At the Rochester Trust branch at Lake and Ridgeway Avenues, in the shadow of the mammoth industrial center known as Kodak Park, small crowds lined up all day and into the night, taking advantage of the extra hours that the bank, like many others around the city, had extended. Yet even with the bottleneck, most of those patrons forced to stand around and wait wore smiles. And why not? A slug of money is a powerful intoxicant, and Kodak had just handed out the largest wage dividend in its history: more than $28 million to 51,000 workers. That amounted to about $500 per person, the equivalent today of more than $4,000 each. Twenty million of the total went to 35,000 employees right in the company’s hometown—a place so rolling in it that Rochester would soon become branded “Smugtown, USA.”
It was March 14, 1955, and while Jim Carey’s International Union of Electrical Workers was gearing up to see how much it could pry out of GE, the men and women of Kodak were already cashing in. The profit-sharing program that George Eastman had introduced in 1912 had grown so substantially that for Rochester’s merchants it was practically like having a second Christmas a week before the official start of spring. “Kodak’s annual wage dividend payment,” said Life magazine, “is the big financial event of the year in Rochester.” For days preceding the payout, local newspapers were thick with advertising: Garson & Wood marketed luxurious bedroom suites, in limed oak or cherry cordovan; the Peerless appliance shop pushed the new Philco electric range with its “Miracle Roastmeter”; and the National haberdashery showed off its selection of imported Italian worsted suits. Now, employees were snapping up these goods and much, much more. “At many stores,” the Rochester Democrat and Chronicle reported, “major items put aside long ago on ‘Will Call’ orders were delivered against cash on the barrelhead.” The banks—Monroe County Savings, First Federal Savings and Loan, Rochester Savings, Security Trust, and others—also competed for customers. (Were he looking down upon his old city, George Eastman surely would have been pleased, for he had originally conceived of the wage dividend as a reserve for workers’ retirement years.) “Congratulations to all you Kodak folks on your good fortune,” Community Savings declared in its ad. “And when you come in to cash your check, why not stash away a good share of it to earn Community’s generous dividends? You’ve worked for it… now let it work for you.”
But the temptation to spend, rather than to save, was strong, with Rochester’s car dealers supplying some of the sweetest cajolery. “Get a bonus for your bonus,” was the come-on from Ralph Pontiac, while over at Heinrich Motors, “Kodakers” were encouraged to choose from ninety different “Bonus Buys”: everything from a 1947 Chevy for $125 to a ’54 Buick Riviera for a shade over $2,000. Piehler Pontiac, Huff Pontiac, Ken Ralph Ford, and Corey Nash all held wage-dividend sales as well. Even the most frugal Kodak employees must have found it difficult not to treat themselves to something special when, just six weeks after the disbursement, the company filled their wallets even more: on the heels of record earnings, it raised workers’ base pay by 5 percent. The increase, President Albert Chapman said, “recognizes that the interest, loyalty, and effective work of Kodak people are among the most important reasons for the company’s progress.”
Kodak gave its workers far more than just money, however. Continuing the practices that Marion Folsom had begun decades earlier, it also strove to maintain as much job security as possible. “For more than fifty years,” Geneva Seybold of the National Industrial Conference Board observed, “the company has planned its production schedule as best it could to avoid seasonal layoffs. And usually any technological changes are delayed until plans have been made for the retraining and transfer of those affected.” Craig Cochrane, Kodak’s director of industrial relations, put it like this: “The paramount consideration here will always be the opportunity to work full-time.… And that, I believe, is the one answer that appeals to the conscientious worker.”
Kodak, which had perpetually lavished benefits on its employees, was by 1955 spending about $1,000 per person on life insurance; retirement annuities; sick pay; disability, unemployment and old-age insurance; holiday and vacation pay; and hospital, surgical, and major-medical coverage. Recognizing that health costs were bound to escalate as people got older, Kodak in the mid-1950s began to offer its health insurance plans—at company expense for life—to those who’d retired with at least fifteen years of service, as well as to their dependents. “I can hardly convey to you the nature of the response that came from our retired people when this was announced,” Donald McConville, Kodak’s director of industrial relations, told a meeting of the American Management Association. “To say they were grateful is my understatement for the day. Nothing else the company has ever done, I am certain, helped so much in relieving worry and giving the retired person assurance of a secured future.”
Kodak’s promotion of extracurricular activities was also outstanding, as illustrated by the company’s 18-hole golf course and its 300,000-square-foot recreation center. It sponsored movies, picnics, bridge, dancing, baseball, and badminton. But the most popular pastime among Kodak employees was bowling. In fact, when the American Bowling Congress came to Rochester in the midfifties, 324 different company teams entered the tournament. Kodak justified its considerable spending on these pursuits as good for employer and employee alike. “In this highly complex age,” said Louis Eilers, a senior executive who would go on to become Kodak president, “industry has a great need of people who are healthy, vigorous, and competitively keen.” Evidently, knocking down pins at one of the recreation center’s twenty automatic lanes was viewed as a good way to heighten a worker’s animal spirits.
Like Gold Rush California, with its proliferation of brothels, bars, and pick and shovel salesmen, Rochester became fertile ground for those with the shrewdness to exploit a lucrative situation. One of these go-getters was H. Dean Quinby Jr., a local native who came up with a mechanism for people to buy stock on a regular basis, regardless of what each share cost at any given moment. Participants in the Quinby Plan would simply specify how much they wanted to spend—twenty five dollars a month, say—and Quinby would then acquire on their behalf as many shares as he could from a select menu of blue-chip companies; it was like buying equities on installment. “Buy stocks the same way you buy gasoline for your car—by the dollar’s worth” became his motto. As for dividends, they would go not to the investor but, rather, were plowed back into the plan for further purchases. “The laws of compound interest apply with equal force to dollars, rabbits, and shares of stock,” Quinby said. “One hundred shares with an average dividend yield of 6 percent will double in twelve years.”
