Government Spending

The Ownership Society and Its Discontents

You can't count on George Bush and the GOP Congress to transform the welfare state.

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CHOICE IS APPEALING. That's why it's at the heart of the loose amalgam of programs, theories, and buzzwords that President George W. Bush calls the Ownership Society. It's Bush and his political advisor Karl Rove's way of trying to bring everyone inside the Republican tent. People who are happy with the government just the size it is shouldn't be spooked, they say: The Republicans aren't trying to take anything away, they just want to give people more choices. Libertarian types shouldn't be spooked either, and maybe they should even be excited: Republicans are finally dismantling the New Deal and replacing it with the free market, or at least a Rube Goldberg approximation thereof. And if policies to expand home and small business ownership can be tied in (because, hey, the word ownership is in there), all the better; that could appeal to African Americans and Hispanics. A Republican Party pushing an Ownership Society can be all things to all people.

This leaves those of us who care about limited government with a dilemma. Do we take the idea of an Ownership Society seriously, despite the fact that it comes from a group of people who have proven beyond a shadow of a doubt that they are comfortable not just increasing but ballooning the size of the federal government? Or do we cast it aside, despite the fact that as a political formulation the Ownership Society offers perhaps the most promising path in a generation to expanding individual freedom?

At the risk of giving the Bush administration the benefit of the doubt, libertarians, small-government conservatives, and all other natural skeptics of the president and his policy shop should take a step back, take a deep breath, and take the Ownership Society seriously. The big-government conservatives are right about one thing: Republicans are never going to roll back the New Deal. But they can shape what takes its place as America moves past the framework of its old industrial-era economy, to which the New Deal is inextricably tied.

At the same time, the Ownership Society can't be judged in a vacuum. The Republicans have held the presidency, the House, and (except for two years) the Senate since 2001. The president has had more than five years to advance a bold new approach to conservatism under some of the most favorable political conditions imaginable, and at first glance it doesn't look like he has much to show for it. What's more, the small steps he has taken toward realizing that vision have come at great expense in sheer dollars and cents, as well as in greatly expanding the role of the federal government.

If the Ownership Society is supposed to be the best political means to achieve small-government ends—if it's supposed to be the realistic alternative to the paint-fume-huffing delusions of committed libertarians—then it only makes sense to judge its performance in the real world, without pulling punches or granting points for effort.

The Evolution of Ownership

Though Bush had used the phrase on occasion before, it wasn't until the 2004 Republican National Convention that he brought under the umbrella of the Ownership Society several policies and goals that turned out (more by happenstance than by design) to tie together thematically. "Another priority for a new term is to build an Ownership Society, because ownership brings security, and dignity, and independence," he told the crowd at New York City's Madison Square Garden. "In an Ownership Society, more people will own their health care plans, and have the confidence of owning a piece of their retirement." Bush extolled the fact that homeownership was at an all-time high in America, and he promised that more Americans would own their own homes. He said that his administration was transforming schools by raising standards, and he promised that it would keep insisting on accountability and empowering parents and teachers. "In all these proposals," he said, "we seek to provide not just a government program, but a path—a path to greater opportunity, more freedom, and more control over your own life."

A fine vision, that. But Bush's words didn't flesh out exactly what an Ownership Society is at the end of the day, or how far along his administration might be in creating one after a full term in office. In fact, Bush didn't make a single speech during the 2004 campaign or in the year after his reelection giving the idea significant depth or detail.

Still, upon examination, it's possible to map out a constellation of programs and proposals that, taken together, form something of a coherent picture. Bush's stalled proposal for private Social Security accounts? Definitely part of the Ownership Society. The tiny health savings accounts tacked onto the humungous Medicare prescription-drug bill? Also part of the Ownership Society. Setting targets for increased minority homeownership? Sure, why not. Proposed job-training accounts? What the hell. A prospective overhaul of the federal tax code? Somewhat inexplicably, Bush aides also consider this idea part of the package. The No Child Left Behind law? Passed in 2001, it predates the newfangled slogan, but administration officials say it gives parents more control over their kids' education, an idea central to the Ownership Society concept.

What's remarkable, then, is just how short a distance Bush has traveled with this idea in five-plus years. Even the president's greatest defenders are left praising achievements his administration hasn't…well, achieved. "Imagine if the president had won the fight for private accounts in Social Security," the conservative pundit Fred Barnes wrote in his 2006 book Rebel in Chief. "And imagine if he had expanded consumer-driven health care.…Achieving it would have been an epic feat. And Bush, having succeeded in creating an ownership society, would be the most important and consequential domestic policy president since FDR."

