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# The Problem of Social and Economic Distress

In the last several sections we have been concerned with a discussion of what might be called the technical considerations of growth -- those purely economic requirements and remedies bearing on our objective. In this section we shall be concerned with "social" problems in their widest sense.

Because of the essential unity of the social and economic problems affecting growth, we shall devote the first portions of this section to a discussion of matters in which the economic and the social aspects are clearly mixed. These are the main laggard socio-economic areas of our society: agriculture and urban development. As before, they will serve us in an illustrative fashion to indicate the nature of certain problems and of the remedies we feel applicable. Then we shall cross the bridge to the more generally recognized social welfare side of the total growth picture, to consider the role of welfare programs, as such, in an expanding economy.

## 1. Agriculture

Agriculture is an industry with many special problems, and one overriding problem -- the fact that of the 5,000,000 farm families in the United States, 3,000,000 are superfluous. Current estimates show that the better 40% of present farms could supply the nation abundantly -- and profitably to themselves. They would need neither subsidy nor price supports, and would look to government help only in disaster. On the other hand, the

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3,000,000 sub-marginal families <u>cannot</u> become prosperous through agriculture. Half of them have cash incomes of less than $1,000 a year. They have neither the land nor the capital to compete, and each technological advance in agricultural techniques only increases their relative disadvantage. For them price supports are a necessity -- a kind of disguised duty.

This correctly suggests that the agriculture problem is in fact two problems. One is the encouragement of the efficient farmer and the redesign of our price parity formulae to conform with his needs. The proper objective for an agricultural support program for prosperous farmers is not to support their *prices*, but to underpin their *incomes* in times of disaster. Under such a policy, payments would be made to farmers whenever prices declined below, say, 50 to 75 percent of indicated parity, but crops themselves would move to market at lower prices. The objective would thus be to insure the efficient farmer against severe economic hazards, while not artificially creating a price umbrella under which the inefficient producer could continue his nonproductive activity. In addition to this major reform of the price support program, the continuation and expansion of farm credit programs, rural electrification, soil and water conservation, and basic agricultural research must of course be given the high priorities they deserve.

A quite different problem is posed by the submarginal farmer. From the point of view of the national interest and of his own opportunities for growth, there is only one indicated solution to his problem, drastic though it may appear: the submarginal farmer must be gotten out of agriculture.

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From a purely economic standpoint, this is not an insuperably diffi-
cult aim. Inefficient farmers, who so desire, should be given a cash grant
to facilitate their transfer to urban employment. A billion dollars appropri-
ated by Congress for the purpose of purchasing submarginal lands would
effect a substantial reduction in the number of unproductive farmers, in
addition to yielding side benefits by adding to the nation's open park areas
and by bringing under adequate management lands which are now badly run.

Yet the relative straightforwardness of the economic remedy conceals
the real difficulties of the situation. The agriculture problem is a social
as well as an economic one; it is tied up with the racial issue, it has roots
in low levels of education, health and social status. We are not, after all,
rooting out 3,000,000 economic statistics: we are trying to induce three
million human beings to change their way of life.

This will necessitate coordinated social programs at local, state,
and federal levels. Specifically some of the steps needed are these:
decentralization of industry to utilize the labor resources in rural areas;
information programs to inform interested individuals of job opportunities;
the redirection of present Federal agricultural agencies toward the provision
of social counselling, housing assistance for displaced farmers, and
technical training for new employments. If such a program is not undertaken
we will merely move rural poverty to an urban setting.

It would be futile to pretend that this deep-seated problem can be
substantially alleviated in a few years. Nevertheless in the time-perspective

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of this report we would hope that our objectives could be well on the way to fulfillment. Certainly a major effort is needed to avoid the pockets of agricultural stagnation which would otherwise mar or impede the growth of our national economy.

In addition we should note that our suggestions make possible an estimated reduction in farm support payments from their present level of $4.8 billions to an estimated level of $2.0 billions by 1960 or 1965. Against this must be counted the capital outlays needed to repurchase submarginal lands, and the slightly higher running costs of some Federal and state agencies, charged with larger functions. There is little doubt however but that the investment would pay for itself many times over, not alone in the increased productivity of the nation as a whole, but in the increased opportunities made available to several million citizens.

