Can Government Work?

Americans may love their country; they may resent anyone showing the least disrespect for the flag. They may judge other countries to be better or worse depending on how closely those nations approximate the American political system. AR the same, they regard their own politicians and government with a mixture of skepticism and scorn. In the United States, especially since Reagan, distrust of the government has virtually become a mark of the authentic patriot. To show some confidence in government may not yet be subversive, but it does raise suspicions.

Of course, skepticism about government is not an unreasonable impulse: a number of our recent leaders have seemed entirely worthy of it. A free people, moreover, ought not to be so taken with their government as to be taken in by it. But in a democracy, the government is their instrument for confronting problems that affect them collectively When the citizens of a nation give up on the integrity and efficacy of their government -- when they no longer believe that elections matter or that public institutions can perform reliably -- they lose a power of their own.

For more than a decade now, the idea of public remedy has been in public disrepute. Many Americans have become convinced that there simply are no public solutions to our national problems. Or if there are, that Congress could not possibly enact them in a rational and coherent form. Or if it could, that we cannot afford the cost, not now, perhaps never. With suspicious modesty, we have managed to persuade ourselves that despite the genius of our democracy and the superiority of our economy, we are either too inept at government or too impoverished to remedy what ails us -- or at least, what ails some of us.

The distrust of government is hardly confined to conservatives. Even many people with progressive inclinations are cynical about the integrity of political leaders, the intelligence of policy making, and the competence and efficiency of public services. They worry that liberalism, even their own liberalism, relies too much on government, though they are uncertain what other instrument could serve where government cannot.

Probably no bigger obstacle stands in the way of a revival of liberal politics than this: the many who think government doesn't work also think that liberalism means more of it. Even those who grant that some things are deeply wrong see no way through politics to put them right; and because they see no point to politics, to call upon their sense of compassion is almost no use. Besides, it is not chiefly compassion that we need to evoke, since compassion is for someone else. The distrust of government now blocks us from acting even on prudent, national interests that affect us all. But it is exactly for those purposes that a recovery of public remedy is most necessary. After years of deficits and deadlock, America is paying a great and growing price for politically incapacitating itself.

The Costs the Conservative Default
The political capacity of a society springs from a variety of sources: the cooperation and confidence a government enjoys from its citizens and international allies; the coherence and ability of its leadership; the financial and organizational resources that it can marshall to carry out its policies. Andrew Carnegie once spoke of the "stewardship of wealth" as a responsibility of the rich. A nation's leaders have a corresponding democratic responsibility: the stewardship of political capacities and public wealth.

When conservatives came to power a decade ago, they promised to reduce the scale of government and its influence on society. Whether their policies have achieved that goal is open to question. But in one sense, they achieved a more drastic result. The reductions in income tax rates and military buildup of the early Reagan years -- followed now by the burgeoning costs of the savings and loan bailout -- have created a fiscal blockade against all new initiatives. To be sure, that blockade has had the happy result, from the conservatives' standpoint, of precluding or at least forestalling social programs that require new spending. But the deficit has also depleted America's political capacity to meet any new challenge.

The federal budget has by no means shrunk, but interest payments, the armed services, and Social Security now account for so large a share of expenditures that discretionary funds have been severely limited. In the face of unforeseen problems, such as AIDS, the S&L crisis, or the deterioration of nuclear weapons plants, the first responses have been avoidance, postponement, and budgetary chicanery. And in the face of unforeseen international opportunities, notably the upheaval in Eastern Europe, we have not "stood tall." Rather, we have stood back, convinced that we could not afford to extend ourselves with financial assistance.

Conservatives have told us that fiscal pressure is a healthy political condition. Ronald Reagan often warned against any tax increase on the grounds that Congress would spend whatever additional tax revenue it had; supposedly, the money would just vanish into a black hole in the federal budget. But a perpetual fiscal squeeze has dangers of its own, now much in evidence. Not only has the squeeze constricted the political imagination and blocked quick responses to new problems; it has deformed public policy. The refusal at first to acknowledge new problems, and then to respond adequately to them, has turned out repeatedly to add to long-run costs. The inability to shut down savings and loans that month by month were effectively spending billions of dollars of the taxpayers' money is only one example.