Too bad it didn't work out that way.

Barnes still says he thinks the Ownership Society has a shot at going down in history next to the New Deal and the Great Society (some company). Bush's conservatism, Barnes and others argue, breaks daring new ground because it is not aimed at reducing the supply of government, as in the Gingrich years. Instead, it aims to reduce the demand for government, by making people more self-sufficient and less dependent on handouts. Even if many of Bush's bolder proposals haven't yet been enacted into law, they argue, his pilot programs and half-measures will whet Americans' appetites for choice, and his reorientation of the political debate will set the course for future Republican presidents and congresses.

Libertarian critics counter that the Ownership Society is merely big government by another name, providing only the faintest illusion of choice. The government would still be taking people's money and forcing them to spend it on schooling or health care, or to save it for retirement; adding insult to injury, it would then allow (force?) citizens to choose from a menu of pre-approved, government-sanctioned options as to how precisely they would like to receive the required services. Meanwhile, government's growth would continue unabated.

Each of these views of the Ownership Society has an element of truth. But the only way to judge Bush's success is by looking at the results so far.

Owning Education

In January 2003, a little over a year after President Bush signed the No Child Left Behind Act (NCLB) with a beaming Sen. Ted Kennedy (D.-Mass.) by his side, Harlem mother Eunice Staton filed suit against the New York City public school system. Staton and a group of parents from New York City and Albany were looking to sue for their right, under the new federal law, to transfer their children from the failing public schools they were in to more successful ones. The school district had neglected to notify them that their children's schools were failing and that they had the right to transfer, but once they found out, they wanted to take control of their kids' destinies. Staton, who had three boys in two of the city's 300 failing public schools, told the press she felt "like a prisoner."

The suit was thrown out, making Staton and her fellow plaintiffs just a few of the millions of parents let down by the promise of a bold, new approach to federal education reform. Barnes calls NCLB "a perfect example" of the president's redefinition of conservatism "to fit the times and to come to grips with political reality." If that's true, Bush's conservatism is in worse shape than almost anybody could have imagined.

In the 2000 campaign, Bush and his team did away with the old conservative answer to education reform: closing down the federal Department of Education. It's still not such a bad idea (the money would be better spent at the state level), but it could hardly make for worse politics. As Republican pollster David Winston put it, "Getting rid of the Department of Education doesn't explain anything to me about how my child's going to be better educated." What Bush came up with instead, however, wasn't a way to devolve power to the states in a more politically acceptable way, nor a way to give parents more control. Rather, the Bush administration came in and said, We can tame the federal behemoth better than the last guys. We can be the ones to finally make it accountable.

The administration's initial plan was ambitious. Bush's "blueprint," released not long after he took office, included two fairly radical proposals. First, kids in failing schools could take their share of federal funds to a more successful school, public or private. (In other words, they could use those funds as a voucher.) Second, states that agreed to strict accountability timetables could get all their federal money as essentially a block grant, instead of being bound by strict federal allocation formulas that tend to steer funds to special interests.

How quickly did Bush abandon real reform in favor of getting a bill, any bill, through Congress? On March 22, 2001, Rep. John Boehner (R-Ohio) introduced the No Child Left Behind Act, which essentially followed the president's blueprint: vouchers of up to about $1,500 and flexibility for the states. By May 2, the House Education and the Workforce Committee had stripped the voucher provisions from the bill (on a 27-20 committee vote where five Republicans sided with all of the panel's Democrats) and significantly watered down the flexibility provisions. It was a nice month while it lasted.

Conservatives were crestfallen, but the White House couldn't care less. National Review recounted a White House education aide explaining that supporters of school choice should have done more to lobby lawmakers instead of expecting the White House to do it. The aide said the issue was "never central to the president."

What was central to the president was changing the politics of the education issue from favoring the Democrats overwhelmingly to favoring the Republicans at least narrowly. Internal GOP polling in May 1999 showed the Republicans trailing Democrats by a full 21 percentage points on education. When Bush entered the race, however, he changed how Republicans talked about the subject. He talked about closing the "achievement gap." He talked about ending "the soft bigotry of low expectations." And, of course, he talked about leaving no child behind. By August 2000, the Republicans had closed their education gap to 10 points. By March 2001, when NCLB was introduced in Congress, Republicans were leading the Democrats by 5 points on the issue.