## 2. Urban Development

A second segment of the economy in which social and economic problems come to a common focus is urban development. To state the crux of the issue succinctly if shockingly, the problem is this: <u>many great metropolitan areas of the United States are fast becoming Negro slums.</u>

A few figures may illustrate the trend graphically. By 1970 Negroes will almost certainly constitute more than one-quarter of the population of Chicago. In New York City Negro and Puerto Rican citizens will aggregate 28 percent of the census by 1970, and in the core center of the borough of Manhattan, 45 percent. It is highly probable that within thirty years Negroes

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will constitute from 25 to 50 percent of the total population in at least ten of the fourteen larger central cities. If our present patterns of discrimination and segregation continue this can have only one consequence: the progressive deterioration of the metropolitan area from an economic, social, and not least moral, point of view. In view of the fact that 75 percent of our population will probably be metropolitan dwellers by 1975, this poses a grave national issue. Let us briefly analyze it further.

The economic result of the Negro slum has been shown to be the destruction of the "downtown" areas of the large city. Here to an increasing extent are to be found the cheap stores, the mean hotels, the rundown and dingy office buildings; while the better business establishments and the *clientele* go "uptown" or out to suburban areas. The result is a drawing of economic boundaries, of the erection of city walls of color, on one side of which lies prosperity, and on the other, decay.

Socially the metropolitanization of the Negro leads to increasing social tensions as Negro neighborhoods expand under the pressure of population growth and push against the borders of white territory. Not integration but separateness and hostility follow, with threatened outbreaks of violence.

Politically, Negro ghettoes pose a *provoking* question: what will be the effect of the election of predominantly Negro Congressmen to represent our biggest cities? What will be the temptations to gerrymander or to deny political suffrage to avoid such Negro representation?

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Morally the whole question hardly needs comment. The slum itself is an ugly phenomenon, and while it is by no means peculiar to America, its presence here, amidst so much wealth, is an acid commentary on our failure to provide one of the root essentials of life: adequate shelter. It is a terrible fact that many urban dwellers can afford to transport themselves in style, but not to live in decency. But when the slum becomes almost the enforced habitat of the Negro; when Negro attempts to break out the slum are frustrated at every turn, the situation takes on more than economic or even social overtones. It becomes -- it is -- the single gravest moral flaw in the American nation.

There is no panacea for the Negro slum problem in our great metropolitan areas. One cannot extinguish prejudice and intolerance by legislation -- although one can indeed prevent their worst manifestations by law. At best we can only strive to create conditions in which tolerance and mutual understanding can thrive. To a certain extent these conditions will result from the expansive social horizons of an economy of growth, but it would be fatuous to assume that special effort is not needed to accelerate improvement.

At one level this effort covers a variety of social activities, from the training of police officers to the establishment of special community programs for the improvement of interracial contacts, from the provision of social services to Negro city immigrants to education programs for prospective employers of Negroes; from block activity preparing the way for Negro neighbors to nation-wide civil rights programs. Every community facility --

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churches, schools, labor unions, recreation groups, economic organizations,
government -- can be enlisted in this essential effort.

At another level the problem is social and economic, for it consists
in nothing less than the planned rebuilding and re-zoning of our city slums.
This is best when not carried out on a piecemeal basis which often ends up
only with another, temporarily shiny, pocket of segregation. The rebuilding
of our cities requires large scale planning, the massive elimination of blight,
the reintroduction of green space into city areas. That this is a simple
objective would be wholly wrong to maintain, but that it is "impossible" is
also erroneous. On a limited scale such city replanning and rebuilding has
already been done in Pittsburgh, St. Louis, and ~~its limited~~ in New York,
while a few -- too few -- carefully administered interracial communities
testify that the successful existence of mixed residential neighborhoods is
not an imaginary idea. Estimates of the cost of rebuilding our metropolitan
areas and clearing them of rot, run as high as $100 billion. How much of this
can be accomplished by private funds and how much must be done by local,
state, or federal funds is a matter which cannot be clearly determined in
advance, since it depends importantly on housing legislation. For the pur-
poses of our 1965 "budget" we expect government expenditures~~ to rise by at
least $1 billion a year for this purpose, and if private rebuilding does not
materialize in sufficient quantity it may be absolutely necessary to increase
that sum substantially.

