How to profit from the poor

Corporate America is queueing up to privatise the welfare system, reports John Carlin from Washington

American big business, endlessly imaginative in its pursuit of new markets, has identified poverty as the latest opportunity for profit and growth.

Lockheed Martin, the giant of the international armaments industry, is bidding to take over a large chunk of the social welfare business from the government of the state of Texas. Lockheed, in partnership with IBM, is battling for the chance to minister to the needs of poor Texans against two other corporate bidders, Electronic Data Systems, the basis of Ross Perot's fortune, and Andersen Consulting.

In the past, private American companies have played a supporting role administering state welfare programmes, notably in job training schemes and electronic information gathering. But the Texan project, which has the full blessing of Governor George Bush Jr and the state's Department of Human Services, contemplates privatising the very guts of public welfare. The winning company will be entrusted with the critical task of determining the eligibility of candidates for health care, food stamps, disability support and cash benefits for the children of unemployed parents.

Executives of the three bidding corporations have variously described the plan as "radical", "revolutionary", "challenging" and "transformational". Texas, as they see it, is opening the door to a new multi-billion dollar industry that in time will span the entire United States. "They believe this will be a model for the rest of the country," said Bruce Bower, a lawyer who specialises in welfare issues at the Texas Legal Services Centre. "They're licking their chops."

No company is licking its chops with more eager anticipation than Lockheed. In order to seize the initiative early, Lockheed has been busy in recent months hiring the best and the brightest from the public welfare sector. Gerald Miller, director of the Michigan Family Independence Agency and president of the American Public Welfare Association, will take over next month as senior vice-president of Lockheed's "welfare initiatives" division.

"I see this as the future of welfare reform," says Mr Miller, described in some circles as the "Michael Jordan" (the basketball superstar) of the welfare world. "The private sector will ultimately run these programmes. The era of big government is over."

Mr Miller was picking up on a phrase President Clinton used during his State of the Union address in January. Mr Clinton caused enormous consternation last month within his own Democratic Party when he acted on his rhetoric and signed a Republican-sponsored welfare reform bill that put an end to 60 years of entrenched guarantees of assistance to America's poor. Among other things, the bill imposes new restrictions on the welfare budgets the states receive from Washington.

Faced with the challenge of streamlining and overhauling an already cumbersome welfare programme, Texas has been the first to succumb to the temptation of handing over responsibility to the private sector. But what is in it for big business? If Lockheed is branching out, possibly as insurance against an outbreak of world peace, how will tending to the poor benefit their bottom line?

This is how it will work in Texas. The welfare eligibility operation currently up for grabs is calculated to cost the state $560m (pounds 360m) a year. That amount will be handed over the the winning bidder, who will strive - while rendering the appropriate legally stipulated services - to reduce costs below $560m. Should they succeed, they will pocket the difference.

The Texas Department of Human Services, whose present functions will be ceded almost entirely to the chosen company, said last week that it did not expect the margin to exceed 10 per cent. But Ron Jury, a spokesman for Lockheed, said that the company estimated the savings from privatisation would run at between 10 and 40 per cent of the total. The US as a whole spends $28bn a year on determining welfare eligibility alone, according to Mr Jury: the potential profit, should the Texan experiment convince the rest of the country, explains the enthusiasm of big corporations to venture into this uncharted business terrain.

Not everyone shares their eagerness, however, or believes that corporate profiteers can be relied upon to protect the interests of the needy. Leading a chorus of opposition to the planned venture is the Texas State Employees Union. "This is to shred the social contract written in the Thirties that says we in society have a collective responsibility to the weakest among us," said Mike Gross, one of the union leaders. "We see it as a very serious attack on the people of Texas who need these programmes, as well as on our own members, many of whom are not well paid but do this work because they believe in it, because they want to do some good."

Mr Gross said that at present the Texas Department of Human Services had 466 offices around the state employing more than 14,000 people. "We're certain there will be fewer offices, meaning that fewer poor people will be able to make their welfare claims face to face. And we hear talk of 50 to 80 per cent staff reductions. However the figures turn out, there is no doubt that they will be cutting down what is already a bare-bones system."

As for Lockheed, a $30bn company with a backlog of defence contracts worth $50bn, it seems curious that they of all people should be leading the privatised welfare pack. The corporation was bailed out by the government in the 1970s and 1980s, when it was on the point of bankruptcy. Today it is one of the main beneficiaries of a remarkable decision by Congress to grant the Pentagon $10.4bn more than it requested, even as the very same Congress, driven by a bipartisan zeal to balance the federal budget, cuts government spending for the poor. Lockheed is also involved in a merger with two former competitors which is expected to result both in $1.6bn in government subsidies and 30,000 redundancies.

Exquisite as the ironies are (Russell Baker of the New York Times noted that Lockheed makes billions selling weapons to the very "big government" it is seeking selectively to undermine), it does not necessarily follow that private business will do a bad job of running welfare.

"When you have private companies involved, they have a stake in that programme continuing, so their presence may actually fortify those programmes against attacks by those who would cut them back," said Mr Bower, who has studied the welfare privatisation scheme more closely than most. "Think of all the military programmes that have lived on that would not have lived on, had big companies like Lockheed not been there exercising their power." Nor is he as gloomy as the unions about employment prospects for welfare workers under privatised ownership, and is keeping an open mind as to whether the service they provide will prove to be more or less efficient than the existing one.

But he did note that there were dangers in private companies playing the role of welfare gatekeepers. "The key," he said, "will lie in the culture business brings to welfare. The question will be whether they encourage their staff to do all they can to help applicants overcome barriers to welfare eligibility, or whether the orientation will be to minimise welfare payments."

The question, in other words, is whether under the new dispensation the poor will remain people, or whether they will be reduced to tradeable commodities, the cannon fodder of the brave new corporate marketplace.