GV4D4 - week 7

« Back to GV4D4

These are my notes from November 07 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.

---

Politics against markets: social market economies

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

---

powered by jekyll. source on github.