Breaking Soil

Coming to a period in his discourse, President Roosevelt tossed his head back, looked down his nose at the gathering before him and announced emphatically: "I have not changed my opinion."

The opinion the President had not changed was the one set forth in his extraordinary message to Congress last June. At that time he declared in favor of legislation to provide "security against several of the great disturbing factors in life-especially those which relate to unemployment and old age...." Thereafter he appointed a Committee on Economic Security, which in turn gathered around it a group of expert advisers to plow the virgin field of "social security" and raise a fruitful crop of legislative ideas. Last week's White House meeting which the President addressed was, in a sense, a general breaking of hard tough soil.

On hand to clear the ground and pull the stumps of controversy were such eminent gentlemen as William Green of the American Federation of Labor, Thomas Kennedy of the United Mine Workers, Mayor LaGuardia of New York City, Harold W. Story of Allis-Chalmers Manufacturing Co., not to mention a small army of professors, physicians, health officials and social workers. Some of the conferees were so excited by the prospect of the broad field before them that they wanted to gallop right out and start plowing before the President had determined the distance or direction of the furrows. One such was Relief Administrator Hopkins who fired the conference by impatiently exclaiming:

"We have all heard a lot about the demoralizing effects of the dole system. If the crowd on the lower end of the picture gets a dole, why, that's terrible! And yet I spoke to a man recently who never worked a day in his life. And what a dole he gets from checks, dividends, interest payments and the like! Perhaps $500,000 to $600,000 a year. We've got to bring those two types of dole closer together....

"I am convinced that now is the hour to act, and by a bold stroke, we'll get it. For the life of me I can't see why we should wait until kingdom come to give security to the workers of America."

But President Roosevelt was in no mood to rush blindly ahead without knowing where he was going. In his speech to the conference he roughly bounded the territory in which he expected his helpers to work:

P: "Unemployment insurance will be in the program....This part of social insurance should be a cooperative Federal-State undertaking. It is important that the Federal Government encourage States which are ready to take this progressive step. It is no less important that all unemployment insurance reserve funds be held and invested by the Federal Government so that the use of these funds as a means of stabilization may be maintained in central management....For the administration of insurance benefits the States are the most logical units. At this stage while unemployment insurance is still untried in this country...there is room for some degree of difference in methods....

P: "We must not allow this type of insurance to become a dole through mingling of insurance and relief. It is not charity. It must be financed by contributions, not taxes. What I have said must not be understood as implying that we should do nothing further for the people now on relief....We must get them back into productive employment and as we do so we can bring them under the protection of the insurance system....

P: "Old age is at once the most certain, and for many people the most tragic, of all hazards....I do not know whether this is the time for any Federal legislation on old-age security. Organizations promoting fantastic schemes have aroused hopes which cannot possibly be fulfilled.* Through their activities they have increased the difficulties of getting sound legislation, but I hope that in time we may be able to provide security for the aged--a sound and a uniform system which will provide true security....

P: "There is also the problem of economic loss due to sickness--a very serious matter for many families with and without incomes, and. therefore, an unfair burden upon the medical profession. Whether we come to this form of insurance soon or later on, I am confident that we can devise a system which will enhance the remarkable progress made in the practice of the profession of medicine."

Ten years ago these orders for social planning given at the White House would have produced a storm of criticism. Last week they produced nothing of the kind. Not only did General Electric's Gerard Swope speak up in approval but that stanch mouthpiece of conservative Republicanism, Ogden Mills, came out roundly next day in favor of unemployment reserves. In principle nearly all the great industrialists of the U. S. today favor the idea. Some have their fingers crossed about the form such plans may take, but all know how badly industry needs workers' purchasing power in times of unemployment, how much relief for the unemployed costs. If there was any complaint about the President's instructions last week it came from those who were disappointed at his apparent caution in not sweeping more boldly into this new field of social services.

Certain it was, however, that unemployment insurance was going to be enacted by the new Congress this winter. The great Democratic majority had not only sworn to uphold the President but many of them had taken an additional pledge to vote for unemployment insurance. Yet last week many a Congressman who had taken this double pledge did not really understand what he had promised, thought of "un-employment insurance" as some sort of panacea that would lift the burden of depression unemployment from the U. S. The President showed by his speech that he knew better, knew that it would not solve the present relief problem, would be slow in getting started, that even after it got started it could not take the place of relief for unemployment caused by a major depression or by an industry losing its market.

The gathering at the White House was to advise what type of insurance plan should be adopted and their choice was relatively limited. They could advocate the "European plan," sometimes called the "Ohio plan" because in 1932 a commission in that State drafted a scheme which was never adopted. Or they could advocate "The American plan," sometimes called the "Wisconsin plan" because it was put into operation in that State last July. Or they could pick parts from both plans.

Insurance v. Reserves-- The European plan is based on the assumption that unemployment is an insurable risk, like death, fire and accident, which over a long range recurs with mathematical precision. The American plan advocates argue that there is no such mathematical certainty about unemployment, that it cannot, properly speaking, be insured against; that all men can do is save money ("create reserves") for the rainy day of unemployment and then spend it. The difference is that if unemployment can be insured against, the insurance fund can theoretically guarantee to provide relief for the unemployed no matter how long they are out of work, can justifiably proceed to borrow money when its funds run out on the assumption that it can pay back its debt during the long period of employment that will "inevitably" follow. If unemployment lasts too long, however, the insurance fund may go bankrupt.

