The welfare stateThe welfare state and and middle class political middle class political

dominancedominance The Finnish Academy of Science and Letters The Finnish Academy of Science and Letters

Centennial Celebration Seminar inCentennial Celebration Seminar inSocial SciencesSocial Sciences

Helsinki Jan 28, 2008Helsinki Jan 28, 2008Professor Bo RothsteinProfessor Bo Rothstein

University of GothenburgUniversity of Gothenburg

Some basic factsSome basic facts

Nordic countries (ex. Norway)Nordic countries (ex. Norway) USUS Growth: Growth: 3,1%3,1% 3,2%3,2% WEF rank: WEF rank: 3,4, & 63,4, & 6 11 GDP/Cap: GDP/Cap: 3300033000 4100041000 Public exp: Public exp: 48%48% 27%27% Inf. Mort: Inf. Mort: 3,5%3,5% 7%7% Life exp: Life exp: 7979 7777 Hours worked: Hours worked: 16001600 18001800 In poverty all: In poverty all: 5%5% 17%17% Poverty child: Poverty child: 3,5%3,5% 22%22% Social Trust: Social Trust: 59%59% 33%33% In prison: In prison: 72 /10000072 /100000 725 /100000725 /100000

Income and Life SatisfactionIncome and Life Satisfaction

Economic Growth and Economic Growth and EqualityEquality

No correlation between levels of public No correlation between levels of public spending and economic growthspending and economic growth

There is no “trickle down” effectThere is no “trickle down” effect Lindert: Public spending on investments Lindert: Public spending on investments

in “human capital” increases growth in “human capital” increases growth Social policies may increase flexibility on Social policies may increase flexibility on

labor marketslabor markets Policies for equality increases social trust Policies for equality increases social trust

that may increase economic growththat may increase economic growth

Measuring country Measuring country performanceperformance

Human Development (UNDP)Human Development (UNDP) Economic competitiveness (WEF)Economic competitiveness (WEF) GDP/capita (World Bank)GDP/capita (World Bank) Democracy (The Economist)Democracy (The Economist) Globalization (The Swiss Economic Institute)Globalization (The Swiss Economic Institute) Political Freedom (Freedom House)Political Freedom (Freedom House) Gender Equality (WES)Gender Equality (WES) Corruption (Transparency International)Corruption (Transparency International) Environmental Protection (Yale, WEF)Environmental Protection (Yale, WEF) Doing Business (World Bank)Doing Business (World Bank) Knowledge Economy (World Bank)Knowledge Economy (World Bank) Good Society Index (Quality of Government Institue, Good Society Index (Quality of Government Institue,

Gothenburg)Gothenburg)

Meta IndexMeta Index 1. Sweden1. Sweden 2. Denmark2. Denmark 3. Iceland3. Iceland 4. Norway4. Norway 5. Finland5. Finland 6. Switzerland6. Switzerland 7. Canada7. Canada

ConclusionsConclusions Government spending can reduce Government spending can reduce

inequalityinequality Equality does not harm growthEquality does not harm growth Equality “from below” is more Equality “from below” is more

important than equality “from important than equality “from above” above”

The Linguistic Problem The Linguistic Problem Welfare State orWelfare State or Social Insurance State orSocial Insurance State or Social Service State orSocial Service State or Social Protection State orSocial Protection State or

Gustav Möller’s 1948 Gustav Möller’s 1948 discovery discovery

Contrary to the predictions of the Marxist theory, the Contrary to the predictions of the Marxist theory, the industrial proletariat did not grow largerindustrial proletariat did not grow larger

The white-collars strata had started to grow faster The white-collars strata had started to grow faster than the traditional working classthan the traditional working class

The while-collars strata would start to play a key-role The while-collars strata would start to play a key-role in the electionsin the elections

If the Social Democrats would continue in power, the If the Social Democrats would continue in power, the party had to create new policies that would appeal party had to create new policies that would appeal to the white-collar segment without alienating the to the white-collar segment without alienating the traditional blue-collar working class voterstraditional blue-collar working class voters

A strategic dilemmaA strategic dilemma

The solution: A conceptual The solution: A conceptual innovationinnovation

From workers to wage-earnersFrom workers to wage-earners From ”middle-class” to wage-earnersFrom ”middle-class” to wage-earners From working class (or middle-class) From working class (or middle-class)

politics to wage-earners’ politicspolitics to wage-earners’ politics To unite people without propertyTo unite people without property Support of a strong and well-organized Support of a strong and well-organized

white-collar union movementwhite-collar union movement

Four policy solutionsFour policy solutions 1. Universal social services and benefits1. Universal social services and benefits 2. Income-related social insurance 2. Income-related social insurance

systemsystem 3. A strong emphasis on eduction3. A strong emphasis on eduction 4. Gender equality policies4. Gender equality policies MÖLLER’S STRATEGY: CREATING MÖLLER’S STRATEGY: CREATING

SOLIDARITY BY POLICIES FROM ABOVESOLIDARITY BY POLICIES FROM ABOVE

.

Group Averageincome

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

How does the system works?How does the system works?

The efficiency argumentThe efficiency argument Could the market do it?Could the market do it? Would privatization be more efficient?Would privatization be more efficient? Would the middle class be better of Would the middle class be better of

with lower taxes that would make it with lower taxes that would make it possible to by private insurances?possible to by private insurances?

The theory about ”assymetric The theory about ”assymetric information says” – probably not. information says” – probably not.

””Information failures provide both a theoretical Information failures provide both a theoretical justification of and an explanation for a welfare state justification of and an explanation for a welfare state which is much more than a safety net. Such a welfare which is much more than a safety net. Such a welfare state is justified not simply by redistributive aims one state is justified not simply by redistributive aims one may (or may not) have, but because it does things which may (or may not) have, but because it does things which markets for technical reasons would either do markets for technical reasons would either do inefficiently, or would not do at all”inefficiently, or would not do at all”

””Both theory and the performance of systems in practice Both theory and the performance of systems in practice overwhelmingly support the view that a hypothetical pure overwhelmingly support the view that a hypothetical pure private market for medical care and medical insurance private market for medical care and medical insurance would be highly inefficient and also inequitable”would be highly inefficient and also inequitable”

Nicholas Barr: Economic theory and the welfare state”Nicholas Barr: Economic theory and the welfare state”

ConclusionsConclusions The Nordic welfare state is very much The Nordic welfare state is very much

program that serves the middle-class program that serves the middle-class (wage earners more than small business)(wage earners more than small business)

This was, at least in Sweden, a very This was, at least in Sweden, a very deliberate political strategydeliberate political strategy

Non-socialist (centre-right) governments Non-socialist (centre-right) governments seem to be locked-in into this systemseem to be locked-in into this system

However, the system works pretty well, However, the system works pretty well, so farso far

Thanks for listening!Thanks for listening! QuestionsQuestions Comments Comments CritiqueCritique