There are many others. Our tax system has been deformed: we have shifted from income to payroll taxes, not because the payroll tax was a more just or more efficient tax, but because it could be increased under the cover of saving Social Security. And rather than raise additional revenue itself, the federal government now routinely prefers to set costly requirements for others, such as the states or private institutions. These regulatory substitutes for direct programs may keep federal spending down, but they are not necessarily good public policy. Witness the administration's effort to shift the burdens of transportation policy to the states.

Perhaps nowhere else are the ill effects of prolonged fiscal squeeze more evident than in the failure of stewardship of the nation's public wealth. That wealth consists of physical infrastructure as well as the "natural capital" of the environment. Consider the immense public inheritance that we have received from the generation that endured the Depression and fought the Second World War. The entire nation is laced with highways and bridges and dotted with schools and post offices built in that time. Those are merely the physical manifestations of a great institution-building phase in our history. Now consider the new additions to that legacy contributed in the 1980s by a much richer generation. They do not make an impressive bequest. As a proportion of public spending, public investment has been steadily declining. Between 1945 and 1952, as Robert Heilbroner has pointed out, the share of federal nonmilitary spending that went to infrastructure investment was 6.9 percent; that proportion fell to 1.5 percent in the 1970s and just 1.2 percent in the last decade. Could the federal government today even consider the contemporary equivalent of building the interstate highway system or developing the National Institutes of Health? The Strategic Defense Initiative ("Star Wars") is the closest parallel -- and a reminder of the extent to which our technological and financial resources have been devoted to military defense.

Short-term financial concerns now seem to bar us from the ambitions of our predecessors. Supply-side economics was supposed to renew the well-springs of savings and investment, but it construes them to be entirely private. It has utterly neglected the public component of our capital stock, including research and education and public institutions themselves, now a technologically lagging sector. Here the failure of stewardship has been grievous, yet politically self-reinforcing. For the further public services fall behind, the more their inadequacies seem to confirm the conservative indictment against them.

Not the federal deficit itself, but the failure to provide for the future is our real fiscal ailment. Had we been resorting to deficits to pay for productive public investment and financing that expenditure out of private U.S. savings, we might have little cause for concern. But borrowing from abroad for purposes of present consumption is another matter. As a nation, we have been consuming 3 percent a year more than we are producing; the debts we have been accumulating to foreigners will have to be repaid out of future production and tax receipts. Moreover, our need of continued flows of foreign capital exposes us to the risk that for one reason or another -- the proverbial "Tokyo earthquake," real or metaphorical -- the flows may stop and send our economy into a tailspin.



In all this, there is an irony, a default on a promise, and a self-betrayal of conservative principle. In foreign policy, conservatives have represented themselves as the most ardent defenders of American security and sovereignty; in economic policy, they have supposedly stood for "sound finance" and the priority of investment over consumption. But administrations professing to be conservative have now presided over a decade of structural deficits, excess consumption, and casino capitalism that have compromised our strength and security. Like Lyndon Johnson's refusal to raise taxes to pay for Vietnam, Ronald Reagan's refusal to pay for the 1980s defense buildup was an historic default of leadership.

The costs of the conservative default have fallen hardest on the most vulnerable. During the last decade, income inequality has grown because of economic changes that the government has done little to soften or modify. One visible sign of that deterioration is the increased homeless population on our streets. Another indicator is the growing number of Americans without public or private health insurance coverage, up from 30 to 38 million during the 1980s. Yet a third index is the reduced real income of America's lowest fifth. These changes should not only disturb our sense of justice. As poverty grows increasingly concentrated among children and single parents, it affects the whole society's future. Children growing up without adequate education, health care, and family security make less productive citizens; those who end up unemployed or in prison become a net cost to their communities. To see the larger effects, no brilliance is necessary. But political leadership and inspiration are necessary to turn the connection between child poverty and the nation's wealth into a foundation of policy.