This is virtually what has happened in Britain during Depression. The British unemployment fund, established in 1912, piled up a -L-21,000,000 surplus by 1920. The depression that followed wiped out the surplus and created a -L-15,000,000 deficit. That depression was safely weathered and the fund sailed along on a fairly even keel until depression again struck in 1928. The fund tried to provide relief for most of England's unemployed and by 1932 it was -L-115,000,000 in debt to the Government. Then England revised her plan, separated relief from unemployment, limited unemployment benefits.

The American plan merely creates a reserve. In time of unemployment the reserve is drawn upon as if it were a savings account and when the account is empty payments stop. Different as the plans sound they do not work out that way in practice. When England put a new insurance law in force last summer, she made the Government responsible for relief. To keep the insurance fund solvent its payments to any one man are limited to about 26 weeks (on a sliding scale) in any one year and the number of weeks he gets benefits decreases as time goes on. Under the blueprint Ohio plan benefit payments were limited to 16 weeks in any one year. Wisconsin, with "reserves" instead of insurance, limits benefits to ten weeks a year--the lesser number of weeks being required principally because contributions to the fund are only two-thirds as high as those proposed in Ohio.

Thus in practice all "insurance" plans have much in common. In England the premium paid to the insurance fund is 2s 6d (60-c-) per week for adult men; in Wisconsin it is 2% of payrolls. In Ohio 3% was proposed. When a man becomes unemployed there is a "waiting period" before benefits begin: in England six days; in Wisconsin two weeks; under the Ohio plan three weeks. Then the unemployed, having registered at an official employment office, begin to draw benefits: in England 15s 3d ($3.81) per week; in Wisconsin 50% of weekly wages but not less than $5 nor more than $10; in Ohio 50% of weekly wages but not more than $15. Obviously some workers soon exhaust their benefits and are in need. Then relief organizations take them over and they are paid not because they are insured but because they are cold and hungry.

Central v. Individual Reserves. In the European plan all insurance funds are held in one pool and all benefits paid from it. In Wisconsin each business is allowed to establish its own reserve. If a firm establishes its financial responsibility it may keep charge of its reserve; otherwise the State or an approved fiduciary manages the reserve but it still belongs to each firm. Employers have to put 2% of the amount of their payrolls into their reserve each year until it amounts to $55 per employe, then 1% a year until it reaches $75. Then contributions cease until the reserve is reduced by benefit payments. The object is to encourage employers to maintain steady employment in order to avoid contributions.

Who Pays? Premiums to the British Unemployment Fund are divided in three, one-third deducted from wages, one-third paid by employers, one-third donated by the State. Last week President Roosevelt declared for insurance financed by "contributions, not taxes." That ruled the Federal Government out as a fiscal partner, for its contributions would come from taxes. But a big question was still to be settled: Should employes as well as employers contribute to insurance funds? Labor said "No!" In Wisconsin the burden is being borne entirely by employers. The Ohio plan would have employers contribute 2% of payrolls, would have an additional 1% deducted from wages. Here was ample material for debate between employers and unions, but economists did not worry much about the outcome: in the long run the public will pay the difference in higher prices.

Bribe v. Penalty-- One subject for debate before the President's speech last week was how the Federal Government, its hands tied by the Constitution, could bring about unemployment insurance. One school advocated Federal grants to States to encourage them to set up insurance plans. Another advocated the scheme proposed in the Wagner-Lewis bill last winter: Let the Federal Government tax payrolls and remit the tax to employers who contribute to State unemployment insurance funds. When the President declared against financing the program by taxes he virtually ruled out the first alternative. Last week his advisers considered recommending a 2% to 5% payroll tax to be paid by all employers of ten or more workers (farm hands, domestic servants, nurses and a few other groups excluded) if they did not contribute to an unemployment insurance fund.

When? Congress will not meet until Jan. 3 and probably will take some time to pass an unemployment insurance payroll tax. Legislatures of most States also meet in January but seldom are in session longer than two months. Hence if they wait for Congress there is little likelihood that many State insurance plans will be established this next year. Those that are adopted will have to depend mostly on guesswork about the Federal law. Thus an effective beginning on a national scale is not likely to proceed rapidly. Nor will any benefit payments to unemployed be made this next year if other States follow Wisconsin's plan of allowing a year for the accumulation of insurance reserves before benefit payments begin. In any event, as the President implied, men now unemployed will get no benefits until after they first get jobs and thereby become insured.

Fiscal Pleasure-- To the States Franklin Roosevelt promised latitude in their choice of insurance plans but significant was his declaration that the Federal Government should be trustee for all insurance funds. Such funds will doubtless be held in a separate account and invested in Government bonds. Madam Secretary Perkins estimated that a 5% payroll tax would yield $1,000,000,000 a year. Whether this money comes in as tax revenue or in the form of contributions to insurance funds would, in one important respect, matter not at all: in either case $1,000,000,000 of cash would pour into the Federal Treasury. That would be a great pleasure to Secretary Morgenthau whose problem of getting cash to finance the New Deal would be greatly simplified.

* Generally accepted as a cutting reference to the old-age pension schemes of Dr. Francis Everett Townsend (TIME, Oct. 15), of Upton Sinclair and his EPIC (TIME, Oct. 22) and of Utopians Inc. (see p. 12).

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