GV4D4: Politics of Inequality and Redistribution

« LSE

These are my notes for GV4D4 at the London School of Economics for the 2017-2018 school year. I took this module as part of the one-year Inequalities and Social Science MSc program.

The usual disclaimer: all notes are my personal impressions and do not necessarily reflect the view of the lecturer.

Taught by Dr Jonathan Hopkin, Associate Professor of Comparative Politics in the Department of Government at LSE.

Assessment

This module was 100% assessed via a 2-hour unseen exam and our exam papers were not returned to us, sadly. I vaguely remember writing about public choice theory and probably austerity as well.

Lecture notes

Introduction - week 1

Readings

(I didn’t do the readings in advance because, well, I didn’t know there were any—I hadn’t yet been offered a place in the course and so couldn’t access it through Moodle. But apparently you can view the reading list for any course at LSE through lse.rl.talis.com. Seems like there’s a lot of overlap with SO478, which is convenient for me.)

Inequality by Anthony B. Atkinson (introduction and chapter 1)

_(Writing up these notes on May 21, 2018, the day before the exam)

The thrust of this chapter is Atkinson trying to convince the average reader that equality of outcome is important (and that we shouldn’t focus solely on equality of opportunity). His reasons are as follows:

some people have bad luck
the rewards are themselves unequal, and that inequality is informed by arbitrary arrangements: “It is the existence of a highly unequal distribution of prizes that leads us to attach so much weight to ensuring that the race is a fair one. And the prize structure is largely socially constructed. Our economic and social arrangements determine whether the winner gets a garland or $3 million” (p11)
intergenerational inequality is affected: “Today’s ex-post outcomes shape tomorrow’s ex ante playing field: the beneficiaries of inequality of outcome today can transmit an unfair advantage to their children tomorrow.” (p11)

He also criticises the economics profession for failing to adequately address the topic of inequality thus far. His main concern with inequality is that it destroys social cohesion (“A society in which no one could afford to travel privately into space, and in which everyone could afford to buy their food from ordinary shops, would be more cohesive and have a greater sense of shared interests.”, p16) which is a little disappointing given that he mentions the social constructiveness of the prize structure early on.

On inequality being magnified within the upper echelons of the economy:

The upper tail of the distribution has some resemblance to a Russian matryoshka nested doll: wherever we slice the distribution we find the same inequality being reproduced within the remaining top part. (p20)

Highlights the increase in inequality in both the US and the UK since the 70s/80s, after dropping quite dramatically during WWII (and potentially for some period before and after, depending on which metrics you consider).

Mentions New Labour’s approach to inequality/poverty: “In 1999 under Tony Blair the UK government adopted an official target for the abolition of child poverty, with the aim of eradicating child poverty by 2020” (p24). Also:

The decline in poverty in the UK was accompanied by a marked rise in top income shares. The New Labour government was “intensely relaxed” (a contradiction in terms?) about people getting rich. However, the fall achieved in the past twenty years—for which credit must be given—still leaves the current UK poverty rate above the level of the 1960s and 1970s, a level that was regarded at the time as profoundly shocking. The Child Poverty Action Group was founded in 1965 when the poverty rate was 3 per cent lower than it is today. (p24)

(Incidentally, this has nothing to do with the chapter itself, but this New Socialist piece on New Labour’s social exclusion policy is quite good.)

This, on the link between poverty and high top income shares, is good (although Atkinson only illustrates this with quantitative data, rather than going deeper into the wage-labour-related reasons, at least for now):

There is still a long way to go. In my judgement, the eradication of poverty in rich countries requires us to think more ambitiously, beyond the strategies employed to date. We have to view our societies as a whole and to recognise that there are important interconnections: economics tends to assume away or downplay any interdependency between the economic fortunes of individuals (or households), but John Donne was right when he wrote that “no man is an Iland, intire of it selfe.” What happens at the top of the distribution affects those at the bottom. (p25)

Some important points on two different measures of inequality: income, and consumption. Both are complex and multifaceted, and neither is “demonstrably superior” to the other (p37). Also mentions that spending is about more than merely consumption, at least for the wealthy (it’s about power).

Capital in the Twenty-First Century by Thomas Piketty (introduction and chapters 1-2)

Challenging the idea that the capital-labour income ratio has been solid throughout history, at 2/3 to 1/3

[…] the shocks that buffeted the economy in the period 1914–1945—World War I, the Bolshevik Revolution of 1917, the Great Depression, World War II, and the consequent advent of new regulatory and tax policies along with controls on capital—reduced capital’s share of income to historically low levels in the 1950s. Very soon, however, capital began to reconstitute itself. The growth of capital’s share accelerated with the victories of Margaret Thatcher in England in 1979 and Ronald Reagan in the United States in 1980, marking the beginning of a conservative revolution. Then came the collapse of the Soviet bloc in 1989, followed by financial globalization and deregulation in the 1990s. All of these events marked a political turn in the opposite direction from that observed in the first half of the twentieth century. By 2010, and despite the crisis that began in 2007–2008, capital was prospering as it had not done since 1913. (p41-42)

Defines “national income” as “domestic output + net income from abroad”, which can also be decomposed as “capital income + labor income” (p45); pretty straightforward. Defines capital as nonhuman capital, either private/public, and synonymous with wealth.

[…] I define “national wealth” or “national capital” as the total market value of everything owned by the residents and government of a given country at a given point in time, provided that it can be traded on some market. (p48)

Public wealth in most developed countries is currently insignificant (or even negative, where the public debt exceeds public assets). As I will show, private wealth accounts for nearly all of national wealth almost everywhere. (p48)

Introduces the (tautological) formula α = r × β, or, share of income going to capital = average rate of return to capital x overall capital-income ratio.

Most of this chapter is concerned with the details of how things are measured/calculated, so eminently skippable tbh.

Some interesting thoughts on the political instability faced in countries whose assets are primarily owned by other countries through corporations, or governments, or individuals (I suspect there’s a lot of nuance he’s missing here, since Piketty isn’t exactly a specialist on postcolonial theory, but at least it’s something):

When a country is largely owned by foreigners, there is a recurrent and almost irrepressible social demand for expropriation. Other political actors respond that investment and development are possible only if existing property rights are unconditionally protected. The country is thus caught in an endless alternation between revolutionary governments (whose success in improving actual living conditions for their citizens is often limited) and governments dedicated to the protection of existing property owners, thereby laying the groundwork for the next revolution or coup. Inequality of capital ownership is already difficult to accept and peacefully maintain within a single national community. Internationally, it is almost impossible to sustain without a colonial type of political domination. (p70-71)

On a different note, he has some interesting things to say about autarky, knowledge transfer, and capital flows:

To sum up, historical experience suggests that the principal mechanism for convergence at the international as well as the domestic level is the diffusion of knowledge. In other words, the poor catch up with the rich to the extent that they achieve the same level of technological know-how, skill, and education, not by becoming the property of the wealthy. The diffusion of knowledge is not like manna from heaven: it is often hastened by international openness and trade (autarky does not encourage technological transfer). Above all, knowledge diffusion depends on a country’s ability to mobilize financing as well as institutions that encourage large-scale investment in education and training of the population while guaranteeing a stable legal framework that various economic actors can reliably count on. It is therefore closely associated with the achievement of legitimate and efficient government. (p71)

Chapter 2

On demographic change, and its effects on inequality (through the vehicle of inheritance). A situation of low growth and high returns on capital leads to greater concentration of capital.

A good quote on the idea of “merit” being used to justify inequality:

For Dunoyer, natural inequalities included diff erences in physical, intellectual, and moral capabilities, differences that were crucial to the new economy of growth and innovation that he saw wherever he looked. Th is was his reason for rejecting state intervention of any kind: “superior abilities … are the source of everything that is great and useful…. Reduce everything to equality and you will bring everything to a standstill.” One sometimes hears the same thought expressed today in the idea that the new information economy will allow the most talented individuals to increase their productivity many times over. The plain fact is that this argument is often used to justify extreme inequalities and to defend the privileges of the winners without much consideration for the losers, much less for the facts, and without any real effort to verify whether this very convenient principle can actually explain the changes we observe. (p85)

Lecture

this course: primarily focused on income inequality in the OECD countries, and the political dimensions involved
central question: why is there so much more income inequality in the US compared to countries (like Norway) in a similar state of economic development? we saw a whole parade of graphs with a lonely America always in the wrong part
this class has been taught for a while but only gained popularity recently, as a result of the publication of Piketty’s book lol
the vicious cycle of income inequality: political policies are shaped by those who benefit from worsening inequality
reasons we should care about inequality: health/social problems otherwise
predistribution (market) vs redistribution (govt), though obviously government policy can affect predistribution as well
(incidentally, wouldn’t things be so much better if pre-tax income numbers were no longer a thing? like if the only numbers that could be used for anchoring were post-tax numbers? that would change this culturally ingrained assumption that the money receive is “your” money, and the government is “taking” it. not actually that farfetched, since the corporation already pays various fees/contributions on top of your paycheck anyway, and those number aren’t included in your gross salary)
“Piketty gets the headlines because he’s this cool, good-looking French guy” (explaining that the work done for his book was also carried out by Saez and Atkinson, among others)
some factors accounting for the recent rise of global inquality: tax havens, technology, market structure, secular capital growth (when r > g)
rhetorical question: how is capitalism even allowed to exist in a democracy? (remember the fears of wealthy landowners—if the poor get to vote, they’ll outlaw private property, etc.) my oversimplified Hot Take on this is that democracy is a spectrum, not a binary, and the extent to which capitalism is allowed to exist is precisely the extent to which the system is not democratic
there’s a huge gap between perceived and actual wealth distributions, especially in the US
closing off with: we’re living in a time of massive macroeconomic policy failure and people are angry, and they have every right to be; they just need to be angry at the right people. tbh I’m not sure if this is something the prof said or something I just jotted in my notebook, whoops

Seminar

No seminar this week (probably since no one had been offered a place yet).

Growing the State, Shrinking Capital: Democracy, Redistribution and Inequality - week 2

Readings

Inequality by Anthony B. Atkinson (chapter 2)

Only minimal notes (written after the fact), since I also read this chapter for SO478 last week (though I didn’t really take notes then either, tbh).

inequality fell in most developed countries during WWII, but then the gap in earnings began to widen again
can be explained somewhat by assortative mating
highly progressive tax system in the US post-WWII (mostly gone post-Reagan, in steps)

The end result of this process [of progressive taxation] was that, while the top decile of earnings in the US rose steadily relative to the median during the immediate postwar decades, this increase in earnings dispersion was not translated into increased overall income inequality, as measured by the Gini coefficient. There was also a salient fall in the share of the top 1 per cent. More unequal rewards in the labour market did not translate into greater inequality of incomes. That this did not happen was due in part to the expansion of social transfers and in part to the increased labour-market participation of women acting in an equalising direction. These forces counteracting the rise in wage dispersion did not apply in the final quarter of the twentieth century. (p62)

Briefly mentions the rise of financialisation: “One consequence [of popular wealth being held via financial institutions] is that part of the capital income now accrues to the financial-services sector that manages these funds.” (p71) Also briefly mentions the relationship between unemployment and inequality, though it doesn’t go into the details and certainly doesn’t frame it in terms of class power (maybe in a later chapter?); the focus is on social exclusion.

Capital in the Twenty-First Century by Thomas Piketty (chapters 3-6)

Chapter 3: we look at wealth over time in the UK and France, taking a brief detour though literature (Balzac, Austen) to illustrate. Early on, land comprised most of the value of capital, but now it’s mostly housing/industrial/finance. Recall that both the UK and France were imperial powers with large foreign assets, which allowed them to run up trade deficits without larger economic problems. In the UK, with cap-inc ratio of 6:1, public assets are worth one year of national income (slightly less than in France); this is balanced out by public debt so roughly zero net wealth. Thus most wealth is private.

One core difference between the two countries has to do with their treatment of debt. France defaulted on public debt (via inflation?) whereas the UK never did, and instead financed wars (etc) by borrowing from wealthy citizens, thus increasing public debt at the same time as private assets (the result of the British monarchy preferring to borrow money rather than raise taxes). Of course bondholders get paid interest, too. There was some inflation after both wars which lowered the value of public debts, but not to the same extent as in France. Still, this is what prompted Keynes’ famous 1936 claim of the “euthanasia of the rentier”, which was influenced by him seeing a collapse of rentierism as a result of inflation. The UK moved toward a more mixed economy (stronger welfare state and socialist policies like nationalisation) in the post-WWII era, which was influenced partly by the success of the Soviet Union and partly due to suspicions that the economic elite had collaborated with Axis Powers (mostly true). This resulted in both govts owning around 25-30% of their nation’s wealth by 1950s (though since the UK had massive debts, their net public wealth was negative until the 60s/70s). In the 70s, of course, things started to shift: cracks were visible in the Communist bloc, and stagflation + a tricky geopolitical situation paved the way for increasing liberalisation.

Chapter 4: Now we look at Germany, which is slightly different from the two cases above mostly because of important distinctions re: its colonial empire (basically, it was confiscated after WWI, as part of the Treaty of Versailles). Its capital consisted mostly of agricultural land. Hyperinflation in the 20s shrank the value of its post-WWI public debts, but of course that experience also had the effect of scarring the nation. During/after the wars, asset losses (mainly foreign) were more significant than physical destruction (revolutionary expropriation, nationalisation like that of the Suez canal). Plus firms went bankrupt during the depression, meaning stock/bondholders lost out, which had the effect of lowering the cap-income ratio and thus inequality.

The US: lots of farmland (which meant value/acre wasn’t very high) + populated mostly by recent immigrants who couldn’t bring much capital with them, so capital low at first. This reflected structural differences in inequality compared to Europe, as landlords and wealth owners had less power in such a large country with plenty of arable land for the taking. After WWII, asset prices remained low, and we saw extremely progressive taxation and lots of government spending (New Deal), but no nationalisation (unlike in Europe—wonder why?). Recall that the US was never a true colonial power (at least not in the same way as the trailblazers over in Europe), and in fact had a negative net foreign capital during the 19th century. Also note the role of slavery in US wealth. Canada was similar to US but slightly different politically due to the legal influence of the UK (no tea partying for us).

Chapter 5: notes from SO478 last week.

Chapter 6: mostly on the capital-labour income split in the 21st century. Most salient idea: α=r*β computes the share of income from capital.

Lecture

Just going to start off this recap with a bit of heavy editorialising: these lectures are a ton of fun. If you’re at all interested in the politics of inequality, and have the opportunity to attend these lectures, you should. The lecturer is very engaging, despite material that can be quite dry at times. Bonus: he’s personally very left-leaning politically, which might not endear him to any Conservatives in the class, but works for me (and, really, if you’re teaching a class on inequality, you’d better be left-leaning—otherwise, what would you say, “inequality is fine because I’m rich and I don’t really care that others are poor”?).

Some paraphrased quotes to give you a sense of what the lecturer is like and what his political views are:

On Twitter: he’s growing increasingly despairing of the level of public discourse lately, and exhorts us to be critical of everything we read and hear, even if it comes from him
On Catalonia: lots of misleading information and really total nonsense out there (Spanish politics is one of his research areas)
On political bias: he recently received anonymous feedback from his summer school students, some of whom accused him of political bias (probably due, he says, to his frequent anti-Trump remarks). Thus he will clarify his political views for us: he believes inequality is bad, and that political institutions should attempt to lessen it; as a result, he is biased against political institutions that increase inqeuality. Everyone is biased, but at least we know what his biases are.
On trust: we should be wary of everything he says, just like you should be wary of everything said at the Conservative party conference … though of course he thinks we should agree with him more often than we agree with what’s said at the Conservative party conference
On capitalism: he’s not going to give us much Hayek in this course. If we want an even-handed treatment of the values of capitalism, we’re not going to find it in this course; instead, we should try the economics or management departments instead (he amended this by saying that was mean, and apologising). That doesn’t mean we should uncritically accept his views—he’s open to debate, and challenges us to disagree with him (though he recognises that it’s not that easy given his professorial authority)
(At this point God Save the Queen started playing in the room next door, and as we were separated from that room only by a very ersatz and lossy partition, we were all bombarded with its dulcet tones.) “I’m not moved by it. Is that a problem? I guess I’m part of the cosmopolitan liberal elite.”
(Now we’re listening to the Sex Pistols.) He goes on a brief tangent on the Sex Pistols here—he remembers when the Sex Pistols first came out, and ruminates on the fact that all those rebellious former youth are now probably pensioners

Inequality and the welfare state in the 20th century

the intersection of capitalism and democracy: we managed to build societies that assured most people a decent standard of living (at least in rich countries)
followed a massive growth of the state during the industrial age (in terms of the % of national income)
trend of decreasing inequality until the 70s/80s, when it started to rise again (hello neoliberalism)
two different and opposing approaches to explaining inequality changes:
- political: democracy gives power to the poor and thus pressure for redistribution
- economic: rising inequality is a structural feature of capitalism (the consequence of the tendency of capital to accumulate)
looking at income inequality in France vs America—very different
- France: dropped a lot mostly during WWII; went up a bit since then, peaked in 60s, started rising again in 80s but only barely
- US: dropped a lot in WWII, mostly stable until late 70s; rising rapidly since then (now higher than the max in the late 20s)
- these two graphs illustrate why this class is biased in favour of the political approach

Piketty’s book

“Piketty’s well-known, much-bought and probably less-read book”
- apparently the average Kindle reader doesn’t get very far (most people stop highlighting after page 26)
- since we’ll be reading it, at least we’ll be in the top 1% of readers
- his approach focuses more on the structural features of capitalism, specifically the power of capital to accumulate when r > g (and he proposes that it always is, at least when conditions are stable—return on capital is almost always higher than growth)
- and of course, capital is unequally distributed (inheritance only makes it worse, and Piketty likes to pick on inheritance a lot, especially in his newspaper columns)
- another corollary of low growth: labour income not growing as fast as capital
- capital is becoming a larger factor of production

What is capital? Adam Smith’s definition, “from the times before gender-neutral language was to be expected”:

That part of a man’s stock which he expects to afford him revenue is called his capital.

Piketty’s definition is a little more narrow: basically wealth. And his main purpose in looking at capital is in calculating the capital-income ratio. If we look at the composition of capital in the UK over the last three centuries, we see that the value of agricultural land eroded in the last century, and the value of domestic capital went down around WWI and has been climbing since then. Housing, of course, has gone up dramatically in value over the last half century.

Capital’s share of income has gone up somewhat steadily since around ‘75, though there has been a recent decline since the crash (capital defined as rent, profits, interest, dividends, capital gains, etc).

Piketty doesn’t do much justice to the poitical dimensions—his book is focused almost entirely on the structural economic features that result in greater inequality over time. Which is probably intentional (he is not trying to explain all the things that might affect inequality, but rather be meticulous about one particular component of it). Still, it means his take on inequality is very incomplete.

Other criticisms:

a lot of historical data is just estimates (probably not very precise)
he has a very narrow definition of capital as wealth (excludes human)
the rate of return is never actually uniformly constant, but he assumes it is for the purpose of making his calculations easier
the politics of redistribution, property rights, and financialisation are all incredibly relevant to the narrative but are mostly ignored

This includes: political party scene, constitution, pre- and redistribution, welfare institutions, macroeconomic policy. We’ll be looking at two core (compatible) factors that explain changes in inequality:

democracy leads to greater redistribution
political ideational change, from Keynes to Friedman/Hayek (Mont Pelerin)

The latter helps explain growth/reduction of government size as well as the difference between the distribution of votes and the distribution of (post-tax) income.

