Western Welfare Capitalisms in Good Times and Bad (Globalization and Welfare series) 1035312298, 9781035312290

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Western Welfare Capitalisms in Good Times and Bad

GLOBALIZATION AND WELFARE Series Editors: Giuliano Bonoli, Swiss Graduate School of Public Administration (IDHEAP), Switzerland and Jochen Clasen, University of Edinburgh, UK This important series is designed to make a significant contribution to the principles and practice of comparative social policy. It includes both theoretical and empirical work. International in scope, it addresses issues of current and future concern in both East and West, and in developed and developing countries. The main purpose of this series is to create a forum for the publication of high quality work to help understand the impact of globalization on the provision of social welfare. It offers state-of-the-art thinking and research on important areas such as privatization, employment, work, finance, gender and poverty. It includes some of the best theoretical and empirical work from both well-established researchers and the new generation of scholars. For a full list of Edward Elgar published titles, including the titles in this series, visit our website at www​.e​-elgar​.com​.

Western Welfare Capitalisms in Good Times and Bad Bruce Headey Principal Fellow, Melbourne Institute of Applied Economic and Social Research, University of Melbourne, Australia

Ruud Muffels Professor of Socio-Economics, Tilburg School of Social and Behavioral Sciences, and Tranzo, Scientific Center for Care and Wellbeing, the Netherlands

John Quiggin Professor of Economics, School of Economics, University of Queensland, Australia

GLOBALIZATION AND WELFARE

Cheltenham, UK • Northampton, MA, USA

© Bruce Headey, Ruud Muffels and John Quiggin 2023

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical or photocopying, recording, or otherwise without the prior permission of the publisher. Published by Edward Elgar Publishing Limited The Lypiatts 15 Lansdown Road Cheltenham Glos GL50 2JA UK Edward Elgar Publishing, Inc. William Pratt House 9 Dewey Court Northampton Massachusetts 01060 USA A catalogue record for this book is available from the British Library Library of Congress Control Number: 2023940836 This book is available electronically in the Sociology, Social Policy and Education subject collection http://dx.doi.org/10.4337/9781035312306

EE VS P

ISBN 978 1 0353 1229 0 (cased) ISBN 978 1 0353 1230 6 (eBook)

Contents Acknowledgementsvii PART I

WELFARE-CAPITALIST REGIMES: POLICY PRIORITIES AND POLICY OUTCOMES

1

What are governments for?

2

Worlds of welfare capitalism

14

3

International comparisons, international data

46

PART II

2

COMPARING POLICY PERFORMANCE

4

The Global Financial Crisis: a crisis within the economic system

57

5

Reducing poverty and income inequality

69

6

Wealth inequality: the one that got away

88

7

Reducing gender inequality

98

8

Enhancing personal autonomy

104

9

Promoting economic growth and rising living standards

112

10

Promoting economic security and social stability

118

11

Enhancing life satisfaction: a shared priority?

129

PART III A CURRENT CRISIS: COPING WITH COVID 12

Coping with Covid: public health responses – the trade-off that didn’t exist

139

13

Coping with Covid: fiscal, monetary, labour market, welfare and environmental policy responses

156

v

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Western welfare capitalisms in good times and bad

PART IV WESTERN WELFARE CAPITALISMS: CONVERGENCE OR CONTINUITY? 14

Welfare-capitalist regimes in the 21st century: still delivering distinctive policy outcomes, little evidence of convergence167

Appendix 1. Ireland: a welfare-capitalist regime that defies classification183 Appendix 2. Western welfare publics support the welfare state ‒ in principle190 References192 Index203

Acknowledgements We want to thank Robert E. Goodin of Australian National University for his insightful suggestions, helping to improve the entire text. We would also like to thank Jongsay Yong and the late Simon Freidin of the University of Melbourne, and Philippe van Kerm of the University of Luxembourg, for valuable advice on computing and measurement issues. Nicole Watson of the University of Melbourne provided essential guidance on sample weighting. Thanks also to Richard V. Burkhauser of Cornell University and Gert G. Wagner of the German Institute for Economic Research and the Max Planck Institute for Human Development in Berlin who together founded the Cross-National Equivalent File (CNEF), essential data for this project. Thanks to Dean Lillard and Temur Akhmedov of Ohio State University who provided updated versions of the CNEF. We thank Peter Krause of the German Institute for Economic Research for his helpful comments on Chapter 2. The staff of the European Union Statistics on Income and Living Conditions (EU-SILC), based in Luxembourg, patiently and skilfully handled enquiries about EU-SILC, the main dataset analysed in the book.

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PART I

Welfare-capitalist regimes: policy priorities and policy outcomes

1. What are governments for? What are governments for? What should their priorities be? What policy outcomes should they try and deliver to and for their citizens? Most well-informed people, if asked these questions, would probably come up with a fairly long list. Most would presumably include what are sometimes referred to as ‘core functions’ of government: maintaining law and order, defending the country, and conducting foreign policy. But beyond that they would certainly differ in deciding what to include on their list of desirable policy outcomes, and even where they agreed, they would differ about the importance, the priority they attached to these outcomes. That would certainly be the case for welfare state goals and outcomes, because elite and public views about the welfare state differ widely (Blekesaune and Quadagno, 2003; Rehm et al., 2012). The Danish social scientist Gosta Esping-Andersen is best known for his work analysing the policy priorities of Western governments, or what he calls ‘welfare-capitalist regimes’ (Esping-Andersen, 1990, 1999). He coined the term ‘welfare-capitalist’ after observing that, although Western countries have mainly private enterprise ‘capitalist’ economies, they all collect between 30 and 55 per cent of gross domestic product (GDP) in taxes, and then spend at least half the money on the ‘welfare state’; that is, on health, education and welfare. He initially classified countries into three groups, or what he called ‘three worlds’ of welfare capitalism: the Scandinavian ‘social democratic’ regimes, the ‘liberal’ regimes of the Anglo-Saxon countries and Japan, and the ‘corporatist regimes’ in those European countries where historically the Catholic church had substantial influence (Austria, Belgium, France, Germany). Subsequently, Esping-Andersen and other welfare state researchers expanded the classification to include Southern European ‘proto-capitalist’ regimes (Ferrera, 1996; Rhodes, 1997; Esping-Andersen, 1999; Arts and Gelissen, 2010).

DIFFERING POLICY PRIORITIES: WELFARE CAPITALISMS (PLURAL) Esping-Andersen stressed that Western regimes, while having overlapping policy objectives, vary greatly in the priority they attach to these objectives. In his view there are welfare capitalisms, plural, not a single version of welfare capitalism. 2

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Social democratic regimes give high priority to equity objectives relating to the reduction of poverty, income inequality and gender inequality. Both social democratic and liberal regimes give high priority to enhancing personal autonomy. For social democrats the aim of enhancing personal autonomy stems in part from a desire to reduce the dependence of citizens on the market and the family (Esping-Andersen refers to ‘decommodification’ and ‘defamilization’) by providing an adequate level of income support when market income is temporarily or permanently cut off. For liberals, personal autonomy is a core objective related to the view that individuals should have the freedom to choose the type of life they prefer to live (Mill, 1859 [1974]; Sen, 1999). When Esping-Andersen writes about ‘liberal’ regimes, he is using the word in its European or classical English liberal sense. European or small ‘l’ liberals favour small government: government restricted to its core functions. In practice, liberal regimes favour private enterprise; they are pro-business. Top priority is given to promoting economic efficiency, economic growth and rising living standards (Esping-Andersen, 1990; Goodin et al., 1999). This objective is clearly regarded as taking precedence over equity objectives (Okun, 1975). Welfare state payments that might reduce work incentives, and so reduce economic growth, are viewed with scepticism. In corporatist regimes, and also Southern European proto-corporatist regimes, the highest priority is maintaining social stability. This is attempted partly by employment protection legislation, and also partly by relatively generous social insurance programmes intended to maintain a family’s standard of living and hence its social status when ‘normal’ occupational income is not available. These programmes are not intended to be egalitarian or individual-based; the aims are to maintain a family’s social status and hence social stability. Historically, income support has mainly been provided to the ‘male breadwinner’. The claims of wives/partners, and also children, were treated as derivative, dependent on the breadwinner’s entitlements (Korpi, 1985; Esping-Andersen, 1990). However, during the 1990s and 2000s women’s employment rates in corporatist (and other) regimes increased, and income support programmes were reformed to cover both partners. Southern European regimes have been labelled ‘proto-corporatist’ because they have the same policy priorities as the corporatist regimes, although their programmes are of more recent origin, cover a smaller proportion of the population, and may be less effective. They, too, emphasise the role of the male breadwinner and maintaining a level of family income based on his income during economic downturns. Employment protection legislation is in place, originally with the aim of protecting the male breadwinner’s job security and income. Southern European regimes further stress the importance of ‘subsidiarity’ in welfare provision, with focus on the extended family rather than the state as the first port of call in hard times. Because the family is seen as the

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principal locus of welfare provision, these regimes are sometimes labelled as ‘familialist’ (Ferrera, 1996; Bonoli, 1997; Naldini, 2003; Estevez-Abe et al., 2016). In practice, reliance on the family means imposing a heavy load on the ‘female carer’; the putative consort of the male breadwinner. One reason why these regimes are classified as ‘proto-corporatist’ or underdeveloped corporatist regimes is that large groups of people, including most women and those working in informal sectors of the economy, remain ‘outsiders’, who are not included in social insurance programmes to protect financial security (Karamessini, 2008; Ferrera, 2010; Petmesidou, 2013).1

REASSESSING THE RELATIONSHIP BETWEEN POLICY PRIORITIES AND POLICY OUTCOMES Our purpose in this book is to reassess the linkages between policy priorities and what regimes actually achieve for citizens; that is, policy/welfare outcomes. We first attempted an assessment of policy outcomes in Esping-Andersen’s ‘three worlds’ over 20 years ago (Goodin et al., 1999). Then, as now, the benefits, efficiency and effectiveness of welfare states were under attack. Our earlier work was limited to just three countries – the United States (US), Germany and the Netherlands – and to a restricted range of outcomes. The reason for these limitations was that no international datasets were available, covering all Western countries and the full range of policy outcomes that social scientists want to consider. Today, in studying policy agendas and outcomes in the 21st century, there are no such limitations. Our main data sources for this book are annual cross-sectional and longitudinal surveys undertaken as part of European Union Statistics on Income and Living Conditions (EU-SILC, 2004‒). We also use evidence from the biennial European Social Survey (2002‒). These surveys cover all member countries of the European Union, plus a few others that choose to participate. Additional evidence is drawn from panel surveys in Australia, Germany, Switzerland and the United States. A detailed description of these sources can be found in Chapter 3. One of the main findings of the 1999 book was that social democratic regimes were comparatively effective in achieving their own equity priorities, and performed about equally well as other regimes in achieving those regimes’ economic efficiency, economic security and social stability objectives. We also observed that the German regime, classified as conservative-corporatist,

1 The ‘insiders’ in these bifurcated labour markets are mainly male breadwinners employed in the formal sectors of the economy (Karamessini, 2008; Ferrera, 2010).

