We Must Share The Risk. But How?

It’s all the fault of Big Business, writes Malcolm Gladwell in The New Yorker. After World War II Richard Gosser, head of a United Auto Workers Local, proposed a central fund for collecting and paying workers’ pensions, paid for by ten cents an hour from their wages.

But the employers would have none of it. They came up with the company-run defined-benefit pension plan. No way they were going to yield up control of pensions to the unions.

Management guru Peter Drucker, writes Gladwell, saw through this at once. In a 1950 article in Harper’s he exposed the company pension plan idea as a mirage.

Drucker simply couldn’t see how the pension plans on the table at companies like G.M. could ever work. “For such a plan to give real security, the financial strength of the company and its economic success must be reasonably secure for the next forty years,”

And he was right. Of course, the union pension plan hasn’t been much better. But we don’t mention such things at The New Yorker.

It’s all about the “dependency ratio,” writes Gladwell, the ratio of workers to dependents. In a young company like GM in 1950, or a young country like Ireland in the 1990s, there are lots of workers to support dependents like children and old people. So the company, or the economy, booms. But when the baby boom starts to retire, then the dependency ratio turns south. And the company walks away from its promises.

What is needed (and you knew this was coming) is that

if you pooled the obligations of every employer in the country, no company would go bankrupt just because it happened to employ older people, or it happened to have been around for a while.

Good point. But the question is: How? You can see the spirit of “universal government program” hovering above these words. But come on, that’s not going to work. We already know it is not going to work. The federal government has promised trillions in defined-benefit Social Security and Medicare that it cannot pay back.

What is needed is the system that the workers set up for themselves in the nineteenth century before progressives came along and took it away. We need a safety net of mediating structures between individual and the megastructures of Big Business, Big Unions, and Big Government. There are names for such structures: family, church, fraternal association.

In these face-to-face social organizations people really are bonded in a community of common interest that does not obtain with the three Bigs. Big Business executives do not share a common lifetime interest with their employees. Nor do Big Union leaders share a lifetime common interest with their members. And Big Government politicians only care about your vote.

So if you pool the obligations of people with genuine common interest: family members, church members, fraternal association members, then you wouldn’t have to worry about them going bankrupt and skipping town. Parents naturally want to invest in the future of their children. Church members naturally want to help the church member that has encountered misfortune. And fraternal associations were set up precisely to share the risks of the modern economy among solid, trustworthy brothers and sisters at the lodge.

But liberals came along and ripped up this system. They taught the American people instead to trust their compassion and their sensitivity.

The trouble is that liberals really did not have a fellow feeling with the workers. They wanted the votes of the workers so they could obtain political power. And they wanted the workers to be dependent on them. Why else would liberals be resisting the reform of Social Security?

The question on pension and health care defaults is not whether to socialize the risks of life. The question is: How? We’ve tried it with Big Government, Big Business, and Big Labor.

Or we could return to a method that really works.

Wal-Mart's Global Poverty Reduction Program

When the Boston Associates built the textile mills in Lowell, Massachusetts, they hired single young Yankee women right off the farm. When the farmer’s daughters went on to bigger and better things, the mills hired the Irish. When the Irish were too prosperous to work in textile mills the mills opened up in the rural Carolinas.

Now the textile mills are florishing in China. Many people don’t like the sweatshop wages and working conditions, Michael Strong writes. For sure, he says:

"China is the most populous country, with 1.3 billion people, most still poor enough to willingly move hundreds of miles from home for jobs that would be shunned by anyone with better prospects."

But the jobs at the sweatshops in the city pay more than twice as much as jobs in the country. Who wouldn’t travel hundreds of miles from home for that?

But for some reason, lots of people think that such disparities are a disaster.

D. Gale Johnson, an economist who studied regional inequality within China, described the enormous disparity between urban and rural workers as "the great injustice." Urban workers earn about 2.5 times as much as rural workers. Even after counting the higher cost of living in urban areas, urban workers make about twice as much. Not surprisingly, massive numbers of people are moving to the city to work in factories.

I guess that one man’s injustice is another man’s market signal.

And of course it is the demand for Chinese manufactures from the shoppers at Wal-Mart that generates the higher wages in the city.

