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.

Start your day with The Independent, sign up for daily news emails
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Telesales / Telemarketing Executive - OTE £30k / £35k plus

£18000 - £35000 per annum: Recruitment Genius: This company specialises provid...

Austen Lloyd: Commercial Property Solicitor - Exeter

Excellent Salary: Austen Lloyd: EXETER - A great new opportunity with real pot...

Austen Lloyd: Senior Private Client Solicitor - Exeter

Excellent Salary: Austen Lloyd: EXETER - An outstanding senior opportunity for...

Sauce Recruitment: Retail Planning Manager - Home Entertainment UK

salary equal to £40K pro-rata: Sauce Recruitment: Are you available to start a...

Day In a Page

HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

Scientists hail daily pill that protects against HIV infection

Breakthrough in battle against global scourge – but will the NHS pay for it?
How we must adjust our lifestyles to nature: Welcome to the 'Anthropocene', the human epoch

Time to play God

Welcome to the 'Anthropocene', the human epoch where we may need to redefine nature itself
MacGyver returns, but with a difference: Handyman hero of classic 1980s TV series to be recast as a woman

MacGyver returns, but with a difference

Handyman hero of classic 1980s TV series to be recast as a woman
Tunnel renaissance: Why cities are hiding roads down in the ground

Tunnel renaissance

Why cities are hiding roads underground
'Backstreet Boys - Show 'Em What You're Made Of': An affectionate look at five middle-aged men

Boys to men

The Backstreet Boys might be middle-aged, married and have dodgy knees, but a heartfelt documentary reveals they’re not going gently into pop’s good night
Crufts 2015: Should foreign dogs be allowed to compete?

Crufts 2015

Should foreign dogs be allowed to compete?
10 best projectors

How to make your home cinema more cinematic: 10 best projectors

Want to recreate the big-screen experience in your sitting room? IndyBest sizes up gadgets to form your film-watching
Manchester City 1 Barcelona 2 player ratings: Luis Suarez? Lionel Messi? Joe Hart? Who was the star man?

Manchester City vs Barcelona player ratings

Luis Suarez? Lionel Messi? Joe Hart? Who was the star man at the Etihad?
Arsenal vs Monaco: Monaco - the making of Gunners' manager Arsene Wenger

Monaco: the making of Wenger

Jack Pitt-Brooke speaks to former players and learns the Frenchman’s man-management has always been one of his best skills
Cricket World Cup 2015: Chris Gayle - the West Indies' enigma lives up to his reputation

Chris Gayle: The West Indies' enigma

Some said the game's eternal rebel was washed up. As ever, he proved he writes the scripts by producing a blistering World Cup innings
In Ukraine a dark world of hybrid warfare and murky loyalties prevails

In Ukraine a dark world of hybrid warfare

This war in the shadows has been going on since the fall of Mr Yanukovych
'Birdman' and 'Bullets Over Broadway': Homage or plagiarism?

Homage or plagiarism?

'Birdman' shares much DNA with Woody Allen's 'Bullets Over Broadway'
Broadchurch ends as damp squib not even David Tennant can revive

A damp squib not even David Tennant can revive

Broadchurch, Series 2 finale, review
A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower: inside the mansion of Germany's 'Bishop of Bling'

Inside the mansion of Germany's 'Bishop of Bling'

A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower