"Social Security


By ERIC ALLEN JOHNSTON, President, United States Chamber of Commerce

Delivered before the Executives' Club of Chicago, Chicago, Ill., September 8, 1944

Vital Speeches of the Day, Vol. X, pp. 764-768.

Mr. Chairman and my Chicago friends, I want to orate before the bar of a very important segment of public opinion. My pleasure in being in your industrious Chicago is only equalled by my appreciation of the very excellent introduction which Mr. Kemper has already given to me. Without appearing too "Alphonsish and Gastonish," I would like to also say that I think Mr. Kemper is one of America's most aggressive, most efficient, and most capable leaders.

I don't deserve the very nice things that Jim has said about me, but I do appreciate them. Perhaps he realizes that this is one of these periods that occur every four years, when the American citizen is trotted out and given a great deal of honor and ovation. Today, on the radio, in the newspapers, on the screen, we find the American citizen is honored and told that he is the supreme being in America. Now, I am all for that, only I wish it was done every year, instead of every four years.

Even Jim, in his new position, has become very solicitous. (Mr. Kemper is Chairman of the Republican National Finance Committee) I presume that he has written most of you a letter. Maybe he doesn't write you one every year.

But I want the American people to be honored all of the time, and not just occasionally. In Washington, D. C, where I exist most of the time, they are building platforms and getting out bunting and drapery for the American citizen who is going to be hallowed and honored for the next two months. I have been in many countries of the world where the citizen was not particularly thought of. I don't like those countries. I wouldn't want to live in them. In America, there are many privileges which we have, which we take for granted, because they are a part of the life that we live, and yet those other peoples of the world do not enjoy them.

I think we never appreciate the Statue of Liberty so much as when we have been abroad, and I can recall a few weeks ago, returning on an Army Transport with a group of wounded soldiers from the Italian and French fronts, and I never saw a group of men who were so happy in their lives as was that group on that plane. They talked of the ordinary things that everyone of us discuss, a job and what kind it was going to be when they got home, apple pie and hot dogs, and the baseball scores, and all the other things which are typically American.

One man said to me, "I want to get back to America where I can quit my job if I don't like the color of my boss' hair!" Another man down the aisle said to me, in that long trip across the North Atlantic which we made, he said, "I want to go into business for myself, and, if I fail, I have no one to blame but myself." And, when we flew across the Statue of Liberty in New York Harbor, those boys crowded to the right of the ship so that they could get a glimpse of it, and two of those boys actually cried as we came into New York Harbor. Those boys rediscovered America!

Let's All Rediscover America

I think we all need to rediscover America, and, if you go abroad these days, you are bound to rediscover America, irrespective of where you go. I find that people all over the world are rediscovering America, whether it is Vargas in Brazil or Lloyd George in England or Stalin in Russia, they, too, are rediscovering America; and the people in the United States, who said it couldn't be done, that we are a polyglot group of people of many creeds, races, and religions, and that we couldn't pull together in great stress and strain, they said it couldn't be done, but we have proven that they are wrong, because America today is out-producing all the rest of the world together. We are the only nation that has been able to have butter as well as bullets. Even those people are rediscovering America, and it is because of that that I want to discuss with you important business executives a very controversial question. It is a question that most businessmen should decide, and yet very few businessmen have made a decision. Great national business organizations have not made a decision upon this subject, although business organizations pay most of the cost of this particular thing. And so I want to discuss it with you today, perfectly frankly. Maybe some of you will not agree with me. I think that is unimportant. But I think American business should make up their minds and make their decision on the matter, and so, whether you think I am right or whether you think I am wrong is completely unimportant, if you only make up your mind as to what should be done. And that is the question of social security.

Problem of Social Security

Social security is a public necessity in our kind of economy. It fulfills a vital need which can be met in no other way.

To make it fully effective, it must keep step with an ever-changing economy. From time to time it must be extended and improved.

There is one job that business can do. That job is to guide social security into workable channels and keep it on a realistic basis. It will be a constant job, a difficult job.

However important social security may be, it can never be a substitute for productive employment. We must, for the postwar period, emphasize production of useful goods and services more than ever. We must have employment, not unemployment. If we fail to encourage labor, tax and other policies which will promote high levels of output and employment, we may find the social security burdens becoming unbearable.

We must reduce the need for social security benefit payments. At best, social security constitutes only half rations.

Organized society always has provided for its less fortunate members. That is one of the earmarks of civilization. Our own forefathers, following the English pattern, set up poor-farms and almshouses. Like them, the people of the United States today want to care for their citizens who are in need.