Meltzer/Richard’s simple model for explaining individual voter behaviour: individuals want to maximise income with a minimum amount of effort. Since the government taxes in order to redistribute, and the median voter has below average income, they vote for greater government spending as a way of getting more redistribution. Thus one could conclude that the government would grow and grow and grow. This prediction was made in 1980 and we all know what happened since then :(

Problems with this theory: it ignores institutional dynamics. For one, increased state spending doesn’t necessarily reduce inequality, depending on the political situation (maybe the money goes towards tax breaks for large corporate donors?). It also assumes that people are really “rational” in the sense proposed. But many voters act irrationally (according to an economist) or don’t have all the available information or believe in myths. Or they might prioritise other factors (cultural or religious ideas—national identity, pride, guns, abortion) over material factors! So they might end up voting in politicians that will take away their healthcare or otherwise do real material damage to them and still not regret it (partly because they might not have thought there was a better choice, and partly because they don’t understand the causality). In general, people tend to be “cognitive misers” who take mental shortcuts and vote out of habit. (Like the lecturer, who says he votes Labour “out of habit”.)

A summary of the ideational changes in macroeconomic policy:

19th century: classical econ (Smith, Ricardo?) w/ self-regulating markets and the idea that poverty is natural
then along came Keynes (early 20th) who challenged those ideas, suggesting that the government SHOULD intervene in markets when necessary (so the growth of the state isn’t just for greater redistribution, but also about the government taking a greater role in the wider economy)
then in the 70s some free marketers came along and the rest is neoliberal history
it’s kind of funny to think that a year ago, I wouldn’t really have understood any of this, but in the past year I’ve read approximately a million books about precisely this view of economic history so now it’s all old news (shoutout to Verso for their excellent sales)

We can think of political/economic ideas as having a key mediating role between forces (democracy and capitalism).

Seminar

(I’m in seminar group 3, which actually takes place the Thursday after the lecture. Run by the lecturer.)

Introductions

We started with introductions (where we’re from, and why we care about inequality). Pretty cool distribution of countries, mostly throughout Western Europe, the Middle East, and Asia (each country was represented by only 1 or 2 people). I mentioned my background in the tech industry and how I was radicalised partly by what I saw in the adtech space and partly by Trump, and that I’ve been reading a lot of critical theory and leftist political stuff since then. Hopkin’s response was encouraging—he’d never really gotten into critical theory (academia moves too slowly for him to switch topics easily), but he finds it interesting, and in general would like us to take a more critical approach to the texts we read.

Is inequality a political or economic phenomenon?

(Summarising the discussion.)

Obviously it’s both. There’s a bit of a chicken-and-egg element as well—political decisions are usually made in response to changing macroeconomic conditions, and these decisions further shape the economy. Piketty’s book is definitely more of an economic approach but he does mention some political elements. Atkinson’s book focuses more on social policies.

Other things mentioned:

one student brought up that the economy is a human invention, and if we treat inequality as a more economic phenomenon then we shift responsibility away from political actors and thus destroy our own agency
another student responded that the economy is actually quite a natural phenomenon, as people have always traded, and money/capital is a natural human thing (a POV I kind of disagree with but also kind of sympathise with)
someone else: political leaders are constrained in the choices they can make, given the ever-present of spectre of capital flight

Piketty’s argument

it’s all about wealth compounding—he deliberately removed the political component to show that the underlying economic forces are moving us toward greater inequality
if the capital-to-income ratio is growing then we automatically get greater inequality, with the obvious implications for social mobility with policies the way they are today (incomplete inheritance tax, increasingly privatised education, nepotism, etc)
that’s really the core of what Piketty is saying: the Kuznets curve is wrong
but of course this is all a pretax discussion, which means that an efficient redistribution system could theoretically manage the increasing inequality (sadly, we know that it doesn’t work in practice, thanks to tax evasion/avoidance)
Piketty’s proposal for a global wealth tax was brought up, and several students opined that it seemed too difficult to implement. I then brought up Slavoj Žižek’s pretty cheeky take on it, which comes from Trouble in Paradise (link goes to the specific quote). Žižek is implying that Piketty is proposing a solution that appears nearly impossible in our current capitalist world order precisely to point out the untenability of the current system. There’s a gap between what Piketty proposes and the fundamental contradictions within capitalism that (with Marx, though not in name) Piketty spends 600 pages pointing out. A very death-of-the-author take, tbf, since Piketty would probably vehemently disagree.
on Marx’s suggestion that the rate of profit tends to fall over time, which seemingly contradicts with Piketty’s assumption that r is always > g: my response to that is that Marx is talking about specific industries, but overall it’s true due to creative destruction (also due to financialisation but that’s a separate matter). I need to understand this better myself though

Leftwing vs rightwing governments

Another student mentioned that at least in the UK, left-wing governments tend to focus on income redistribution, whereas right-wing governments tend to focus on wealth redistribution (at least in theory) with the right-to-buy and similar practices. Perhaps this is because the Tories are trying to raise the status of capital to get everyone to buy into the collective capitalist dream? In any case, that’s an example of public policy affecting the distribution of capital (so it’s not just limited to market forces).

The US versus Europe

The capital-income ratio was significantly higher in Europe than in the US near the beginning of the charts, which would imply that the US would be more equal. And indeed it was, near the beginning! At least until the wars, when the value of capital was reduced dramatically in Europe (physically or otherwise). Think about why the trend has reversed since then. Did post-WWII American hegemony assure America’s current dismal place in the inequality rankings? Why did the political scenes of most European countries move so much more leftward?

Inequality and Redistribution in the Rich Democracies - week 3

Readings

Capital in the Twenty-First Century by Thomas Piketty (chapters 7-11)

Chapter 7

addresses the mistaken concept that growth favours labour over inheritance (spoiler: it usually doesn’t)
in 19th century France, labour alone (no matter your profession) was rarely enough to compete with inherited wealth
in the US it was different (inherited wealth mattered little) until the 20th, especially due to the slave trade and all the compounding consequences of that
it’s important to distinguish between income/wealth inequality for labour, and that for capital, because the moral justifications are different
- and the econ/socio/political mechanisms are different
- for labour: market, education, rules and institutions
- for capital: inheritance laws, savings and investment behaviour, real estate and financial markets
income inequality for capital is always more unequal than for labour
- but this is due to political institutions and norms, not nature
the 20th century saw a huge structural transformation in the distribution of wealth in developed countries
- growth of a patrimonial (propertied) middle class)
- coincided with a falling share of wealth held by the upper class
prediction: by 2030, top decile in US will have 60% of NI
now let’s look at justifications of high inequality:
- in a hyperpatrimonial society (with lots of rentiers), inherited wealth plays a huge role and has a tendency to become very concentrated
- this describes Belle Époque Europe (1871-1914) and the Ancien Régime (pre-revolution France)
- contemporary society is more “hypermeritocratic”, esp in the US (and dw, Piketty is well aware that “meritocracies” are smokescreens used for justifying unjustifiable distributions of wealth/opportunity)—inequality is primarily due to a class of “supermanagers” with high labour income
- ofc, the two models can coexist; the children of supermanagers/superstars can become rentiers

Chapter 8

fall of inequality in France in 20th century due to the fall of the rentier (top incomes from capital fell dramatically)
- the top centile has gone from rentiers to managers (from capital to labour)
- in other words, rentiers fell behind managers … which didn’t necessarily make things better for the people at the bottom
- income from capital usually due to financial assets in upper decile (stocks, shares, etc)
- though ofc this all comes from tax data—obvious risk of underreporting
May 1968 France: cultural, political upheaval that changed everything
- soon, minimum wage increased by 20%
- 1970s: min wage indexed to mean wage and was boosted almost every year after
- 1980s: inequality rises again, due to top salaries of exec salaries
US: more egalitarian at start of 20th but now obviously worse (but in a way that is structurally different from the 1900s)
- the financial crisis will not stop the structural increase of inequality—slower gains in capital income will not reverse the trend
- obvious link between rising inequality in the US and financial instability (households turned to credit to finance their lives)
- between 1977-2007, the top 10% took 75% of the growth; the top 1% took 60% of the increase in national income (are these the same thing??)

Chapter 9: inequality of labour income

today, we have a patrimonial middle class: went from a society of superrentiers to a society of mostly managers and a few rentiers
- wage inequality can be partly explained by a race between technology & education (at least, relative group position)
- democratisation of educational system in France in 20th century, unfortunately did not eradicate inequality (incidentally, I read an interesting take on the educational system as an outlet for “hidden Keynesianism” in the excellent book Does Capitalism Have a Future)
- in the US: high cost of tuition, obvious ramifications (if they invested more in accessible education, could potentially reduce inequality for the lower deciles, at least until credential inflation catches up …)
interesting to compare minimum wage over time in France vs the US
- France: climbing fairly steadily, whereas in the US it’s a weird sinuous pattern with fits and starts
- disappearance of daily wage in 20th ct: now monthly (or biweekly in some places I guess)
- econ arguments for a min wage: workers have too little bargaining power usually (esp due to the existence of a reserve army of labour), and if it’s already below marginal productivity costs, then raising it won’t reduce employment (at least theoretically, assuming everyone is a rational actor)
on the supermanager phenomenon
- mostly an Anglo-Saxon phenomenon (though spreading)
- not just technological: there’s a ratchet effect inherent in this due to high mobility & artificial funnel restrictions (credentials, “we can’t lower the bar!”, etc)
- there’s no objective way of measuring how much an exec “deserves” so there’s always an incentive to try to get paid more
- also reflects the ideology of the context (society, corporation) and whether or not there are checks and balances against high exec pay
- “meritocratic extremism”: modern societies feel compelled to reward “winners” more generously if they give the impression that they accomplished what they did through “merit”

Chapter 10

France, 1791, after nobility’s fiscal privileges were abolished, a tax on estates/gifts was set up
- the actual amount was minor; the real goal was to establish a wealth registry which would then allow for the preservation of property rights in perpetuiry
- France’s wealth inequality has been structurally the same throughout history (though the actual numbers have fluctuated due to war, etc)
in the US, wealth was more concentrated around end of 19th century, catching up to Europe
- which worried US economists because they were proud of the fact that the US had historically been more equal (how times have changed)
main reason for high wealth concentration pre-WWI: in low-growth societies when r > g, returns to capital will ofc compound
- the Q is: why was r > g? Piketty says it’s a historical fact but not a logical necessity (taxes on wealth played some role)
- otoh, pure r (once you subtract tax and capital losses) briefly fell below g during wars (which reduced wealth ineq for some time)
- so r > g depends on existence of policies/instutitions to regulate the capital-labour relation, plus exogenous shocks to capital like war
- r has been historically around 4-5% (pre-losses) which is curious
dynamics of r & g
- if r > g, eventually capital-income ratio rises to unsustainable levels
- in the long run, this will result in a decrease in r (as the general economic environment gets so bad that investment opportunities decline … like if everyone is just dying of hunger or people are getting guillotined etc. unfortunately, Piketty never goes into specifics, but it’s fun to imagine)
- historical changes in laws around wealth inheritance: from primogeniture (first son/child) to equipartition
- in the long run, we should arrive at an equilibrium—a Pareto distribution whose coefficient reflects r-g
- but that’s only true for a specific range of r-g. if r > g by too much, then there is no equilibrium: capital’s share of income will increase without limit (until external shocks, at least)
  - this is a bit fishy as a theory because he’s basically including anything that doesn’t arise automatically from the formulas as an “external shock” which makes it almost tautological
reasons wealth ineq is no longer at Belle Époque levels:
- rentiers in interwar years didn’t reduce their expenses enough, thus eating into their capital (and not just living off income)
- composition of assets vulnerable during wars (mostly foreign assets, esp sovereign debt)
- redistribution of wealth in europe after wars: progressive tax, nationalisation, etc
- also not enough time has passed since 1945—ineq can still rise quite a bit
- structural changes in 20th ct: governments started taxing capital income at higher rates
  - the effect was not to reduce the total amount of private wealth but rather to change the structure of it
  - more progressive estate taxes esp in 20th ct France
if demographic growth is negative, inherited wealth could play bigger role in developed countries
summary: wealth being less concentrated today than it used to be is a result of both political institutional choices and accidents

Chapter 11: merit and inheritance

main point: when r > g to a significant degree, inheritance will predominate over this lifetime’s savings
- i.e., the past will begin to devour the future
- so past wealth inequalities will be distorted (worsened) over time
methodology for tracking inheritance over time:
- economic flow, which takes the product of:
  - μ: average wealth at time of death
  - m: mortality rate
  - β: capital-income ratio but just for private wealth
- this definition is kind of a tautology but it’s a useful approximation of actual fiscal flow (i.e., real inheritance data)
- ofc μ depends on age profile & consumption patterns (if savings are meant to be consumed during retirement or are accumulated to pass on to children)
basically we can’t expect disappearance of importance of inherited wealth unless we impose concrete policies to ensure it (like a 100% inheritance tax :D)
on how increased life expectancy affects inherited wealth
- 19th century, average age of inheritance: 30
- 21st century: 50
- basically inheritance occurs later in aging societies
- but ofc wealth ages too (when r > g) and so the effects kind of cancel each other out, at least when it comes to the amount (may change dynamics given that life at 50 is not the same as life at 30)
Modigliani triangle theory: wealth increase in anticipation of retirement then decreases during retirement
- problems: people don’t just accumulate wealth for retirement; they may die early, or may be intending to pass on their wealth
- without public pensions, wealth accumulation might be higher than it is today
gifts constitute about half of all present inheritance flows (so v important)
- can explain why regular inheritance is lower now—because some people have already passed on a lot of their assets
projection for 21st ct: inheritance and gifts will both increase, proportional to r-g
today, democracy rests on a “meritocratic hope” but there’s no guarantee that illusion will remain as inherited wealth dominates more and more
- important to note that rent/inheritance are not just “imperfections” in the market; they are core features of capitalism!!!

Lecture

Before Piketty’s book came out, we didn’t really have data on inequality over time, especially historically
- now, though, we have the data to see that the inequality rankings for countries are roughly constant over time (i.e., cross-nationally similar, though longitudinally varying)
- Piketty’s focus on capital-income ratio is better at explaining longitudinal variation than variations among countries (which makes sense, since he neglects the political dimensions that we know to be important)
we can look at inter-country differences by clustering them according to broadly similar longitudinal trends (or economic factors) for share of pre-tax income earned by the top 1%
- the Anglo-Saxon group (UK, US, AU, CA) mostly similar
- continental Europe & Japan: also similar to each other, but unlike the Ango-Saxon countries, there’s no dramatic shift post-1980s (neoliberalism didn’t extend into these countries in the same way)—inequality remained roughly stable in that period, with maybe a small decline
- North and South Europe (France, Italy, Denmark, Spain): Denmark diverged the most (lower than the others). it’s strange because Italy and Spain have much higher income inequality (by Gini) than France, but they’re very close to France in this graph
Gini is obviously a very reductive and flawed measure—some alternatives include 90:10 or 90:50 ratio, or percentile shares (top 1% share of income etc)
- worth considering the diff between pre-tax/pre-fiscal/market income (before all government transfers and payments) & post-tax/post-fiscal/disposable income
- ofc, pre-tax income is really just a social construct, i.e., fiction
- (side note: imagine if job offers were only given on the basis of post-tax income. that would change our perception of what we “earn” dramatically and could weaken the whole “taxation is theft” POV)
- on adjusting for different household sizes: it’s complicated by the fact that household structures have been changing a lot recently (more single people, more dual earners, more young people still living with their parents)

The Meltzer and Richard model

(The 1981 theory proposed by Allan H. Meltzer and Scott F. Richard that was discussed last class. I personally think it’s extremely flawed but I guess it’s worth understanding better.)

background on the authors: they’re conservative economists, skeptical of govt action (part of the “public choice theory” school of thought, and influenced by Anthony Downs)
- contrast w/ John Stuart Mill: wanted to expand franchise and aware of the dangers that could pose to capital, but whose solution was to expand education to ensure more trustworthy voters
- Anthony Downs, published An Economic Theory of Democracy in 1957: political science treatise marrying economic theory & non-market political theory
  - very basic model, based almost entirely on the US political system (assumes a 2-party system)
  - posits that an electorate will be normally distributed along a single issue dimension, with the median at the centre (which is really taking the “left/right/centrist” metaphor too far, imo)
  - thus, parties will converge in the centre in order to appeal to the median voter
  - brief aside from Hopkin on the limits of the left/right/centre model: “I consider Trump and Clinton to both be fairly right-wing in economics” (but she’s more left-leaning on the subject of taxation and more right-leaning when it comes to globalisation/borders)
  - if we try to apply this to the UK: Conservatives on the right, Labour on the left, and the Lib-Dems at the centre would suggest that the Lib-Dems will win the next election (which seems quite unlikely)
  - the big assumption here is the “median voter” which is starting to feel like an increasingly fictitious figure as voters are more and more polarised (which this model doesn’t really account for—instead, it predicts that extremist views will be dampened as politicians try to cater to moderates)
anyway, around the time that Meltzer and Richard published their paper, the political movement they were part of (neoliberalism) managed to seize state power and thus halt the growth of the state (so I guess they achieved what they wanted to but ofc that means their theory became mostly irrelevant)

The impact of different electoral systems

UK: first past the post (a form of majoritarian/plurality system)
- an alternative is proportional representation
another aspect to consider is that of systematic voter exclusion
- in the US: disenfranchisement of, especially, minority voters (incarceration, voter ID laws, etc)
Presidential election systems are majoritarian by definition
- you end up with winner-takes-all logic where there’s no incentive to share power with weaker groups
on the local level, in a majoritarian system, you can end up with an area being represented by someone for whom only a minority of people voted
in a proportional system, on the other hand, small parties can still have some say
- whereas larger parties don’t get inflated majorities & thus must seek alliances to form coalition govts
empirically, there’s a correlation between proportional representation & larger welfare states
- the Anglo-Saxon countries are all majoritarian
- exceptions: France which is sort of majoritarian (via 2 rounds) but has a large welfare state
- PR tends to result in more left-wing governments (research by David Soskice of LSE’s Government department)
of course, it’s not just the electoral system that matters—the situation is complicated by multicollinearity
incidentally, “Barack Obama is considered a liberal or a lefty in the US, but in Sweden they would put him in the Conservative Party” which is v true (and something I didn’t realise until fairly recently)
the US is a complicated system, electorally:
- consensus democracy in some respects
- federalism, bicameralism, constitutionalism, separation of powers
- but FPTP electoral system
- so we have conflicting forces

Why don’t people vote for greater distribution?

empirically, Meltzer and Richard’s model fails to predict actual behaviour
possible reasons why:
- at some point, the (perceived) marginal gains from further redistribution outweigh the cost, and so middle-income voters believe that they’ll gain more from tax cuts
- a social-structural explanation: rise in property ownership makes people more politically conservative (they become aligned with the interests of capital since they now own assets)
- a change in population dynamics: people are living longer and having fewer children (and age is a huge factor when it comes to political views)
- cultural change: post-materialist concerns (like identity, religious views)
- and, of course, the elephant in the room that is always lurking beneath the ideal of democracy: the fact that voters don’t really understand, or care to understand, what the choices really are (obviously connected to the education system and the media industry)

