Thursday, March 17, 2011

The Funding of State and Local Governments: The Case for General Revenue-Sharing

The inherited pattern in the United States of funding of state and local governments mainly by taxation at their own levels is associated in much of the public mind with "local control."

This inherited funding pattern, however, has always had two great disadvantages:

  1. There are vast inequalities in the public and social services delivered by state and local governments across wealthier and poorer regions and localities. These include large inequalities in expenditures per pupil in public education, which is an issue that in many states has been debated for decades with only uneven or little progress toward equality. This pattern means, further, that populations in economically depressed areas suffer the double disadvantage of extensive poverty and a poverty of public services, often where these are needed most.

  2. Competition among the states to attract business locations means there is typically fierce opposition to increasing state-level taxation, because any state that does so can be at a significant disadvantage in attracting business locations, which can be crucial for achieving economic improvement. The business community and the Republican Party have perpetually hammered on this basic fact. The Democratic Party, on the other hand, has largely--though not wholly, in view of the many federal grants-in-aid programs--evaded this issue, because it has been either devoid of ideas or afraid to exercise political leadership by challenging present-day beliefs.
In the face of these realities, the optimum approach would be to move along a transition to funding of state and local governments mainly by general revenue-sharing out of the federal tax system on a population basis.

Unrestricted local control over the allocation of such funds, as distinct from the level of funding, could be preserved as a statutory right.

Such general revenue-sharing then would have two great advantages:

  1. The funding of services delivered by state and local governments would be proportional to the size of the populations to be served, and would no longer have any connection with the wealth or poverty of given regions and localities.

  2. The effect of inter-state competition to attract business locations in restricting the funding of services delivered by state and local governments would be circumvented altogether, for the tax level could be raised at the federal level with no disadvantage to any state in this inter-state competition.
Precisely for this reason, such a revamping of the American federal system would face intense opposition from all the forces demanding smaller government, including America's great business oligarchy.

The issue is what purposes ought to take priority.

Tobacco Promotion and the "Private-Enterprise" Doctrine

Given the effects of tobacco upon human health, U. S. public policy should aim, alongside education, to remove the promotion of tobacco products through their advertising.

This faces two basic obstacles:

  1. The executives of the tobacco companies are hired and fired by shareholders interested in maximizing profits, and the tobacco industry is able to act powerfully in the political system against its opponents.

  2. In the United States, the First Amendment adds a fundamental obstacle to regulation against advertising by a legal and privately owned industry, because tobacco companies can argue effectively that their advertising is constitutionally protected "free speech."

In the face of these obstacles, the most effective policy, in the United States, would be the nationalization of the share-rights in the tobacco manufacturing companies, the vesting of the exercise of these share-rights in the Commissioner of the U. S. Food and Drug Administration, and a statutory requirement that all net profits of the nationalized tobacco companies be used solely for public-health purposes related to tobacco, i.e. medical research, public education, and recouping of medical costs caused by tobacco products.

This approach would have several very large advantages:

  1. The Commissioner of the U. S. Food and Drug Administration, through exercise of the share-rights, could set general policies, geared to public health, without the government being involved in the details of company management. These general policies could then include the further points below:

  2. All advertising by the tobacco companies, through all channels and strategems, could be ended.

  3. The threat by the tobacco companies to invoke the First Amendment against restriction or prohibition of advertising would be circumvented altogether. The government could exercise its own property rights to impose whatever policies it saw fit.

  4. The entire problem of resistance from executives responsible to private shareholders, and political resistance orchestrated by a private industry, would be removed.

  5. All advertising at the retail level could be ended, without the costs and difficulties of enforcing regulations upon millions of private retailers, for one of the general policies could be to channel tobacco products exclusively through a network of government-operated retail outlets, in line with the system long used by some states for retailing of liquor. These outlets could then include educational videos showing effects of tobacco upon lungs and facial effects of surgeries for throat and mouth cancers. A few pictures can be worth a thousand words of exhortation, against skeptical youth and adults.

  6. All export of tobacco products could be ended. There is no moral difference between international traffic in hard drugs and knowingly exporting for profit tobacco-induced cancer, which is what the U. S. has long done.

