Social Democratic Capitalism - WordPress.com...2017/11/10 · Social democratic capitalism 1. Capitalism: private ownership, markets 2. Expansive, generous public insurance (big welfare

Social Democratic Capitalism

Lane Kenworthy

2017.11.10 thegoodsociety.net

What institutions and policies are most conducive to human flourishing in an affluent democratic society?

My answer: capitalism + big welfare state + high employment

My prior research has looked at some key pieces of this puzzle

I'm revisiting my earlier analyses and adding a host of additional outcomes

The good society

Community Freedom Democracy Good government Economic equality Happiness Economic opportunity Health Economic prosperity Housing Economic security Inclusion Economic stability Information Education Law and order Employment Openness and support Environment for other countries Family Privacy Finance Safety

thegoodsociety.net

What is social democratic capitalism?

Social democratic capitalism

1. Capitalism: private ownership, markets

2. Expansive, generous public insurance (big welfare state)

3. Employment-oriented public services: early education, affordable college, retraining, job placement assistance, individualized monitoring and support, lifelong learning

4. Modest regulation of product and labor markets


The best exemplars are the Nordic countries, especially Denmark and Sweden


AslAusBel

Can

Fr

GerIre

ItJaKor

NthNZ

PorSpSwi

UK

US

Den

FinNor

Swe

0

5%Em

ploy

men

t-orie

nted

pub

lic s

ervi

ces

11 28%Public insurance (expenditures)

Public insurance: public social expenditures as a share of GDP, adjusted for the size of the elderly population and the unemployment rate. 2000-2010. Data source: OECD. Employment-oriented public services: public expenditures on active labor market policy and family (early education, paid parental leave, child allowances and tax credits) as a share of GDP. 2000-2010. Data source: OECD. "Asl" is Australia; "Aus" is Austria.


Asl

Aus

Bel

Can

Fr

GerIre

It

Ja

Kor

Nth

NZ

Por

Sp

Swi

UKUS

Den

FinNor

Swe

68

87Ea

se o

f doi

ng b

usin

ess

11 28%Public insurance (expenditures)

Public insurance: public social expenditures as a share of GDP, adjusted for the size of the elderly population and the unemployment rate. 2000-2010. Data source: OECD. Ease of doing business: average score on ease of starting a business, dealing with construction permits, getting electricity, registering property, paying taxes, trading across borders, getting credit, protecting minority investors, enforcing contracts, resolving insolvency, and flexibly employing labor. 2014. Data source: World Bank Group. "Asl" is Australia; "Aus" is Austria.


Asl

Aus

Bel

Can

Fr

Ger Ire

It

Ja

Kor

Nth

NZ

Por

Sp

Swi

UKUS

Den

FinNor

Swe

68

87Ea

se o

f doi

ng b

usin

ess

0 5%Employment-oriented public services

Ease of doing business: average score on ease of starting a business, dealing with construction permits, getting electricity, registering property, paying taxes, trading across borders, getting credit, protecting minority investors, enforcing contracts, resolving insolvency, and flexibly employing labor. 2014. Data source: World Bank Group. Employment-oriented public services: public expenditures on active labor market policy and family (early education, paid parental leave, child allowances) as a share of GDP. 2000-2010. Data source: OECD. "Asl" is Australia; "Aus" is Austria.


51

87%Em

ploy

men

t rat

e

9 28%Public insurance

1980-2015. Solid red lines: Denmark and Sweden. Dashed red lines: Finland and Norway. The lines are loess curves. Public insurance: public social expenditures as a share of GDP, adjusted for the size of the elderly population and the unemployment rate. Data source: OECD. Employment rate: Employed persons as a share of all persons. Age 25-64. Data source: OECD. "Asl" is Australia; "Aus" is Austria.


Expenditures aren't an ideal indicator of the expansiveness and generosity of public insurance programs

The best alternative uses replacement rates for public insurance programs aimed at risks during childhood, working age, and old age

It too has drawbacks

It includes only transfers, not services

Data not available for Kor, Por, Sp


AslAusBel

Can

Fr

GerIre

ItJa

NthNZ

Swi

UK

US

Den

FinNor

Swe

0

5%Em

ploy

men

t-orie

nted

pub

lic s

ervi

ces

30 89%Public insurance (replacement rate)

Public insurance: average replacement rate for public insurance programs aimed at risks during childhood, working age, and old age. 2000-2010. Data source: Simon Birnbaum et al, The Generational Social Contract, using data from the Social Policy Indicators (SPIN) database. Employment-oriented public services: public expenditures on active labor market policy and family (early education, paid parental leave, child allowances and tax credits) as a share of GDP. 2000-2010. Data source: OECD. "Asl" is Australia; "Aus" is Austria.


Asl

Aus

Bel

Can

Fr

GerIre

It

JaNth

NZ

Swi

UKUS

Den

FinNor

Swe

68

87Ea

se o

f doi

ng b

usin

ess

30 89%Public insurance (replacement rate)

Public insurance: average replacement rate for public insurance programs aimed at risks during childhood, working age, and old age. 2000-2010. Data source: Simon Birnbaum et al, The Generational Social Contract, using data from the Social Policy Indicators (SPIN) database. Ease of doing business: average score on ease of starting a business, dealing with construction permits, getting electricity, registering property, paying taxes, trading across borders, getting credit, protecting minority investors, enforcing contracts, resolving insolvency, and flexibly employing labor. 2014. Data source: World Bank Group. "Asl" is Australia; "Aus" is Austria.

