Download FINAL STUDY GUIDE PS147

THREE TYPES OF WELFARE STATES:
Liberal:
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self reliant…minimize dependence of individuals vis-à-vis the state
minimize distortion in the labor market
Corporatist/Continental:
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aims to preserve class and status, as well as income inequalities
receives % of what you put into the system as benefits
little incentive or innovation
Social Democratic:
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decommodify, people don’t have to sell their labor
social citizenship
universal benefits and social services provided by the state
VERSIONS OF THE EUROPEAN WELFARE STATE:
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In Europe, the welfare state is a right, while in America it is only for the
“deserving poor”
o More people are included in the benefits
o Universal
Often, European welfare states want to be able to enjoy the same living standards
as they did while employed
According to Hill, having a generous welfare stats is NOT contradictory to a
robust economy
o Productivity: more costly, but incentivizes people…creates a skilled
workforce because more educated
o Macroeconomic: welfare stabilizes economy in times of recession by
stabilizing aggregate demand…need people to spend money to continue to
foster industry
o Costs: pay high taxes and receive good benefits…private insurance not
less expensive
Welfare is designed to protect production
In order to have a welfare state you must have a bureaucracy in place to
implement such a system
Hill argues that a welfare state will improve competition and political
stability…increases competition
FOUR ECONOMIC CONTRIBUTIONS OF WELFARE SPENDING:
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REDUCED PRIVATE SPENDING:
o What is purchased privately in the U.S. is provided by the government in
Europe
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o Government provision is cost effective
o Universal coverage= reduced marketing expenses, no screening out “bad
risks”, no profits (dividend payments to shareholders), lower
administrative costs
 In U.S. admin costs are 20% while in EU they are only 2%
o Government is monopsonist only buyer…can drive hard bargain… a lot
of leverage…more cost effective
o Reduced public spending, especially with criminal justice system
ENGINEER A RECESSION BY SLASHING GOVT SPENDING
o Welfare states are affordable only if everyone works…few people claim
benefits and everyone pays taxes
o Generous welfare states can bolster labor peace and prevent strikes
 No strikes over fringe benefits
KEYNESIAN ECONOMICS:
o Great Depression: workers lose jobs, take pay cuts and spend less
business sell less and cut pay  suppliers and employers cut spending
o [Y= C+I+G+ (X-M)]
 size of the economy= consumer spending + business investment +
government spending + difference between (exports – imports)
o reversing the downward spiral: government spending gives people
money use money to buy goods  businesses invest and hire to meet
demands  newly employed boost spending
o increase spending
 Keynesian demand stimulus is appropriate only in times of
SUBSTANTIAL under utilized resources (i. e. a deep recession)
o The multiplier: a one time injection of $ leads to multiple benefits and will
ripple through economy
 The higher the marginal propensity to consume, the greater the
multiplier, so the government should give $ to the poor who spend,
rather to the rich to save
KEYNESIANISM IN PRACTICE:
o Smooth aggregate demand across business cycle
 Recession: government should run expansionary fiscal policy
 Boom: government should run contradictory fiscal policy
o WWII validated Keyne’s teachings
o Big welfare states have acted as big, automatic stabilizers
 Welfare states automatically increase spending in recession and
decrease spending in recovery
FEATURES OF THE US SYSTEM OF SOCIAL PROTECTION:
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Microeconomic Benefits: expanding the market
Polanyi: markets for labor do not arise naturally…people are not pork bellies,
they do not want to be bought and sold in the marketplace…we crave stability and
security
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o “Dual Movements”- state created a market for labor to launch an industrial
revolution…spontaneous backlash against market led to welfare
state…market making and welfare making go hand in hand
Dani Rodrik- the challenges of free trade: free trade creates winners and losers,
and losers may organize to stop trade openness
o Protect losers from blocking free trade by taking care of them through the
welfare state (generous unemployment insurance…early retirement
policies)
Big government can support big markets by:
o The countries most open to free trade are those with the biggest welfare
states
o Societies gain from the extension of trade and free market competition
U.S. System of Social Protection:
o Limited government spending
 Gaps in coverage…targeted programs for deserving poor
o Dualism/fragmentation
 Welfare is means tested- must demonstrate that the support is
