Welfare profiteers.

Now that the federal government has scrapped the old welfare system, corporations are getting ready to cash in. Arms contractors and other big businesses are speculating that there's money to be made in the new welfare-reform law, if they play their cards right.

In late March, representatives from Lockheed Martin, Andersen Consulting, Electronic Data Systems, and a few smaller firms came to Washington, D.C., for a conference entitled "Welfare Privatization: Government Savings & Private Earnings," at the Park Hyatt Hotel.

"Capitalize on the massive growth potential of the new world of welfare reform," a promotional flier for the conference proclaimed. "Gain a leading edge in the market while it is in its early stage."

About 100 participants paid $895 a head to attend. Many were state and local government officials. They got to hear private companies market their wares--the newest methods to streamline bureaucratic systems, and "job-readiness" seminars guaranteed to get people off welfare and into work.

Company reps circulated among the public officials, handing out cards, while speakers from the Cato Institute and the Heritage Foundation extolled the virtues of a free-market approach to welfare reform.

Welcome to the post-welfare state where military contractors, consulting firms, and eager entrepreneurs are competing for the revenue generated as federal and state governments slash aid to the poor.

William Eggers, director of privatization and government reform for the Reason Foundation, kicked off the conference, which was sponsored by the World Research Group of New York City. "I know the conference fee was not cheap," the tan, boyish-looking Eggers told us. "But as a government watchdog, I can tell you it is an efficient use of resources." When the conference is over, Eggers said, "you can translate all your new-found knowledge into millions of dollars of savings, if you're a public entity, or, if you're a private firm, into business opportunities." Welfare, Eggers explained, is "the hottest area in the country for privatization."

The new welfare law may spell economic disaster for poor families: The Urban Institute estimates that the law will push some 2.6 million Americans below the poverty line over the next six years. The law will take an especially painful toll on immigrants, disabled children, and poor working parents, who will be the first to feel the effects of cuts in food stamps, disability insurance, and cash assistance. But corporations may be the big winners. Lockheed Martin, Electronic Data Systems (EDS), and Andersen are currently competing for a government contract in Texas worth an estimated $2 billion over five years to administer the state's welfare-to-work program, as well as parts of the food-stamp, Medicaid, and unemployment-compensation programs.

How can the welfare law, which limits public assistance for the poor, translate into corporate profits?

By ending the federal entitlement to welfare, and giving states a fixed amount of funding to administer public-assistance programs, the new system offers a unique opportunity for welfare agencies to "save" money, Robert Rector, a welfare specialist from the Heritage Foundation, explained.

"If you're incompetent and you balloon your caseload upward, you don't get any more money," Rector said. "But a state that cuts its welfare caseload is going to be rolling in the dough."

Here's where the profit motive comes in. Under the new federal law, states get to keep the portion of their federal welfare money that they don't spend. The fewer clients they have, the larger the savings. Some states are passing along that savings to private contractors, who can make a lot of money by not serving the poor.

Rector used the example of Wisconsin, which has experienced a large drop in its welfare caseload over the last two years. The number of people collecting benefits in Milwaukee has dropped by one-third since 1995. "As we speak, in Milwaukee the caseload is dropping 2 percent a month," Rector said. He showed a chart, illustrating the number of people on welfare in Wisconsin with a steeply declining line. "It is far, far easier to reduce welfare-dependency than anyone imagined." he said.

How did Wisconsin do it? The state made county welfare agencies compete with private firms. If county agencies didn't cut caseloads by 25 percent in the first year, they lost their contracts. Because each agency gets a fixed sum of money from the state, "the organization now has a financial stake in the outcome," explained Jason Turner, a state welfare official from Wisconsin who followed Rector to the podium. Agencies know that to save money, they have to "get people into unsubsidized employment as quickly as possible," Turner said.

But if Wisconsin proves that it is easy--and profitable--to cut people off welfare, the state also points to the potentially disastrous results for the poor in the drive to save money by reducing the welfare rolls.

No one really knows what has happened to all those people who left the welfare rolls in Wisconsin. The state has no system for tracking them. But a recent article in the Los Angeles Times points out that there has been a sudden jump in homelessness in Milwaukee. There are 900 people currently crammed into the city's shelters--a 30 percent increase from last year. Advocates attribute the rise in homelessness to welfare reform. A reporter for the L.A. Times spoke with several mothers who showed up in Milwaukee's homeless shelters after being evicted when they lost their AFDC checks. "What we're starting to see is the erosion of the social safety net," Joseph Volk, chairman of the Milwaukee Emergency Shelter Task Force, told the newspaper.

Welfare reform may also exacerbate child poverty. At 51 percent, the poverty rate for African-American kids in Wisconsin is among the highest in the nation, second only to that of Louisiana. But this does not worry Robert Rector.

"There is a liberal myth that poverty is bad for kids," he declared at the privatization conference. Welfare dependency and illegitimacy, not poverty, are the real problems, he said.

If poverty is not a concern, ending welfare is just a matter of kicking people off the rolls. It's an easy business.

Companies like Lockheed Martin are not interested in looking after poor people who slip through the cracks in the new welfare system. As businesspeople, they are interested in welfare to make a buck.

Holli Ploog, senior vice-president for business development at Lockheed Martin, spelled out the difference between altruism and good business sense at the conference. Ploog gave a presentation on setting up competitive bids for private firms hoping to get a piece of the welfare action. In a quiet, monotonous voice, Ploog explained that some states are more attractive to "vendors" like Lockheed Martin than others. States that want contractors to take too much responsibility for the poor are not going to attract many vendors, she warned.

"One state had unlimited liability for damages for the vendor," Ploog said. "So, for example, if someone fails to get support, therefore the children get sick, therefore they have to go to the hospital, and they end up having permanent damage, the vendor would be fully responsible."