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in practice engaged in substantial poverty reduction and income distribution. A more general point was that the history of welfare states, up to this point, appeared to be mostly one of path dependence. That is, once states adopted a certain set of priorities, backed by a coalition of political parties and interest groups, they tended to continue on the same lines, extending the coverage of programmes and benefits, but essentially serving the same client groups (see also Pierson, 1994, 2001).2 Life satisfaction – the policy objective of enhancing the life satisfaction of citizens – was not discussed in our previous book. That was because, at the time, it was not a stated aim of Western governments. It is now. The background is that the European Union and the Organisation for Economic Co-operation and Development (OECD) have published a series of influential reports on the desirability of defining welfare more broadly, on breaking away from a focus primarily on GDP and related economic indicators. Among other changes, they have recommended incorporating indicators of life satisfaction and well-being in national and international statistics on policy performance (Stiglitz et al., 2008; Stiglitz et al., 2018). The OECD now provides regular reports, based on its Better Life Index, that provide life satisfaction and subjective well-being data for all member countries (OECD, How’s Life?, 2020). The United Nations (2012‒22), using data from Gallup International, issues annual World Happiness Reports.

CLAIMS OF WELFARE STATE CONVERGENCE A central debate in much recent research on Western welfare states has been whether they are converging towards a liberal, Anglo-American, low-spending approach to welfare. Some economists believe that the competitive pressures of a globalised economy mean that the more generous Western welfare states are just too expensive, require too much taxation, and reduce business and employee incentives too much for their economies to be efficient and to grow at something close to their full potential (Lucas, 2003; Lindbeck, 2006, 2008). They recommend stringent welfare cut-backs, and they are quick to hail any cuts as the first signs of enlightenment and of convergence towards a liberal model of welfare. Some social scientists who are not unsympathetic to the welfare state nevertheless believe that there are strong pressures towards convergence (Esping-Andersen, 1999; Ringen, 2006), or that it has already

2 This was not true of the Dutch welfare state, which morphed from being clearly a corporatist regime in the pre- and immediate post-World War II years into a regime with some programmes similar to social democratic regimes, and with policy outcomes relating to poverty and income inequality also in the social democratic range.

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Western welfare capitalisms in good times and bad

happened (Schmitt and Starke, 2011; Standing, 2016; Abrahamson, 2017b). Others write about regime convergence, not as convergence towards a liberal model, but as a more general trend towards regimes copying or otherwise integrating aspects of other regimes’ programmes into their own welfare state programmes (Castles et al., 2008; Achterberg and Yerkes, 2009; Paetzold, 2013). As the evidence on policy outcomes accumulates in this book, readers will be able to form judgements about the extent, if any, of regime convergence. There is no doubt that in the late 20th century Western regimes pursued differing policy priorities and achieved differing outcomes (Esping-Andersen, 1990, 1999; Pierson, 1994; Goodin et al., 1999). The question now is: ‘How much has changed and to what extent do regimes depart from their origins?’ (Montanari et al., 2007).

WHEN AND WHY DO MAJOR POLICY CHANGES OCCUR? THE ROLE OF MAJOR CRISES As a matter of history, it is plain that major changes in public policy usually happen during and soon after major crises. Two major crises occurred during the period covered by this book: the Global Financial Crisis and the Covid-19 public health and economic crisis. We will attempt to assess how public policy and welfare outcomes changed in response to these crises. (A third crisis was under way as we went to print: the war in Ukraine.) There are four main ways in which regimes respond to crises and deal with the aftermath: • ‘Permanent’ policy shifts: major changes in policy priorities, government expenditures and programmes are introduced, and then are maintained when ‘normal’ times resume. • Crisis interventions: major changes are made, then abandoned after the crisis period, but are deployed again when the next crisis occurs. • Policy orthodoxy: minimal changes are made to existing policy settings and then, after the crisis, there is an attempt to revert to the status quo ante. • Policy backlash: the crisis evokes a search for scapegoats (individuals, ethnic groups, institutions) to blame for national suffering and alleged decline. The two main types of crisis that Western countries face are wars and economic depressions. The two World Wars and the Great Depression of the 1930s led, in some Western countries, to huge increases in the scope and functions of government (Musgrave, 1959; Pryor, 1968). After the wars, public expenditure was reduced, but remained at much higher levels than in pre-war years, and instead of being used to finance a war effort, the money

What are governments for?

7

was largely spent on building welfare states (Flora, 1983; Ortiz-Ospina and Roser, 2016; Barr, 2020). Policy-makers and publics had become accustomed to ‘big government’, and largely accepted a change from warfare to welfare. Because prime-age men had to join the armed forces, the World Wars also led to increases in women’s employment and voting rights; major changes that persisted in peacetime. The Great Depression was countered by large-scale fiscal policy interventions – in public works and social security payments (income support) – in those Western countries (Sweden, the US) that adopted a Keynesian response to the crisis.3 The countries that rejected Keynesianism in the 1930s mostly adopted Keynesian approaches to economic management in the post-war years. They all expanded their welfare states. None of this should be taken to imply that major crises always lead to major changes in policy priorities and expenditures that persist into the period when the crisis is over. An alternative possibility is that governments may adopt innovative policies in the crisis, but abandon them once it is over. In some respects this may be more or less unavoidable. Large increases in public debt were incurred in the World Wars and had to be paid back afterwards. Western governments mainly borrowed the money from their own relatively well-off citizens. The lenders were then paid back in inflated currencies, so they received less back in real terms than they had lent. The result was a large redistribution of wealth (Piketty, 2013). Public debts accumulate in most crises, if not all. But in the Global Financial Crisis and Covid-19 pandemic, as we shall see, governments mostly avoided borrowing from wealthy citizens and instead relied on expansionary monetary policy, including ‘quantitative easing’. Responding to crisis by adhering to policy orthodoxy is not uncommon. The response of some governments, including those of Australia and the United Kingdom (UK), to the 1930s depression was to cut public expenditure in order to try and balance national budgets, even though tax revenue was declining. The effect on unemployment levels was catastrophic, since private spending too was in decline. As we shall see, the same mistakes, now rebadged as ‘austerity’ and ‘internal devaluation’, were made in most European Union countries as policy responses to the Global Financial Crisis. In an earlier period, following World War I, the UK government, along with several other European governments, had attempted to revert to another orthodoxy. The ‘gold standard’ (that is, fixed rates for national currencies against gold) had

3 Keynesian economic theory was not explicitly adopted in the US, but the Roosevelt administration undertook large public works programmes and passed social security legislation to provide income support to large sections of the community made destitute in the Depression.

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Western welfare capitalisms in good times and bad

been abandoned in wartime, but was regarded by some policy-makers as a key feature of the pre-war ‘gilded age’ (Skidelsky, 1992). Crises can also lead to reactions of fear, anger and backlash against scapegoat groups that are blamed for hard times. It is a platitude that the rise of Nazi Germany was partly due to reactions of anger and fear resulting from military defeat in World War I, payment of reparations, and the hyperinflation of the 1920s. Jewish people, gypsies and gay people were among the scapegoat groups blamed for hard times. We will find analogous, but less toxic responses to the Global Financial Crisis. The election of President Trump, and the British vote to leave the European Union, were both partly reactions to the crisis. They involved scapegoating domestic and foreign actors, who were somehow held responsible for national decline.

THE GLOBAL FINANCIAL CRISIS AND COVID-19: DIFFERENT TYPES OF CRISIS The Global Financial Crisis (GFC) and Covid-19 were very different types of crisis that made differing demands on government. The GFC was a crisis that occurred within the economic system; specifically, within the financial sector, the banking sector of the economy. It was what economists call an ‘endogenous’ crisis or endogenous shock. Covid-19, on the other hand, was initially a public health crisis. From an economist’s standpoint it was an ‘exogenous’ crisis (exogenous shock). It had economic consequences, but it was not a crisis that began within the economic system itself. It is reasonable to suppose that endogenous and exogenous crises impose different constraints and elicit different priorities from policy-makers. In an endogenous crisis, the priority has to be one of rescuing and repairing the sector or sectors of the economy in which things have gone badly wrong. In the GFC this meant rescue and repair of the banking sector. Economic remedies for economic problems: ‘Let’s get the economy back to “normal”’. In the Covid-19 crisis, some lessons were drawn from the GFC, but a more diverse set of policy responses was needed. This was because repeated outbreaks of the disease (repeated spikes in cases) had large effects on mental health, the labour market, the educational system, the need for income support and business support, and of course the economy. A background expectation with which we began studying the effects of these two crises was that an exogenous crisis would be more likely to lead to policy learning and innovation than an endogenous crisis.

