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Op-ed: The death of welfare capitalism

You’ve heard of welfare, but have you ever heard of welfare capitalism?  Welfare capitalism is what historians call the practice of companies offering employees privileges and services that the labor market did not demand.  Today, benefits like sick days and health insurance are standard with most employment contracts.  During the 1920s, the heyday of this practice, the public hailed companies that offered these things for their generosity.  Today, these kinds of benefits are taken for granted.  They shouldn’t be, as the pressures of global competition may serve as an excuse for American firms to try to get by through offering employers less.
No better historical example of welfare capitalism exists than Pueblo’s own Colorado Fuel and Iron Company (CF&I).  The now-departed steelmaking firm that literally put Pueblo on the map was also a pioneer of what was then called “welfare work.”  It offered its miners and steelworkers free hospital care, baseball teams, company gardens and membership in a worker’s organization that operated very much like an independent trade union (which was the subject of my 2010 book Representation and Rebellion:  The Rockefeller Plan at the Colorado Fuel and Iron Company, 1914-1942).

CF&I workers appreciated these benefits as they did much to improve their quality of life.  However, workers could no longer enjoy them once the Great Depression hit as their employer rolled them all back in order to save money.  Since benefits that came through employers proved mostly temporary, Franklin Roosevelt’s New Deal jumped in to fill the void.  Social Security substituted for bankrupt company pensions.  Support for the right of workers to organize independent unions substituted for the company unions that firms like CF&I offered.

This system worked for decades.  People old enough to remember the post-World War II prosperity probably think of it as what normal ought to be, but really those years were an anomaly.  The American economy grew faster and longer than just about any other period in the country’s history.  More importantly, both workers and managers took part in that prosperity (although not to equal degrees).

Global competition began to spoil the party during the mid-1960s.  The first firms to feel the pinch of competition were manufacturing companies like CF&I.  Faced with competition from firms in countries with no trade unions or environmental restrictions, union contracts became an increasing burden to companies that had to cut prices in order to compete.  The modern free trade regime, especially regional free trade agreements like NAFTA, gave employers an easy way to cut costs by shipping manufacturing and jobs overseas.

Of course, we still make things in America, but the attitude of the companies that do has changed considerably in recent years.  Instead of helping working earn enough money to spur consumption at home, they demand wage and benefit concessions in order to stay put.  “Made in America” has become an advertising slogan rather than a way of life.  The same is true of whatever welfare work those companies still provide.  With the advent of the Great Recession, employers simply expect workers to be happy to have jobs.

It defies imagination for firms that advertise that they are active in their communities to sell cheap goods produced in China or elsewhere, yet I see that happen all the time..  Many of these firms are big box discount retailers who offer poor benefit packages and slightly-higher-than-subsistence wages to their workers who then can’t afford to spend enough money to keep their home communities economically vibrant.

Perhaps the original welfare capitalist, Henry Ford, had it right.  When he offered his workers a $5 day in 1914, he answered the taunts of other employers that he was a traitor to his class by arguing that it was good business.  The workers he paid well would turn around and use that salary to buy his cars.  Today’s employers have become so short-sighted that they no longer see (to quote a bumper sticker that my wife has) that “everyone does better when everyone does better.”


By Jonathan Rees is Professor of History at Colorado State University – Pueblo.

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