Born in 1898, the scion of a prominent Rochester family, Quinby was a gentleman and a charmer. Standing six foot two and strongly built, he was part of the local country-club scene, played squash, and had a taste for Manhattans and good wine. He worked on Wall Street as a bond broker until the crash of 1929 and then started an air-conditioning business—but his first love was always the markets. He dreamed up the Quinby Plan while lounging on a yacht on Lake Ontario in 1938, and for many years those who signed on could buy into only one company: Kodak.
It took some time for Quinby’s innovation—the democratization of investing—to gain traction, and so he lived off his wife’s trust fund for a while. But he stuck with it, and as Rochester found itself awash in more and more cash, so did Quinby. “He was a salesman by nature,” said his son, Congreve. In 1945, as World War II ended, 241 people invested about $250,000 in the Quinby Plan. A decade later, some 4,400 Quinby Plan contributors had committed more than $3.3 million to buy stocks for the year.
By this point, the Quinby portfolio included other corporations: General Motors, General Electric, DuPont, Standard Oil of New Jersey, and AT&T. But Kodak remained the focus, especially after the company in 1953 set up a voluntary payroll-deduction system through Quinby so that its employees could buy its common stock. By 1955, the Quinby Plan held 96,000 shares of Kodak—as a block, one of the ten largest holdings in the company. And Quinby could always count on more, particularly with Kodak’s wage dividend getting bigger. “As my father used to say, it was like somebody would stand at the top of the Kodak building with bales of money and then just throw it out to the winds,” his son recalled.
A Quinby & Company ad in the Democrat and Chronicle challenged workers to invest: “Wage dividend time should be thinking time.” It urged employees to fortify their nest eggs with Kodak shares—a terrific way to augment “your financial strength” and “bring you enduring satisfaction.” “Faith in the future of Eastman Kodak Company,” the ad promised, “has been well received.”
Rochester was a boomtown, and the way to partake in its riches was obvious to many.
“It is a comparatively simple matter to… amass a modest fortune, a $25,000 home, and a circle of friends with the same determination,” wrote Curt Gerling, a local newspaperman who gave the city its Smugtown moniker. “Some believe the formula as unburdensome as getting a job at Kodak and learning to pat the proper posteriors. This perhaps is an oversimplification but not enough to detract from the basic premise.”
It would similarly be an oversimplification to say that to get ahead in America in the 1950s you would take a job at a big employer, not screw up, and watch your standard of living rise—but not enough to detract from the basic premise. In this way, Rochester and Kodak were both mirrors and magnifiers of national life. “US capitalism is popular capitalism,” the editors of Fortune magazine wrote, “not only in the sense that it has popular support, but in the deeper sense that the people as a whole participate in it and use it.” General Electric also marveled at this new “People’s Capitalism,” pointing to workers’ high wages and high purchasing power.
Much of this rah-rah rhetoric was overblown. Tens of millions across the country—about a quarter of the population—lived in poverty, causing John Kenneth Galbraith, in his 1958 book The Affluent Society, to express grave concern about those suffering from “inequality and deprivation.” A few years later, in his 1962 landmark The Other America, Michael Harrington would shine a light on those relegated to the margins of the economy. “Here are the unskilled workers, the migrant farmworkers, the aged, the minorities, and all the others who live in the economic underworld of American life,” Harrington wrote. But even this reality was not enough to alter three fundamental truths: American business flourished during the fifties, an extraordinarily wide swath of the populace enjoyed the fruits of its prosperity, and the social contract between employer and employee was the primary instrument through which this wealth was shared.
Fewer than 500 companies employed more than a fifth of all American nonfarm workers in the fifties—an incredible concentration of smarts and sweat responsible for about half of the nation’s industrial output and a quarter of that of the entire free world. All told, America was manufacturing roughly half of all items produced around the globe by 1955, even though it had only 6 percent of its population. Many of these goods were destined for export. If Rochester was Smugtown, the United States was Smug Nation.
Some of America’s competitive edge was the result of the industrial infrastructure in Germany and Japan having been so badly damaged during World War II. And much was dependent on a burst of government spending aimed at countering the Soviets—during the Korean War, the Cold War, and the Space Race. The military-industrial complex, as President Eisenhower would soon label it, accounted for as much as 20 percent of total economic output in the 1950s. In 1957, government-supported research and development performed by federal contractors outstripped the funding put up by the companies themselves. By 1960, the nation’s electronics industry had come to rely on Uncle Sam for 70 percent of its R&D dollars.
Still, much of America’s upper hand was due to public investment not in science or technology, but in workers themselves. The G.I. Bill of Rights, which President Roosevelt had signed into law in 1944, had disbursed college and training funds to nearly half of the nation’s 16 million World War II veterans by the time the program expired in 1956. “The expansion of higher education and the subsidization of students have led to marked gains in the educational background of workers,” Charles Hession and Hyman Sardy wrote in Ascent to Affluence, their history of American economic advancement. “Better education for workers has improved the quality of the nation’s labor force and this has manifested itself in increased productivity.”