One reason for our failure to address these and other needs is our inability to control health care costs, which have effectively crowded out other social expenditures. In the decades immediately after World War II, health care costs rose as a percentage of national income in all advanced industrial economies. But in the 1980s health care costs in the United States far outpaced those of our major international competitors, including West Germany, France, Great Britain, and Japan. Other countries manage to provide all their citizens with health coverage and nonetheless limit the growth of health care spending. We have been unable to do either precisely because we lack the financial control that a comprehensive insurance system can provide.

Canada offers an instructive comparison. In 1971 Canada and the United States were both spending 7 percent of GNP on health care. That year Canada introduced national health insurance; in the early seventies, we also considered various plans but could not agree on any. And while health care costs in the United States now run over 11 percent of GNP, they amount in Canada to only 8.6 percent. (As it happens, the difference of two and a half percent of GNP is about the size of our trade deficit.) One recent study found that half the Canadian-American difference in health spending is explained by higher administrative costs for health insurance and health care in the United States. To spend more money for more clinical services would be understandable, but to pay for more administration is a deadweight loss. Many Americans suspect government of endemic inefficiency. In this case the universal public Canadian system has lower administrative costs and lower costs overall than the predominantly private and incomplete insurance system in the United States.

Whether the issue is national health insurance or the welfare of the poor, conservatives have both promoted and benefited from the pervasive distrust of governmental competence and capacities. They have played upon the pessimism, amplified and legitimated it, made it a cornerstone of the dominant public philosophy, and successfully conveyed the myth that the whole meaning of liberalism lies in its preference for more government.



American liberalism, however, is not a philosophy of omnicompetent government. Liberals, unlike socialists, did not seek to nationalize industry; they do not seek to put the economy under the command of the state but to shape the rules of the market to ensure its consistency with the values of fair opportunity, personal security, democracy, and the sustainability of the society and the natural environment. In the realm of personal choice, the commitment of liberals to individual rights is, if anything, stronger than that of conservatives. Liberals have sought strict limits on state power in the spheres of religion and moral life, free speech, and a free press.

But liberals are also mindful of the dangers of power gathered in private hands and the inequalities that spring from the market. Like an all-powerful state, the unfettered market and unrestricted private power can disrupt the security of families and prevent citizens from making real use of their political liberties. To realize in practice the full promise of a free society, we need no blind faith in the state, but a rough confidence that democratic government can work for the public advantage. To rebuild that confidence will require a renewal of democratic politics and an emphasis on policies that simultaneously advance the broad national interest while ensuring security and opportunity for the most vulnerable.

Renewing Democratic Politics
At the heart of the problem is popular contempt for politics, generated by the political system itself. Several factors have been crucial here in exacerbating long-standing tendencies in American politics.

Political campaigns in the United States have often been highly personal and lacking in substance, but never more so than in the age of political marketing. Campaigns have long been expensive and contributors have always had political influence, but the cost has now soared and the preoccupation with fund-raising has become permanent for people in public office. The problem is not simply that campaigns now revolve around the raising of money and manipulation of media images; it is that everyone knows these things, accepts them as facts of political life, and regards the entire process as corrupt. And while the forms of political competition have ceased to command respect, incumbents have gained a vast edge in resources. So all too many elections seem not to matter.

Without a fundamental reform of politics, it seems inconceivable that the public could be attracted to any positive vision of government. Campaign finance reform is just the beginning, and it will be no beginning at all if it only pumps more money into producing thirty-second commercials. The objective of a new wave of political reforms should be not only to reduce the imperatives that now force politicians to be full-time fund-raisers and part-time public officials. We need to alter the format as well as the financing of campaigns to make them, as much as possible, occasions of debate and deliberation. Whether these objectives ought to be achieved through additional public funding or requirements for holders of broadcast licenses is a special question that ought to be decided on the merits (and not merely out of an interest in keeping down public spending). But regardless of the method, the funds or the allotted broadcast time should go, not to prepared commercials, but to genuine debates, press interviews, and spots five to ten minutes long (perhaps at the end of evening news) where candidates would be obliged to say more than they do in canned advertising.

