Social Policy Reform in the United

States:

A Comparative Analysis of Income Distribution,

Healthcare, and Education

By Jason Polen

Political Science 423 Fall 2009

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In the United States, there is a political system that was

purposely structured to prohibit a large centralized government from

controlling peoples’ day-to-day lives. Checks and balances, separations

of powers, and local government autonomy all contribute to

maintaining a small centralized government. The U.S. government is

not inefficient by nature; it was, and continues to be, intentionally

shaped inefficiently to prevent it from having too much power, like in

Europe. When our government was created, it was created precisely

to set itself apart from the bureaucratic and aristocratic hierarchy that

dominated European life. From and American perspective, World Wars

I and II reinforced the reasons for continuing the minimalist role of

government. While in Europe, the two World Wars instigated a change

that continues to resonate in public policy today. The role of

government in Europe has been used as a powerful tool to protect and

help its people, while Americans have generally viewed it as a

hindrance to progress and even a threat to the people. Americans have

trusted the government to prevent “bad” things from happening, as

evident by the defense budget, but Europeans have entrusted their

governments to promote, and even enforce “good” things. These

basic differences about the government’s responsibilities are changing.

As Americans slowly see how beneficial the government can be, a

complex dilemma emerges. Can these generous social policies work in

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the U.S.? Even if they can, there is an armada of powerful forces trying

to convince people that these “socialistic” policies are bad for the

American people. Will the American people be able to overcome these

powerful forces? In reality, America is the wealthiest country in the

world, yet we consistently and comprehensively fail to meet our

peoples’ basic needs. What can the government do to change these

shameful discrepancies?

Drastic changes in social policy are the solution. Before I identify

the specific weaknesses of the key U.S. social policies, I explain the

basic assumptions my critiques and proposed solutions are based on.

My principles of social justice are underlying guidelines that society

should consider when developing sound social policies. They are not

airtight; however, I resolve most philosophical inconsistencies by

organizing them in descending order of precedence. Following my

principles, I describe where and why certain policies are severely

undeserving society. Specifically I analyze income distribution,

healthcare, and education by discussing their current failures and

possible solutions in relation to successful European policies. In the

end, I advocate for a change in American social policies that starts with

policymakers agreeing on a goal for society; then identifying policies

that achieve the goal most efficiently and completely.

Principles of Social Justice

Society’s primary goal should be raising the minimum standard of

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living for everyone. My primary principle assumes American society is

capable of meeting peoples’ basic needs, and collectively people are

willing to make sacrifices. This principle is derived from the Kantian

sense of “Duty”, but instead of describing the duty of individuals, I am

referring to the collective duty society should have to all its members.

This type of duty is utilitarian because it aims to generate the greatest

amount of good for the greatest amount of people. However, my idea

of society’s duty is different than utilitarianism because it rejects the

implication of an excluded minority. With technology and progressive

allocation of resources, I believe everyone should have access to

nutrition, healthcare, a job, education, time for leisure, the means to

raise a healthy family, and a life free from worry about how to acquire

these basic needs.

As society progresses, living standards of the poor should

increase at a significantly higher rate than those of the wealthy. My

second principle addresses the dynamic nature of the relationship

between rich and poor. The diminishing marginal utility, also a

utilitarian concept, points to a logical resolution for reversing the gap

trend. Society should focus its resources where they will make the

most difference: on the poor. Mahatma Gandhi captured the essence of

this principle when he said, “A nation’s greatness is measured by how

it treats its weakest members”. The more society raises the standard

of living the better society will be as a whole. This principle is similar to

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John Rawls’ “difference principle” because they both accept a

reasonable amount of inequality, while emphasizing raising the

minimum standard of living. Reasonable inequalities in the distribution

of resources should be attached to peoples’ ability to contribute to

society. Those who can offer more skills should be rewarded

accordingly, but not to the point where their rewards hinder growth in

the lowest parts of society. This is also limited to the extent that

people losing wealth, in this case the rich, retain their personal liberty

outlined in my third principle.

My third principle says, individuals’ liberty should be maximized,

as long as it does not harm other people or society as a whole. This

principle aims to guide societies’ decisions toward outcomes that favor

the less wealthy, without extensively hindering the freedoms of the

more wealthy. The wealthier people in society have a right to enjoy a

higher standard of living than the less wealthy. A certain amount of

inequality is actually good for society as whole because it creates

incentives for innovation. Classical liberal economists claim any barrier

to peoples’ prosperity hinders innovation by reducing our incentive to

work. This is a complete oversimplification that assumes human beings

are incapable of comprehending short-term sacrifices, say in the form

of taxes, can benefit society and themselves in the long run.