~~for urban rehabilitation~~

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### 3. Social Programs

It does not require much by way of explanation to describe the manner in which agriculture or urban redevelopment are related to the problem of economic and social growth. The same is not always immediately true of social welfare programs in other areas. Welfare has an unfortunately static connotation, no doubt deriving from the older conception of "charity". It should better be compared with modern philanthropy, in that it aims not merely to "help people", but to create self-generating forces which help people help themselves. Both in terms of its effect in stimulating economic activity and in its ability to stimulate personal self-realization, a vigorous welfare policy is an integral aspect of an economy dedicated to the ideal of growth.

In all likelihood the next twenty years will witness a fairly radical redefinition of what the term "social welfare" means. It will come to refer less and less to the old-fashioned concept of bailing out the individual who has fallen below economic subsistence standards (although this kind of welfare program will not cease to exist), and it will turn more and more towards affirmative and creative programs conducive to greater individual self-achievement. The gain of leisure time and wealth will bring with it rising expectations in respect to social welfare just as our first successes in coping with economic problems have brought rising expectations as to what economic welfare programs can properly do.

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This does not imply a future in which we are all increasingly the recipients of public "handouts" of one form or another. Rather it implies an accepted level of public services rather considerably higher than those to which we are now accustomed. An example in point concerns our conception of the government's role in the maintenance of the nation's health. Originally organized to cope with elementary problems of sanitation or with immunization against infectious diseases, our public health services have steadily expanded to include prenatal clinics, tubercular care, and even psychiatric services. Over the long run future it is clear that the government will be held increasingly responsible for an ever wider concept of what is meant by national health, perhaps eventually including mental as well as physical well-being. The administrative techniques by which this will be accomplished may be a matter for debate, but the social concept itself is likely to be increasingly a matter of general agreement.

In the widest context in which we are now considering the problem, two matters call for attention. The first involves the *source* of welfare expenditure. Few of us realize the importance of *private* expenditures on health, education, and welfare. They total an estimated $34.4 billions today and *exceed* the government contribution in their fields by $3 billions. Although it is probable that government expenditures will henceforth rise faster than, and overtake, private welfare spending, it is important to stress the importance of the private contribution to the total picture. For example, the trend to corporate giving, if it reaches the maximum allowable figure of

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5% of pre-tax earnings, may significantly relieve some of the pressures on the government for expanded welfare services. Similarly, improved private pension programs with earlier vesting privileges will assist in the solution of the national old age welfare problem -- a change might be encouraged by adjustment of the internal revenue laws. Certainly we must favor the growth of private health insurance plans -- possibly along the lines discussed in the next section. Expanding expectations of welfare are thus to be met not only as a government function, but importantly as a private activity as well.

The second general question concerns us with the problem of strengthening state and local welfare contributions. Many state and local governments have lagged in the provision of adequate health, education and welfare benefits. Partly this is a question of state and local finances, and may be expected to improve as a result of tax and fiscal reform, whose importance we have already mentioned. To a considerable degree, however, they are due to a lack of administrative efficiency and know-how at lower levels.

One immediately feasible action is the encouragement of stronger Federal-State relationships, by the Federal provision of technical assistance staffs available for state use or loan. We feel that this would result in a higher level of technical competence available to the locality, while retaining the administration of welfare services as close to the people it serves as can efficiently be done.

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With these general remarks we turn now to a brief review of two of
the immediate problem areas of welfare in our expanding economy, the issue
of health, and that of social insurance. *

* The problem of education, although an important aspect of "welfare" is omitted here, since Subpanel V discusses it at length.

