The Boston Globe, September 3, 2010, Friday

The Boston Globe

September 3, 2010, Friday

The Boston Globe

In good company: Welfare capitalism

IN THE old days, many American employers weren’t shy about playing a large role in their employees’ lives.

As Boston department store magnate A. Lincoln Filene once put it, “If we were to create contentment in front of the counter, we had first to create contentment behind it.” At the turn of the 20th century, he and his brother Edward made their downtown Boston emporium into a laboratory for capitalistic social experimentation: Their Filene’s Cooperative Association, one of the first employee-representation schemes, gave workers a role in determining wages and allowed arbitration of disputes. The company also provided a clinic, a library, a credit union, profit-sharing, pensions, and more. To attract what Edward called a “better class of workers,’’ they believed businesses must even provide decent housing at moderate cost.

The Filenes were pioneers in what became a popular trend, “welfare capitalism,” a grab bag of efforts also adopted by the likes of Procter & Gamble, Firestone Tire, National Cash Register, and Sears & Roebuck. And while it may seem heavy-handed, perhaps even patronizing, in modern corporate America, this approach can offer significant benefits to both employer and employee. To the extent that some businesses today are once again trying to attract top employees through welfare capitalism, it’s a sign of the gaps that have opened up in so much of the social contract.

Also known as “industrial betterment,’’ welfare capitalism seemed doomed by the late 1940s. In 1970, the preeminent student of the trend announced its “swift and nearly complete demise.’’ But recent developments suggest that he spoke too soon.

True, companies are prohibited from starting in-house unions under the 1935 National Labor Relations Act. But with independent unions now representing only 7 percent of the private-sector workforce, certain union functions have been subsumed by companies, notably the handling of grievances. A growing number of companies require binding arbitration of employment disputes. Cornell University industrial-relations professor Alexander J.S. Colvin estimates that number at 15 percent to 25 percent of private-sector employers — in other words, many more than now have union grievance and arbitration procedures.

One key element of welfare capitalism — company-paid health benefits — has become deeply ingrained in the US economy. Indeed, ObamaCare has made employer-provided medical care the linchpin of its effort to achieve universal coverage.

New corporate initiatives in the area of housing are on the upsurge, too. More than 70 Chicago-area employers now offer housing assistance, says that city’s Metropolitan Planning Council, and they have facilitated more than 2,000 Illinois home purchases. Bloomberg Businessweek recently described the housing-assistance programs of CVS Caremark (in Washington, D.C.), Northrop Grumman (in Mississippi), Milwaukee’s Aurora Health Care, and Chicago’s Loyola University, all of whom provide loans — often forgiven after some period of employment — or even cash gifts that can be used toward down payments or moving expenses. In each case, a key motivation for companies and institutions is the need to attract and retain a skilled workforce in areas where housing costs exceed workers’ means.

In some ways, these initiatives are still surprising. Not only is there a recession underway, but even before that many US businesses have complained that such ancillary obligations place American enterprise at a strategic disadvantage relative to, say, European business, where the government covers health care and other benefits. Last January during the debate over health care reform, for example, executives from the US Chamber of Commerce and 675 companies, including 3M, Intel, International Paper, and Raytheon, sent a letter to Senate Majority Leader Harry Reid and House Speaker Nancy Pelosi opposing passage of the merged House and Senate health care bills, arguing instead for “meaningful reductions in the rate of growth in healthcare costs” and against “employer mandates [that] increase employer and employee costs and limit . . . flexibility and innovation.”

Yet some employers see clear benefits in undertaking such obligations voluntarily. Welfare capitalism will never be comprehensive, and corporations cannot be counted upon to stick with it through good times and bad.

But then, government is subject to some of the same pressures. And as cash-strapped states hack away at already frayed social safety nets, welfare capitalism begins to sound like an idea whose time has come — again.

Hardy Green is the author of “The Company Town: The Industrial Edens and Satanic Mills that Shaped the American Economy.’’

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