needed…local…funded by general taxation
 Social security is national…universal benefits…funded by payroll
taxes
 Treats different groups unequally
 Social security pensions for the elderly (fairly redistributive
in favor of the poor…minimum benefit guaranteed for all)
 Elderly have been the core of U.S. social spending
 U.S. spends much less on children and working
adults…benefits for adults are short term so as not to attract
unemployed to move there
o Private provision encouraged by tax code
 Not provided by the state
 3/5 Americans covered by employer based healthcare
 ½ Americans covered by occupational pensions
 if private benefits are included, U.S. social spending equals that of
Europe
 the level of spending is not different…it is the source
 private tax expenditures are easier to pass through Congress
o Fragility of social protection
 Public welfare state lacks supporters….U.S. is the epicenter of tax
revolts
 Employers can cut benefits more easily than governments (do not
have to pass laws)
In the United States, those with the biggest burden receive the least amount of
benefits
BUT: Hacker believes that the United States was a pioneer in 1) public education
2) maternal rights/ single mothers 3) soldiers
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Welfare states are automatic stabilizers, but due to fragmentation in the United
States, that cannot take place because each state controls welfare benefits
distributed
EXPLAINING THE LIMITED AMERICAN WELFARE STATE:
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Logic of the Market:
o U.S. is market oriented and pioneered domestic liberalization
Logic of Industrialism:
o Industrialization creates demand for the welfare state…vulnerable workers
Logic of Citizenship:
o T.H. Marshall- welfare state is the extension of citizenship to all who need
it
 Biggest welfare state should be where ideals of citizenship are
most developed
o Polani: biggest welfare state where market given freest reign
Logic of Political Culture: U.S. is individualistic and self-reliant…has been a
pioneer of many social programs…public opinion not the sole determinant of
social policy
Constitutional Veto Points:
o Just because a government claims a mandate, it does not mean that they
have the power to act upon it
o U.S. political system is designed to limit government activism
o Examples: federalism, Congressional committees, Senate filibuster,
Presidential veto, judicial review
Typical European political system has few, if any, veto points:
o Cabinet government…unicameral legislation…limited judicial review
EARLY DEMOCRATIZATION: PATRONAGE POLITICS & THE WELFARE
STATE:
o U.S. early democratization and the expansion of suffrage
o Civil War pensions…poor relief programs used as political patronage
(TWEED)
LATE DEMOCRATIZATION: RACE AND THE WELFARE STATE:
o Founding of U.S. Social Security System shaped by Jim Crowe laws
 Designed to exclude blacks- Southern Democrats enacted racist
laws by excluding agricultural workers and domestic employees
SITUATING THE BRITISH WELFARE STATE:
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Britain is an ideal type of welfare state…social egalitarian principles
BEVERIDGE:
o More egalitarian and inclusive
o Flat rate for benefits…everyone receives the same amount
o All citizens are covered by benefits, regardless of employment
o Financing from general taxation
BISMARCK:
o Level of benefits proportional to earnings
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o Citizens are covered if they contribute…long term employees fully
protected
o Financed through pay roll taxes with little redistribution
o Corporatist administration: fun by employer organizations and trade
unions
ORIGIN OF THE BRITISH WELFARE STATE:
o Workers:
 Large working class that controlled the voting blocks
o Woe:
 Great Depression, 20% unemployment
 Beveridgean welfare state to take care of those unable to work
through no fault of their own
o War:
 Shared sacrifice…everyone was vulnerable
No veto points in the British system…no federalism…no written
Constitution…limited judicial review…single chamber parliamentary
government….proportional representation
o F.P.P (First Past the Post)- U.S. system where winner takes all
Beveridge emphasized universality, unity and uniformity
o All citizens are covered…all major social risks covered under a single,
unified set of public programs…don’t have different social services for
different people
LIMITS OF THE BRITISH WELFARE STATE:
o Economic limits: slow economic growth in post war period…little money
for new social spending
o Political limits: labor party often in opposition…slow to try to force cross
class coalitions
o Geopolitical limits: Britain had long held the world’s largest colonial
era…fiscal constraints, imposed by geopolitical ambitions…heavy
spending on defense
o Programmatic limits: preserve work incentives…must keep benefits low
so that people prefer employment
EROSION OF THE BEVERIDGEAN MODEL: loss of the middle class…not
receiving enough benefits…groups excluded from the system: unemployed and
single mothers (BISMARCK?)