As workers’ productivity soared, corporations spread the returns. Hourly employees in some industries—steel, autos, manufacturing equipment—saw especially large boosts in pay. But wages and salaries climbed sharply during the course of the fifties for most everyone: up 54 percent overall for full-time blue- and white-collar workers. Jumps in income outpaced inflation. Besides issuing bigger paychecks, companies also provided what Business Week termed “big fringes.” By the middle of the decade, almost half of all large- and medium-sized employers in the United States were giving their workers pensions, and more than two-thirds were kicking in insurance of some kind, up from a negligible number just ten years prior. “The status of the American worker, broadly speaking, attained a new peak in 1955,” said Joseph Goldberg, a US Labor Department official. There was no shortage of small fringes, too—the everyday perks that helped to sustain employee loyalty. When someone retired from Coca-Cola, for example, he was reminded that he could always grab a meal at no cost in the company dining room in Atlanta: “We would like for you to avail yourself of this opportunity often.” In 1950s America, there really was such a thing as a free lunch.
With their financial station upgraded, people spent as never before—on cars, on Levittown-style suburban houses, on TVs, and on jet travel, which began to take off at the end of the decade. It’s as if someone had set the economy on fire, a conflagration fueled by easy credit and fanned by Madison Avenue. “The reason we have such a high standard of living,” said Robert Sarnoff, president of the National Broadcasting Company, “is because advertising has created an American frame of mind that makes people want more things, better things, and newer things.”
The 1950s were part of a thirty-year, postwar period that saw America take its final steps toward being truly modernized. In 1940, a good-sized portion of households around the country still had no flush toilets, electric lights, or even running water. By 1970, hardly any homes were without these things. Less than half of all residences had refrigerators and washing machines in 1940, but thirty years later more than 90 percent did. Vice President Richard Nixon was so enchanted by America’s consumer economy—and what its brisk development said about the merits of capitalism—that he’d show off a newfangled dishwasher to Soviet premier Nikita Khrushchev in 1959 as the two toured an exhibit of a typical American kitchen at the US Embassy in Moscow. “Any steelworker could buy this house,” Nixon told him proudly.
Not everyone was so enamored of the nation’s sudden preoccupation with accumulating more things. Galbraith, for one, warned in The Affluent Society that it was dangerous to go from “a world where more production meant more food for the hungry, more clothing for the cold, and more houses for the homeless to a world where increased output satisfies the craving for more elegant automobiles, more exotic food, more erotic clothing, more elaborate entertainment—indeed, for the entire modern range of sensuous, edifying, and lethal desires.”
Yet as repulsive as this acquisitive culture was to some commentators, America’s buying binge had a definite virtue: it was no longer just the well-heeled who got to join in. “Certainly evidence is plentiful that some of the old barricades of class warfare are toppling,” A. H. Raskin, the renowned labor writer for the New York Times, wrote in August 1955. Top executives were still living large, but not quite as large as, say, their counterparts of the 1920s. Their ostentatiousness restrained, they seemed more like everyone else—and everyone else seemed more like them. “Among other things that have changed in the executive’s life has been the ritual connected with city club life,” a 1955 Fortune article asserted. “Ceremony has all but vanished with the migration to the suburbs. Executives now use town clubs merely for lunching or having a fast drink at the end of the day before catching their commuting trains. The old, annual club dinner with its solemnities and reports, its printed menus, elaborate dishes, and long cigars, has deteriorated into a gobbling of commonplace steak by members numbed by martinis.” Changes in tax policy—the top rate went from 38 percent in 1949 to 52 percent through most of the fifties—also helped level the playing field. “The large yacht,” said Fortune, “has… foundered in the sea of progressive taxation.” Moreover, the magazine added, “as executives’ homes have dwindled in size, so have their parties. Frederick J. Thibold, catering manager at Sherry’s in New York, can remember dances for 2,000 with a ‘sumptuous supper’ 25 years ago. A big dance today is one for 400, and at some of these, Thibold confides in a whisper, Sherry’s has served hot dogs and hamburgers.” Fittingly, Harvard business professor Richard Tedlow has written, it was a bottle of Coca-Cola that in the mid-1950s became “the international symbol of the American consumer culture, the quintessential democratic luxury.”
Actually, class divides in the United States had started to come down in the 1940s, when the gap in wages between rich and poor shrank significantly. The wage differential between the middle class and poor also tightened during this time, and the same narrowing was found irrespective of education, job experience, or occupation. Economists would come to call this era “the Great Compression.” The trend could be chalked up, at least in part, to government intervention during World War II—specifically, the actions of the War Labor Board, which regulated pay and generally approved higher earnings for only the lowest-paid workers. As a result, this dramatic flattening wouldn’t continue for very long. But neither would the wage structure widen for the next twenty-five years or so, making this an unrivaled age of American egalitarianism. “Incomes stopped converging around 1952,” the journalist Timothy Noah has explained. “But what happened next is even more remarkable. Although incomes ceased becoming more equal, they didn’t start becoming less equal (as they had during the 1920s after World War I). The income ratios stayed more or less the same. For instance, in 1952 the share of national income going to the top 10 percent was 33 percent. In 1962 it was 34 percent. In 1972 it was… 34 percent. The rich were getting richer, but not disproportionately to everyone else.”
Wealth came to workers in various forms. The Employee Stock Ownership Plan would make its debut in 1956. Hundreds of other businesses, including corporate goliaths such as Sears and Procter & Gamble, had long had their own profit-sharing schemes. In all, about half of US workers in the mid-1950s were paid by some type of group-based incentive program, the most talked about of which was developed by Joseph Scanlon, a lecturer in industrial relations at the Massachusetts Institute of Technology. His was, in many ways, the purest demonstration of the mutuality of interests that was supposed to underpin the social contract between employer and employee.
