Blogs > Liberty and Power > My Response to Mike Konczal ("The Voluntarism Fantasy")

Dec 15, 2014

My Response to Mike Konczal ("The Voluntarism Fantasy")

On Thursday night, a segment of the John Stossel Show (9:00 p.m. eastern) on the Fox Business Channel will air a short "debate" which was taped last week between yours truly and Mike Konczal on the historical viability, or lack thereof, of non-governmental alternatives to the welfare state.  Several months ago, I wrote a rough draft of a response after Konczal's article, "The Voluntarism Fantasy," appeared in Democracy Journal.  In the segment on the Stossel Show, Konczal (who I found to be quite a pleasant fellow) put forward many of the same points raised in his article.

I did not revise my response or publish it because of other priorities.  In anticipation of the show's airing, however, I am putting it up now.  My sources can be found in From Mutual Aid to the Welfare State.  I can also provide them upon request.   

Here is my response:  

At the outset of his article, "The Voluntarism Fantasy," Mike Konczal asserts that conservatives, and presumably libertarians, miss the point because they start from a  flawed premise that a social welfare “golden period” once existed which was “free from any and all government interference.”   This characterization is faulty to say the least.  I know of no serious libertarian or conservative scholar who claims anything of the sort.  In From Mutual Aid to the Welfare State, for example, I described some of the ways through which governments took part in the provision of hierarchical charity and relief.  I also emphasized, however, that a focus on the precise mix between governmental and private relief becomes a much less important issue when we realize just how small government’s role was at the turn of the last century.

In 1910, for example, government spending at all levels constituted about 7 percent of GDP.   Government social-welfare spending was even more trivial as a percentage of GDP by today’s standards.  Only a fraction of one percent of Americans, for example, lived in a poorhouse that year.  It is also true, as I pointed out, that the role of top-down private charity was similarly sparse.  To a great extent, this low level of dependence on private or governmental top-down relief was a byproduct of a tremendous stigma in the folk culture (black, native white, and immigrant) against dependence on outsiders.   

One of the goals of From Mutual Aid to the Welfare State was to address the question of how so many Americans were not only able to just "get by" but better their economic condition over time, despite a Lilliputian governmental role in poor relief, relatively small amounts of private hierarchical relief, and much higher poverty rates than today.

Part of the answer is that Americans could turn to a wide array of mutual aid, community, self-help, familial, and market alternatives to both provide for their social welfare needs and facilitate upward mobility.   Edward Devine, a pioneer leader in social work and progressive advocate of governmental health insurance, recognized that these arrangements, created largely by the poor themselves, dwarfed those of public and private social welfare agencies.  “We who are engaged in relief work,” he wrote in an article for the Survey in 1913,”…are apt to the get very distorted impressions about the importance in the social economy, of the funds which we are distributing or of the social schemes which we are promoting...If there were no resources in times of exceptional distress except the provision which people would voluntarily make on their own account and the informal neighborly help which people would give to one another…most of the misfortunes would still be provided for.”

In making his case, Konczal emphasizes that most Americans did not belong to fraternal societies but, again, no serious scholar ever claimed otherwise.  As Devine’s comments indicate, these societies were part of a menu of self-help, market, and neighborhood alternatives which existed during the period.   The idea of a “one best system” was an anathema to most Americans, many of whom did not find membership in a lodge to be their cup of tea. 

In stressing the downside of fraternalism, Konczal states these societies “were regionally segregated and isolated. These forms of insurance didn’t exist in places without dense cities, industry, or deep ethnic and immigrant communities.”

This is a mistaken view.  While certain immigrant groups were more likely to join lodges, the largest fraternal societies in the country, including the Odd Fellows, the Moose, the Woodmen, and the Knights of Pythias, included large numbers of both the native-born and immigrants as well as great diversity in religious affiliations.   All of groups named above, and many others, had more than a thousand geographically dispersed lodges, making them among the least “regionally segregated” organizations in the United States. In these societies, members in San Francisco could still receive full benefits once they took their membership cards to lodges in Baltimore, New York, or other cities.  While white societies were racially segregated (as were most labor unions and political organizations) they formed key "bridge organizations” for disparate ethnic and religious groups.

