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The Danger of Privatizing Government Support Programs

November 7, 2011, 11:36 am | Posted by Tara Culp-Ressler

A recent article on New Deal 2.0, a project of the Roosevelt Institute, highlights the fact that even though Bank of America has rescinded its threat to instate a $5 fee for its debit cards, big banks continue to profit from debit card use. Since benefits from government programs like unemployment aid and food stamps can now be administered through prepaid debit cards, rather than cash, users are running up fees for using these cards at banks like JP Morgan or Bank of America–and big banks are reaping the rewards. As the New Deal 2.0 reporter explains:

“Big banks are making a tidy profit by acting as middlemen for what should be publicly provided services. In just three months, from July and September, Ross reports that U.S. Bancorp, which provides unemployment benefit debit cards, made $357 million in revenue in the division that handles the cards. That amount is more than one-fourth of its total revenue. I previously reported that JP Morgan made $5.47 billion in net revenue for most of last year in the division that handles food stamp cards, and it was up two percent is the last three months of the year. The head of the division himself has said, ‘Volumes have gone through the roof in the last couple of years… This business is a very important business to JPMorgan in terms of its size and scale.’”

In addition to banks profiting off of prepaid debit card fees, some of them are also getting paid directly by state governments to administer these social safety net programs. Overall, this system results in big banks profiting from hard economic times that strain American families–as more Americans enroll in food stamp programs, banks collect more money from fees and more money from the state.

But, as the article points out, the immoral nature of benefiting from the country’s economic hardship isn’t the only problem here. The larger issue points to what political scientist Suzanne Mettler refers to as the “submerged state.” Mettler uses the term to describe government programs that are increasingly manifesting themselves in the private sector–such as government subsidized loans offered through private banks–thereby obscuring the direct role of government. Mettler’s research shows that majorities of people surveyed about the role of government in their lives claimed to have “never used a government social program,” despite the fact that they had actually received government aid through the submerged state. Home mortgage interest deduction, student loans, and social security benefits are among the submerged state programs that top the list. As Mettler explains, “Polices of the submerged state obscure the role of the government and exaggerate that of the market, leaving citizens unaware of how power operates, unable to form meaningful opinions, and incapable, therefore, of voicing their views accordingly.”

To be fair, in as much as this submersion helps reduce the stigma that prevents some people in need from taking advantage of government support, it probably has some short-term benefits. However, continuing to disguise social programs as commercial goods won’t address the root of that misguided stigmatization, the pervasive aversion to so-called “big government.” As current political debates hinge on the role of government in protecting the most vulnerable members of society, it’s critical to recognize all of the largely invisible–and critically important–ways that social safety net programs aid the American people. Bringing the submerged state to light may help the public see the positive role that government can continue to play in their lives, especially with the current economy still reeling from the effects of recession, and reframe the larger debate about social programs. Perhaps our lawmakers will start to get it, too.

Photo Credit: Tray, Flickr

H/T Think Progress

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