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HOW DO GOVERNMENTS CHANGE? POLICY LEARNING, INNOVATION AND ADAPTATION WITHIN AN ESTABLISHED REGIME FRAMEWORK The historically social democratic, liberal, corporatist and proto-corporatist regimes covered in this book all have long established priorities and policy programmes, going back to at least the 1930s (see Chapter 2). Many legislative and programme changes just involve a reworking of programmes previously adopted, so change usually occurs within an established regime framework. We shall find, for example, that the Swedish and Danish social democrats have kept on reworking their ‘active labour market programmes’ (job training and job placement programmes) to deal with each crisis they have faced. The German and Italian corporatist and proto-corporatist regimes have responded to crisis (in part) by reworking programmes to protect labour market ‘insiders’; a reworking that has threatened to undermine the living standards of ‘outsiders’ (Rueda, 2014). That said, it is now common for what political scientists call ‘policy learning’ and ‘policy adaptation’ to involve some borrowing of policies from other countries (Rose, 1993). In a sense, we now live in a world of ‘full information’ about public policy. International agencies such as the Organisation for Economic Cooperation and Development (OECD), the European Union, the International Monetary Fund and the World Health Organization regularly publish and update detailed descriptions of the policy programmes of member states. In crises they publish ‘policy trackers’. (We cite policy trackers of national responses to the Global Financial Crisis and Covid-19 in later chapters.) Furthermore, senior public officials regularly meet their international counterparts at conferences hosted by international agencies; conferences intended to promote policy learning and borrowing. International borrowing and policy learning perhaps sound admirable. However, a programme that works effectively in one country may prove useless or even counterproductive when transposed to another place, because the borrower lacks competent administrative agencies, or the public trust in government that may be essential for effective implementation (Rose, 1993). A copy-and-paste approach to institutional and programme change is rarely successful (Ebbinghaus, 2005). We shall find examples in both the Global Financial and Covid crises.

WHAT IS THE COUNTERFACTUAL? A huge issue that all governments face in deciding whether to make a major policy change, whether borrowed from another country or not, is that with

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the best will in the world it is difficult, almost impossible, to evaluate the effectiveness of most major policy programmes. Policy evaluation is feasible and can sometimes yield reasonably definitive results when what is being evaluated is a programme to deliver a specific benefit to a specific target group. Some public health programmes, agricultural programmes, and public transport programmes fit the bill. But when it comes to large-scale programmes of the kind discussed in this book – welfare state programmes, huge fiscal and monetary interventions – policy evaluation becomes problematic. Economists and other policy advisers develop statistical models to try and evaluate these programmes. The models can be used both before policy adoption (ante hoc evaluation), and then later for post hoc evaluation. In practice, though, estimates resulting from modelling are usually controversial. Intense differences of opinion arise, partly based on prior political values. Fundamentally, the problem lies in not being able to establish a convincing counterfactual. It is almost impossible to say what would have happened if the US Federal Reserve had not adopted quantitative easing as its main monetary policy during the Global Financial Crisis. What would have happened if trillions of dollars had not been pumped into the world economy by China? We do not know; and if we do not know, we cannot say whether these massive interventions were effective in preventing a worse depression.

ASSESSING WELFARE OUTCOMES: AN INTERNATIONAL COMPARATIVE APPROACH Our approach to assessing welfare outcomes in this book avoids some of these difficulties. We do not attempt to assess what would happen if, in a counterfactual world, the welfare state were abolished. Instead, we focus on international comparisons. We compare welfare outcomes in high-income Western counties; that is, countries at a similar stage of economic development. Our starting expectations ‒ our underlying hypotheses – are that each type of welfare-capitalist regime will be most effective in achieving the policy priorities to which it gives high priority. So we expect historically social democratic regimes to be (comparatively speaking) most effective in achieving their equity priorities of reducing poverty, income inequality and gender inequality. We expect liberal regimes to do best in promoting rising living standards and economic growth. Corporatist and proto-corporatist regimes are expected to be most effective in promoting economic security and social stability.

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OUTLINE: RESEARCH QUESTIONS AND PLAN OF THE BOOK The questions we are trying to answer in this book are: 1. Regimes and policy outcomes. What policy/welfare outcomes do Western welfare-capitalist regimes deliver for their citizens? 2.1 Crises. In what ways did policy programmes and outcomes change in response to the Global Financial Crisis and Covid-19? 2.2 Drawing lessons from crises. In responding to the GFC and Covid, what lessons have policy-makers drawn, and what lessons can we draw, that may be of value in the next crisis; or even in ‘normal’ times? 3. Regimes: convergence or continuing distinctiveness? Have policy/welfare outcomes in Western regimes converged in the 21st century, or do they remain distinctive? What is the balance between continuity and change? In the next chapter we review Esping-Andersen’s typology of welfare capitalisms, and compare it to some alternative approaches. We explain that Esping-Andersen thought in terms of ‘ideal types’ of welfare-capitalist regime. He regarded Sweden as being historically closest to the ideal type of social democratic regime, the US as closest to the liberal type, Germany as closest to the corporatist type, and perhaps Italy as closest to the proto-corporatist type. Taking these four countries as examples, we describe key regime characteristics. The aim is to illustrate regime differences, to convey an understanding of differing priorities, policy processes and policy programmes in these ‘worlds of welfare-capitalism’. In Part II of the book we start by outlining the course of events in the Global Financial Crisis. Then, in separate chapters, we report on policy performance in relation to poverty and income inequality, wealth inequality, gender inequality, personal autonomy, economic growth and living standards, economic security, and life satisfaction. Our presentation of welfare outcomes is sequenced in terms of outcomes before, during and after the crisis. The issue here is whether the GFC did or did not change comparative outcomes in the four regimes. In Part III we discuss the Covid-19 public health and economic crisis. This is a crisis that is not yet over and whose medium- and long-term effects are not yet known. It is a crisis that is evoking widely differing, and in some cases highly innovative policy responses, that nevertheless broadly reflect existing regime priorities. Will some of the innovations adopted during Covid be deployed in the next crisis, or even in ‘normal’ times? In the concluding chapter (Part IV) we summarise empirical results and regime differences in regime performance. We first rank the four regimes on

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delivery of policy/welfare outcomes in the 21st century. We then focus on trends in welfare state development. Are welfare-capitalist regimes converging towards an Anglo-American liberal model, or do they still deliver distinctive sets of policy outcomes? What is changing, and what is not?

APPENDIX: CONFUSING WORDS Two of the words used often in this book – ‘liberal’ and ‘welfare’ ‒ have differing meanings, connotations and emotional baggage in different countries. Liberal We (like Esping-Andersen) use the word ‘liberal’ in its European or classical English meaning rather than its American sense. European and American liberals agree on their support for civil liberties/human rights. Beyond that, they differ. European liberals are mostly on the right or centre-right of the political spectrum. They want governments to play a restricted role in the economy, they tend to be pro-business and pro-free trade. They usually demand lower taxes, and especially lower expenditure on welfare state programmes (social assistance programmes) that are financed entirely by taxation rather than employee contributions. Americans who are called ‘liberals’ in their own country are on the left of the political spectrum. They mostly vote for Democrats. Yes, they favour civil liberties/civil rights, but they are not reflexively opposed to government interventions in the economy, and they are relatively supportive of limited welfare state programmes. Their opponents, many of whom self-define as ‘conservatives’, mostly vote Republican and are rhetorically anti-government even when in government. Welfare and the Welfare State Dictionaries usually define welfare as ‘well-being’ and, indeed, that was the original meaning of the word. Governments that claim to be promoting well-being can be presumed to have a broad, inclusive approach to welfare. But in the US and other Anglophone countries, welfare now has a narrower meaning. It is associated with the welfare state, and specifically with non-contributory social assistance programmes and the welfare beneficiaries who rely on these programmes. In some minds the word ‘welfare’ now conjures up images of welfare fraud and sponging off the state. That image is common in English-speaking countries. In other European countries the state’s efforts to improve ‘welfare’ still have positive connotations that are reflected in language. In the Netherlands the welfare state is the

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Versorgungsstaat, which translates as ‘the caring state’. In Sweden the social democrats used to write and talk a lot about building a Folkhemmet, a home promoting the well-being of the Folk, in which no one would be excessively privileged and nobody excluded. In Germany the whole political economy is referred to as a Soziale Marktwirtschaft, a social market economy, rather than a capitalist or private enterprise economy. In all Western countries there are now prominent economists, social scientists and statisticians who favour the older, broader concept of welfare. They advocate that governments should measure and include in official statistics aspects of welfare to do with (inter alia) health, education, the environment, social participation, leisure and life satisfaction. And, of course, they advocate for government programmes intended to achieve improved outcomes on these aspects of welfare. The focus of this book is primarily on policy/welfare outcomes in the differing welfare-capitalist regimes. But it is helpful to bear in mind the differing concepts of welfare that underlie public policy.

2. Worlds of welfare capitalism Gosta Esping-Andersen’s landmark book, The Three Worlds of Welfare Capitalism, has had huge influence on discussion and debates about the purposes and policies of democratic regimes and welfare states since publication in 1990. Unsurprisingly, his classification of regimes has been subject to various critiques and suggested changes, not least by himself (Esping-Andersen, 1996, 1999, 2002; Esping-Andersen et al., 2002; see also Greve, 2013, 2018; Castles et al., 2010; Beland et al., 2021), but in our view his overall approach has robustly stood the test of time. We begin by discussing critiques of his work, and then set out the amended classification of welfare-capitalist regimes used in this book, explaining which countries are included and why. The bulk of the chapter is then devoted to descriptions of regime characteristics in social democratic Sweden, liberal United States (US), corporatist Germany and proto-corporatist Italy. We try to provide enough detail and illustrative evidence for readers to gain a feel for differences in the policy priorities, institutions and policy-making processes of these regimes.

