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THREE TYPES OF WELFARE STATES: Liberal: - self reliant…minimize dependence of individuals vis-à-vis the state minimize distortion in the labor market Corporatist/Continental: - 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: - 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: - - - 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: - REDUCED PRIVATE SPENDING: o What is purchased privately in the U.S. is provided by the government in Europe - - - 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: - 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 - - - - 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 - 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: - - - - - 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: - - 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 - - - - - - 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: - 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 - - - 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: - - 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 - - - - - - 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: - - 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 - - - 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: - - - - - 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 - 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: - - - - - - 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 - - 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: - - - 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 - - - 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: - - - - 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 - 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: - - - - - - - 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: - - - 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: - - - - 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 - 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: - - - - - - 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 - 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: - - - - - 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 - 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: - - - 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: - - 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 - - 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 - - - - 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: - NEOLIBERAL CHALLENGE: - - 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: - - - 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