Public funds ought also to be made available for voter registration; there is no justifiable reason why in a democracy that responsibility ought to depend on the vagaries of private funding. And the measures taken in some states like Minnesota to remove barriers to registration ought to become the basis of a national effort.

These measures would simultaneously increase popular participation, diminish the preoccupation with fundraising, and increase confidence in the integrity of the candidates and the system. They would also diminish the advantages of incumbency. That very quality, however, impedes their adoption. The only hope, therefore, is to create a larger package of reforms that gives incumbents, including conservatives, some other things they want that also happen to advance the larger cause of political renewal.



One key additional element, it seems to me, is to reform the House of Representatives by extending terms from two years to four and limiting the number of terms to three. (By staggering the seats, half would come open every other year.) Many congressmen of both parties have long wanted four-year terms; under the present system, they never stop running. The purpose of the two-year cycle was originally to make the House more responsive than the Senate to changing public sentiment; in the early years of the Republic, it may have had that effect, as turnover in the House was enormous. But the two-year cycle no longer serves its intended purpose because the advantages and attractions of incumbency have become too great. A four-year term, while giving incumbents enough respite from reelection demands to turn their attention to legislation, would also reduce by half the number of races in any election year and thereby enable challengers to accumulate more resources and gain more attention. Contests would be less frequent but more genuine.

While a limit on the number of congressional terms has chiefly attracted Republican support, Democrats must come to see that it is their long-run interest, too. When the control of the House at some point in the future shifts to the Republicans -- as it must someday -- the Democrats will find themselves as locked out as the Republicans are today. Indeed, the Republicans would then add to their fund-raising edge all the advantages of incumbency that now redound to Democrats. Moreover, the electorate has become suspicious of what appears to be a permanently entrenched political class. A new system would put control of the House at genuine risk and thereby restore confidence that the House responded to the electorate's will. In addition, the reform package as a whole would free incumbents, as well as challengers, from the fund-raising practices that have cost them their collective reputation for integrity and exposed them to political scandal and even the risk of criminal indictment.

A limit on terms would also have more subtle and broader political effects. After twelve years, many congressmen would be looking to the Senate and gubernatorial chairs, thereby increasing competition throughout the system. (Indeed, this year the Republicans have an edge in key Senate contests because popular Republican congressmen are running for Senate seats, while comparable Democrats in the House have refused -- another example of how the Democratic Party loses out because the House has become too comfortable a career.) Moreover, even while they remained in the House, members would necessarily have to think about interests broader than their districts, in the knowledge that they would have to appeal to wider constituencies when their twelve years were up.

I am not suggesting that these measures alone would restore the vitality to American democracy that it is now evidently missing. I mean them only to be illustrations of what ought to be a new era of reform of the political process, comparable in scale to the changes during the Progressive Era that brought us the primary and referendum. But clearly no reform of the process will matter unless there is also a change in the substance of what political leaders offer and the larger message of politics about the civic realm.

The Rehabilitation of Public Remedy
For the last decade, while national politics has largely turned on the uninspiring annual routines of the budget, the public has become increasingly disenchanted that politics can accomplish anything. The deficit is as much a metaphor for these failures as it is an objective element of them. To most people, budgetary numbers are numbingly abstract; what they do understand is that the nation's leaders apparently cannot keep their house in order. And if they cannot pay their bills, why trust them to do much else?

The general sense of futility stems partly from the deadlock between the parties that has now prevailed for eighteen of the past twenty-two years. Neither party is capable of fully imposing its will to break the deadlock (for example, by either cutting spending or raising taxes to resolve the deficit). But while undercutting the power of the parties, the deadlock promotes a diffusion of guilt. The public attributes the persistent failures to neither party and neither the executive nor legislative branch, but to government itself; and individual politicians are only too pleased to run against the system, as if they were not part of it.

In addition, as Benjamin Ginsberg and Martin Shefter have emphasized in a recent book, Politics by Other Means, the political stalemate at the national level has encouraged politicians to use non-electoral means in the struggle against one another. Congressional hearings aimed at members of the executive branch, ethics investigations aimed at members of Congress, probing of public figures' personal lives, criminal investigations and "stings" aimed at legislative figures -- all of these have proliferated in recent years, adding to the general distrust of politics. If the rate of investigations and indictments were a true index of moral character, it would mean politicians are more dishonest than ever before. But more likely, the forms of political competition have changed in response to electoral deadlock, indirectly contributing to the sense that the politicians and system itself have no integrity.

