The Birth Of Social Security

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This so-called Wisconsin Plan was greatly and glowingly publicized by its proponents, including AALL’s leadership, who stressed its conservative “Americanism.” The measure, said Commons, should appeal to the “individualism of American capitalists who do not want to be burdened with the inefficiencies or misfortunes of other capitalists, and it fits the public welfare policy of a capitalistic nation which uses the profit motive to prevent unemployment.” But the “capitalists” whom Commons was so concerned to propitiate showed no grateful enthusiasm for this effort on their behalf: Wisconsin’s industrialists resisted the law’s application to them as long as they could, ultimately forcing a year’s postponement of the date the law went into effect. Equally negative, for opposite reasons, was the response of intellectual leaders of the social insurance movement. Epstein and Douglas, among others, pointed out that the Wisconsin Plan, with its combine of individual reserves and merit rating, assumed that American “capitalists” operating individually did or could control economic forces which in that very year had produced massive and growing unemployment. The assumption obviously was false: the individual business, even when large, now showed itself (even proclaimed itself) as much a victim of general conditions, and almost as helpless in the face of them, as the individual worker who lost his job.

Nor was the Wisconsin Plan long vithout a rival. It soon was chalenged by a clearly defined alternative—a so-called Ohio Plan, announced in November, 1932, in the form of proposed legislation, by an Ohio commission on unemployment having Rubinow as its key “idea” member.

Reflecting Rubinow’s views, the Ohio Plan differed from the Wisconsin Plan in that it would establish a single pooled fund under full public control instead of individually segregated reserves under employer control; it required contributions to the fund from employee as well as employer, the former contributing one per cent and the latter two per cent of the recorded employee wage; and it would pay the unemployed worker half his weekly wage (but up to fifteen dollars instead of Wisconsin’s ten) for sixteen weeks (instead of Wisconsin’s ten). The proposal soon gained more adherents among serious students of social welfare than had the Wisconsin Plan. But, conversely, it was more strongly opposed by the business community. The Ohio Chamber of Commerce promptly published (December, 1932) a “critical analysis” in which the proposed legislation was denounced as “the most menacing and revolutionary” in Ohio’s history—an “attempt to foist upon the United States foreign ideals and foreign practices” that threatened “complete disruption of our American system of individual responsibility.”

There were criticisms, too, from the liberal side. Epstein and Douglas, for instance, though immensely preferring the Ohio to the Wisconsin plan, were sure that the failure to require governmental participation was a serious defect.

Some of Epstein’s sharp criticisms of individual firm reserves and merit rating evidently had some effect upon Raushenbush and, through him, upon initial New Deal planning for social insurance. In the fall of 1933, seven months after Roosevelt moved into the White House and Frances Perkins became Secretary of Labor, Raushenbush came from Madison to Washington for the express purpose of persuading the administration to promote adoption by the states of mandatory unemployment compensation laws. But he was far less insistent that these laws slavishly follow the Wisconsin model than might have been expected. Instead, he proposed to give the states ample leeway for innovation and free choice between salient features of the Wisconsin and Ohio plans. He placed his greatest emphasis upon an ingenious device developed by his fatherin-law, Mr. Justice Brandeis, for federal inducement of the desired state action. It called for a federal payroll tax upon employers equivalent to 5 per cent of the total wages paid employees, but with the proviso that, in states adopting mandatory unemployment-compensation laws meeting the minimum standards, employers could deduct from the federal tax whatever contributory payments they made under the state acts. This not only would stimulate state adoption of mandatory unemployment insurance, it also would protect employers in states having such laws against unfair competition from employers in states not having them.

The idea was first presented by Raushenbush to a group of young New Dealers (Thomas G. Corcoran was one of them) and pro-New Deal businessmen (including Edward A. Filene) at a meeting in Brandeis’ apartment. Mr. Justice Brandeis was not there: perhaps he absented himself out of deference to

the constitutional separation of powers. But his idea moved quickly and persuasively into the minds of Raushenbush’s auditors and received, a day or so later, the tentative blessing of Secretary of Labor Perkins. Raushenbush and a Labor Department lawyer then drafted along the indicated lines a bill which was introduced in the U.S. Senate by Wagner, and in the House by Maryland’s David J. Lewis, in February, 1934; it was endorsed by Roosevelt a month later.

The presidential approval, however, soon proved to be halfhearted and tentative. No more than the Dill-Connery old-age bill did the Wagner-Lewis unemployment bill receive effective White House backing. Like Dill-Connery, it languished in congressional halls, never coming to a floor vote.