  7. A stability could be assured for the tobacco industry, against any possible further litigation. There could be a one-time settlement, in which compensation to the shareholders would be market value minus some final liability assessment.
The underlying obstacle to such a public-health policy, in the United States, is an American hypnotic spell on behalf of "private enterprise." It is high time for that spell to be punctured.

Monday, March 14, 2011

The Functions of Trade Unions: The Case for Selective Transfers to Government

Recent actions in Wisconsin by Republican Governor Scott Walker, and Republican leaders in other states, have prompted heated debate over the general role of trade unions. Both sides have tended to obscure various dimensions of the facts--in some cases enormous facts.

The Wisconsin case

As to the specific case of public employees in Wisconsin, many liberals have jumped to the conclusion that Wisconsin public employees are undercompensated compared to private-sector workers with similar skills. Yet it appears, on the basis of a recent report by the McClatchy Tribune, that when total compensation is analyzed, including, not only salaries, but benefits, including retiree health insurance, and the economic value of greater job security in the public sector, Wisconsin public employees receive about ten percent higher compensation than similar private-sector workers.

On the other hand, many conservatives have reacted to such data by declaring that various public employees are "overpaid"--without asking how many private-sector employees are underprovided with health insurance, grievance procedures, vacation time, and secure and reasonable retirement income.

The general issue

As to the general issue of the overall role of trade unions, the history is mixed. Collective bargaining has brought legitimate and important protections to workers facing large employers, private and public, where no other means has been available. On the other hand, the history also includes excessive union power that has produced inflationary wage demands and excessive protection of incompetent, irresponsible, or surplus employees.

The problem of achieving a desirable balance of power between employees and management is complicated by the fact that, while in some other countries unionization is massive, with great diversity in attitudes of union leaders in different countries, in the United States unionization is far more limited, and is uneven. This inherently means inequalities, even great inequalities, in conditions and benefits in different parts of the economy.

The problem of inequalities

Trade unions influence decisions in the following areas, among others:
(1) Wages and salaries.
(2) Working conditions, including health and safety issues.
(3) The internal juridical situation governing grievance procedures.
(4) Health insurance, for active employees and retirees, which should be a basic social right.
(5) Retirement income, a part of total remuneration from, it should be noted, society.
These are separable functions. There is no "economic" necessity whatever for functions (4) and (5) to be connected with employers at all.

As to (4), if health insurance is decided by collective bargaining, the inevitable result will be inequalities in its terms. This function should be transferred altogether to the federal government in the form of a universal national healthcare system.

As to (5), in the United States people can do similar work for the same number of years and yet receive greatly unequal retirement incomes, depending on the types of employer or the state of the stock market at given points in time. The optimum approach would be a universal social-security system, including corporate executives, the self-employed, and farmers, funded by compulsory taxation, providing defined benefits, with adjustment of the terms (taxation, benefits, and ages of retirement) to accommodate demographic changes.

The collectivistic approaches proposed here meet profound opposition from a huge part of the American business community, which, for historical reasons, is far more hostile to the welfare state than its counterparts in Western Europe and Japan.

This is one of the great realities of "American exceptionalism"; it points directly to an "exceptional" case for a market socialism in the United States, for large firms, with taxing downward of great personal wealth, for nothing would be more effective in reducing the direct and indirect power of America's conservative business community.

Here is a vast blindness of American liberals. The term "liberal," referring to economic philosophy, directly denotes "within the framework of capitalism," particularly corporate capitalism, i.e. "liberty" for private property, including big property, with all the oligarchic political power this entails.

American liberals, because of their own psychology, fail to ask themselves why they are liberals and not socialists.

Wednesday, February 23, 2011

Terrorist Activity Against the United States: Law Enforcement vs. Causes

The United States has endeavored to deal with a series of problems by a heavy emphasis on what can be called "law-enforcement" approaches, while doing little to face up to causes. This has been true of the "war on drugs" and the illegal immigration from Mexico and Latin America, and it has been true of terrorist activity against the United States.

The "war on drugs" has focused heavily on efforts to interdict international traffic in hard drugs. But this, at best, can be only a holding action, given the huge market for hard drugs that has long been located in the inner-cities of the United States itself. Yet progress in reducing this market has been virtually nil. See the post on American urban policies.

Efforts to stem the tide of illegal workers into the U. S. from Mexico and elsewhere in Latin America have not yet faced up to the facts of the labor market that create huge incentives for this migration. A huge part of this contingent of foreign labor is complementary to, not competitive with, the American labor force; if this market were to be met legally, the United States would have to accept a volume of legal guest-workers some ten times what has been allowed under actual U.S. law. Instead of changing that law, Americans continue to be schizophrenic ; they want the advantages of cheap labor but they want "the foreigners out." Here Americans are doing battle with themselves.

The problem of terrorist activity against the United States falls into this same pattern. It has one generic cause --hatred of the United States. Its sources have generally been perfectly normal human reactions to specific foreign policies of the United States; it is a cost associated with those policies. The United States, through its far-flung involvement in world politics, is, in demonstrable fact, entangled in circular processes by which Americans, in effect, "do it to themselves."

We may now survey some of the most relevant subjects.


The state of Israel was created in Palestine as a long-term result of British colonial policy, specifically the Balfour Declaration of 1917, which declared British support for "the establishment in Palestine of a national home for the Jewish people," with the proviso that "the civil and religious rights of existing non-Jewish communities in Palestine" be protected. However, it was never politically feasible to live up to this proviso. This seemingly well-meaning project meant establishing, by massive Jewish immigration, decided by British policy during the subsequent British mandate over Palestine, a Jewish state in a country that had been occupied by a vast Arab majority for centuries. There is no way this could occur without massive violence. This has been the record down to the present.

Since the establishment of Israel as a Jewish state in 1948, the United States has had a close relationship with Israel, granting it large amounts of military and economic aid and perpetually declaring it to be a key "ally." Yet Israel, even under its various Labor governments, has always refused to make peace with the Palestinians on any terms plausible to moderate Arab opinion. It has built settlements in the West Bank region, has held on to East Jerusalem, and has promoted preemptive Jewish settlement in East Jerusalem. Israel, because of its origins and its policies, has always been an object of hatred among large parts of Arab populations throughout the Middle East. The posture of the United States, despite its efforts to promote Arab-Israeli peace agreements and its diplomatic pressures on Israel, has long incurred deep and widespread hostility within the Arab world. This has long been the case for reasons independent of the fundamentalist currents within Islam.

Long before Al Qaeda appeared on the scene, Robert Kennedy was assassinated in 1968. Robert Kennedy was a liberal Democrat of Irish-Catholic background who had aggressively courted Jewish votes by promising more aid to Israel. The assassin was Sirhan Sirhan, a 24-year old Palestinian, who had grown up seeing men, women, and children killed by Israeli helicopter gunships supplied by the United States.

Jordan is a country whose royal government has been one of the closest allies of the United States. But only a tiny percent of Jordan's population has had a favorable opinion of the United States. On the day following the September 11, 2001 terrorist attacks on the United States, television showed men, women, and children in Jordan dancing in the streets, obviously displaying a deep conviction that the United States was getting exactly what it deserved.

From the point of view of reducing incentive for terrorist actions against the United States, Israel, despite its cooperation in intelligence matters, has been a highly toxic ally.

The entanglement of the United States with Israel is, however, powerfully anchored in American domestic politics. The Democratic Party is tied by the Jewish vote, even though Americans of Jewish background are no longer as uncritical of Israeli policies as they once were. The Republican Party is tied by the religious right. Both parties, however, are tied by a far larger dimension of the indirect power of the Israeli lobby: It is the fact that some 80% of the population of the United States are theistic believers in Christianity, which historically is an offshoot of Judaism, and for this reason tend to have both a sentimental attachment to Israel (the "holy land") and a prejudice against Islam (a "wrong" religion), even in its modern, liberal, and secular forms.

The Two Iraq Wars

Following World War I, the Ottoman (Turkish) empire was partitioned by the victors, and Britain obtained a mandate in 1920, not only over Palestine and Transjordania, but also over the two former Ottoman provinces of Basra and Baghdad, out of which Britain created the state of Iraq. Later, after a long dispute with the Republic of Turkey, Britain added to Iraq a third former Ottoman province, Mosul, in the north, which was rich in oil.

But Britain kept out of the new state of Iraq the sheikdom of Kuwait. This fitted British interests. But, for Iraq, the existence of this autocratic sheikdom has always blocked any optimum shipping outlet to the Persian Gulf -- a situation not wholly unlike the control of New Orleans at the mouth of the Mississippi by Napoleon when Thomas Jefferson took office as President in 1801. The annexation of Kuwait was a perennial aim of Iraqi nationalists in the period between the two World Wars.