Everyone should have the opportunity to compete in the various

aspects of the economy. My fourth principle says, everyone should

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have the opportunity to compete in the various aspects of the

economy. John Locke said everyone has the right to “life, liberty, and

the pursuit of property”. This vague statement begs the question: what

is the best way for society to deliver these basic rights? First, the

structures of society have to be shaped in a way that is effective to

generating these opportunities for everyone. Finding ways to including

everyone in economic endeavors is productive to society and beneficial

for people too. When some people are left out, Durkheim’s concept of

“anomie” starts to erode the society.

My social principles are based on two assumptions about people.

Primarily, we are motivated by our self-interests. Philosophers like

Nietzsche and Freud may interpret this to mean people are inherently

selfish or “evil”. I believe we are much smarter about what our self-

interests are. We want to be taken care of, and know that taking care

of others is the best way to achieve this goal. Secondary to being

inherently self-motivated, we are more much more inclined to do good

than to do evil. Evil is inherently dangerous, which is against out self-

interests. We will do as much good as we can as long as it is not

harmful to ourselves. Again, people have the ability to see the long-

term benefits of short-term sacrifices.

Income Distribution & Poverty Reduction

In the United States, income is much less distributed among

people in comparison to European countries. According to the Gini

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Index, the U.S. has a coefficient of 45, and the EU has an average of

about 31. Although there are some discrepancies when comparing

large countries to small ones, this is still a significant difference. The

U.S. does well at caring for a few select groups, like single mothers and

the elderly, but the majority of poor people are left to fend for

themselves. There are three main reasons income inequality is much

greater in the U.S. than in Europe. First, the American view of poverty

is much more accepting of large numbers of struggling people. Second,

Americans measure poverty absolutely rather than relatively. Third, as

a result of the first two, the policies aimed at alleviating poverty are

severely insufficient.

In American society, poverty is stigmatized; most people don’t

want to see it and definitely don’t want to interact with it. Those who

are willing to help usually offer a small amount of temporary

assistance that only reaches a small percent of the people in need.

Poor people are considered “lazy” if they are even recognized at all.

This view of poverty is derived in opposition to the view of the rich; if

the rich are the hardest working and smartest, then the poor must be

the laziest and most undeserving members of society. Most people,

even Americans can see beyond this perspective, but unfortunately

this type of thinking continues to dominate pubic policy. Generally,

people in Europe don’t regard the poor as “lazy” or “undeserving”;

they considered, “unlucky.” They are not stigmatized, which allows

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them to be intentionally incorporated into society’s plans.

Poverty is a relative term; a rich country should not measure

poverty in the same as a poor country would. However, the U.S.

continues to measures poverty absolutely using the Orshansky

method. To a certain degree, this method has is relative because it’s

supposed to be based on the cost of living in the U.S., but the results

fall short. To be considered poor, a family of four must be making

below $18,244. When new policies are being considered that cover

“150%” of the poverty line, it should be obvious that a new system of

poverty metrics should be implemented. In Europe poverty is

measured relatively. At the very least, people making 50% of the

medium national income are considered poor. Using this

measurement, about 17% of Americans are below the poverty line,

while the European average is 9%.

Unfortunately these numbers don’t concern most American

policy-makers. This is evident in the intentionally weak policies that are

set in place to help the poor. Overall, the U.S. spends about 10.6% of

GDP on social benefits, while the European average 17.6%. Sheer

spending alone doesn’t tell the whole story; maybe the U.S. is more

efficient at poverty reduction. But this isn’t true either. Countries that

excel in poverty reduction, like Sweden, succeed in lifting seven out of

ten people out of poverty, but the U.S. can only manage four out of

ten. The simple explanation is the difference in the amount of services

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European countries offer. Beside poverty reducing transfers,

Europeans have better unemployment benefits, family assistance

policies, and retirement systems.

European countries excel in labor market policy because of the

large influence labor unions have on government. They are actually

incorporated and consulted during the policy making process. In the

U.S., big business lobbies dominate this role. The result is weak

benefits for the workers, and favorable policies for the businesses.

Europeans, on the other hand, receive extensive benefits that cover

higher percentages of their income for longer durations of time. The

passive American labor market policies offer low minimum wages, and

short unemployment benefits. These policies aren’t supposed to

actually help people find new jobs, they are just a small crutch for

people to live on while they figure something else out. Usually people

are forced to move back in with their parents or liquidate their assets

before qualifying for more weak welfare benefits. In Europe, if the first

round of unemployment runs out, there are back-up funds available to

people. The unemployed can also receive training in more lucrative job

markets. This shortens the time people are structurally unemployed. In

the U.S., the structurally unemployed are left to retrain themselves

with little or no money to do so, but in Europe people can actually

continue to support their families while learning a more lucrative trade.

The U.S. should adopt a more government run or funded retraining

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programs for displaced workers. Easing the transition from job to job

maintains a basic level of income consistency that allows people to be

a more productive members of society. Allowing people to slide into

poverty for preventable reasons ends up costing the government

hundreds of thousands more than what it would have cost to simply

give them some substantial benefits to begin with.

Family assistance programs in European countries are offering

benefits only the wealthiest American can afford. There are guidelines

businesses have to follow when their employees become pregnant.

They receive at least a year of paid leave, which is shared by the

government and the employer. Then, after having their child, they

have trustworthy childcare facilities where they can send their children

free of charge. In countries like France, an educated government

employee will come the family’s home to help watch and properly take

care of the child.

The elderly in the U.S. are among the poorest people. Pension

systems, if you’re fortunate have one, are unstable because they are

vulnerable to fluctuations in the stock market and business cycles. In

Europe, the younger working class pays into the pension funds of their

elders. They don’t have to worry about the impossible task of

contributing the precise amount of money to cover the remainder of

their life. In the U.S. the elderly are mostly left to pay for their own

retirement, the slim benefits the Social Security Administration offers

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usually don’t cover the cost of rent and food.

Reform begins with defining poverty more broadly. Once a more

exhaustive definition of poverty is accepted, more people will qualify

for benefits. Just because someone isn’t at risk of dying the next day,

that doesn’t man they don’t need help. Poverty-related policies should

be primarily focused on poverty prevention. The most successful

policies are those that redistribute income the most. The simplest and

most effective policy is progressive taxation. All the extensive poverty

prevention policies the Europeans offer are paid for by higher taxes.

The people who use the benefits the most aren’t the ones who

generally pay for them, but those paying the most are benefiting from

them indirectly. Having a healthier and financially stable society is

better for the wealthy because it maintains the social infrastructure

necessary to generate wealth. Transfers of money from rich to poor

are Pareto efficient, because the gain means much more the poor

person than the loss does to the wealthy person.

Overall poverty is continual trap that is very difficult to get out of

in the U.S. Allowing people to slide into poverty for preventable

reasons ends up costing the government hundreds of time more than

what it would have cost to simply give them some substantial benefits

to begin with. More lengthy and substantial benefits should be given to

a wider range of people. Americans should have a better

understanding of why people are poor, to eliminate the stigmatism

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surrounding poverty. Policies should actively help the poor get out of

poverty instead of perpetuating the common attitude that the poor

aren’t worth helping.

Healthcare Policy

At this point in history, healthcare should be a basic human right.

It is difficult to deliver this right, because healthcare is a market

failure. The rising costs of healthcare in the U.S. are increasing three

times as fast as inflation. If they continue to increase at this rate,

healthcare costs will be up to 75% of peoples’ income in 15 years. This

fact alone makes a healthcare reform a priority. U.S. Healthcare is

about 17% of GDP, almost two times greater than most European

countries. Shouldn’t all this spending mean we have the best

healthcare in the world? Unfortunately it doesn’t even come close.

About 30% of people are uninsured, and the World Health Organization

ranks the U.S. 37th overall for healthcare. The U.S. healthcare industry

has a powerful set of lobbyists from the pharmaceuticals and insurance

companies that make up the largest amount of lobby money entering

Washington. Beside lobbying and marketing costs, administrative costs

make up about 20% – 30% of healthcare costs. Insurance companies

and providers are forced to employ large amounts of people just to

manage the complex billing process.

Inefficiencies inherent in the structure of the system aren’t the

only thing driving up the costs. Pharmaceuticals companies use the

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high cost of innovation to justify extremely expensive drug costs that

can reach tens of thousands of dollars per month. In reality they are

spending more money on advertizing and marketing than they do on

research and development. They actually pay individual physicians to

prescribe their profit-making drugs over generics. These companies

have essentially convinced policy-makers that innovation must be

valued over human lives.

Healthcare practices, initially started by doctors to produce more

revenue, have become common practice. Patients are insisting on

getting tests that they believe are necessary. Americans overconsume

healthcare, and the result is unnecessary and expensive treatments

that do more harm than good. According to the World Health

Organization, the U.S. has 110 per 100,000 mortalities amendable to

healthcare; this is higher than any other European country.