VARIETIES OF CAPITALISM (VoC) AND GROWTH MODELS: ALTERNATIVE CLASSIFICATIONS OF WESTERN SYSTEMS Esping-Andersen viewed international differences in welfare state development as being mainly a consequence of differences in the political and industrial power of centre-left parties and trade unions, and also of whether left-wing parties found allies among agrarian parties. He is the leading proponent of what is termed the ‘power resources’ or ‘politics matters’ approach to classifying Western political systems and economies. In the next few paragraphs we describe two alternative approaches that also focus on regime differences – differences among welfare capitalisms ‒ and then consider some possible amendments to the Esping-Andersen classification. The Varieties of Capitalism Approach A highly influential alternative approach, that goes under the label ‘varieties of capitalism’ (VoC), was developed by Hall and Soskice (2001). They distin14

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guish between two main types of capitalism: liberal market economies (LMEs) and coordinated market economies (CMEs). The LMEs are nearly the same as those classified as ‘liberal’ by Esping-Andersen.1 CMEs comprise both social democratic and corporatist regimes. They are referred to as ‘coordinated’ political economies because governments, firms and, to a lesser extent, trade unions consult on a regular basis to try and influence economic outcomes including growth, inflation, employment levels, collective bargaining and wage developments. In the VoC approach business firms (or more generally ‘producer groups’), rather than governments, are viewed as playing the central role in Western political economies (Hall and Soskice, 2001; Goodin, 2003; Iversen and Soskice, 2019; Hall, 2020). Hall (2020) describes three stages of development in Western economies since World War II. For about 30 years after the war, manufacturing was the dominant sector, then service industries became increasingly important, absorbing most of the labour force; and then in the last 20 years a ‘knowledge economy’ has developed. In the knowledge economy, high-end information and communication companies (for example, investment banks, Ericsson, Microsoft), operating across international borders, are both major domestic players and major exporters, adding substantial value to what are, in many cases, international value chains. In the VoC approach governments are viewed as adopting economic and social policies to meet the needs of the most productive segment of private sector firms. In the knowledge economy these firms require a continuous supply of highly educated employees with computing and analytic skills. This was recognised in the European Union’s (EU) Lisbon Strategy, adopted in 2000, which aimed to make the EU ‘the most competitive and dynamic knowledge-based economy in the world’ (European Union, 2000). In pursuing this strategy, most EU countries have substantially expanded their tertiary education sectors, with particular focus on enhancing skills in information and communications technology (ICT). In Sweden, at the extreme, just under 10 per cent of the adult population was enrolled in ICT courses in the year 2000 (Hall, 2020). Developments of this kind lead some VoC writers to conclude that the ‘social investment’ state is replacing the ‘social protection’ welfare state (Giddens, 1998; Bonoli, 2005; Hemerijck, 2013, 2017; Clasen, 2020; Hall, 2020). As the evidence in this book will indicate, this is an overinterpretation of current trends. Substantial social protection and income redistribution programmes are still operating.

1 Hall and Soskice classify Switzerland as a CME, whereas Esping-Andersen classifies it as liberal.

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It would be misleading to suggest that the VoC approach holds that Western governments are responsive only to business interests. On the contrary, it is accepted that all major policy programmes are supported by coalitions made up of producer groups, political parties and social groups. However, producer groups are viewed as being highly effective and influential in the conduct of ‘quiet politics’ – operating behind the scenes with politicians and civil servants – though less effective in ‘noisy’ politics, conducted in the media and legislatures (Culpepper, 2011; Iversen and Soskice, 2019). In the VoC approach, it is stressed that many social policy and welfare programmes, usually thought of as mainly benefiting low- and middle-income people, can also be viewed as supporting business needs (Baldwin, 1990; Mares, 2003). Education and job training, and social insurance programmes covering workplace injury, unemployment and sickness, can all be thought of as the state meeting needs or demands that might otherwise have to be met by firms at their own expense. Mares (2003) has provided detailed evidence, mainly for France and Germany, about what she calls ‘cross-class coalitions’: coalitions in which some employer and landowner/farmer groups have given political support to welfare state programmes. These groups have mostly not supported attempts to cut back the welfare state (see also Pierson, 1994, 2001). Mares also remarks that the biggest cut-backs have not been in CME countries with generous, expensive welfare states, but in LME countries such as the US, the United Kingdom (UK), Australia and New Zealand which already had lean welfare programmes. The VoC perspective contributes greatly to an understanding of recent developments in Western systems. However, our focus is primarily on welfare outcomes, rather than on institutional change, producer group coalitions and the wider set of political, economic and social outcomes covered in the VoC literature. In this context, we believe that the Esping-Anderson typology of welfare states still offers considerable pay-offs. It directs attention to whether welfare programmes and outcomes are egalitarian or inegalitarian, socially stratified or relatively unstratified/solidaristic. It seems reasonable to hypothesise that an important difference between those CMEs in which centre-left parties and unions have greater influence, compared with those in which centre-right parties and business organisations hold sway, is going to be that policy outcomes are more egalitarian in the former than the latter. Growth Models/Growth Strategies The ‘growth models’ approach to classifying Western political economies was developed partly as an extension of, and partly as a reaction against, the VoC perspective (Streeck, 2014; Baccaro and Pontusson, 2016, 2020). Proponents of the growth models approach see themselves, in most cases, as analysing

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what they regard as the continuing, evolving crises of capitalism. The growth models or strategies that they postulate are seen as changing and perhaps desperate attempts to maintain ‘capital accumulation’ and profits in the face of the major changes in Western economies just described (Streeck, 2014, 2016). The growth models approach was pioneered by Baccaro and Pontusson (2016), whose empirical work is focused on decomposing changes in aggregate demand in Western economies into changes due to consumption, investment, government expenditure and net exports (that is, exports minus imports). It should be understood that these decompositions are descriptive. They do not reveal – and are not intended to reveal – the underlying causes of growth, which are related (among other factors) to changes in technology, human capital and productivity. Baccaro and Pontusson (2016, 2020) report that quite different growth models are explicitly or implicitly followed in the countries we cover in this book. German growth is led by the export sector, primarily high-quality manufacturing and engineering exports. Success in international markets depends on wage moderation in order to maintain the competitiveness of export prices. A second growth strategy, exemplified by Sweden, is also export-led. The focus is on ICT-based exports and, as we have seen, is supported by substantial state investment in tertiary education. A third model or strategy, described as ‘financialisation’, has been adopted in the UK and, to some extent, the US (Avlijas et al., 2020; Vernengo, 2021).2 It allegedly involves promoting economic growth mainly by permitting easy credit, especially for housing mortgages. This strategy is described in pejorative terms as not being sustainable (Avlijas et al., 2020).3 Another element of the strategy, it is claimed, involves privatising pensions, education and other social services in order to create increased opportunities for financial services firms (Avlijas et al., 2020). In these countries, welfare benefits are kept low in order to lower ‘reservation wages’.4 A fourth strategy, which is ineffective and exemplified by Italy, relies too heavily on declining manufacturing industries. Generous welfare state benefits, paid to ‘insiders’ who work in these still-favoured industries, are intended to support domestic demand. This strategy is failing in Italy and the rest of Southern Europe and, as we shall see, results in (at best) stagnant living standards. 2 The roles of US firms and consumers in stimulating both domestic and international consumption are facilitated by the fact that the dollar is the world’s main reserve currency (Vernengo, 2021). 3 Most mortgage holders presumably regard their homes as a good investment, rather than a bad debt. They may be right. 4 A reservation wage is a minimum wage that a currently unemployed person would accept in order to take a job.

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Proponents of the growth models approach are at pains to point out that they do not assume that the models they delineate are consciously followed by policy-makers, although it is surely the case that the German and Swedish models are a result of deliberate decisions going back decades (as discussed later in the chapter). Instead, policies are viewed as being developed partly by trial and error in response to evolving ‘crises’ in the capitalist system (Streeck, 2016; Baccaro and Pontusson, 2016, 2020). The growth models approach focuses attention on ‘winners’ and losers’. It is claimed that recent economic and policy changes have mainly benefited tertiary-educated managers and employees living in metropolitan areas, but have seriously disadvantaged less-educated, lower-income people in non-metro cities and towns (the ‘losers’, the ‘left-behind’). Rapid economic changes, privatisations and welfare cutbacks endanger many people’s employment and hence economic security. They are unpopular with large segments of the electorate who, in increasing numbers, express their anger by voting for nationalist, anti-immigrant parties (Hall, 2020; Baccaro and Pontusson, 2020). The growth models approach does not imply any need to revise Esping-Andersen’s typology of welfare regimes. This is clear from observing the way that the editors of an impressive compendium of recent contributions to the field identify welfare state programmes and reforms which they regard as ‘institutionally and politically linked’ to each model (Avlijas et al., 2020). The welfare programmes are identified and described in terms very similar to those used by Esping-Andersen (and ourselves). Both the VoC and the growth models approaches focus mainly on the production side of the economy. Esping-Anderson’s typology is focused mainly on redistributive and welfare issues, which are our main concern here.5

POSSIBLE AMENDMENTS TO ESPING-ANDERSEN’S CLASSIFICATION Esping-Andersen did not initially include Southern European countries in his classification of regimes, except for Italy. He regarded Italy as a borderline or underdeveloped corporatist regime. The Italian social scientist Maurizio Ferrera subsequently proposed that the Southern European countries of Italy, Greece, Portugal and Spain could all be regarded as having similar regimes, which he simply labelled the ‘Southern model’ (Ferrera, 1996). In these regimes the welfare state provides benefits to some sections of the population, while others still have to rely entirely on family, church, and other non-state agencies

