Friendly Societies: Voluntary Social Security; J. Chodes

Various forms of friendly societies have existed since ancient China, Greece, and Rome. In Britain, they arose out of the guild system. Daniel Defoe wrote in 1697 that friendly societies were "very extensive" in England. In the mid-18th cen tury, as the Industrial Revolution hastened the growth of British towns, the friendly society sys tem became well established. Sometimes they were called fraternal societies, mutual aid soci eties, or benefit clubs. Similarorganizations devel oped in the United States in the 19th century. The lengthy success of the friendlies reflects that they were much more than benefit institu tions. Friendlies were voluntary self-help associa tions, organized by the members themselves. The workers regarded the friendlies with great pride, John Chodesis the Vice Chairofthe LibertarianPartyof New York City. as their own creation. More than just a means of support, they brought independence from the degradation of charity.

Friendlies served social, educational, and eco nomic functions, bringing the idea of insurance and savings to those who might not have planned for the future. The social aspect of the friendlies should not be underestimated. Their meetings included lectures, dramatic performances, and dances both to inform and to entertain members. Since members took turns at managing the friendlies, the typical workingman developed executive skills that could prove valuable in his everyday employment. Nineteenth-century commercial insurance com panies couldn't compete with the friendlies, so they focused on business clients and the rich. Workers were suspicious of the companies because of their numerous failures and scandals. Besides, insurance rates were higher than those the friendlies charged for comparable benefits. The reason? Friendlies didn't solicit. Thus, there were no salesmen and no commissions. Also, the member-managers worked on a volunteer or token salary basis.2 TypesofFriendlies Friendlies usuallywere formed by people with a common denominator, like the same occupation or same ethnic, geographic, or religious back ground. Thus, there were the Czechoslovak Soci ety of America, Providence Association of the Ukranian Catholics in America, Locomotive 96 THE FREEMAN • MARCH 1990 Engineers Mutual Life and Accident Insurance Association, and the Fraternal Society of the Deaf.3 Unlike today's compulsory and standardized state-run plans,friendliesprovideddozensof ben efit packages.Each person created his own plan.

One couldretire at 60 or even50 or get unemploy ment or illnessaid equal to one's own wages. All that was required was higherpremiums.4 Originally,friendliesinsured against "disability to work,"withlittledistinctionbetweenaccidentor sickness.This also came to mean "infirmity,"i.e., insuranceagainstold age. Mostfriendliespaidfor a doctor'sservices,burialexpenses,annuitiesto wid ows, and educationalexpensesfor orphans. They built old-agehomes and sanitariumsfor members and their families.Even in their early stages,they offered unemploymentbenefits for those in "dis tressed circumstances"or "on travel in search of employment." The most common pay-outs were for maternityleaveand retirementpensions.5 1. DividingSocieties These were among the earliest British friendlies,developingin the 1750s. After making payments for specified"events" (sickness,retire ment, death, unemployment), the society would dividethe balance of its fund amongits members at the end of the year.The disadvantageofthiswas the constantneed to recruityoungpeople because these societies had no reserves, and the bulk of their claimstended to comefrom older members.

Still their appeal was considerable. Each con tributor receiv~d an annual return even when thingswere goingwell.The feeswere uniformand easy to calculate. They used no actuarial tables (whichwere consideredmorbidfor predictingthe odds of sickness and death). The contributions were higher than at other types of friendlies,but the membersgotbacka lumpsumat the end ofthe year. Dividingsocietiescombined insurance with the idea of savings.As such, they advancedloans to members. A good exampleof a dividingfriendlywas the UnionProvidentSickSociety.In 1880itsrulespro videdthat no one wouldbe admitted under age 16 or over 31. A 12-man executive committee was rotated among the society's members. Meetings were held "every quarter night." There were a smallentrance fee and a smallcontributionevery two weeks. Eighty percent went into the fund, 20 percent toward management. Sick benefits were roughly 25 to 33 percent of weekly wages for a year,and 15 to 20 percent for the remainder of the illness.For membersover the age of 20, contribu tions and benefits were double. The surplus was divided each December, the members receiving shares in proportion to their contributions.

Fivepercent of the Union Provident'smembers were self-employedtradesmen or manufacturers who didn't need the society'shelp.They had been workingmen when first admitted, but still remained to showtheir moral commitmentand to donate their managerialskillsto the society. Friendliesthat did not dividegave higher bene fits. One examplewas the Hitchen Friendly Insti tution. It provided benefits equal to full pay for a year to a member who was out of work due to ill ness,and halfpayfor the remainderof the illness.6 2. Deposit Societies An Englishclergyman,Reverend SamuelBest, originated this more sophisticated system. He introducedthe conceptofsavingsto earlyindustri al workers.The depositsystemconnectedthe sav ings accountwith an insuranceaccountso that the benefitsforsicknessor distresswerederivedpartly fromeach.The memberhad a specificcreditin the insurancefund based on his savings,but the claim ceasedas soonas hisownfundwasexhausted.This promoted thrift by encouraging the member to add to his savings,not to drain off the account.

