A History of Poverty in America: Chapter 5

A History of Poverty in America: Chapter 5

Poverty in Urban America: Its Causes and Cures by David Hilfiker introduction ¦ Chapter I ¦ Chapter II ¦ Chapter III ¦ Chapter IV ¦ Display All Chapters
David Hilfiker

Chapter V: Possibilities for Change The developed nations of Western Europe and Canada have taken a very different approach to social welfare. There is little "public assistance" as such. Their specific "anti-poverty programs" are largely folded into social insurance. There is nothing similar to Medicaid, since everyone has access to tax-supported health care. In many nations every family with children receives various allowances, so a special program to poor families is less necessary. And those programs that are specific to the poor are still seen as "insurance," insurance for everyone against the possibility of becoming poor oneself. Although many of the specifics of social welfare vary from country to country, one common element is universal health coverage. However this coverage is provided (and it is different in different countries), no one goes without health care; therefore, neither the month-to-month costs of health care nor medical emergencies throw people into poverty. The Finnish System It is instructive, I think, to take a closer look at the particulars of these social insurance programs in other countries to see what we Americans can learn from them. Because the approaches are so varied, it will be less confusing to use one country as an example. Since I am personally most familiar with Finland (my wife is Finnish) and have spent some time looking at its social welfare system, I will use that system as a particular example of what a program could look like. Like every other Western developed nation except the United States, Finland provides universal health care coverage. Doctors work thirty-seven hours for the state (either in the public clinics or hospitals) and are allowed to have private practices on the side, which many (especially specialists) do. Individuals may go to the public clinics for a nominal fee (about $20 a year); necessary hospitalization costs several dollars per day. Finns may also decide to use the private system, in which case the state will pay approximately two-thirds of charges for covered services. Perhaps the strangest (to American ears) parts of the Finnish system are their programs of Family Support and Home-Childcare Support. All families in Finland, regardless of income, receive allowances from the government for each of their children up to the age of 17. Interestingly enough, the allowance per child increases with every additional child, so that the family receives approximately $10029 per month for their first child but $200 a month for their fifth child. A family with three children, for instance, would receive almost $400 a month in total child support payments. A single mother receives an additional $40 a month per child from the state. In addition, a single mother is entitled to at least $125 per month in child support from the child's father, and the state takes responsibility for making sure it is paid, paying the mother any unpaid balance.30 In addition to the basic child support, one of the parents (or the single parent) of young children can choose to stay home to provide childcare and receive $300 per month base "pay." For each child under four an additional $100 per month is paid; for each child between three and the beginning of school (usually seven) the amount is $60 a month. For less affluent or poor families, there is an additional payment of up to $200 per month depending on family size and income.31 For parents who choose to return to work, the state provides childcare for a charge of $200 a month for the first child, $200 a month for the second child and $40 a month for each additional child. This charge is reduced for low-income families and is free for families with an income less than $12,000 per year. Unemployment insurance benefits are about the same amount as in the US (approximately half of the previous salary), but an unemployed worker can receive those benefits for up to two years, compared to six months in the United States. All Finns, regardless of income, are also eligible for education allowances for almost any kind of adult education: regular university, vocational or job training, continuing job-related education, retraining for a new profession and so forth. Tuition is free. Students (including full-time adult students) also receive living support ($300 a month) and rent support (2/3 of monthly rent up to a maximum of $170 per month). Retirement benefits are handled much as in the United States, with a combination of private retirement funds (through employers) and public social security benefits. They would be considered generous by American standards. (For example, my father-in-law, a professor at a state teachers' college, received a pension that was greater than the salary of the person who replaced him.) In addition to these benefits, which are available to everyone regardless of income, there are two programs specifically for the poor. The first is rent assistance, which may be as much as 80% of monthly rent, depending on income and cost of rent. Renters can choose housing wherever they can find it (thus avoiding the economic ghettoization common in the United States). Also, the names of those receiving such assistance are not public knowledge, thus avoiding any public stigma. Finally, there is a catch-all benefit that state social workers can give to people who still fall through the cracks. The amount one should need to live on is determined by a schedule that factors in family size, cost of living in the area, and any special needs.32 If all of one's income, including allowances and supports, is less than the determined amount, the social worker is allowed, on a case-by-case basis, to give an extra allowance to bring one up to that level, which is generous by American standards. A single mother with two children who rented an apartment for $500 a month would be considered to need at least $17,600, (compared to our poverty level of $13,650 for a family of three). A single person with a rent of $350 a month would need $9,000 per year (compared to our poverty level of $8,050). Unlike the other entitlements, these catch-all allowances are managed individually by an assigned social worker to make sure that funds are being used appropriately.33 If other special needs do develop, one can return to the social worker and apply for additional assistance. When we, as Americans, look at such a social welfare system, our invariable first response is, "With benefits like that, who would want to go to work?" We would wonder how many people are playing the system. When—in an extensive interview with a Finnish social worker—I tried to voice that concern, she at first literally didn't understand what I was getting at. She finally responded that in their city of 60,000 people, their system knew of approximately one hundred people whom they thought "should have been working." She went on to say, however, that they had just done a more in-depth study of these one hundred individuals. Extensive medical and psychological testing had determined that approximately half had subtle disabilities that really did prevent them from working. In the end, no more than 0.08% of the population was abusing the system. Because virtually all Finns belong to the same racial and cultural group, racial segregation is not an issue. Neither is there much economic segregation. The richer and the poorer live in the same neighborhoods; their children go to the same schools. As a result the disparity in services provided to rich and poor that is so prominent in the United States is largely absent. The result of this system is that Finland has little poverty as we would define it in the United States. There are certainly poorer people, but their incomes would generally not be allowed to fall below our poverty levels. Even the poorest would not be "poor" by the United States definition. There is, of course, a cost to such a way of conducting government. In the United States, average Federal and local taxation (not including social security taxes) is about 21%. The range in the other Western nations is between 40% and 50%, although not all of that increase is due to social insurance programs. The problems in the United States, of course, are quite different from those in Finland. Finland is a small country; the overwhelming issue of segregation (and the legacy of slavery) does not exist. The population is much more homogeneous and people tend to identify with one another. But there are several take-home lessons:

  • It is possible to create a social insurance program that does not allow the income of people to fall below that which is considered necessary. So defined, poverty is not an inescapable fact of human nature, political science, or even capitalist economy.
  • Creating such a system is expensive. It requires significantly higher levels of taxation than Americans have been willing to subject themselves to.
  • There is nothing intrinsic in this kind of social insurance that leads to lack of motivation or laziness. Given the proper support, virtually everyone will use the program appropriately (although it is important to recognize that the enormous physical and psychic damage already done to many poor people would demand much more intensive support for the first generation or two).

How might we, then, build such a system in the United States? Proposals for Change in the United States Desegregation By far the most important thing that must happen in the United States is desegregation, both racial and economic. As long as there are ghettos, Jonathan Kozol has written, there will be ghetto desperation. If one puts all of the poorest people together in one area, removes the jobs, decimates the social organization, and so forth, generational poverty is simply inevitable. Affluent people must move into poorer neighborhoods, and (somewhat more likely) the affluent need to allow poor people into their neighborhoods. The "specter" of poor people moving into affluent neighborhoods is threatening to most middle- and upper-class Americans. We fear that the problems of the inner city will accompany the people. Over the last twenty years, however, there has been a fascinating research study, the Gautreaux Project in Chicago, the importance of which has not been generally recognized. Chicago public housing has always been highly segregated. As part of the settlement of a Federal civil rights suit in the 1970s, the city of Chicago agreed to fund a study of approximately 5,000 families from a public housing project that was being razed. The tenants were, for all practical purposes, randomly assigned to two groups. Both groups were offered Section 8 housing vouchers (to pay the rent), but one group (the inner-city group) was offered housing in another part of the city, while families in the second group (the suburban group) were given the opportunity to move into middle-class and affluent white neighborhoods in the suburbs. Other than locating the eligible apartments (where landlords would accept Section 8 certificates), neither group was given any special help. These two groups were then followed closely and have been statistically compared over the last twenty years. To over-simplify, the mothers of the families from the suburban group had results not so different from the mothers in the inner-city group. They were employed about as often, made about as much money, and had to go back on welfare about as often. Interestingly enough, neither group of mothers felt more socially isolated than the other, which is to say that the poor, black mothers in the white, middle-class neighborhoods felt no more socially isolated than their counterparts in the city. It was not that the suburban mothers did not often feel isolated: they did. It was just as true, however, that inner-city mothers felt forced to chose self-isolation as a way of protecting their children from the dangers of the ghetto. It was in the children that the important differences were noted. As might be expected, during the first several years after moving into the more advanced suburban schools, the children struggled. They had much to catch up on, in many cases years of work, because their inner-city schools had simply not been teaching at the same level. After three or four years, however, the school performance of the suburban kids changed. They began to do as well compared to their suburban peers as the inner-city kids were doing compared to their inner-city peers. Said another way, if black inner-city kids were making A's in the inner-city, they were soon making A's in the suburbs; those with B's in the inner-city had B's in the suburbs, and so on. The children had "jumped the track" from ghetto educational standards to suburban educational standards. Some of these children have now been followed for over twenty years, and the differences between the two groups have been astonishing. Far more children graduated from high school in the suburban group, ten times as many matriculated into four-year colleges, there were fewer college drop-outs and so forth. As these children now move into adulthood, similar differences are being found in employment history and earning capacity. While the road was sometimes bumpy and not everyone succeeded, a high percentage of these former ghetto kids were moving out. For them, the cycle of generational poverty had been broken. There are several conditions in the study that should be noted. First, only one or two families were moved into any particular suburban neighborhood. This had a very important effect, especially on the adolescents from the inner city because it did not allow them to congregate and develop a sub-culture in the neighborhood or in the school that brought the ghetto problems along. Children were essentially forced to integrate themselves into the suburban culture. Second, neighbors did not know the history of the new family unless the new family chose to tell them. Neighbors were therefore allowed to form their own opinions of the newcomers without the prejudices that "the inner city" conjures. Third, black families were integrated into white neighborhoods despite the mothers' sometimes considerable reluctance. (No one was forced to take suburban housing, of course, but the very few who chose not to take it were dropped from the study and had to find their own housing.) Research has shown that the average African American would prefer to live in a neighborhood that is mixed about 50 - 50, and they become uncomfortable if the percentage of African Americans in the neighborhoods drops below 10%. Presumably, most of these families would have chosen to move into a middle-class black or integrated neighborhood,34 but they were usually not given that choice. These results must challenge those of us who blame primarily the individual or the family for the