Hardly a decade ago the very term "social security" had not
come into existence. In those days, that now seem so remote, the
discussions ranged around the question of whether we should even
embark on a social security program for this country. Now social
security is an accepted goal of the democracies, I might say the
chief goal of the democracies, and discussion now centers upon precise
ways and means of improving our social security program.
Ernest Bevin, the Minister of Labour of Great Britain, has termed
social security "the main motive of national life, both in wartime
and in the peace to follow." So has Jan Smuts in far off Africa.
The Atlantic Charter, endorsed by the 32 United Nations, proclaims
that "they desire to bring about the fullest collaboration between
all nations in the economic field with the object of securing, for
all, improved labor standards, economic advancement and social security."
But there is some danger that the term social security has come
to have such an inclusive meaning that its usefulness as a term
to describe a specific program of action maybe impaired. In its
larger sense I think we would all agree that social security must
mean above all full employment and full production. I think we would
all agree that it must also include decent housing, education and
health, as well as the elimination of destitution.
I do not propose to discuss with you social security in this larger
sense of the term. I shall discuss social security only as a specific
program designed to eliminate want by preventing the loss of current
income. Regardless of how completely and quickly we achieve the
goal of social security in the larger sense, it is not only feasible
but vitally necessary that we establish a specific program for the
elimination of want in this country of ours.
I say that it is feasible to eliminate want in this country because
the actual production of goods and services before we entered the
war was sufficient to eliminate want. I say that it is necessary
to provide a system designed to eliminate want, even though we achieve
the goal of full employment and full production, because the working
people of this country will still be confronted with the great economic
hazards of sickness, physical disability, old age, and death, as
well as intermittent unemployment. All of these great hazards mean
interruption of earnings, and loss of earnings will still spell
want even in a land of plenty.
I mention intermittent unemployment as a continuing major cause
of loss of earnings because under a system of free enterprise, which
we are fighting to preserve, we must encourage invention, improvement,
elimination of waste, variety, and continual adaptation to changing
ideas and circumstances. This must mean that as the processes of
production and distribution change individuals will be forced out
of one employment and be obliged to seek another. This is the price,
if it can be called a price, that we pay for maximum production,
free enterprise, and free labor.
Of course, to the extent that we fail to achieve full employment
and full production, a system of social security designed to eliminate
want is all the more necessary. Nor should we overlook the fact
that a system designed to eliminate want also does actually make
a great contribution to the maintenance of full production and full
employment by assuring the maintenance of mass purchasing power,
upon which mass production must depend.
I do not propose to present a statistical case to establish the
need for a system of social security in this country. I need only
remind you that at one time, not so long ago, there were 28 million
people who were dependent upon their government for the necessities
of life. Not so very long ago, there were 12 million workers unemployed
through no fault of their own. Even today there are over 5 million
people who are still dependent upon their government to supply them
with the necessities of life and there are still approximately 1
million workers unemployed through no fault of their own. On this
very day, we know that there are 7 million people who are unable
to work because of sickness or physical disability of some sort
and that 3 million of these are permanently totally disabled. We
know that almost 50 percent of the persons examined under the Selective
Training and Service Act have physical defects which caused their
rejection for general military service and which must affect their
earning capacity in private life. Whether or not we establish a
social security system, as a civilized and progressive nation we
shall still have these problems and their economic consequences
to solve and we will undertake to solve them. A social security
system merely undertakes to solve these problems in a systematic,
effective and economical manner.
When we undertake to establish a social security system designed
to eliminate want we are not striving for strange and new ideals,
nor is it even necessary for us to depend upon strange and new methods.
We have a world history and world experience upon which to base
our planning and our action. Indeed, we already have in our own
Social Security Act the fundamental elements of a program of social
security designed to eliminate want. It is only necessary for us
to extend, expand, and improve upon our present Social Security
Act in the light of the experience and thinking that has developed
since that act was passed in 1935.
Since the security of the large majority of people is dependent
upon their earnings, the focal point of our efforts should be to
provide reasonable protection against interruption of income due
to sickness, accidents, old age, death, and unemployment. In other
words, we should strive to devise a system which will spread income
over periods of non-earning as well as over periods of earning.
This can be accomplished to a large extent by a system of social
insurance under which benefits are paid to compensate for a reasonable
proportion of the wage loss sustained. The cost of such benefits
should be financed out of contributions made by the workers of this
country and by their employers, supplemented ultimately with some
contribution from the government, representing the entire community.
