The Public Option Read online

  THE PUBLIC OPTION

  How to Expand Freedom, Increase Opportunity, and Promote Equality

  Ganesh Sitaraman and Anne L. Alstott

  Cambridge, Massachusetts

  London, England

  2019

  Copyright © 2019 by Ganesh Sitaraman and Anne L. Alstott

  All rights reserved

  Jacket design: Graciela Galup

  Jacket photograph: Michael Duva / Getty Images

  9780674987333 (alk. paper)

  9780674240575 (EPUB)

  9780674240582 (MOBI)

  9780674240568 (PDF)

  The Library of Congress has cataloged the printed edition as follows:

  Names: Sitaraman, Ganesh, author. | Alstott, Anne, 1963– author.

  Title: The public option : how to expand freedom, increase opportunity, and promote equality / Ganesh Sitaraman and Anne L. Alstott.

  Description: Cambridge, Massachusetts : Harvard University Press, 2019. | Includes bibliographical references and index.

  Identifiers: LCCN 2018040631

  Subjects: LCSH: Public administration—United States. | Government ownership—United States. | Government property—United States. | Public interest—United States. | United States—Politics and government. | United States—Economic policy.

  Classification: LCC HD3885 .S58 2019 | DDC 338.6/20973—dc23 LC record available at https://lccn.loc.gov/2018040631

  Contents

  Introduction

  Part One

  UNDERSTANDING THE PUBLIC OPTION

    1.  The Limits of Private Action

    2.  Why Public Options?

    3.  The Theory of the Public Option

    4.  Caveats and Counterarguments

  Part Two

  THE HISTORY OF THE PUBLIC OPTION

    5.  Public Libraries, Social Security, and Other Successes

    6.  Mixed Results in Education and Housing

  Part Three

  THE PUBLIC OPTION AND PUBLIC POLICY

    7.  Retirement

    8.  Higher Education

    9.  Banking

  10.  Child Care

  11.  Health Care

  12.  And More

  Notes

  Acknowledgments

  Index

  Introduction

  The role of public institutions in our lives is so familiar that we mostly don’t give them much thought. We stop by the local post office to mail a letter, without reflecting on the public support that makes it possible to send that letter anywhere in the country for less than a dollar. We drop off our kids at the public school and take the subway, train, or highway to work. Many of us have attended state universities, and many more have vacationed at a national park or cooled off at a public swimming pool. And we count on Social Security and Medicare to provide security for us after we retire.

  Since the founding of our country, Americans have drawn on the power of public action to lay the foundations of the freedom and equality that we prize. These foundations are, in large measure, made up of the very institutions that we take so much for granted.

  It’s not a radical idea to acknowledge that public institutions, funded by the public and voted on by the public, play an essential role in our everyday lives. What is new, and what we focus on in this book, is that many beloved American institutions take a distinctive form that we call the public option. The public option refers to a government program with two features: it provides an important service at a reasonable cost, and it coexists, quite peaceably, with one or more private options offering the same service. You can mail a package via the U.S. Postal Service, or you can pay Federal Express to deliver it more quickly. You can vacation in Yosemite National Park for a moderate fee, or (if you can afford it) pay for fancier digs in a private resort. You can check out a book for free from the public library, or you can buy your own private copy at a bookstore or online.

  As these examples suggest, the public option is often attractive because it offers a high-quality service for a reasonable price. But it is an option, competing directly with other options provided by the private market—a form of competition that can be beneficial to both the public and the private realm. This aspect of the public option makes it a very American institution; it leverages public resources without preempting private provision.

  We believe that the public option has the potential to do even more. We show in this book that new public options could transform many different spheres of life, from child care to college, from banking to retirement, and beyond.

  The idea of the public option has recently been in the news thanks to the debate about health care coverage. In the lead-up to the passage of the Affordable Care Act in 2010, policy makers struggled with how to guarantee universal coverage at a reasonable price. One promising proposal, though it was not enacted, was called the “public option”—a government health insurance program that would be offered alongside private plans and would ensure that anyone could buy coverage at a fixed, affordable price. The public option in health care has three big advantages. First, it’s public: the government (unlike a private company) can guarantee access to health care at a fixed price. Two, it’s an option: no one has to use it. If the public insurance plan is a good deal, well, then snap it up. But if you like the terms offered by Aetna or Blue Cross better, then sign up with them. Finally, because the public option exists alongside the private option, the private option has to compete to make a better product—something especially important in highly concentrated sectors like health care.