So should we thank Wal-Mart for their global development policies and for raising millions out of poverty?

The fact is that people move off the farm into the city because they expect to make more money in the city.

And also, and this is a big deal for peasants used to working outside in rice paddies in all weather: they also expect to work inside. They really like that.

Beyond Welfare Reform

Everyone is doing their ten year anniversary pieces for the welfare reform act that President Clinton signed ten years ago today, August 22, in the summer of 1996.

And as he should, Bill Clinton writes today in The New York Times about his role in “ending welfare as we know it.”

The last 10 years have shown that we did in fact end welfare as we knew it, creating a new beginning for millions of Americans.



In the past decade, welfare rolls have dropped substantially, from 12.2 million in 1996 to 4.5 million today. At the same time, caseloads declined by 54 percent. Sixty percent of mothers who left welfare found work, far surpassing predictions of experts... [M]ore than 20,000 businesses hired 1.1 million former welfare recipients.

Bill Clinton does a good job of recounting the policy wonk details of all the government programs that were changed to help change the face of welfare. But what he does not really address is the societal question, of which welfare dependency is the tip of the iceberg.

It was over 40 years ago, as Robert Rector reminds us, that Professor Daniel Patrick Moynihan warned up about the collapse of the Negro family.

In 1965, Moynihan authored a report for the Johnson administration titled "The Negro Family: The Case for National Action." The... Moynihan report... looked at the state of the black family in America and argued that many of the problems commonly believed to be attributable to race and other factors were actually due to differences in family structure.



"Indices of dollars of income, standards of living and years of education deceive," reads the introduction to the Moynihan report. "The fundamental problem . . . is that of family structure."

The problem of welfare is not a problem of programs and benefits, but a problem of single parents, primarily single mothers.

But this is part of a much bigger problem, the source of which can be found in the culture of the educated middle class, the idea that the purpose of life is not to found a family and grow children into worthy, productive adults.

The educated middle class lives by the idea of creativity, of replacing the creativity of the loins with the creativity of the mind. The first idea is a family idea; it believes in creating children. The second idea is an individual idea; it believes in art and genius. It is not surprising that people who believe in individual creativity are people who don’t do much in the way of creating children.

That is the Big Problem that dare not speak its name. The problem is us: the educated middle class and our desire for individual fulfillment.

In the middle class we can afford a pathology or two, and a busted marriage or two. But the poor cannot. That is why they are poor. And we, the sophisticated middle class, have visited a murrain upon the poor of epic proportions.

The sad thing is that most of the middle class have no clue what we have done.

That is another thing about the middle class. We are clever enough and rich enough to be able to keep brutal reality far enough away to keep it from crashing in on us.

Bibi Rallies Israel

In his speech to the Knesset a week ago former Israeli Prime Minister Benjamin Netanyahu worked to rally the people of Israel and prepare them for what is to come. He praised the bravery of the troops and the stoicism of the ordinary people who told him from their bunkers:

“Go on”, they said, “we are ready to stay in the bomb shelters for many more weeks, as long as you finish the job”.

Netanyahu used his time to make three points, to set the agenda for the future.

1. The concept of unilateral withdrawals has collapsed.
   
2. The root cause of the conflict has been finally exposed. “At its core, this is a conflict about Israel’s very existence, whatever our borders may be.”
   
3. The need for alliances
   

There is, he said a simple way to understand the conflict.

If our enemies lay down their arms, there will be no more war. But if Israel lays down its arms, there will be no more Israel.

...

I believe that the day will come when a new Cyrus will emerge in Persia to replace the genocidal Haman of our day. But until that day comes, Israel’s enemies must know: This nation is strong! This army is strong! ... and the people of Israel shall dwell in their land for eternity.

Of course, he’s only doing his job, sharing his view of the steps needed in the days to come and inspiring the people of Israel with a sense of their glorious future.

But that is what national leaders are for.

Lebanon War Not Disaster, Says Expert

Military expert Edward N. Luttwalk has always enjoyed being a contrarian, sometimes annoyingly so.