However, even a comprehensive contributory social insurance system
cannot provide complete protection under all conceivable circumstances.
Certainly an insurance system cannot insure against hazards that
have occurred prior to the establishment of the system. Therefore,
there is also need for a basic and comprehensive system of public
assistance to meet the needs of individuals and their families which
cannot be met out of their own resources.
I believe that the respective responsibilities of the Federal and
State Governments are markedly different in the case of social insurance
and in the case of public assistance. The cost of social insurance
is borne by contributions based on payroll and the benefits are
paid on the basis of wage loss without a needs or means test. The
cost of public assistance is borne out of general revenues and assistance
is granted only on the basis of an investigation as to the individual's
need.
Since the cost of social insurance is related to payrolls, it is
important that employers not be subjected to unfair interstate competition
because of varying rates of contributions in the various States.
In the case of public assistance there cannot be this unfair interstate
competition because the cost is borne out of general revenues.
The benefits under social insurance are related to wage loss. Thus
there is an automatic adjustment to the presumptive need of the
beneficiaries and an automatic adjustment to varying wage levels
throughout the nation. Therefore, there is no necessity for investigation
and determination of individual need in the light of local circumstances
as is true in the case of public assistance.
At present, as you know, we have a Federal old-age and survivors
insurance system administered wholly by the Federal Government and
an unemployment compensation system administered by the States but
largely induced and sustained because of Federal legislation. I
believe that there should be added to the benefits presently provided
by the Federal old-age and survivors insurance system, insurance
covering a reasonable proportion of the wage loss and other costs
of permanent total disability, sickness, and non-industrial accidents
sustained by the insured workers and their families. I further believe
that the present Federal-State program of unemployment compensation
should be combined into a single comprehensive Federal system of
contributory social insurance. We would than be covering all of
the major economic hazards to which workers of this country are
subjected.
Under such a unified comprehensive system of social insurance there
would be no gaps, no overlaps, and no discrepancies in the protection
afforded. Such a system could operate with a maximum degree of simplicity
and efficiency, since there would be only one contribution, one
report, one record, and one local office to which employers and
employees could go to ascertain their rights and duties. I believe
that it is sound public policy, as well as in the interest of the
insured workers, that workers share with employers the combined
cost of all of the benefits proposed instead of the employer bearing
the entire cost of certain benefits and the workers bearing the
entire cost of other benefits.
During the next ten years it is probable that the current costs
of all of the benefits suggested would be more than covered by a
total combined rate of contribution on payrolls of 10 or 12 percent,
depending on the exact benefits provided. This would include both
employers' and employees' contributions. The total combined rate
at the present time is 5 percent. However, even under the present
Social Security Act the combined rate automatically becomes 7 percent
next January, and 9 percent by January 1, 1949.
Since general taxes are insufficient to meet the costs of the war
and other necessary government expenses, they should not be relied
upon at this time to pay any part of the cost of a contributory
social insurance system. On the contrary, a sound contributory social
insurance system should levy payroll contributions sufficient to
yield a large surplus in a period of full employment, such as we
are experiencing now, in order that the system may be prepared for
a period of declining employment when income from payroll contributions
will decline and benefit payments will increase.
In 1939 Congress amended the Federal old-age insurance system so
as to provide for dependents' allowances. I believe that all of
the various types of social insurance recommended should also provide
for dependents' allowances. By providing for dependents' allowances
a social insurance system can be made more adequate in meeting the
actual needs of beneficiaries without increasing the total cost
of the benefits. While insured workers with dependents would receive
more than persons without dependents, every insured person would
receive his money's worth in insurance protection. This is possible
because a larger proportion of employers' contributions would be
used to pay benefits to those with dependents than to those without
dependents.
I fully appreciate that my suggestion that the present Federal-State
unemployment insurance systems should be made a part of a single
unified comprehensive social insurance system would represent a
very important change that should of course be given most careful
consideration. However, I believe that it is of vital importance,
not only to the success of a social insurance program but also to
success in coping with post-war problems, that the Federal Government
assume direct operating and financial responsibility for the payment
of unemployment benefits.
I do not believe that this would constitute an invasion of states'
rights. It is doubtful whether there would be a single state unemployment
compensation law in existence today were it not for the fact that
the present Federal Social Security Act creates such an irresistible
inducement for the States to act. As a matter of fact, it was contended
by opponents of unemployment compensation in 1935 that this federal
inducement constituted coercion and an invasion of states' rights.