Assumptions of Beveridgean model: full employment, traditional family structure,
formal employment
SOCIAL DEMOCRATIC STATE:
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U.S. and U.K.- liberal welfare states…taxes and social spending are low
Sweden is the example of the social democratic model- high levels of government
spending on social programs (25-30% GDP)
ROOTS OF SOCIAL DEMOCRATIC MODEL:
o Labor movement, rich in power resources
o Unions have many members, with 70-90% coverage, large strike funds,
binding votes by members
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o Swedish electoral system: 4% vote threshold- allocated
proportionally…encourages party proliferation
o S.A.P dominates the left (35-50% of the vote)…divided parties on the
right All parties on the right must form a coalition in order to
govern…even one defection could be fatal
o Socialism entails nationalizing the means of production, distribution,
finance and exchange
Swedish Social Democrats were in a position to make revolutionary
change…dominated the government…backed by powerful cohesive working
class…established a welfare state helped reconcile the working class to
capitalism
Esping Andersen:
o Democracy emancipates workers
o Social Democratic states reduce worker dependence on labor market
(decommodification)
 Commodification, the original sin of capitalism
 Reduces the need for laborers to sell their labor in order to survive
Social Democratic model gives workers the security to mobilize for more radical
demands
SOCIAL DEMOCRATIC WELFARE STATES:
o Sweden has largest public sector in the world
o Universal benefits to win the support of the middle class
o Comprehensive public services…not just transfer payments (one of the
main features distinguishing Social Democrats from Christian
Democratic states).
o Social services are also important for promoting high female employment
EVOLUTION OF SWEDISH SOCIAL DEMOCRACY:
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Keynesianism- boost government spending on public works
Corporatism- strengthen agricultural and labor organizations so that they can prop
up prices
Protectionism- prevent “stop go cycles”…allowed Swedish authorities to reinflate
economy
In Sweden, unions get legal protections, right to collective bargaining
SALTSJOBADEN: (1938) right to manage (collective bargaining; limited to
wages and benefits)…union discipline
THE CHALLENGE OF INTERNATIONAL OPENNESS:
o Globalization
o Small domestic market (always had to export to prosper)
o The need for wage restraint- too much of a stimulus could trigger inflation
Rehn Meidner Model: solidaristic wage policy…equal pay for equal work
regardless of employer’s capacity to pay
Problems of free market for labor- fairness, wages vary across employers
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o Labor market costs: inefficient companies survive by paying low
wages…exposed sector pays high wages in line with the higher
productivity levels of workers
o GOALS: equality for workers…and economic concern to aid
competitiveness
Solidaristic Wage Policy: helps competitive export oriented companies
o Equal pay for equal work regardless of the company’s ability to pay
o SWP accelerates economic modernization…competitive export sector
pays lower wages under a free market, boosting profits and investment
Rehn model drives inefficient firms out of business, prevents them from surviving
by paying low wages
o Active labor market policies: find new jobs for workers make redundant
by SWP (combine with generous unemployment benefits)
o Incentivizes businesses to become more efficient
Encouragement of investing via manipulation of the tax code
o Corporate tax rates were punitive, but lots of exemptions if companies
reinvested profits or invested during a recession
POLITICAL CHALLENGE:
o Farmers declining as percentage of population…wanted autonomy from
SAP and opposed increased public spending
o Reformed pension program in 1959- earnings related pensions instead of
flat rate universal pensions…appealed to white collar workers
LABOR SHORTAGES (1960s-1970s)
o Instead of importing workers from foreign countries, Sweden involved the
women and brought them into the work force
 TWO OBSTACLES TO WOMEN’S EMPLOYMENT:
 Child care
 Low net pay
o State provided socialized costs of child care and paid parental leave, along
with the legal right to reclaim job after parental leave
o Women’s jobs were concentrated in the public sector & were heavily
unionized
POLITICAL CHALLENGES TO SOCIAL DEMOCRATS: working class
shrinking…beginnings of deindustrialization…growth of services
PUZZLE CREATED BY CHRISTIAN DEMOCRATIC WELFARE STATE:
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German welfare state created by an authoritarian regime…established by Kaiser
Wilhelm II
o German government was reactionary and repressive but pioneered social
programs