5 We thank Robert E. Goodin of Australian National University for drawing attention to this distinction.

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(Ferrera, 1996). Rather than referring to a ‘Southern’ model, later researchers variously labelled these regimes as ‘proto-corporatist’, Mediterranean, clientilist, familialist and patronage-based (Bonoli, 1997; Naldini, 2003; Arts and Gelissen, 2010). We have opted for ‘proto-corporatist’. Some welfare state researchers have added a catch-all category of ‘post-communist’ welfare regimes (Arts and Gelissen, 2010). These include Russia and all the ex-communist countries to the west and south of the former Soviet Union. We initially considered including these countries, but soon found, as have other researchers, that policy outcomes differed so much that treating them as a single ‘type’ seemed clearly incorrect (Aidukaite, 2009; Cerami and Vanhuysse, 2009; Cook, 2013; Kuitto, 2016; Saxonberg and Sirovatka, 2018). Castles and Mitchell (1993) believed that there is or was an Antipodean welfare state in Australia and New Zealand, characterised by high legally mandated wages and high rates of homeownership. Castles (2001) later reported that, on both counts, this type of welfare state has lost its distinctiveness. Other scholars have suggested that there is an East Asian welfare state exemplified by Japan, Korea, Taiwan, Singapore and Hong Kong (Holliday, 2002; Abrahamson, 2017a). Like Esping-Andersen, we treat Australia as a liberal welfare state, but leave out Japan and other Eastern countries, focusing just on welfare states in the West.

CLASSIFYING REGIMES: IDEAL TYPES AND ‘REAL-WORLD’ CASES As mentioned in Chapter 1, Esping-Andersen thought in terms of ‘ideal types’. He identified particular countries that came close to ideal type, and then recognised that other ‘real-world’ regimes deviated by greater or smaller margins from the ideal type. Our classification of the 17 Western countries/regimes included in the book (near-ideal types in bold) is:6 • Social democratic regimes: Sweden, Denmark, Finland, Norway. • Liberal regimes: US, Australia, UK, Switzerland. • Corporatist regimes: Germany, Austria, Belgium, France, the Netherlands.

6 We do not include several small European countries: Cyprus, Iceland, Luxembourg and Malta. Ireland is also omitted, solely because welfare state scholars cannot decide how to classify it. See Arts and Gelissen (2010) who point out that Ireland has been variously classified as liberal, corporatist and Southern European. Appendix 1 in this book provides a summary of welfare outcomes in Ireland. The results confirm the difficulty of classifying this regime.

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• Southern European proto-corporatist regimes: Italy, Greece, Portugal, Spain. Esping-Andersen viewed Finland and the Netherlands as borderline between social democratic and corporatist. In Finland, the social democratic party has been less electorally successful and less often in coalition governments than the Agrarian League/Centre party, but Esping-Andersen reported that Finnish governments have been strongly influenced by Sweden and their other Scandinavian neighbours in developing their welfare state. In the Netherlands, the change towards a highly redistributive welfare state under Christian Democratic and Labour party leadership in the 1960 and 1970s indicated a possible shift towards a social democratic regime (Esping-Andersen, 1990, 1999; Goodin et al., 1999). However, since then the Labour party has lost ground (it came seventh in the 2017 election with nine seats, and got nine seats again in 2021), so it seems sensible to treat the Netherlands as corporatist.7 In recent times social democratic parties have been in electoral decline throughout Scandinavia. For most of the post-war period the social democrats in Sweden and Norway were commonly referred to as ‘40 per cent parties’ (Arter, 2015). This was a high, dominant level of support in countries that have proportional representation electoral systems, and which historically have had five main parties or voting blocs (Arter, 2015). However, since the 1990s the social democratic parties have only attracted about 30 per cent of the national vote, and have not always been included in coalition governments. In Denmark and Finland, they have been as often ‘out’ as ‘in’ (Arter, 2015; European Journal of Political Research, 1991‒, annual). The evidence in this book will contribute to an assessment of the extent to which the declining electoral fortunes of the social democrats have changed policy outcomes. Regime Values/Priorities Influence All Areas of Public Policy When Esping-Andersen wrote about differing welfare-capitalist regimes, he was not just using the word ‘regime’ as a synonym for ‘government’ or ‘political party’. What he meant was that a regime’s political values/priorities influence all main areas of domestic policy. In the following pages we offer a sketch of links between values and public policy in the countries which come closest to exemplifying the four regime types.

7 The Netherlands is also sometimes described as a ‘hybrid’ welfare state, because as well as its corporatist and social democratic features, it also has strict ‘workfare’ requirements. Workfare is most clearly characteristic of liberal regimes, although it has increasingly become a feature of all Western regimes in recent years.

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THE SWEDISH SOCIAL DEMOCRATIC REGIME Sweden’s Social Democratic Party (SDP) was in and out of office in the 1920s, and then continuously in power from 1932 to 1976. It has been the sole governing party, or governing in coalition with other parties, for 72 of 90 years since 1932. It mostly governed alone until Sweden modified its electoral system and changed from a bicameral to a single chamber Parliament (Riksdag) in 1970. Since then, SDP minority governments or coalitions have been the norm, with the SDP not always in the governing coalition. Indeed, as this book went to press, the social democrat government lost a close election, gaining just over 30 per cent of the vote (still easily the largest party), and was replaced by a conservative coalition in which the populist Sweden Democrats and the Moderates (conservatives) were the largest parties. The SDP and other Swedish parties have always favoured what political scientists call ‘consensual democracy’ rather than ‘majoritarian democracy’ (Lijphart, 1999). The main parties prefer to negotiate with each other in formulating major legislation, rather than using a temporary majority to ram changes through. Expert bureaucratic and interest group advice is heavily relied on in policy formulation and implementation. In contrast to most of Europe, ministers do not head government departments. Instead, policy programmes are implemented by state agencies headed by a senior bureaucrat with expertise in the relevant field. A Broad Concept of Welfare Resting on Egalitarian Political Values Swedish governments have for decades endorsed a broad, multidimensional concept of welfare. Official statistics have reflected this by including a range of measures, relating not just to the economy, but also to health, housing, education, child and elderly care, leisure, the environment and social participation (Statistics Sweden, annual). Other countries now include many of the same measures in their official statistics, but it was Sweden and its Scandinavian neighbours which took the lead in rejecting narrower economic and social assistance concepts of welfare. A fundamental value that social democratic regimes seek to promote is equality: economic equality, gender equality, social equality.8 It is largely this

8 Social equality is hard to define. A belief in the desirability of social equality is a belief that people should be treated as being of equal worth, equally deserving of respect (Marshall, 1977; Sen, 1999). In contrast to this, social stratification in a market-based occupational hierarchy generates inequalities of social esteem and respect.

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belief in equality that underpins a broad-based concept of welfare. In practical terms, pursuing egalitarian values does not mean trying to achieve complete equality of outcomes (for example, a flat income distribution), but instead means developing policy programmes that counteract inequalities generated by markets, by the capitalist economic system. The market generates economic inequalities by (on average) providing higher returns to capital than labour (Piketty, 2013). Economic inequality then leads to political, gender and social inequalities, unless effective countermeasures are taken through the democratic political system. Social democratic and labour parties in Europe used to endorse the aim of transforming the capitalist economy by taking major industries (‘the commanding heights of the economy’) into public ownership. The Swedish SDP jettisoned this aim in the 1930s. Instead, the SDP attempted to work cooperatively with business leaders, farmers’ leaders and trade unions to manage the economy to ensure beneficial outcomes for employees; and indeed for non-working individuals and families. It is accepted that the private ‘capitalist’ sector needs conditions in which it can flourish, to generate good rates of economic growth, and hence the tax revenue to run a generous, redistributive welfare state. Critics of Swedish socialism are usually surprised to learn that the country rates highly in international tables of economic ‘competitiveness’ and ‘ease of doing business’ (World Economic Forum, 2019). The Labour Market and Collective Bargaining The SDP’s egalitarian values/priorities have driven its approach to most areas of domestic policy. Let us start with employment. Unlike most Western regimes, the SDP pursued a policy of full employment during the economic depression of the 1930s. Guided by the Swedish economist Kurt Wicksell (rather than the better-known John Maynard Keynes), the government mandated a large public works programme, which kept unemployment at low levels. Since then, the aim has continued to be one of providing paid work or paid job training for everyone who wants to work. This of course includes women, who are disproportionately employed in public sector jobs. Working conditions are favourable for employees, with provision for five weeks of vacation, and generous sick leave especially for parents who need time off to look after sick children (up to 120 days per child per year). This last condition plainly makes it easier for women to retain paid work. Women’s employment is also provided for with excellent child care that is free for pre-school children from the age of three for up to 15 hours a week. Child care centres are open from 6.30 am to 6.30 pm. The Scandinavian governments spend the highest share of gross domestic product (GDP) on child care benefits of any in the