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Health

A. Paying the Costs of Medical Care

It has come to be a matter of general consent that our national health
could be considerably improved by some kind of cooperative effort, and
the debate in recent years has increasingly focused on what means can best
accomplish this objective with minimal ill-effects on the quality of medical
practice.

We believe that the best prospects for efficient and relatively in-
expensive hospital and medical care appear to lie in the direction of group
practice organized around a community medical facility, offering both out-
patient and inpatient care, and paid for under family prepayment plans. Medical
care and payment organized in this way has proved highly successful where
it has been attempted and the resistance of organized medicine to group
practice combined with prepayment plans does not appear to be supported by
objective analysis. Putting a "firm" or group of professional men on the
annual retainer is the essence of group practice prepayment -- a concept
quite common in our social and economic system. The incentives on the part
of the doctors are necessarily in favor of prevention and early diagnosis, since
the utilization of hospital beds increases the operating costs for the medical
group. This is in contrast to the situation prevailing under present
hospitalization insurance plans, which are believed in many instances to
have been abused by both doctors and patients who do not have a direct stake
in preventing over-utilization.

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Another type of protection which should be seriously considered is a form of Federal health "disaster" insurance, which might provide all (or a large portion) of a family's annual medical costs over and above a fixed amount, or a flexible amount based on income. The "deductible amount" should be quite substantial (such as perhaps the equivalent of two-years' income for the family) in order to minimize interference with private insurance plans. This kind of "ceiling" insurance should offer encouragement for growth of private plans below the deductible amount, and particularly the growth of so-called "major medical" expense plans.

We believe however that a Federal compulsory health insurance program -- whether initiated as a part of old-age and survivors insurance or independently -- might not now advance the cause of health care, and conceivably could retard it, until we have had far greater experimentation with various methods of organizing medical practice.

## B. Medical Research

Medical research is another indicated field for welfare advance. It has been demonstrated again and again to pay off directly, not only in human but in economic terms. For instance, it is estimated that the current annual cost to our economy because of heart disease disability alone is over $3 billion in earnings and $400 million in lost Federal income taxes. Similarly, over an eight-year period, mental illness has been estimated to have cost $7 billion in hospital care, $27 billion in national income lost, and $3.6 billion

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in Federal income taxes not received. To indicate the extent to which relatively small expenditures in medical research provide an economic return, we may note that largely as a result of the discovery of streptomycin and the new isoniazid drugs, deaths from tuberculosis have decreased so markedly that tuberculosis hospitals in many areas are being closed or transferred to other use.

These facts alone are adequate demonstration that we should continue to expand our medical research program as rapidly as the supply of scientific talent and the dictates of sound administration will permit. This is a program that should properly be largely Federal in its administration, while making full use of State, local and private resources through grants and cooperative efforts.

At the same time that we step up our medical research efforts, equal strides must be taken toward putting to use more rapidly the results of medical research. It is urged that Congress authorize the U. S. Public Health Service to analyze the time lag between the acquisition of new medical knowledge and its practical availability to the general public and the causes of these time intervals.

### C. Medical Manpower and Facility

Neither health insurance nor research will meet the medical needs of a rising population unless we also achieve a greater supply and better distribution of doctors. During the next two decades the annual number of graduates of medical schools should probably be doubled. In view of the fact that

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mental illness is becoming our number one national health problem, the supply of psychiatrists and psychiatric nurses should be especially encouraged. Only the inauguration of many new medical schools can achieve this. Immediate planning is essential because of the very substantial period of time required between the initial efforts to found a medical school and the time when a first class is enrolled.

In addition to better supply of doctors, we need more hospital facilities of many kinds. The increase in chronic disease and the needs of an aging population highlight the necessity for a substantial expansion of facilities for long-term care, particularly high-quality nursing homes which permit the lowest possible cost per patient day. Radically new types of medical facilities should be developed with the help of Federal research -- such as hospitals permitting maximum self-help, and community care centers offering diagnostic and extensive outpatient treatment services. At the same time modernization and rehabilitation of existing hospitals -- particularly older ones in large cities -- must be a major target of the next decade.

