Download The Welfare - Suomalainen Tiedeakatemia

The welfare state and middle
class political dominance
The Finnish Academy of Science and Letters
Centennial Celebration Seminar in
Social Sciences
Helsinki Jan 28, 2008
Professor Bo Rothstein
University of Gothenburg
Some basic facts
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Nordic countries (ex. Norway)
Growth:
3,1%
WEF rank:
3,4, & 6
GDP/Cap:
33000
Public exp:
48%
Inf. Mort:
3,5%
Life exp:
79
Hours worked:
1600
In poverty all:
5%
Poverty child:
3,5%
Social Trust:
59%
In prison:
72 /100000
US
3,2%
1
41000
27%
7%
77
1800
17%
22%
33%
725 /100000
Income and Life Satisfaction
Economic Growth and Equality
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No correlation between levels of public
spending and economic growth
There is no “trickle down” effect
Lindert: Public spending on investments in
“human capital” increases growth
Social policies may increase flexibility on
labor markets
Policies for equality increases social trust
that may increase economic growth
Measuring country performance
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Human Development (UNDP)
Economic competitiveness (WEF)
GDP/capita (World Bank)
Democracy (The Economist)
Globalization (The Swiss Economic Institute)
Political Freedom (Freedom House)
Gender Equality (WES)
Corruption (Transparency International)
Environmental Protection (Yale, WEF)
Doing Business (World Bank)
Knowledge Economy (World Bank)
Good Society Index (Quality of Government Institue, Gothenburg)
Meta Index
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1. Sweden
2. Denmark
3. Iceland
4. Norway
5. Finland
6. Switzerland
7. Canada
Conclusions
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Government spending can reduce
inequality
Equality does not harm growth
Equality “from below” is more important
than equality “from above”
The Linguistic Problem
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Welfare State or
Social Insurance State or
Social Service State or
Social Protection State or
Gustav Möller’s 1948 discovery
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Contrary to the predictions of the Marxist theory, the
industrial proletariat did not grow larger
The white-collars strata had started to grow faster than
the traditional working class
The while-collars strata would start to play a key-role in
the elections
If the Social Democrats would continue in power, the
party had to create new policies that would appeal to the
white-collar segment without alienating the traditional
blue-collar working class voters
A strategic dilemma
The solution: A conceptual
innovation
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From workers to wage-earners
From ”middle-class” to wage-earners
From working class (or middle-class)
politics to wage-earners’ politics
To unite people without property
Support of a strong and well-organized
white-collar union movement
Four policy solutions
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1. Universal social services and benefits
2. Income-related social insurance system
3. A strong emphasis on eduction
4. Gender equality policies
MÖLLER’S STRATEGY: CREATING
SOLIDARITY BY POLICIES FROM ABOVE
How does the system works?
Group
Average
income
Tax (40%)
Transfers
Net
Income
A (20%)
1000
400
240
840
B (20%)
800
320
240
720
C (20%)
600
240
240
600
D (20%)
400
160
240
480
E (20%)
200
80
240
360
Ratio
between
groups
A&E
5/1
(= 1200)
(1200/5=24)
2.33/1
The efficiency argument
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Could the market do it?
Would privatization be more efficient?
Would the middle class be better of with
lower taxes that would make it possible to
by private insurances?
The theory about ”assymetric information
says” – probably not.
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”Information failures provide both a theoretical
justification of and an explanation for a welfare state
which is much more than a safety net. Such a welfare
state is justified not simply by redistributive aims one
may (or may not) have, but because it does things which
markets for technical reasons would either do
inefficiently, or would not do at all”
”Both theory and the performance of systems in practice
overwhelmingly support the view that a hypothetical
pure private market for medical care and medical
insurance would be highly inefficient and also
inequitable”
Nicholas Barr: Economic theory and the welfare state”
Conclusions
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The Nordic welfare state is very much program
that serves the middle-class (wage earners more
than small business)
This was, at least in Sweden, a very deliberate
political strategy
Non-socialist (centre-right) governments seem
to be locked-in into this system
However, the system works pretty well,
so far
Thanks for listening!
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Questions
Comments
Critique