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Western world (Ministry of Education and Science, 1999; Castles, 2009; OECD, Social Expenditure Database (SOCX), 1980‒). What are termed ‘active labour market programmes’ (ALMPs) are a distinctive feature of the labour market in Sweden, and also Denmark. These programmes virtually guarantee a place on a job retraining programme for employees who are made redundant, or may be at risk of redundancy in the near future (Muffels et al., 2014; Muffels, 2015). The aim is to provide government-subsidised retraining linked to a prospective employer. In recent times, notably during the Global Financial Crisis and the Covid crisis, ALMPs have been expanded (see Chapters 4 and 13). The Scandinavian regimes have always spent a larger share of GDP on ALMPs than other regimes (Castles, 2009; Muffels et al., 2014; Eurostat ESSPROSS, 1990‒, annual; OECD, Social Expenditure Database (SOCX), 1980‒). From the 1930s to the 1980s wage-setting – collective bargaining – mainly took place at the nationwide level. Trade union membership rates have always been high – unions still cover close to 70 per cent of the workforce in Sweden – and the union movement is highly centralised. So it used to be feasible for the main union confederation (LO) to negotiate with the main employer confederation to set wages for industries across the entire country. The government was not directly involved in these negotiations, but it supported its key political ally – LO – in its objective of providing wage increases that were large enough to drive inefficient firms out of business, while allowing efficient firms to achieve adequate profit margins (Arter, 2015). The approach appeared to work well until the 1980s. The Swedish economy recorded comparatively good growth rates (see Chapter 9) and real wages steadily increased. But by the 1980s the economy was slowing down and export prices were becoming uncompetitive. At that point, collective bargaining arrangements changed, with negotiations shifting mainly to an industry level. However, the national union organisations remain influential and usually advise member unions in formulating wage demands.9 Further, both unions and employers form ‘bargaining groups’ for the purposes of negotiation (Fulton, 2021). These groups observe a convention that increases in manufacturing wages will set a limit to increases in other sectors. The manufacturing sector is most exposed to international competition, so it is recognised that it would be foolish to increase costs to the point where that sector became uncompetitive (Fulton, 2021).

9 There are now three main union organisations: one for manual workers (LO), one for non-manual workers (TCO) and one for graduate employees (Saco). In 2019, for the first time, TCO had a greater number of members than LO.

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The Tax-Benefit System and the Welfare State We next consider key features of the tax-benefit system and the welfare state. Swedish taxes and public expenditure are currently close to 50 per cent of GDP, down from over 60 per cent 30 years ago. The tax-benefit system is highly redistributive. It funds generous, universal (non-means-tested) entitlements to a wide range of benefits in health care, education, child care, social security, elderly care and old age pensions. The concept of universal entitlements requires some discussion. In most Western countries the only universally available welfare benefits provide a low, minimal level of income (for example, the British old age pension, German social assistance). Higher social security payments are usually only available to individuals with a substantial work history. In Sweden and the other Scandinavian countries reasonably generous income support payments have been universal, available to all citizens as of right. Social security payments are additional to basic payments for people with a record of regular contributions (Therborn, 1986, 1992; Kautto, 2010). In recent years, some payments have been made more conditional on job search (Kautto, 2010; Arter, 2015). Working age people who are unemployed must either look for work or undertake job training in order to receive payments. Even so, it remains the case that generous unemployment benefits are still available for people who meet these non-onerous conditions.10 Sweden and the other Scandinavian regimes spend a larger share of GDP on working age income support payments than other Western countries (Castles, 2009; Eurostat ESSPROSS, 1990‒, annual; OECD, Social Expenditure Database (SOCX), 1980‒). This largely explains why poverty among working age people is lower than elsewhere (see Chapter 5). A slowdown in economic growth and high unemployment led to the defeat of the SDP in the 1990 general election. A conservative coalition took office, intending to make major reforms to the welfare state. It did reduce taxes, public expenditure and public sector employment, but it did not undermine the principle of universal entitlements to social benefits. The coalition government’s most ambitious reform involved a refinancing of the age pension system (Barr, 2013; Weaver and Willen, 2014). The existing pension system had become too expensive, mainly due to the fact that an ageing population in Sweden, as elsewhere in Europe, meant that the ratio of employed people, who were currently making pension contributions, relative to the numbers of elderly people, who were living off past contributions, was

10 Unemployment benefits have always been earnings-related, but a generous basic level is maintained.

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in long-term decline (Barr and Diamond, 2006, 2010).11 The pension reform was negotiated and eventually agreed by all five main parties. The new system, widely copied in Europe, replaced defined (that is, guaranteed) benefits with what was labelled as a Notional Defined Contribution (NDC) scheme. It was claimed that the new 16 per cent social security tax, supplemented by government payments for those who were not in paid work, would make the system ‘financially sustainable indefinitely’ (Weaver and Willen, 2014). This was really an elaborate way of saying that pensions would in future go up or down, depending on national economic performance. It happens: benefits now vary from year to year. They fell during the Global Financial Crisis, although tax concessions were made in order to maintain the level of net pensions (Weaver and Willen, 2014). (Unlike many other countries, Sweden taxes pension incomes.) Perhaps because the new system was agreed by all main parties, and also because it is almost impossible to understand, it appears to have largely escaped criticism. One consequence of its incomprehensibility has been that most people, when invited to choose from among over 800 fund managers to look after their personal pension account, did nothing. No reply. The result was that their money defaulted into a large fund run by the state. Fortunately (or perhaps predictably), this fund has done better than most of those run by private sector fund managers (Weaver and Willen, 2014). Public opinion surveys regularly indicate that the welfare/social security system has strong public support (Arter, 2015; Koeppel, 2019). Most Swedes say that they support the provision of generous benefits for fellow citizens in need. Cuts in welfare have been unpopular, so that parties to the left of the SDP have made gains by criticising the SDP for accepting cuts (Arter, 2015). To non-Scandinavians the level of support for welfare services perhaps comes as a surprise. Support may be partly due to the fact that, in contrast to many Western countries, most services are delivered by county or municipal governments, not by central government. Health services, child care and elderly care are delivered locally. These services all provide benefits in kind rather than in cash. It may be that people perceive their local governments as caring providers, looking after people in need at a local community level. The Scandinavian countries had always been ethnically homogeneous, until recently. But immigration is now substantial: about 25 per cent of Swedish residents were born abroad, two-thirds of them outside Europe. A large immigrant

11 The ageing population ‘problem’ is often mis-specified. It is not just a problem of underfinancing of national pension schemes. The underlying economic problem is that there are not enough employed people producing goods and services for the entire population to consume (Barr, 2020).

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presence has led to social unrest; there were three consecutive days of riots in 2013, starting in the Stockholm suburb of Husby. In recent years gun violence has become a major problem in the main cities. There has been criticism of the provision of welfare payments to foreigners, who some perceive as being unwilling to work (Arter, 2015). There are now anti-immigrant parties in each of the main Scandinavian countries: the Sweden Democrats, the Progress Party in Norway, the Danish People’s Party and True Finns. These parties draw mainly working-class and low-income support, and except for the Norwegian Progress Party, they favour generous welfare payments – except for immigrants. There have, in fact, already been some cuts in the level of benefits paid to immigrants, partly due to tightening job search requirements (Arter, 2015). It is hard to assess the extent to which anti-immigrant parties may represent a future threat to the welfare state.

ESPING-ANDERSEN: UNIVERSAL ENTITLEMENTS LINKED TO DECOMMODIFICATION, DESTRATIFICATION AND DEFAMILISATION Esping-Andersen viewed the provision of universal welfare state entitlements as freeing people from the constraints of the capitalist market. Instead of earning a market income or going bust, people were guaranteed an adequate income from the state. In the market, a person is a ‘commodity’, having nothing to sell but their labour. In the Scandinavian welfare state, in Esping-Andersen’s view, people are ‘decommodified’ (Esping-Andersen, 1990). As well as writing about decommodification, which he regards as a key political value for social democratic regimes, Esping-Andersen also canvassed concepts of ‘destratification’ and ‘defamilisation’ (Esping-Andersen, 1999). Guaranteed generous benefits reduce the extent of market-driven social stratification, which is based on occupational status and unequal incomes. In other words, guaranteed benefits ‘destratify’. Esping-Andersen further believes that the social democratic state, by favouring women’s employment and equal gender opportunities, promotes a degree of ‘defamilisation’, in the limited sense that women are no longer so dependent on the family and their menfolk for financial support. A final point: the polysyllabic combination of decommodification, destratification and defamilisation may be viewed as providing individuals in social democratic regimes with the resources required to exercise personal autonomy. It cannot be said that personal autonomy is a value or priority endorsed by all social democrats, but it is clearly of importance to Esping-Andersen and fellow social democratic intellectuals (Goodin et al., 2008).

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THE US: A LIBERAL REGIME (THE EUROPEAN MEANING OF ‘LIBERAL’) American readers may be surprised to hear that Esping-Andersen and other European social scientists regard their country as having a ‘liberal’ regime. The word ‘liberal’ is being used here in its European rather than American sense. A European liberal believes in ‘small’ government, in laissez-faire. In the US, the word ‘liberal’ has somehow come to have the opposite meaning. American liberals favour ‘big’ government and social policies that assist lower-income groups and ethnic minorities. The core value of European liberals is freedom (liberty, autonomy). Freedom can be understood both as freedom from undesirable constraints, and also as freedom to make individual choices and pursue opportunities (Mill, 1859 [1974]; Nozick, 1974). Freedom from state interference in making personal, social and economic choices is central to liberal thinking. The state should ‘butt out’. It should minimise taxes and regulations. It should perhaps not force people to sign up for health care, nor to wear masks in an epidemic. It should not interfere with private enterprise. Given freedom from state interference, autonomous individuals can choose to pursue the opportunities that American life affords. They can get an education and get ahead; they can prosper. Let private enterprise deliver economic growth and rising living standards. These are the practical, desired policy outcomes that flow from liberal values. Liberal intellectuals and economists certainly know what they are against: they are against what is termed ‘welfare dependency’, reliance on the state as a main source of income (Murray, 1982). In practice, this prohibition applies mainly to people of working age. State support of working age people creates work disincentives. Work disincentives are anathema to liberals, especially liberal economists. In their view, governments should avoid providing benefits that might lead a person to reduce their paid working hours, or not work at all. Welfare should have a residual role. It should mainly be restricted to people who are unable to work, because they are too young, too old or have a disability. Only these people are the ‘deserving poor’. The rest should fend for themselves. ‘America’s business is business’ is a famous quotation attributed to Calvin Coolidge, who was Vice-President and then President in the 1920s.12 Modern presidents have usually been less blatant in their public support for business and the corporate sector, but there is no doubt that most Republican and

12 What the President actually said was less catchy: ‘After all, the chief business of the American people is business. They are profoundly concerned with producing, buying, selling, investing and prospering in the world.’