Our mode of life grows more complex. Society therefore recognizes the need of new forms of protection. Moreover, the trend is toward an increasing social consciousness. Thinking people recognize, too, that new forms of protection are necessary to keep society stable. Isolated cases of misfortune can safely be left to charity, but mass misery requires organized protection or else the pressure of discontent may build up to explosive proportions. Hastily improvised measures are rarely satisfactory. As an example, look at the WPA of depression days.

The development of workmen's compensation laws illustrates this process of evolution. At the turn of the century, a worker crippled in the course of his normal employment could sue his employer or look only to private charity for aid. In 1911 the State of New York pioneered in recognizing in law the fact that some industrial workers inevitably suffered temporary or permanent disability. Those men and their families needed financial help. So, a system of compulsory insurance was set up to provide cash for medical expenses and living costs for the injured workers from a fund built up by assessments on all employers. The cost of disability became a part of the cost of production.

Now, every state but one has adopted this same principle to cover industrial accidents. In many cases it takes in occupational diseases as well. Workmen's compensation is accepted as an orderly way of meeting one of the great economic hazards inherent in modern society. Show me an employer who advocates its abolition.

Yet, workmen's compensation is only one aspect of social security. If it is safe to extend it to combat this industrial hazard, has it been dangerous to apply it to alleviate other forms of insecurity so inherently a part of modern life such as unemployment and old age?

Yet I find, among some, uneasiness and alarm, whenever the phrase "social security" is mentioned. Doubts can be summed up in three broad questions:

1. Why does the United States need social security?

2. Can the United States afford the cost of a broad social security program?

3. Does social security remove the incentive to work and turn us into a nation of drones, each striving to live at the expense of the others?

There can be no categorical answer to these three questions.

The term "social security" is relative, not absolute. The answers can not be phrased in the simple "Yes," or the definite "No," but rather in the uncertain "To what degree?"

Insecurity Is Price of Progress

A degree of uncertainty and, therefore, of insecurity, is the price that we in the United States deliberately pay for progress. Historians tell us that the Middle Ages were char-

acterized by great stability and security but showed little progress. Our system has been characterized by enormous progress coupled, however, with considerable insecurity. There always is a conflict between progress and security. But this conflict need not be irreconcilable. I say that we can provide greater economic security for the individual without sacrificing our characteristic march forward. I believe the preservation of our economy depends upon that solution.

A competitive enterprise system, coupled with freedom of consumer choice and freedom of investment decisions, is an unstable system, precisely because it is free. New inventions, new techniques, new businesses are built up at the expense of the old. The railroad supplants the canal; the automobile displaces the horse. The consumer may spend his money for this product or that, and sales curves rise and fall by his collective decisions. We sold a million motor cars in 1932—five million in 1937. People generally—and perhaps unconsciously—may decide that new housing is too expensive; then we have a construction collapse. The investor may lend his savings to one company or to another, or he may choose to hoard. The investment of new capital, whether producers' capital in the form of new plant and equipment, or consumers' capital in the form of housing, automobiles, and refrigerators, always has moved by fits and starts.

Complete economic stability can be obtained only at the price of complete regimentation. It would demand a master plan imposed upon producer and consumer alike. I hope such a plan is never foisted upon the people of America. The remedy would be worse than the disease.

Monopoly and cartels are frequently praised for the stability which they are alleged to bring to an economy. There may be something to this argument. But whatever stability monopoly may establish can easily be offset by the stagnation which generally ensues. This encourages underemployment We must understand that if we really want to preserve free enterprise—and all the individual benefits that flow therefrom—we must preserve competitive business. This means that we must be willing to endure the risks of that competition.

We are accustomed to view our production fluctuations in terms of business graphs alone; we must not forget that they also are measured in human graphs—which means in numbers of jobs.

The businessman relies most heavily on his own initiative, his resourcefulness and his individual effort There are some risks, however, which he lets insurance companies underwrite, such as the hazards of fire, flood or fraud. Without these insurance carriers, the worries of the businessman would be greatly multiplied and some risky enterprises could not be undertaken at all. Business believes in insurance.

Any businessman has an overwhelming interest in the continuity of his production, and thereby jobs and wage payments. He knows he has certain inescapable overhead costs regardless of the volume. Therefore, when his business goes into a tailspin, he knows that overhead costs will soon convert profits into losses. These losses will bankrupt the enterprise if persisted in long enough. Overhead costs are the businessman's constant worry.