Seminar

Some topics discussed:

why does Piketty go on for so long: to bulletproof his args? or cus he wanted the apparent accomplishment of having written a 600-page book
why does he talk about the effects of policies and institutions on ineq?
- my take: it’s not just optimism (in the sense that: we could reduce it if we wanted); he has to explain differences between countries, and historically, and the cap-income ratio isn’t enough
I brought up Goodhart’s law & the danger of a measure becoming a target when reducing inequality
- Piketty talks a lot about the flaws of scalar measures like Gini, etc for measuring something as multidimensional as inequality
- and when you focus too much on these measures then it’s tempting to target them—like saying we need to reduce Gini (but ofc there are different ways of doing that, and not all of them are necessarily worth doing)
  - for ex, post-crisis, inequality has gone down in many areas, but not always for a good reason
  - it’s a relative measure, after all, and if people in the upper-middle suddenly do a lot worse, and people in the bottom do a little worse, the Gini might improve but the outcome is prob not desirable
- you also have to keep in mind the assumptions & choices inherent in any particular measure (for ex, with Gini, you can do pre- or post- tax)
why is ineq so much higher in the US?
- ideology plays a key role (the American Dream as a way of preserving “meritocracy” beyond all reason)
- race as a component: it’s easier to argue against redistribution if poverty is concentrated among ethnic minorities (or really people who just don’t “look like” you for some reason)
  - but ofc race discrimination in the US is historically linked to poverty so it’s easy to see why that plays a key role
- educational system stratified, can’t keep up w/ technology
- history of American exceptionalism and idea of meritocracy may well have been shaped by past events (esp with the cap-income ratio being initially quite low compared to Europe)
- the role of quantitative easing in creating an asset bubble to boost capital(ism)
question to consider: how does institutional structure allow shifts in public opinion to become policy (or prevent it?)
- think about the Democratic Party doing their best to prevent Sanders from getting the nomination vs how Corbyn did manage to become leader
- also: role of electoral college
wonderful quote from Hopkin: “I should be presenting you with a lot of neoliberal arguments about why inequality is a natural consequence of the beauty that is capitalism”
- coincidentally, that would also be a fairly leftist strong argument for transcending capitalism

Worlds of Welfare, Varieties of Capitalism - week 4

Readings

The Three Worlds of Welfare Capitalism by Gøsta Esping-Andersen (chapters 1-2)

Introduction

the point is not to focus on the specific implementation details of different national welfare systems
- instead, draw out commonalities to understand the bigger picture of how each nation got its specific set of policies in the first place
the topic of the welfare state is quite polarising
- there’s a tendency for laissez-faire liberal economists to denigrate it because they think it undermines (economic) freedom and efficiency
- whereas the social democratic model sees markets as being inherently unjust and thus erects barriers to protect the human beings who might be affected by it
we must also recognise the role of the state in setting out the conditions required for markets to flourish in the first place
- markets are the result of political decisions, and the mechanisms by which they run are politically determined

Chapter 1

we need to remember the context in which classical political economists were writing
- Adam Smith, for ex, was writing when the alternative was mercantilism & a corrupt state that privileged a small group of elites
- in that context, then, it makes sense to see the market as a better alternative
the social democratic model sees some baseline level of social provision as necessary for effective citizen participation and economic efficiency
two main approaches to analysing welfare systems
- systems/structuralist approach: we can see the welfare state as an inevitable product of capitalism
- institutional approach, following Polanyi: social distribution as a mechanism of compensating for market failures/weaknesses
the definition of “welfare state” is complicated, amorphous
- we should assess policies based on:
  - their emancipatory potential
  - the degree to which they aid in the legitimation of the system (i.e., by keeping people happy)
  - and their effect on markets (whether they help or hinder them)
- we should also recognise that measuring the amount of spending may not be the best way of evaluating them
  - for example, means-tested programs can cost more to administer than universal programs, but a lot of that cost is swallowed up by (unnecessary) administrative sinks rather than improving people’s lives
  - instead, we should look at who benefits from specific welfare state spending, and by how much
the effects of decommodification on labour
- hard to mobilise and build solidarity unless there is some degree of decommodification—otherwise, market inequalities will inevitably foster divisions
- decommodification can strengthen bargaining power of workers and weaken the authority of the employer
- though ofc this is in tension with the desires of employers, who would prefer fully commodified labour and thus obedient workers
welfare states can be systems for stratification/segregation
- Bismarckian tradition: preferred status/benefits are conferred on civil servants and others who are seen as deserving
- in more liberal states (most notably the Anglo-Saxon ones) the middle classes can rely on private healthcare, schools, transport etc while the poor must rely on (typically lower-quality) state-provided services
the recent rise of strong middle classes (within the last century or so) poses a challenge to the social democratic model
- they’re not as concerned with unemployment benefits, or labour protections, or a strong safety net—they have jobs, and they’re doing fine
- they’d often prefer a more liberal state & thus lower taxes
- the degree of discontent with a specific welfare state system seems to have less to do with the actual amount that’s being spent, and more to do with the class composition of who’s receiving benefits
  - incidentally, LSE’s John Hills has written a book touching on this phenomenon in the UK called Good Times, Bad Times

Chapter 2: decommodification

for Marx, commodification of labour power led to alienation
Polanyi’s The Great Transformation highlighted an important contradiction in capital’s drive for total commodification
- if labour is fully commodified, it will end up undermining capitalism itself (less efficiency, greater chance of revolution etc)
- wonderful quote from Esping-Anderson: “the market becomes to the worker a prison in which it is imperative to behave as a commodity to survive”
- capitalism thus requires an uneasy balance between capital’s desire for more commodification and labour’s desire for less
- decommodification can then be seen as spectrum, not a binary, with various (maybe infinite) equilibrium points along the way
- commodities pre-exist capitalism (think cash crops under feudalism), but Marx’s point is that capitalism is the first time labour-power is treated as a commoditiy
proponents of laissez-laire liberalism tend not to like the idea of a strong safety net (social minimum)
- arguing that it leads to corruption, profligacy, idleness, drunkenness etc
- their big assumption is that the market is the best mechanism for allocating resources for an optimal society
- any poverty or helplessness is a result of individual failings, and not an indictment of the system because the system is tautologically great (by liberal economic fiat)
- the anti-welfare attitude of liberalism can be reconciled w/ specific welfare programs (i.e., those that promote commodification)
  - like social insurance, which pegs entitlements to working (which strengthens the incentive to work)
  - in other words, not all welfare programs are created equal—we need to assess them based on their decommodification potential

Varieties of Capitalism by Peter Hall and David Soskice (p1-69)

this approach focuses on the firm, as opposed to more structural approach of Esping-Anderson
- bridges management science & political economy
- results in an actor-centred model, where we assume that political actors are rationally advancing their own interests
- (the obvious criticism here is: how reasonable is it to expect “rationality” & understanding of the long-term effects of actions? an important countervailing phenomenon that arises here is kind of similar to false consciousness—people don’t really understand the true nature of the economic system they’re in)
five spheres for resolving contradictions
- industrial relations (bargaining over wages, working conditions)
- vocational training and education (skills of workers)
- corporate governance (getting finance and managing its expectations)
- inter-firm relations (suppliers, partners, clients)
- employees (on an individual scale rather than the collective scale of the first sphere), for ensuring that they advance the objectives of the firm
distinction between coordinated market economies and liberal market economies (elaborated on in the lecture)
- in LMEs, firms have less safety net, and thus must attain profitability (their access to capital and ability to continue operating independently depends on it)
- in CMEs, firms rely more on non-market relationships, and the financial system offers more leeway
- LMEs focus on easily switchable/shorter-term assets whereas CMEs focus on more fixed, longer-term assets
important to recognise that the current state of any nation’s political economy is inextricably bound up in its history
- e.g., history of worker mobilisation
- however, institutions cannot be presumed to act in the same way forever—they must be reaffirmed, otherwise their influence may wane
problem that can occur in CMEs with its expectation of “patient capital”
- since current profitability doesn’t necessarily predict longer-term potential, investors need an inside understanding of the company to make informed decisions
- this is resolved by dense networks (connecting investors & insiders), relying on reputation, and outside monitoring (governance)
- the equalising of wages (accomplished via collective bargaining) plays a role here too: there’s less poaching, and so less chance of losing employees to competitors
with LMEs, because share price is considered an important indicator of a company’s success, there’s a tendency against making risky, longer-term investments
- potential exceptions: the pharmaceutical industry, which has a high income stream and thus doesn’t need to worry as much about the stock market (paraphrasing Hall & Soskice’s arg—I’m not sure I fully understand their logic though)
- also private tech industry, which is funded by VCs who tend to be less risk-averse (the motto is something like “go big or go home”, or, more specifically, “if you’re not trying to become a monopoly in 10 years’ time then don’t even bother pitching me”
LMEs tend to have more fluid job markets and shorter job tenures
- result: employees focus on their personal brand/skills, potentially at the expense of company good (because they might not be at the company for very long)
- on the other hand, it also means that companies can innovate more quickly—it’s faster to hire people with the skills you need
we can see technological revolutions as sparks of change, accelerated by liberalisation in the global economy
financial deregulation can lead to unraveling of CMEs in the future (they could become more like LMEs, not just in the financial industry but in other ways as well, as the effects of further financialisation trickle down)

Lecture

briefly mentions the term fixed effects (in econometrics) which refers to persistent features that explain a non-zero baseline level (in this case, of inequality)
we should think of political economies as systems: interconnected parts that form a cohesive whole
- institutionalism; looking at how institutions shape social, economic, and political interactions
- institutions can include (formal or informal) customs/rules/organisations that structure social behaviour
- they provide structure and stability to social life
- can help explain why some features persist in some nations
- can create a path dependency as they close off some paths and thus make one particular path seem like the only option
- some historical institutions remain today with very little modification
  - obvious example: monarchy
  - means that long-forgotten events and customs can still shape our lives today, because institutions have a tendency to outlast their original rationale (I like to call this “drift”)
on Hall & Soskice’s Varieties of Capitalism, which mostly looked at the US and Western Europe
- differentiates between liberal & coordinated market economies
- more nuanced than simply treating the amount of state intervention as a scalar—instead, clarified that there can be different approaches to state intervention in the market
- typical LME:
  - more competition between individuals and firms
  - more emphasis on the price mechanism for allocating resources
  - deregulated finance, with the stock market worshipped (obvious implications for instability)
  - product markets have low barriers to entry and few trade restrictions (like licensing) or environmental/consumer protection
  - less regulated labour markets, weaker trade unions, employment law protects employers more than employees, employment precarity
  - workers tend to develop easily transferable skills (not specific to a particular firm)
  - higher income inequality as a result
  - in general, the market is less fettered; there are fewer barriers to constrain/absorb both positive and negative movements
- typical CME:
  - more emphasis on coordination/cooperation
  - some degree of reliance on the price mechanism but more insulated/restricted
  - finance more regulated, more about banks lending to businesses than betting on assets
  - obstacles to hostile takeovers of corporations; more longer-term thinking (“patient capital”)—though of course this didn’t stop Germany, Sweden, etc from losing money during the financial crisis (recall that this theory was developed in the 90s and published 2011)
  - more regulated product markets with higher barriers to entry (ex: pharmacies will require a license)
  - sheltered labour market: high unemployment compensation, acceptance of unions, strong worker protections
  - workers develop firm-specific skills since there is less turnover
  - main result of this more centralised & collective wage bargining: lower income inequality!
- chart showing (mostly) inverse correlation between stock market total capitalisation & degree of employment protection in many countries
- clear separation between countries that are mostly LMEs (the Anglo-Saxon countries) & CMEs (Europe, Japan)
- logical correlation between the form of the financial industry & that of the labour market
  - if the stock market plays a larger role, then shareholder pressures tend to result in cost-cutting, thus exerting pressure on labour
- this theory developed in the context of the end of the Cold War
  - meant to challenge the idea of economic convergence (where globalisation would result in one “best” model of capitalism everywhere)
  - they wanted to show that not every economy would become an LME (race-to-the-bottom fears of capital flight, competition); CME models could still work (at least at the time)
- Q: where does the LME/CME distinction come from? what causes a nation to become more like one than the other?
  - there’s a theory (that we saw last time) that electoral rules (PR v. majoritarianism) can have an influence
  - also: history of guilds/unions
- critiques of this model:
  - Europe is quite varied; it’s not as simple as this binary LME/CME distinction would imply
  - implies a fairly static view of capitalism & economic models
  - takes a benign (i.e., not Marxist, i.e., naive) view of labour-capital relations (kind of assumes these opposing classes can somehow cooperate)
alternative model: 3 Worlds of Welfare Capitalism (Esping-Anderson’s model)
- takes a sociological approach that draws on Karl Polanyi’s The Great Transformation (1944)
- for Polanyi, capitalism is a destructive force, and commodification is a result of the destructive process of building a self-regulating market
  - this force inspires a double movement (backlash): workers who realise they’re being exploited by capital try to push back, imposing protective institutions in the process
  - though ofc not all protections are equal; the nature of the rebellion (workers’ movements, social Catholicism, monarchy, etc) determines the result too
- the three worlds are:
  - the social democratic model
    - highest amount of decommodification
    - more egalitarian
    - Scandinavian countries
  - conservative/Christian Democratic regime
    - limited decommodification (only within existing hierarchies)
    - not quite egalitarian (large focus on hierarchies within families, communities, Church, etc)
    - some protection workers rights’ in labour markets
    - social insurance model (you must have worked in order to claim benefits)
    - extensive unemployment benefits w/ high replacement rate) but not for everyone (the young and women often excluded)
    - Bismarckian model (invented by imperial Germany)
    - Germany/France
  - liberal welfare regime
    - only very basic, residual protections from the market (threadbare safety net)—just enough cushioning to keep people from, say, eating their own children
    - limited social services
    - means-tested benefits
    - middle classes get basic services from the market (pensions, healthcare, education, housing)
    - unemployment benefits have low replacement rates re: regular wages (to discipline labour)
    - Anglo-Saxon countries
- critiques of this model
  - data from 1980s and thus there’s little on Southern Europe (Greece, Spain, Italy, Portugal), so Esping-Anderson pretty much omits discussion of those countries entirely
  - Ferrera suggests a fourth model to cover this Mediterranean periphery: patrimonialism/clientelism in welfare policy, similar to Christian Democratic but stronger emphasis on family/community/church as institutions
    - welfare state tends to be more politicised, with vote-buying and patronage
    - greater separation of insiders & outsiders (non-workers, immigrants, or just those excluded by their community)
    - heavy dependence on family/community for basic social services
    - interventionist state with a large informal sector
Q: where does the welfare state come from?
- is it labour’s ability to challenge employers (re Esping-Anderson’s model?)
- or is it that capital collaborates with labour to design a welfare state for maximum efficiency (Hall & Soskice’s take)
- personally I think this depends on how self-aware (read: intelligent) the capitalist class is
  - in the Anglo-Saxon countries, especially the US, there’s a lot of discourse that suggests not all of the pro-capitalist camp is aware of the role played by the welfare state in maintaining the conditions that allow capitalism to thrive
  - basically I’m saying that Republicans who denigrate the welfare state are Extremely Ignorant cus it’s literally what props up capitalism

Seminar

Started with a group-based activity where each group was given a description of a national economy and was asked to identify the type of economy (based on the readings). Pretty straightforward. The only unusual one was the description of Denmark, which combines a social democratic welfare state with a fairly liberal financial industry; this combination, sometimes called “flex-security”, isn’t really covered in the literature.

The following notes are just things I jotted down during the discussion (pretty scattered).

why does the level of exposure to international trade matter?
- has to do with the compensation hypothesis
- high exposure -> govt has less control over supply/demand, less sheltered from the vagaries of the market, and thus more at the mercy of international economic issues (e.g., global slumps)
- thus the compensation hypothesis suggests that govts need to provide some sort of shield against the open market (via welfare institutions) in order to keep their citizens politically happy
lots of welfare states started off with the distinction between insiders/outsiders
- many evolved from Bismarckian origins—social protections were employment-linked, resulting in clear separations between who was protected and who wasn’t
- theoretically, over time, democracy will result in increased coverage (though ofc that depends on the level of political engagement among the “outsider” population)
the models we studied in the readings don’t really seem to make sense anymore, post-crisis
- they assume a fairly static model of capitalism
- one student brought up Wolfgang Streeck’s criticisms of the Hall & Soskice model
  - Streeck is a German economic sociologist who has written some excellent books which I highly recommend checking out
  - Streeck’s problem with the model is precisely its lack of dynamism, whereas Streeck (writing post-crisis) is more inclined to believe that capitalism’s internal contradictions are moving us toward uncharted territory
one debate that’s going on right now in the literature: how much can you “export” an institution from one country to another?
- can you just take something that works well in Denmark and set up a similar thing in Greece and expect things to be magically fixed?
- or do you need to consider it from a more holistic angle (multicollinearity)
on commodification
- commodification occurs when one’s claim to a share of produce depends on their participation in the market
- the degree to which any one person is “commodified” labour depends very much on their specific job (for example, Hopkin probably doesn’t feel too commodified, whereas a Deliveroo rider would feel it a lot more)
- you only fully cease to be commodified when you own capital (and thus become the commodifier)
- the problem with commodification (and the reason it has such negative connotations in everyday parlance) has to do with the lack of choice
  - historically, it comes down to primitive accumulation, dispossession, enclosure of the commons
  - nowadays, this phenomenon manifests via the need to sell your labour-power to live unless you are otherwise in possession of capital
  - so we become forced to sell our labour-power, forced to commodify ourselves
- one student brought up an interesting point: why is commodification a problem? why does it matter that we have to work to live under capitalism, if we would also have to work under communism?
- my own response (which, admittedly, is a heavy thing to bring up 5 mins before the end of the seminar) is that it comes down to the type of work we have to do
  - the issue with capitalism is that we end up working on things that we as individuals would not want to do, and do not consider socially productive or advantageous
  - but because we’ve constructed this system that no one individual can really dismantle, we are then forced to succumb to its exigencies even if we realise that what we’re doing doesn’t align with what we think should be done
  - in other words, capitalism has pointed humanity in the wrong direction—by putting ourselves at the mercy of the market, and relying on that mechanism to construct our world, we are drifting away from a world we’d actually want
  - I could write about this all day (I think about post-work economics a lot) but instead I’ll just link to this article on fully automated luxury communism
- another student put it quite eloquently: we become tools, used to drive economic growth at the expense of human actual prosperity

Liberalism and Inequality: Winner-Take-All Politics - week 5

Readings

Winner-Take-All Politics by Jacob S. Hacker and Paul Pierson

On the political features that account for America’s high inequality.