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Democratic office-holders see it as part of their job to support private enterprise, especially in their home state. They are nearly all dependent on campaign contributions from wealthy individuals and corporations, so they cannot afford any other stance. In contrast to European countries, there is no major American political party that explicitly sees itself as counteracting market forces in order to produce more egalitarian outcomes. The Labour Market and Wages Only about 11 per cent of American employees ‒ mostly in the public sector ‒ are still in trade unions and covered by collective bargaining, so the balance of power in the labour market is heavily in favour of employers (Hayter and Stoevska, 2009; Hacker, 2019). Union membership has declined rapidly, and in 2005 a split occurred in the main national confederation, the AFL-CIO. A breakaway group, the Change To Win Federation, was formed. In the private sector most employers and employees negotiate individual contracts (OECD, Collective Bargaining, 2021). There is a federal minimum wage, and in most states there is also a state minimum wage. The federal minimum has been $7.25 an hour since 2009, but the rule is that if the state minimum is higher, which it is in 29 states, then that is what employees should be paid (National Conference of State Legislatures, 2020). In practice, the current median earnings of minimum wage employees amounts to $11.80 per hour, or less than $25 000 a year (National Conference of State Legislatures, 2020). Polls indicate that most of the public supports an increase in the minimum wage, but a majority of American economists do not, because they believe it would increase unemployment (People-press.org, 2014; Mankiw, 2018). Labour force surveys indicate that only about 1 per cent of regular employees are paid less than the federal minimum wage (US Bureau of Labor Statistics, 2019). However, it is known that undocumented immigrants from Mexico and other parts of Central America often work for less, especially if they can only get seasonal employment. Overall, the bargaining power of labour is undermined not just by immigrants, but also by the existence of a very large ‘gig’ economy of so-called ‘independent contractors’ or freelancers. The Bureau of Labor Statistics estimated that there were 55 million gig workers in 2016, comprising 34 per cent of the workforce (US Bureau of Labor Statistics, 2016). Gig workers mostly take work in response to messages sent to them on apps supplied by Internet-based companies such as Uber, Doordash, Grubhub and Postmates.13 Many do gig work in addition to a main job (US Bureau of Labor 13 Most gig workers do low-skill jobs. However, some professionals find gig work profitable, including web designers, information technology (IT) specialists, even some artists (US Bureau of Labor Statistics, 2016).

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Statistics, 2019). There appears to be no nationwide evidence on their rates of pay; one estimate for ride-hail drivers was that they make $12 an hour after expenses (Vox, 2019). Because they are defined as ‘self-employed’ or as ‘independent contractors’, they cannot form a registered union, do not accumulate social security benefits, do not get paid holidays, and are usually uninsured (Hacker, 2019; Hacker and Pierson, 2020). Workers are disproportionately black and Hispanic (US Bureau of Labor Statistics, 2019). Proponents say that gig work is good for the economy: an example of labour market flexibility. The Tax-Benefit System and Social Policy The tax-benefit system in the US is less redistributive than in Europe, but nevertheless does redistribute substantially from higher-income to lower-income people, and from small families to large families (Hacker, 2002; Fishback, 2020; see also Chapter 5). Married/partnered people file their taxes individually, rather than jointly as a couple. This provides incentives for both partners to work, since both get a range of concessions, including the standard tax-free threshold of $12 000. Since 1990 the female labour force participation rate has fluctuated in the 55‒60 per cent range; an internationally fairly high rate, although lower than in Scandinavia (International Labour Organization, 2021). The foundations of the modern US welfare state were laid in the Social Security Act 1935, which came into effect only in 1939, as World War II was starting. Two types of programme were included in the Act: social assistance and social insurance. These programmes are sharply different in the minds of the public. Social assistance is ‘welfare’. It is paid for out of general revenue and it is means-tested. Benefits are quite meagre. Being on welfare is stigmatised. For example, some states require a drug test for potential beneficiaries. If you fail the test, you may not get the money. Social insurance is quite different. Most people pay their ‘social security taxes’ cheerfully, thinking of themselves as paying premiums to insure against life’s risks (workplace injury, disability, illness, widowhood, and so on), and also as saving for old age.14 In fact, most people only receive social security payments in retirement, and quite reasonably think of themselves as collecting from the government what they are owed and have saved for all their working lives. Payments are earnings-related. They depend mainly on how much you earned and how many years you worked.

14 The employer and employee each contribute 6.2 per cent of income to federal social security funds. This equal division is, of course, arbitrary. The total of 12.4 per cent is part of a person’s wage package. As a matter of logic, the contribution arrangements make no difference to final (disposable) lifetime income.

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Important new social assistance and social security programmes were enacted in the Great Society years under President Johnson. By the time he left office, the main social assistance programmes were Aid to Families with Dependent Children (AFDC), food stamps, Medicaid and Old Age Assistance.15 The largest group benefiting from the first two programmes was single mothers and their children (Katz, 2008). Medicaid was and still is health care for low-income people who do not have private health insurance. Old Age Assistance was a means-tested programme for elderly people with inadequate (or zero) social security contributions.16 The main social insurance reform in the Johnson years was the introduction of Medicare, which provided health insurance for retired people who had made social security contributions. This programme greatly reduced old age poverty, which had previously been at about three times the level of poverty in the general population (Katz, 2008). The next wave of reforms came in the 1990s under President Clinton, who had campaigned to ‘end welfare as we know it’. By this he mainly meant reducing long-term ‘welfare dependency’. AFDC was abolished and replaced by Temporary Assistance for Needy Families (TANF). Under TANF, state governments receive block grants based on population size rather than on numbers requiring social assistance. The grants are intended to provide temporary cash assistance to families in need, but also to fund ‘workfare’ programmes, including job training and assistance with job search. The aim is to ensure that recipients find paid work as soon as possible. Cash assistance is now strictly time-limited: receipt is restricted to periods of two years, with a five-year limit over a lifetime. Initial evaluations of TANF showed that the number of people enrolled on welfare dropped by 60 per cent, and that the incomes of affected families rose 35 per cent (Goodman, 2008). However, these early evaluations took place in a period of economic boom. Later studies claimed that ‘deep poverty’ had increased by 130‒150 per cent, and that the drop in numbers on welfare was a mirage, or what economists call a ‘substitution effect’ (Shaefer and Edin, 2013). People previously on welfare were now reallocated (substituted) into ‘workfare’, receiving money (often only poverty earnings) for some form of job training or job experience unlikely to lead to a regular job. Another important reform in the Clinton years was expansion of the Earned Income Tax Credit (EITC), first deployed in 1975. EITC pays a federal subsidy to employees whose incomes fall below a specified modest level. The

15 The food stamps programme has been renamed as the Supplemental Nutrition Assistance Program (SNAP). 16 This programme was later bundled into Supplemental Security Income (SSI), along with benefits for people with disabilities.

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aim is to reduce the number of ‘working poor’. The total cost of this subsidy is actually larger than the cost of TANF or AFDC (Katz, 2008). Again, critics allege that the programme suffers from a substitution effect (Standing, 2016). Employers can pay low-income employees less from their own funds, given that the shortfall is made up by the federal government. They can attract or retain the same employees (same skills, same productivity) with less of their own money than they could before. Any description of American welfare is almost bound to fail to convey the diversity of provision (Hacker, 2002; Garfinkel et al., 2010). In addition to federal programmes, most states have their own welfare programmes, as do some city and local governments. These sub-national programmes target diverse groups of recipients. Some mandate quite generous payments; some a pittance. They use differing formulae for means-testing. Some include immigrants, some specifically exclude them (Katz, 2008). There is also great diversity in what is termed ‘private welfare’. Some private welfare is provided by charities, many of which receive federal or state funding and so are more or less government contractors (Katz, 2008). An example is Feeding America, which runs over 200 food banks. Employer-provided benefits are an important segment of private welfare, especially for health care. European readers may not realise that most Americans have employer-provided health insurance. Over 60 per cent of employees (and their families) are still enrolled in employer-provided health insurance plans, although numbers are now declining (US Census Bureau, 2018). These employees usually receive health care from private sector ‘managed care’ providers. The health plans and services offered by public sector and large private sector employees are, in many cases, first rate. But plans provided by small employers are often desperately inadequate (US Census Bureau, 2018). The Affordable Care Act 2013 (‘Obamacare’) was intended to remedy this, and also to offer health cover to people who previously had none. The Act made it compulsory to have comprehensive health insurance. In reality, however, about 9 per cent of the population remains uninsured (US Census Bureau, 2018). Some Affordable Care Act provisions were watered down under President Trump, but an attempt to have the main funding mechanism (the so-called ‘private mandate’) declared unconstitutional was narrowly lost in the Supreme Court. Prominent academics have claimed that total American welfare expenditure as a share of GDP is comparable to levels in higher spending European countries. This is based on including all federal, state and local programmes, plus private welfare, plus the cost of tax concessions such as EITC (Marmor, 1992; Fishback, 2020). As we assess evidence on welfare outcomes in later chapters, it will seem obvious to ask: If it really is the case that American governments and private agencies spend so much on welfare, where does all the money go?