Although Time magazine in 1955 pronounced him “the most sought-after labor-relations adviser in the U.S,” the fifty-six-year-old Scanlon didn’t fit anyone’s image of an MIT management expert. The son of Irish immigrants, Joe Scanlon joined Empire Steel, a small company in Mansfield, Ohio, as a cost accountant in 1924. He also boxed on the side, earning as much as $1,000 a bout as a featherweight prizefighter. When his boss told him that he didn’t stand much of a chance of getting promoted if he kept coming to work with black eyes, Scanlon promptly shed his white collar for a blue one, becoming an open-hearth tender—a hazardous job, dirty and blazing hot. He then served as a union local president for the Steelworkers.
During the Depression, Empire nearly went under. It let go half its workforce, and everyone who stayed with the company had to swallow a 25 percent pay cut. Searching for answers, Scanlon consulted with Clinton Golden, a top Steelworkers official. “Develop some method for reaching down into the mind of each employee,” Golden told him, “and see what he has got to propose that may possibly result in a reduction of cost or improvement of the quality of the product. See if you can come out in a spirit of teamwork, of working together to save your company.” Scanlon went back and put Golden’s advice into action. A special joint research committee of management and workers was established, kinks in the production process were identified, and fixes were found—most based on the suggestions of those on the front lines. Profits rose, workers’ pay was restored, and Empire began to hire again.
Scanlon continued to refine various cooperative constructs through the mid-1940s, first as a part of the Steelworkers’ industrial-engineering department and then as member of the staff at MIT. What emerged was different than straight “profit sharing”; the Scanlon Plan was a groundbreaking example of what would come to be designated “gainsharing”—a system involving not only paying out bonuses based on corporate performance but also ensuring that all employees participate in the key decisions intended to spur higher productivity and lower costs. The Scanlon Plan was, in this regard, as much a philosophy as a formula. “What Joe Scanlon was driving for was broad decentralization and genuine delegation, clear to the bottom of the organization,” said Douglas McGregor, Scanlon’s MIT colleague. His vision, McGregor added, was completely antithetical to “the typical industrial-engineering approach… of the last half century, which takes all the human elements out of work and turns man essentially into a glorified machine tool.”
The Scanlon Plan contained three crucial elements: First, the workers (or their union representatives) would collaborate with management to figure out the total cost of compensating people in the organization and compare that to the total market value of what the organization produced. Monthly bonuses would be paid whenever the company beat this baseline ratio. Second, everyone was to be compensated under the same rules, so as to not pit individuals or groups of workers against each other. “We like to see everybody from the president of the company to the floor sweeper all in the same plan,” said Fred Lesieur, who assisted Scanlon. Third, a network of production councils was set up, each charged not only with brainstorming ideas but with putting the good ones into practice. Scanlon had “a deeply rooted faith in democracy and democratic processes,” Golden, the Steelworkers official, remarked. “He believed that every worker, no matter how humble and seemingly unimportant his task, is capable of making a contribution not only to the success of the enterprise but to the happiness and well-being of his fellows.”
Bringing these concepts to life was not easy. To begin with, it demanded an unqualified commitment from those at the top of the corporation. Gathering meaningful input from each and every part of the organization, as Scanlon said, required much more than “the boss greeting the worker with a ‘cheerio.’” Foremen and superintendents, who were accustomed to having complete authority over technical production decisions, had to give up that control. And workers had to get beyond feeling ripped off if their bonuses were lower than expected.
Yet when things clicked, the results were stunning. At the Cornelius Company, a Minnesota producer of aircraft parts, productivity shot up 100 percent in the four months after adoption of Scanlon’s system. Herman Miller, the Michigan furniture company, smashed all production records in the first month it had a Scanlon Plan. And at the Adamson Company, a maker of steel tanks in Ohio, profits skyrocketed 500 percent and employees earned bonuses as high as 98 percent—all because of Scanlon, executives said.
At Lapointe Machine Tool, of Hudson, Massachusetts, a Scanlon Plan was put in after the Steelworkers had gone out on strike for eleven weeks. Ideas from the workers now flowed, with more than 500 of them sent to a special labor-management screening committee in the first two years; of those, 380 were accepted. Powered by this surge of suggestions, production at Lapointe increased more than 60 percent. And workers took home bonuses averaging about 18 percent, while their job security solidified. “The day that the plan was put in,” said Edward Dowd, a Lapointe executive, “there was a definite change in the attitude of the employees toward management, and, in turn, there was quite a change in management’s attitude toward its employees.”
When everybody is sharing in the good times, getting along is a lot easier.
In late 1955, General Electric stepped up in an area that, arguably more than any other, characterized what was rapidly becoming a private, employer-based welfare system in America: medical insurance for working men and women.
The new GE plan, which supplanted the company’s more bare-bones health policies, sought to integrate basic coverage for hospitalization and in-hospital care with added protection against expenses for many out-of-hospital services and for catastrophic illness. GE regarded this “comprehensive insurance” as an important social breakthrough, and it heralded the relief it brought to its employees, who after paying a small deductible (no more than fifty dollars, and often less than twenty-five) could have full confidence that 75 to 85 percent of their medical bills would be paid by the company.
