Freeman

ARTICLE

Medicine and the Welfare State

Governmentalized medicine opens up a road to national catastrophe.

NOVEMBER 01, 1993 by MELCHIOR PALYI

Dr. Palyi (1892-1970) taught at the Universities of Kiel, Göttingen, Berlin, Chicago, Wisconsin, and at Northwestern University. This essay was adapted from Compulsory Medical Care and the Welfare State (Chicago: National Institute of Professional Services, 1949).

The essential idea of the Welfare State is as old as known history. Its concept and mechanism—the systematic dispensing, through political channels and without regard to productivity, of domestic wealth—were at the very core of the Greco-Latin city states, of the medieval city, and of the post-Renaissance absolute monarchy. In the city republics, ancient and medieval, it meant bloody civil wars. Their constantly recurring violent quarrels about constitutional issues disguised bitter class warfare to seize the power that was dispensing all benefits. Most of them went on the rocks of their internal struggles for economic privileges. A Lorenzo Magnifico in Florence or the Oligarchy of the Ten in Venice managed to” save” their cities by grabbing the power and robbing the citizens of every vestige of political freedom and civic rights. Jacob Burckhardt’s allegation that the orgy of paternalism under Emperor Diocletian resulted in governmental money recipients larger in number than the taxpayers, might be applicable to many other doomed civilizations.

France’s Henry IV in the sixteenth century promised a chicken in every pot. Her brilliant Colbert in the seventeenth century and Prussia’s enlightened Frederick the Great in the eighteenth, these forerunners of modern dictators, gloried in calling themselves the first servants of the nation. Their police state used the welfare state as its instrument, façade, and justification, as do modern dictatorships. In democracies the welfare state is the beginning and the police state the end. The two merge sooner or later, in all experience, and for obvious reasons.

The “mercantilist” princes of the sixteenth and eighteenth centuries developed the basic tenets of the modern welfare state in a piecemeal fashion. Originally their prime concern was the balance of trade the want of gold and silver. To that, domestic policy was subordinated, except when political motives were uppermost, such as the fear of hunger riots which occurred time and again in England under the Tudors and Stuarts, forcing them to dispense humanitarianism. The craving for export surpluses led logically to promoting production. Amateurish welfare policies followed and soon became a determining factor in domestic politics.

 

The Welfare-Police State

In central Europe the eighteenth century was marked by the “Despotism of Virtue,” exercised by benevolent rulers like Joseph II of Austria. The intolerance and intransigence of the “humanitarian tyrant” had no small role in provoking revolutions. The German Kameralists of the period, who taught the technique of civil government, developed systematically the blueprint of the welfare state (Wohlfahrtstaat) of a territorial scope, far beyond medieval city limits and as the heart of the police state (Polizeistaat). Even the words are eighteenth-century German. This tradition of bureaucratic rule for the alleged good of the subjects was the heritage taken over by Bismarck.

Bismarck’s fundamentally significant role in modern history is rarely understood. His middle- of-the-road socialism was the connecting link between the old autocrats and the coming totalitarians. He thought he could overcome Marxism by his own brand of state socialism—just as Fabian socialists, Keynesians, and New Dealers profess that their middle-of-the-road statism keeps the totalitarian wolf from the door.

What Bismarck did accomplish was to revolutionize the old authoritarian school by giving it a quasi-democratic twist and by basing it on a superbly organized, technically well-trained, and thoroughly disciplined bureaucracy. His police-welfare (or welfare-police) state had firm roots as none had had before. The substance of a military monarchy was wrapped in a parliamentary cloak. Share-the-wealth popularity was to be dispensed legally by an all-powerful and efficient administration.

 

Welfarism in Operation

Even more interesting than to follow the historical records of the welfare state is to witness directly its contemporary gyrations and its ties with other facets of public policy. This writer was “conditioned” to the problems by early acquaintance with the petty inside-politics in the welfare monarchy of the Habsburgs. His conscious interest dates back to his studies in German universities from 1910 on, when the great masters of the German Historical School still were exerting intellectual leadership. The German public, and most Europeans for that matter, stood under the spell of Bismarck’s forceful personality, without realizing where that spirit was leading. The intelligentsia was infatuated already with the then still misty ideal of the welfare-dispensing Iron Power. So was the populace on the street.

