Magazine article The American Prospect

End of the Private New Deal

Magazine article The American Prospect

End of the Private New Deal

Article excerpt

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. …

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