winner-take-all inequality is the result of organisational/policy shifts in the 1970s (finance, corporate governance, industry, tax)
- economic gains highly concentrated; sustained since the 80s w/o trickle-down effects, as anyone might have predicted (basically the top 1% pulled away from the rest)
- compared to Europe: growth rates similar, but inequality not as pronounced there
- in fact, productivity per hour worked is higher in Europe (at least as measured in terms of GDP, which I personally find problematic but let’s skip past that for now)
- the gains of the well-off came at the expense of those lower down on the ladder (which is kind of tautological if you analyse it with a Marxist lens tbh)
skills-biased technological change is often touted as an explanation, but in this case it doesn’t explain the whole story
- only a small number of educational elites entered the economic elites
- also, the skills gap is similar in other countries but inequality is not as high
- biggest increase in inequality in the US came in the 70s: broke away from the pack compared to other countries
  - esp Switzerland: the two countries had similar top 1% income shares until ~1980
- all Anglo-Saxon countries have broadly similar trends but even among them, the US stands out, unfavourably
  - we can see the UK/Canada as downstream of US inequality changes especially in the upper echelons of the labour market (executives are highly mobile, plus salary trends are often linked due to the similar corporate cultures)
weaknesses of existing political approaches to inequality in the US
- treated as an “electoral spectacle” when a better metaphor would be “organised combat”
- tend to neglect the sheer concentration at the top (focus on gap between bottom/top third when the real story is the top 1% pulling away from the rest)
  - criticising the approach taken by Larry Bartels in Unequal Democracy (2008), which showed that inequality decreased under Democratic presidencies and increased under Republican
  - Bartels looked at the 80:20 ratio and so his conclusion means that the bottom 20% do worse under Republicans
  - but since the 1980s, we’ve seen upward trend in the fortunes of the top %, regardless of the party affiliation of the president
- overemphasise “median voter” theories
  - assumes that voters converge on redistribution which never really happens
  - which raises the Q: if politicians are exacerbating inequality, why? who are they doing it for?
  - my own take: mixture of an opaque process, poor education, and a media that (intentionally or not) misleads people with a convincing but false narrative (esp re the value public services)
  - Polarized America by McCarty, Rosenthal suggests that the median voter theory can still stand if we account for low-income immigrants (non-voters)
  - Hacker & Pierson are skeptical that immigrants can have that much impact, given that the foreign-born population is still quite small (went from 4.7% in 1970 to 10.4% in 2000)
  - Bartels’ solution is to amend the median voter model: voters still do care about inequality, but they are also myopic and easily distracted by growth (or are just unsure of how politics works)
  - which doesn’t really address the question of where the pressure for higher inequality comes from
- narrow focus on tax/transfer programs
  - e.g., policies like minimum wage which can impact fortunes of those at bottom but can’t fully explain top (assuming that their fortunes aren’t just from surplus value appropriation)
  - Hacker & Pierson also critique Bartels’ claim that Dem presidents use fiscal/monetary policy to impose economic redistribution—they think that can only have short-term impacts, not long-term
  - doesn’t mention trade union/corporate interests, or employ a comparative framework
- ignore the influence of organised interests
- ignore predistribution and the effect of government policies on markets
  - a notable example is Mankiw … glad to see I’m not the only person who can’t take him seriously
  - after all, government policy structures the economy, sets the basic contours for the market, etc
policy drift: my absolute favourite term in this paper and I was incredibly stoked to see it defined here
- when policy fails to achieve its original goals, and attempts to update that policy (to make it adapt to the shifting realities of the world) are blocked by groups in whose interest it is to preserve that failure
- after all, you can’t always preserve the link between a social policy & its intended outcome unless you let it evolve over time (where necessary)
- thus drift occurs when you recognise the need to update, but politicians do not, despite majority pressure, due to opposition from those who don’t want it updated
- good example: hedge fund managers’ fees are taxed at the (lower) capital gains rate instead of as income
  - due to some technicalities in the tax code, created before hedge funds became so prominent
  - despite public support to change this, the financial industry has resisted efforts to update the relevant policies (ofc)
- drift can also occur due to polarisation, due to Republicans moving right & dragging the Dems along with them (despite the fact that the public is way further left than either party on many issues); this sort of gridlock makes policy drift more likely, especially due to non-action (it’s easier to conceal this, as well)
overall, we need to focus not just on elections but on other sources of power/authority as well, particularly lobbying
- shifts in the balance of power among organised interests affects both parties, not just whoever’s currently in office
- contemporary policy makers don’t just cater to the median voter anymore—they’re also accountable to organised interests, which tend to encourage policy drift when it’s in their favour
another factor, related to the above: voters no longer trust governments to tackle inequality properly, with faith in political institutions severely weakened lately (this is probably truer now than it was when this paper was published tbh)
historical factors:
- in 60s and early 70s, anti-business regulation proliferated (pro-consumer, environmental, workplace safety), due to pressure from public interest orgs
- this engendered a strong reaction from business community: corporations launched a counteroffensive, invested in n lobbying and campaign finance to try to push their agenda
- by the 1970s, they had basically succeeded: deregulation revolution + minimum wage allowed to drift (not indexed to inflation) + defeat of attempts at labour law reform
- note that this all happened BEFORE Reagan, under a Dem pres (Carter) when the Dems had large majorities in both the House and Senate
on unions: always weak in the US, but the decline since the 1980s startling, unmatched elsewhere
- influence of unions important not just for wage bargaining but for political clout—their presence may encourage stronger labour protections or welfare programs
- they are often the only political forces representing the poor
- overall, working class voters (Dem or Rep) have fewer ways to express their sentiments and organise
- these days, the well-known organisations in the political landscape (like Emily’s List) focus on the interests of donors, not average voters
the effects of the rise of Christian conservative influence:
- voters were going to the polls for moral, not economic issues
- which means they might vote for higher inequality (bad for median voter) because they’re swayed by a stance on a “moral” issue (abortion, gay rights, etc)
on the role of taxes in rising inequality
- early 70s, peak in terms of high tax brackets (up to 75% effective tax rate at the top)
- since then, tax rates have fallen fairly steadily
- though that doesn’t explain all of the increase in inequality—accounts for maybe 1/3 of increase for top 0.1%
note that the fall of union density is not a “neutral” market process, merely the result of jobs going overseas
- in Canadian, union density is still quite high, even though it’s been theoretically exposed to the same market forces
- so there must be political factors as well
- events like Reagan breaking the air traffic controllers’ strike play a role
- but there are also structural components, esp policy drift
- basically the govt abdicated its responsibility to take care of workers and opted for more of a “free market” approach to the labour market, allowing employers and employees to (essentially) duke it out amongst themselves
factors explaining the rise of exec pay
- shift in corporate governance (ostensibly based on the concept of “shareholder value” but really managerism, where those in charge found more and more ways to siphon value from the corporation)
- linked to one particular policy re: stock options
  - central to exec pay in the 90s: they lower the visibility of total exec compensation (harder to calculate)
  - the Financial Accounting Standards Board tried to force employers to disclose true costs but political mobilisation in opposition prevented this, allowing for policy drift to occur
also, the role of financialisation & financial deregulation -> winner-takes-all
- we should situate this within the wider context of the post-Bretton Woods need to maintain US hegemony + Kondratieff B-phases
- what’s new with the most recent wave of financialisation is the global aspect

Organized Combat or Structural Advantage? by Jonathan Hopkin and Kate Alexander Shaw

On how the organised combat model that Hacker and Pierson developed to explain winner-takes-all inequality in the US doesn’t quite work for the UK, where a better explanation takes into account the structural advantage that elites derive from the ideology of unfettered markets (as pioneered by Thatcher and subsequently New Labour). Co-authored by the lecturer in 2014.

transformation of the UK since the 80s primarily driven by rise of finance + weakening of unions/welfare
unlike in the US, financialisation in the UK was driven less by domestic interest groups and more by policy elites
- there was an ideological shift where finance was viewed as a Good Thing for the nation
- less organised combat, more change in the organisational balance of power
unlike with the US, Thatcher’s strategy was more decisive, and openly confrontational with regard to unions (“the enemy within”)
- also more regressive re: tax
- incidentally, of the top 0.1% by income, FIRE (finance, insurance, real estate) accounted for 70% in 2008 holy shit
- policies that paved the way for financialisation:
  - the “Big Bang” reforms of 1986 (liberalisation of finance)
  - earlier removal of capital controls (1979)
  - historical separations between brokers and jobbers were removed
  - the privatisation of formerly state-run industries helped, by giving the finance industry a new source of profits (not entirely sure of the exact mechanisms tho)
  - plus a monetary policy that was inflation-wary (low interest rates) made the financial industry the obvious place to look if you wanted high returns, which helped them attract capital
note that policy changes were endogenous to the govt, not necessarily brought about by organised interests
- recall Thatcher’s love of The Road to Serfdom (there’s a possibly apocryphal story about her pulling out the book at one meeting and saying this was the Conservative Party’s program now)
- in fact, these policies may have harmed the existing domestic financial elites
  - previously, they had enjoyed some degree of protectionism and self-regulation and insulation from political pressures
  - but now that the govt was getting involved (even if in a somewhat positive way) they had to start investing in lobbying (started ~1980)
  - the main consequence of liberalising finance was to drive out British firms (replaced by US/French/German/Swiss equivalents)
  - there was also some indirect pressure from the concurrent deregulation of the US financial sector, with which the City of London had to compete (race to the bottom)
when New Labour came into power, they had totally absorbed Thatcher’s “there is no alternative” ideology
- avoided stigmatising wealth & inequality, focused instead on “poverty” and “social exclusion”
- their strategy: leverage growth, which of course meant a very pro-business atmosphere—they aligned with the existing business elites
- public spending did expand, but it was on the back of an expanded financial industry (which of course will generate problematic inequalities in the longer term)
difference between US/UK political systems
- here, decision-making is more centralised (via the Prime Minister), unicameral, more party discipline, less lobbying
- also, the Labour Party is much less beholden to financial interests than the Democratic Party is (since most of their donations have a trade union component whereas the Dems are all about that Wall Street cash)
on the impact of the 2008 crisis: the Gordon Brown govt didn’t impose any real structural changes to the financial industry even though it very well could have
- New Labour believed in unfettered finance at the time and thus had never developed the tools to reign it in
- on the reason New Labour veered so far right in the early 2000s:
  - they signed up for the pro-finance agenda because that’s what the Tories were doing & leaders didn’t have enough backbone (thought they couldn’t win an election otherwise)
  - which, in hindsight (and given the recent rise of Corbyn’s extreme anti-finance stance), seems like it could have been a misreading (or maybe public opinion has just changed dramatically since the crash, who knows)

Why Hasn’t Democracy Slowed Rising Inequality? by Adam Bonica et al

Addressing the failures of the Meltzer and Richard model + similar models, specifically in the US. Gives five main reasons.

both mainstream parties have moved rightward recently
- both parties espouse neoliberal economic policy, with a focus on free markets at the expense of greater redistribution
higher immigration (esp low-income migrants) & poor not voting means that the median voter tends to be more well-off than the median resident
as private markets for welfare flourish, people get used to turning to market solutions for social services
- they start to associate government spending with poor quality services & inefficiency, thus voting against spending increases
- which ofc becomes sort of a self-fulfilling prophecy (ratchet effect?) because govt services that don’t get enough funding will get worse and worse
influence of $ in policy-making, revolving door (those at the top are usually quite centrist in their views)
lack of accountability of elected officials (gerrymandering, gridlock, voter apathy)

my own thoughts on this (though not necessarily relevant to this paper, which came out in 2013): we should also consider the impact of ossified structures & the power of individuals within those structures to have lasting impacts. part of the reason Bernie didn’t get the Dem nomination was due to Debbie Schultz’s desire (with the backing of others in the establishment) to keep him out no matter what. If she hadn’t had the institutional ability to do that, OR if she had just changed her mind, then maybe Bernie would have gotten the nomination & perhaps even the Presidency, and our view of the American political landscape would be very different

public support for fighting inequality is still high, esp after the crash
- the only problem is that it sometimes begins and ends with Wall Street: people correctly identify Wall St as part of the problem, but don’t always realise that their grievances with finance are really grievances with the whole economic system as such (finance is a symptom, or an emergent phenomenon if you will)
the pivot model in US politics (relevant to my sidebar on the power of individuals above)
- there are actors with unusual leverage at various points in the political process
- for example, to pass the Senate with 60 votes, there may be some key actors who need to be influenced
- recall the recent healthcare bill failure where the spotlight was placed on defecting Republicans (McCain, Murkowski, etc) because they really did have that much power over the future of the bill
on policy drift:
- min wage is currently not indexed to inflation but income tax brackets are. reason: otherwise you would get bracket creep, which is bad for rich people
- legislative polarisation leads to gridlock, which leads to e.g., Dodd-Frank never being updated (and in fact Republicans are trying to repeal it entirely)

Lecture

Last week: you can see CMEs as softer alternatives to the market, either for purported greater efficiency (à la the VoC model) or in order to protect society (the welfare capitalism model)
Today: on the LMEs and their ideology of economic liberalism (private property, individual rights over collective, etc)
- this ideology is highly entrenched in the Anglo-Saxon countries (although it’s hard to back that up quantitatively)
explanations based on labour mobilisation:
- in the Anglo countries, unions failed to establish alliances needed to entrench working-class power
- in the UK, since (semi-)democratisation came earlier, perhaps the working class allied with liberal (bourgeois) elements early which impeded social democratic progress later?
- in the US, there was never really a strong socialist movement, and less history of state-owned enterprises (outside of the military-industrial complex)
- US, Canada, Ireland had weaker labour movements than Australia, New Zealand, UK
- the UK Labour Party is the strongest party of its kind anywhere in the world (unless you want to define the US Democratic Party as a labour party, which Hopkin personally wouldn’t, and I would agree)
- basically patterns of labour mobilisation aren’t sufficient to explain why liberalism took hold in the Anglo-Saxon countries
so what do these countries have in common?
- perhaps their early (semi-)democratisation, in the early 19th century, which undermines the rationale for subsequent labour movements (think of as an early compromise to constrain radical demands by the working class and constrain them within the confines of a democratic framework)
- legal systems may also have an impact—former colonies of the UK have “common law” systems
- English language? influence of English political thinkers, esp Protestant ones (recall Weber’s whole thing about the influence of religious normative positions on economic viewers)
- strong influence of property-owning middle classes in pushing for sociopolitical reforms, which exist partly due to early democratisation (the “have-somes”)
  - contrast this with the more polarised social stratification in continental Europe (mostly proletariat vs bourgeoisie)
what characterises the liberal, Anglo-Saxon model?
- pro-market, pro-private property, rather than egalitarianism
- very Lockian, “possessive individualism” (term used by political philosopher C. B. Macpherson about Locke’s ideas)
- commodification is seen as the natural, legitimate way of life; decommodification is resisted
- strong myth of self-regulating markets—markets are seen as the optimal method for coordinating things, at least between firms (Karl Polanyi talks about this a lot in The Great Transformation)
- you can view the death of feudalism as partly caused by capitalist struggle: rising capitalists wanted to dismantle protections of existing system so they could accumulate more wealth
of course, this liberal ideology hasn’t necessarily been consistently applied throughout history of LMEs
- some countries, like the US and the UK, went through strong protectionist/interventionist phases
- which speaks to the incomplete nature of any ideology (they’re never total, and never the whole story)
the welfare/redistribution regimes in LMEs are consistent with liberal principles
- equality of rights (esp re: property) but not re: outcome (esp in terms of material goods)
- the welfare system acts as a residual structure, a safety net, rather than trying to subvert the market
let’s look at the US in particular
- no one political party has consistent hegemony
- unions have very little power, esp when it comes to wage bargaining
- low social spending for the poor (at most, there’s tax relief, of which the prime beneficiaries are the wealthy)
- laissez-faire model when it comes to social services, esp care; medium-high participation of women in workforce
- some state provision: social security, and medicare
- unemployment: time-limited income protection, low replacement rates
- welfare state “divided” (privatised), encouraging private provision for healthcare, old age
  - which of course has a regressive effect (esp when there are tax reliefs for private provision)
  - so middle-income workers gain from private subsidies, and don’t want to pool risk with the poor
  - middle class opts for, say, privatised daycare, which is propped up by low-wage, predominantly female workers
  - there’s an ethic of individual over collective responsibility, which itself rests on the myth of equality of opportunity (despite the fact that equality of opportunity does not exist … look at legacy admissions + high tuition at universities for one obvious reason)
- institutionalisation of free markets as the solution for everything, thus there is the tendency for market responses to social issues
now for the UK:
- social spending slightly higher, more public care, mix of public/private pensions
- welfare benefits less time-limited than in the US
recall that most of the Anglo countries have majoritarian rules and very little proportionality (resulting in winner-takes-all politics)
- the Q: are the electoral rules the cause or the consequence of liberal ideas? are they endogenous or exogenous
- incidentally, Ireland, which has high pre-tax inequality but low post-tax inequality, has proportional representation, but similar institutions
on the politics of social mobilisation (of distinct social classes attempting to secure their own interests)
- if high mobilisation explains government growth historically (one theory), does recent govt retrenchment (esp w/ austerity, etc) mean we’re living in an era of _de_mobilisation?
- union membership in the US has declined precipitously since its peak in the 1950s (30%)
- in the UK, the peak was in the 80s, and much higher: 50%
- on the impact of Thatcher and Reagan on unions:
  - US: August 5 1981, 11,000 ATC workers went on strike; Reagan broke it by firing them & bringing in the military (big symbolic moment tho obvs not the whole story)
  - 1984-1985, UK miners’ strike (142,000 at its peak) to prevent closing coal mines; Thatcher bought up huge coal stockpile & used police to break up attacks on scabs, resulting in a victory for the Conservative govt
- inverse relationship between degree of mobilisation of working classes & welfare state
  - power of working class has recently been in decline, partly due to structural economic change but also due to the opposing mobilisation of capital
  - essentially, the problems of 1970s (stagflation, falling profits) led to a distributional crisis in which capital ended up seizing power
on public choice theory
- sees large welfare systems as engendering the phenomenon of exploitation of the commons (since that’s the rational response)
- thus their ideological solution is to roll back the powers of the govt re: redistribution
- (whereas they don’t try to roll back, say, government enforcement of property rights …)
- the theory comes down to moral hazard: if there’s a safety net, it’ll slow people down because they won’t have an incentive to work hard
- lots of the proponents of the pro-liberal, anti-government theories under this umbrella were American
- these ideas were picked up by the ruling class of the US/UK because they were seen as advantageous
  - basically rich people have captured the political system—the 1% has become the govt
  - thus, as the super-rich holds a disporportionate amount of wealth and power, the welfare state starts to recede
we can see politics as a battlefield of ideas in which the well-funded lobbyists usually win
- quiet politics: action happens behind the scenes, and with the recent decline in mass movement potential there is little challenge
- the question is: how does a democratic society allow this to happen?
  - decline of mobilisation of lower-middle classes, plus lower voter turnout, plus false consciousness
  - Offe and Weisenthal, in their paper Two Logics of Collective Action (PDF), identified another reason
  - basically the dynamics of mobilisation are different for different economic classes
  - it’s easier for a smaller number of rich people to act collectively (easier to coordinate since there are fewer of them, plus they have more resources in total)
  - so the political field is already structurally tilted in favour of the wealthy
  - Thomas Ferguson, in his 1995 book Golden Rule, elaborated on the investment theory of party competition: the interests of business elites dominate politics because they have lots to gain (potentially) in terms of greater profits
on the problems with Esping-Anderson/Hall & Soskice
- very static models—they don’t account for the possibility that the liberal underpinnings of a political economy can change over time
- to ponder: what is the role of the influence of the raw power of the wealthy vs the influence of their ideas? (think of Marx’s theory that the ideas of the ruling class are the ruling ideas—how are they promulgated and what are the limitations?)