It was my good fortune, in particular, to come in close contact, as their student and assistant, with the two most original thinkers and most brilliant personalities of the period: Lujo Brentano and Max Weber, the foremost social scientists of their age. They were scholars of encyclopedic scope and of statesmanly stature, animated by the ethos of their belief in liberty and justice. As true liberals, they stood in matters of labor policy for trade unionism, the eight-hour day, and for factory legislation, as far as compatible with domestic free enterprise and international free trade. They were opposed to dogmatic laissez-faire, which meant paternalism in labor relations—as well as to paternalism in government. Realizing that history is the record of the eternal battle between the power and the people, they saw clouds rising that most of their contemporaries ignored: the aggressive economic nationalism and the congealing, overbearing bureaucratism of the Neo- Welfare State. They saw the unique part Bismarck’s Second Reich played in the revival of authoritarianism and fought it as a threat to the progress of occidental civilization.

As early as 1881, Lujo Brentano warned that adventuring into governmentalized medicine is the first step toward the Neo-Welfare State, which in turn opens up a road to national catastrophe—in the long run. The run was too long and too slow to be understood. Other more urgent problems occupied our minds. The warning was practically forgotten by 1919 when I gave my first courses as an instructor at the Munich Graduate School of Commerce on Insurance and on Cooperatives. Compulsory medicine seemed to be well established and a minor problem. In- between years, spent on (unfinished) medical studies, provided no inkling of its practical functioning. The prevailing academic pattern naively accepted a governmentalized pseudo- insurance as a chapter of Sozialpolitik (welfare policy), differing from other insurance only by its non-profit character. And it was defended as an alleged necessity in industrial society.

 

Intermezzo

We were preoccupied with the Versailles treaty, the great inflation and domestic and international reconstruction, and the sweeping out of the moral and material debris left over by Ludendorff. Europe’s fatal fourteen years of transition after World War I began under the Lenin nightmare and ended with the Hitler chimera. True liberals were driven into an unholy and futile alliance with the middle-of-the-roaders.

After years of experience and study in international banking and public finance, I began to see that what most of my academic colleagues accepted and defended as an accomplished fact, the Bismarckian social insurance, was worm-eaten at its very roots. What have “high finance” and international affairs to do with the poor man’ s compulsory social insurance? A great deal, as I found out, and with more than finance. For one thing, the social insurance funds gave the welfarist Weimar government a dangerous foothold in the nation’s capital market and taught it to grab for other footholds.

For another thing, I stumbled upon the discovery that German compulsory medicine was more expensive than private health insurance and gave less in exchange. On top of that, it was badly infected with corruption.

Insight into some of these shortcomings came about through my friendship with an outstanding socialist leader, old Eduard Bernstein. He was one of the three or four early apostles of the Marxian creed. But he lacked the fanatic dogmatism of the others. He became famous by speaking out in the 1890s what every Marxist knew and none dared to say that history was not marching according to the time-table of the class-warfare theory. For this, he was temporarily ostracized by his own party. Through his honest eyes, I began to see that everything was not in order in the medical Utopia. The more I looked into it, the more disquieting the picture became.

 

From Weimar to Hitler

The welfare state was moving into the great depression. My work at the very center of German and international banking put me at a vantage point from which to observe closely the world- wide growth of Welfarism. It was intimately tied up with the political scene of the 1920s, with its global money management and fictitious pacifism. It was supported by monopolistic wage structures, governmentally promoted international cartels, inflated gold exchange standards, by a centrally manipulated capital flow on the one end and by reckless spending on the other. It had to break down sooner or later.

In many ways Hitler’s rise was startlingly revealing. That one-third of the otherwise sober German people voted Nazi, and over 10 percent Communist, was bad enough. But what about the rest, the three or four bourgeois parties and the Social Democrats? Why didn’t they resist instead of letting the power slip without a single shot into the hands of notorious gangsters? The Social Democrats and the trade unions behind them constituted the world’s oldest, largest, best organized, and most intelligent labor movement. Why did they surrender shamefully and let themselves be disarmed?

The Weimar Republic catered to the trade unions and raised the wage level artificially, at the same time bestowing subsidies and high tariff protection on the heavy industries and the big landowners, the Prussian Junkers. Once a nation is entangled in the meshes of the welfare state, the demagogue who can draw out of his hat more welfare for more people has every chance in a crisis. The Bismarckian paternalism could be turned into Ludendorff’s planned economy by a mere switch of the bureaucratic gear, which then could be shifted without grinding into the welfare state of the Weimar Republic. As that got into trouble, the ultimate of demagoguery, the combination of ultranationalism and super-welfarism, had a field day. By that time, the socialists as well as the middle classes were so intoxicated with the ideas of an allegedly inevitable state paternalism that the moral fiber had become too weak to generate resistance.

 

Humanitarians in Disguise

Perhaps the most spectacular “social” aspect of Nazism was its emphasis on nationalism. That was not accidental. The health, or rather sickness, propaganda employed by Bismarck elevated that aspect of social welfare to a prime political issue. Just why were such ruthless men as Bismarck and Hitler so profoundly interested in the physical well-being of their subjects—and in high birthrates !—while totally indifferent, nay, inimical to their mental integrity! But after a fashion so were their predecessors in the Mercantilist age, especially the ministers of the imperialistic Bourbons and the power-lusty Hohenzollerns. And so are their successors to this day.

Evidently, more than humanitarianism was at stake. Watching the world-wide growth of compulsory health insurance, from Icelandic fishermen to coal miners in China, I noticed something that seemed to be overlooked: that all modern dictators—Communist, fascist, or disguised—have at least one thing in common. They all believe in social security, especially in coercing people into governmentalized medicine.

A selected list of men who have claimed credit for, or have been credited with, introducing or strengthening and expanding governmentalized medical care reads like an extraordinary Who’s Who:

Prince Otto von Bismarck, Chancellor of Germany (1884);

Franz Joseph I, Emperor of Austria (1888);

Franz Joseph I, King of Hungary (1891);

Wilhelm II, “the Kaiser” of Germany (1911);

Admiral Miklos Horthy, reorganizing the scheme as Regent of Hungary (1927);

Nicholas II, Czar of Russia (1911);

Vladimir Lenin-Ulianof, founder of modern dictatorship in Soviet Russia (1922);

Joseph Stalin-Dzhugashvili, almighty Prime

Minister and dictator of the U.S.S.R.;

Joseph Pilsudski, Marshal and para-dictator of Poland (1920);

Alexander I, King and dictator of Yugoslavia (1922);

Antonio de Oliveira Salazar, the professor-dictator of Portugal (1919 and 1933);

Benito Mussolini, Prime Minister and the Duce of Italy (1932 and 1943);

Francisco Franco, military dictator of Spain (1942 and 1945);

Yoshihito, Mikado of Japan (1922);

Hirohito, Mikado of Japan (1934);

Carol II, pseudo-constitutional King of Romania (1933);

Joseph Vargas, President and would-be dictator of Brazil (1944);

Juan Perón, President and boss of the military junta of Argentina (1944);

Adolf Hitler, Chancellor, the Führer of Germany (1933, etc.);

Pierre Laval, Prime Minister of France (1930), later executed for his fascist activities;

Ambroise Croizat, Communist Minister of Labor in France (1945);

Georgi Dimitrov, the late chief agent of the global Comintern, Premier of Sovietized Bulgaria (1948);

Josip Broz, alias Tito, Prime and Foreign Minister, dictator, general secretary of the Communist Party of Yugoslavia (1947);

Boleslaw Bierut, President and dictatorial figure-head of Satellite Poland (1947);

Klement Gottwald, President of the Sovietized Republic of Czechoslovakia (1948).