Certainly, those who so contended in 1935 cannot now logically argue
that relieving the states of an obligation allegedly forced upon
them in 1935 is an invasion of states' rights. However, such discussions
get us nowhere in deciding the basic question of what kind of unemployment
compensation system is best from the standpoint of simplicity, adequacy
and financial soundness.
The causes and cure for mass unemployment are beyond the control
of individual States. The Federal Government in the past has been
obliged to assume prime responsibility for coping with the problem
of mass unemployment and undoubtedly will have to do so in the near
future. It is vital that there be no division of that responsibility,
in order that the related approaches toward a solution may be completely
integrated. Government stimulation of private enterprise, public
works, and unemployment compensation are all necessary to cope with
the problem of unemployment. What is done or not done in one respect
has a profound effect on what can or must be done in the others.
During the post-war period, the policies followed in the demobilization
of the armed forces and in the termination of war contracts will
vitally affect the volume of unemployment compensation payments.
On the other hand, the adequacy or inadequacy of unemployment compensation
benefits must be taken into account in determining the policies
to be followed in the demobilization of the armed forces and in
the termination of war activities. Under such circumstances, division
of responsibility may well lead to failure to act consistently and
effectively.
There is no question in my mind that combining the present state-by-state
unemployment insurance system into a unified comprehensive contributory
social insurance system would result in far simpler, more effective,
and more economical administration. At present there are 51 jurisdictions
collecting contributions and requiring reports from employers, and
51 systems of records. An employer operating in all of the jurisdictions
must submit 209 separate reports in the course of a single year.
If unemployment compensation were made a part of a comprehensive
Federal social insurance system, such an employer would be required
to submit, at most, 4 reports in the course of a year and perhaps
only one. And the same record could be used not only for unemployment
compensation but also for all the other types of insurance as well.
But of still greater importance than these administrative advantages
is the fact that a truly national system of unemployment insurance
would be much safer and sounder because of the wider spreading of
the unemployment risk and the more effective utilization of reserves.
Therefore, such a system would be far better able to cope with any
severe depression resulting from the termination of our war production
program.
A Federal unemployment compensation system could also provide much
more adequate benefits for workers generally, because of the wider
spreading of the risks and the more effective utilization of reserves.
It is most important that unemployment compensation benefits be
made more adequate than they are at the present time. The weekly
benefit rates in many States are insufficient to cover a reasonable
proportion of the weekly wage loss that an unemployed worker suffers.
Most serious of all is the fact that in most States the duration
for which benefits are payable is so limited that a very high proportion
of workers in receipt of unemployment compensation benefits exhaust
their benefit rights before finding another job. For the country
as a whole, even in a period of good employment, such as 1940 and
1941, 50 percent of the workers exhausted their benefit rights before
they found another job. In some States the proportion ran as high
as 65 and 75 percent. In a period of considerable unemployment these
percentages would of course be still higher.
A national system of unemployment insurance as a part of a comprehensive
social insurance system would not only be safer and sounder and
more adequate; it would at the same time possess the necessary flexibility
to meet varied situations in different parts of the country. Since
unemployment compensation benefits like all social insurance benefits
would be based on the individual's past earnings, they would automatically
reflect differences in wage rates in the various parts of the country.
The administration of the entire social insurance system would be
decentralized. Representative advisory councils and appeals boards
would be established in the several States to make certain that
the administration was in fact kept close to the persons affected.
There is some fear that a comprehensive federal social insurance
system would mean a huge bureaucracy, controlling the daily lives
of our people. However, it should be borne in mind that what is
being proposed is really a government insurance company which would
collect premiums and pay benefits in accordance with a specific
schedule fixed by Congress. It would have no regulatory powers whatsoever.
If a single social insurance system is adopted covering all of
the hazards that have been mentioned, it of course becomes increasingly
desirable and necessary that the coverage of such a system be extended
as widely as possible, since all of the population of this country
is subject in varying degrees to these hazards.
The main groups of employees now excluded from protection are agricultural
laborers, domestic servants, and employees in non-profit organizations.
In addition, self-employed persons such as small business men, professional
men, and farmers are also excluded. From an administrative standpoint
there is no longer any reason why any of these groups should be
excluded and from the standpoint of providing protection there is
every reason why they should be included. In the case of workers
for small employers it is administratively feasible to extend coverage
through the use of a stamp book system. Under such a system the
employee would be furnished with a stamp book in which stamps would
be placed by his employer evidencing contributions made by the employer
and employee. In rural areas the employer could purchase these stamps
from the mail carrier and in urban areas they could be purchased
at post offices.