  The public option didn’t make it into the Affordable Care Act, but it is a feature of many other institutions that are central to American life. The public school movement opened up the possibility of education to the American masses—an option previously available only to families that could afford private tutors or schools. The Postal Service offers a public option in every neighborhood by providing a public mail service that exists alongside—and competes with—private options like Federal Express and UPS. Public universities are public options, often providing excellent education at a price far below that of private schools. But families can choose the route that suits them.

  Public options are everywhere, and they are some of the most celebrated, beloved, important, and effective parts of our society. Public libraries and national parks are obvious treasures, but the list goes on and on: public swimming pools, public golf courses, public housing, public broadcasting like NPR, public defenders in the courts, public highways and transit systems, public museums like the Smithsonian. Not to mention the humble neighborhood playground: you can take your child to play on the swing set at the public park down the street—or, if you prefer, you can choose to buy your own and put it in your private backyard.

  The two of us were talking about how pervasive these public options are when we had our lightbulb moment: “Why not try public options in other areas?” we wondered. Our thoughts turned first to retirement. Both of us had been federal employees early in our careers, and so we knew firsthand that the government has an excellent retirement plan for its workers, providing safe investment options with low fees. Some policy wonks have proposed extending this program to all Americans, and we realized that this would amount to a public option for retirement funding.

  The possibilities mushroomed as we brainstormed and began our research. Postal banking—that is, a basic bank account offered via the postal service—exists in many countries and actually existed in the United States for a big chunk of the twentieth century. Such a service could help address the precarious financial position of many low- and moderate-income families, who are not well s
erved by private banks. And on we went. We knew we’d have to think hard and put the idea through its paces, but it seemed incredibly promising then, and it seems even more so now that we have worked out our ideas in more detail.

  But we also noticed a puzzle. The public option is thoroughly familiar, and yet it hasn’t—outside the specialized arena of health care—formed part of the national conversation about the challenges facing the United States in the twenty-first century. The reason, we have come to believe, is that many Americans have lost faith both in government and in private markets.

  The anti-government script is part and parcel of American politics these days, and we all know it by heart. Government is bloated; government is wasteful; government is run by bureaucrats who are lazy and incompetent. Markets, in contrast, are said to be efficient and effective: they discipline any bad actors on their own, and they save money while providing excellent services. On this view, it follows that the best—and only—course is to privatize government functions and starve the government Leviathan.

  This romance with the private marketplace took a big hit during the global financial crisis of 2008, when financial markets imploded, largely as a result of speculation, fraud, and illegal behavior. The Great Recession threw millions of Americans out of work, and they learned (or relearned) the lesson that private firms and markets, too, can be bloated, wasteful, and incompetent. In the years since, company after company has been in the news for getting hacked (Equifax), engaging in widespread fraud (Wells Fargo), or scooping up data without our full consent (Facebook).

  The experience of the Great Recession and the scandals of the years since could leave us mired in cynicism. We could conclude that nothing works—that government and private firms are equally corrupt and incompetent.

  But the two of us reject this cynical view. We don’t think that government or markets are perfect, but neither do we see them as hopelessly incompetent. We think it’s not only possible but critical to take a pragmatic look at what government can do well. All around us are public options—schools, universities, parks, Social Security—that function really well. We should sit up and take notice of the big role that public options already play in everyday life. And we should ask what more they might do.

  The United States has navigated disruptive social and economic change over and over throughout its history. Now, as then, we can join together to ensure that every American, young, middle-aged, or old, has access to the social infrastructure necessary for a flourishing life. It turns out that public options can help reconstruct that foundation. They could improve access to affordable education, affordable child care, and secure retirement—just to name a few possibilities—and thus expand freedom, increase opportunity, and promote equality, all at the same time.

  In the last fifty years, one of the most popular public policy solutions to virtually any problem was the market subsidy. A market subsidy drops government money into the marketplace, usually by means of tax subsidies or vouchers. The idea is that the invisible hand of competition will operate to allocate goods like health care, college education, and retirement savings in the most beneficial way. But market subsidies have failed, often spectacularly. Prices for health care, college, and child care are higher than ever, and increasingly out of reach for ordinary families. Rather than lowering costs to consumers, subsidies have too often ended up in the pockets of insurance companies and business managers.

  Public options, by contrast, use direct government provision to ensure universal access. At the same time, they make markets work better. Instead of tossing government dollars into the marketplace, public options provide citizens with services at a guaranteed price and quality. And when they operate alongside private options, they can actually make markets work better simultaneously. We understand the virtue of markets in promoting consumer choice and allocating resources, and we believe that private markets should be allowed to do their work—when they can do it well. What public options do is to provide a reliable starting point for consumers and an anchor for market competition.