In one case, for example, a GE employee’s eight-year-old daughter severely injured her liver after taking a spill on her bicycle. The family faced nearly $4,000 in health expenses, but more than 80 percent of that was picked up by GE’s new insurance package, which was underwritten by Metropolitan Life. Under most standard plans, the employee would have been reimbursed less than 50 percent, including being stuck with $1,300 in payments for private nursing and blood. “The steady search for sounder, more effective ways of protecting and restoring human health spawns innovation not only in medical practice, procedures and drugs, but in other fields as well,” said Earl Willis, a GE manager of employee benefits. “Insurance is one of these.”
Employees were thankful for the company’s offering, with eight in ten indicating their approval. “I don’t know what would have become of us these last few years if we hadn’t had this insurance,” said the wife of one GE employee who was hospitalized for more than three months and treated for mental illness. “I don’t think that there are many health plans that cover psychiatric care, and if it hadn’t been for this care, we would have been destroyed as a family.”
GE’s generosity pointed up two things about medical coverage in the United States in the 1950s: First, its breadth was quickly widening. And, second, the business community wanted to be sure that the private sector—and not the government—was largely in control of that expansion, doling out health insurance as another artifact of the social contract between employer and employee. This was, after all, the way it had always been.
Through the nineteenth and into the twentieth century, health plans of any variety were a rarity across the nation. Some small immigrant benefit societies, fraternal orders, and unions offered so-called sickness benefits, but relatively few Americans had any buffer against loss of earnings due to illness, and even fewer had insurance that actually paid their medical expenses. Some companies—primarily those operating railroads, mines, and lumber camps—had their own doctors, but their principal duties consisted of examining job applicants and patching up injured employees so that they could get back to work. The federal government, for its part, left it to states and cities to decide the best course on health coverage. And they generally left it up to individuals to acquire insurance, assuming they could even find it. Unlike in Europe, where health care had become a tax-supported function of the state, medical insurance in America remained private and voluntary.
An attempt to change that came at the end of the Progressive Era, but even the reformers were leery of trying to make health insurance a full-on government program. A group of left-leaning academics called the American Association for Labor Legislation led the charge, calling in 1915 for workers and their dependents to receive coverage for medical aid, sick pay, maternity benefits, and funeral expenses. Employers and employees would each pay 40 percent of the cost; the government would chip in the remaining 20 percent. Even this, however, was too much state interference for both management and labor. By this time, many companies were practicing welfare capitalism, hoping that piling on the benefits would win over their employees’ allegiance. The last thing business wanted was the government inserting itself into the middle of the relationship. Tellingly, it wasn’t just the rigidly conservative National Association of Manufacturers that opposed the state’s involvement in the marketplace for health insurance; so did the National Civic Federation, a forerunner to the more liberal Committee for Economic Development.
In a similar vein, craft unions were positioning themselves as the champions of workers’ needs, fighting, above all, for the higher pay that would allow people to buy health insurance on their own. “No remedy is so potent to prolong life and to give help to the individual and to remove poverty as increases in wages,” said Samuel Gompers, the president of the American Federation of Labor, as he decried the AALL plan. It was up to unions, he added, “to secure to all workers a living wage that will enable them to have sanitary homes… adequate clothing, nourishing food, and other things that are essential to the maintenance of good health.” In a strange-bedfellows moment, then, labor and management joined arms to derail the AALL campaign. “Neither unions nor big business at that time wanted any competition from government in social welfare programs,” the sociologist Paul Starr has written. “Thus health insurance, rather than pitting labor unions against capital, pitted both of them against the reformers.”
By 1917, antagonism to public health insurance was also building among doctors, who feared that the state would cut into their incomes as well as their freedom to practice medicine as they saw fit. “It is a dangerous device, invented in Germany, announced by the German Emperor from the throne the same year he started plotting and preparing to conquer the world,” read a pamphlet published by one physicians’ organization. The reformers were now in retreat.
By the 1920s, health insurance as a social cause had all but disappeared from the American scene. It would remain mostly moribund throughout the decade, until the issue was revived and reframed by the exigencies of the Great Depression. At this stage, those pressing for expanded access to health insurance viewed rising medical costs as a bigger concern than lost income because of sickness. And they wanted coverage to reach the middle class, envisioning a much wider safety net than the one the progressives had tried to knit together for industrial workers and their families. As one expert put it, the question now was not only how to make sure that blue-collar laborers were protected, but how to “meet the needs and satisfy the demands of the ‘white-collar’ people of moderate means.”
Once again, opposition was vehement, with business and physician groups alarmed at the slightest whiff of any role for government. When in late 1932 the Committee on the Cost of Medical Care—an independent body of economists, doctors, and public-health specialists—cautiously endorsed the formation of community health centers and proposed that localities contribute a share of the cost of group insurance for low-income individuals, the American Medical Association lambasted these ideas as an “incitement to revolution” and “utopian fantasies.” As President Roosevelt rode into office, the political calculus had become perfectly apparent: his administration would need to tread carefully on the topic of health insurance, lest it provoke the fury of the business and medical lobbies.
By 1935, this unease—coupled with the widespread sense that, in the context of the Depression, health coverage wasn’t as vital as unemployment or old-age insurance—led Roosevelt to make a fateful choice: medical benefits wouldn’t be included in the Social Security Act. An early draft of the bill had contained a provision for a federal panel to study the subject of health insurance, and this prospect alone “was responsible for so many telegrams to the members of Congress that the entire Social Security program seemed endangered,” one Capitol Hill staffer would later recall. The line was struck to ensure that Social Security passed.