The state in question couldn't drum up any interest, Ploog said. So it revised its criteria and set a cap on liability. "They brought it down to $150 million," Ploog said. There was laughter from the audience at that outrageous sum. Ploog smiled. But, she said, "they did get a bid."

In the frenzied, highly politicized climate of welfare reform, private-sector promises to overhaul the welfare system look alluring to state officials. As the new block-grant system goes into effect, state governments are under pressure to place people in jobs, and meet deadlines for reducing welfare caseloads.

The latest issue of Governing magazine, which everyone at the conference in Washington received, was full of advertisements for private firms promising to help welfare bureaucrats deal with rapidly changing policy and limited funds.

An ad for Unisys showed a full-page photograph of a vise, with the words "YOU ARE HERE" stamped over it. "You're caught in the middle of a welfare revolution. And the pressure is on you to make clients self-sufficient while holding the line on costs," the ad declared. "It's a tough spot to be in. But Unisys EIS (Efficiency, Integrity, and Self-Sufficiency) offers a way out." Then came a pitch for computer systems to help with fingerprinting, fraud detection, and job searches.

Companies have good reason to court state officials. Under the new block-grant system, many states are predicting budget surpluses. That's because welfare rolls have decreased in recent years, and the feds are handing out block grants set at the level of spending that was accurate a few years ago.

"Many governors are currently crowing about this `windfall' of new federal money," Peter Edelman, who resigned in protest from the Clinton Administration over the welfare law, pointed out recently in The Atlantic Monthly. "But what they are not telling their voters is that the federal funding will stay the same for the next six years, with no adjustment for inflation or population growth."

In other words, making money from welfare reform is a short-term proposition. When a recession hits, and the demand for government services rises, budget surpluses will evaporate. Unless, of course, states and private welfare contractors simply decide to turn a blind eye to escalating need.

Some government officials are sensitive to the charge that they are letting corporate wolves in the door to make a profit by eviscerating benefits for the poor.

In Texas, "it's not about turning over who gets welfare to the private companies and then lowering the caseload so they profit," said Terry Trimble, the interim commissioner of the Texas Department of Human Services. "The state government decides who is eligible. The vendor does everything else." Companies will have to make their money in Texas by streamlining programs, eliminating paperwork, firing people, and closing offices, Trimble said.

Competition for the Texas welfare contract has the whole state in an uproar. Public employees are worried about losing their jobs. And government agencies that usually work together are divided against each other as they compete for a contract that might spell the end of whole departments.

The future of a $2 billion bureaucracy, with some 13,000 employees, hangs in the balance. Private firms and public agencies are forming alliances, trying to beat each other out to run the welfare system. Lockheed Martin, along with IBM, has joined with the Texas Workforce Commission, which oversees job-training programs, to make a bid. EDS has forged a partnership with Unisys and the Department of Human Services, to submit a competing bid.

The situation in Texas is further complicated by allegations of corruption, as high-ranking state officials move rapidly through a revolving door between the government and the corporations that are bidding to take over the new welfare system.

This should raise a red flag: Privatizing the welfare system opens the door for major financial scandals.

The Texas State Employees Union has filed a complaint, calling for an ethics inquiry into cozy relationships between corporate giants and state welfare officials. Dan Shelley, Governor Bush's legislative liaison, who worked to get privatization legislation passed in Texas, now works for Lockheed Martin, as do three other high-ranking state welfare officials. Greg Hartman, who helped design the initial plan for privatization, is helping Lockheed Martin and IBM prepare privatization bids.

If government officials and corporations are working together to design a welfare system for maximum corporate profit, who is looking out for the poor?

Robert Stauffer, a vice president for human services at EDS, raised this very question during the conference in Washington. "What's going to happen to children?" Stauffer asked. "That's something that hasn't been focused on much in the last couple of days." Stauffer had just returned from a welfare conference in New Zealand, he said, where "people are very worried about the social and income gap. In the United States, we don't seem to be. I'm not saying we should be. But internationally, they're worried about creating a minimum-wage culture where people are making $6 or $7 an hour, and are not able to move ahead. What I was hearing was, how do we get people beyond where they are today? There's much more of a social conscience in these countries."

Rex Davidson, executive director of Goodwill Industries of Greater New York, also raised concerns about for-profit firms taking charge of the welfare system.

"I had this crazy feeling throughout the conference that there was this underlying theme of, `Show me the money,"' Davidson said.

Companies are scrambling to get a piece of the action as states discuss putting multibillion-dollar government contracts on the market. But corporations may not be the best people to provide services to the poor. And under the new system, nonprofits like Goodwill can't compete to provide these services.

"We don't have the resources to handle a billion-dollar contract," Davidson said. Likewise, he pointed out, "for-profits can legally make political contributions. Nonprofits can't. For-profits often hire high-level public officials. Nonprofits can't."

What nonprofits like Goodwill have to offer, however, is a different perspective on their poor clients.

"We are mission-driven, and we have a relationship with the community in good times and bad," Davidson said. For example, he said, in New York, Goodwill had a contract that wasn't paid for nine months. "But we felt the kids ought to be served in Queens, so we didn't drop it." Davidson's point--that turning a profit isn't always consistent with good public policy--seemed wildly out of place at the conference. The other speakers listened politely, then continued expounding on the pro-privatization theme.

There is something unseemly, if not downright corrupt, about a system that takes money "saved" by cutting the welfare rolls and redistributes it to corporations. But in a way, the privatization scramble is the logical outcome of a policy shift that has been taking place for many years.

As a nation, our goal has changed from reducing poverty to simply eliminating welfare. Cutting the welfare rolls will most likely make poverty a lot worse. But at least in the short term, it looks good for big business.