Business and Labor Have Common Interests

I like to compare the situation of the businessman with that of the workingman. I am convinced that they have common interests and that these common interests outweigh conflicting ones.

For instance, in modern society a worker also has an overhead. It is his constant worry. Previously under an agricultural society, the individual could rely on his garden, his orchard, his flock or his woodlot for minimum needs. But in a 20th-century industrial system, the worker's sole income is his wage. The worker finds he also has a minimum overhead which persists whether he is on or off the payroll. His unavoidable expenses such as rent, or mortgage payments, installment contracts, grocery, light, gas and telephone bills must be paid monthly. If he is idle long enough, he also goes bankrupt—or even worse—on relief. This process destroys his way of life; disorganizes his family and its relationships; destroys his community credit standing. Furthermore, if the worker must finance periodic unemployment, it is more difficult for him to provide for the other economic hazards of life such as old age, illness and disability. Isn't there some way of avoiding these evils of modern industrial life?

So, what should we do about it? Adopt a policy of laissez-faire? Let George do it? I say, NO!

I say that our dynamic capitalism must have the shock-absorbing cushion of a practical, working social security system.

To deny this is to deny the economic hazards of modern life, to deny the vulnerability of the wage-earner to unpredictable misfortune, and to deny the validity of the principle of insurance.

Since we in business admit the value and necessity of insurance for our own protection, should we not grant its value as a protection for our employees?

Let us move quickly to the next question: What kind of a social security system should we have and what about its cost?

Keep Social Security Local

I think that further development in our social security system should be, insofar as possible, by state and local governments rather than at the national levels. Such programs should be kept close to the people, to the employers, the employees, and the taxpayers. Local and administrative interests is of the essence of the democratic process. It helps to minimize the evil effect of bureaucracy and remote Washington control.

But too frequently States' Rights is used as an excuse for a do-nothing policy. If we really believe in States' Rights and really want to keep this program close to the people, then we must see that the states assume the responsibility.

As to the cost? Can we afford it? This is a fair question. It deserves a fair answer. The overall amount of money required for any nationwide social security plan is sure to run into big figures. In these days of staggering national debt, the first instinctive reaction to any social security proposal is that it will be too expensive.

I am all for governmental economy and the elimination of unnecessary expenditures. But to think of the cost of social security as a new and unprecedented expenditure is inaccurate. As a nation, we have been paying such costs for years; we will continue to pay them so long as the American people are unwilling to ignore human misfortune.

The decision is not whether we shall meet social security costs, but how we shall meet them.

Social security substitutes an orderly, systematized setup for the hit-or-miss private charity, local poor relief, the federal boondoggling of an earlier day. To me, this makes sense. We will get far more for money invested in social security than from the billions spread for relief during the late depression.

Social security is not solely an expenditure. Properly set up, it is an actuarial proposition in which the outgo should be substantially balanced by the income. Carried to extremes it can degenerate into a governmental dole. Those whoadvocate such heavy-handed largess at government expense are doing social security a disservice.

Broadly speaking, there are only two ways of financing social security: from general revenues, or by payroll taxes. Each has its disadvantages.

Take the first. If you rely upon general revenues to meet social security payments, you place an additional burden on corporate and individual income taxes, the chief sources of those revenues.

Our national debt and fiscal requirements already have" driven income tax rates to heights which threaten to destroy the incentives to invest, or to undertake risky enterprise, or' to launch new ventures. What we must have is reduction, not further increases in these levies. Furthermore, general revenue financing would destroy the direct relationship between benefit payments and payroll deductions. This relationship, inherent in the insurance concept of social security, serves as a necessary check against excesses.

As for payroll taxes, they serve as a deterrent to greater employment. Certainly, in the postwar world, we must provide every possible incentive to our 2,000,000 job-making employers to put more men on their payrolls. Payroll taxes do not come under the classification of incentives.

But a payroll tax affects all employers more or less equally, and can be absorbed into the cost structure. On the whole, I say it is by far the lesser of two evils. It should not unduly discourage employment or investment, especially if any rate increases are imposed slowly and spread over a period of time.

Labor Should Share Cost

How to divide the cost of social security between the employer and employee is a puzzler. If we include workmen's compensation, unemployment compensation, and old-age annuities, the present contribution of the typical employer toward social security, State and Federal, totals about per cent of his payroll, in addition to the cost of any voluntary plans he may have adopted. In contrast, the worker himself now has a compulsory deduction of only 1 per cent. This means that the employer pays 84 per cent of the total, as compared with only 16 per cent contributed by the worker. I think this proportion is out of balance and I am happy that many labor people agree.