Over time, the development of oil in the Persian Gulf region led to different attitudes toward oil pricing among oil exporting countries, between "low absorbers" and "high absorbers," these terms referring to capacity to absorb oil revenues for domestic development. The "low absorbers" have favored relatively lower oil prices, to avoid stimulating development of other fuels and energy technologies; these include Kuwait, other Persian Gulf oil sheikdoms, and Saudi Arabia. The "high absorbers" have favored higher oil prices, because of stronger domestic pressures for general economic development; these include Iraq, Iran, and Nigeria, among others.

Britain and the United States have a long history of being allied, politically and militarily, with the low-price countries in the Persian Gulf region. Most of the Persian Gulf sheikdoms were for long periods protectorates of Britain. Saudi Arabia, since the Franklin Roosevelt administration, has had a special relationship with the United States, under an understanding, whether written or unwritten, that the United States will provide military protection, not necessarily for the Saudi monarchy, but for the territorial integrity of the Saudi state, and Saudi Arabia will pump enough oil to keep world oil prices relatively moderate.

Saddam Hussein publicly proposed a multilateral partition of Saudi Arabia, by which he surely meant its petroleum region, and he implemented the long-standing Iraqi nationalist aim of annexing Kuwait.

President Bush the elder reacted by declaring that, if Iraq's annexation of Kuwait were allowed to stand, gasoline prices would rise in the United States and this would "threaten the American way of life."

The American public reacted with massive indifference.

The Bush administration then brought out reports of atrocities by Iraqi troops in Kuwait, and overnight a vast majority of the American people were ready for war with Iraq. The result was the first Iraq war, which reversed Iraq's annexation of Kuwait.

In the period between the two Iraq wars, Saddam Hussein was contained by a sanctions regime with no-fly zones. But Saddam Hussein signed oil concessions that would take effect only when the sanctions regime ended, and international support for maintaining the sanction regime disintegrated. Secretary of State Colin Powell, in his famous speech to the UN Security Council, cited reports, later proven to be false, that Saddam Hussein then had "weapons of mass destruction" and declared, at the end of one sentence and in a lowered voice, that "Iraq has regional ambitions."

There is a mountain of evidence that the primary motive for the U. S. invasion of Iraq to remove Saddam Hussein's regime, whatever other reasons were adduced in public or may have been genuinely believed at the time, related to oil prices. This means economic imperialism on the part of the United States, and by a pliant Labour government in Britain acting in line with a long history of British diplomacy in the Persian Gulf region.

The human costs of the ensuing second Iraq war included the death of some two hundred thousand Iraqi civilians, some as direct results of bombing but probably more from diseases caused by damage to water and sewage systems.

In the Middle East, this second Iraq war, along with the matter of Israel, has contributed to a widespread impression that the United States considers Arabs and Moslems to be unimportant and dispensable. It has thus made a major contribution to the resonance of the appeals of Osama bin Laden and Al Qaeda in the Arab and wider Islamic worlds.

In the United States, there has been a great silence on this subject of U. S. imperialism, in major part because leaders of the Democratic Party fear accusations of being "unpatriotic." This means they fear the clear fact that large parts of the American population are unable to distinguish between imperialism and "patriotism"--because of belief that whatever "America" does, derives from high and sacred principles.


The United States has two interests in Afghanistan, (1) its own security, i.e. removing--and preventing--havens for terrorist activity directed specifically against the United States, and (2) ideological sympathy for governance under which girls can go to school and women can enter universities and the professions. These are not the same things, and the groups opposing these aims are not necessarily the same.

It appears that U. S. policy in Afghanistan has two basic defects:

First, the Obama administration, though it has been more alert to political factors than its predecessor, still underestimates those factors, and, as a result, is pursuing objectives that are not feasible. Official thinking still tends to be that such and such is "imperative," and therefore is feasible. Enemies can, indeed, be "cleared" and "degraded," but this does not mean things will necessarily stay this way. It is perpetually declared that there can be no lasting "success" in Afghanistan unless Pakistan closes down areas of refuge and supply within its border. But Pakistan has interests and problems of its own that limit such actions. To compensate, the Obama administration has sharply increased aerial drone attacks inside Pakistan. But this arouses popular hostility because of violation of Pakistani sovereignty, and such bombing has quite regularly killed innocent civilians. All this manufactures more terrorists. It appears that the Obama administration will undergo a further learning curve about the limits of U. S. power, and that during this time more American soldiers will be killed and maimed while producing little change in the underlying situation.