Moreover, as Steven Kelman emphasizes in the accompanying article, the persistent concern with scandal and scandal-avoidance has intensified the bureaucratic maladies of public administration. Scandal begets rules and procedures, tying public managers in knots. When advocates of privatization unfavorably compare public agencies with private firms, they are often right that the public agencies are less efficient. Liberals who care about public services ought to be first to recognize these shortcomings. But instead of privatizing the services, we should think first of repairing them. We need to undo many of the excessively rigid rules that now prevent public agencies from innovating and offering employees incentives for better performance. If public agencies are to work, their managers must have more autonomy, including the ability to reward effective employees and fire ineffective ones.



On the other hand, while liberals ought to embrace the sharp criticism of public services and turn it to the purposes of reform, they ought to resist the more embracing criticism of public programs, particularly the charges that the programs of the Great Society show the futility of governmental effort. This is not the place to mount a full defense of the record of positive government, going back to what in the nineteenth century used to be called "internal improvements." However, to those who say that in War on Poverty in the 1960s and 1970s we tested public programs and they failed, at least a brief answer ought to be made.

First, where we made the greatest effort, we did reduce poverty. Increased social expenditures in the United States have primarily gone to the aged in the form of higher Social Security benefits, including Medicare. There is simply no question about the difference that this additional spending has made. As of the mid-1960s, poverty among the elderly was higher than in the population as a whole; now it is significantly lower. Moreover, measured rates of suicide, mental illness, and other indicators of distress all show a marked improvement in the well-being of the aged, far in excess of general trends in American society. Indeed, adolescents experienced worsening conditions over the same period.

Of course, when conservatives say social programs have failed, they have in mind, not the aged, but blacks. Yet for blacks, too, positive government action has made a vast difference. Civil rights law has dramatically changed America for the better. So, too, have many of the antipoverty efforts, particularly those that provided health care and education for the young. No one pretends that these measures were sufficient; their opponents -- and the budgetary demands of the Vietnam War -- saw to that. Today many inner-city neighborhoods are worse places to live today than they were twenty years ago. One reason is that millions of upwardly mobile blacks have moved to other neighborhoods, while new rural Southern immigrants have moved in. In the meantime, industry has moved out, and the remaining deindustrialized, partly abandoned communities have been ravaged by crack and crime. Given the economic and demographic forces at work, perhaps no set of policies could have entirely prevented the formation of a residual underclass. Nonetheless, the underclass now stands as a rebuke to all who tried to abolish poverty -- and serves as a made-to-order rationalization for those who didn't.

If some social programs failed -- and they did -- so do many new business ventures. Neither legislators nor investors can entirely avoid mistakes, nor ought they to try. If they can learn from mistakes, the more quickly they make them the better. Some critics of the public sector say that while markets are self-correcting and eliminate inefficient firms, government fails to end ineffective programs. But a democratic government also has self-corrective mechanisms: an investigative press, social science evaluations, internal studies by agencies like the Office of Management and Budget and the General Accounting Office, congressional hearings, and other checks on performance.

These self-correcting forces have, in fact, been at work. And one thing we have learned -- and should long ago have acted on -- is that the most successful policies, with the greatest payback for the society, are those aimed at children and youth. That knowledge now ought to be the basis for an era of social reform that emphasizes investment in the young as part of a new social contract.

A New Deal for the Young
From separate directions, several forces are now converging to make children and young families a priority of national policy. The statistics are now all too familiar: one of every five children -- one of every four children under age six, almost one of every two black children -- grows up in poverty today. Even business increasingly recognizes the implications. One-third of new workers between now and the next century will come from minority groups where poverty is concentrated. Moreover, as the age structure shifts, a growing retired population will depend on relatively fewer working adults, many now struggling toward adulthood in poor families. If poor children grow up to become poor workers, the whole economy suffers. That realization is slowly producing a shift in assumptions. Instead of viewing the children of the poor as a liability and a threat, at least some Americans are coming to view them as a scarce resource that needs care, protection, and investment.