My analytical strategy

My analytical strategy

Data: country-level

Preferred test: difference in differences

But data for many outcomes don't go back very far in time, and much of the change in public insurance generosity occurred in the 1960s and 1970s

So I use second-best analytical strategies

Comparison across countries at a single point in time

Comparison over time in individual countries

Economic security

Economic security

Decent income and living-standards floor

Protection against large income declines and large unexpected expenses

Public insurance ê relative poverty

Asl

Aus

BelCan

FrGerIre

It

Ja

Kor

Nth

NZPor

Sp

SwiUK

US

DenFinNor

Swe

12

24%R

elat

ive

pove

rty

8 21%Public insurance (minus health and ALMP)

Relative poverty: share of persons in households with income below 60% of the median. 2010-2013. Data sources: Luxembourg Income Study; OECD. Public insurance generosity: public social expenditures as a share of GDP, adjusted for the size of the elderly population and the unemployment rate and subtracting spending on health and active labor market policy. 2000-2010. Data source: OECD. "Asl" is Australia; "Aus" is Austria.

Employment ê relative poverty

Asl

Aus

BelCan

FrGerIre

It

Ja

Kor

Nth

NZPor

Sp

SwiUK

US

DenFinNor

Swe

12

24%R

elat

ive

pove

rty

63 82%Employment rate

Relative poverty: share of persons in households with income below 60% of the median. 2010-2013. Data sources: Luxembourg Income Study; OECD. Employment rate: employed persons age 25-64 as a share of the population age 25-64. 2000-2012. Data source: OECD. "Asl" is Australia; "Aus" is Austria.

Public insurance ê material hardship

Asl

Aus

Bel FrGerIre

It

Ja

Nth

Por

Sp

UK

US

DenFinNor Swe5

19%M

ater

ial d

epriv

atio

n

16 28%Public insurance

Material deprivation: share of households experiencing one or more of the following: arrears in mortgage or rent payment, arrears in payment of utility bills, inability to adequately heat home, constrained food choices, overcrowding, poor environmental conditions (e.g., noise, pollution), difficulty in making ends meet. 2005. Public insurance generosity: public social expenditures as a share of GDP, adjusted for the size of the elderly population and the unemployment rate. 2000-2010. Data source: OECD. "Asl" is Australia; "Aus" is Austria.

Employment ê material hardship

Asl

Aus

Bel FrGer Ire

It

Ja

Nth

Por

Sp

UK

US

DenFin NorSwe5

19%M

ater

ial d

epriv

atio

n


Material deprivation: share of households experiencing one or more of the following: arrears in mortgage or rent payment, arrears in payment of utility bills, inability to adequately heat home, constrained food choices, overcrowding, poor environmental conditions (e.g., noise, pollution), difficulty in making ends meet. 2005. Data source: OECD. Employment rate: employed persons age 25-64 as a share of the population age 25-64. 2000-2007. Data source: OECD. "Asl" is Australia; "Aus" is Austria.

Public insurance ê large income decline

Asl AusBel

Can

Fr

Ger

Ire

It

KorNth

Por

Sp

Swi

UK

US

DenFin

Nor

Swe

-8

-35%In

com

e de

clin

e

8 21%Public insurance (minus health and ALMP)

Income decline: average year-to-year household disposable income decline for households in which an individual experiences an earnings decline of 20% or more. 2005-2010. Data source: Cournède et al, "Effects of Pro-Growth Policies …" 2015, figure 18. Public insurance generosity: public social expenditures as a share of GDP, adjusted for the size of the elderly population and the unemployment rate and subtracting spending on health and ALMP. 2000-2010. Data source: OECD. "Asl" is Australia; "Aus" is Austria.

Employment ê large income decline

AslAusBel

Can

Fr

Ger

Ire

It

KorNth

Por

Sp

Swi

UK

US

DenFin

Nor

Swe

-8

-35%In

com

e de

clin

e


Income decline: average year-to-year household disposable income decline for households in which an individual experiences an earnings decline of 20% or more. 2005-2010. Data source: Cournède et al, "Effects of Pro-Growth Policies …" 2015, figure 18. Employment rate: employed persons age 25-64 as a share of the population age 25-64. 2000-2007. Data source: OECD. "Asl" is Australia; "Aus" is Austria.

Equality of opportunity

Early educ é intergenerational mobility

AslCan

Fr

Ger

It

UK

US

Den

FinNor Swe

.1

.5

Inte

rgen

erat

iona

l mob

ility

0 1.5%Early education expenditures

Intergenerational mobility: correlation between the earnings of parents and those of their children, with axis values reversed. Data source: John Ermisch et al, eds., From Parents to Children, Russell Sage Foundation, 2012, figure 1.1. Early education expenditures: share of GDP. 1980-95. Data source: OECD, Social Expenditures Database. "Asl" is Australia.

Social democratic capitalism seems to be superior at producing an "expanded

Rawlsian" result

An "expanded Rawlsian" result

Basic liberties

Equality of opportunity

Distribution favoring the least well-off

Today Rawls likely would add income security

Tradeoffs?