To review briefly our recommendations, we urge:

1. The expansion of group practice medical plans, organized around community medical facilities, offering both in and outpatient care, and paid for under family prepayment arrangements.

2. The adoption of Federal "disaster" health insurance, planned to encourage and supplement rather than to hinder

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and displace private health insurance.

3. The support of increased medical research at Federal and local levels into new kinds of medical facilities as well as into medicine proper.

4. The inauguration of additional medical schools to increase our supply of doctors and nurses, and the modernization and re-habilitation of older hospitals.

Although the cost of such a program is difficult to estimate in fine detail, we believe it requires expenditures for health, medical care, and related items to rise from $3.8 billions in 1957 to approximately $6.6 billions by 1965. This does not include the separate item for hospitals, already itemized under our needed public assets.

## Social Insurance

The basic principle of social insurance is now firmly rooted in our national philosophy. As Mr. Arthur Larson has eloquently said, "We insist upon having the advantages that flow from a risk economy, but we know also that a risk economy leaves in its wake victims. The socialists and communists propose to remove the risk itself. That solution we reject. But having rejected it, we have an inescapable duty of contriving our own solution, consistent with free enterprise. That solution is income insurance..."*

*See Paper IV-6, Somers, H. and A., *Major Trends and Issues in Social Insurance*, p. 83, footnote.

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Income insurance of various sorts has now penetrated our economy in many ways, from the basic "social security" provisions to the new and yet untried attempts to supplement unemployment insurance with "guaranteed" annual wages. As a generalization it appears likely that the importance of income insurance will continue to increase, covering more citizens more fully, with consequent individual and public economic benefits -- provided that the plans are financially sound.

As a first approach to the problem, there appears no need for fundamental changes in our existing social insurance programs. In particular cases however revampings and modernizations are in order.

Unemployment insurance now covers approximately 80% of wage and salary workers. About 12 million workers are still excluded, nearly forty per cent of them being employees of state and local governments. Here is an area for indicated action, although it may have to wait on further improvement in the administrative aspects of the program. In addition, state employment services also require substantial overhauling and coordination and considerable educational effort will be required to bring the business community to rely upon and cooperate more actively with them.

Workman's compensation has been almost immobile with respect to coverage in recent years, and is often out-of-date in its awards schedules and administration. Our best estimates of its coverage range from two-thirds to four-fifths of employees, and some of the omissions are serious. Agricultural workers, for example, have higher-than-average injury rates as well

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as higher-than-average unemployment rates. In short, there has been con-
spicuous indifference to workman's compensation, and there is a need for
renewed interest in the matter.

In the social security field, our Federal Old-age, Survivors and
Disability Insurance system is maturing and expanding rapidly. The law as
presently enacted will call for increases in benefit payments of ____% by 1965,
from $ ____ billion to $ ____ billion. Any changes which would increase
these vast expenditures must be considered with the utmost care. Nevertheless,
continuing attention is needed to keep benefit payments adjusted to changes
in price levels and to reflect in some degree increased levels of real wages.

Two further matters in regard to OASDI bear consideration. One is
the eligibility age for totally disabled persons. We have only begun to have
experience in regard to this type of claim, since the law was amended to
cover disabilities only recently. However the present age of eligibility,
fifty, tends to exclude from benefits precisely those younger workers with
dependent children who most badly need assistance. It is recommended that
as our cost experience allows us to do so, we reduce the age of disability
eligibility by successive steps and that we combine with this an intensified
effort at vocational rehabilitation programs aimed at self-support.

The other important social insurance question is that of the retirement
age itself. Particularly in view of the demand for employees in a growing
economy -- but not less importantly in view of the psychological and economic
injuries of premature retirement -- we urge that every encouragement be given

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to the continuation in employment of those workers who can and wish to
work past age 65. In the circumstances, a firm policy should be maintained
against general reduction of the present OASDI retirement age, and study
should be devoted to means of adjusting it to encourage postponement of re-
tirement.