The adjustment of this proportion has aroused much discussion in and out of Congress. I would like to point out that one plan under consideration proposes to increase the employer's tax rate from the present federal levy of 4 per cent (1 per cent for old-age annuities and 3 per cent for unemployment compensation) to a total of 6 per cent, an increase of 50 per cent, while the employee contribution would jump from the present 1 per cent to 6 per cent, a rise of 500 per cent. Business and the country could do much worse than to accept this 50-50 arrangement, and why American businessmen oppose it is something that I have never been able to understand.

Why don't we give the whole matter careful attention and devise a business program taking into consideration the desirability for preserving our most valued resource—the human one.

Thus far I have said nothing about voluntary group insurance and insurance policies taken out on an individual basis as a means of providing against misfortune and old age. I would be remiss if I failed to pay a tribute to the insurance industry. We have 68,000,000 persons with private life insurance. Twenty million carry some form of voluntary or group hospital insurance. Casualty insurance protects us on many fronts. Other insurance programs are doing their part.

Despite the growth of government-sponsored social security, the bulk of the load is still being carried by individuals through their own decisions and savings. I hope this always will be the case. We should never attempt to do collectively, by law and coercion, what we can do as well or better by voluntary effort. Freedom of decision and self-reliance in action have made America. The achievements of our private insurance carriers have, been great. The success of private health and hospitalization group operations, privately conducted, proves that group medicine can be provided through private initiative, under the guidance of private physicians and with free choice of physician and patient.

However, we are considering this problem from the broad standpoint. We are looking at the necessity, in a risk-taking economy, of providing minimum protection for all of our people.

Some may say that social security will make unemployment more attractive than productive work. That is based upon a misconception of what can be provided by even the most liberal system of benefits.

Social security's only purpose is to provide a minimum level of basic protection to prevent the plane of living from falling below the subsistence level.

American Workers Shun Dole

It is an insult to the American worker to assert that he would rather have a dole than a job. I am convinced that the vast majority of the American people want productive employment and that they will produce better when their haunting fears of unemployment have been alleviated.

Of course, there may be a few individuals who prefer mere existence at the expense of others to the greater satisfactionsto be won through productive work, but our course cannot be governed by this negligible minority. No one proposes to suspend operations on the railroads because a hobo sometimes gets a free ride.

No society could possibly provide as good a standard of living for its needy as they themselves could attain by exerting their own efforts. Incentives for thrift and work must be maintained. Businessmen and other groups in society, by taking an interest in social security, can help to keep the social security program realistic and thus safeguard the incentive system.

The utmost that we can expect of social security is a minimum level of basis protection. Social security is here to stay.

The principal countries of the world have it. All polls of public opinion show the vast majority of the American people demand it. The recent Chicago platforms of both political parties endorse it. The Republican party, to which many businessmen including myself belong, happens to have gone as far or farther in the promise of adequate social security than the Democratic party.

Under these circumstances, do any businessmen really believe that social security will be repealed?

Business is now paying most of the costs of social security, But the credit is going to the welfare worker, the social up-lifter and the politician. I want American business to receive its share of the credit. But in order to do this, business must take the lead in providing a sound, workable program.

Business must recognize that a dynamic capitalism is a risky capitalism both for the investor and the worker. To preserve and advance this dynamic capitalism, we should do all we can to reduce its risks, providing we can do so without destroying its drive, its energy and its expansion. Unavoidable risks should be insured. In many cases private insurance for group effort is the best remedy; in other cases public action is desirable. Businessmen should use their experience and knowledge to assist in the formulation of social security policies and in the administration of adequate programs. As businessmen we know that a chain is no stronger than its weakest link. Always remember, therefore, that society is no stronger than its least secure members.

All Countries Socially Alert

My experience in many parts of the world indicate that the people are on the march, everywhere. New political economic and social conceptions are taking hold in all countries. Free enterprise and capitalism are being challenged, but I have no fear of these other systems. I have tried to view these systems with impartiality. None of them offer the basic freedoms which many of us take for granted in America. I believe that free enterprise and capitalism can compete with any other system in the world, and I say that sincerely, providing we realize that capitalism must not be a static economy. We must constantly improve it to meet the changing needs and changing conditions.

If ever mankind and geography were brought together under favorable conditions, it is here in the United States of America. It would seem that the Almighty Being that had brought about this great miracle was watching to see how this epic struggle of mankind's was working out. Can man, endowed with all of these prerequisites which we find in America for greatness, can we reach and use the opportunities that lie ahead? If we can, then this is "America Unlimited."