We want more than "expanded Rawls"

Community Freedom Democracy Good government Economic equality Happiness Economic opportunity Health Economic prosperity Housing Economic security Inclusion Economic stability Information Education Law and order Employment Openness and support Environment for other countries Family Privacy Finance Safety

Tradeoffs?

Here I will use the Nordic countries as stand-ins for social democratic capitalism

I'll compare across countries, rather than look at associations between variables

Services and fairness instead of income

Rich and upper-middle-class households forgo cash income in favor of

Services for themselves: early education, free college, retraining, job placement

Fairness: higher wages and more transfers and services for the least well-off

Services and fairness instead of income

P75 household income

US

Swi, Nor, Asl, Can

Den, Aus, Ja, Ger, NthUK, Fin, Ire, FrKor, BelSwe, It, Sp

0

48

$80k

1960 70 80 90 2000 10Year

Posttransfer-posttax household income. The incomes are adjusted for household size and then rescaled to reflect a three-person household, adjusted for inflation, and converted to US dollars using purchasing power parities. "k" = thousand. The lines are loess curves. Data sources: Luxembourg Income Study; OECD. "Asl" is Australia; "Aus" is Austria.

Freedom

Personal freedom

DenAus, Nor, Nth, GerFin, Swi, SweIre, Asl, UK, Bel, CanPorIt, NZ

Fr, USJaKor, Sp

8

10

1960 70 80 90 2000 10Year

Average score for legal protection, security, freedom of movement, freedom of religion, freedom of association/assembly/civil society, freedom of expression, and freedom in relationships. Scale is 0 to 10. The vertical axis doesn't begin at zero. Data source: Ian Vasquez and Tanja Porcnik, The Human Freedom Index, Cato Institute. "Asl" is Australia; "Aus" is Austria.

Freedom

Perceived freedom to make life choices

Nor, Fin, DenSwi, NZ, Asl, SweCan, NthAus, Ire, Ger, BelPor, Ja, UKFrSp, US

It, Kor

50

100%

1960 70 80 90 2000 10Year

Share responding "satisfied" to the question "Are you satisfied or dissatisfied with your freedom to choose what you do with your life?" The vertical axis doesn't begin at zero. Data source: Gallup World Poll, via the World Happiness Report 2017, online appendix. "Asl" is Australia; "Aus" is Austria.

Freedom

Economic growth

Innovation

Swi

Fin, US, SweNth, UK

Ger, DenJaIreNor, Kor, AusCan, Fr, NZ, AslBel

PorIt, Sp

1

321960 70 80 90 2000 10

Year

Innovation rank: average innovation ranking for 2015 according to the Global Competitiveness Report and the Global Innovation Index. Data sources: World Economic Forum, The Global Competitiveness Report 2015-2016, pillar 12, table 5; Cornell University, Insead, and WIPO, The Global Innovation Index 2015, p. xxx. "Asl" is Australia; "Aus" is Austria.

Economic growth

GDP per capita (log)

NorSwi, USIre, Nth, Asl, SweAus, Ger, Can, DenBel, UK, Fin, FrJa, NZIt, Sp

Por

15

30

$60k

1960 70 80 90 2000 10Year

Adjusted for inflation and converted to US dollars using purchasing power parities. The vertical axis doesn't begin at zero. Data source: OECD. "Asl" is Australia; "Aus" is Austria.

Economic growth

Asl AusCan

Ger

Ire

ItJa

Nth

NZPor

SpSwi UK

US

DenFin

Nor

SweBel

FrLow

HighEc

onom

ic g

row

th

30% 60%Government revenues

The data are for 1979-2007. The line is a linear regression line, with Ireland and Norway excluded. Economic growth: average annual rate of change in GDP per capita, adjusted for initial level (catch-up). Data source: OECD. Government revenues: share of GDP. Includes all levels of government: central, regional, and local. Data source: OECD. "Asl" is Australia; "Aus" is Austria.

Economic growth

Denmark

Government revenues: share of GDP. Includes all levels of government: federal, state, and local. The line is a loess curve. Data sources: for 1960-2007, OECD; for 1913-60, Vito Tanzi, Government versus Markets, Cambridge University Press, 2011, pp. 9, 92 (with a minor adjustment). GDP per capita: natural log of inflation-adjusted GDP per capita. A log scale is used to focus on rates of change. The vertical axis does not begin at zero. The line is a linear regression line; it represents a constant rate of economic growth. Data source: Angus Maddison, "Statistics on World Population, GDP, and Per Capita GDP," ggdc.net/maddison/oriindex.htm.

Economic growth

Sweden

Government revenues: share of GDP. Includes all levels of government: federal, state, and local. The line is a loess curve. Data sources: for 1960-2007, OECD; for 1913-60, Vito Tanzi, Government versus Markets, Cambridge University Press, 2011, pp. 9, 92 (with a minor adjustment). GDP per capita: natural log of inflation-adjusted GDP per capita. A log scale is used to focus on rates of change. The vertical axis does not begin at zero. The line is a linear regression line; it represents a constant rate of economic growth. Data source: Angus Maddison, "Statistics on World Population, GDP, and Per Capita GDP," ggdc.net/maddison/oriindex.htm.

