Bush's Ownership Society

Washington Monthly, December 05

Conservatives have a knack for taking good ideas—say, patriotism or faith—to the sort of ideologized extreme that brands the ideas as theirs and leads liberals to abandon them. We're seeing that now with the issue of choice and individual empowerment. Those very concepts used to be associated with liberal causes like abortion and voting rights. But over the last couple of decades, conservative intellectuals have roped them to a larger agenda to revolutionize government.  And they're perfectly open about it. Talk to scholars at the Cato Institute or the Heritage Foundation or to movement organizers like Grover Norquist, and they'll walk you through the strategy. Big government and individual freedom, they'll explain, are opposed to each other; more of one means less of the other. The three big areas of non-defense-related government spending are retirement (mainly Social Security), health care (mainly Medicare and Medicaid), and education (mainly K-12 public schools). For political reasons, it is practically impossible to cut spending in these areas. But it is possible to dismantle the government bureaucracies that administer them in a way that enhances personal freedom and makes possible big cuts down the road: privatize the benefits.

The father of this line of thinking is Milton Friedman. In the 1950s and 1960s, the conservative economist dreamed up the notions of education vouchers and private accounts for Social Security. Republican operatives and think tankers seized on Friedman's ideas in the 1970s, expanded them into areas like health care, and fleshed out their philosophic and political logic. Vesting individuals with more choice, control, and ownership of their government benefits, they argued, would not only enhance virtues like personal responsibility, but over time, it would also result in the shift of hundreds of billions of tax dollars from the custodial care of government to the corporations that would help manage people's private accounts. Best of all, from the conservative point of view, it would transform the electorate's political identity. Instead of government-dependent supporters of the Democratic Party, voters would become self-reliant followers of the GOP.

These ideas are the intellectual fuel of the conservative movement that has swept across the country in recent decades. They were well understood in the Reagan administration, and the Gipper's speeches are suffused with them. But it has only been in the last few years, with both Congress and the White House in conservative Republican hands, that the ideas have truly debuted.

Now, the reviews are in—and they are not good:

Consider President Bush's effort to sell the public on private Social-Security accounts. Last September, when he first began talking about the idea on the campaign trail, it looked like a winner, with 58 percent support in the polls. By December, only 54 percent favored his proposal. By February, following his detailed explanation of private accounts in his State of the Union address, support fell to 46 percent. And by June, when informed that private accounts would be paired with cuts in benefits for future retirees—as the president himself admitted they would have to be to have any impact on Social Security's long-run finances—27 percent of voters gave their approval, a level of support below that for legalizing marijuana and gay marriage.   

Or consider another high-profile element of what Bush calls the “ownership society”: giving individuals more control over their government health-care benefits. In 2003, the president signed a landmark measure providing prescription drug coverage to Medicare recipients, with massive subsidies to lure beneficiaries into private plans. Prior to the law's passage, 90 percent of the public supported the idea of government helping seniors with drug costs. Today, a scant 31 percent of Americans have a favorable impression of the new program. It's possible that, once the benefit actually goes into effect beginning next year, seniors will flock to it gratefully. But an interim effort offering seniors a choice of drug discount cards doesn't inspire confidence. Only 6.4 million seniors wound up getting the drug discount cards, a million fewer than the government predicted. Low-income seniors who signed up for the card were given an extra $600 subsidy to help defray the cost of co-pays—a benefit the government estimated would lure 4.7 million low-income seniors into the program. Only 1.9 million lower-income seniors actually did sign up.

Finally, consider the president's efforts to give parents more choice over the schools their children attend. Under Bush's No Child Left Behind Act, millions of students in failing schools can now transfer to other schools in their district. It is the grandest experiment in public-school choice ever attempted, and polls show overwhelming support for it. In practice, however, only about 1 percent of students in failing schools annually have taken advantage of the opportunity. That could mean that districts aren't eagerly publicizing the choice provisions, or that parents aren't impressed with the array of often-dysfunctional public schools they have to choose from. That's why conservatives say the federal government should go the next step and provide students with vouchers for private schools. Yet a two-year-old federal voucher experiment in D.C. that provides low-income students a hefty $7,500 to attend private schools has garnered only modestly more interest. Only 7 percent of families with children eligible for the vouchers have applied for them.