Second, U.S. policy has inflated the relative importance of Afghanistan compared to other sources of terrorist activity against the United States. There are other specific "havens," which, moreover, can relocate. But beyond this, there is the underlying reality of the poor image of the United States within the Arab and wider Moslem worlds. This supports recruitment to terrorist actions among thousands of young males of Islamic background throughout the Middle East and also in Western Europe, Canada, and the United States itself.

The continuing U.S. casualties in Afghanistan were not an issue in the Congressional elections of 2010. But they may become an issue in future elections, and could potentially produce major division within the Democratic Party.

Thursday, January 27, 2011

Business Political Power: America's Inner Cities

In the United States, unlike urban patterns in many other countries, inner cities across the nation have long contained crime infested slums unfit for human habitation.

While much of the American population believes the United States is "the greatest nation on earth," "chosen" and blessed with "unique" wisdom (a theme that gets mixed reviews from foreign observers), few possessing this optimistic vision actually live in America's urban slums. Yet these conditions are, in fact, part of "the American way of life."

Further, the very fact that these conditions have persisted so long indicates that their real causes have some deep connection precisely with the actual content of "the American way of life," in the forms it has long taken.

There has been a misunderstanding as to what "residential areas" actually are. They are not simply places where people "reside" to carry on their present lives; they are places where the future is shaped through the socialization of on-coming generations. This means self-images, horizons, goals, and motivations. Residential areas breed the future proportions of assimilation into the "mainstream" vs. social pathologies, including drug addiction and violent crime, with benefits or costs to society at large extending decades into the future.

A major part of socialization is role models. One requirement of socially decent communities--quite generally, but not always--is role models of middle-class types, broadly conceived, and hence mixed-income neighborhoods, or at least avoidance of heavy concentrations of the lowest classes. This social fact is widely recognized in much of Western Europe.

Residential patterns are a huge factor affecting the character of public schools. In the United States, many of the struggles to reform inner-city public schools have focused on the schools and teachers and gone too far in blaming them for the outputs, i.e. poor student performance, without altering one the key inputs, residential patterns, which powerfully influence the culture of parents and students. Various of these school-reform efforts have applied considerable resources, and draconian supervision of teachers, but then produced only minute improvements in student performance--because of lack of student motivation. This can be traced, in large measure, to the role models that prevail outside the classroom. Inner-city students tend to think and behave differently from middle-class students because they were not raised in middle-class neighborhoods.

In the United States, despite all the departures from laissez-faire from the l880's through the New-Deal era and beyond, and while racial discrimination has been addressed by legislation and the courts, there has been little urban social planning in spatial terms to reduce extreme economic segregation in residential patterns.

The lack of such social planning inside the United States has long imposed costs, in some cases enormous costs, upon other nations, for one of the largest markets for hard drugs has long been in the inner cities of the United States. The costs in Columbia and Mexico have included assassinations by drug gangs of huge numbers of courageous local police agents, judges, and other officials.

Americans tend to assume that general economic prosperity "lifts all boats." But in the last half of the 20th century conditions in American inner cities grew worse, because of two great changes in American society:

First, massive losses of manufacturing jobs occurred, because of economic development in other parts of the world, leaving an American "rust belt" of devastated communities.

Second, the American civil rights revolution of the 1960's allowed middle-class Blacks to move from inner-city ghettos out to suburbs. Previously, many of these inner-city ghettos had a multi-class character, as illustrated by the "Harlem Renaissance" of the 1920's and other similar communities. But as the walls of racial segregation were dismantled, this out-migration left behind heavier and heavier concentrations of the lowest classes in inner cities. American public policies did little to compensate for the success of the civil-rights revolution. The very notion of "compensating" for "success" is difficult for Americans to grasp, because of their (misguided) faith in spontaneous forces in society.

What should done:

(1) Move the economy to high levels of general employment.

(2) Expand use of public funds to promote relocation of people out of depressed areas, including depressed urban areas, to places, near or far, where jobs are more plentiful.

