Strengthening the social fabric

AMERICANS were ready for Ronald Reagan's feisty message to big government in 1980: ``Thus far and no farther.'' There was a widespread feeling across the country that New Dealism had run its course and that it was time to scale back expectations of what government could accomplish in the social arena. But as George Bush prepares to take office, the mood has visibly changed. The public appears to feel that, after a consumption binge revved up by a long period of economic growth, the time has come to address a string of neglected problems and build a more humane society. According to opinion polls, the pendulum is again swinging to support for somewhat more government activism, though how much the new president will be able to do in the face of budget constraints is an open question.

Economists and social critics point to many areas of distress in a country that prides itself on having the largest economy in the world and generally high standards of living:

Some 32.5 million Americans, or 13.5 percent of the population, live below the poverty line. More than one child in five is born poor.

The gap between the rich and the poor is growing wider and a permanent underclass of the uneducated and unskilled exists alongside the growing ranks of well-to-do.

The nation faces a crisis in low-cost housing. The share of young people aged 30 to 34 who own their own homes dropped from 61 percent in 1980 to 53 percent last year. Homelessness has increased.

With the ranks of the elderly growing and long-term health care costs soaring, the medicare program is headed for trouble.

Although some forms of drug use have stabilized, cocaine still floods the inner cities with alarming costs in shattered lives and increased crime.

Environmental ills, from acid rain, ozone depletion, and global warming to contaminated water supplies, toxic and nuclear wastes, and ravaging of wildlife refuges, beg for attention.

The public school system continues to graduate many young people who can scarcely read. Some 23 million adult Americans are functionally illiterate. Millions of workers are untrained for high-tech jobs.

Much of nation's infrastructure - highways, bridges, waste-treatment plants - is deteriorating.

Benign neglect

``Neglect of our internal needs is undermining our future,'' Felix Rohatyn, a partner in the investment banking firm of Lazard Fr`eres & Co., told this year's graduates of the Wharton School at the University of Pennsylvania. ``The role of government and the behavior of a great, modern world power consists of more than just presiding over deficit reduction. It consists in investing for the future to be competitive and to provide op- portunity for all its citizens.''

Even corporate leaders who applaud the Reagan administration's assault on government intervention express concern about the ``benign neglect'' of social needs.

``On the economic front Reagan did restore faith in the importance of the market and market forces,'' comments Robert Hormats, vice-chairman of Goldman, Sachs International. ``But in so doing he led people to believe that the market could cure all our ills. We know it can help produce growth, but it has not been able to deal with the social infrastructure.''

Contrary to early fears, Mr. Reagan did not do away with the welfare state. It remains very much intact, largely because the major elements of it are popular middle-class entitlements, including social security, which are difficult to touch politically. The medicare program was actually expanded as Reagan in 1986 supported legislation protecting the elderly against high-cost catastrophic illness. As a result of this and other factors, the elderly as a group are better off today than eight years ago.

``He left the major building blocks of the New Deal because he could not do anything about them,'' says Stuart Eizenstat, who was President Carter's domestic policy adviser.

But Reagan made every effort to reverse the trend toward ever-expanding welfare programs. Eligibility standards were tightened in the Aid to Families with Dependent Children program, eliminating almost half a million families from the welfare rolls and reducing benefits for hundreds of thousands more. Over 1 million people lost their eligibility for the food stamp program. The Comprehensive Employment and Training Act program was replaced with a smaller job-training program.

By stressing that welfare should be limited to those who could not work, Reagan helped reshape public thinking about welfare programs. Even the new welfare reform act mandates work or job training for a certain segment of welfare recipients.

``If you believe that work and responsibility is good and positive, you have to give Ronald Reagan credit for some of the change in attitudes and behavior,'' says Douglas Besharov, an American Enterprise Institute analyst. ``He'll be criticized for the fact that benefits have not increased. But even congressional Democrats are not talking about increasing benefits, and that's a part of his legacy - the turnaround from cash maintenance to what someday will be educational work programs.''

Social inequality grows

Reagan officials staunchly defend the administration's record in aiding the poor. Expenditures on social welfare have increased, they say, with benefits now better targeted on the ``truly needy.'' Also, officials contend, a strong economy has created millions of new jobs, and the 1986 tax reform took millions of poor off the tax rolls.

But it troubles many social analysts that income inequality, that is, the gap between rich and poor, is higher than at any time since World War II.

Frank Levy, an economist at the University of Maryland, finds that between 1973 and 1986, the middle class, families earning $20,000 to $50,000 annually, shrank as the proportion of families earning more than $50,000 rose (because of two earners in a family). The share below $20,000 remained the same since 1973. (Mr. Levy's figures are in constant dollars.)

But the share of families earning less than $10,000 has grown, says Levy. Such families accounted for 10 percent of all families in 1973 and for 16 percent in 1986. Because of the enormous increase in families headed by single women, says Levy, about one-sixth of all children are now in families with incomes under $10,000.