This list of power dynamos—or symbols of power—with bleeding hearts for human suffering is by no means complete. Complete data on some of the Satellite and Latin American bosses are not available. Some others are missing because they do not qualify technically for membership in the club of recognized full and semi-dictators and of paternalistic rulers “by the grace of God” or otherwise, having been elected in ordinary democratic procedures and still exposed to new elections. But who would have foreseen that an easy-going, money-grabbing politician like Laval was to become a sort of second-hand Mussolini? Most certainly Laval claimed and wielded, about 1930, less than a fraction of the discretionary and arbitrary power the British Health Minister wields at this writing. And there are more Pierre Lavals and Aneurin Bevans around in what we call the democratic world than the unsophisticated might assume. They manage to be re- elected again and again and strive to rule by blank delegations of power, immune from judicial controls and supported by rubber-stamp parliaments typical of “advanced” welfare states of twentieth-century vintage.

 

Socialist Nationalism

Indeed, out of the ashes of the welfare states that went down unsung in the tumultuous depression new and much more imposing ones have risen since. It seems that history is running in cycles, progressing from what is known as National Socialism to what is recognized as Socialist Nationalism.

Ever since Bismarck, great dictators and little demagogues compete with one another and with the humanitarians in courting the favor of the ailing, the lame, the blind, the poor, the underprivileged, and the aged. In World War I, Ludendorff used Germany’s social insurance, then Europe’s most “progressive,” for propagandizing Teutonic social and cultural superiority. Today, British and French propagandists vie with each other in eulogizing the respective security plans. But Stalin outdoes all of them. “Government insurance in the U.S.S.R. is a source of pride of the Soviet workers before the whole world. It is one of the jewels in the colossal edifice of Socialism. It is one of the testimonials to Stalin’s deep solicitude for his fellow men by which we are all warmed and heartened,” said Trud, the organ of the Soviet trade unions, in 1937.

The great French visionary, Alexis de Tocqueville (De la Démocratie en Amérique, 1840), warned more than a century ago that democracies like ours may succumb to a new and soft technique of governmental benevolence that subdues all individuality. The suspicion that the solicitude of notorious tyrants for the welfare of their subjects must have something to do with the political nature of the medical security systems was one consideration that inspired this study.

 

From Bismarck to Lenin: Origin and Rise of Compulsory Medicine

Obligatory health insurance started moderately enough in Prussia. Compulsion under a law of 1845 was left in the hands of municipal administrations, with no government subsidy involved, and no contributions from employers. The anti-socialist law of 1878 suppressed many of labor’s voluntary associations for sickness benefits. The next step was the governmentalization of the associations’ functions.

It was no mere accident that the ideological forefathers of Nazism, Adolf Wagner and Eugen Dühring, happened to be the “brain trusters” behind Bismarck’s “nationalistic socialism to end international socialism,” using his own terms. When, on January 1, 1884, his compulsory sickness scheme went into operation it literally started a new era a new age in the history of welfarism.

Bismarck’s role in modern history is rarely spoken of nowadays. Undoubtedly, his political and administrative “genius” has shaped history down to our times. His revolutionary innovation in welfare policy was preceded five years before, in 1879, by the imposition of a protective tariff that started Europe’s internecine commercial warfare which endures to this day. And it was followed by the introduction in 1889 of universal military service covering even the middle-aged manhood. This started a rearmament race leading into total wars with the objective of annihilating entire nations.