Now that everyone is talking about the defeat of Israel in the Lebanon war, Luttwalk proposes that in retrospect it won’t seem so bad. He illustrates his points with comparisons to 1973 when it seemed that Israel was almost overrun by the Syrians and the Egyptians.

For one thing, the Hezbos did not fight as well as the Egyptians in 1973. For another, Israel stopped the advance of the Arabs in 1973 the moment that it got its army formations fully mobilized. Immediately upon full mobilization of the reserves it found that it could go on the offense.

Hezbollah, he writes, did not fight that well. You can tell that by the very low casualties suffered by Israel.

When an IDF company attacked the mountain town of Bint Jbail, losing eight men in one night, that number was perceived in Israel - and broadcast around the world - as a disastrous loss.



Many a surviving veteran of the 1943-1945 Italian campaign must have been amazed by this reaction. There too it was one stone-built village and hilltop town after another, and... a company that went against them would consider the loss of only eight men as very fortunate.

And the Hezbo rocketeers were unable to fire off their rockets in concentrated barrages that might have led to hundreds of Israeli civilian casualties.

In a way, Hezbollah’s position as an unrecognized armed community has given it an enormous benefit, because it operates in the shadows in Lebanon. But the closer it comes to a nation-state actor the more it becomes responsible for the safety and security of the people in southern Lebanon, and the more it will find its actions and options constrained by its status as an official government.

Blacks, Hispanics Dip At Top NY High Schools

About ten years ago New York City set up a special program to help boost enrollment of black and Hispanics at their three top high schools. You can only get into them by passing an academic test; no racial quotas allowed. So the program provided special tutoring for blacks and Hispanics.

Trouble is that the enrollment of blacks and Hispanics at the three top high schools has been going down in spite of the special tutoring program. What’s the problem, asks reporter Elissa Gootman in The New York Times? Robert Jackson knows. He’s “chairman of the City Council education committee.”

“The statistics clearly show that black New Yorkers are being shut out... Is it institutional racism or is it something else?”

Oh no! Not institutional racism rearing its ugly head! And in New York City too, where evil white conservative institutional racists and bigots are pretty thin on the ground! How could it happen?

Actually, if you look at the graph of enrollment at the three top New York City high schools, you can see what is happening. The real story has nothing to do with black and Hispanic students.

The real story is that enrollment of Asian students is soaring and the enrollment of white students is plummeting.

Of course, that is a story of no interest to the race baiters of New York City and the earnest liberal journalists at The New York Times. But Gootman puts her finger on the real problem for the underrepresentation of blacks and Hispanics.

Now parents, educators and academics explain the racial makeup of the schools by pointing to a variety of factors, including... the hiring of private tutors by the middle class and continued use of the admissions test alone.

Well. We’d better put a stop to that, for sure. Imagine, overprivileged middle-class parents are going out without permission and spending their own money on private tutors. There’s institutional racism for you. Or is it cultural racism?

Here’s an idea to deal with this problem. New York City should have a program to regulate the price charged by private tutors. Otherwise the rich and the middle class will skim off all the good tutors and the underserved communities will be marginalized and continue to be shut out of the good schools.

What is Going to Happen in November?

The generic ballot shows the Democrats up by 10 percent or more. And the Gallup Poll’s wrong track/right track poll shows that a majority of voters think that the nation is on the wrong track.

That means a Democratic win in the mid-term elections in November, right?

Actually, it doesn’t, according to political science candidate Jay Cost.

You can’t trust the generic ballot directly, he writes.

If you correct for the systemic pro-Democratic skew inherent to the generic ballot, you will see that - as of today - it is essentially predicting a draw. And, much more importantly, the generic ballot is not to be trusted anyway because it violates certain assmptions necessary to use it to make a prediction.

The right track/wrong track question is also unreliable.

Between 1984 and 1986, voters started to feel nice and sunny about the state of the nation. Net positive ratings rose by about 15%. Did that help Reagan and the GOP? No. Their share of the two-party House vote dropped by 2.3% - and they lost the Senate.

The fact is that elections are won on election day. Will voters be voting against $3.00 gasoline? Will they be voting against the mess in Iraq? Will they be voting for better health care benefits? Will they be voting for a tougher war on terror?

We don’t know. That is why we are going to hold an election.