Seminar

where do liberal ideas come from in the first place?
- Weber’s Protestant theory, think tanks, individual actors
- plus some sort of shadowy right-way conspiracy bringing them all together …
  - enter the Mont Pelerin Society, which was my primary contribution to the debate
  - (apparently it’s shadowy enough that none of the other students in this seminar had heard of it)
- a thought that I had during this discussion, which I will leave as an open question:
  - given the existence of the MPS, was neoliberalism inevitable?
  - is there an alternative history where a left MPS, dissatisfied by Keynesianism, had been waiting in the wings for 30 years, ready with a more socialist agenda?
  - or would that have been structurally impossible due to the perceived blurry line between Keynesianism and a stronger left-wing agenda?
  - thus did neoliberalism win partly because it offered a stark contrast to the apparent failures of Keynesianism?
  - if we look at it teleologically, maybe neoliberalism is a necessary phase (you gotta zigzag)
why did neoliberal ideology become so much more entrenched in the US/UK?
- on Europe: turning to collective solutions (the EMS, EU, etc) partly to protect the postwar welfare state, which perhaps hampered the spread of more liberal ideals
- for the UK: the impact of some sort of patriotic, “Britain First” identity? drawing on Britain’s colonial history?
- for the US: the idea of US exceptionalism & postwar American economic hegemony due to Bretton Woods?
- neither the US nor the UK were really invaded by foreign powers during the war, which perhaps made them less likely to turn to collective solutions as a result
- both are also effectively two-party systems w/ political baton-passing, it just so happened that the worst crises of the 70s went down on the left’s watch (fits in w/ my zigzag theory above)
- public attitudes towards the rich:
  - in the US, the idea of “meritocracy” has a pervasive hold, and ofc this ideology is a perfect match for high inequality (does a great job of masking it)
  - in the UK, the class system strongly correlates w/ wealth and thus makes extreme wealth feel more natural
  - whereas in some other countries, it’s more acceptable to view extreme wealth as the result of theft (see the French Revolution, which is basically just expropriating the rich)
- recall that the leftwing govts were the ones implementing the postwar social contracts
  - rightwing parties went along but only begrudgingly, so MPS found eager audiences in these sidelined rightwing parties
the thing to remember about the LME/CME distinction is that once you go down one path, you’re in a virtuous/vicious cycle
- the different institutions reinforce each other and become entreched
- so the big Q is what sets one country down one path in the first place
recall the context of stagflation, oil crises etc in the 70s
- did popular support for neoliberalism rise? why did people vote for these parties?
- Hacker & Pierson’s theory is that the electorate only has a role up to a point (after that, organised interests take over)
  - for ex, when people voted for Thatcher the first time, they didn’t necessarily know what they were voting for
  - and when they voted for her the second time, it may have been because they felt like they were doing slightly better economically (due to right-to-buy, house prices going up, short-term economic growth etc)
the role of mistrust in institutions
- there’s this unfortunately common refrain in US politics in particular: higher taxes means your money will go to “welfare queens” etc
- people who are concerned by rising inequality, but still support neoliberal policy: cognitive dissonance or just fundamental misunderstanding of how the world works
- recall the point of the third paper: the super-rich fund both Dems & Reps, meaning that both parties have been captured by elite interests to some degree
- which makes distrust of political institutions understandable tbh—there’s no real option to combat inequality or really change up the system
on the differences between the US/UK
- the US doesn’t have any large social welfare institutions like the NHS, which is a good symbol psychologically
- easier to convince people to spend money on an institution rather than flat-out cash transfers, which is the only real option in the US
link between rising inequality & rising polarisation (measured by voting records in government)
- could be due to polarisation along a non-economic axis
incidentally, % of people who want to decrease the size of the state has always been <10% in the last 30 years
- and yet, in media/debates/political realm this view (that of shrinking state expenditures) gets like majority coverage
- suggesting elite political discourse is fairly detached from actual voter preferences
- this itself is spurred on by the collapse of working-class/socialist papers and the concurrent rise of right-wing tabloids—the right is winning the battle of ideas

- week 6

Politics against markets: social market economies - week 7

Readings

Religion and the Western Welfare State by Philip Manow and Kees van Kersbergen

An essay from Religion, Class Coalitions, and Welfare States (PDF), published in 2010. Challenging the traditional explanations for Christian Democratic welfare states.

incidentally, as generous as the Scandinavian welfare states are in terms of spending, the level of decommodification isn’t actually that high—there’s less countering of the market
Catholic social doctrine -> patriarchical, status-based hierarchy
we can’t just focus on the labour-capital class struggle, but need to consider state-church conflict as well
- especially in 19th century (due to educational, social policy differences)
- thus parties of “religious defence” sprung up in continental Europe but not Scandi, UK -> influenced dev of welfare states
- anticlerical element obvious in Italy, Belgium, France in contrast to the Catholicism of other countries
we also can’t ignore the influence of Protestantism
- the reformed version delayed the development of the welfare state
- whereas Lutheran state churches (Germany, Scandi) supported it
not industrialism but instead establishment of labour markets that gave rise to welfare states
- “a market economy could only function in a market society” thus society had to be transformed to make markets the guiding principle
- ofc, full commodification of laboour is impossible as it’s a fictitious commodity & would be destroyed in the process
- this is the logic behind Polanyi’s double movement: a partial commodification of labour necessitates its partial decommodification
- otoh, this theory desn’t explain differences among countries (with different welfare state patterns)
- instead, for a fuller picture, we should look at the coalitions that the political left could make
Soskice & Iverson’s 2006 model
- from the POV of the middle class (with the fairly ridiculous assumption of equally-sized lower, middle, upper classes)
- with a left-wing govt, the middle class believes it’ll pay taxes primarily for the benefit of the lower classes
- whereas, with a right-wing govt, it recognises there will be fewer benefits, but believes it’ll pay fewer taxes
- thus the middle class will tend to vote right-wing more often
- but in a multi-party system, if the left-wing party forms a coalition with one that also represents the middle class, then there’ll be a party that taxes the rich and shares the benefits among the bottom two classes
  - I gotta say, I am puzzled as to why the original left-wing party wouldn’t just go for that in the first place
- basically they’re saying that PR (or lack thereof) helps explain why non-economic party cleavages form
- religious social mobilisation more likely when there’s a less extensive welfare state

Once Again a Model (PDF) by Jonas Pontusson

From 2009 (appearing in the 2011 book “Futures of the Left”). On how Nordic social democracy continues to function in an era of globalisation.

compared to continental model, scandi states focus on social citizenship, not due to working contributions
- don’t spend that much GDP on income transfers but it’s more effective at reducing income ineq than in other countries
- denmark has least restrictive laws for firing workers
Rehn-Meidner model: goal of labour movement is to improve productivity growth & contain wage inflation
- main insight: low wages are subsidy for inefficient capital
- also that wage differentials necessary to encourage skilling up
norway challenges esping-anderson’s idea of decommodification
- public investment in education etc doesnt actually reduce decommod & emancipate them from labour markets
- rather, it empowers their ability to sell labour power
- thus achieves economic efficiency in a way consistent with the neoclassical model
financial features of CMEs
- firms have limited exposure to financial markets, instead long-term stakeholders & long-term finance
- cross-share holdings among firms, protecting against vagaries of cap markets and thread of hostile takeovers + better coord
- long-term emplyment, trust in workplaces, high-quality industrial goods
rather than generating convergence toward liberal model, globalisation instead keeps open gulf between LME, CME (different comparative advantages)
wage compression is actually good for firms w/ above-avg profits
unionisation rates obvs way higher, 79 in sweden and 54 in norway though falling everywhere except finland 76
virtuous cycle: socdem model requires but also sustains strong unions
nordic countries relied on prod growth to achieve econ growth (employment growth sluggish)
- unemployment much higher in finland tho falling lately (growth higher too)
- germany less services than the others (68 vs 79 in US, 74 nordic avg)
- public sector share of total employment hasnt grown in nordic since 90s
- in sweden: deregulation of cap markets similar to thatcher’s big bang
  - contributed to asset bubble and crisis of 1991-2 but also helped swedish firms get access to capital
- denmark: “flexicurity” in 90s, budgetary prssures for welfare state spending cuts to reform unemployment
  - but due to necessity not liberal ideology
  - the reason they could engage in dereg has to do with existence of welfare state in first place
- high pub investment in education contributed to growth of knowledge-intensive sectors

Lecture

last time, we focused on the structural causes of inequality in LMEs
but inequality is rising even in non-liberal market economies (we can call them social or coordinated market economies, fairly interchangeably)
recall the distinction between LMEs/CMEs
- even in LMEs, there is some type of market suppression (e.g., markets for illegal substances, like certain drugs)
- in LMEs, though, suppression is leaner, and usually more for efficiency rather than equity reasons
- goal for today: look at how political institutions in CMEs contain, tame and suppress markets
- focus on continental/Northern/Southern Europe (parts of East Asia would also qualify but we won’t be focusing on them)
even among CMEs there are dividing lines along religious or legal origin grounds
- on the religious front:
  - Protestant reformation of 1517; Scandinavia mostly Protestant; Southern Europe and France mostly Catholic or Orthodox
  - continental: mix of multiple religions without hegemony of any one (Netherlands, Germany, Switzerland)
  - recall Max Weber’s Protestant ethic theory
  - ofc the open question comes down to endogeneity: did religion influence the type of capitalism or vice versa?
- on legal origin: LMEs all use English common law
  - French legal framework used in continental, Southern Europe
  - German/Scandinavian legal system used in continental/Northern Europe (Germany tends to be very rule-based, legally and economically)
Esping-Anderson uses several somewhat interchangeable terms to refer to this religious-geographical-political admixture:
- corporatist / conservative / Christian-Democract / continental
- also Bismarckian (in the sense of the welfare system), as opposed to the British variant inspired by Beveridge
on the historical development of welfare states
- conditioned by authoritarianism (Bismarck used welfare state to palliate the working class and thus prevent an uprising)
- countries with strong Communist (Marxist) movements, like Germany and France, tend to have more history of authoritarian rule (perhaps as a response) and thus welfare states (though not the Scandinavian kind)
- the takeaway is that welfare states should be seen as a pragmatic, shrewd, and conservative development to curtail the working class, not an inherently liberatory one
the role of Catholicism in welfare state development in continental Europe
- doctrinal basis: “Christian social theory”
- personalism: personal fulfillment through community (in stable, unchanging, hierarchical relations)
- social responsibilty as opposed to individual (liberalism) or collective (socialism)
- the big goal is community solidarity via class integration (as opposed to class consciousness)
- secular movements, especially trade-union-related, are viewed with suspicion
- thus this is neither a liberal idea (the individual is seen as part of a larger whole) nor a Marxist one (no class divisions)
- represents a third way between capitalism and socialism (suspicious of both)
  - attentive to the misery created by markets
  - but also saw private property as a bedrock of society (after all, the Church itself tended to have a lot)
  - qualified support of trade unions + role of state in protecting the poor
- in 1931, Pope Pius Xi anounced the need to restore harmony in society
  - his vision was based on the primary of functional/vocational groups (“corporations” though not in the common sense of the term—instead, just groups of people with cohesive vocational interests)
  - unlike traditional liberal thought, asserts that society should take precedence over the economy
- thus the coalition of Christian and conservative forces resulted in some level fo decommodification, manifesting as ordoliberalism (Erhard’s concept of a social market economy)
  - involves some level of market suppression, as well as some level of compensation for those who are failed by the market
  - consistent with social hierarchies (class, family, church, etc)
  - the goal is neither individual freedom nor real egalitarianism
  - enforced via a legalist approach (i.e., the state, not corporations)
- result: an extensive welfare state with benefits applied selectively (depending on your vocational affilitation, usually through the form of social insurance contributions etc)
  - includes the middle classes
  - less about providing services and more about cash transfers
  - financed by workers (and primarily provided to workers)
the Southern European flavour is a bit different: more family dependency, larger informal sector, some welfare benefits but low replacement rates
Northern Europe (Sweden, Norway, Denmark, Finland and somewhat the Netherlands and Austria)
- more socialist than continental Europe (socdem parties have more influence than Christian Democratic ones)
- though Germany has also had some socdem party rule as well as CD, sometimes in coalition
- Italy, on the other hand, had quite a large CD influence between 1948-1994, but that party no longer exists
Recall Esping-Anderson on how socialist parties need to build coalitions with other parties in order to get into power
- because there are never enough people just in the industrial working class to form a majority
- the combination of socialist and agrarian parties (aka a red-green coaliation) common for Scandinavia
Now on the Marxist/Labourist doctrinal basis of socdem parties, most notably in Scandinavia
- incidentally, 1994 was a turning point for the UK Labour Party (Tony Blair won leadership); this led to party dropping references to socialism (but it’s back now baby <3)
- socdem as an alternative to violent revolution (Eduard Bernstein wrote a lot on this in his 1899 book “Evolutionary Socialism”)
- mixture of egalitarian and liberal ideals, where you have to accept some bourgeois elements like private property + markets
- the goal is to enhance the power of workers, in order to force capital to make some concessions (this is in line with power resource theory)
  - alternatively, we can view the concessions on the part of capital (welfare state, etc) as premeditated on the part of capital—they recognised that it would be better for them in the long term (in this theory, there is no conflict)
- in this model, the decommodification brought about by the welfare state is about compensating for market failures, more than it is about suppressing the market
- it also challenges traditional hierarchies (esp gender)
- based on the idea of market openness: high levels of international trade (in some Scandinavian countries, the sum of imports and exports is greater than GDP), but the population is sheltered from any pernicious effects via the welfare state
- high taxes not only on income but also (primarily?) consumption (VAT)
looking at the particular case of Sweden (not just the ability of the welfare state to compensate for inequality, but also the inequality caused by the market)
- high taxes
- socdem hegemony since the 30’s
- 90% union coverage so high levels of centralised wage bargaining
- followed the Rehn-Meidner model from 50s-70s: a Keynesian economic model that desired low inflation, high employment, high growth, and income equality
  - lots of wage compression (low-skilled workers are paid more than they would be under a freer market, high-skilled workers less)
    - this had the effect of driving uncompetitive firms out of the market
    - note that this aspect of the economy isn’t actually part of the welfare state, since it’s not govt policy, but it forms an important pillar
  - an active labour market policy where the govt helps people retrain and pays them unemployment benefits in the meantime
    - the benefit of the latter is greater market efficiency—workers won’t fight to keep their unprofitable corporations running because they’ll be taken care of in the meantime & will be retrained for a more productive role
  - low taxes on capital, contingent on reinvestment
  - high taxes (esp sales tax) to finance welfare states & suppress inflation
  - basically this model only works if productivity is high

Seminar

Who are welfare states for?

We started by discussing this news story: Elderly husband’s plea as Scot’s wife of 30 years set to be kicked out of country due to Tory immigration crackdown. The big question revolved around whether he should be entitled to welfare or not.

pros:
- he is a citizen, and his family probably paid into the welfare state
- he’s also old and vulnerable, can’t really penalise him cus he’s probably too old to get a job, so unless we like the idea of just sentencing him to death …
cons: if he hasn’t paid anything in why should he get something out, plus this results in moral hazard for freeriders
alternative proposal: South Africa should be part of the discussion since he paid in to the South African welfare state for so long
my take: extreme frustration with the way the question was posed in the first place
- it’s exactly like all the focus on benefits fraud etc by the very poor
- the whole point of this rhetoric is to undermine solidarity among the poor
- getting people to squabble over tiny amounts and creating an us-vs-them mentality precisely to divide and distract them from the fact that the people on top are making sooo much more
- it makes no sense to focus on this one guy when the amount of money involved is so small compared to how much is lost via tax avoidance
  - or, to take a slightly more radical note, by allowing inheritance at all
and yet: it’s easy to feel indignant about this case, given that he opted to take on more private risk & gain reward from the UK welfare state when that didn’t work out
- feels opportunistic
- esp if you see it from an individualistic, classic liberal sense (and in many ways, we’ve all been inculcated with liberal ideology)
- on the other hand, we all benefit from being able to take advantage of the system; it’s a floor for all of us
the reverse question is: should a South African citizen paying in to the UK welfare state benefit?
- the larger question is: whom should a national welfare state benefit in the first place?
  - we need to take into account incentive-setting and moral hazard when shaping these welfare systems
- Hopkin brought up a camping analogy (imagine if someone sat around and didn’t help but still expected to eat food and sleep in a tent etc)
  - a student brought up, as a rebuttal, Gerald Cohen’s critique of Rawls’ which basically tears apart this camping analogy lol
  - in an ideal situation, you wouldn’t have any nitpicking, and would instead allow people to do what they’re best at
  - which might mean that some do less than others but that’s okay as long as you have solidarity and a sense of community
  - from his very short book Why Not Socialism?

On the development of welfare states

biggest different in welfare states today: nationality/citizenship vs contribution/insurance
modernisation as the standard polanyi explanation
- functionalist theory
- implies that protective institutions dev almost automatically as market does, without thinking about mechanism (inevitable result of dismantling feudal system)
- if we stick to modernisation framework: when industrialisation happened, or what specific industries (Italy/France still agrarian for a while). or maybe specifics of feudal system? or geography, hence mercantilism patterns
ofc we prefer the power resources approach instead: class coalitions, social mobilisation

Iversion and Soskice

on the iverson soskice middle class theory which is (imo) way too simplified, doesn’t take into account the size of middle class
- their model assumes lower/middle/upper classes are equal size, so not very realistic, lots of handwaving
- also assumes rational selfish actors who optimise for themselves individually
- and that left-wing parties need to focus on the lower classes only …
suggests that FPTP systems tend to create a single dimension of polarity, usually around economics
- ofc there’s the question of of endogeneity: is a PR system the result of not being able to resolve all issues within 2-party system?
- one theory on why US never had proper working class movement comes down to ethnic divisions as a result of slavery
- and in countries with more religious divisions, anticlerical/not or catholic/protestant -> drives a wedge

On religious explanations

catholic-inspired welfare states:
- status-driven
- about keeping things together (solidarity) not really egalitarianism
reformed vs lutheran protestant distinction important for US/Scandi distinction (Lutheran more pro-govt, Calvinist more hostile to state)
what about having church embedded in state, like norway or UK? doesn’t really predict much
recall nordic, agrarian parties pushed for citizenship benefits as opposed to contribution-based benefits which is what workers might have preferred (selfishly)
- question about nordic countries’ advantage (partly due to higher productivity)
  - my thought: does this core require a periphery/hinterlands (a la Streeck on Germany?)
- are institutions enough to make say southern europe develop or are there geographical factors too

The Politics of Labour - week 8

Readings

Inequality by Anthony B. Atkinson (chapters 4-5)

Chapter 4: Technological Change and Countervailing Power

He’s basically saying that as more and more jobs get automated, the traditional way we conceive of labour & labour markets needs to change (as it’s drifting farther and farther away from its original purpose of producing/distributing scarce goods), but never actually reaches what I think should be the ultimate conclusion: that we need to socialise the means of automation.