The shrewd Iron Chancellor the dictator in constitutional disguise, quoting M. J. Bonn’s epigram meant to kill several birds with one stone when he embarked on his program of appeasing labor. The reason, announced in the November 17, 1881, message of Emperor William I, to offer something positive to labor, not merely the repression of socialists by police force, may have been born of genuine worry over the unrest of the working classes due to the long depression that had engulfed Europe since 1875. But the true motive has been pointed out in the penetrating Bismarck biography (Vol. III, pp. 370-371) of Erich Eyck: “To his mind the State, by aiding the workers, should not only fulfill the duty ordered by religion, but it should obtain in particular a claim on their thankfulness, a gratitude that was to be shown by loyalty to the government and by loyal pro-government votes in elections.” In other words, it was the old-fashioned attempt of the monarchy to ally itself with the plebs against the “aristocracy” in between the two. However, the social insurance legislation did not stop the Marxists from returning in increasing parliamentary strength. The attempt to subdue the socialist movement by appeasement ended in a political fiasco.

Prince-Bismarck found other satisfaction. The state socialism of His Highness was directed against the business interests and Liberal (free trade) Party. The latter had accepted the principle that workers should be forced to insure themselves but stood for their freedom to choose their own, non-governmentalized agencies. What was even worse from the militarist point of view, the Liberals were blocking time and again the Chancellor’s requests for armaments. The Reich he created had almost no revenues of its own other than from import duties and excises. It had to rely on contributions from the states which were available only through unpleasant parliamentary procedures. The new social insurance organizations were to place their resources at the federal government’s disposal, saving Bismarck the embarrassment of going, when need arose, with his hat in hand to a reluctant Reichstag.

Above all, the new system was an offshoot of his economic and political philosophy. Bismarck was a tradition-bound reactionary, altogether resentful of modern industrial development, although he himself owned a small paper mill. As did many of the ultra-conservative contemporaries of his Junker class, he trusted agriculture and handicraft but frowned on large- scale industrial enterprise and on trade unionism. To check both, if they had to be tolerated, was one of his goals. Governmentalizing and thereby controlling, through an appropriate bureaucratic apparatus, the providing of medical, accident, and old-age care and of death (burial) benefits seemed an obvious way to put the reins on laissez-faire capitalism as well as on labor.

 

The Spread of the Idea

This approach conformed to the paternalistic make-up of his mind—as it conforms to the paternalism of modern dictators and of humanitarian social workers. It is no mere accident if pseudo-liberals bubble over with praise of the arch-reactionary Prussian Junker’s medical security legislation. It was especially palatable to the bureaucracy of the Habsburg Monarchy.

The West resisted at first. It still was imbued with the nineteenth-century tradition of individual freedom and responsibility. But even before World War I its resistance began to soften under the fascination of the power emanating from Wilhelminian Germany and under the German propaganda that labor’s patriotism has to be bought by social concessions. Shortly before or during that war, Britain, Norway, Iceland, Russia(!), etc. introduced modified replicas of the German compulsory panel system, followed by more countries after 1918. A dead and defeated Bismarck proved to have a wider spiritual influence than the living and victorious one ever enjoyed.

The triumphant march of authoritarian medicine received a fresh boost at the outset of the great depression when, among others, France, after a decade of political oratory and wrangling on the subject, instituted a system of its own. It was modeled on the German but with significant modifications.

However, 1943-46 was the most crucial time since 1881-84 in the Western history of compulsory health service. It was the hour of the liberation from Nazi occupation, with the parliamentary systems of the liberated nations in a semi-chaotic condition, and with Communists either in cabinet posts or having decisive influence in public affairs. As a result, far-reaching legislation was hurried through, which under normal conditions, would have run into serious obstacles. In France, in November 1944, a new social security law of communistic coloring was voted in a virtually empty Chamber of Deputies. Left-wing rule in Belgium was responsible for its sickness scheme of 1944. It was also under abnormal wartime and post-war conditions that Italy and Holland “reformed” their sickness plans. New plans were put into operation or the old ones were revamped thoroughly in Australia, Argentina, Brazil, Chile, Spain, the Russian satellite countries, Costa Rica, Ecuador, and of course in Britain. Legislation has been passed, but is not as yet in effect in three Canadian provinces and in Sweden.