But having come so far during the 2000 campaign, Bush chose not to spend any of that political capital on a worthwhile bill. "The president wanted a bill," says Krista Kafer, a former House education committee staffer who also did a stint as an education analyst for the conservative Heritage Foundation. "It didn't bother him that it was a significantly flawed bill." The price of getting a bill that could pass 340-81 in the House and 87-10 in the Senate (with Kennedy part of that 87) was high: no vouchers, almost no new flexibility for states, a large across-the-board spending increase, a program combating hate crimes, a program promoting "gender equity," and a "cultural exchange" for "Alaska Natives, Native Hawaiians, and Their Historical Whaling and Trading Partners in Massachusetts." All that NCLB amounted to, really, was strengthening certain federal accountability requirements that were already in place, plus the president's Reading First initiative, which helps states and schools adopt research-based reading programs. The bill's "choice" provisions were utterly meaningless.

Under NCLB, school districts have done everything they can to avoid granting kids transfers out of failing schools. They don't inform parents of their rights. They give them extremely small windows of time to act. They even send letters home meant to confuse or mislead parents. A researcher in Colorado found that a district there had sent parents home a letter with the good news that their school had been selected for "School Improvement" under federal law. "We are excited by this opportunity to focus on increasing student achievement," the letter said, making it sound as if the school had won a grant, not gotten a slap on the wrist. No wonder that in the 2004–05 school year, just 1 percent of students eligible for choice under NCLB actually transferred schools.

The public school choice provisions are the only thing approximating "ownership" in the No Child Left Behind law, and yet they have been an utter failure because of resistance from local bureaucrats—resistance that NCLB does nothing to uproot.

Owning Health Care

If the Ownership Society has been an unmitigated disaster when it comes to education, its record when it comes to health care might be termed a mitigated disaster. Specifically, the disaster of the $1.2 trillion Medicare prescription-drug entitlement is mitigated by the significant expansion of health savings accounts (HSAs) that was included in the same bill, the first major free-market health care reform in a generation.

The question is: Is the trade-off worth it? Is it worth significantly (and permanently) expanding the size and scope of the welfare state so long as the expansion is tied to measures that will give Americans a degree of ownership over benefits previously controlled by the government?

There was a logic to adding a prescription-drug benefit to Medicare—it made little sense to say the government would pay for open-heart surgery, but not for the drugs that might make such surgery unnecessary. But most seniors already had some form of drug coverage. In 2002, the year before the benefit was passed, some 70 percent of seniors spent less than $500 out-of-pocket for prescriptions. A relatively small, targeted drug benefit, aimed at the 22 percent of seniors who didn't have drug coverage, could have caught those who were falling through the cracks at much less expense.

But why be efficient when you can be popular for only a few hundred billion dollars more? Republican leaders, with their eyes on the 2004 election, were set on creating a universal benefit for more than 40 million elderly and disabled Americans. So they created Medicare Part D, the Medicare prescription-drug benefit.

The expense of all this is tremendous. Not only is the government crowding out private insurance that individuals were paying for themselves, but it has to write checks to corporations to discourage them from dropping retirees' drug coverage and leaving the federal government to pick up the tab. In 2003, the Congressional Budget Office said the drug benefit would cost $400 billion over 10 years, and the White House accepted that number. The president's first budget after the bill was signed bumped that number up to $511 billion. But neither of those numbers was a real 10-year figure; both counted two years, 2004 and 2005, when the new benefit wouldn't be on line yet. The real 10-year cost, from 2006 to 2015, is closer to $1.2 trillion.

Administration officials estimate that various forms of savings will bring that closer to $720 billion. With Medicare, however, it has never been a good idea to accept the more modest cost estimates. While there's been some early evidence of cost savings from drug plans competing against one another, it's unlikely to make a serious dent in the program's cost. And even going with the most modest of estimates, the prescription-drug benefit will increase the financial burden of Medicare by roughly a third, bringing its expenditures up from 2.6 percent of gross domestic product in 2003 to 3.4 percent in 2006. As 78 million baby boomers head toward retirement and Medicare eligibility, things will only get much, much worse.