Economic growth

United States

Government revenues: share of GDP. Includes all levels of government: federal, state, and local. The line is a loess curve. Data sources: for 1960-2007, OECD; for 1946-55, Economic Report of the President, 2011, tables B-79, B-86; for 1913-25, Vito Tanzi, Government versus Markets, Cambridge University Press, 2011, pp. 9, 92 (with a minor adjustment). GDP per capita: natural log of inflation-adjusted GDP per capita. A log scale is used to focus on rates of change. The vertical axis does not begin at zero. The line is a linear regression line; it represents a constant rate of economic growth. Data source: Angus Maddison, "Statistics on World Population, GDP, and Per Capita GDP," ggdc.net/maddison/oriindex.htm.

Economic growth

Asl

Aus

BelCan

Fr

Ger

Ire

It

Ja

Nth

NZ

Por SpSwi

UKUSDen

Fin

NorSwe

-6

1%C

hang

e in

eco

nom

ic g

row

th

2 16%Change in tax revenues

Economic growth: average annual rate of change in GDP per capita. 1979-2007 minus 1950-73. Data source: Angus Maddison, "Statistics on World Population, GDP, and Per Capita GDP," ggdc.net/maddison/oriindex.htm. Tax revenues: share of GDP. Includes all levels of government: central, regional, and local. 1979-2007 minus 1965. Data source: OECD. "Asl" is Australia; "Aus" is Austria.

Economic growth

Is social democratic capitalism better for economic growth?

Encourages entrepreneurship

Facilitates employment by women and those from less-advantaged backgrounds

Allows unemployed workers more time to reskill and choose a productive job

Limits income inequality

But I don't see support for this hypothesis in the cross-country or over-time data

Employment

Employment rate

Swe, SwiNZ, Nor, Ja, GerDen, UK, NthCan, Asl, Aus, FinUS, Kor, Por, FrIre, Bel

SpIt

50

64

84%

1960 70 80 90 2000 10Year

Employed persons as a share of all persons. Age 25-64. The vertical axis doesn't begin at zero. Data source: OECD. "Asl" is Australia; "Aus" is Austria.

Health

Life expectancy Ja, Sp, Swi, It, FrAsl, Swe, Kor, Nor, NthAus, NZ, Can, Bel, IreUK, Fin, Ger, Por, DenUS

50

7983

1960 70 80 90 2000 10Year

Years of life expectancy at birth. The vertical axis doesn't begin at zero. Data source: OECD. "Asl" is Australia; "Aus" is Austria.

Health

Healthy life expectancy SweNor

UK, IreSwiBel, Sp, FrItDenNthAusFinPor, Ger

50

58

70

1960 70 80 90 2000 10Year

Expected years of life without limitations on usual activities. At birth. The vertical axis doesn't begin at zero. Data source: OECD, Health at a Glance: Europe, 2012. "Aus" is Austria.

Education

PISA scores, 15-year-olds

JaCan, FinKor

Ire, Ger, Nth, Swi, NZDen, Nor, Bel, AslUK, Por, Swe, FrAus, SpUS, It485

530

1960 70 80 90 2000 10Year

Average student score on PISA reading, math, and science tests. 15-year-olds. The PISA tests ask students to solve problems they haven’t seen before, to identify patterns that aren't obvious, and to make compelling written arguments. The vertical axis doesn't begin at zero. Data source: OECD. "Asl" is Australia; "Aus" is Austria.

Education

College degree

US

NorNth, UKKor, FinDen, Asl

NZ, JaSwe, Can, IreSwi, PorFr, SpBel, ItAusGer

0

20

40%

1960 70 80 90 2000 10Year

Ages 25 to 34. Bachelor's (or bachelor's equivalent) or more. Data sources: National Center for Education Statistics, Digest of Education Statistics, table 603.30, using OECD data; OECD, Education at a Glance 2015, table A1.3a, p. 41. "Asl" is Australia; "Aus" is Austria.

Safety

Homicides

US

Fin, NZ, CanPor, Asl, Bel, Nth, Swe, UKFr, Den, Ire, It, Nor, SpGer, Aus, Swi, Ja0

5

10

1960 70 80 90 2000 10Year

Homicides per 100,000 population. Data source: OECD. "Asl" is Australia; "Aus" is Austria.

Safety

Feel safe walking alone at night

NorSwiFin, Den

Can, Sp, Aus, NthUK, Ire, SweGer, US

Fr, Ja, Bel, PorKor

NZAslIt

50

60

90%

1960 70 80 90 2000 10Year

Question: "Do you feel safe walking alone at night in the city or area where you live?" The vertical axis doesn't begin at zero. Data source: OECD Better Life, using Gallup World Poll data. "Asl" is Australia; "Aus" is Austria.

Shared prosperity

Median household income

Nor, Swi

USAsl, Can, AusDen, Swe, FinGer, Bel, Nth, FrKorJa, Ire, It, UK

Sp

Por

0

23

$58k

1960 70 80 90 2000 10Year


Shared prosperity

P10 household income

NorSwi

Aus, DenCan, Fin, NthAsl, GerBel, Fr, Ire, SweNZ, USIt, UKKorJaSpPor

0

10

$31k

1960 70 80 90 2000 10Year


Income inequality

Top 1%'s income share

US

UK, CanGerKorIre, Swi, JaPor, It, Asl, NZ, SpSwe, Fr, Nor, FinDen, Nth

0

6

22%

1960 70 80 90 2000 10Year

Pretax income. Excludes capital gains. Data source: World Wealth and Income Database. "Asl" is Australia.