(3) Expand training and retraining; and, to this end, abolish tuition at community colleges.

(4) For low-income groups, achieve minimum standards of housing by expanded use of housing subsidies, not discrete public housing units; and abolish the (universal) tax deductibility of mortgage interest, which is a subsidy that for decades has gone to middle and upper classes.

(5) Promote, on a large scale basis, mixed-income neighborhoods, in both urban and suburban areas.

(6) Expand governmental planning capabilities to shape urban residential patterns on a regional basis, integrating inner cities and suburbs. This can be greatly facilitated by municipal ownership of land in and near urban areas. For detailed information on long experience with such policies in The Netherlands, Germany, Sweden, and Finland, see my Land Ownership and the Social System.

America's great business oligarchy

What, then are the attitudes of the conservative business community in the United States? It has the fixed political aims of obstructing use of government for popular well-being and maximizing opportunities for private investors to pursue enormous personal wealth. This includes speculation in the full capitalist repertoire of assets, including speculation in land.

Progressive urban policies in the United States could be strategically advanced by getting rid of that oligarchy--through the type of socialist transformation proposed in detail in the writings cited above.

Wednesday, January 26, 2011

Business Political Power: Tuition in Post-Secondary Education

If "equality of opportunity" is to be a reality, not superficial rhetoric, then all post-secondary education, i.e. vocational training, community colleges, universities, and professional schools, should, as a matter of national public policy, for qualified students, be made free of tuition.

Such a policy should be financed by federal grants to the state governments, or depending on the situation, federal grants to students. The financing should come from the federal individual income tax, with higher and more progressive rates.

It makes no societal sense to maintain financial barriers between individuals and training and education that can increase their future contributions to society. Future contributions are a matter of investment.

The United States, beginning in the 1830's, pioneered in the idea of free public education. This was long one of the great attractions for immigration to the United States. But, unlike quite a number of other countries, the United States has never carried this principle beyond the secondary-school level.

Instead, it displays an enormous patchwork of public and private scholarships, which require a vast assortment of public and private bureaucracies, and family financial aid forms, to decide eligibility. All this is a considerable and unnecessary cost to society.

This American situation reflects, in two respects, the individualistic political culture of the United States:

(1) One is the inherited individualistic theory that education is for the individual only, not society, and should be viewed as an investment of tuition money by the individual, analogous to investing in a small business.

(2) A second, however, is the self-interest of much of the American middle classes in not bearing the tax costs of expanding educational opportunities for lower-income groups. Yet the extent of this attitude is influenced, again, by the individualistic political culture of the United States. The proof is the fact that in much of Western Europe, where governmental authority and activity are far more accepted, middle classes are far more willing to set aside narrow self-interest and pay far higher taxes in order to equalize access to both healthcare and post-secondary education.

What, then, are the attitudes within the American business community? Here there is schizophrenia.

Many individual American business leaders have long advocated, in urgent declarations, upgrading of the American labor force and improvement in American public education on grounds that this is necessary if the U. S. economy is to remain competitive.

A huge part of the American business community, however, measured by the behavior of the Republican Party, perpetually emits a chorus of demands for cuts in "entitlements," lower taxes, and smaller government, and persists with massive propaganda designed to promote within the general population blind hostility to taxes and governmental activity.

The United States would be better off if its great business oligarchy were displaced by a socialist transformation, of the type proposed in detail above.

Saturday, January 22, 2011

Business Political Power: The American Health Care System

While inequalities in various other things are necessary for economic incentives, health care should be provided on a fully equal basis, with family income no longer playing any role in access to quality health care. Only the power of government can produce this result.

What is needed is a health-care system that is equal, universal, comprehensive, privately provided but publicly funded, and compulsory through the tax system.

The United States has spent some one hundred years debating these issues, since Theodore Roosevelt's campaign of 1912. At every stage, a huge part of the American business community, and the bulk of America's great business oligarchy, have fought tooth and nail against expansions of the role of government in health care.

The Obama administration's health-care law, which was the most that was then politically feasible, achieved very significant reforms. In type, it is essentially the Swiss system, i.e. use of private insurance companies but with regulation and subsidies to remove some of the worst abuses. It, however, falls far short of what should be the aims in a civilized society.