All of this seemed like a high price to pay for HSAs. But it would be a mistake to underestimate just how radical a reform HSAs represent. "They were the first market-based health care reform really in over 60 years," says Michael Cannon, director of health policy studies at the libertarian Cato Institute.

An HSA is essentially a 401(k), but for medical expenses instead of retirement savings. Individuals and their employers can make tax-free contributions. But unlike a 401(k), funds withdrawn to pay for medical expenses before age 65 are never taxed. HSAs can be set up only in conjunction with qualifying high-deductible health insurance (so that catastrophic expenses will be covered). They allow younger and healthier workers to save money on premiums while building up assets they can tap when they're older and need more health care; this encourages HSA owners to be more price-conscious when tending to their everyday health-care needs.

HSAs became available under the new law at the beginning of 2004. Interest in them gained momentum quickly. In the first 15 months they were available, 1 million people had purchased the high-deductible health insurance to qualify for opening the accounts; in the next 10 months, another 2 million people signed up. What's more, HSAs seem to be fulfilling their purpose of making health care affordable to the uninsured and containing costs. According to separate estimates from the health company Assurant and the trade group America's Health Insurance Plans, which represents some 1,300 insurance providers, as many as 40 percent of HSA applicants were previously uninsured. A survey from Deloitte Consulting shows that the cost of consumer-driven health plans, such as HSAs and less flexible health reimbursement arrangements, increased by only 2.8 percent from 2004 to 2005, as opposed to an average of 7.3 percent for all other types of plans.

Building on this success, Bush in his 2006 State of the Union Address proposed expanding the amount of money individuals can put in HSAs and making them more accessible to individuals and employees of small businesses. His prescription-drug plan, one of the signature "accomplishments" of his first term and a key campaign issue in 2002 and 2004? He didn't even mention it.

On the political side of things, there can be little doubt that the prescription-drug bill has been a disaster. A Gallup poll taken the month the bill was passed found that 73 percent of seniors thought the benefit wouldn't go far enough. Once the benefit's implementation got underway in January 2006, anger over the bill heated up even more as seniors came into contact with its complex machinery and hostile news stories flooded the media. As the midterm campaign season got underway, it was clear that the Democrats would use the prescription-drug plan as a weapon going into November, harping on its alleged stinginess, its complexity, and the Bush administration's refusal to allow Americans to buy price-controlled prescription drugs from Canada and Europe.

With the bill giving Republicans so little political benefit, all that's left is the question of whether it was a wise policy tradeoff. Grace-Marie Turner, president of the Galen Institute, a pro-market health care think tank, says she is absolutely certain HSAs could never have been passed any other way. "I cannot believe the naiveté of those who ask why couldn't we have just passed HSAs on their own," she says.

One such naive soul is Cato's Michael Cannon—though he has a bit more than wide-eyed innocence behind his assertion that HSAs could have been won another way. He thinks HSAs could easily have been added to a tax or budget bill. In particular, he points to a Senate roll call vote in 2001 that showed that support for lifting the restrictions on Medical Savings Accounts (the forerunners of HSAs) was only a few votes short of a majority—and the 2002 elections resulted in the net gain of one new HSA supporter. "You had two stinking votes to get, you could have bought that for less than $400 billion," says Cannon. But since HSAs were more of an afterthought designed to keep free-marketeers in line than a central part of the president's agenda, there never was a push to pass them on their own.

Whatever your view of such hypotheticals, one of the corroding effects of the Ownership Society was clearly on display in the process that brought about the Medicare bill: its underlying assumption that the growth of government can never be stopped, or even slowed. In the third year of Bush's presidency, with the Republicans having just reestablished control of the Senate and increased their margin in the House, those underlying assumptions expanded to include not just that government will stay the same size, not just that it will get bigger, but that it will explode catastrophically no matter who's in power—and there's nothing anyone can do about it, so it might as well be Republicans doing the exploding.

Owning Retirement

If the 2003 Medicare bill was wildly cynical and crassly political, it needs to be said that Bush's advocacy of Social Security privatization over the years has been consistent, principled, and, yes, even bold—if not always well-articulated.