The focus on remedial care rather than preventative is a problem

that not only drives up costs, but also takes a toll on peoples’ health.

The U.S. has a lower life expectancy that most European countries and

higher child mortality rates. Emergency care is often relied on as the

primary care for people because the uninsured and underinsured wait

for their ailments to become extreme, in hopes that they can avoid

devastating bills. After all, healthcare is the number one cause of

bankruptcy in the U.S.

In Europe there are a number of different systems that all deliver

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better healthcare at lower costs. France, ranked number one by the

WHO, spends the most out of European countries, but is still about 6%

of GDP less than America. They use a streamlined medical billing and

records system, like the Department of Veterans Affairs in the U.S.,

which keeps track of the medical records and costs for everyone.

Doctors aren’t paid on a fee-for-service basis; instead they receive

salaries. The doctors also receive bonuses for keeping their patients

healthy.

In the U.K., the government run system has a department called

NICE, which aims to cut unnecessary costs like highly expensive drugs

that will only prolong a person’s death by a few weeks. Most European

countries have accepted that healthcare needs to be fairly and

efficiently rationed. The more incentives are rearranged to benefit the

people rather than the providers and drug companies, the better

healthcare Americans will receive.

Three changes need to be made, and their success is

interdependent. Under the current U.S. healthcare system, reforming

just one or two areas of healthcare will create too many negative

externalities in other unreformed areas. First, the government has to

prevent insurance companies from denying people payment based on

“pre-existing conditions” or any other reasons. This has a positive

externality; Michael Pollan’s article, “Big Food Versus Big Insurance”

predicts that when insurance companies are forced to insure everyone,

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they will direct their army of lobbyists toward making Americans

healthier. Hopefully this will defray some the power agribusinesses and

fast food companies have in Washington. Second, the costs of

premiums have to be contained. This is a complex trail of problems

that starts with containing the cost of healthcare. In order for this to be

successful, people have to stop over-consuming the healthcare that is

available. The best way to achieve this is by changing the incentive

structure for doctors and making patients aware of the costs of

treatments. Insurance companies have to be non-profit or else there

will always be an incentive to eliminate high-cost patients. Third,

Medicare and Medicaid have to be reformed to make sure the poor and

elderly are treated well. As discussed in the critique on income

distribution, there are a lot of poor people in the U.S. that aren’t taken

care of. They have a basic right to healthcare just like the working

class.

If Americans successfully reform the healthcare system, our

disposable income will actually increase even though our taxes may go

up. This could be in the form of just cheaper healthcare premiums or

no healthcare premiums. Either way, a net gain of disposable income

will be the result. Of course the other side of the coin is less profit for

doctors, insurance companies, and pharmaceuticals, which should be

an easy sacrifice to make for universal healthcare.

Education Policy
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The basic purpose of having an education system is to shape citizens

that will be the future leaders of society. Education in the U.S. suffers

from a lack of centralization, funding, and talent. American students

consistently get lower scores than their European counterparts,

especially in math and science. The demographics of education vary

widely depending on the wealth of the school district because most

funding comes from the local level. This type of system leads to a

perpetuation of the status quo. Rich areas continue to produce more

educated children, while poor areas have very low graduation rates.

Teachers in the U.S. are paid less than their European counterparts,

which means there is little or no incentive for talented college

graduates to go into teaching.

Finland has some of the highest scores on international tests, but

they spend a relatively small amount of time in the classroom.

Americans on the other hand spend the largest amount of time in the

classroom, but have some of the lowest test grades. Of course, some

of these test scores are related to the impoverished environment many

students are growing up in, which relates back to the importance of

poverty reduction.

The U.S. should centralize education funding so it is more evenly

distributed. In Finland and Sweden, the poorer areas actually get more

funding, because they need it more. Teachers salaries should be

increased to entice more talent toward educating our future leaders.

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Education is a public good that benefits all of society. Taxes should be

evenly spread over everyone. Again, more progressive taxation has

better distributive implication.

Conclusion

Changes in American social policies should start with

policymakers agreeing on a goal for society, then identifying policies

that achieve the goal most efficiently and completely. While there are

valid points that are preventing policy changes from occurring,

eventually policymakers have to sacrifice some short-run negative

impacts on the economy for the long-run betterment of society.

Poverty prevention, healthcare, and education are all interrelated.

Small changes in policy have huge implications for American peoples’

standard of living. Meeting peoples’ basic needs should be placed

above innovation, economic growth, and attitudes about the poor.