The welfare state is now omnipresent in every part of the United States. The federal budget is dominated by entitlement spending, with 45 percent of federal spending in 2012 going to Social Security, Medicaid and Medicare (among other health care entitlements). Simultaneously, states are struggling under the fiscal burdens imposed on them by mandatory entitlement programs: for example, spending by the S.C. Department of Health and Human Services (primarily on Medicaid) has averaged $1.21 billion over the last three budget years.
Increased spending on welfare has encouraged dependency, too. The Wall Street Journal reported that as of early 2011, 49.1 percent of the population lived in a household where at least one member received government benefits, up from 44.4 percent in late 2008.
It’s a good time to ask, then, how welfare was provided before the rise the welfare state. In the United States, it was provided in large part by mutual-aid societies – organizations that would provide needed benefits to the poor and instill in both aid recipients and dues-paying members a sense of community and civic virtues such as thrift and self-reliance. These societies provided an array of services including orphanages, hospitals, medical care, homes for the elderly and scholarships. It’s estimated that a third of all U.S. men belonged to a mutual-aid society in 1910.
Through the pooling of resources, mutual-aid societies were able to provide services to their members at a rate far cheaper than they could receive on their own. One striking example is in the societies’ provision of health services. Lodges would often enter into contracts with physicians to provide regular on-call service to lodge members for a set salary over a specified time.
In the early 20th century, individual lodge members would pay roughly $2, around a day’s wage, as their share of a year’s worth of medical care. In contrast, non-members typically paid around $2 per doctor’s visit during the same period. The lodges would prevent abuse of the system and related increases in the cost of the contract by self-policing overuse of the benefits.
While they were highly popular and prevalent at the turn of the 20th century, mutual-aid societies began to decline around the same time that government benefit programs began to expand.
Programs providing mothers’ pensions and workers’ compensation expanded rapidly between 1920 and 1930. The true explosion in growth of the welfare state would occur, of course, in the 1930s with New Deal programs like Social Security.
As early as 1915, one mutual-aid society, the Fraternal Order of Eagles, complained that “the State is doing or planning to do for the wage-earner what our Order was a pioneer in doing eighteen years ago.” Many of these societies began closing in the 1930s.
The problem of regulation, meanwhile, did its part to hinder mutual-aid societies in the early 20th century. Licensing boards, supported by powerful medical associations that generally disliked mutual-aid societies because they kept physician wages in check, began delicensing doctors who participated in lodge contracts. By 1919, 40 states had enacted what was known as the Mobile Law, which required mutual-aid societies to keep financial reserves at a level at which they were unaccustomed. The law also required a doctor’s examination for all lodge members, largely removing the societies from the group insurance market, which offered insurance to large groups without medical examinations.
Mutual-aid societies at their height may not have created utopia. But they achieved remarkable benefits for millions of people without redistributing wealth and without saddling future generations with debt.
What can be done to revive them?
First, the General Assembly can pass a law a clearly defining a contractual process for South Carolina’s acceptance of federal funds. The contract process would require elected officials to explain precisely and in detail how the acceptance of federal money would affect the state, including: the cost to citizens freedoms, new restrictions on citizens or state authority, new government positions created, and new regulations. If such a process were codified, the number of federal dollars flowing into the state would almost certainly dramatically decrease. That, in turn, would reduce the “crowding out” effect whereby government funding makes beneficial private activity redundant.
Second, the Legislature should repeal the section of the state code that places onerous regulations on mutual-aid societies, making them practically impossible to operate.
Not until the welfare state is cut back and burdensome laws repealed will citizens have the freedom to re-establish private aid on a large scale. The welfare state is in the middle of a lengthy and unsuccessful run in America. It’s surely time that we allowed private individuals to once again take on more of the provision of aid to those most in need.
Shane McNamee is a policy analyst with the Columbia-based S.C. Policy Council.