The contention that these organizations “didn’t exist in places without dense cities” is also problematic on several counts.  The lodge was a staple of small-town America and, even today, a traveler in isolated geographical pockets will often run across buildings which quite clearly once functioned as lodge halls or find graves in cemeteries with lodge insignia. 

As discussed in From Mutual Aid to the Welfare State, some of the most remarkable experiments in mutual aid for social-welfare in the twentieth century were those of black organizations in the Mississippi Delta, an area dominated by agriculture and small towns.   Beginning in the 1920s and continuing into the 1940s, for example, the Afro-American Sons and Daughters, the International Order of Twelve Knights and Daughters of Tabor, and the United Order of Friendship built hospitals in Mississippi.  These provided affordable and wide-ranging health care to memberships made up primarily of sharecroppers and farm tenants. 

Indeed, recognition of the striking popularity of mutual aid among blacks is almost entirely absent from Konczal's article.  The early progressives, including Isaac Rubinow, who Konczal quotes on another issue, were well aware of this prevalence.   According to Rubinow, “outside of the immigrant groups, Negroes represent the only class of population where the habit of mutual insurance through voluntary association has developed to the highest degree in the United States.”   The black version of the Odd Fellows alone had more than 300,000 members in 1916; that's out of a total American black population of about ten million.

Konczal's point that societies were “designed for working men” also needs to be taken with a grain of salt or at least put in some context.  First, while most fraternalists were men, so too were most members of labor unions or political organizations during the period.   It should also be pointed out that most insurance benefits, even when the member was a man, went to women and children and that a majority of the residents of fraternal homes for the elderly were women.   In addition, there were many segments of fraternalism where women were making significant inroads in the twentieth century and a promising trend was underway to tailor benefits to working women.  The Woman’s Benefit Association, for example, began to offer maternity insurance during the 1910s and all the fraternal hospitals provided obstetric services.   Women made up a large majority of the members of three black groups in Mississippi mentioned earlier. 

Futhermore, on this point, probably the largest black women’s voluntary organization in the United States in 1916, was the Household of Ruth, the female affiliate of the black Odd Fellows, which had 197,000 members.  The failure of so many specialists in black and women’s history to discuss or study this organization is a sad commentary on the priorities of my profession.  Fortunately, historians have said a bit more (though only a bit) about Maggie Walker, the black head of the predominately female Independent Order of St. Luke, who was the first woman bank president in the United States.

Again, when we treat fraternal societies as one of several items on a flexible menu of alternatives, as most Americans of the era did, we can better understand the function they served.  Their comparative advantage included sick benefits and medical care.  They were not as likely to be providers of old-age insurance or retirement plans.  To some extent, this was because of state laws which restricted fraternal benefits for the aged though there may have been other factors.    In any case, the market during this era was increasingly creating other alternatives for Americans to save for old age.

One of the most extensive of these alternatives was a form of commercial insurance (not mentioned by Konczal), called tontine insurance.  Tontine insurance was individually purchased rather than tied to employment and had some similarities to the modern individual retirement account.  According to economic historians Roger L. Ransom and Richard Sutch, the purchaser of a tontine policy “was creating a retirement fund for old age.  Moreover, the rate of return earned by survivors on the investment” was generally higher than other forms of investments.  Nine million tontine policies (out of about eighteen million American households) were in force in 1905.  Tontine insurance did not disappear because of market failure (it was actually sound by all the evidence) but because it was banned by progressive-minded legislatures which condemned it as appealing to the “gambling instinct” (Roger L. Ransom and Richard Sutch, "Tontine Insurance and the Armstrong Investigation: A Case of Stifled Innovation, 1868-1905," Journal of Economic History 47 (June 1987), 382, 385-86, 388).