He does have a good quote on the perils of being too reliant on technology:

Experience with robots leads us off on a path where they, increasingly, over time, replace humans, the trade-off becoming increasingly favourable. But we could have taken an alternative path where the human-service element was emphasised and the skills of people were increasingly developed. We have therefore to consider the implications of today’s production decisions for where we would like to end up in the future. Here, the motives of the firm, giving priority to the specific interests of its shareholders, may not be aligned with the wider interests of society, and we need to consider the role of countervailing power, taken up later in this chapter.

On the other hand, he thinks the state needs to intervene in innovation in order to assure continued human employment. This is decidedly not a post-work take. He also has a weird take on the Baumol effect—instead of seeing it as a totally normal and acceptable thing (an obvious side effect of increasing productivity in manufacturing etc) he sees it as something to be concerned about and thus ameliorated through increasing technological investment in service sectors? I agree with his conclusion but the logic is strange. Surely that conclusion can be reached without having to mention the Baumol effect at all. But maybe he’s just trying to convince fellow economists who can’t see the value in something unless there’s a price tag attached to it.

In the second part, he talks about the countervailing forces that prevent corporations from doing the right thing, and suggests that the state take into account distributional concerns when regulating market activity. He recognises that his proposals are “flying in the face […] of the economics literature” which, I have to say, is quite an astounding thing to fathom given just how (frankly) tame his proposals are. That says something pretty worrisome about the state of economics & the world today, I suppose.

Finally, he goes into the broader ideological shift that led to the decline of the influence of unions, mostly spurred by the passing of anti-union legislation between 1980-1993.

Chapter 5: Employment and Pay in the Future

He advocates for a fuller employment market (in the sense of reducing involuntary employment) via state-guaranteed jobs as well as better pay
Highlights the changing nature of work, mostly due to technology, but also due to changing views of work (more part-time, non-standard work)
One problem in the UK re: unemployment is that no one has an unemployment “target” the way they have an inflation target
Cites the WPA as a good example of guaranteed jobs
Proposes various implementions of a jobs guarantee in the UK (where the govt acts as an employer of last resort)
Recognises that giving everyone a job is not enough if pay isn’t fair
- The solution: giving labour more bargaining power
- Supports a (higher) minimum wage and maybe even a maximum wage (as a ratio)
- Wow, John Lewis top execs can only be paid 75x the average salary T_T the fact that this is considered “progressive” is depressing af
- Believes that statutory solutions to greater pay equity are neither sufficient nor necessary; instead, we should change public opinion & get firms to voluntarily adopt such policies

Comparative political economy and international migration (PDF) by Afonso Alexandre and Camilla Devitt

Published 2016. On the economic effects of immigration, distinguishing between LMEs and CMEs.

last decade: 70% of workforce increase in Europe and 47% in US foreign-born
immigration interacts with labour market institutions via:
- segmentation:
  - migrants can be more willing slaves of capital (weaker eco/poli resources, thus accept worse terms)
  - a way of reconciling society’s required protections (for natives) & capital’s need for flexible labour (it’s dumped onto outsiders)
  - ex: 19th century, Irish migrants to England formed an “industrial reserve army” (Engels)
  - ethnic, national divisions between migrants & native-born often exploited by capitalists to prevent united class consciousness
- complementarity
  - the idea that certain policies/institutions are complementary
  - ex: favouring of higher-skilled immigrants goes well with flexible labour market, lots of VC
- functional equivalence
  - immigrants as a source of labour to “fill the gaps” (i.e., take the jobs natives don’t want or can’t do)
  - lower end examples: child care, picking fruit
  - higher end: doctors, academics, scientists, executives, engineers
LMEs have received more immigration than CMEs in general
- Streeck on post-Soviet migration to Germany: there was concern that trade unions wouldn’t be able to maintain their influence
  - so immigration control was necessary for keeping the CME nature of the economy
- OTOH, the segmentation model suggests that migrants can help an economy absorb cost of recessions (by offloading to migrants…)
Q: how does migration impact welfare state provision?
- migrants typically net contributors to pensions (since they’re younger)
- otoh, more likely to need social services (unemployment, housing, etc)
- Bismarckian systems more likely to exclude them, at least initially
impact on training systems
- given that there are two ways for a nation to acquire skilled workers: training, or immigration
- exactly what Silicon Valley is doing right now with H1-Bs
- ofc this can have the effect of suppressing labour by making it harder to form unions
  - ethnic/national divisions undermine solidarity
  - plus those on visas with very limited rights (best example: H1-Bs) are in more precarious situations and can’t risk their job
immigration is (obvs) not just a factor of econ growth—there’s a sectoral component too
- ex: Italy, Germany both had high unemployment & high (labour-based) migration in 90s
- large welfare states usually attract less low-skilled migrants (since less demand for them?) despite fears to contrary
- policy drift can result in more migrant labour, for ex in underfunded public services (care)
LMEs seek migrants to enhance innovation, productivity, competitiveness; CMEs more conservative (protecting existing labour market)
inverse relationship between openness to trade and immigration
- if you can’t import cheap goods, will try to import cheap labour instead (to make those goods)
- but if you CAN import cheap goods, domestic production of cheap goods declines -> need for cheap labour does as well
relationship between trade union strength & immigration policy: stronger -> more restrictive
- in Nordic system, unions require full integration of migrants (in order to preserve their own strength) -> undermines employers’ attempts at segmentation
- in Bismarckian system, importing male migrant workers preferable to having more women in workforce (thus challenging traditional gender roles)
- otoh, the relationship isn’t clear; diff types of union movements react differently
- some unions support more immigration (perhaps as way to bolster declining memberships? or due to collaboration w/ employers)
distinction between companies in tradeable and non-tradeable industries
- if more tradeable, more open to immigration (bring down prod costs)
- if less: fear of competition from foreign firms w/ foreign (cheaper) employees
cultural aspects behind resistance to immigration
- Japan: desire for homogeneity even despite low birth rates & ageing pop
conclusion: need more data to study “welfare magnet” hypothesis (authors seem to be skeptical of it)

A Common Neoliberal Trajectory by Lucio Baccaro, Chris Howell

Published 2011. Argues that neoliberalism has transformed industrial relations, even in CMEs that are typically thought to be more resilient. Following Streeck, wants to shift focus to understanding commonalities of capitalism rather than differences on a nation-state level. Features a bunch of case studies on industrial relations within certain European countries. Some notes:

VoC approach not fully static—allows for convergence of CMEs into LMEs (opposite is much more unlikely)
Streeck symbolises biggest break from standard comparative political economy
- rather than a focus on institutions, focus instead on the underlying logic of capitalism
complex dialectic between stickiness of institutions & constant transformation (“permanent reinvention, change, and discontinuity”)
neoliberalism has sent different nations on a common trajectory, even if their starting points & velocity are different
the importance of institutional deregulation (liberalisation, individualisation) in order to (essentially) reduce power of labour & let the market take hold
nonunion worker representation (bypassing traditional structures) is a way of weakening influence of unions & strengthening power of employers & employees should not fall for it
in the UK, post-Thatcher:
- New Labour obviously didn’t really move away from Thatcher’s trajectory
- but still, some changes: statutory min wage; better family leave; more unfair dismissal protection; right to union recognition if ballotted support
- OTOH, this was mostly a focus on individual rights which did nothing to improve the state of collective bargaining
the case of Germany is interesting
- did ok post-OPEC crisis, at least for a while
- problems started in the 90s, after reunification (partly due to high-skill, low-cost labour from the East)
- since then: overall weakening of labour (more bargaining at firm level, workers councils cooperate w employers)

Summary: no country is fully immune to the changes wrought by neoliberalism, and the state has played some role in all of them (it’s never just a natural outcome of the free market etc). The biggest change is for greater employer discretion (what David Harvey calls “flexible accumulation” in his Brief History of Neoliberalism).

Lecture

in previous lectures, we focused on _re_distribution (mostly via the welfare state)
- now, we’ll focus on _pre_distribution—based on the market
- obviously the idea that there is a “natural” distribution of income, independent of the state or other factors, is extremely misguided
- market dynamics are affected by regulations (among other things) and in fact there is no Rawlsian equivalent of an original position for markets
- we’ll focus on wages, because they usually comprise the largest share of income (usually 60-70%)
- although welfare state institutions can also influence pre-tax inequality, we won’t focus on them as much
- rather than Gini, we’ll look at P90:10 ratios
  - usually somewhat similar to Gini but different in a few cases, most notably South Korea (much higher P90:10 than you’d expect from the Gini)
  - it has its flaws, ofc, since the statistic deliberately excludes those who aren’t making any income (thus unemployment levels are not taken in account)
labour market factors that explain income inequality disparities
- the power of trade unions
- the existence of an employers’ organisation for unions to bargain with
- government regulation, especially employment protection legislation (EPL) which determines, among other things, how easy it is to hire/fire
bargaining system differences between LMEs and CMEs
- in LMEs, it’s almost always decentralised and individual-level—no collective agreements, just one-on-one bargaining (with perhaps some flexible industry standards)
- whereas in CMEs, there are usually agreements between trade unions (or confederations of) and employers (or confederations of, called “social partnerships”)
  - can be firm-level, industry-level or even national-level
  - these can exist to some degree in LMEs as well, ofc
  - example: academia, where lecturers are paid according to a city-wide scale (though LSE has its own scale as well, and individuals can negotiate higher pay)
  - agreements might cover only members of the union, or everyone in the industry (by law)
- where there is more centralised bargaining, there is less wage inequality due to wage compression (following Meltzer-Richard logic)
  - otoh, if higher-skilled workers leave (or potentially other workers, afflicted with Dunning-Kruger) then the coalition breaks down
- we can’t neglect how the setup of a welfare state might impact bargaining power
  - if there’s a greater safety net, workers are in a stronger position
  - thus we can’t simply take away the welfare state (the _re_distribution aspect) & expect inequality levels to stay the same
union density has lately been declining in both Germany and the UK (though the UK is farther ahead along the trajectory)
in a liberal labour market, people are treated more like commodities
- inequality is accepted as a natural fact of life
- only those at the very bottom are protected via means-tested welfare benefits (and very reluctantly)
- wages more elastic, following laws of supply and demand (think Uber drivers)
- more freedom of hiring/firing
  - good for high-skilled workers in less saturated fields, who can easily switch jobs to pursue higher wages
  - you can see the vertiginous salaries in Silicon Valley as the result of California being an at-will employment state (and ofc buoyed by massive amounts of venture capital)
  - bad for low-skilled workers in saturated fields
- benefits:
  - theoretically, efficiency gains means that the market is more likely to clear
  - i.e., no long-term involuntary employment (assuming no minimum wage, which ofc is a silly assumption because this means that the cost of reproduction of labour is abstracted away …)
- otoh, if we look at labour force participation of prime-age male citizens across OECD countries, this number has fallen a lot lately
  - the US, in particular, has one of the highest unemployment (or rather: not employed) rates
- reasons for inequality in an LME:
  - Sherwin Rosen’s superstar effect (articulated in this 1981 paper for highly visible professions)
    - academics, sports, music, etc
    - the top performer in this field gets all the fame and attention so there is a huge (and not necessarily “merited”) gap between the top and the second
    - you end up with a winner-takes-all market in which distribution is totally out of proportion to relative differences in standing
    - results in an inefficient allocation of resources (due to competition for access to the top performer), where the social gains are not in line with the private gains (accrued by the top performer)
in CMEs, there is less competition among firms when it comes to labour—standardised wages are more accepted
- can come in the form of a general union-employee agreement, or implicit collective bargaining by “wage leaders” who set the wages for the rest of the industry
- incidentally, some unions (esp in Germany) have been keeping wages down, partly in order to prevent capital flight (so they can play a conservative role as well)
- when this bargaining is on a large-scale, it has to take inflation and unemployment concerns into account as well
- theoretical negatives (all of which I kind of disagree with)
  - efficiency disadvantage as markets are suppressed
  - if labour is too empowered, they can command ever-higher wages which can essentially become rents paid to workers
  - can disincentivise individuals from investing in training/education in order to acquire higher skills (if they’re not going to get paid that much more)
  - otoh: wage rises are dampened; inflation is contained; less inter-firm poaching
ofc the CME model has been under strain ever since the 80s (though with different outcomes in different countries)
- even the Scandinavian countries are affected, though they’re weathering the storm better than some others obviously
- centralised bargaining has been slowly moving down the hierarchy and becoming more decentralised
- pressures due to
  - globalisation (esp China and Eastern Europe—low-wage competition)
  - tertiarisation (rise of service industry compared to, say, manufacturing)
  - feminisation of the workforce (women entering workforce + changing composition of trade unions which were traditionally male)
  - political/economic landscape changes as neoliberal ideas have become hegemonic (commodification of everything)
- result: rising inequality due to lowered wages at the bottom and rising wages at the top due to (globalised) superstar effect
Milanovic’s elephant curve:
- the standard interpretation of this is that the very rich have done quite well from 1988-2008
  - and a lot of previously poor people have been lifted out of poverty (most notably in China)
  - but the middle classes of the Western nations (bottom of trunk) have suffered
- though this interpretation has some criticism, e.g., this one from PIIE which shows something very different if you take out Japan/China/the ex-Soviet countries
reasons behind recent changes in inequality
- labour market changes partly due to technology (automation)
- also immigration, which can affect labour markets in different ways
  - can make markets more efficient (“matching” or “complementarity” like when migrants take jobs natives wouldn’t take)
- demographic pressures: ethnic/gender-based fractionalisation of the labour force can foster divisions
  - plus anti-immigrant sentiment can lead to the rise of right-wing parties who oppose both immigration and redistribution
  - this can also impact the Meltzer-Richard model since migrants (typically lower paid) don’t have voting rights

Seminar

I brought up Kalecki’s whole thing on the problems with full employment & how you can never have that because it empowers labour too much
- otoh, different nations have different equilibrium points in the capital/labour struggle so we should consider why that is
on EPL: hasn’t changed much 1985-2008 for permanent workers, but loosened for temp work esp in scandi countries
union density rate fallen almost everywhere except spain (historical outlier, due to political history, from 10% to 15%)
- biggest fall: New Zealand, 70 to 20
- note this is MEMBERS not necessarily coverage (tho if there’s a strike called, everyone goes on strike)
- otoh, chart of coverage rate: france is near the top, has increased; some at the top have increased coverage; LMEs fallen
why do corps agree to deal with union? saves admin overhead/risk of industrial action etc
- also germany case: in employers’ interest, keeping wages down
- plus reduces chance of poaching
- so why do LMEs not allow union rep??? cus historically, less centralised, not high enough level for positive externalities
  - cus market can discipline workers more than agreements can
does the chart of coverage rate (increasing in some, decreasing in others) contradict the last reading?
- not necessarily: misses the level of these agreements (decentralised) + character of them (pro-worker or not)

Gender and Generational Inequalities - week 9

Readings

The Religious Foundations of Work-Family Policies in Western Europe by Kimberly Morgan

An essay from Religion, Class Coalitions, and Welfare States (PDF), published in 2010.

different approaches to encouraging natural pop growth in different European countries
- Germany: held back by ideas that women should stay at home to take care of young children
- Netherlands: similar, pushing the idea of part-time work so women can still take care of children
- Nordic, France, Belgium: more pro-female participation (various state policies to encourage this)
tracing these modern-day policies back to religious roots
random thought I had while reading this: how much gender-equality-in-the-workplace sentiment is driven by financial pressures among households as a result of the shift in the capital-labour power struggle (especially post-70s), which necessitated the full proletarianization of households, as opposed to a real push for gender equality?
- (note to self: Immanuel Wallerstein talks about this in Historical Capitalism though he’s addressing a slightly different point I think. Figure out how to reconcile the two)
one theory behind female-friendly policies: driven by socdem parties (lots of caveats to this theory though)
good quote about the link between religious conflict & contemporary religious political parties:
- “The Reformation, the French Revolution, and the creation and expansion of the nation-state all challenged the hegemony of the Catholic Church and generated sectarian divisions in many countries. The resulting conflicts, and their resolution, shaped the structure of European party systems. Where religious conflicts were intense, parties of religious defense generally formed, whereas the absence of these divisions impeded the creation of such parties” (p64)
summary:
- in the Nordic countries, the level of gender equality (re benefits, work-family policies) comes down to secularism
  - due to early church/state merging but the strong state overshadowed religion
- in France/Belgium, religion was more important and enduring, but there was also a strong anticlerical factor (the Catholic Church was challenged) thus the result was similar: work-family policies tended to be pragmatic rather than moralising

I also accidentally came across this review of her 2006 book Working Mothers and the Welfare State, from which I took the following notes:

in Sweden and France, strong national govt overshadowed the national religion
- thus there was no religious counterbalance
- so society slowly became more secularised over time
- thus social policy was more egalitarian (re: women)
in the US/Netherlands, social policy was influenced by the (Christian?) idea of subsidiarity: that social services should be provided at a more local level (family, charity, church) instead of the state

How we Grow Unequal by Patrick Emmenegger et al

An essay from Age of Dualization published in 2012.

defines dualization as an alternative hypothesis to Streeck’s theory of liberalisation (as a response to a changing global economy)
- instead of one uniform process that affects everyone equally, states instead responded by widening the gulf between insiders/outsiders
- results in a vicious cycle as outsiders tend to have less political representation (sometimes explicitly disenfranchised, as in the case of immigrants or youth)
- ongoing process that is exacerbated with time
- bifurcation of job creation: new high-paying professional jobs simultaneously with low-paying service sector jobs (sometimes specifically to address gaps in the market created by those same professional jobs)
the authors take care to emphasise that political choices matter when it comes to this process—it’s not just a natural economic inevitability

The Age of Welfare (PDF) by Julia Lynch

From 2004. Proposes that the age-orientation of a welfare state isn’t explained solely by the political demands of senior citizens; instead, we can see it as the unintended consequence of early structural decisions + voter competition.

it’s the quality of democratic competition that is the biggest determinant, not ideological factors
graph of elderly skew: Japan worst, then the US; Denmark, Sweden best
- (I acknowledge that I have an extremely normative take on this issue)
- UK/France/Canada somewhere in the middle
when considering the concept of decommodification, we should ask: for whom?
no easy correlation between the 3WWC model and elderly skew—LMEs run the gamut
the power resources theory also fails to explain elderly skew, because coalitions tend to be cross-generational, at least historically
though that may be changing soon given the age-based polarisation of recent elections, especially in the US & UK
family structure more likely to an effect of elderly skew than acause of it
- the focus on the family as caregiver, as opposed to the state (in line with the principle of subsidiarity) is likely a result of diminishing state provision, not something exogenous
- that’s her theory anyway. idk if I fully agree with this—surely there’s some cultural/religious element as well
the “gray power” hypothesis: large populations of elderly citizens have more political power
- this doesn’t hold up comparatively, though: Sweden has the largest % of senior citizens and yet the most youth-oriented welfare state
- this also doesn’t hold up over time: some countries became more youth-oriented between 1980-2000 despite their ageing pop
there’s a spectrum of universalist -> occupationalist welfare states
- Sweden/UK -> France/Denmark -> Italy/Japan
programmatic competition: politicians claim to benefit all (or most) of society
the alternative is patronage/clientelism/particularism, when one small group or industry is catered too
she proposes some watershed moments in the history of welfare state development
- the first has to do with the choice between citizenship-based (outsider-protecting) and occupational (insider-protecting)
- the former led to more youth-oriented welfare state (whether it was universalistic or means-tested)
- for the later, there was another watershed moment: the split between programmatic vs particularistic systems
  - programmatic -> age-neutral (mix between occupational and universalistic)
  - particularistic -> elderly-skewed (pure occupationalist)
- examples of particularistic: US, Austria, Belgium, Greece, Italy, Japan, Spain
- examples of programmatic: Nordic, Canada, Antipodes
- not a perfect typology, though
  - Belgium is more youth-skewed but still occupational
  - the citizenship-based Anglo countries (basically all except the US) are closer to the middle (except Ireland, which is more youth)
the reasons behind age orientation
- a combination of generous public pensions back in the day + recent austerity measures / other public sector cuts -> fewer new hires, so more is spent %-wise on the old
- a factor behind youth-orientation: private insurance markets for pensions so fewer elderly rely on the state
- thus insider-protecting systems (where the old, who were once working “insiders”, now have state pensions) are more elderly-oriented today
- these choices involve a large degree of path-dependency
  - in Italy, the occupationalist social programs are “stuck due to particularistic competition
  - in the US, it’s hard for any politician to propose signifcantly revamping social security since people have paid into it and thus expect to get “benefits” out of it
  - universal systems are quite sticky as well