 

Hitler, the Humanitarian

It is a fact, and a very remarkable one, that the great demagogues of our age appear to be greatly worried about the health of their subjects. No one was more so than Adolf Hitler. His racism was the last word in “biological” demagoguery, unless the new anti-hereditary biology of the Soviets exceeds it, an expression of the identical nationalistic purpose. In terms of political results, it was a most effective demagoguery due to its emphasis on health and virility. As a committee report on health insurance of the Canadian House of Commons put it (March 16, 1943): “During the early years of Hitler’s regime, the government’s medical program was looked upon by many observers as one of the greatest props of the totalitarian state.”

Before coming to power, the Nazis were violently critical of the social insurance set-up, considering it a weapon in the hands of their enemies, the Social Democrats. They objected especially to the extravagance and corruption in compulsory medicine and to its alleged effect in “softening” German manhood. Thereby they earned the applause of doctors as well as of businessmen and the approval of the disgruntled middle classes. They promised thoroughgoing reform and drove their opposition home so forcefully that Chancellor Brüning was constrained to introduce in 1931-32 several measures affecting the medical care system which were most unpopular with labor. A three-day waiting period before cash benefits became available was made mandatory. A small tax (“deductible”) on prescriptions and a levy of 50 Pfennigs on each quarterly sickness ticket of the patient were imposed. This charge of 20 cents in American money per quarter, imposed on patients many of whom were unemployed, resulted at once in cutting the number of applications by about one-quarter! But these “deflationary” measures, together with the liquidation of the totally bankrupt unemployment insurance, also had the consequence of arousing an ill-feeling among the workers which had no small influence in bringing down the house of the Weimar Republic. Braining took the blame; Hitler got the credit.

Once in power, the latter soon reversed his strategy. The ill-famed Dr. Ley, boss of the Nazi labor front, did not fail to see that the social insurance system could be used for Nazi politics as a means of popular demagoguery; as a bastion of bureaucratic power; as an instrument of regimentation, and as a reservoir from which to draw jobs for political favorites and loanable funds for re-armament. Brüning’s extra tax on panel patients was cut in half. By 1935, with Hitlerian full employment under way, the few pennies of extra tax represented a purely nominal charge. The sting was taken out of it.

The Führer gained in popularity by reducing to negligible proportions an unpopular measure which he himself had instigated. He lost no time in making a positive contribution of his own to the organization of compulsory medicine by extending it in 1939 to small business (handicraft), by tightening it in Austria (1938), and by establishing compulsory health care in occupied Holland (1941). One of his last “social” measures, in March 1945, was to have workers in certain irregular types of employment included. But his attempt to abolish the autonomy of the panels and to regiment them by centralization had been checked by the concerted resistance of the medical profession, the panel bureaucracy, and public opinion. Similar abortive attempts at complete bureaucratization of the panels were made under the Kaiser in 1909 and in the Weimar Republic’s revolutionary days in 1919. The same goal is on the Social Democratic Party’s agenda again in 1949.

Of all totalitarians who have written their names in the book of medical economics and politics, Lenin’s will have to be printed in the largest capital letters. His was (1917) the first complete cradle-to-grave plan, the first plan embodying complete nationalization of medicine. His influence on the West did not make itself directly felt until World War II. Since then, wherever Russian bayonets take over, the Soviet blueprint of social security follows. Even more important to us is his ideological influence, embodied in the Bev-eridge Plan of 1943, that in turn appears to be spreading over Western Europe, Latin America, and the Antipodes.

Lenin and Bismarck had in common the paternalistic philosophy of government which included the supremacy of a trained and solidly disciplined bureaucracy over what they both considered the anarchy of the unregimented marketplace. To both, the “little man” was either financially or at any rate morally incapable of caring for his own future. Both were motivated by an insatiable thirst for power and utilized to their own political advantage the alleged responsibility of the State for controlling the insecurities of industrial life. Social insurance or social security was essential to their concept of the Good Society. It involved a regimented society ruled by their own superior wisdom.

 

From Social Insurance to Social Security

Actually, Lenin and his followers were thoroughgoing admirers of the Prussian bureaucracy. Soviet planning was built, at the outset, on the pattern of German military management in World War I. But there the ideological community of the two authoritarians ended. Bismarck presented his project in the name of the Christian idea of the state, confusing it with the state idea of eighteenth-century enlightenment. (His much vaunted “Christianity” did not interfere with Bismarck’s violent opposition to any sort of factory law, such as to enforce minimum hygienic requirements.) Lenin was a genuine revolutionary, basing his Communism on a purely materialistic philosophy. To the one, private ownership of the means of production was sacrosanct but was to be regimented; for the other, it was to be wiped out altogether. Bismarck had to compromise with resisting parliamentary forces led by the industrialist Stumm. Even the trade unions were opposed tooth and nail; they could not foresee nor did Bismarck, of course that some day they themselves would have the power to use the scheme for more power. Lenin, by 1922, having wiped out parliamentary resistance, possessed power absolute as no sovereign has had since Genghis Khan.

Two basic types of governmentalized medicine resulted. The Prussian bureaucrat created the obligatory health insurance of a comparatively limited scope. What the Russian Bolshevist has bestowed might be described as compulsory health security of an unlimited medical orbit. Perhaps they should be distinguished as governmentalized vs. socialized medicine. In the one, the beneficiaries are “insured”; in the other, they are “registered.”

That social insurance à la Bismarck and social security à la Lenin are different in degree only—that the dynamic potentials of the one tend to carry over into the other—may astonish those who do not realize that Bismarck’s famous “personal rule,” that was to wreck his nation’s democracy, was a conscious if abortive attempt aiming basically at the same political goal which was to materialize in the Politburo (and in Hitlerism).

 

Lenin vs. Bismarck

Bismarck’s system meant to be, in appearance at least, what its name indicated: insurance, even if without a true actuarial foundation, and a subsidized, involuntary plan. At the outset, the insured were to be classified according to risks and to receive cash benefits in proportion to their contributions; a surplus, the equivalent of profit, was to be accumulated as an emergency reserve to guarantee the insurers’ (panels’) solvency; each type of risk incurred was to be offset by appropriate premiums; preferably, the risks were to be distributed by re-insurance; etc. These are axioms of sound insurance management, most closely approximated at present by the Swiss panels among European cooperative systems of medical care.

Nothing of the kind is aimed at in the Bolshevist pattern, the all-embracing program of Comrade Lenin. The same holds in principle for the compulsory set-ups based on Leninian security ideals now in operation in France and Britain. There, too, the pretense of businesslike management has been almost totally abandoned.

Bismarck’s humanitarianism was limited originally to the worker dependent on hourly wages. Thus the range of persons falling under the compulsion was defined. This type of legislation, which still predominates on the Continent, restricts panel membership to employees and their families, or to the “economically weak” groups comprising the income brackets not above skilled factory labor.

In Lenin’s kind of world there is, supposedly, one kind of income recipient only. All are in the same boat; all need the same support. The idea of medical insurance for the underprivileged is inflated into equal medication for everybody. Every one according to his needs is the underlying axiom. From a humanitarian device of restricted confines, the idea has grown into all-embracing, Communistic dimensions—on paper. In reality, the industrial population only is “secured.”

In Soviet Russia, from 1922 to 1938, nationalized industry—i.e., the government—carried the cost of socialized medicine in the form of a 6.5 percent “payroll tax” (25 percent for all social security) with recourse on the national budget to cover eventual deficits. Industries, not labor, were to pay the bill. Similar systems with minor modifications are now being set up in the satellite countries. In the 1948 Bulgarian scheme, for example, the self-employed are the only ones to pay contributions—which is one way to hasten their elimination—with all benefits of medical service freely dispensed to everyone.