frequent failure in the inner city. Take the family out of the inner city, the Gautreaux Project strongly suggests, and the children will do well. The Gautreaux Project is now being replicated in a number of cities across the United States. A significant obstacle to multiplying such programs elsewhere is that the affluent communities have in some cases reacted very negatively to the idea, effectively killing the project. Social Insurance In the absence of real desegregation, the task of eliminating poverty will be very difficult. It is possible, however, to design a social insurance system in the United States that would bring most poor people out of poverty. The following is a proposal for American social insurance that, I think, would be accepted by the majority of Americans. Since it comprises only one new program that is favored in reliable polls by a large majority of Americans and an expansion of three currently existing programs, the proposal is politically feasible. First, the new program: universal health care must be provided. Poor and (increasingly) middle-class people simply cannot afford health insurance, and minimum-wage employers do not offer it; fewer and fewer employers of any kind are offering family coverage. Congressman James McDermott, a physician, has introduced into almost every session of Congress a proposal for a "single-payer plan" that would provide universal coverage to all Americans without increasing total health care costs for the country. Almost one hundred members of the House of Representatives have usually signed on to this bill. A single-payer plan would make the United States government into the sole "insurance company" to offer health care. (Regardless of what one thinks of the Federal government in other fields, it handles insurance very efficiently and cheaply. Social security is run with an administrative overhead of less than 3% compared to 15% - 20% in private insurance companies.) Doctors would still bill the "insurance company," but there would be only one company to bill, the government. The administrative savings from such a plan would be enormous.35 Not only would overhead be less for the government than for for-profit insurance companies, but overhead would also be less for the doctors and hospitals. The current Byzantine system of private insurance, each with different exclusions and levels of coverage is an expensive nightmare for health care providers. In separate studies the Congressional Budget Office and the Office of Management and Budget (OMB) have demonstrated that the administrative savings would be enough to provide comprehensive health coverage for all of the uninsured in the country. In other words, we could give everyone insurance for the same total cost that now leaves over 43 million people uncovered! Second, the Earned Income Tax Credit (EITC), already functioning as a well-accepted program, could be expanded such that no person working more than thirty hours a week would earn less than the poverty level for his or her family size. There are now millions of poor people who have a full-time worker in the family. None of these families would be poor. A further provision of the EITC could give an extra credit to parents of small children to make childcare affordable. Third, through a combination of the EITC and an expanded unemployment insurance, employees who are laid off should also receive an income that leaves them above the poverty level. Finally, the Supplemental Security Insurance program, which provides disability benefits to those permanently disabled, must be carefully expanded in two ways. First, eligibility must be expanded so that everyone who really cannot work (for whatever reason) qualifies. This would require only a change in regulations, not a change in the law, for coverage of all those who are disabled is the mandate of this program. Due to meager budget appropriations and other political factors, however, the regulations and the milieu of the decision makers in practice deny coverage to many disabled persons. Causes such as disabling back pain (often impossible for the claimant to "prove"), mental conditions that do not meet certain criteria, disability due to addiction, and many other disabling conditions are in practice not considered eligible. Second, the level of coverage must be increased to the level of the EITC discussed above, ie all individuals and families should have incomes above the poverty level. The total cost of the above programs would not be prohibitive. As outlined above, the cost of universal health care would not be any more than our current system. (Although it would necessitate an increase in taxes, this increase would be offset by the elimination of insurance premiums paid by employers that currently provide coverage and by individuals who must pay their own premiums.) The exact cost of the other three programs is not known, although it would not require more than a minimal (less than 1%) increase in Federal expenditures. In 1991, the Census Bureau estimated that it would have taken an additional $37 billion to raise the incomes of all poor families with children to the poverty line. By contrast, yearly Social Security income alone is approximately $500 billion. The tax deduction that homeowners are allowed to take for the interest they pay on their mortgages (really an income transfer program to the middle class) costs the US treasury $49 billion. The implementation all of the above programs—which would raise the incomes of almost everyone in the country above the poverty level—could be financed by less than a 1% increase in taxes (excluding the cost-neutral transfer of health insurance payments to taxes)! Although the political likelihood of enacting the above programs is small, we should not confuse the issue by saying that we have "tried everything" to eliminate poverty or that "the government can't solve the problem of poverty." The government (that is, the American people acting together) can solve the problem of poverty, and it would not be expensive. Would not the above programs simply allow—or even encourage—people to sit back and let the government take care of them? The evidence suggests not. The backbone of the above programs is the expansion of the EITC. According to a recent report by the Center on Budget and Policy Priorities,