You can begin to see a pattern here. Americans love the idea of choice—in the abstract. But when faced with the actual choices conservatives present, they aren't buying. The reason is that conservatives have constructed choices that fail to take human nature into account. People like to have choices but feel quickly overwhelmed when they lack the information or expertise to decide confidently, and they turn downright negative when the choices themselves seem to put what they already have at risk. Conservatives were bound to make these mistakes because their very aim has been to transfer more risks from government to individuals so that government's size and expenditures can be cut. That's not a bargain most Americans will accept. They like choice just fine, but they won't trade security to get it.  That's not to say individual choice and control can't be applied intelligently to government. In fact, doing so may be key to achieving important progressive aims like universal health care. But designing policies that use choice and that Americans would actually embrace won't make government weaker. Rather, it will require government to be stronger.

Dozen card monte: 

It's understandable that conservatives would think that giving individuals more choice and control over government services would be an easy sell. After all, consumers increasingly enjoy these things in the marketplace. Everything, from cars to computers to pastas, now comes in an astonishing array of styles, colors, and configurations. Consumers today have access to new tools that shift control to them, and the younger they are, the more comfortable they are with that control. No one under 30 these days calls a travel agent; they use Orbitz.

But as choices and individual control have expanded, economists and behavioral psychologists have begun to document some unexpected ways people actually react to these new marketplace choices. Swarthmore social theorist Barry Schwartz explored their findings in his book The Paradox of Choice. On the one hand, notes Schwartz, having control and choice clearly benefits us. People who peruse a variety of options before choosing tend to make objectively better decisions. There are important psychological benefits as well. The ability to express one's identity via the choices one makes—in everything from the clothes we wear to the charities we contribute to—greatly increases human happiness.

On the other hand, having an ever-expanding number of choices doesn't necessarily make us happier, just as bigger and bigger food portions don't make us healthier. Indeed, too many choices tend to stress us out. Even trivial choices often require expenditures of time and energy to make informed decisions. When the variables are too numerous, people often decide that the effort isn't worth it. In one study, individuals were offered tastes of six different exotic jams and given a coupon worth a dollar off any of the jams. Another group was offered a choice of 24 jams and a coupon. Those in the first group were more likely to buy jam than those in the second.  As choices have proliferated, we feel overwhelmed, as if we're losing control—the very opposite of the feeling choice is supposed to bring. These anxieties, plus the natural human tendency to procrastinate, means that most people, most of the time, respond to choices by doing nothing. They choose not to choose.

The prescription-drug discount-card program is a classic example. The program seemed designed to give seniors more stress than savings. There were dozens of cards to choose from. Each card was good at only certain pharmacies. Each covered only certain drugs. And the amount of discount for each medicine varied by card. With so many possible permutations, figuring out which card was the best deal was largely guesswork. According to surveys conducted for the government by Apt Associates Inc, seniors complained that they “found the multiplicity of choices to be overwhelming.” Those who did sign up for the cards generally liked them—though many said they found better prices at Costco without using the cards. Yet more than half of card users didn't shop around. They just accepted the first card they heard about (usually from their pharmacist). And the few seniors who did comparison-shop for cards reported only slightly higher levels of satisfaction than those who didn't.  The big flaw in the drug discount-card program was the complexity and incomparability of the choices it provided seniors. Had the GOP lawmakers and administration appointees who designed the program been less enamored of market principles and corporate lobbying agendas and been willing to impose stricter guidelines on the participating companies, so that the different features of the cards could be more easily compared, more seniors might have participated. After all, the program did offer Medicare recipients something they wanted and didn't have: financial help paying for prescription drugs.

The more intractable problem with the president's ownership society is its effort to inject choice and control into benefits people already have. Here, the culprit is not complexity but risk. Behavioral economists have described what's known as an “endowment effect”: People are psychologically prone to be exceptionally risk-averse with benefits they already have. With his Social-Security private-accounts proposal, the president was in essence offering voters a variety of ways to have less retirement security. The reaction should not have been a surprise. Surveys by the Pew Research Center found that 60 percent of those who opposed private Social-Security accounts said they worried about the risk—to themselves, to others, and to the system as a whole.

Conservatives may have been blindsided by the public's rejection of the president's plan because they assumed that most Americans share their fundamental assumptions about government: that more of it is bad, less of it is good. On an abstract level, many people do feel that way. The line in the president's stump speech, that the American people can be trusted to spend their own money better than the government, usually gets an applause. But when forced to consider concrete alternatives, Americans often wind up putting their trust in the collective efforts of government to protect their security rather than in themselves. Though the president succeeded in convincing the public that Social Security has long-term financial problems, he did not convince them that shifting control and choice to individuals was the solution. Rather, polls showed huge majorities favor such measures as raising the income cap on payroll taxes to inject more money into the current system—in other words, making government bigger, not smaller.