Lecture

inequality typically considers households to be units
- today, looking at inequality within households, particularly gender
- there’s also a generational divide potentially within households
gendered assumptions in implementation of the welfare state
- mostly result of women having different patterns in the labour market
  - being paid less for same job
  - taking up diff kinds of jobs (more part-time, low-wage)
  - more interruption of careers (due to children) which has implications for contribution-based pensions
  - traditionally saddled with childcare responsibilities which means they’re more likely to need externally-provided childcare to enter labour market in the first place
- Bismarckian welfare state model typically assumes women will stay at home, so don’t provide much in the way of family benefits (childcare, familial leave)
  - so women more financially dependent on male partners
- plus ofc women expected to take up more of the domestic work
link between work/family policy, and pop growth:
- higher female employment rate (somewhat weakly) correlated with higher birth rate
chart showing public spending on familiy benefits as % of GDP
- LMEs/Southern Europe at bottom
- continental all around the middle (except Belgium, a little higher at #4)
- Scandi all near top
- surprisingly, France #1 (with a traditionally natalist policy), UK #2
chart showing gender-based policies, showing parental leave (plus portion at full-rate equiv)
- Scandi in the middle; continental on top; Southern Europe and UK near bottom
- USA not present in the chart, though apparently the Family and Medical Leave Act of 1993 guarantees 12 weeks unpaid, but only applies to some companies (60% of private sector workers)
another chart showing family-friendly workplace practices (varying the work day)
- scandi on top, Southern europe bottom, UK in the middle; no other LMEs
- recall that birth rates in Southern Europe are quite low
  - incidentally, the employment/birthrate trends don’t always hold up within nations; in Italy, birth rate higher in South, but female employment lower
chart on childcare spending as % of GDP (which combines public/private sector presumably)
- scandi conclusively on top, UK/US scattered (US very low down), continental near middle
- this data misses some aspects, like the fact that in Italy/France/others there is state-provided pre-school starting at a young age
- Germany is quite low down (lowest after Portugal), recent trend towards a more hostile env for women remaining in workforce after having children
chart of full-time employment by gender 35-39 (from 2005)
- male: pretty high across the board, not much variation
- female:
  - Scandi all in top half, though not clustered
  - Portugal top for some reason
  - US high up there, also Greece and Canada
  - lowest: Netherlands, Germany, UK
- could mask the fact that women move into part-time work after having children
- there’s also variation resulting from variation in unemployment rates
chart showing essentially the gender pay gap
- Scandi on top (also Australia), then the other Anglo countries
- lower half: continental, Southern
- recall that if childcare isn’t provided, then low-wage childcare is needed, which only really works in countries with high inequality (i.e., LMEs)
- mixes multiple factors: women wanting to (or needing to) work vs structural factors influencing gap pay?
criticisms of 3WWC: doesn’t really go into work/family policy
- also neglects gender for the most part
- one variation suggests typology based on degree of “male breadwinner” regime
  - France, moderate: state compensates cost of children; primarily concerned with making it easier for households to have children
  - UK, strong: women depend on social benefits of husbands because they provided domestic care rather than salaried income
- Esping-Anderson responded by incorporating these features, Liberal/Social democratic/Conservative
  - conservative solution assumes family will take care of services (small role of state)
  - whereas for socdem, it’s the state
  - for liberal, it’s ofc the market
in socdem, female participation in workplace mostly in service roles, which didn’t threaten traditionally-male manufacturing jobs
in conservative, women less welcome in workforce
- employers wary of hiring women who may leave after having children (investment in training lost) or require flexible hours
- (male) workers may be worried about depressed wages due to competition from women
now on the generational gap
- contemporary troubles with pension systems (basically ponzi schemes now)
- demographic pressures due to ageing pop + declining native birth rates
- older population becoming a “political risk” in his words
  - in the UK: older voters more likely to vote Leave, but also just more conservative voters in general
  - also age splits in Trump, Bernie votes
- solutions to pension issues differ by type of welfare regime
  - liberal: small baseline public option but mostly private provision (which is threatened by recent low interest rates)
  - social democracies: pensions are public (universalistic, generous) but ofc this thrives only when employment & pop growth are high (thus a lot of attention is paid to youth as well, less elderly-skewed than others)
  - conservative: insider/outsider distinction (based on contributions), for continental + southern europe
- when a welfare regime is skewed towards elderly, it exacerbates existing pressures on welfare system in the long run
  - vicious circle as the young are saddled with costs, harder for them to start families, and higher labour costs to pay benefits -> disincentivises job creation
- ratio of public spending on elderly varies across OECD but doesn’t map onto 3WWC (but does re: post-tax inequality)
  - lowest elderly skew: low inequality
- interesting age dimension to political power that’s neglected in Meltzer-Richard model
  - younger people less likely to vote
- two main ways of determining approach to pensions
  - either contribution-based (the non-socdem countries, some of which only shifted recently)
  - or citizenship/minimum-age based (which ofc gets bumped up every year, as in the UK)
  - recall that pensions only really became a thing in 20th century—previously, people just didn’t live long enough for it to be a serious concern

Seminar

the citizenship-based model was initially skewed towards the old (since they were initially outsiders) but became more youth-oriented later on compared to occupationalist model (as a result of demographic change)
Beveridgean model: citizenship-based, means-tested welfare state
on the diff between US/UK: UK spends more overall (and on family benefits) thus less elderly-skewed than the US
critiques of Esping-Anderson:
- concept of decommodification too broad; doesn’t go beyond the assumption of a male breadwinner
- plus it’s not just about decommodification; after all, in the Nordic countries one of the goals is to get more women into the labour market
  - the difference is that it’s a matter of choice in this case and not individual economic necessity (though perhaps cultural necessity)
  - there’s a case to be made for high female participation in the workforce being a matter of collective economic necessity—perhaps it’s the only way to sustain their strong welfare state?
  - I kind of disagree out of principle (depends on, among other things, how much labour time is actually socially necessary) but maybe idk
- segue into whether the labour market is a good route for achieving greater gender equality
  - I personally disagree for a bunch of reasons
  - this is falling into the trap of Lean In feminism—you don’t achieve true gender equality if it’s limited by other factors (class, race)
  - pushing more women to become CEOs is the liberal dream and thus the leftist nightmare because it obscures the fact that we shouldn’t have CEOs at all (but that’s a much more controversial topic which I’ll leave as an aside)
- another segue on how the market was, for Smith et al, conceived as this emancipatory vehicle for liberation from the hierarchy of feudalism
  - funny cus now it’s ossified and became a way of transmitting existing inequalities
  - maybe all we can ever do is move from one hierarchy to another
on family leave rights:
- in general, they’ve been getting more progressive with time (by law in most places, but based on market pressures in e.g. the US)
on dualisation
- this isn’t always just due to choices made by politicians
- sometimes, employers proactively make the distinction on their own, by trying to work around existing laws
  - the gig economy may be the ultimate example of this (distinction betewen full-time, overpaid employees vs “contractors”)
- we can see dualisation as a factor in the rise of Corbyn (or even Trump/Brexit) as outsiders feel increasingly disenfranchised?

The Politics of Crisis and Austerity - week 10

Readings

Populism and the Economics of Globalization by Dani Rodrik

Published July 2017. On left-wing populism in Latin American and right-wing populism in Europe/US as the result of globalisation shocks. Incidentally, there’s a good 2013 New Left Review article on the term “populism” and its usage over time: Populism and the New Oligarchy (my notes are in Bookmarker).

characteristics of populism:
- anti-establishment orientation
- the demos over elites
- opposition to liberal economic policies
- opposition to globalisation
- sometimes, authoritarianism
this paper: on the economic roots of populism, specifically as the result globalisation
- other factors mattered too (tech, winner-takes-all markets, labour market dereg)
explaining the difference between left- and right-wing reactions in terms of the form taken by globalisation
- immigration shocks -> mobilisation along ethnic/national lines (advanced Europe, Trump)
- financial effects -> mobilisation along class lines (Latin America, Sanders)
need to distinguish between the demand/supply sides of populism
- demand due to economic anxiety, distributional struggles
- supply depends on what’s offered by political leaders
previous anti-globalisation backlash, in the US
- 1882 Chinese Exclusion Act
- implementation of a gold standard, resulting in expensive credit & falling agricultural revenue for farmers
  - we can see the gold standard as a “financial globalization anchor”
  - this led to a populist movement behind presidential candidate William Jennings Bryan
  - they wanted bimetallism (where silver would also be legal tender) in order to expand monetary supply -> easier credit
  - they were eventually defeated
trade theory
- Stolper-Samuelson theorem implies that in the US, low-skilled workers are worse-off due to trade liberalisation
  - (as long as you continue to produce a good that is importable)
- more generally, we have the magnification effect from neoclassical economics
  - if the price of a factor of production changes, the relative return is magnified
  - which means that if a labour-intensive good decreases in price, wages decrease more than proportionally
  - I’m extremely skeptical that understanding this theory helps us to understand any real-world effects of trade beyond what is obvious
- as globalisation proceeds, and further trade liberalisation consists of lowering already low tariffs, there’s less economic expansion
  - it becomes more about redistribution within a nation, meaning some gain while others suffer
- on the effects of NAFTA on the US economy (focusing on lowered tariffs for products from Mexico)
  - negative effects concentrated among high-school dropouts
  - net benefit of NAFTA for the US is zero or close to it (just redistribution from some industries to others …)
- on China entering the WTO
  - no change in tariffs, but due to increased confidence in most-favoured nation status, trade increased
  - not sure what the author’s conclusions are here
- basically trade can increase economic inequality within a nation
the negative effects of trade on certain groups can be dampened by specific state policies
- but that doesn’t appear to be an aim of either left- or right-wing populist movements
- in fact, some in the anti-EU movement think leaving the EU could lead to more liberal trade policies (less dampening)
- difference between the EU/US model: former has historically had much stronger social protections
- the US could have chosen to follow a more European model, but did not, partly due to (imo misguided) fears by economists on the “inefficiency” of redistributive techniques
- trade agreements both reflect and exacerbate weakened influence of unions
  - if labour had been strong enough to demand protection from trade liberalisation, the agreement wouldn’t have happened in the first place (or in the same way)
why is trade picked out specifically as a scapegoat for declining wages, as opposed to technological change?
- possible answer: people don’t really care about inequality in the classic sense; they care about unfairness
- so inequality of opportunity vs outcome, because they don’t realise the link—a form of false consciousness maybe
- when economic advantage is gained as a result of higher productivity (“merit”) or efficiency shortcuts, it’s fine
- but when it’s as a result of legal arbitrage (taking advantage of lax regulation in Bangladesh, for example) it’s seen as unfair
financial globalisation (higher cap mobility) -> uncertain, complex effects
- link between financial crises & globalisation, acc to Reinhart and Rogoff (2009), colour me surprised
- there’s this one quote that I find hilarious for some reason: “Why would financial globalization increase inequality and the capital share in particular? […] So to some extent these distributional consequences of financial globalization are a genuine surprise.” TO WHOM???
  - it weakens the power of labour because capital can threaten to relocate (say, a factory) elsewhere
  - as capital becomes more mobile, it gets harder to tax; govts have to make up for the shortfall by taxing consumption or wages instead (or taking on more debt, or cutting public services, or both)
various types of inequality increased as a result of globalisation
- rural/urban; skilled/unskilled labour; capital/labour; elites/ordinary people
- the fairness element is important here—people who lost out took it hard because they perceived it as a “rigged playing field” (which … isn’t wrong)
on different types of populist movements
- rise of Syriza in Greece, Podemos in Spain and support for Bernie fairly recent
- Trump/Brexit obviously exploiting cleavages (turning nascent anti-immigration sentiment into an us vs them thing)
- whereas in Latin America, left-wing populism has been around for a while (small recent rise) & very little right-wing
  - it was clear that the problems resulting from globalisation were NOT caused by immigrants (which were, moreover, usually of similar cultural/ethnic stripes), but rather by structural adjustment
  - thus the popularity of left-wing populism is clear
- in the case of Greece, there’s a similarity to Latin America in the form of the troika’s miserable handling of the euro crisis
  - similarly in Spain, though to a lesser extent (plus immigrants tend to be from other advanced European countries)
- in France, though, 40% of immigrants are from Muslim countries; 10% from Sub-Saharan Africa (so ethnic/religious cleavages are obvious)
  - hence the rise of the National Front
in the conclusion, the author mentions the trade policies of Bretton Woods and concludes “Perhaps it was too successful for its own good”????
- it’s a very brief mention, so maybe he just didn’t have time to go into it more, but the omission of the fact that Bretton Woods failed for tons of explicitly trade-related reasons is glaring
- I looked up the author cus I was curious about his larger political views
  - he’s generally critical of unfettered globalisation & neoliberal policy
  - seems to think we can bring back a slightly modified version of Bretton Woods …

Austerity by Mark Blyth (chapters 1, 6)

From 2013. I just read the whole book. The basic idea is that austerity is dumb and unjustified, due to a misreading (possibly deliberate) of the causes of the sovereign debt crisis in Europe.

Notes in Bookmarker.

Lecture

up until now, we’ve been focusing mainly on the golden ages of the postwar period
mentions autumn budget & how growth is forecasted to be low, which poses a challenge to redistributive politics
- other challenges: lots of sovereign debt (post-crisis), 80-90% of GDP now (whereas under New Labour there was a target of 40%)
- Brexit, high unemployment and/or wage stagnation (or both), left parties in retreat (except here, with the absolute boy)
  - there’s been some wage growth since 1997, but most of it was before financial crisis
  - otoh, wage growth among 1% (from 1975 onwards) has been staggering
one of the impacts of financial crisis: threw the economics profession into disarray; lots of long-standing ideas about how to manage capitalist economies challenged
- in this intellectual confusion, the ideas behind austerity came to the forefront
- though welfare retrenchment was being debated even in the 80s/90s (as part of neoliberalism)
why retrenchment of the state today?
- fall of org labour simultaneously with businesses no longer want to give concessions
- political changes (less democratic)
  - politicians are less willing/able to serve their constituents due to the power of the global capitalist class
  - (this ties in nicely with Wolfgang Streeck on Marktvolk vs Staatsvolk)
  - plus existence of ethnic/cultural divisions can sometimes undermine national working-class solidarity
- ideational change among ruling classes
- less of the upheaval associated with world wars (ties into Piketty/Great Leveler)
in 90s, Pierson wrote about welfare state retrenchment and used the phrase “politics of permanent austerity”
- not quite the same as reversal of the welfare state; instead, growth slows/stops
- can’t quite drop existing commitments (democratic difficulties there)
  - Pierson theorises that politicians like offering greater welfare spending and dislike cutting them
  - though ofc this depends on which group you’re pandering TO
  - think classic Republican strategies to denigrate those benefiting from certain policies (Reagan’s welfare queens, Romney’s makers and takers) in an attempt to divide and conquer, usually along ethnic/cultural lines (so people end up voting to make others suffer as a pretty grotesque alternative to redistribution)
- retrenchment politics characterised by blame shifting (opposite of diff politicians trying to claim credit)
- easier to mobilise against cuts to welfare state than against increasing
  - recent movements in healthcare legislation in the US are kind of proof of this? at least in terms of a populist movement, not necessarily legislative process
- Thatcher/Reagan etc didn’t actually reduce the size of the welfare state; they just changed the composition of it
now onto the current period of post-crisis austerity
- after financial crisis, immediate response was a Keynesian stimulus package
- 2009 onwards, pre-crisis economic orthodoxy returned
- reasons for recourse to austerity:
  - winner-take-all politics (Pierson) where policy decisions were driven by organised combat (wealthy elites over democratic decisions)
  - power resources theory: organised labour movements in disarray and so capitalist class ruled the roost
  - technocracy (central bankers, etc hold all the power)
  - depolicitisation of economics where most parties (except Corbyn’s Labour) treat economic policy as outside the realm of party politics
  - also it fits in well with neoliberal orthodoxy & it’s hard to challenge that (despite how the crisis should have challenged the hegemony of neoliberalism)
some history on Keynesianism: he proposed that it was ok for govts to take on debt in order to stimulate economy
- main thesis: imperfections of the “free market” mean it needs to be managed by state
- legitimised the expansion of the state
three phases of intellectual responses to crisis
- left triumphant, thinking that neoliberalism had finally been put down (eg Paul Mason’s Meltdown, Stigliz’s Freefall, etc)
- now: left depression, accepting that neoliberalism is here to stay (Rogoff’s This Time is Different; Colin Crouch’s Strange Non-Death of Neoliberalism; Mark Blythe’s Austerity)
on zombie ideas & how it’s so hard to challenge economic orthodoxy among ruling class (policy elites), conservativism & resistance to new ideas
but now we have the rise of populism which may finally spur the death of neoliberalism
- on the left, anti-austerity and socialism; on the right, anti-immigration and nationalism
he’s done some work on a typology of populist movements based on welfare states
- states with inclusive welfare states that are net creditors tend to see right-wing, anti-immigrant groups
- whereas those that are net debtors (Greece, Spain etc) more left-wing
- and for LMEs, which are all net debtors, you see both