Wealth inequality

Top 1%'s wealth share

US

Ger, Aus, NthPor

Nor, Fr, UKCan Sp, ItAsl, Bel, Fin

0

12

37%

1960 70 80 90 2000 10Year

Wealth = assets minus liabilities. Data source: OECD. "Asl" is Australia; "Aus" is Austria.

Gender pay inequality

Gender pay gap

Kor

Ja

Por, Can, US, FinGer, Aus, Swi, UKIre, Asl, Nth, SweSp, FrNor, NZ, Den, ItBel

0 3

37%

1960 70 80 90 2000 10Year

Difference between median full-time male pay and median full-time female pay as a share of median male pay. Data source: OECD. "Asl" is Australia; "Aus" is Austria.

Family

Children living in two-parent families ItAus, Ja, Nth

Sp, AslPor, Ire, SweGerCan, Fr

UK, US

Den

50

66

89%

1960 70 80 90 2000 10Year

Share of all children. The vertical axis doesn't begin at zero. Data source: OECD. "Asl" is Australia; "Aus" is Austria.

Family

Fertility rate

NZ, Ire, FrSwe, US, Asl, UKNor, Den, BelNth, Fin, CanSwi, Ger, Aus, JaIt, Sp, Por, Kor

1

2

3

1960 70 80 90 2000 10Year

Average number of children born per woman. The vertical axis doesn't begin at zero. Data source: OECD. "Asl" is Australia; "Aus" is Austria.

Work-family-leisure balance

Work more than 50 hours per week

US

KorJa

NZ, Asl, UK

Por

Fr, AusSwi, SpGer, Bel, Ire, Can, ItFin, Nor, DenSwe, Nth0

23%

1960 70 80 90 2000 10Year

Share of employed persons whose usual hours of work per week are 50 hours or more. Data source: OECD. "Asl" is Australia; "Aus" is Austria.

Civic engagement

Active member of a voluntary organization CanNZ

UKSwiAsl, US

Nth, NorSwe, FinFrGer, ItKorJaSp

0

18%

1960 70 80 90 2000 10Year

Average for 8 types of organization: sports-recreation, religious, art-music-education, charitable, professional, labor union, environment, consumer. Question: “Now I am going to read off a list of voluntary organizations. For each organization, could you tell me whether you are an active member, an inactive member, or not a member of that type of organization?” Data source: World Values Survey, worldvaluessurvey.org. “Asl” is Australia.

Environment

Carbon dioxide emissions per capita

US, Asl

CanKor, NorNth, JaGer, Fin, BelIre, NZ, Aus, UK, DenItFr, Sp, Swi, Swe, Por

0

4

16

1960 70 80 90 2000 10Year

Metric tons per person. Data source: World Bank. “Asl” is Australia; “Aus” is Austria.

Openness to other peoples

Trade

Swi, NorDen, Fin, Swe, othersUS, Asl, NZ

Fr, Ja

Kor

60

73

90

1960 70 80 90 2000 10Year

Scale of 0 to 100, with higher scores indicating greater freedom. The score is based on a country’s average tariff rate and the extensiveness of non-tariff barriers to imports. The vertical axis doesn't begin at zero. Data source: Heritage Foundation, heritage.org/index. "Asl" is Australia; "Aus" is Austria.

Openness to other peoples

Immigration

Swi, Asl

NZCan

Aus, IreSwe, BelNor, Sp, US, GerUK, Fr, NthItDen, Por

Fin

Ja, Kor0

28%

1960 70 80 90 2000 10Year

Foreign-born share of the population. Includes both legal and illegal immigrants. Data source: OECD. "Asl" is Australia; "Aus" is Austria.

Government debt

Government net debt

It, Ja

US

PorBelUSSp, UK, Fr, Ire

AusGer, NthCan

Swi, Den, NZ

Bel

AslSwe

Fin-50

0

100%

1960 70 80 90 2000 10Year

Government financial liabilities minus government financial assets, measured as a share of GDP. Higher on the vertical axis indicates larger debt. Data source: OECD. Norway, which has a negative net debt of better than 200% of GDP, is omitted.

Happiness

Suicides

Kor

JaBelFr, Fin, Aus, USNZ, Asl, Swi, SweCan, Ire, Ger, DenNor, Nth, PorSp, UK, It

0

8

29

1960 70 80 90 2000 10Year

Suicides per 100,000 population. Data source: OECD. "Asl" is Australia; "Aus" is Austria.

Happiness

Life satisfaction

US

DenNor, IreSwi

Fin, Can, NZUK, Swe, Nth

GerAslAus, PorFr, It, JaSp, BelKor6.5

8.5

1960 70 80 90 2000 10Year

Question: "All things considered, how satisfied are you with your life as a whole these days?" Scale from 1 (completely dissatisfied) to 10 (completely satisfied). The vertical axis doesn't begin at one. Data source: World Values Survey, via the World Database of Happiness, series 122F. "Asl" is Australia; "Aus" is Austria.