German conservatives have built a welfare state that reflects conservative
principles and interests
THE BISMARKIAN WELFARE STATE:
Challenges to the authoritarian regime
o Social rights instead of civil or political rights
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Bismarck created antisocialist laws…undercutting support for the Social
Democratic Party
ADGENDA AND VALUES OF CHRISTIAN DEMOCRACY
o Limit central power of the state- wanted to keep the state weak in response
to Nazi history
o Doctrine of subsidiary- responsibilities should be handled at the lowest
level possible…rely first on family church community  state
Christian Democrats are more willing than liberals to build big welfare states
because:
o More fearful of socialism and class conflict
o More socially oriented
o Reflects values; protects liberty, preserves status & hierarchy, supports
traditional families
PRINCIPLES OF CHRISTIAN DEMOCRATIC REGIME
o Limiting state power through subsidiary…benefits provided at the lowest
level possible with state intervention as the last resort
o Transfer payments, not social services
o Corporatism: if the state has to get involved it should not be the direct
provider of benefits
o Incentives for women to stay out of the workforce
 An attempt to reinforce traditional family structure
 Provide family wages and replacement wages
CHRISTIAN DEMOCRATS AND SOCIAL DEMOCRATS: GERMANY VERSUS
SWEDEN:
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Both Germany and Sweden are export oriented economies
o But German unions are not nearly as powerful as their Swedish
counterparts
CRITIQUES TO THE CHRISTIAN DEMOCRATIC WELFARE REGIME:
o Regressive: favor high income groups…reproduces inequalities of the
labor market
o Sexist: makes it difficult for women to enter into the labor market
o Inertial: slow to change…many Constitutional veto points
COUNTERARGUMENTS:
o Social democratic regime has a lot of earnings related benefits in order to
prevent middle class exit
o Korpi and Palme- Germanic system redistributes more than targeted,
means tested system
LIMITS OF THE SOCIAL DEMOCRATIC MODEL:
o Excessive decommodification
o Radicalization of SWP- equal wage for equal work regardless of the
company’s ability to pay…designed to control inflation and set wages
according to the needs of the export sector
Economic problems of SWP:
o Worker motivation: unable to reward skilled or dedicated workers
o inflation
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subsidiary= reducing state intervention in terms of providing social protection
beginning with the family, church, semipublic institutions
believe inequalities are good as long as they remain an expression of skills and
effort
KORPI & PALME: issues with redistribution…if it targets the poor then will
not be as effective to others…means tested programs are better at alleviating
poverty
SOUTHERN EUROPEAN WELFARE REGIME:
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LIMITS OF SOCIAL DEMOCRATIC MODEL:
o Excessive decommodification (sick pay system)
o Radicalization of solidaristic wage policy
Meidner Plan: problem is that worker wage restraint increases employer profits,
but there is no guarantee that profits will be reinvested
o Solution: 20% tax on excess profits…revenues used to purchase
companies on stock exchange which would be placed in “wage earner
funds”
o Unpopular with employees and Social Democrats
 Employers boycotted negotiations to set up wage earner funds and
boycotted other corporatist negotiations
 Dismantled collective bargaining unit all together
ADVANTAGES OF THE GERMAN MODEL:
o Low inflation
o High end manufacturing
o Consensus around the model
Bundesbank: makes monetary policy…independent central bank…not tied to
government…top priority is to fight inflation…constitutionally protected from
government intervention
Limited public services- Christian Democratic welfare state offers fewer public
social services than social democratic welfare state
High end manufacturing: flexible specialization diversified quality
production…post Fordist manufacturing
o Premium products, high quality with special features that command
premium prices
o Labor resources skilled labor through apprenticeships, labor peace,
ideas, information, codetermination
o Patent capital: long term loans, protection against hostile takeovers
SOUTHERN EUROPEAN WELFRE REGIME:
o Greece, Spain, Portugal and Italy
o Late industrialization
 Italy had protectionism for decades after WWII and could not
afford a welfare state until 1980s
 Late democratization…working class and left parties marginalized,
unable to push for the welfare state
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Esping Andersen presumed that states were honest and efficient in
his models of welfare states…but the nature of social programs can
very tremendously depending on institutional context
 These states lack autonomy from special interests