Second, the mass entry into the labor force of middle-class women, including mothers of young children, has drastically altered the politics of child care and child policy. Of all the major Western countries, the United States provides the least support to families raising small children. We do not have the family allowances, the income support and guaranteed job leave during pregnancy and immediately after childbirth, public financing of day care, or child health services that have long been common in Western Europe. The failure to provide those supports is a principal reason why the United States, of eight leading Western countries, has the highest rate of child poverty (We are similarly distinguished in the field of infant mortality). Now middle-class families are facing the same realities that poor families have long faced -- the struggle to cope with two jobs and raising children without adequate social support. In short, changing patterns of work and family life are universalizing the problems of the poor and extending the natural political base for reform.

Third, widespread reports of poor school performance have prompted alarm about our ability to stay internationally competitive. Education is now everyone's cause, and the connection between teaching deficits and trade deficits seems to be taken as virtually self-evident. Early childhood interventions seem especially promising. As a recent report from the Committee on Economic Development argues, preschool education programs can readily be justified on strict cost-benefit criteria.



These developments are helping to put child policy on the political agenda in a way not seen in the United States since the turn of the century. The social historian Michael Katz notes that in the 1890s "children became the symbol of a resurgent reform spirit, the magnet that pulled together a diverse collection of causes and their champions into a new, loose, informal -- but effective coalition." A century later, the same process may be about to happen.

A child policy agenda would have several key elements. To reduce child poverty, we need to revise federal tax policies to substitute a refundable child tax credit for the current tax exemptions and to increase the existing Earned Income Tax Credit and step up its value per child. To reduce poverty specifically among single-parent families, we need further development of guaranteed minimum support payments (advanced by a public agency authorized to collect from the absent parent). Some states have legislated job protections for parental leave; such leaves ought to be covered as paid disability. Comprehensive child health services ought to be priority; at a minimum, we ought to ensure that all children receive preventive care, including the full complement of vaccinations, which some 40 percent are currently not receiving.



A New Deal for the Young" should be concerned not only with children but with young adults. Much evidence now shows a significant deterioration in the economic position of young workers, ages 18 to 30. A 1988 Congressional Budget Office study finds that between 1970 and 1986 adjusted family income rose 20 percent overall but fell 10 to 20 percent for families headed by people under age 25 and fan-Lilies without any full-time, full-year worker. But while the earnings of the young appear to have declined over the last two decades, there have been staggering increases in the costs of homeownership and higher education.

A New Deal for young adults has to be fundamentally different from the original New Deal. It cannot rely exclusively on income transfers. Unlike the elderly, the young need endowments of education and training, health, and self-discipline that will benefit them over their lifetimes. Those endowments cannot simply be redistributed; they must be created, in part by the young themselves through their own efforts. That does not mean we simply ought to abandon them to what George Gilder celebrates as "the spur of poverty."

Public initiative can help the young by amplifying the rewards of effort. Instead of simply providing benefits and entitlements, we ought to think carefully about structuring programs around the idea of reciprocity. Reciprocity is a theme in recent welfare reform and recent proposals for national service that ask beneficiaries to work. Superficially, the idea of reciprocity may seem to some unacceptably conservative, but it is the essence of a social contract. Programs structured around reciprocity not only have better incentives and teaching effects than pure entitlements; they are much more likely to gain stronger public support. Social Security enjoys a distinctive legitimacy, not only because it is universal, but because Americans believe they earn their benefits. Even though Social Security returns to beneficiaries larger benefits than their payroll contributions strictly justify, the program rests on a simple "deal." We pay during our working years and in return receive income during retirement.

A New Deal for the Young should offer to provide more support for education and training, links to jobs, and aid to home ownership in return for work, improved school performance, or national service. The proposal for linking Social Security to aid for education and training, presented by Barry Bluestone and his colleagues in this issue, exemplifies the principal of reciprocity in two ways -- first, because it calls upon the recipients to repay the awards out of later earnings; and second, because it directly links the interests of the aged and the young and emphasizes the norm of reciprocity between the generations.

