The New York Times  [Printer-friendly version]
January 29, 2006


By Clifford J. Levy

In the 1930's, the titans of industry tried to smother Social
Security, maintaining that it would, as a gentleman from the Ohio
Chamber of Commerce harrumphed to a Congressional committee,
"permanently weaken the fiber of the American people." Three decades
later, when Medicare and Medicaid were being considered, business
again took up arms, warning of the doomsday of socialized medicine.

These days, don't expect to hear such talk in many corporate

Under pressure from foreign competitors with lower labor costs, big
companies have become more willing to pare away workers' health care
and pensions, abandoning an informal social contract that existed for
much of the 20th century. To do so without stirring the ire of the
rank and file, companies have essentially tried to turn the
responsibility for some of these benefits over to the government.
Whether by default or design, government is stepping into the breach.

Medicare's new prescription drug benefit, one of the most significant
expansions in the program since its creation, has been a boon to
companies eager to trim soaring drug costs for retirees. Airlines,
auto-parts manufacturers and other besieged industries are jettisoning
pension plans, forcing a federal agency to finance them, a bailout
that carries echoes of the savings-and-loan debacle of the 1980's.

In low-wage industries like retailing and fast food, companies have
increasingly been able to sidestep demands for health coverage in part
because some workers qualify for Medicaid, an antipoverty program once
only for the poorest but now easier to obtain in many states.

Over time, Big Business has learned how to love Big Government. Or at
least some of it.

"This is certainly a huge shift from the days when corporations lined
up in an unbroken column to decry these programs as a threat to the
American way," said Jacob Hacker, a political science professor at
Yale and author of "The Divided Welfare State."

Of course, corporate America is not exactly throwing in its lot with
those who champion generous spending on housing, schools or other
causes dear to liberals. Business typically distrusts expansive
government and fears that more social programs spell more taxes. But
it is also willing to accept help in easing labor costs, aid that,
depending on your point of view, is either prudent government
assistance or brazen corporate welfare.

After Social Security was created, many companies not only learned to
live with it, but realized that these benefits could help offset the
cost of private pension plans, which businesses had begun to create to
encourage a stable work force after World War II.

The combination of private pensions and Social Security, and later
health insurance, was the basis for a social compact among industry,
labor and government: companies lured and kept skilled workers by
offering long-term benefits. Employees in turn pledged their loyalty.
But in reaching these agreements with unions, companies also set a
trap for themselves by pushing many of their costs into the future.

Today, it should not be surprising that a major supporter of the
Medicare drug benefit is the Employers' Coalition on Medicare, made up
of companies like Caterpillar and Goodyear and trade groups like the
National Association of Manufacturers, which was once antagonistic to
such benefits. When the drug plan was approved in 2003, the companies
were promised billions of dollars in subsidies.

Some want government to go further.

The chief executive of General Motors, Rick Wagoner, has urged
Washington to be "more proactive on health care." The automotive
company, which posted a huge loss last week and is trying to avoid
bankruptcy, pays $1,500 in health care costs for each car it makes,
while some competitors pay as little as $200.

"The big irony in the health care area is that actually American
business would be better off if there were a national health insurance
system like Canada's," said Theda Skocpol, a Harvard dean who was an
informal adviser on social policy to the Clinton administration.
"Costs would be easier to keep down and there would be more
flexibility. Workers wouldn't be keeping their jobs to keep their
health benefits."

That is not necessarily a common belief in the corporate world. Small-
and medium-size businesses tend to be hostile to entitlements because
they usually do not have union workers with costly benefits. Some
large companies, like those in technology, are in the same boat.
(Whether the American people would want Canada's health care system is
a question for another day.)

This schism is also reflected in Congress. Big Business was once a
staunch partner of Republicans who favored less spending, taxation and
regulation, but its evolving stance toward supporting entitlements has
roiled its relations with the party.

Some of these strains are playing out in the contest for majority
leader among House Republicans. The front-runner, Roy Blunt of
Missouri, who helped spearhead the fight for the new Medicare
prescription drug benefit, supports a more free-spending party in line
with the demands of business.

An insurgent, John Shadegg of Arizona, was one of the few Republicans
to vote against the benefit, and supports old-school austerity.

"You used to have a balance, where you had labor on one side and
business on the other," said Michael D. Tanner, director of health
and welfare studies at the Cato Institute, a libertarian research
group in Washington that favors reducing entitlements. "You are not
seeing that anymore. The people who are legitimately for smaller
government have lost one of their natural allies."

The Shadegg faction typifies a kind of simmering reaction to the
skyrocketing cost of entitlements. These Republicans are certainly not
antibusiness, but they are also not eager to use federal money to
rescue companies struggling with labor costs.

At the same time, the Bush administration, while voicing no regrets
about the prescription drug benefit, is cracking down on distressed
companies that default on their pension plans and make the government
take on the burden.

In state capitals, however, there has been a different kind of
counterattack, represented by a measure approved in Maryland this
month requiring Wal-Mart to spend more on health care. Some state
officials across the nation, warily eyeing enormous Medicaid costs,
are accusing companies like Wal-Mart of using the program as a crutch
to keep their costs low.

AT this point, federal and state governments may have no choice but to
fend off demands for more assistance. Without major tax increases or
borrowing, it is going to be difficult to sustain current obligations
for entitlements, let alone take on new ones, beyond the Medicare drug

"My view is that that was the last hurrah, and that from here on in,
we are going to try to hold on to what we have got," said Donald W.
Moran, a health care consultant and former senior budget official in
the Reagan administration. "In part, that is because the fiscal
dynamics of this really stink. Thirty years out, absent some major
change, this thing is going to be a bomb."

2006 New York Times Company