 Ferrera- Southern European welfare states suffer problems of
corruption and politicization
DEFECTS OF THE SOUTHERN EUROPEAN WELFARE STATE:
o Corrupt taxation and tax evasion
 Underground economy (no taxes being paid…amount up to 2030% GDP)
 Self reporting of income (massive underrepresentation)
o Hyper Polarization of Benefits: politically connected to get great benefits,
while outsiders get nothing (baby pensioners in civil service jobs)
 Italy spending 15% GDP on pensions…yet many Italian
pensioners were impoverished
o Gap between inputs and outputs
o Chronic budget deficits….government unable to collect taxes
FERRERA: clientalism and patronage…dualism and the insider//outsider divide
o Italy spent more on pensions than any other European country, but people
received less on average because of bloated pensions for elite bureaucrats
o Economies negatively impacted by tax evasion…informal economy and
underreporting
BRINGING WOMEN INTO THE WELFARE STATE:
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Capitalist state serves to reproduce capitalism and subordinate working class
Patriarchal state serves to reproduce patriarchy and subordinate women
Women provide welfare:
o Male breadwinner model…men engage in paid labor and women work in
informal economy
o Esping-Andersen welfare is provided by either the state or the market
Gender is a source of inequality which creates vulnerability…lack of civil and
political rights- law often treats women as minors
Women’s main risks not addressed by the welfare state…women do not have the
ability to preserve living standards independent of husband
Traditional literature defines welfare state too narrowly…focus on social
insurance for workers…ignores policies targeted at women and children
MALE BREADWINNER/FEMALE CAREGIVER MODEL:
o Pervasive across affluent democracies
o Single male income earner…engagement in labor market for extended
periods of time, while women’s participation is parabolic with age
o Noncommodification of caregiving…derived benefits for womenreceived income and social protection from marital status
o Key civil and political rights are often lacking for women…unequal status
within the marriage
Positive incentives for male breadwinner model: family wage, high replacement
wage, derived benefits, mother’s wage
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Negative incentives for male breadwinner model: no accommodations for
women’s employment
EROSION OF MALE BREADWINNER MODEL:
o Surge in female labor force participation as a result of desire for equality,
autonomy, security, labor shortage and changes in state policies
o More single parent households
o Working mother challenge: how to replace all unpaid care in order to
encourage mothers to engage in paid labor rather than caring for children
 Financial vulnerability…child rearing constrains job opportunities
and work schedules…women earn less than men
AMBIGUITIES OF LIBERALISM:
o Government shouldn’t tell people how to live
o Freedom from protection through the courts
 In U.S., early legalization of divorce and abortion
 Protection against spousal abuse, discrimination, sexual
harassment, etc.
Support through the tax system…tax credits are the biggest antipoverty program
in the U.S. (earned income tax credit is almost double the size of TANF/AFDC
Use courts and tax systems to create social programs…but not much help for
working women- no publically subsidized childcare
o System works well for women in strong financial or labor market position
o VERY TOUGH on single mothers
CHALLENGES TO THE MALE BREADWINNER/FEMALE CAREGIVER
MODEL:
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U.S. Liberal approach: Freedom from and limited government
o The courts and the tax code are alternatives to social programs…but not
much help from working women (no publically subsidized childcare or
paid maternity leave)
o Very tough on single mothers
Sweden: Women Friendly Welfare Stateo Women, not immigrants
o Reforms to encourage female employment
Swedish policy serves the national interest, not women’s emancipation…highly
gender segregated labor markets
PROBLEMS OF THE CHRISTIAN DEMOCRATIC WORLD:
o Male breadwinner labor market
o Welfare without work: expensive welfare…must preserve family
wage….expensive transfer payment…limited job creation
Labor markets without women: women may not need to work…family
wage…high replacement wage
Women discouraged from working…women must choose between careers and
children
HOLLAND: ONE AND ONE HALF EARNER MODEL
o Little change in female employment during 1960s and 1970s
o Less than 35% of women employed
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Restrictions on part time employment loosened…in return, wages and benefits for
part time employees the same for full time employees
Updating the traditional family structure
SOURCES OF EXPLOITATION:
o Market