If a person remained healthy throughout his working life, when he retired he would have a large amount in his personal account.With much sicknessand exhaustedsavings,the sicknessor dis tress benefits ended, but were replaced by "grace pay,"whichcouldbe drawnfor as long as benefits had been drawn.Grace pay related to the amount of savings. The deposit systemhad major advantagesover others.It did not use actuarialtables,whichwould forcehighercontributionson the elderlyor sick,or exclude them from membership. Admission was withoutlimitation.? 3. BurialSocieties This was the one area where commercialinsur ance companies competed successfullybecause the "event" (death) was easyto verifyand actuar ially predictable. For a long time burial societies were illegalbecausethey "gambledon death."8 FRIENDLY SOCIETIES 97 4. FactorySocieties There is a widespread belief that the 19th-cen tury factory owner was heartless, providing no benefits for his workers. That picture is false, as evidenced by this report from an 1891 study of workingmen's associations: "There is scarcely a single large establishment . . . which does not make provision for its employees, whether acci dent, sickness or burial. The management is in the hands of the workingmen, while the firm acts as treasurer, exercising some supervision, and repre sents a moral influence through its chief officers.

Membership was supported by the firm. These subsidies gave substantial benefits for small con tributors."9 Another study noted that "the mill owners have created a fund, applied to the encouraging of women to cease work for a sufficiently long time before and after the birth of their chil dren to prevent injury to the constitutions of moth er or infant."l0 s. BuildingSocieties Building societies were workingmen's financial institutions. They lent money to members for the purpose of buying a home. The "terminating" type ceased existence when all the members had bought a residence. The "permanent" type had more of the characteristics of a contemporary bank. These societies had a powerful influence until fairly recently. Between 1918and 1939,half of the 98 THE FREEMAN e MARCH 1990 homes built in England were purchased with the aid of building society funds.11 6. Fraternal Societies "Fraternals" were more like life insurance com panies in that they tended to focus on death bene fits and pensions. Because of this, in the long run they were more easily absorbed by the large com mercial insurance organizations.

There were dozens of variations of fraternals. Those with branches (or lodges) were commonly called "affiliated" or "federated" orders, with divi sions of power between the central administration and the regional branches. Those without branch es were referred to as "unitary" societies.12 Downfallof the Friendlies The friendlies did not collapse financially. Nor did they disappear because they failed to do their job for working people. They declined because of government action. British aristocrats feared the friendlies because they viewed their huge contributor funds as a means for political subversion. At the end of the 18th century, the aristocrats, dreading the political power of the united workers, moved against them. The Combination Acts, the Illegal Societies Act, and the Seditious Meetings Act were aimed at pre venting workingmen's groups from forming. The one legal loophole was the Rose Act of 1793, which allowed "societies of good fellowship for security" to exist.13 Eventually, a steadily growing web of uniform state-mandated benefits first duplicated, then absorbed the "dangerous" friendlies.

e1793: State supervision of friendly societies' management and rules. -1818: First bill to set up a standard of "scientif ic" contribution rates. This made the fees more uniform, weakened competition, and led to the gradual absorption of the smaller friendlies by the larger. e1870-75: A royal commission studied the friendlies. Parliament created a rival state-run sys tem, focusing on the most predictable "events": burial and retirement benefits. -1911: National Insurance Act. State benefits were expanded, financed by compulsory contribu tions from employer and employee. Via subsidies, the friendlies were led to administer the state plan. Claims for benefits had to be filed with both sys tems. e1946-48: The Labour government ended the National Insurance Act subsidies and bypassed the friendlies, structuring a complete and exclusive administrative machine of its own. The loss of funding and higher state benefit rates drove many friendlies out of existence. 14 In the United States, the government was less worried about the friendlies. The first major legis lation, in 1893, was promoted by the friendlies themselves. They lobbied in Washington through the National Fraternal Congress. This organization represented 100 friendly societies with 6 million members and $7 billion in insurance funds. It pressed for passage of the "Uniform Bill," forcing all new friendlies to adopt the same mortality rates.

This would put them at a competitive disadvantage to the established societies. However, instead of driving off the upstarts, this legislation blurred the distinction between friendlies and commercial life insurance companies. Legally they were grouped together. As a result, the commercial insurance companies gradually absorbed the friendlies, leav ing consumers with fewer choices.15 D 1. Thomas P. O'Neill Jr., "When Government Was a Friend in Need" (The New York Times,May 16, 1986),p. A-35. 2. Walter Basye, Historyand Operationof FraternalInsurance (Rochester:The Fraternal Monitor,1919),pp. 41-52. 3. Richard DeRaismes Kip, FraternalInsurancein the United States(Philadelphia:CollegeOffset Press,1953),p.lO. 4. Richard Price, Observationson ReversionaryPayments(lon don:T. Caldwelland W. Davis,1803),pp.141-42. 5. J. M. Baerneither, EnglishAssociationsof Workingmen(lon don: Swansonnerchemand Co., 1891),p.I64.

6. Ibid.,pp.I71-78. 7. William Henry Beveridge, Voluntary Action (New York: Macmillanand Co., 1948),pp. 45-50. 8. Ibid.,pp. 53-58. 9. Baerneither,pp. 201-05. 10. MichaelCross, editor, The Workingmanin the 19th Century (Toronto:Oxford UniversityPress, 1974),p. 75. 11. Beveridge,pp. 96-101. 12. Basye,pp. 122-32and Beveridge,pp. 34-36. 13. Beveridge,p. 63. 14. Ibid., pp. 63-84. 15. Basye,pp. 113-22.