The same dichotomy, between the choice people say they want in the abstract and what they actually want in practice, exists in other realms. For instance, conservatives have looked at polls and focus groups and convinced themselves that individuals are willing to accept more responsibility for their own health care. That's why so many on the right who detested the high cost of the prescription drug law are excited by one of its provisions that would set up Health Savings Accounts. These are tax-favored 401(k)-like devises that allow individuals to “own” their own health care and make their own health care decisions. But in the end, will the public really welcome more individual responsibility over health care? Consider this: sixty-five percent of people polled say that if they got cancer they would want to choose their treatment options. But 88 percent of people who actually have cancer say they don't want to choose their treatment, preferring instead that their doctors do so. “Having the opportunity to choose,” writes Schwartz, “is no blessing if we feel we do not have the wherewithal to choose wisely.”

Forcing a decision:

It would be easy and natural for liberals to react to the failure of Bush's Ownership Society with a “Phew, that was close. Now, we don't have to think about choice anymore.” That would be a mistake, for two reasons.  First, it's not like the right is suddenly going to stop pushing these ideas just because Bush himself failed to sell them. The voucherizing of government is part of the guiding vision of modern conservatism. Entire organizations are funded primarily to achieving it. The problem with Social-Security private accounts, Grover Norquist recently told me, is “nothing that can't be solved with 60 Republican votes in the Senate.”

Second, as reform-minded progressives from author and speechwriter Andrei Cherny to British Prime Minister Tony Blair have been at pains to argue, the public's aspirations are changing. People want and receive more choice and individual control in the marketplace, and for all its frustrations, they rather like it, and will naturally expect more individual choice and control from government, too. Conservatives have tapped into a real yearning. What they've failed to do, for ideological reasons, is apply these concepts in ways that actually solve problems. Liberals are in a much better ideological position to actually deliver on the demand for more individual control and choice. The only obstacle is realizing that liberal policy goals can be advanced by smart proposals that let citizens make their own decisions.

An instructive example is public housing. Back in the early 1990s, Jack Kemp, George H.W. Bush's charismatic Housing and Urban Development secretary, was pushing the idea of selling off public housing to tenants and letting those tenants manage their own buildings. It was a classic early example of “ownership-society” thinking—Kemp called it “empowerment”—and it was, when you think about it, highly dubious. Is it really a favor to saddle the responsibility for maintaining decrepit high-rise buildings in terrible neighborhoods on the tenants who are stuck there, many of whom have trouble managing their own personal lives? Kemp wanted to fix the places up first, but the cost would have run $100,000 per unit in 1990 dollars—enough, noted OMB Director and Kemp nemesis Richard Darman, to buy each tenant a condo.

Kemp's ideas, well-meaning as they were, went nowhere. It took his successor in the Bill Clinton administration, Henry Cisneros, to figure out an “empowerment” strategy that actually worked.  Cisneros and his advisers—including Chief of Staff Bruce Katz and Assistant Secretary (and later secretary) Andrew Cuomo—figured out two important truths. First, they understood what urban experts had been saying for years: that the heart of the problem of public housing was the way it concentrated poverty in one place. Second, they grasped that to address this problem would require using certain choice-enhancing, market-based tools long favored by Republicans and disparaged by Democrats—namely, housing vouchers and tax credits for developers.  And so, with the backing of the president and GOP moderates in Congress, Cisneros and his team implemented a sweeping plan to break up that concentrated poverty. The department forced local housing authorities to tear down broken-down, crime-ridden public-housing complexes. It encouraged the building of low-rise replacement public housing or gave departing residents Section 8 housing vouchers to help find private apartments in better neighborhoods. It also provided private and non-profit developers tax credits to build or rehab apartment buildings with rules requiring that they rent to a mix of both poor and working-class tenants.

These largely unsung efforts helped drive the renewal of many urban centers that took place in the 1990s. Not enough time has passed to know how effective they were in improving the lives of HUD's poor. But surveys by the Urban Institute show that those who left public housing did wind up in somewhat better neighborhoods, and that former residents “generally perceive themselves as being better off,” with better housing conditions and fewer mental-health problems.  Notice how Cisneros's reforms were structured. They utilized policies that empowered individuals (housing vouchers, tax credits). But they relied on strict government regulation to guide the process towards a goal (breaking up concentrated poverty) that public officials determined was in the best interests of tenants and the nation. And they understood that most people, most of the time, will choose not to choose, and so they forced the issue. Individuals could move to other public housing or to temporary housing until the new low-rise developments were finished, or take a Section 8 voucher, but staying in condemned public housing wasn't an option.