Tradeoffs?

Conclusion: The Nordic countries have done as well as other rich democratic nations on nearly all outcomes, and better on some

Is the model's success generalizable?

Is the model's success generalizable?

Are the Nordic countries uniquely able to avoid tradeoffs?

In other words, is the Nordics' ability to use social democratic policies (and thereby achieve "expanded Rawlsian" outcomes) while avoiding tradeoffs nonreplicable?

Why nongeneralizable?

Intelligence

Work ethic, honesty, responsibility

Trust

Institutional coherence

Small size and ethnic homogeneity

Effective government

Strong unions

Intelligence

PISA scores, 15-year-olds

JaCa, FinKor

Ire, Ger, Nth, Swi, NZDen, Nor, Bel, AslUK, Por, Swe, FrAus, SpUS, It485

530

1980 90 2000 10Year

Average student score on PISA reading, math, and science tests. 15-year-olds. The PISA tests ask students to solve problems they haven’t seen before, to identify patterns that aren't obvious, and to make compelling written arguments. Data source: OECD. "Asl" is Australia; "Aus" is Austria.


"The uniquely strong norms associated with personal responsibility and work in the Nordics made these societies particularly well suited for avoiding the moral hazard of generous welfare systems."


"Wrongly claiming government benefits is never justified"

NthDenUK, SwiIt, AslNZCan, Ger, IreUS, Ja, FinBel, SpNor, Por, Swe, Aus

Kor

Fr30

90%

1980 90 2000 10Year

Question: "Please tell me for each of the following actions whether you think it can always be justified, never be justified, or something in between: claiming government benefits to which you are not entitled." The lines show the share responding "never be justified." The vertical axis doesn't begin at zero. Data sources: World Values Survey and European Values Survey. "Asl" is Australia; "Aus" is Austria.


Hours worked per employed person

USUS

PorIreNZIt, Ja, CanSp, UK, AslFin, AusSwe, SwiBel

Fr, DenNor, NthGer1.4k

2.1k

1980 90 2000 10Year

Average annual hours worked per employed person. "k" = thousand. The vertical axis doesn't begin at zero. Data source: OECD. "Asl" is Australia; "Aus" is Austria.


Response to work disincentives: In the late 1980s, when sickness insurance benefits were very generous and easy to qualify for, Swedes missed work due to "sickness" an average of 25 days per year (Americans average 5 days)

Trust

"Most people can be trusted"

US

Den, Nor

NthSwe, FinNZAsl, SwiGerCan

Ire, Ja

UK, Bel, It, Kor

Fr, Sp

0

75%

1980 90 2000 10Year

Share of adults who believe most people can be trusted. Question: "Generally speaking, would you say that most people can be trusted or that you need to be very careful in dealing with people?" Data source: World Values Survey. "Asl" is Australia; "Aus" is Austria.

Trust

Some conclude trust is key to good outcomes (Fukuyama 1995; Putnam 2000)

But supportive evidence is thin (Kenworthy 2001)

Trust

In any event, trust isn't set in stone

Trust

"Most people can be trusted"

Den

Swe

US

0

75%

1960 70 80 90 2000 10Year

Share of adults who believe most people can be trusted. Data sources: World Values Survey; General Social Survey, sda.berkeley.edu, series trust; National Opinion Research Corp.

Trust

The key determinant seems to be confidence/ trust in government

Trust

Trust: Share of adults saying “most people can be trusted.” The other response option is “You can never be too careful when dealing with others.” Data source: World Values Survey. Confidence in government question: “Do you have confidence in the national government: yes or no?” Data source: Gallup World Poll, via the OECD. The correlation is +.76. “Asl” is Australia; “Aus” is Austria.

Trust

United States

Share of adults. Trust in government question: “Do you trust the government in Washington to do what is right always, most of the time, some of the time, or never?” Data source: Pew Research Center, “Public Trust in Government, 1958-2017,” using data from assorted public opinion surveys. Trust question: “Generally speaking, would you say that most people can be trusted or that you can’t be too careful in life?” Data sources: General Social Survey, sda.berkeley.edu, series trust; National Opinion Research Corp. The correlation is +.85.

Trust

How to increase trust in government?

A big welfare state

Institutional coherence

The Nordic countries' configuration of institutions and policies hasn't been more coherent than those of Germany, Japan, the US, and some others

The Nordics' policies and institutions have changed over time

There is no empirical association between coherence and economic success (Kenworthy 2006)

Small size and ethnic homogeneity

These features likely helped the Nordic countries adopt social democratic policies

But it isn't clear why they would contribute directly to successful outcomes

Effective government

Nordic governments have been good at experimenting and adjusting ("The streets of Stockholm are awash with the blood of sacred cows")

Yet they've made plenty of mistakes: excessive generosity in some social programs, Sweden's rapid reduction of capital controls coupled with austerity in the early 1990s, Denmark's failure to prevent a housing bubble pre-2008, and more

Strong unions

Unionization

Fin, Swe, Den

Bel, Nor

It, IreCan, Aus, UKNZ, Por, Nth, JaGer, Asl, Sp, SwiUS, Kor, Fr

0 10

70%

1960 70 80 90 2000 10Year

Union members as a share of all employees. Data source: Jelle Visser, "ICTWSS: Database on Institutional Characteristics of Trade Unions, Wage Setting, State Intervention, and Social Pacts," version 5.1, 2016, Amsterdam Institute for Advanced Labour Studies, series ud, ud_s.