It would of course not be feasible to insure self-employed persons
against unemployment or temporary disability because there would
be no employer-employee relationship or specific wage loss to serve
as a test of entitlement to benefits. However, it would be perfectly
feasible to insure self-employed persons against the other economic
hazards mentioned.
It is most essential of course that the social insurance rights
of workers entering military service be fully protected. Under the
present law workers entering military service suffer the same reduction
and eventual extinction of any social insurance rights they may
have developed, as do other employees who leave insured employment
to enter uninsured employment. In the case of unemployment insurance
most of the States have frozen any rights which persons entering
military service may have possessed prior to entering such service.
However, a great proportion of persons entering military service
either had developed no rights whatsoever or very meager rights.
Therefore, the best solution would be to count the period of military
service as a period of insured employment so that when these men
return to civil life they not only will have suffered no loss of
benefit rights but will have also built up greater benefit rights
to assist them in making the difficult transition. This would be
an act of simple justice to men who have been asked to sacrifice
so much.
Even with the comprehensive social insurance system which I have
suggested it would be too much to expect that all destitution would
be eliminated. As I have previously pointed out, no system of insurance
can insure against hazards that have already occurred or can provide
adequate protection under all conceivable circumstances. Therefore,
I believe that we should not only maintain but greatly strengthen
our present system of public assistance.
As I have already indicated, I believe that public assistance should
continue to be administered by the States and not by the Federal
Government. However, I believe that the Federal Government should
make grants to the States for assistance rendered to any needy persons,
not only to the needy aged, the needy blind, and dependent children,
as is the case at the present time. There is great need for a system
of Federal grants-in-aid to relieve distress among persons who are
not eligible for assistance under the existing Federal-State categories
of the aged, the blind, and dependent children. This arises out
of the fact that many States and localities have inadequate resources
with which to meet the total relief problem and the further fact
that the resources they do have are used disproportionately to help
needy persons who are eligible under the three categories for which
the Federal Government now grants aid, as against other needy persons
who are not eligible under these limited categories. The termination
of the food stamp plan and of the distribution of surplus commodities
by the Federal Government has further reduced the adequacy of the
assistance being rendered those needy persons. Most of the families
now dependent upon public assistance do not include any person who
could be employed even under very favorable employment conditions.
Moreover, studies show that there are many needy families receiving
no assistance whatsoever. Therefore, even with the general increase
in employment, the States and localities will continue to have a
large burden to meet.
A plan of Federal grants-in-aid to the States for aid to all needy
persons should not be looked upon as a substitute for Federal work
programs in periods of widespread unemployment. On the contrary,
the adoption of such a plan would make work programs more effective,
since they would be relieved of pressure to meet the needs of persons
who may be cared for better in another way. Moreover, such a plan,
adequately financed and properly administered, could assist in restoring
to the labor market a substantial number of needy persons, thus
rendering them self-supporting.
I believe that it is also essential to supplement the present system
of uniform 50 percent Federal grants-in-aid with additional Federal
aid that would not have to be matched by States whose per capita
income is low in relation to that of other States. I believe that
it would be possible to establish such a system of additional Federal
aid on an objective basis which would utilize existing governmental
data measuring the per capita income of the various States.
In addition to the two major changes that I have suggested, namely,
Federal grants-in-aid for assistance rendered needy persons not
falling within the present categories and special Federal aid for
States with low per capita income, I believe that there are several
other ways in which the present Federal grants should be liberalized.
However, time will not permit me to discuss these.
I believe that the expanded social security system which I have
outlined can play a vitally important role in the economic readjustment
and reconstruction that will be necessary when the war ends. On
the one hand, it can provide protection to individuals and their
families against the loss of income which they may suffer for one
reason or another after the war, when a decline from the high levels
of wartime production will increase the burden of the various hazards.
On the other hand, from the standpoint of the economic system as
a whole, social security can aid in maintaining consumer purchasing
power when the national income exhibits a tendency to shrink and
thus can assist in maintaining employment at a higher level.
The obvious question which will occur to many who may agree with
the inherent desirability of having a comprehensive social security
system available at the end of the war is whether the present is
a practical and appropriate time for action. The enormous outlays
and the vast administrative undertakings now necessary for the prosecution
of the war may appear to suggest that action be deferred until after
the war is won. The answer is that unless action is taken now there
is grave danger that the post-war period will arrive before a well-rounded
social security system can be put into successful operation. A successful
social security system cannot be improvised overnight.