Libertarian paternalism:

Choice, then, can be a powerful tool to advance public ends as long as one ironic truth is recognized: People like having choice but often don't like to choose.  This concept is at the center of a brewing movement within public-policy circles, one that Cass Sunstein and Richard H. Thaler of the University of Chicago have affectionately, if cheekily, dubbed “libertarian paternalism.” The idea is for government to shape the choices people have so that the natural human tendency to avoid making a decision works to the individuals' and society's advantage. For instance, many private-sector employees don't participate in company-sponsored 401(k) programs, even though participation is hugely in their financial interest (employees can invest pre-tax dollars and watch their money grow tax-free until the money is withdrawn). Lower-paid employees are the least likely to participate because they reap fewer tax benefits, seldom receive a company match, and are often living paycheck to paycheck. But the biggest reason lower-income employees don't participate is the hassle factor. The forms are a bother to fill out. They don't know much about investing. They can't decide where to put their money. They choose not choose.

Understanding this, some clever officials in the Clinton administration changed the rules governing 401(k)s to allow for “automatic enrollment.” Henceforth, firms could choose to automatically put aside a percentage of all employees' wages in 401(k) accounts. Employees would have the ability to “opt out” of the program, thus retaining the right to choose, but would have to take the initiative themselves in order to exercise that right. In practice, few do. A study of companies that instituted automatic 401(k) enrollment, by economists Bridgette Madrian and Dennis Shea, found that participation rates for employees making under $20,000 annually rose from 13 percent to 80 percent.   Imagine if every company in America automatically enrolled its employees in 401(k)s, IRAs, or similar retirement accounts? That one simple step might do more to strengthen America's retirement system than any number of changes to Social Security (at no cost to the federal treasury).

Scholars think this “opt-out” concept could be applied to a wide range of policies that are vitally important, broadly supported politically, but plagued by low participation rates. Why not automatically enroll all owners of homes on floodplains into the federal-flood insurance program? Why not automatically enroll all eligible low-income working families into SCHIP, the health-insurance program for children of such famlies?   A related strategy for dealing with the natural human reluctance to choose is the one used by Cisneros: compel people to make a choice. The New America Foundation has proposed making health insurance mandatory, as auto insurance is, with federal subsidies for lower-income workers to be able to buy private policies. That idea could be combined with another one popular in liberal circles: A universal health-care initiative that would allow individuals to buy into the health-insurance program for civil servants, the Federal Employees Health Benefits (FEHB). Under FEHB, workers choose from an array of private insurance plans pre-selected for quality and efficiency by the government. Also, those plans must disclose price, coverage, and other information in standard ways, so that employees can make apples to apples comparisons before choosing. It's no coincidence that federal workers report higher levels of satisfaction with their health care than most Americans working in the private sector.

Education is another area where structured choices might be beneficial. New Democrats have long supported giving parents more choice via charter schools. The jury's still out on whether charter schools produce any real educational benefits, and the schools themselves are prey to sabotage by the education bureaucracies. But studies suggest charter schools do have two advantages. First, parents who chose them for their kids do seem to like them. Second, the act of choosing tends to inspire more parental involvement and a more cohesive school culture, two attributes typical of successful schools. One way to capture those benefits within larger school systems with large numbers of failing schools would be to make choice mandatory. Parents would have the option of putting their children into one of several schools in the district, including their neighborhood school. But not choosing would not be an option. Several districts have experimented with this idea. The most famous was District 4 in East Harlem, New York. In the 1970s, the district launched an experiment which combined mandatory choice with relaxed rules that allowed groups of administrators, teachers and parents to form small schools-within-schools focused on unique curricula—art, science, technology etc. The results were public schools with strong cultures and more parental involvement, and while not all students benefited, test scores rose substantially.

There are plenty of good reasons, then, for progressives to embrace the idea of designing more choice and individual control into government programs. But doing so means facing down some major opposition—from corporations that don't want to be regulated to liberal interest groups that often oppose choice initiatives. Liberals also have to stop accepting the right-wing proposition that choice and empowerment are somehow inherently conservative ideas.  But it's conservatives who face the bigger obstacle. They are committed to a strategy of using choice as a Trojan horse to undermine government, yet it's impossible to make choice work in the real world without strong measures from government. With choice, as with so much else, conservative have mastered the art of winning elections with abstract language voters agree with, even as they push policies voters don't much like. They can't pull that trick off forever. At some point, conservatives themselves are going to have to make a choice.

Research assistance provided by Avi Klein and Isaac Chotiner.