While national economic planning -- in its most activist sense -- has never been and probably never will be an explicit government function in the United States, government has become the locus of decision-making on the social and economic issues of the day. But it is by no means clear that traditional governmental mechanisms can now be relied upon to be the engineer change.
Government in the United States lacks both the tradition of professionalism and the working partnership with labor and business that have favored some of our most powerful international competitors. Even with these advantages, governments everywhere find it difficult to weigh in on the side of change. The benefits of promoting economic and social adjustment are usually diffuse and delayed while change-induced losses are often immediate and localized, and their victims well identified and vocal. Buttressing the status quo is a historical and understandable governmental response.
The recent record on domestic policy is not cheering in this regard. The early 1970s saw an unprecedented amount of governmental, academic and editorial attention devoted to the inadequacies and inequities of our major social programs. Yet during the last decade, virtually no restructuring occurred in any major social program. Instead, special-purpose programs have continued to proliferate, aggravating existing inequities among classes of beneficiaries and creating new ones. A litany of special-interest groups is recited reflexively in the provisions of every new or amended piece of domestic legislation ensuring preferred attention to just about everyone.
While all of the special interests thus represented are worthy and their sponsors well-meaning, we may have arrived willy-nilly at a point where it is no longer possible to legislate for the "common good." As one wise Senate staffer remarked to me recently, "I'd be afraid to try to reform anything these days. By the time you buy off all the special interests, you'll be sure to end up with something that not only costs twice as much but is even worse than what you started out with."
The problem becomes particularly acute in a period such as the immediate future -- when total national resources are not growing rapidly or are even shrinking. Most of the "hard choices" among policies that have been made recently by either Congress or the executive have come in the context of the budget process. The use of this process has had some unintended consequences that may, by reducing the absolute and relative amount of government expenditures on employment-generating programs, make the process of economic adjustment more difficult.
It is virtually impossible to achieve basic restructuring of programs in the context of budget-cutting. About all you can do is cut the "easy" programs -- the so-called "controllables" in which program size is determined by the level of appropriations. The hard ones to restrain are the so-called "entitlement" programs -- such as welfare for families, the aged and disabled, Social Security, federal retirement and disability benefits, unemployment benefits, food stamps, medical assistance and special workers' protection programs. Restraining growth in these programs requires changes in the authorizing legislation that defines terms of eligibility or level of benefits. And this, in turn, requires the difficult if not impossible development of a consensus for change.
The result of this budget-cutting is an inevitable shift in the distribution of government expenditures away from programs and policies that contribute directly to employment and economic growth and toward programs that reimburse those who are, primarily, outside the labor force. Other factors reinforce this trend. Inflation causes "indexed" benefits to grow both in relative and absolute terms during periods, such as the present, in which prices are growing faster than wages. Recession causes transfer programs such as welfare, disability and unemployment compensation to grow and, if budgets remain in balance, tax burdens to increase on those still employed.
These induced expansions of transfer programs may also incur longer-run costs if workers, responding to the financial disincentives such programs provide reduce their work effort. This response can, in turn, further impede adjustments that are necessary to improve American productivity and stimulate the economic growth required to provide more adequately for both workers and the dependent population.
These inadvertent choices may well be the right ones. Our level of social benefits and our tax burdens are still much lower than in most industralized countries -- and our living standard and productivity are higher. We have also managed to absorb increases in the size of the labor force and in energy prices that many observers found devastating in prospect. But somehow it seems that the issues we face over the next decade are too important to be decided along the path of least resistance.
There are several important proposals already on the positive adjustment agenda. One is a more directed industrial policy to promote rapid maturation of "winner" industries (which promise new markets and productivity growth) and a less lingering demise for the losers. Another likely element is some form of "incomes policy" to develop a consensus about the distribution of the unavoidable losses in real income that occur when the prices of scarce commodities, such as oil, rise or other structural changes occur in the economy, and to devise and implement an incentive scheme to dissuade workers and businesses from indulging in self-defeating attempts to "catch up."
But whatever the merits of these proposals, the first hard decision we may have to make is whether we can develop an institutional mechanism to address these issues forthrightly and to begin to develop the necessary consensus for change.