Pressure for government-backed health insurance didn’t go away, however. Among those applying it full bore was organized labor, which had reversed its position since Samuel Gompers first frowned on the notion of public coverage. Now, the AFL favored such a plan, as did the Congress of Industrial Organizations, which saw access to medicine as one piece of a larger social-democratic agenda. “My people are asking that our government take health from the list of luxuries to be bought only by money and add it to the list containing the ‘inalienable rights’ of every citizen,” said Florence Greenberg, a leader of the women’s auxiliaries of the Steel Workers Organizing Committee.
Nonetheless, Roosevelt was unable to summon the fortitude to take on the doctors. He toyed with introducing a national health program but never did so. “We can’t go up against the state medical societies,” the president acknowledged at one point. “We just can’t do it.”
Others were less daunted. In 1943, Senators Robert Wagner and James Murray, along with Congressman John Dingell, authored a bill that would have made health coverage widely available through changes to Social Security. And President Truman, upon entering office, also advanced a plan for universal federal health insurance. As always, the doctors were unsparing in their assessment of where such a program would lead. “Let the people of our country realize that the movement for the placing of American medicine under the control of the federal government through a system of federal compulsory sickness insurance is the first step toward a regimentation of utilities, of industries, of finance and eventually of labor itself,” the Journal of the American Medical Association maintained. “This is the kind of regimentation that led to totalitarianism in Germany and the downfall of that nation.” Other times, the AMA preferred a different bogeyman, alluding to Russia, instead of Germany, in its warnings about government-provided health care. “Would socialized medicine lead to socialization of other phases of American life?” the AMA asked in one piece of literature. “Lenin thought so.” It then quoted the Soviet leader—apocryphally, it seems—as having once said, “Socialized medicine is the keystone to the arch of the Socialist State.”
By the late 1940s, the doctors—backed by millions of dollars in advertising—had won the day: national health insurance would never gain any real political momentum. At the same time, America’s employer-based health system was becoming ever more entrenched, its place secured by a series of actions and decisions rendered by the government itself. It began with the War Labor Board, which had capped the amount of pay that companies could offer their employees, but was less stringent regarding benefits. Consequently, businesses used health coverage to attract and keep the best available workers during a stretch when men were off to battle and labor at home was scarce. Group hospital coverage nearly quadrupled during the war, to 26 million subscribers, with the vast majority enrolled in Blue Cross plans.
In 1949, the Supreme Court’s ruling that benefits (and not just pay) were a legitimate issue for collective bargaining helped cast corporate America as the nation’s leading conduit for health insurance, with organized labor now the prime catalyst in expanding coverage. That medical benefits “are not a ‘fringe’ concern to workers has been made clear by the… demands for these programs,” said Harry Becker, the social security director at the United Auto Workers. Obtaining a higher standard of health care, he added, “is an integral part of the larger drive for a higher standard of living.” By 1954, 12 million workers and 17 million dependents were enrolled in health plans negotiated by unions—a fourth of all the medical insurance purchased in the country—up from fewer than 3 million workers just six years before. And many nonunion businesses (like Kodak) quickly offered their workers the same deal. The Internal Revenue Service then made it official that people didn’t have to pay taxes on their companies’ contributions to health-benefit plans, further strengthening this part of the social contract between employer and employee.
As General Electric launched its comprehensive health insurance program, the picture of how medical coverage was distributed in America had crystallized: most people counted on their employer for such protection. The fastest-growing plans were group policies sold by large commercial firms (such as Metropolitan Life), which, unlike the previously dominant, community-based Blue Cross model, didn’t allow for people to take their insurance with them should they leave their job; health coverage was becoming a tether to one’s place of employment.
From the outset, this configuration prompted several worries. First, tens of millions of Americans remained uninsured. The poor and unemployed often fell through the cracks, as did those with part-time jobs and many of those who worked for smaller companies. The uninsured would continue to be a problem even after the passage of Medicare and Medicaid in the mid-1960s brought expanded coverage to the elderly and indigent. Second, some felt that employees still had to shoulder too much of the cost of their care. Even at General Electric, workers had to pay for much of their routine health maintenance, and maternity benefits were limited. The rank-and-file want “full coverage under the GE plan,” said a local union leader in Cleveland.
The final fear was that costs would spiral out of control, especially after GE pioneered comprehensive health insurance—a form of coverage that would grow phenomenally fast, with some 28,000 other employers (including Coca-Cola) taking it up within a decade. “The existence of a fairly generous overall maximum, without any limits on the price of covered services or any specified time limits, has been variously described as an ‘invitation to larceny,’ a ‘blank check inviting higher prices,’ and a ‘noble experiment challenging the self-restraint of the medical profession and its dedication to voluntary health insurance,’” said a Brookings Institution study.
For some, this risk was just one symptom of a larger threat to the nation—an escalation of employment costs that seemed to have no end. Like health insurance, pensions had also “taken on new meaning” during the 1950s, in the words of Business Week. “They’re no longer considered a gift bestowed by an employer on his faithful employee,” the magazine said, “but rather a sort of deferred wage, which a worker has earned by his sweat and labor.” Some wondered how any business, if it fell on hard times, could possibly continue to meet these retirement obligations. “For such a plan to give real security,” Peter Drucker wrote, “the financial strength of the company and its economic success must be reasonably secure for the next forty years—the twenty-five years between the beginning of middle-age and retirement during which a man accumulates his pension rights, and the years of his old age during which he receives his pension. But is there any one company or any one industry whose future can be predicted with certainty even ten years ahead?” Although corporations such as General Electric were now pumping tens of millions of dollars a year into their pension plans, they ultimately offered “no more security against the big bad wolf of old age than the little piggy’s house of straw,” Drucker cautioned.