Once again we recapitulate the recommendations of this section:

1. Additional coverage by unemployment insurance of as many as possible of our 12,000,000 presently uninsured workers.

2. Updating of our workman's compensation program in terms of benefits and coverage.

3. Simultaneous or prior thorough overhauling of state administrative machinery for these and related programs.

4. Review of the eligibility age for disability benefits under OASDI, with the aim of lowering the age limit as costs permit. Coupled with this is the need for increased efforts to retrain the disabled for self-support.

5. The encouragement, if need be by legislation, of higher retirement ages, and a firm policy against lowering the retirement age for OASDI.

We estimate the total cost of government welfare plans to rise from $15.5 billions today to $29 billions in 1965, most of which is due to present legislative requirements, and to rising eligible age groups.

* * *

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With the conclusion of this examination of some of our problems of social and economic distress, we have brought our analysis of growth to its next but last step. Starting with an outline of our objectives and philosophy, we have traced through the main currents of and obstacles to economic and social development. It remains now only to examine the compatibility of the claims advanced not only by this, but by other sub-panels, with the Gross National Product which we hope to achieve for 1965.

It must be clear from the brevity of the preceding pages that our object has not been to enumerate every problem which complicates our objective of growth, not to mention every recommendation which might facilitate it. That would require not only far greater length of exposition, but a degree of omniscience which we hastily disavow. Rather, our purpose has been to clarify the main areas of the problems of growth, to illustrate the nature of these problems with one or two specific examples of each, and to suggest such courses of action as seem to us best suited to further our basic purposes.

Let us take a quick review of what our general recommendations have been:

1. We found the problem of *resources* a permissive, rather than an active factor in growth, and our summary conclusion was that it did not present a major obstacle to growth. Within this overall and hopeful finding, however, we pointed to the important impending problems of two raw materials, petroleum and water; and in connection with our human resources, we indicated three

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areas for action: better opportunities for older workers, wiser utilization of
bypassed ethnic groups, and a general need for better educational training.

2. The problem of *motivation* we found to be a crucial one for growth.
Although recognizing the importance of the social, economic, and political
"climate" on motivation, we found two opportunities for constructive action.
One of these was the need to upgrade the creative aspect of work; the other
was to encourage the assumption of executive responsibility. Both seem to
us to require the attention of our business community.

3. The problem of government supervision of our expanding
economy naturally bulked large in our analysis of the determinants of growth.
We found reason for satisfaction in the evolution of a climate of agreement
on the general relation between government and business, and believe that
this in itself augurs well for the continuance of growth. Within the agree-
ment, however, lies a wide variety of desirable government actions to en-
courage growth.

In this connection we discussed the need for the direct provision
of public assets, indicating their extensive magnitude, and emphasizing
the importance for government economy in order to accommodate them. Turning
to the vital question of private investment, our conclusions pointed to a
number of possible changes in tax incentives and to the exploration of
additional price-stabilizing economic devices. It was our strong conviction
that an impartial commission should review the entire field of local, state,
and government financial activity with a view to adapting our present basic

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structure to the needs of a growth economy.

4. Finally, we have reviewed some of the areas of economic and social distress. We recommended a revised agricultural policy aimed at the encouragement of successful farmers and at the economic and social relocation of the submarginal farmer. Similarly we strongly endorsed effective federal, state, and local action to move rapidly ahead with large-scale, well planned slum clearance and city redevelopment plans, with particular reference to improving race relations.

Turning to the field of health, we stressed the need for improved health insurance, suggesting family-prepayment group medical centers and the need for increased support of medical research and experimentation.

In the field of social insurance programs proper, we noted the important role of private expenditure, and urged better Federal-State cooperation for the administration of public expenditure. We then directed our notice to a number of necessary extensions and changes in the fields of unemployment benefits, and retirement provisions.

* * * * *

With these conclusions and recommendations in mind, we now turn to our final problem -- the ability of our growth economy to contain the totality of the claims made upon it, and the priorities which those claims seem to merit.