Strong unions

Unions, like small population size and ethnic homogeneity, increase the likelihood that a country will adopt social democratic policies

The key question is whether, and if so to what extent, unions contribute directly to successful outcomes

Strong unions

In the 1970s and 1980s, coordinated wage bargaining encouraged wage moderation and thereby contributed to healthy macroeconomic performance

But in the era of independent central banks and restrictive monetary policy, wage coordination is no longer needed to achieve this outcome

Strong unions

They're probably one of the reasons why the Nordic countries have had a moderate rather than large rise in income inequality

Solidaristic wage policy compresses earnings

Unions push against skyrocketing executive pay (top 1%)

Strong unions

They contribute to economic security and shared prosperity by boosting wages

Potential alternatives

Wage extension practices (Nth, Ger)

Extension laws (France)

Tribunals (Australia)

Strong unions

Collective bargaining coverage

Aus, Fr, BelFin, SweNth, DenIt, Sp

Nor, PorAsl, Ger

SwiIre

UK, Can

Ja, NZKor, US

0 12

98%

1960 70 80 90 2000 10Year

Share of employees whose wages are determined by a collective agreement. Data source: Jelle Visser, "ICTWSS: Database on Institutional Characteristics of Trade Unions, Wage Setting, State Intervention, and Social Pacts," version 5.1, 2016, Amsterdam Institute for Advanced Labour Studies, series adjcov.

Strong unions

If a country like the US with very weak unions and no mechanism to compensate adopts social democratic capitalism, wage growth (in the middle and below) will be slower and income inequality will be higher than in the Nordics

Other outcomes should be similar

Have the Nordic countries moved away from the social

democratic model?

Have the Nordics abandoned the model?

Benefit reductions: stricter eligibility criteria, lower replacement rates, shorter duration, heavier tax clawbacks

Changes to services: more user fees, more private supplements

At the same time, some benefits and services have become more generous: parental/family leave, early education, child allowance


More risks are now covered ("old" plus "new")

Some are covered less generously than before

More targeting within universalism

Enhanced emphasis on employment


Public transfer replacement rates

Aus, Nor

Bel, Fin, GerSwe, JaIt, CanFr, DenNthIreSwiUK, USNZ, Asl

0

32

92%

1960 70 80 90 2000 10Year

Average replacement rate for public insurance programs aimed at risks during childhood, working age, and old age. 2000-2010. Data source: Simon Birnbaum, Tommy Ferrarini, Kenneth Nelson, and Joakim Palme, The Generational Social Contract, Edward Elgar, 2017, using data from the Social Policy Indicators (SPIN) database. "Asl" is Australia; "Aus" is Austria.


Public social expenditures

FrFinBel, It, Den, AusSweSp, GerPor, Nor, JaNth, UK

NZ, Swi, US, AslCan, Ire

Kor

0

10

32%

1960 70 80 90 2000 10Year

Share of GDP. Gross public social expenditures. Data source: OECD. "Asl" is Australia; "Aus" is Austria.


Government revenues

Nor, Fin, Fr, DenSwe, BelAusItGerNth, Por

Can, NZ, UKSpJa, SwiKor, Aus, US

Ire26

54%

1960 70 80 90 2000 10Year

Share of GDP. Total government revenues. Includes all levels of government. The vertical axis doesn't begin at zero. Data source: OECD. "Asl" is Australia; "Aus" is Austria.


Continental European countries are moving toward the social democratic model — more early education, more ALMP, easing of product and labor market regulations

Challenges the model is equipped to deal with

Capital mobility

How to avoid a race to the bottom in taxation: offer firms a skilled workforce, good services, product and labor market flexibility

More flexible/precarious jobs

Transfers and services are paid for mainly by government (taxes) rather than by employers

Extensive supports for work-family balance

Consumer desire for greater choice

Recent experimentation with enhanced choice in services

Choice within public services

Private supplements to public services

Social democratic capitalism isn't a cure-all

It isn't a cure-all

1. Finance-driven crises

2. Wage stagnation

3. Decline of good jobs in small cities/towns

4. Unaffordable housing in large cities

5. Economic and social exclusion of less-skilled immigrants

1. Finance-driven crises

Many 1990s progressives were willing to keep hands off the financial sector, but that proved disastrous in 2008

Preventing future crises requires significant regulation

2. Wage stagnation

Wages in the United States

Hourly wage at the fiftieth (median) and tenth percentiles of the wage distribution. 2012 dollars; inflation adjustment is via the CPI-U-RS. Data source: Economic Policy Institute, “Wages Deciles,” The State of Working America, using Current Population Survey (CPS) data.

2. Wage stagnation

Slow household income growth in the US

Each series is displayed as an index set to equal 1 in 1947. The family income data are posttransfer-pretax. Inflation adjustment for each series is via the CPI-U-RS. Data sources: Bureau of Economic Analysis, “National Income and Product Accounts Tables,” table 1.1.5; Census Bureau, “Historical Income Data,” tables F-1 and F-5..