``You have to be an optimist to say that the problem will care for itself,'' he says.

During Reagan's first term, the poverty rate rose dramatically, largely because of the recession. Although it has begun to inch downward, it remains above the level of the 1970s.

``Reagan ran a national experiment - could a robust, growing economy serve as an antipoverty strategy,'' comments Sheldon Danziger of the Institute of Public Policy Studies at the University of Michigan. ``The answer is no. He left a large portion of the poor behind.''

The ``feminization'' of poverty, that is, the fact that about half of all poor Americans live in female-headed households, primarily single or divorced mothers with children, is the most disturbing trend.

``It's not just economic change and the competition with Japan and the absence of jobs, but a momentous change in our culture,'' says Mr. Besharov. ``It's very hard for a single mother with children to earn a decent living.... The next item on the agenda will be to figure out how to help her without hooking her on welfare. We just don't have an answer.''

Low-income Americans have also been affected by the assault on federal housing programs. The Reagan administration, in line with its philosophy that only the most needy should receive government help, sharply reduced the low-income housing budget and shifted the focus away from subsidies for new housing to rental assistance.

Today experts cite a growing shortage of low-rent apartments and deterioration of the public-housing stock. As subsidies and restrictions on public housing expire, thousands of units are expected to be converted to more profitable uses or shut down. With homelessness growing and even middle-income buyers squeezed by home ownership costs, the new administration will face mounting pressures to address these concerns.

``America is increasingly becoming a nation of housing haves and have-nots,'' a Harvard Joint Center for Housing Studies report stated last spring.

Drug abuse: out of control

Another domestic problem careening out of control is drug abuse. No president has highlighted the problem or spent more money combating it than President Reagan. Spending on drug-law enforcement rose from $800 million in fiscal 1981 to $2.5 billion in fiscal 1988. Seizures have risen dramatically.

Yet despite efforts to interdict drugs and prosecute traffickers, the supply of cocaine, the most commonly used hard drug, has grown. Drug experts believe the battle has to be intensified on the demand side, with better education and treatment - areas where Reagan has drastically cut federal programs. According to government estimates, there are more than 6 million addicts and facilities to treat only 250,000.

``The next president has to take the lead,'' says James Cannon, who was President Ford's chief domestic adviser. ``Nancy Reagan has had an enormous effect among young people but less among adults that use it. The problem is that middle-class Americans are buying it.''

Among the next president's top priorities will also be urgent educational needs. It is estimated that more than half of the new jobs created by the year 2000 will require education beyond high school. Tomorrow's workers will need to learn new skills quickly and adapt to fast-changing technologies.

Yet an increasing proportion of those entering the work force will be educationally disadvantaged. According to government studies, almost 26 percent of all students drop out before graduating from high school. College costs are rising faster than inflation, discouraging many from seeking higher education.

The `new federalism'

In the face of this and other pent-up social needs, pressures are mounting for government action. Reagan's prescription for government involvement was to shift responsibilities and control of many programs to state and local governments. In fact, one of the most significant and probably most enduring legacies of the Reagan years is the ``new federalism,'' a decentralization reflected in a surge of activism at the state and local level.

Necessity has driven the change. Many programs that transferred income from the federal government to the states were either ended or curtailed. Grants-in-aid that had been targeted on specific programs were consolidated into block grants to give states more flexibility. General revenue sharing, which distributed more than $4 billion annually to cities and states, was halted in 1986. Federal job-training programs were reduced.

Whether the President expected or wanted to energize the state governments is debatable. But that has been the net result of his policies. Led by innovative, dynamic governors, many states across the country are reforming education and health systems, experimenting with workfare programs, promoting industrial development, and building new roads and other public works. They are cutting deals with foreign governments to attract foreign investment and expanding regulation into areas untouched by Washington.

``There has been an important change in the mind-set, and Reagan is responsible for it,'' says Brookings Institution economist Robert Reischauer. ``Whenever a problem arose the first reaction was to look to Washington first. But a lot of states have shown initiative, and there is now a better balance in the sense that we see that states can do something.''

But the states cannot do everything. Many already feel overloaded. As a new administration begins, there appears to be a growing consensus that the federal government will have to play a more active role than it has these past eight years. But in light of the budget deficits, that role may be more a matter of giving policy guidance - in education, for instance - than pouring money into new programs. Some see a need for more cooperation between government and the private sector, with business asked to underwrite such needs as health insurance.

Hard choices are going to have to be made, economic analysts say. Few people think it possible to address the social and economic agenda without finding new sources of revenue. And, if the budget is to be brought into balance, leaders on both ends of Pennsylvania Avenue will have to muster the courage to slow the growth of middle-class entitlements and restrain defense spending.

Ultimately, economists say, it is a matter of investing in the future - of creating a social environment that benefits all Americans and enables them to compete in the world with confidence and zest.

Next: Diplomacy in a multipolar world.