  To understand the potential of public options, however, we must also confront their limitations. Public education is a prime example. Free public education is an important foundation for college and life success, and it has served generations of Americans well. But public schools in poor districts face an array of challenges. Public housing, to take another example, has provided safe and affordable shelter for generations of working-class families. But some housing developments have been badly run or have become havens for crime. Our optimism is not naive. We realize that public options cannot magically solve the economic, social, and political problems of poverty or structural racism. While we mean to restore your faith in such programs, we do not intend to do so by asking you to take anything on faith alone.

  In Part 1, we make a general case for public options. We show why and how they can help shore up the social infrastructure of America, ensuring that every citizen has the opportunity to enjoy a productive and healthy life. Chapter 1 tours the dominant approaches to public policy from the end of World War II to the present—the era that saw the expansion of employer-based benefits, followed by deregulation and tax cuts imposed by neoliberals. In Chapter 2, we provide a basic definition of public options and make the case for how they expand freedom and opportunity, improve market competition, are good for businesses, and strengthen our democracy. We then dig deeper in Chapter 3, where we explore how public options relate to alternative—market and regulatory—approaches to addressing public policy problems. Chapter 4 tackles some counterarguments and discusses the limits of public options.

  In Part 2, we explain how public options have worked across a variety of sectors. Chapter 5 looks at some prominent successes, ranging from the post office, public libraries, and public swimming pools to Social Security. In Chapter 6, we discuss some of the areas where public options have had serious challenges, including public education and public housing. We investigate what went wrong and why subsidies are not the answer.

  In Part 3, we consider how a public option could help address critically important sectors of our social infrastructure. Chapters 7 through 12 look in detail at five of these sectors, retirement, higher education, banking, child care, and health care, and suggest some additional areas from broadband internet to credit reporting.

  Americans have long understood the power of collective action to promote the essential values of freedom and equality. Public options are evidence of our common civic faith; restoring our confidence in them, and expanding their reach, will ensure that the twenty-first century is a time of security and prosperity for all.

  Part One

  UNDERSTANDING THE PUBLIC OPTION

  1

  The Limits of Private Action

  Since the end of World War II, two big ideas have animated American public policy. Employer-sponsored social benefits dominated from the late 1940s through the 1970s. Neoliberalism, prominent from the 1980s through the 2000s, turned to markets and private actors to achieve social goods.

  Both of these models have now failed, albeit for different reasons. Sea changes in work and family life mean that virtually no one anymore has a lifetime job with union protections and secure benefits. And the financial turmoil of the early 2000s, culminating in the Great Recession, taught us hard lessons about the dangers of relying on unregulated markets. The financial crash triggered mass unemployment and mass foreclosures that ruined lives and still echo today, a decade later. No longer can anyone suppose that the unregulated market will provide a secure platform on which ordinary people can build their lives. Knowing something about the intentions behind both efforts, and how and why they came undone, is essential before we turn to the promise of public options.

  The End of the Treaty of Detroit

  In the spring of 1950, Walter Reuther, the head of the United Auto Workers, and Charlie Wilson, the head of General Motors (GM), came to a historic agreement. GM would give its workers a monthly $125 pension, cove
r half the cost of health care, and increase pay in step with increases in the cost of living and rising productivity. Businessweek called it a moment of “industrial statesmanship.” Fortune dubbed the agreement the “Treaty of Detroit.”1

  The Treaty of Detroit established the paradigm for American social policy in the post–World War II era. Many people incorrectly think that the mid-twentieth century was defined by “big-government liberalism,” a system in which the federal government provides a robust welfare state to the American people. But this was not the model for public policy in mid-twentieth-century in America. In fact, American public policy rarely took on the mantle of government-provided social goods. There were a few big-government programs—most notably Social Security and Medicare—but these were exceptions, not the rule. As proof, just compare our efforts to those of European countries. European governments provided socialized health care, free college education, and robust social welfare benefits to their citizens regardless of their wealth. The American government did none of those things. Under the Treaty of Detroit, it was General Motors, not Uncle Sam, that provided workers with a pension and health care. In the decades after 1950 this model spread, and it became the norm for much of the industrial and corporate sectors, whether or not they were unionized. We want to be clear that the employer-based approach was a model, a framework. Not everyone was included in it, and it didn’t fully succeed even on its own terms. But it served as a powerful vision for how social policy was supposed to work.

  The employer-benefits approach was based on a number of assumptions. The first was that people would have the same employer for their entire working life, starting at age eighteen or twenty-two and continuing until retirement at age sixty-five. Employees were expected to be hardworking and responsible; in return for their loyalty, employers paid them a decent wage, and their jobs were secure.2 Retirement meant a big party with friends and family and a gold watch from the employer, as a token of appreciation.