As a matter of fact, the extension of social security now would
not only not interfere with but would greatly aid in the successful
prosecution of the war. The greater sense of security which would
result would make the people of this great nation more effective
defenders of democracy. This has been amply demonstrated in Great
Britain, where social security was extended even while the bombers
roared overhead and where it is now proposed that there be far greater
extension.
Entirely apart from the increased well being that would result,
the fact is that immediate expansion of the social security system
is highly desirable from the standpoint of the nation's economic
and fiscal circumstances. Two of the major economic problems of
the war effort are to control inflation and to obtain revenues through
taxation or borrowing, or both. The enlarged excess of contributions
over disbursements which would occur during the war period would
curtail current purchasing power and serve as a potent force in
the fight against inflation. Investment of the excess in Government
obligations would make corresponding sums available to the Treasury.
These investments would aid in financing the war just as do the
war savings bonds purchased by individuals. Moreover, the establishment
of an expanded social security system now would make the people
of this country better able to pay war taxes and buy war bonds because
they would have some protection against loss of current income due
to the hazards insured under the contributory social insurance system.
As President Roosevelt has said, "This is one case in which social
and fiscal objectives, war and post-war aims are in full accord.
Expanded social security, together with other fiscal measures, would
set up a bulwark of economic security for the people now and after
the war and at the same time would provide anti inflationary sources
for financing the war."
I should like to emphasize that the program suggested would provide
only a minimum basic security for the people of this country. It
would provide a safety net protecting the people of this country
against major economic hazards, not a feather bed releasing them
from the necessity of helping themselves. It would be an effective
system because the benefits would be related to proven wage loss
or proven need. It would be a system which would provide a maximum
amount of security at a minimum cost.
In fact, in a very real sense the costs of insecurity are now being
borne by the individual citizens of this country. A sound social
security program makes these costs more bearable by distributing
them more systematically and equitably. This is true of both the
public assistance and the social insurance phases of the social
security program, although it is more apparent in the case of social
insurance.
There are some who fear that social security will destroy individual
initiative and thrift and enterprise. There are some who believe
that providing a minimum basic security for the people of this country
will merely encourage them to rely upon the government instead of
upon themselves. I submit that such fears arise out of a basic lack
of confidence in democracy and the common man. I believe that assuring
people a minimum of subsistence will encourage them to strive for
something still better for themselves and their families. I do not
believe that we can expect the helpless and the hopeless to practice
the prized virtues of independence.
Because only a minimum basic security would be provided, there
would be every inducement to the individual to provide still better
security for himself and his family through individual savings and
private insurance. This has already happened in the case of the
Federal old-age and survivors insurance system. The amount of group
annuity business written since the Social Security Act was passed
is three times the amount written in all the previous years. As
you may have noticed from advertisements and the radio, there are
several large life insurance companies that are basing their sales
promotions largely on the feasibility and desirability of additional
insurance to supplement the basic insurance protection provided
under the Government system. I am confident that insurance companies
generally believe that this government system educates and induces
the public to obtain additional protection through private insurance.
Let us also not forget that under a contributory social insurance
system the workers of this country and their employers would pay
for the benefits that are received. It is not a plan for giving
everybody something for nothing but a plan for organized thrift.
As Prime Minister Churchill said the other day, the essence of social
insurance is "bringing the magic of averages to the rescue of the
millions."
In the case of public assistance, I am merely proposing that we
do better what this Nation from its inception has always accepted
as a public responsibility, namely, the care of the poor who would
otherwise lack the necessities of life. We cannot and we will not
let people starve in this country.
I do not pretend that the program I have outlined will usher in
Utopia; I do not even contend that it will eliminate poverty in
this country; but I do believe and contend that it will abolish
want. Is this too ambitious a goal for a great and powerful nation?
I do not believe that it is and I trust that you will agree.
This Nation should emerge from this war a richer nation not only
materially but spiritually. We have learned how to provide full
employment. We have learned how to increase our production tremendously.
We have learned lessons of cooperation the hard way. Our future
problem is not a problem of resources but of unity of purpose. I
am confident that with unity of purpose we have demonstrated that
we have the ability to accomplish our purpose. Certainly there can
be no higher purpose then to promote the welfare of human beings.
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