Through Social Security, Americans pay for other people's retirement, and through public education, we pay for other people's children. That common interest extends to the productivity of working-age Americans. In an economic sense, other people's grown children are our own: when we retire, we depend on the income they generate. And how much they generate in the future depends on the endowments -- the capital -- invested in them by our society today. As Jonathan Rauch wrote not long ago in The Atlantic, "If boys and girls grew up to become industrial machinery instead of men and women, it would be easy to see that everybody had a stake in other people's children." To explain that stake -- and to persuade Americans to act on it -- is a critical task in the coming decade.

A Public Framework for Health Insurance
The task in health care is also to reconcile the nation's broader interests with those of the most vulnerable, but the answer is not to find more resources for a system that already consumes them in excess. Health care represents a major policy failure, not simply because millions of Americans lack coverage, but also because uncontrolled costs have become a growing burden on the productive sectors of the economy. The very magnitude of the problem, however, presents an historic opportunity for a liberal leadership prepared to offer the American public and American business a real alternative.

Recent public opinion surveys show great public dissatisfaction with the health care system. A Harris survey released in early 1989 asked respondents in the United States, Great Britain, and Canada identically worded questions regarding their health care. The results show dramatic differences. Americans are the most dissatisfied and Canadians the most content. For example, only 10 percent of Americans say their system works "pretty well," while 89 percent say fundamental change is needed. On the other hand, 56 percent of the Canadians say their system works pretty well. The proportion saying they are personally very satisfied with the care that they and their families receive is only 35 percent in the United States, but 67 percent among Canadians. After being given brief, neutral descriptions of the health care systems, 91 percent of Canadians say they prefer their country's health care to that of the United States. On other hand, 61 percent of Americans say they would rather have the Canadian system.

Since the United States spends much more money per person than Canada on health care, we might at least have bought more public approval. But, of course, the inability to control costs and public discontent are directly related. Many employers have responded to higher insurance premiums by reducing health coverage, adding requirements of higher deductibles and copayments and restrictions on choice of provider. The result is deep employee dissatisfaction (as last year's bitter telephone and coal strikes illustrate). In the 1940s and 1950s, the American people saw employer-provided health insurance plans being steadily expanded; now they see their benefits eroding from year to year. Employers don't like the situation much, either. Health care costs hurt their bottom line; switching from one insurance plan to another seems to offer no remedy. New accounting rules for retiree health benefits threaten to wipe out profits for many large corporations. Many executives would be perfectly delighted if the government now stepped in.



One barrier to fundamental change is the entrenched perception of national health insurance as an additional expenditure program. We need instead to think about national health insurance as a system of financial control. Currently, we lack the tools to contain health costs. When the federal government clamps down on Medicare's hospital costs, two things happen: the hospitals shift costs to private payers, and technology migrates to physicians' offices. Private sector efforts also produce more cost displacement than cost control. The American art of health care management is chiefly the art of extracting the maximum revenue from a fragmented assortment of payers. In the struggle over health care money, government agencies, employers, and insurers stand on one side attempting to impose regulatory and competitive measures to subdue rising costs. On the other side stand health care managers and physicians using their considerable skills and ingenuity to master the arcane mysteries of revenue maximization. Year after year, the game goes to the maximizers, but in the process it has created spectacular growth in administrative and marketing expenses, the single most rapidly growing category of health costs in the 1980s.

Countries that have succeeded in controlling health care costs have an institutional framework that imposes a global budget -- so much money for the system each year, and no more. To achieve control of costs and provide coverage to all citizens, they do not need to nationalize hospitals or make doctors public employees. In both Canada and West Germany, for example, the doctors remain in private, fee-for-service practice and the hospitals continue under diverse types of ownership. The Canadian insurance system happens to be public (the plans are operated by the provinces within a framework of rules set by the national government), whereas the West German "sickness funds" are nongovernmental institutions. In both countries, the governments set limits on capital spending and hospital budgets. In Canada, the public insurance funds control fees and prohibit extra billing by doctors. In West Germany, annual negotiations between sickness funds and insurance doctors establish a total pool for physician payments; physicians then bill so many points for each service, and the monetary value of the points depends on the total points billed divided by size of the pool. If doctors as a whole bill more points, they do not create a financial crisis for the system: the points are just worth less. (Private independent practice associations in the U.S. use the same method for controlling costs.) Under these arrangements, West German and Canadian doctors do very well. So would American physicians under a globally budgeted health plan. But they and other providers would not be able to charge what the market will bear and break the Treasury.