o Marriage status
o Single motherhood
THE EUROZONE CRISIS:
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The case against the welfare state:
o Greek crisis and excessive social spending, and international investors
reluctant to purchase Greek debt
o Unable to raise funds at reasonable interest rates and forced to seek out
international bail out
LIMITS TO HELLENIC HYPOTHESIS:
o Evidence only in Southern Europe (PIIGS)
o Crisis struck countries with sound public finances…Ireland a low welfare
spender…liberal welfare state that relied on low taxes to attract foreign
investment
CASE AGAINST EUROPE:
o Currency risk before creation of EMU (European Monetary Union)
o EMU encouraged capital flows from European core to periphery
 Periphery countries able to borrow at very low rates
o Real estate bubbles and bank crashes…foreign borrowing of Irish banks
increased from 15-110 billion & used to fund real estate
Bloated banking sector…banks borrowed heavily in environment of cheap credit
o Investors pulled out and demanded higher premiums out of fear of default
Benefits of a common currency:
o do not have to pay to exchange money across borders
o businesses do not need to maintain multiple foreign bank accounts
o no sudden shifts in rates
EMU is a suboptimum currency area- harder time dealing with asymmetrical
shock
o Deprived crisis countries of policy tools
o Had control over currency
 A sovereign country can print money to bail out banks or cover
government financial needs
 The only way to cover debts is to borrow money by issuing bonds
Obsession with austerity…Troika took a moralistic approach and implemented
severe austerity programs
PROBLEMS WITH MORALISTIC APPROACH:
o In trouble because of banking collapse, not excessive public spending
o Some countries will never be able to pay back debt, no matter how much
Troika pushes them
o Austerity is NOT working…should apply Keynesian economic practices
SOLUTION:
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o Debt relief for Greece
 Troika finally acknowledged that debt relief rather than just more
loans, has to be part of the solution
 Creation of permanent bail out fund
CHALLENGES:
o Adequate debt relief- Troika was slow to provide aid and unclear if ESM
has enough $ to weather a deepening of the crisis
o Had to rebalance fiscal policy across Eurozone…Germany has insisted
that austerity is the solution to EMU’s problem
o Preventing the next financial crisis through fiscal discipline, common
financial regulations and regulator
COMMON CURRENCY:
o PRO: reduce transaction costs, no risk premium
o Cannot devalue money
U.S. system better suited to deal with asymmetric shock than E.U.
ORIGINS OF THE THATCHER REVOLUTION:
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Post war consensus: big public sector…concertion with the unions…cradle to
grave welfare state
BRITISH ECONOMIC DECLINE
o Slow post war growth
o Economic stagnation in 1970s and forced to borrow from IMF in 1976
Unions had many members but little control- workers organized by craft…not by
industry
Social Contract- sympathetic to labor movement
Liberal governments failed to deliver promised social benefits…tried to maintain
austerity for too long
1979- Winter of Discontent: wave of strikes…garbage uncollected…unions
appeared to be running the country
THATCHERISM:
o Thatcher, the neoliberal activist…believed government needed to free
market through state intervention
o Handbagging institutions – create a free market by projecting state power
to break the institutions that clog the market
No veto points: cabinet government…unicameralism…no judicial review or
written constitution
Opposition party: radical and divided…unable to compete….FPP elections,
division spells disaster
NEOLIBERAL ADGENDA:
o Keynesianism: fight unemployment…increase government spending
which stimulates the economy
o Monetarism: fight inflation…decrease spending and taxes…crowds out
private investment…government intervention harms the economy
1982 Budget: manufacturing down…unemployment more than doubled 
riots…revolts against tax cuts
o THATCHER MAINTAINED ANTI-KEYNESIAN POLICIES
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o Assault on unions: high unemployment (harder to mobilize
workers)…privatization- loss of secure jobs
o 1984/85 Coal Miners Strike: symbol of union power…but Thatcher won
due to:
 stockpile of coal
 massive police presence
 new legal environment
 determined to fight to the finish
decline of British unions…reigning in local government spending…abolition of
poll tax
low productivity reform of public enterprises
government created a number of regulatory agencies to police private monopolies
and introduce competition
THATCHER’S RECORD:
o Improved economic policy, from worst, to (near) first in Europe, strengths
and limits of markets (allocate resources and keep wages…long
term/private investment hurt)