A series of studies … [has] consistently found that the EITC has substantial positive effects in inducing single parents to go to work. One of the most important of these studies finds that the proportion of single mothers who are in the labor force rose sharply between 1984 and 1996 and that the EITC expansions instituted during this period are responsible for more than half of this increase.36

Justice There is far more, of course, that needs to be done to bring real justice to the poor. Even if we lift people economically out of poverty, much of the damage that has already been done by poverty and oppression remains. Schools will still have to be radically improved, neighborhoods must be rebuilt, social services must be provided to the current victims of inner-city poverty (especially the children) to overcome some of the emotional damage that has been done, adult education must be expanded and so on. Justice demands that the conditions in the inner city be changed. The current response is mostly to add police (which does need to be done), increase prison sentences (which does not need to be done), and throw up our hands, saying, "There's nothing more we can do." The poverty of the inner city is a stain upon democracy in the United States. Yet there is nothing—except our failure to will it—that stands in the way of alleviating it. Footnotes 29 All dollar amounts are approximations based on actual figures in Finnish marks. 30 A single mother with one child would, therefore, receive $265 per month for that child ($100 basic payment, $125 from the child's father, and $40 single-parent compensation. For two children she would be paid $535 a month in family support payments alone. 31 A single mother with one child under the age of three and another between three and seven would, therefore, receive $660 a month for staying home and taking care of the children, making a total of $1,220 per month from the state. 32 Buying work tools, additional childcare, moving or funerals are examples of special needs. 33 If an unemployed person refuses an appropriate job offer, for instance, this support can be reduced by 20% for several months. If that person refuses another job in the same time period, the support can be reduced 40%. The reduction lasts only several months, however. 34 In all probability, the urban children would have done just as well (or perhaps better) in an affluent black neighborhood, but this has not been tested. 35 Physicians for a National Health Program (PNHP) has proposed a plan very similar to McDermott's bill. The details of such a plan can be obtained from them at 332 South Michigan Suite 500, Chicago, IL 60604 or from their website at www.pnhp.org. 36New Research Findings on the Effects of the Earned Income Tax Credit by Robert Greenstein and Isaac Shapiro, a report from the Center on Budget and Policy Priorities, 820 First St NE Suite 510, Washington, DC 20002. Their website is www.cbpp.org, from which the entire report (along with much other useful information) can be downloaded.

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David Hilfiker

is a physician and cofounder of Joseph's House. He's the author of Not All of Us Are Saints: A Doctor's Journey with the Poor and Urban Injustice: How Ghettos Happen.