2. Wage stagnation

Unions can solve this, but unionization rates have been declining in most rich nations

Collective bargaining extension (Fr, Nth) or wage-setting by tribunals (Australia) can substitute

Another potential substitute: an EITC that rises in sync with GDP per capita

3. Loss of jobs in small cities/towns

Manufacturing employment

Manufacturing employment share of the pop age 15-64. The break in the data series is due to a change in measurement. Data source: OECD.


This may be a key cause of populism's rise in many rich countries

It's surely part of the reason why Donald Trump in 2016 won among whites without a four-year college degree by almost 40 percentage points (according to exit poll data) and why he won in Ohio, Pennsylvania, Michigan, and Wisconsin


What to do?

Education, (re)training

Support for investment Government investment in infrastructure

Place-specific investment funds

Regional employer consortiums

Temporary wage subsidy for new jobs

Assistance with moving out or incentives for others to move in (including immigrants)


It reportedly is as hard to find affordable housing in Stockholm as in San Francisco


What to do?

Increase housing supply via fewer or different regulations

Support for affordable rental units

5. Exclusion of less-skilled immigrants

Immigrant-nativeborn employment rate gap

US

It

SwiUK, Por

Sp, Aus, GerFin, Can, IreAsl, FrNZ, DenNor, NthBel

Swe-18

0

17%

1980 90 2000 10Year

Employment rate for immigrants with less than secondary education minus employment rate for native-born persons with less than secondary education. Age 15-64. Data source: OECD, Settling In: OECD Indicators of Immigrant Integration, 2012, figure 6.2. "Asl" is Australia; "Aus" is Austria.

5. Exclusion of less-skilled immigrants

What to do?

Support for education (including language)

Incentives for geographical integration

Perhaps a lower wage floor (with an EITC)

Immigrant inclusion often takes two or three generations

Even if my conclusion is correct, it gives no guidance on important policy details

Details, details

Should early education be universal or targeted to the poor, or to the poor plus middle?

Should paid parental leave be for six months or one year? Should it include a "daddy quota"?

Should there be a statutory minimum wage? If so, how high?

Supplement low wages with a tax credit?

Etc, etc …

Are there better alternatives?

Are there better alternatives?

Might other institutions and policies do even better than social democratic capitalism?

Libertarianism Conservatism (modest welfare state plus strong families and civil society) The Swiss, German, and Australian models Basic income Hyperdemocracy

I'm skeptical, but open to argument and evidence

Social democratic capitalism in the United States?

Social democratic capitalism in the US?

I predict yes

America's social democratic future

As people and countries get richer, they're willing to spend more on insurance and fairness

While America's veto-point-laden government makes policy advance difficult, occasionally advances do come

Once in place, public insurance programs seldom get reversed, because Americans like them and because veto points make it easy to block reversals


The US has been traveling along the path toward social democracy since the 1930s

In public insurance, today's America is closer to today's Sweden and Denmark than it is to 1917 America


0 12 38 48%Korea

SwitzerlandAustralia

UNITED STATESJapan

IrelandNew Zealand

CanadaSpain

NorwayUnited Kingdom

NetherlandsGermanyPortugal

ItalyBelgiumAustriaFinland

SwedenFrance

Denmark

19202000-142065

Government expenditures as a share of GDP


Formidable but surmountable obstacles

1. Americans don't like big government

2. The rhetoric of reaction

3. Can the left continue to attract the voters and money needed to win elections?

4. The balance of power among organized interests has shifted to the right

5. Veto-point-laden government plus polarized parties plus Republican obstructionism


California shows the way forward

Aggressive Medicaid (MediCal) expansion (since

2010); it now covers one-third of Californians

Paid parental leave: 6 weeks, 55% replacement rate (2004)

Paid sickness leave, 8 days/year (2015)

Supplemental defined-contribution pension program with automatic enrollment (2016)


California shows the way forward

$15/hour minimum wage by 2022 (2016)

More generous EITC at the low end (2015)

Commitment to reduce greenhouse gas emissions by 40% below 1990 levels (2015)


California is a microcosm of the US

Large population (40m)

High race/ethnic diversity

Weak unions

Individualist/libertarian culture

Low trust

Veto points: two-house legislature, independently-elected executive, two-thirds requirement for tax increases


So how has California enacted so much progressive policy?

Left (Democratic Party) control of government

Policy makers' willingness to look at evidence and listen to popular movements ("Fight for $15")


Hillary Clinton's 2016 campaign platform pledged a large expansion of US social programs

California + Medicare eligibility at age 55 + early education + tuition-free college + increased child allowance (tax credit) + large increase in infrastructure spending


Will Americans tolerate higher taxes?

Recently there's been some success in raising taxes on the rich

2010 new Medicare taxes above $250k: 0.9% on wages, 3.8% on investment income

2013 lapse of Bush federal income tax cuts for incomes above $450k

2012 and 2016 California additional tax on incomes above $250k (to pay for K-12 schools)


But higher taxes on the rich aren't enough

Effective tax rate on the top 5%

Social Democratic Capitalism

Lane Kenworthy

Social Democratic Capitalism - WordPress.com...2017/11/10 · Social democratic capitalism 1. Capitalism: private ownership, markets 2. Expansive, generous public insurance (big welfare

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