According to Konczal, during the Great Depression, “Ethnic benefit societies, building and loan associations, fraternal insurance policies, bank accounts, and credit arrangements all had major failure rates.”   If Konczal is implying that fraternal societies collapsed in unusually large numbers or shed their commitment to social welfare, he is again mistaken.  A study of sixty-five leading fraternal life insurance orders found that only five ceased operation during the 1930s.  The per capita amount these societies spent on sickness, disability, and accident insurance was higher in 1935 than in 1930.  While per capita spending on these services fell slightly by 1940, they rose as a percentage of all benefits paid.   By 1940, the number of residents in both fraternal orphanages and homes for the elderly was higher than ever. 

To be sure, the Great Depression was a tough time for all institutions in American society, including governments which suffered massive tax delinquencies and defaults, and fraternal societies were not exceptions. 

The key problem they faced during the 1930s, however, was not a lack of solvency or shedding of social welfare services but rather falling memberships.  In previous depressions, which typically lasted from one to three years (such as the depression from 1920 to 1921), it was possible to carry unemployed members in arrears on the rolls until hard times ended.  This was not so easy when double-digit unemployment was seemingly endless to ordinary workers, lasting all the way to 1941.  The key lesson to be drawn from this decade is not the failure of fraternal societies (they actually proved quite resourceful in coping with a crisis not of their making) but rather the failure of the interventionist policies of both Herbert Hoover and Franklin D. Roosevelt.  These included such disasters as the crippling Smoot-Hawley tariff, a top marginal tax rate of 60 percent or higher, and failed attempts of centralized planning such as the NRA and AAA, which perpetuated a catastrophic ten-year depression.   

It was only as the modern welfare state took permanent hold in the 1940s that fraternal societies began in earnest to abandon their role as social-welfare providers and become more typical social clubs.

Let me tackle a few other issues raised in the article.  Konczal writes that the “central idea [of poorhouses] was that by forcing people in need of aid to live in poorhouses where living conditions were quite harsh, there would be fewer applicants. This ended up not being the case, as able-bodied people would still seek out these poorhouses, especially when work was slack and unemployment high.”

If the implication here is that Americans were more likely to spend time in poorhouses as they began to crowd into cities during the late nineteenth century, it would be inaccurate.  In 1880, only 1 in 758 Americans lived in a poorhouse at any single time.  By 1903, the ratio had actually widened to 1 out of 920.  Similarly, mothers’ pensions, another benefit Konczal mentions, never reached more than a fraction of one percent of the population prior to the depression.

Fraternal societies existed in a broader context, of course.  The turn of the century was a period when the relatively open market enabled strategies for survival and upward mobility for the poor and working class which often no longer exist.  The absence of zoning and other land use restrictions, for example, allowed for low income urban dwellers to temporarily double up, or rent to lodgers, as part of a long-term home ownership strategy.  One of the results was that many immigrant groups were more likely by the 1920s to own homes than native whites.  Weak or non-existent licensing laws made it possible for many others to earn income as peddlers or homeworkers.  Of course, there was no "golden period" in the history of job and housing regulation.  Many racial minorities in the South, for example, suffered intense persecution in the form of residential segregation laws (enacted first during the progressive era), emigrant labor agent laws, and discriminatory licensing 

The fraternal society was not a panacea but then what is?   Certainly not Obamacare. Certainly, not the VA health-care system.   Nevertheless, in their heyday, fraternal societies, along with a wide range other self-help institutions, could boast a solid record of accomplishments including not only the provision of social services to millions but, in contrast to often impersonal and hierarchical forms of governmental and private relief, the creation of a vast social infrastructure (or social capital) that produced numerous side benefits.  For millions of Americans in the early twentieth century, the voluntary sector in its various guises was not a "fantasy" but a remarkable achievement created, in many cases, in the face of great adversity.

P.S. As noted above, another aspect of fraternal societies neglected by Konczal was their role as providers of social capital. For many Americans, the lodge hall, with its dances, sporting events, and other entertainment, was a key source of community and social interaction.   The consequences for society of this social infrastructure which can not be easily assigned a monetary value..  Many black civil rights activists, for example, received their first organizational training in how to run a meeting, publicize an event, etc. in their fraternal lodges.  The modern welfare/regulatory state has failed spectacularly as either a creator or preserver of this kind of social capital. 

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