THE POLITICS OF RETRENCHMENT:
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LIMITS OF THATCHER’S NEOLIBERAL REFORM
o High social costs
o Regulatory failure of the financial sector
o Public health crisis: mad cow disease…disaster for tourism and agriculture
THATCHER’S CRITIQUES OF THE WELFARE STATE:
o Wastes resources…heavy taxation crowds out private investment
o Encourages the wrong kinds of values and behaviors
Politics of welfare state retrenchment is different from politics of welfare state
spending
o Retrenchment is very difficult and politically treacherous…blame
avoidance
OBSTACLES TO WELFARE RETRENCHMENT:
o Negativity bias: more likely to notice losses than gains…risk averse
o Concentrated losses, diffuse benefits: welfare cuts impose concentrated
losses in return for diffuse and uncertain benefits
o Policy takers: groups called into existence by a policy (i.e. veterans/ senior
citizens)
o Policies “locked In” by past commitments
 Pensions tend to be locked in because the benefits have been
earned
 Older people do not have time to adjust to changes
Retrenchment as an exercise in blame avoidance:
o Welfare cuts are unpopular…blame external factors…union sacree
(involve as many actors as possible in retrenchment, so that no one will be
in a position to criticize
Divide and conquer tactics: side payments to compensate potential opponents so
that they do not oppose reform
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o Grandfather clauses: apply less generous rules to future claimants, but not
current beneficiaries
Changes in composition of taxation…total taxation unchanged but redistributed
wealth
PEIRSON HACKER AND PONTOUSSON
Politicians want to claim credit for instituting changes and act in a way to avoid
blame
Retrenchment blames: external factors, local governments and use of sneaky
techniques
ACHIEVEMENTS AND CHALLENGES TO PENSIONS:
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Retirement in the era before pensions elderly poverty
Public pension programs greatly reduced elderly poverty
Being old no longer meant being poor
Other demographic groups are worse off
o Single parents, ethnic minorities, unemployed youth
From old people senior citizens
o Retirement no longer occurs for reasons of ill health
A “third age”
SOCIOECONOMIC ORIGINS OF THE PENSION CRISIS:
o Longer life expectancies
o Baby boomers
o Growing demographic challenge
CAPITALIZED:
o Contributions go in a pool that will pay for the employee’s own pension
o System is fully funded, the pool of money equals the amount owed to
future retirees
PAY AS YOU GO:
o Contributions go into a pool that pays for current retirees
o System based on intergenerational solidarity
o Future retirees funded by future workers
Pay as you go keeps government from gaining control over large pool of money
IDA MAY FULLER- did not pay into the system but benefited from Social
Security
Temptation of the initial surplus: in the early years, PAY GO is flush with $
because all the wage earners are collecting
PRIVITIZATION AS A PANACEA:
o Finances of social security…system ran a surplus, which went into the
Social Security Trust Fund until 2010
o There are simpler ways to save social security: increase payroll tax…cut
benefits…eliminate ceilings on taxable earnings
o Speed up retirement age
o Allow SS to invest in the stock market
o Pay for part of social security through general taxation
Privatization  double payment problem under PAY GO for current retirees
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BUT, privatization would undermine safety net function...social security is very
effective at preventing poverty…highly redistributive
Privatization requires a lot of state intervention
THE DYNAMICS OF PENSION REFORM:
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Neither privatization or bankruptcy are unlikely outcome
Radical pension reform: lagged effects- decisions made decades ago catching up
to us now…recipients are sympathetic and powerful…have time to mobilize
political support
PATH DEPENDENT PENSION REFORM:
o Beveridge:
 Flat rate benefit available to all citizens
 Benefits vary with income
 Saves money because takes benefits away from those who can
most afford it
 More cost effective system…BUT affluent no longer support
pension system
 Shift from principle of citizenship to principle of need
o Bismarck:
 Based on insurance principle as a % of earnings
 Wage replacement
 Eligibility and entitlement depend on how much you pay into the
system.
 Highly fragmented
Tightening the links hurts people with inconsistent work histories, part time
workers and women
Pension reform framed as a job creating measure by cutting payroll taxes
Process of reform: leaders do not act unilaterally
Indexing= cutting back a little bit every year
HEALTH CARE REFORM:
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Europeans are building different markets than the U.S.