I. Two Major Surgeries

There are two major surgeries among the many further reforms that are needed:

A. Exclusion of the private insurance industry

The function of medical insurance should be transferred to government, and the private insurance industry should be prohibited, by federal law, from offering any insurance in the medical field, with criminal penalties for the officers of any company violating this prohibition.

There are a considerable number of reasons for this conclusion, relating to cost reduction, equity, and political considerations:

1) Administrative costs of the insurance carrier would be reduced, for several reasons:
  • Administrative costs are inherently higher when the insuring organization is administering a multiplicity of insurance plans, designed to appeal to differing income levels and health status, as compared to a single plan covering all medically appropriate procedures and treatments.
  • Private insurance companies compete for larger shares of the market with extensive advertising, which is paid for by premiums. Most of this expense would be removed by governmental provision of medical insurance.
  • Private insurance premiums pay for astronomical salaries and perquisites of the chief executives of private insurance companies. The same work could be done equally well by civil servants for a tiny fraction of these costs.

(2) Private insurance companies have a vested commercial interest in appealing to differing income levels and health status, thus playing different groups against each other by appealing to their narrow self-interests. This tends to destroy any political sense of solidarity within the population on behalf of providing health care on a fully equal basis.

(3) Private insurance companies promote the voluntary principle, allowing healthy persons, in various degrees, to opt out of insurance pools. This increases the per capita cost for persons left in the pool, as opposed to spreading medical costs over the whole of society.

(4) Private insurance companies, and the business community generally, hold that competition and private-sector bargaining with providers are "essential to controlling costs." Direct governmental regulation of fees charged by providers, however, can be equally effective, and far simpler in avoiding complicated organizational structures. This reduces actual total administrative costs.

(5) The Obama reform will mean high administrative costs in enforcing the requirement for citizens to purchase private health insurance. A far superior approach to compulsory health insurance is to provide universal health care free, or nearly free, and then to force most citizens to pay toward the costs through a progressive tax system, which would redistribute the burden within society.

(6) Finally, use of commercial companies to achieve a social purpose requires extensive governmental regulation, and this, even if it nominally removes all undesirable behavior of private insurance companies, must work uphill against resistance, for two reasons:

  • The executives of private insurance companies are hired and fired by shareholders, who have only one interest, maximizing profits, which is extraneous to the social purpose.
  • Particularly in the United States, there is within the business community a deep culture of hostility to governmental regulation, which is perpetually illustrated by the behavior of the Republican Party.
B. Elimination of fee-for-service

The fee-for-service method of remunerating physicians, hospitals, and other providers should be extensively curtailed or abolished altogether, because it vastly inflates costs. Billions of claims for individual medical procedures must be processed, which requires a vast assortment of private and public bureaucracies, and it offers endless opportunities for padding of medical charges.

It should be replaced by payment of physicians by salary, under one or another arrangement, and funding (reimbursement) of hospitals and other providers by various types of global financing.

Many other countries have long ago moved away from the fee-for-service concept. Americans cling to it because it is part of an individualistic political culture.

If someone were to propose that military hospitals be financed by fee-for-service, there would be an instant verdict of insanity. That is the appropriate verdict for the existing American use of fee-for-service.

II. The Choice of Level of Government

One option is to transfer the function of health insurance to state governments, with regulation and equalizing grants from the federal government. This is essentially the Canadian system. An eminently intelligent plan of this type was the Wellstone bill (S.491), introduced in 1993, in the 103rd Congress, 1st Session, by U.S. Senators Wellstone, Metzenbaum, and Simon. This approach has the political advantage of appeasing the American fear of "centralized authority," i.e. the federal government. By the same token, however, it has the great political and administrative disadvantage of cumbersome relations with fifty state governments.

The optimum approach is to locate a system of universal health care at the federal level, and do so, not by creating any new administrative structure, but by adding it to the existing Social Security system, which has field offices in every small community across the nation.

Moves in this direction were considered in 1935, but President Franklin Roosevelt, one of the nation's most powerful Presidents, was forced to retreat by more powerful forces, namely massive lobbying by the private insurance industry, intense opposition from the American business community generally, and popular fear of "socialized medicine," which a huge part of the American business community has always promoted by massive, and misleading, propaganda.

III. End the Business Oligarchy

The most fundamental reform would be to get rid of America's great business oligarchy, which has obstructed reform in health care, and a thousand other fields, for a hundred years and more.