Contrary to American intuitions, global budgets actually permit less government regulation. For once governments are able to ensure that expenditures remain under a ceiling, they are less driven to intervene in specific decisions by health care professionals and institutions. In the United States, on the other hand, the inability of both government and private health plans to control costs has led both of them to impose more regulations on providers. We have ended up, amazingly enough, with less equity, less efficiency, and less autonomy for private decision makers.

The idea of a global budget for health care, adjusted in annual negotiations, seems strange only because Americans have become used to an insurance system with no apparent limits. However, most institutions in our society have to live with budgets and limited resources. Sooner or later, so must health care institutions. When confronted with the alternative of a global budget, defenders of the current system characteristically raise alarming visions of the British National Health Service refusing to provide kidney dialysis to patients over age 65. The British, however, spend much less on health care than any other major Western nation (only 6 percent of GNP, and the British GNP per capita is much lower than ours). No one is proposing that we cut spending down to British levels. Canadian health care has some limitations, but overall it is very good, and the West Germans, who put 9 percent of GNP into health care, have a system that may well be better than ours. We also do not have to look abroad to find examples of lower rates of health care spending. Some communities in the United States, such as Seattle, Washington, and Rochester, New York, also have lower rates. The key to low costs is a conservative practice style -- that is, a peer culture among physicians that encourages careful use of costly technology. Our third-party payment system has encouraged physicians to practice as if our resources were unlimited; a global budget encourages a healthy caution. Moreover, with their budgets fixed, hospital managers can apply their talents to more useful arts than milking the reimbursement system.



Historically, the path of least resistance in health policy, as in so many other areas, has been to accommodate the demands of private providers and to proceed incrementally, slowly adding new benefits and new populations. Mandatory employer-provided health insurance and Medicaid expansion are the path of least resistance today. But if we simply add to the existing system, we are certain to have steadily higher costs that ultimately erode the value of the programs, until conservatives hold them up as illustrating the hopeless cost of liberal government. Self-limiting reforms ultimately discredit our vision; we need to pursue self-reinforcing reforms that become a base for further development.

Our alternatives are two. First, we can try to seize the political opportunity created by public and employer discontent to press for a new framework of universal health insurance. That framework, like the Canadian and the West German systems, must itself be a system of cost containment. Or, if we must be content with an incremental change, we must try to make it a model for a comprehensive alternative. Universal health insurance for the young, or "kid die -care," based on prepayment, comes closest to serving that purpose. A cost-effective program for children's health would have an exceptionally strong moral foundation and provide an especially positive model for future reform.

Getting to the Core
To recover a national majority, liberals do not need to get to the center but to get to the core -- that is, core interests that Americans broadly share.

Conservatives have succeeded in persuading many people that our economic progress requires sacrificing social progress. But it is a mistake to think we can thrive economically without investing in people, particularly the young families of the poor whose children will be critical to our economy in the new century. Conservatives have promoted the illusion that we can be strong as a nation while constricting our Treasury, demoralizing our public institutions, restricting public investment, and letting the markets lead.

From Alexander Hamilton to Winston Churchill, many conservatives have known better. They have known that a nation is only as strong as its social fabric; that it cannot depend entirely on the market for investments necessary to the national interest; and that it must nurture a strong civic tradition as well as freedom for individual initiative. Liberals stand in a position today, not only to claim the legacy of the New Deal tradition that some are ready to abandon, but to inherit from conservatives the entire tradition of social stewardship and civic commitment. If conservatives want to cede their claim to that tradition, liberals should accept the opportunity to become the one party unambiguously committed to public remedy and civic obligation.

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