Of course, Lenin’s promises and Stalin’s practices are worlds apart. Since 1938, the trade unions, the workers, had to take over about 8 percent of the total cost. Hazard-classes were re- introduced, and the contributions graded accordingly. Medical benefits have been greatly deflated, while the number of persons covered has risen fourfold in the decade since 1928. And the Soviet health plan has developed into a forceful method of disciplining labor. Cash benefits to adult workers, for instance, are available only at the rate of 50 percent of their wages after two years of uninterrupted work in the same industrial unit; 60 percent, 80 percent, and 100 percent accrue if they stay three, six, and more years, respectively. Motherhood benefits are guaranteed by the Soviet constitution but are paid only to women who have worked at least seven months in the same plant.

But the aristocracy of Soviet officialdom and labor receive all the sickness care their country is able to give, including richly endowed sanatoria and rest-homes in the Caucasus and the Crimea. And Stalin claims credit for being the Great White Father dispensing health security to all of his subjects.

 

Minimum or Maximum to Be Provided?

After World War II, Western Europe’s medical schemes were not revolutionized by open adoption of Lenin’s plan. But the latter gave a tremendous impetus in a direction that has been under way ever since Bismarck. The original German set-up was meant to be, to repeat, health “insurance.” The weight of the entire scheme rested on cash benefits per day of lost income. Ben efits in kind—medical services proper—were supplementary only, largely left to the decision of the individual panel which had a broad autonomy in disposing of the means on hand, even in determining the percentage levy on payrolls. The emphasis on cash benefits and on the autonomy of the panels was a basic feature of that original plan wrested from Bismarck by the Parliamentary opposition.

It did not take two decades to reduce to a fraction of the total the share of cash benefits in the disbursements of the German panels. Once services in kind become the mainstay of the sickness scheme, it turns into a queer instrument of wealth redistribution. (All other branches of social insurance, with the partial exception of workmen’s compensations for accidents, are restricted to cash disbursements.) Contributions cease to bear any relation whatsoever to the risk involved. Policing by physical controls over a most vital sector of private life takes the place of actuarial calculation.

Thus, the difference between the Bismarckian and the Leninian patterns tends to fade out. But still, the contrast between the old and the new approach reaches into every corner of the problem. Paternalistic as the Bismarckian scheme was, it did not intend to free the individual of all responsibility. He or she was to be secured to the extent only of absolute necessities. An irreducible minimum of health care and of income guarantee was to be dispensed, no more. Accordingly, cash benefits had to be much smaller than the actual income of the recipient when working. Medical services were to offer as much as was objectively necessary to restore health; but the patient was not to be pampered, and his incentive to care for himself and for his family was not to be impaired.

The postulate of economic self-reliance in spite of compulsory “insurance” permeates all medical schemes built on the Bismarck-Jan pattern. The beneficiaries are supposed to carry a major share of the costs by their own contributions and partly also by “deductibles.” As to disbursements, they should be kept at a minimum by thrifty administration of the panel and by sharp control over its spending. Otherwise, there is to be no interference with medical practice. In short, business-like management is the idea of compulsory insurance proper, presupposing business-like units to do the job in a decentralized, more or less competitive fashion, if under supervision by the authorities.

The latest editions of the Welfare State abandon the misleading claim of offering a system of insurance which would imply some sort of quid pro quo between premiums paid and benefits received. In medicine, instead of providing the barest minimum, it promises the desirable maximum. Its objective is to fulfill a social function; the emphasis in lip-service is on what the State allegedly owes its citizens. The security organization is centralized; its administration tends to be fully governmentalized. Ultimately, all medical personnel is to be nationalized, as we shall see.

ASSOCIATED ISSUE

November 1993

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November 2014

It's been 40 years since F. A. Hayek received his Nobel Prize. His insights, particularly on the distribution of knowledge and the impossibility of economic planning, remain hugely important today. In this issue, we look back on the influence of his work. Max Borders and Craig Biddle debate whether liberty must be defended from one absolute foundation, further reflections on Scottish secession, and how technology is already changing our world for the better--including how robots, despite the unease they cause, will only accelerate this process.
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