and ﬁrms that provide full family coverage pay for those that don't (for example, when a GM employee's spouse works at Wal-Mart).
Ironically, the private corporations that provided their own New Deal in health care would have been better off with the public one that Democrats offered years ago. Without governmental action to control costs and spread them fairly, the generous social beneﬁts once provided by corporate America are unsustainable.
Writing in The New York Times, Gregg Easterbrook recently ascribed the Detroit automakers' decline to what Joseph Schumpeter called capitalism's “gales of creative destruction.” If Detroit falls, however, those gales would hit the auto workers, retirees, and their families -- and possibly bring down the private New Deal, too. The United Airlines ﬁasco has provided an instructive lesson on the rationale for Social Security. Likewise, the collapse of GM would be a wake-up call to Americans who thought they could depend on employer-based health care. If that shock reopened the way to national health insurance, it would be creative destruction, indeed.
Paul Starr is co-editor of The American Prospect.