Regulated competition in Europe
o Legally prescribed benefit packages
o Cannot refuse coverage to any applicant
o Must charge same rate to all subscribers…government establishes
minimum basket of services that must be included on all plans
Too much regulation stifles competition
o Regulation fails to keep pace with changes in health care industry
Cost containment: U.S. costs much more than Europe: not due to more treatment,
private industry, but lower administrative costs in EU
HEALTH CARE REFORM IN THE U.S.
o ACA passed without a single Republican vote in Congress  Tea
Party…polarized issues & made opposition to ACA the centerpiece of
2012 mid-elections
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o U.S. spends far more than any other country without achieving universal
coverage or good public health outcomes
U.S. system, high cost and 50 million uninsured
No overlap between Republicans and Democrats
o D: production to power consumers (protect against shady practices by
insurance industry)
 Public option to provide meaningful choices
 Consumer controlled market (universal insurance with a lot of
consumer choice)
 Managed market
o R: boost private providers…innovative care…pork barrel…no public
option or government regulation of prices….issue with lack or tort reform
to limit malpractice suits
 Private power market (protects interests of providers)
 Pork barrel market (broad access to health care, free of regulation)
GINGRICH, HACKER, GIAIMO
PATIENT PROTECTIONS AND AFFORDABLE CARE ACT OF 2010
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OBSTACLES TO NATIONAL HEALTH INSURANCE
o Veto points (constitutional, party political veto points)
o Resistance from private welfare state
o Popularity of U.S. system among those with insurance…no one wanted to
pay
HOW THE ACA PASSED:
o Overcame veto points…slightly bigger D majority in Congress
o Disciplined D party
o Ruthless pragmatism: used reconciliation procedure to bypass Senate
filibuster
Cutting deals to neutralize healthcare stakeholders: small business exempted from
employer mandate
MAIN PROVISIONS:
o Regulation of private insurers (lifetime limits and preexisting conditions
banned)
o Expanded coverage, but NOT universal (no copayments for preventative
care and medical screenings…young people on parent’s plans until 26)
o Expansion of Medicaid to cover lower income Americans
o Employers expected to expand coverage: pay or play mandate- fined if do
not provide health care option (cheaper to pay fine)
o Individual mandate must purchase health insurance or pay fine//tax
ACA would reduce the federal deficit by $143 BILLION
But it could repealed…30/50 states have Republican governors, who might
refuse to participate in Medicaid expansion OR R. in Congress could cut taxes to
fund ACA
PROGRESSIVE APPROACHES TO ECONOMIC REFORM:
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NEOLIBERAL CHALLENGE:
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o “There Is No Alternative”
o reductions in government spending…all government social spending is
suspect in neoliberal view
 diverts resources and reduces incentives
 lots of social spending does not help the poor…can reduce social
spending without hurting social justice
TAX RELIEF:
o Taxation supports progressive social spending…but only if redistributive
o Neoliberals are supportive of tax cuts for the affluent because they provide
biggest economic benefit because high propensity to save and invest
 Progressive tax  the more you earn, the higher your taxation
(income//inheritance tax)
 Regressive tax less you earn, higher rate of taxation
(sales//payroll tax)
o Tax reallocation
 Taxes can be used to reduce externalities…gaps between social
costs and individual costs
o Tax reduction
 Tax wedge= gap between amount employers pay and amount
workers receive
 Caused by payroll taxes…shrinks employee take home pay and
raises employer costs
Progressive tax relief channels resources to low income groups, reduces poverty,
encourages hiring and increases returns to paid employment…internalize external
costs (pollution) and benefits (children)
PROGRESSIVE LABOR MARKET ACTIVATION:
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Labor market activation- people derive bulk of income from paid employment
Goal is to maximize total employment by reaching out to those outside the labor
force
Sweden: targeting unemployment by finding jobs for workers and placed some on
disability…must find jobs for those outside the labor market.
Neoliberal activation: withdrew state protections
Progressive Approach: concerned with quality of employment
Making atypical work typical (HOLLAND)
o Removing restrictions…supporting part time or temporary jobs
o Create jobs in situations where there is not enough work for a full time
position
o Reduce risk of poverty by having two wage earners
MOVING PEOPLE FROM WELFARE TO WORK:
o Some people are forced to take suboptimal jobs
o Social expectations of welfare state have changed
Government has an obligation to upgrade skills, provide quality jobs and service
that enables people to balance work and family duties.
Politics depends//determines the kind of society in which we live…defines the
character of economic liberalization