I see the Mormon Church model working because it deploys an “it takes a village” type of personal help and attention to each and every person, so a person has much less chance of feeling disassociated from “the machine” the way they do under the federal welfare system. Also, since the people are already members of a church ‘family’ they are going to be much more receptive to trying to make it on their own as soon as possible. There will always be a little social peer pressure in the positive direction to succeed, and each step of success is probably bolstered by positive reinforcement from the rest of the community as a person pulls themselves up.
I am having trouble though imagining this sort of system being applied on a much wider scale; say in the larger inner cities where, first of all, there are a lot more people to account for, and that can’t be done without a lot more people to do the accounting, training and other attention that needs to be done. Now, just because I’m having trouble imagining this doesn’t mean I don’t think it’s possible, I just can’t conceive of how it could be successful. My trouble stems from living amongst people who fell under the category of receiving help:
I used to own a two family apartment house when I was younger. Collecting a rent was a good way to offset the cost of a mortgage. Anyway, the first tenants we had were “Section 8’s”, in other words they were under a federal assistance program for housing which means the government writes me a check for most of the rent, and they had to make up the difference. We’ll leave actual numbers out of it except to say that they paid about 3.5% (yes) of the total rent on a 3 bedroom apartment. They also collected welfare, and the guy collected disability. (I don’t believe the Section 8 and welfare authorities knew “the guy” lived there, or his income would have reduced both the welfare and housing subsidy.) These people were good people in many ways, they were very religious and did not drink or take drugs, other than “the guy” smoked cigarettes.
“The guy” was a very capable handyman who often helped me fix things around the house, (as he had nothing better to do), proving that he certainly could work if he wanted to. In fact, none of the tenants I had took drugs (enough to be obvious) except the one person I had who was not on any assistance. I finally had to evict him for non payment of rent. (Spent it all on drugs?)
My point is going to be though, that these people did everything they could to squeeze every free penny for as long as they could, to the point of falling under the cliché of “working harder not working” than anybody I’ve ever seen. (For instance, “Guy” used to smoke a pack of cigarettes before going to his disability doctor so his asthma would be in full throes so he could be sure to get his papers signed.) It was almost an ingrained instinct not to work, and this attitude and culture was supported fully by their peers (who were also on welfare.) How can years of this mentality from otherwise fairly decent people be put to rest? There are millions of people under this attitude across the country.
I like the Mormon model and think it is very workable in small communities, but I am not sure how it could be fully implemented, especially in the inner cities.

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While I agree with your sentiment (i.e., welfare recipients should need to do something to "earn" their support), I'm not sure a drug test would result in a positive net cost. In order for that to be the case, the costs saved from not assisting those with drug habits would have to outweigh the costs involved in administering the drug test itself. It would be interesting for someone to do an analysis on this to see how the two compare.
Although some may discount my opinion on the issue as I am LDS, the Church of Jesus Christ of Latter-day Saints has a welfare program that may serve as a model for the struggling federal system. According to an article in the Wall Street Journal, "Church officials report that the average length of time a person remains on the "welfare roll" is about four months." - which is, in my opinion, one of the biggest indicators of how well a welfare system works. Details on the system can be found on the Church's LDS Philanthropies and Provident Living websites, as well as in a number of other articles.
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