In general, the increases in benefits through the fifties “have been unprecedented in their magnitude and liberality,” General Electric chief executive Ralph Cordiner told the company’s board of directors. “This record, with its disturbing implication for future management planning and for the welfare of employees, public, and the economy as a whole, suggest the need for sober consideration of what underlies this result and what bearing the pattern of the past decade will have on wage and benefit changes during the next ten years.” Such admonitions would eventually prove to be correct. But with the 1950s economy roaring and inflation at a quiescent 2 percent, it was probably hard for many to hear what Drucker and Cordiner and any other doubters were saying.
In the meantime, America’s burgeoning employer-based health system was—even with its appreciable flaws—having a tremendous effect. In 1950, only 49 percent of wage and salary workers in the United States had hospitalization coverage, 35 percent had surgical insurance, 16 percent had a plan that covered regular medical expenses, and practically nobody had major-medical benefits. By 1965, the ranks of employees covered in these different categories would all increase greatly—to 69 percent, 66 percent, 58 percent, and 25 percent, respectively. What’s more, this explosion in health insurance for workers and their families meant that the nation overall was covered as never before: the proportion of Americans with hospitalization benefits would go from 51 percent to 79 percent during the same fifteen-year time frame, while the percentage of those with surgical coverage would double from 36 to 72. “Health insecurity,” the historian Alan Derickson has written, “became the exception rather than the rule.”
Employer-based medical insurance was a Band-Aid, yes, but it was a mighty big one.
When the 50 millionth car ever made by General Motors came off the assembly line in Flint, Michigan, it was the ideal object to capture the sparkle of America: the 1955 Chevrolet Bel Air Sport Coupe had been swabbed with a golden glint paint, and more than 600 of its parts and accessories had been dipped in a bath of gold cyanide. The interior fabric had been woven together with gold metallic thread, and the seats were upholstered in gold vinyl. “People have money, they have confidence, and they are in a buying mood,” said Harlow Curtice, GM’s president, who had been picked in 1952 to take over for “Engine Charlie” Wilson.
A lifelong GM man, “Red” Curtice oozed plenty of assurance himself, having pledged in early 1954 to invest $1 billion over two years to expand the production capacity of the nation’s biggest corporation, just as some had begun to worry that the economy was losing steam. “There is no more key variable determining our economic future than the climate of business expectations,” the New York Times wrote in an editorial praising the GM executive for his “statesmanship and responsibility.” “Mr. Curtice has shown concretely why that climate should be an optimistic one, and the investment decision General Motors has taken will contribute powerfully to countering the fears of the pessimists.” By the end of 1955, Curtice’s big gamble had paid off handsomely—for the company, which sold more than $12 billion worth of cars that year, crushing its previous record, while becoming the first firm in US history to ring up $1 billion in profit; for the economy, which produced an all-time high in goods and services, with unemployment holding at less than 4.5 percent; and for Curtice personally, as Time magazine enshrined him on its cover as “Man of the Year.”
“Curtice was aware that the US, with its growing population, growing bank accounts, growing suburbs, and decentralized industry, could well afford to buy more new cars than it ever had before—if everyone had confidence that the boom would continue,” Time said. “As head of GM, with more income and more resources at his command than most sovereign nations, he was in the best position to do something about confidence. As a result of his $1 billion bet, confidence spread throughout GM’s own sizable world. The 514,000 employees in 119 plants in 65 cities in 19 states quit hoarding for layoffs and began buying—among other things, autos. By midyear most of the 17,000 Chevrolet, Pontiac, Buick, Oldsmobile, and Cadillac dealers in the US were selling more new and used cars than they ever had before.”
Like Kodak and GE, GM gave more as it got more. Its 57 officers and directors averaged more than $240,000 in compensation in 1955, about three-quarters of it in bonus income. Harlow Curtice led the way with more than $775,000—the biggest executive payday in America. Equal to nearly $7 million in today’s terms, it was a nice haul, to be sure. Still, it would pale in comparison to CEO pay in the decades to come, when executive compensation would become a hot-button social issue.
Even more notable for GM’s 100,000-plus white-collar employees, the company in 1955 made available a stock-purchase plan through which they could invest up to 10 percent of their annual salary. Half of the funds would go toward purchasing GM shares, with the company matching this part of the employee’s contribution; the other half would be parked in government bonds. “To philosophical economists, the offer—and the sheer magnitude of the dollar figures involved—are proof that the US is moving toward a new kind of capitalism, a system in which the old distinctions between owners and workers—investors and wage earners—will become more and more blurred,” Business Week wrote. In return for such benefits, GM told its salaried employees, it expected them to live up to their end of the social contract by “maintaining good health and mental alertness, using good judgment, being prompt and regular in attendance, cooperating with your fellow workers, and being loyal to GM—its people and its products.”
The company also tried to interest the United Auto Workers in a stock-ownership plan as the two sides sat down in March 1955 to negotiate their first contract since the Treaty of Detroit. But Walter Reuther had other ideas in mind for GM’s hourly workers. In the end, the UAW would win the kind of three-year contract that one would expect from a company on top of the world: an increase in the annual improvement factor, a higher night-shift premium, and souped-up pension, insurance, and medical benefits. But the really big prize was one that Reuther had been eyeing for several years now (and that the Electrical Workers attempted, unsuccessfully, to lock in during their own 1955 contract talks with GE): a guaranteed annual wage. “You know,” said Reuther, “we go to the bargaining table and management asks: ‘Don’t you ever get tired of asking for more and more and more?’ The answer is, as long as science and technology through the creation of abundance makes more not only economically just, but makes more and more economically necessary—the answer is yes, we are going in year after year and asking for more and more and more because we are entitled to more and more and more.”