Seminar

the supposed objective of austerity: cut govt spending to restore business confidence
- a “streamlined” public sector should raise business confidence
- there was concern that too much public debt would seem unsustainable, deterring investment
- the “crowding out” theory, that public spending was in direct competition with private
- fears of inflation
what’s wrong with having too much public debt?
- interest payments can get predatory
- after a certain point, you may not be able to borrow more
- or you may have to declare bankruptcy, which will affect your credit rating
- otoh (and this is the hill I will die on), the level of debt that is considered “too much” is very arbitrary
  - the immorality or inefficiency of public debt is almost tautologically true: it’s bad because everyone says it’s bad
  - declared bad by fiat (like the EU saying debt should not exceed 60% of GDP)
  - plus Germany managed to mostly default on its debt (the first time, with a war; the second time, with the London Accords of ‘53) and it’s fine now
it’s not just about debts, though; it’s also about deficits, and the fears they stoke of neverending, increasing debt
- deficits in most EU countries other than Germany all fairly high
- could be solved via the flip side of fiscal policy: by raising taxes (esp on the wealthy), not just cutting spending
- the reason govts did not, for the most part, choose this route comes down to political ideology (in a word: neoliberalism)
- alternatively, monetary policy (by printing money or changing interest rates) is another option, but not for countries in the Eurozone ofc
Keynes’ automatic stabilisers: in a slump, welfare spending will go up (and tax revenue will go down) because of increased unemployment (assuming good unemployment benefits)
the initial response to crisis: cut interest rates to near-zero
- but when interest rates are that low, you face the zero lower bound that limits your possibilities
- so govts went for an expansionary monetary policy, with quantitative easing (first in the US in late 2008; a few months later, in Europe as well)
by the end of 2009, the sovereign debt crisis begins
- unstable govt balance sheets (filled with toxic assets) throw bond markets into disarray—they stop trusting govt bonds
- everyone tries to dump weak govt bonds at the same time, leading to a contagion effect
- these govts have to raise interest rates massively, which has multiple negative consequences:
  - can negatively affect currency (outside of a monetary zone) in making exports uncompetitive
  - saddling future with high interest payments
  - depressing domestic activity
- countries like Greece then had to turn to the IMF for a bailout, with was granted only under conditions of austerity (i.e., punishing the citizens)
  - even though the bailout was primarily for French/German financial institutions
- the point of austerity is twofold:
  - first, balance the budget and thus prevent need to borrow more money
  - secondly, to signal to potential investors that your fiscal house is in order and so encourage investment
- incidentally, while all this is going on, German bonds begin to look increasingly attractive, even despite very low yields
  - after all, they have a surplus
  - and since they’re in the Eurozone, there is no upward pressure on the currency to make exports less competitive
on the distribution of the effects of austerity
- depends on the nature of cuts + specific country, but generally, affected the poor the most
- after all, even in a universalistic welfare state, where cuts are made above the board, the poor will always be affected the most in absolute terms (you have fewer alternatives to relying on the state)
- in an LME, though, since welfare systems are more residual, any cuts will disproportionately affect the poor (since the wealthy don’t usually use it much in the first place)
- in general, austerity is bad for almost everyone (one might call it “universally stupid”)
- otoh, capital is more mobile than labour
- it can actually benefit the top 1% (which were otherwise negatively affected by the crisis), because they can just park their money in assets (cf. housing bubble)
on trade liberalisation:
- always winners and losers, usually along class lines
- capitalist class accrues more gains, but there are fewer of them, so unless you have a strong redistribution system that kicks in, there were will quite a few losers
- hence populism is almost inexorable if you let the situation fester long enough …

Can the Inequality Trend Be Reversed? - week 11

Readings

Capital in the Twenty-First Century by Thomas Piketty (chapters 13-16)

Chapter 13: A Social State for the Twenty- First Century

advocates a progressive global tax on wealth, which would have the side effect of making capital ownership more transparent
- he recognises how utopian this is, though, and acknowledges regional (e.g., EU) alternatives as a stepping stone
on the response of govts to financial crisis: he seems to think they did a good job (contrasted to Hoover’s liquidationist response to the Great Depression)
- otoh, the aftermath did not result in a more progressive tax code this time, which he thinks is necessary this time around
graph of tax revenue (% NI) since 1870: obviously increased a lot (as the state has grown), stabilising after 1980
public spending split between services (edu, healthcare) and transfers/replacement income (pensions, benefits)
- pensions account for most of the latter (2/3 to 3/4)
- thus growth of fiscal state mostly due to growth of social state
on moral justification of inequality: briefly mentions Rawls’ difference principle + Sen’s capabilities framework
on challenges for further welfare state growth:
- lower growth than during the Golden Ages means it’s harder to get support for tax increases (he seems to be assuming that a radically more progressive tax is out of the question)
on social mobility
- high tuition fees for higher education as a bottleneck
- though even if that were eliminated, it wouldn’t fix everything; grade inflation could just occur, and other filters would be used (cites Bourdieu)
on the problem with pay-as-you-go pension schemes due to ageing pop + falling growth rates
- he suggests that reforming the pension system is hard but never goes into the (imo obvious) alternative of better public services to alleviate the need for a high pension …
in developing countries: much smaller social states, partly as a result of externally-foisted liberalisation

Chapter 14: Rethinking the Progressive Income Tax

the progressive income tax as the major fiscal innovation of the 20th century
types of taxes:
- capital flow, or capital stock (real estate etc)
- (non-capital) income tax
- consumption tax (indirect since it’s not on income)
- social insurance contributions
today, many tax systems are regressive on top (even worse when you consider that wealth is taxed less than income)
- suggests that a progressive tax is necessary to shield those who lose out from globalisation (otherwise they’ll turn against it)
- (unfortunately it’s now too late)
most advanced countries had developed some sort of progressive tax systems before WWI, though top incomes were still taxed at very low rates (skyrocketed during the war)
- mostly falling after the 80s though
suggests that very high tax brackets (70%) aren’t actually primarily intended to raise further revenue
- rather, it’s to put an end to such extreme concentrations, albeit in a liberal-approved way (not direct expropriation)
- concurs that decreasing these top tax rates doesn’t actually lead to increased revenue (pace the Laffer curve)
  - in the UK/US, didn’t stimulate productivity; instead, incentivised top execs and others with some degree of control over salaries to get paid more
- proposes that optimal top tax rate in advanced countries is >80% (better redistribution without limiting growth)
  - easier to implement this in a large country like the US rather than a small, European one (less chance of flight)

Chapter 15: A Global Tax on Capital

requires international cooperation (but that could be done in stages, starting with regional)
thinks this is better than protectionism + capital controls
basic proposal: a progressive annual tax on global wealth (above a certain threshold, and including all types of assets)
if implemented, would require transparency about who owns how much wealth and where, which would facilitate more accurate discussions of fiscal policy
- even if the level of tax is very low, it’s worth carrying out just for the detailed reporting side effect
- suggests an automated system (pre-populated forms) rather than asking for full declarations
- first step: automated transmission of banking data to relevant authorities (which is already technically feasible)
  - already occurs in some jurisdictions, and there’s no real acceptable justification for the (tax shelters) that refuse to share
  - example of this already occurring: FATCA in the US (not ambitious enough though, and doesn’t include institutions that don’t do business in the US)
he thinks there needs to be 3 types of progressive taxes (3 pillars): income + estate need to be supplemented by a tax on capital
- reason: declared income doesn’t necessarily match actual increases in capital accumulation (since most of it isn’t needed for immediate spending and thus isn’t paid out as dividends or whatever)
- thus capital tax ensures they actually contribute to the tax system in a way proportional to their true wealth
- need to find a balance between incentive logic (taxing capital stock to encourage productive investment) and insurance logic (taxing the flow to insure against unpredictable returns)
- suggests linking tax rates to the observed rates of return in previous years
- he sees this as a more palatable alternative to the Marxist approach (abolishing private ownership of the means of production)
on China, which has implemented capital controls (an approach he does not encourage) as well as a progressive tax schedule
on “petroleum rents” (oil resources in the Middle East) leading to distributional injustice due to the arbitrariness of national borders
on immigration to rich countries, which he correctly characterises as only a temporary, bandaid-like solution (in the long run, you need a strong social state with progressive taxes)
- suggests that global inequality will be mitigated by his global wealth tax (since capital flight from the developing world is a huge problem)

Chapter 16: The Question of the Public Debt

advanced countries are richer, but also greater levels of debt
- indicating that the problem of public debt is a distributional one (between public/private), not a matter of absolute wealth levels
three main solutions to reduce debt:
- raising taxes (esp on capital)
- inflation (which he says could work if the former doesn’t, but less predictable distributional consequences)
- austerity (which he sees as the worst solution)
European public debt is mostly owned by European households (at least, the ones that own any assets)
summarises Milton Friedman’s monetarist theory on the Great Depression
- the New Deal was unnecessary; everything could have been fixed via Federal Reserve policies alone
on the power of central banks to create money by making loans
- theoretically no limits on their balance sheets—if they wanted, and had the right mandate, they could expand them significantly and (say) finance transition to renewable energy
- the problem is that they are not democratically accountable and so (in his opinion) it’s best to limit their scope
on financial opacity as a barrier to collecting more tax revenue, which can force govts to turn to austerity and similar destructive policies (see Greece, Cyprus)
on the problems unique to the ECB (as the central bank for a monetary union without a political union, administering a stateless currency)
- recall that it can’t purchase new govt debt on its own; can only facilitate private bank lending & then buy the bonds on the secondary market
- another useful avenue for cooperation: stabilising corporation tax across nations (centralised reporting/collection)
- the arbitrariness of the Maastricht treaty deficit/debt levels (3% and 60% of GDP, respectively)
capital saturation strategy: get r=g such that all capital needs to be reinvested in order to maintain capital stock
- eventually results in the euthanasia of the rentier
- but of course this could take forever, and who knows what it’ll require to get there
- also depends on demographic growth: if the population doesn’t increase, it’s tricker
a (very) few pages devoted to climate change and its potential for damaging growth in some way (meaning we need to discount r accordingly)
on the need for democratic control of capital in order to attain democratic control of capitalism, via financial transparency

Inequality by Anthony B. Atkinson (chapters 9-11)

Chapter 9: Shrinking the Cake?

we should redistribute even if that means less total efficiency (but it doesn’t have to mean that)
on the efficiency gains of a higher minimum wage (obvious)
an analysis of unemployment benefits from a fairly mainstream economics perspective (assuming work is good and we need to make sure people are incentivised to pursue it)
using comparative politics to show that redistribution doesn’t necessarily impede growth

Chapter 10: Globalisation Prevents Action?

on the birth of the postwar Western welfare state as complementary to achieving economic growth
he’s trying to counter the classic neoliberal argument that globalisation has reduced ability of state to raise high tax revenues
- drawing on Laffer curve
- e-commerce, global labour market, and international tax competition
pretty tame chapter that just asks us to question whether the market-determined distibution of resources is fair (I’m already there …)

Chapter 11: Can We Afford It?

Lecture

can inequality trends be reversed? (a shift from looking at the past to looking at the future)
right after the financial crisis, there was a lot of glee from the left who predicted the imminent collapse of neoliberalism
- obviously, that hasn’t happened
- instead, neoliberalism was somehow empowered?
- and the far-right was arguably empowered as well
it’s worth remembering that our world today is one of abundance
- any perceived scarcity is due solely to distributional decisions
on automation
- it’s been happening since the industrial revolution
- on the other hand, the current pace is possibly unlike ever before
- it will result in the shifting around of labour on a unprecedented scale
  - will be costly both economically and psychologically (since work is such a big part of identity)
- technological change is both a risk and an opportunity
  - in the short term, more power and money accrues to capital, not labour (reducing wages, number of jobs)
  - otoh, if either capital is appropriately taxed, OR technology is publicly owned, that could move us to a post-work world with universal basic services
  - we could, say, reduce working hours (to zero, for some) even while maintaining productivity levels
  - so it’s a political struggle, not an economic one
- we should also keep in mind the role of the state in spurring technological innovation in the past (see the book The Entrepeneurial State)
on weaknesses of mass movements like Occupy to really confront neoliberalism (I wonder if he’s read Inventing the Future)
on the Kuznets curve
- theory behind it: human capital was more equally distributed post-Industrial rev, thus decreasing inequality (kinda a simplistic explanation, better one in SO478 week 4
- contrast with Piketty’s theory, which posits that the period of falling inequality was a historical anomaly (instead, due to post-war welfare policies)
embedded liberalism as social democracy + coordinated, regulated financial system
- financial crises can be seen as the inevitable result of deregulated finance
- anti-elite, populist backlash then follow from crises
on the limits of democracy for bringing about redistribution(pace Meltzer-Richard)
- requires some degree of ethnic/national cohesion, organised labour, and a culture of solidarity over the individual
  - the latter can take the form of Christian democracy, or more Scandic-type social democracy
- democracy by itself is not enough
open Q: is an external shock necessary for sparking the move toward redistribution?
- either war, or revolution (some sort of violence)
- recall that the growth during the Golden Ages was partly the result of Bretton Woods (fixed exchange rates, capital controls) and financial repression
capitalism constrains democracy, through the fear of capital strike (not investing) or mobility or tax avoidance
Q: how is it that in a democracy, we can still cling onto failed neoliberal policies?
- organised combat and winner-takes-all politics meaning that the level of democracy isn’t quite what we’d hope
- (plus, false consciousness probably plays a role)
in 94, Blair committed to removing state control over the means of production immediately after the Labour leadership election
- which means that the only major UK party you’d expect to oppose neoliberalism … fully bought into it
- since then, opposition to neoliberalism has been mostly regressive (nationalist, racist, hostility to elites etc) w/o international solidarity
reasons: there are some fundamental failures immanent to democracy as a way of representing the masses
- cartel parties (Katz and Mair 1995), where parties retreat into the state and become less democratic, colluding with other parties to protect privileges; paid experts over activists
- iron law of oligarchy (from the 20s) as a tendency in political organisations, away from true representation
- path dependency/feedback loop as voters and party members recognise this lack of democracy, and thus stop voting or paying membership dues
the rise of the cartel party isn’t solely due to tendencies inherent in electoral systems—also connected to the liberalisation of the market
- means the party in power can’t actually do much to protect from the market (as they’ve limited their own powers, and lack the mandate to increase them)
- then the populace has increasingly diminished expectations, which the party perpetuates via a discourse of helplessness and (feigned or otherwise) inability to intervene
- so cartel parties take the risk-averse strategy where they compete on marginal social issues of identity
- after all, centre-left parties don’t really have anything else to offer—they can’t change the fundamental nature of the economy
- cough Dems cough
- the result is welfare state retrenchment, market liberalisation, anti-Keynesian policies
open questions:
- are there cycles of mobilisation? or is the mid-20th century unique (as Piketty would argue)
- how do we build cross-class, cross-national coalitions?

Seminar

on Piketty’s global wealth tax
- I wonder if the transparency aspect would backfire, by sparking revolution that could lead us to beyond what Piketty envisioned
  - once people realise just how concentrated wealth really is, that could plunge us into a whole new level of legitimation crisis
  - he’s just trying to save capitalism but maybe his suggestions would reveal why it’s not worth saving
- (it’s kind of funny how he makes it sound utopian when really it’s so limited in imagination, just an attempt to keep the system from breaking down)
- incentives for national govts to cooperate: based on citizen’s mass mobilisation (not within the tax havens themselves, but within say the UK whose crown territories tend to be tax havens)
  - norway: tax returns are all public (tho who views is also public)
  - things changing lately re: financial transparency and stopping tax evasion/avoidance
- on full globality: how to get like china into this framework
  - otoh, if it was just US and EU that’s over 50% of GDP, and many of the remaining countries, if they’re unwilling to sign up to this, would they even have the institutions for rich ppl to want to put their money there in the first place?
  - also, tax avoidance is a bigger problem in developing countries than advanced so theoretically they’d be happy to sign up
  - those who put money into tax havens dont want to stay there, they want to live in an advanced country (social democracy) because they enjoy the institutions that exist (which they dont contribute to)
- if the problem is the advanced countries, then maybe it’s easier to deal with? we’ve allowed this to happen, not only complicit but drivers
- they think they can get away with it cus they dont think there will be repercussions, can only sustain level of inequality for so long
- to ponder: if corbyn got elected today, would they work on this global tax???
the UK’s structural dependency on not solving the housing crisis: capital flows are what allows us to consume more than we produce every year
- if property is all land then why cant we just tax it (WE NEED POLITICAL WILL, UK budget isnt addressing that)
- political will (including winner-takes-all/organised combat), budget, lower stamp duty, doesnt bother asset prices
- so the Q is, specifically re housing crisis, why doesnt democracy produce a response that works for everyone a la meltzer and richard?
  - me: a combination of false consciousness, lack of political engagement, and being far away from real democracy (which is an asymptote in any case)
  - plus, timing, arbitrary, lucky or unlucky, maybe if the most recent general election had been 2 weeks later … but since elections are usually every few years, there’s a huge almost stochastic element
  - and ofc elderly middle classes are benefiting from rising housing prices
  - undertone to our discussions: M&R theorised that democracy would lead to redistribution (which incidentally they thought was bad) but we’re seeing that it isn’t really true
- otoh, re: lack of democracy, are those limits we just have to accept? that democracy will never be reached so we shouldnt worry?
  - or maybe we’re just a shade off from the acceptable zone and need to keep pushing
  - depending on how we define democracy - lots of leeway? either keeping elected politicians in check or as a way to represent people

GV4D4: Politics of Inequality and Redistribution

Assessment

Lecture notes

Introduction - week 1

Readings

Inequality by Anthony B. Atkinson (introduction and chapter 1)

Capital in the Twenty-First Century by Thomas Piketty (introduction and chapters 1-2)

Lecture

Seminar

Growing the State, Shrinking Capital: Democracy, Redistribution and Inequality - week 2

Readings

Inequality by Anthony B. Atkinson (chapter 2)

Capital in the Twenty-First Century by Thomas Piketty (chapters 3-6)

Lecture

Inequality and the welfare state in the 20th century

Piketty’s book

Our approach: the political and social institutions

Seminar

Introductions

Is inequality a political or economic phenomenon?

Piketty’s argument

Leftwing vs rightwing governments

The US versus Europe

Inequality and Redistribution in the Rich Democracies - week 3

Readings

Capital in the Twenty-First Century by Thomas Piketty (chapters 7-11)

Lecture

The Meltzer and Richard model

The impact of different electoral systems

Why don’t people vote for greater distribution?

Seminar

Worlds of Welfare, Varieties of Capitalism - week 4

Readings

The Three Worlds of Welfare Capitalism by Gøsta Esping-Andersen (chapters 1-2)

Varieties of Capitalism by Peter Hall and David Soskice (p1-69)

Lecture

Seminar

Liberalism and Inequality: Winner-Take-All Politics - week 5

Readings

Winner-Take-All Politics by Jacob S. Hacker and Paul Pierson

Organized Combat or Structural Advantage? by Jonathan Hopkin and Kate Alexander Shaw

Why Hasn’t Democracy Slowed Rising Inequality? by Adam Bonica et al

Lecture

Seminar

- week 6

Politics against markets: social market economies - week 7

Readings

Religion and the Western Welfare State by Philip Manow and Kees van Kersbergen

Once Again a Model (PDF) by Jonas Pontusson

Lecture

Seminar

Who are welfare states for?

On the development of welfare states

Iversion and Soskice

On religious explanations

The Politics of Labour - week 8

Readings

Inequality by Anthony B. Atkinson (chapters 4-5)

Comparative political economy and international migration (PDF) by Afonso Alexandre and Camilla Devitt

A Common Neoliberal Trajectory by Lucio Baccaro, Chris Howell

Lecture

Seminar

Gender and Generational Inequalities - week 9

Readings

The Religious Foundations of Work-Family Policies in Western Europe by Kimberly Morgan

How we Grow Unequal by Patrick Emmenegger et al

The Age of Welfare (PDF) by Julia Lynch

Lecture

Seminar

The Politics of Crisis and Austerity - week 10

Readings

Populism and the Economics of Globalization by Dani Rodrik

Austerity by Mark Blyth (chapters 1, 6)

Lecture

Seminar

Can the Inequality Trend Be Reversed? - week 11

Readings

Capital in the Twenty-First Century by Thomas Piketty (chapters 13-16)

Inequality by Anthony B. Atkinson (chapters 9-11)

Lecture