While Bush, Rove, and other Republican strategists see Social Security reform as part of a larger plan to—how to put this gently?—destroy the Democratic Party, the president has also long understood that the federal retirement system is unsustainable in its current form, short of massive tax hikes or benefit cuts. Rebel in Chief author Barnes traces Bush's advocacy of private accounts back to his first, unsuccessful campaign for Congress in 1978. During that race in West Texas, Bush told a group of realtors at the Midland Country Club that "the ideal option would be for Social Security to be made sound and people be given the chance to invest the money the way they feel." The issue wasn't a big one in the campaign, but the idea would remain the same 22 years later.

Bush hit Social Security privatization hard during the 2000 campaign, and Al Gore and his allies hit back even harder. In the presidential debates, Gore labeled Bush's plan "Social Security minus" and said that Bush would cut benefits and leave seniors eating cat food. The AARP and the labor unions spent millions on phone banks, mailings, and ads. There were even recorded calls by Ed Asner made to scare old folks out of their homes and into the voting booth. But ultimately, Bush had the politics of the issue right. In exit polls, 57 percent of voters said they supported Bush's vision of private accounts—including one-third of those who'd voted for Al "Lock Box" Gore. In Florida, seniors split fairly evenly between Bush and Gore. Social Security was no longer the third rail of American politics. The new president might not have mustered the momentum for reform, but he demonstrated that it was no longer suicidal to try.

Once in office, Bush appointed a commission, chaired by the late Sen. Daniel Patrick Moynihan (D-N.Y.) and AOL/Time Warner COO Richard Parsons, to consider how to "modernize" Social Security. The panel was heavily tilted toward privatization proponents, but it had the unique disadvantage of releasing its final report on December 11, 2001, when the nation was in no mood to worry about an issue that fell well short of life or death. The prospects for private accounts just got worse in the spring and summer of 2002, as the names Enron, Ken Lay, and WorldCom became late-night punchlines and the stock market sank to five-year lows. Reform was off the table for the rest of Bush's first term.

Social Security was far from the biggest issue in the 2004 campaign, but when Bush won reelection, he decided it was time to take his big gamble. He dedicated a 1,200-word section of his 2005 State of the Union Address to a call for reforming Social Security with personal accounts, then embarked on a barnstorming tour of America, including 60 stops in 60 days in March and April.

But the push fell flat. Despite all the talk about an Ownership Society, Bush put little effort into pushing the ownership aspects of Social Security reform, preferring to stress the system's solvency problems. And even then, while he succeeded in convincing many Americans that the system needed reform, he didn't convince many that it needed to be reformed right then. By late spring 2005, it was clear that reform was going nowhere. As early as March, Bush's personal approval rating began to dip. Support for his Social Security proposal also dropped. A report from the Pew Research Center for the People and the Press found that support for private accounts fell among those considered most likely to support them, younger Americans, between February and March, from 66 percent to 49 percent. Opposition among older Americans was much higher. The Pew poll also found that among all Americans, the more they heard about the plan, the less likely they were to support it. And when the public's support wavered, Republicans in Congress got squirrelly and ran for cover.

Creating a consensus that Social Security needs to be changed and creating broad familiarity with the concept of private accounts among the public were two non-trivial accomplishments. And it's hard to see how anything short of political miracle-working would have brought a nervous public charging head-first into the most radical reform of the New Deal ever undertaken.

But it's also worth recognizing that while the ownership pushed by Bush is in some ways more politically palatable than the austerity pushed during the Gingrich years, it is also no political palliative. Tough choices are still tough choices, and the public isn't likely to believe that it can get something for nothing. Social Security may be the key to creating an Ownership Society, but no one's found a way to make it click.

Failing, But Not Irredeemable

By accepting the premises behind so much of the federal edifice, Republicans have left themselves with precious little room to maneuver. If a conservative president comes into office set on education reform, but accepts off the bat that the Department of Education's role should increase, not decrease, and that vouchers are off the table, he's going to end up with a meaningless clump of sod like NCLB. The same goes for health care, where a lack of confidence and imagination—not to mention a routine triumph of politics over principle—prevented Republicans from even attempting to win free-market innovations like HSAs on their own before tying them to a massive expansion of the welfare state.

Still, Bush's version of the Ownership Society is not the only version imaginable. Time and again Bush has decided that getting any bill is more important than getting a good bill. A more principled president or Congress might yet do some real good with the ideas Bush has clumsily and carelessly groped toward.

For now, however, all Bush's Ownership Society has done is prove a timeless law of politics: Once you've written yourself a permission slip to bend on principle in the service of a higher good, you end up looking like a pretzel.