As proposed by the UAW, the guaranteed annual wage would make it so that once an hourly worker had achieved seniority (something usually reached after ninety days of probation at the auto companies), he would begin to build up protection against future layoffs. By the time an employee had two years of seniority, he would have banked fifty-two weeks of guaranteed income “in amounts sufficient to maintain the same living standards as when fully employed.”
Reuther often framed the GAW in ethical terms. A guaranteed income, he said, “would put people above property, men above machines” by ending “the immoral double standard under which the worker, of all those who draw their incomes from industry, has the least protection against economic adversity.” But he had other aims as well. One hope was that corporate America would find the GAW put too much of a burden on them, and so business leaders would push the public sector to do more for those who had been laid off. To that end, the union liked to point out that unemployment compensation from the government would also count toward a worker’s guaranteed wage, giving companies an enticement to “reduce their liabilities by effectively working toward the improvement of state laws.”
Reuther’s other intention was to compel employers to provide stable, full-time work; any costs incurred under the GAW were essentially penalties for failing to do so. “The ideal guaranteed annual wage,” said Reuther, “would be one that never resulted in payment to any worker for time spent in idleness because the workers covered are kept steadily employed.” To show that its thinking wasn’t pie in the sky, the UAW cited companies that historically had guaranteed work to its employees during slack times—the consumer-products manufacturer Procter & Gamble, meatpacker Hormel, and shoemaker Nunn-Bush. Printers and brewers had utilized such work-stabilization plans as far back as the 1890s.
At GM, however, not only was there no such policy; individuals found themselves sidelined from work whenever there was a model change. Even during the go-go years of the 1950s, seasonality alone could translate into temporary layoffs for as many as 160,000 between March and August. “GM has never faced up to one responsibility to our people in connection with these production fluctuations,” conceded Verne Laseau, an employee-relations official at the company.
Nevertheless, most of those running GM—and their peers across American industry—had nothing but disdain for the GAW. “If we allow ourselves to accede to the principle of ‘jobless pay’ there is no telling how far such a thing would go in tearing down the spirit of ‘working for a living,’” said Donaldson Brown, the GM director. Even Peter Drucker, who advocated a “predictable income plan” to alleviate “the dread of the unknown and the deep feelings of insecurity under which the worker… lives,” thought that the GAW went too far. “The ‘guaranteed annual wage’ of union rhetoric,” he wrote, “is as empty a promise as one of immortality would be.” Quipped John Bugas, the head of industrial relations at Ford: “We’d be very happy if only somebody would come up with a good plan for GAP, or guaranteed annual profits.”
The opposition was, ultimately, too great for Reuther to overcome. But 1955 was a very good year, and he was not about to go away empty-handed. What Reuther was able to wring out—first at Ford and then at GM—was a partial version of the GAW. With supplemental unemployment benefits, the companies agreed to contribute five cents for every hour a person worked to a trust fund that could be accessed in case of layoff for up to twenty-six weeks. Combined with state benefits, the SUB provided enough for a worker to receive 60 to 65 percent of his regular pay for as much as half a year. For GM, the cost of the deal was minimal considering what it offered: the promise of three more years of industrial peace.
As was typical whenever GM or Ford took action, other companies followed along: Chrysler and several smaller automakers, along with Continental Can and American Can, the maritime shipping industry, and by 1956, Big Steel adopted the SUB as well. Even so, the SUB would come to protect only 2 percent or so of the American workforce.
Despite the SUB’s limited reach, a number of business groups caterwauled. The president of the National Association of Manufacturers suggested that any vestige of the guaranteed wage “could have seriously damaging effects on the American economy, perhaps leading to a socialistic state.” The National Economic Council Inc., a conservative group, said “Reuther’s GAW-ful fraud” was “uneconomic and can spell only disaster for the worker, for business, and for the nation.”
At GM, executives struggled to make sense of the reprobation; in their eyes, it wasn’t like they had given in to Reuther’s original GAW. “Anybody who draws any conclusions that Ford, General Motors, or others have met the demands for a guaranteed annual wage simply… can’t read English correctly,” said Alfred Sloan. Even Reuther admitted that SUB was no GAW. “You never get everything,” he said. (He also was upset that some companies, such as Pittsburgh Plate Glass, had started instituting a new form of SUB that required each worker to fund his own reserve account and “provide for his own security”—an early taste of individual savings mechanisms, like 401(k)s, that would become common in the decades ahead.)
But what shouldn’t be lost in all the downplaying was that a national debate over a guaranteed wage had taken place, one that had engaged both business executives and blue-collar workers. It had put Reuther on the cover of Time magazine with a story headlined “The GAW Man.” And partial plans had been implemented. As with the fight over “full employment” in the mid-1940s, the fact that America would earnestly contemplate a guaranteed wage for workers—one served up not by government but by the private sector—indicated how amazingly far the social contract between employer and employee had come. What was yet to be seen was how far it could go. But few could be faulted in the halcyon year of 1955 if they thought that the Golden Age of American business and, by extension, the Golden Age of America might just roll on forever.