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We will find that data on poverty, income inequality and financial insecurity suggest that nothing like enough goes to the people who need it most. In summary, social security enjoys strong public support; administrations that try to make cuts in future benefits meet overwhelming opposition. In contrast, social assistance (‘welfare’) programmes face a coalition of opponents. Liberal economists and intellectuals, and proponents of private enterprise, complain about welfare dependency and work disincentives. Many low- and middle-income and white people oppose welfare because they believe that most recipients are black or Hispanic. This impression has some basis in fact. Take TANF recipients. Whites make up 64 per cent of the population but only 32 per cent of TANF recipients (US Department of Health and Human Services, 2010). Blacks are about 12.5 per cent of the population, but about 32 per cent of TANF recipients. Hispanics are around 16 per cent of the population, but 30 per cent of TANF recipients. Ethnic prejudice fuels the perception that welfare recipients are ‘work-shy’. Especially since the passage of TANF, this perception must surely be unfounded. It is hard to see why anyone would choose to live on poverty-level payments that, by law, cannot be received for more than five years.

THE GERMAN CORPORATIST REGIME The core political value, the core priority of corporatist regimes, is social stability. Historically, the main method of trying to maintain social stability has been by maintaining the incomes of ‘male breadwinners’ at close to normal levels, even in economic hard times. This keeps families together, protects their social status, and is intended to preserve social stability. In corporatist thinking, which has roots in Catholic social theory, individuals are viewed as belonging to a set of nested mutual-help groups (van Kersbergen, 1995). An idealised picture looks like this. The primary group is the family. It is the basic mutual-help group.17 The family belongs to a church community, which should be there to help in times of difficulty.18 The German ‘male breadwinner’ belongs to an occupational group. He holds a secure job with a permanent (open-ended) contract (unbefristeter Arbeitsvertrag) in a company that has secure financing from a bank which treats it as a long-term 17 In corporatist and Catholic church theory, help should be given at the lowest level at which it can be effective. This is the so-called ‘principle of subsidiarity’. 18 Germans who have been baptised are automatically considered members of a church. Unless they specifically opt out, they pay a tax of 8‒9 per cent, collected by the government, which is given to their church. The church does provide benefits, including parochial schools and day care. A decision in 2014 to extend the tax to income from capital gains led to a sharp increase in opt-outs (Pray Tell, 2015).

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partner, not just as a debtor.19 At work he is represented on a works council where his elected representatives sit alongside company executives; relationships are cooperative. He is also represented by a trade union, which engages in national-level bargaining with an employers’ association to set his wages for the next year or two. His wages reflect his occupational status. Wage relativities are maintained over time; status differences matter. He makes social security contributions throughout his working life. These contributions ensure that his family’s income and social status can be maintained when he retires (or is unemployed, or sick). His wife’s status derives from his status. Until a couple of generations ago, it was common for wives to be addressed according to their husband’s occupation. Mrs Schmidt, the wife of Professor Schmidt, was Frau Professor Schmidt. It is not easy for Anglo-American readers to appreciate how different the corporatist vision is from the image of politics, and especially industrial relations, held in the English-speaking world. In the Anglo-American liberal regimes we more or less expect industrial relations to be characterised by zero-sum conflict. Higher wages mean lower profits; how could it be otherwise? That is not how German corporatists think at all. The German constitution refers to a ‘social market economy’ (Soziale Marktwirtschaft). In a social market economy, employers and employees – the social partners – are expected to cooperate with each other to promote prosperity in their industry. After all, if they are in the same industry, they share the same risk pool, so it is in their interests to seek long-term cooperation (Lehmbruch, 1984; Daly and Cobb, 1989). Cooperation is institutionalised in works councils. By law every workplace must have a works council, comprising employer and employee representatives. A works council discusses and decides on conditions at the workplace, efficiency issues, disciplinary issues. The German word for its deliberations is Mitbestimmung: co-determination at the workplace. The Education and Training System, the Labour Market, Collective Bargaining, Wages The German educational system stratifies students at an early age in ways that strongly influence the occupational and social strata in which they later find themselves. There are three main types of secondary schools: Gymnasia for academically inclined students, most of whom will go to university; Hauptschule for a middle group; and Realschule, trade schools for future tradespeople and manual workers. The apprenticeship system – a nationwide

19 Executives from the bank that the company banks with commonly sit on the company’s board of directors.

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system – builds on these foundations. Most substantial companies provide apprenticeships. Apprenticeships are undertaken, not just for manual jobs as in the Anglo-American countries, but for all kinds of occupations: management jobs, jobs in the arts (for example, opera singers), clerical jobs, as well as manual jobs. So future German employees gain considerable practical experience before completing their qualifications. Once they are qualified, many sign what are referred to as ‘permanent’ contracts, expecting to stay with the same organisation for their entire career. The system is intended to produce a high-quality labour force, paid good wages for good work. Some economists believe that the continued success of German manufacturing firms in export markets in recent years (notably in the Chinese market) is due to having a high-quality labour force, regularly replenished through the education and apprenticeship system (Hall and Soskice, 2001). A Bifurcated Labour Market: Insiders and Outsiders Critics of the corporatist labour market say that it is inflexible, not responsive to changing demands for new skills, nor for working non-standard hours in non-standard jobs. The labour market is commonly described as ‘bifurcated’. It allegedly works too well for ‘insiders’ and not well enough for ‘outsiders’ (Rueda, 2005; Muffels et al., 2014). The insiders are typically those who have done apprenticeships and secured full-time jobs with ‘permanent’ contracts. The outsiders include many women, young people and immigrants. They do non-standard jobs, including part-time jobs and gig work. They do not have secure contracts. High unemployment in the 1990s, following German reunification, led to increasing criticism of the bifurcated labour market. In 2002, when the social democrat Gerhard Schroeder was Chancellor, the Hartz Committee (Chair: Peter Hartz, formerly Personnel Manager for Volkswagen) was appointed to recommend reforms to reduce unemployment by making the labour market more flexible. It is interesting to consider what the Hartz Committee did not do. It did not recommend changes of the kind that liberal economists would favour. It did not recommend getting rid of long-term contracts, or getting rid of national collective bargaining and replacing it with company-level bargaining, individual contracts and performance pay. It did not recommend an attack on trade unions. Instead, what the Hartz Committee recommended – and its recommendations were accepted ‒ was that two new kinds of job be created: Midi jobs and Mini jobs. (In this terminology, insider jobs could be called Maxi jobs). In true corporatist style, Midi jobs and Mini jobs were then enshrined in legislation. Those in Midi jobs were to have contracts stipulating pay between €450 and

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€1300 a month. If the pay was less than €850, they would pay lower rates of social security contributions and income tax than Maxi employees. But they would be covered for health insurance, unemployment benefit and an age pension. People holding Mini jobs would typically be contracted for €450 per month, or work a maximum of 70 days a year (really just marginal employment). They would not pay social security contributions nor taxes. Nor would they be eligible for anything more than basic social assistance benefits (see below). The Hartz reforms were generally described in Germany as improving the flexibility of the labour market and as contributing to the country’s relatively low unemployment rate during and after the Global Financial Crisis (The Economist, 2017; Bauer and King, 2018; Centre for Public Impact, 2019). Clearly, though, they can also be viewed as ‘within-system’ or ‘within-regime’ reforms. New layers of corporatism were added to the existing layer-cake.20 Collective Bargaining and Wage Restraint Collective bargaining in Germany mostly takes place at the national or regional level, conducted by industry-wide unions and employer associations. Agreements are legally binding on the parties involved. They usually last one or two years. The percentage of employees covered by collective bargaining is now declining – it was about 46 per cent in 2018 – but, in practice, the wages and conditions of most employees who are not formally covered by national or regional agreements are set by those agreements (Fulton, 2021).21 As already mentioned, it is usual to maintain existing pay relativities both between occupations and between grades within the same occupation. Employer‒union relations are characterised by low levels of conflict, at least by Anglo-Saxon standards. Major strikes are rare. Unions generally agree to ‘wage moderation’, partly with a view to maintaining price competitiveness in the country’s crucial export sector (Baccaro and Pontusson, 2016, 2020; see also Chapter 4). As a matter of law, works councils are not allowed to negotiate on pay, which perhaps makes it easier to maintain cooperative relations between employers, managers and employees.22 Works councils do, however, make agreements on such matters as work schedules, job sharing, Internet use and 20 As we write this in October 2022, Chancellor Scholz’s government is preparing legislation expected to improve the conditions of Midi and Mini employees. 21 Pay rates in Eastern Germany (the former German Democratic Republic) are now 97.5 per cent of pay rates in the West (Fulton, 2021). 22 They do, however, make agreements on some pay-related matters: for example, bonus rates, long-service payments and performance-related pay.

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working from home. They also make use of what are termed ‘opening clauses’, which permit them (usually with union approval) to vary pay agreements in a downward direction. In both the Global Financial Crisis and the Covid crisis, ‘opening clauses’ were used to reach agreements on reduced working time. Job sharing was agreed in order to minimise redundancies, and plainly did so (Fulton, 2021). Measured unemployment in Germany actually fell every year during the GFC, except for a small blip in 2009. It was under 6 per cent from 2010 onwards. Job sharing in economic crises is an important type of risk pooling, undertaken in corporatist regimes. The federal government contributed to risk-pooling by subsidising short-term work (Kurzarbeit) agreed between employers and employees (see Chapters 4 and 13). Until 2015 there was no minimum wage in Germany. The unions kept pressing for one and eventually secured the appointment of a Minimum Wage Commission with representatives from employers and unions, plus external expert advisers. A minimum wage of €8.50 per hour was agreed (now €9.19).23 Only about 3 per cent of employees in Western Germany and 6 per cent in the East are paid at the minimum rate (Fulton, 2021). The Tax-Benefit System and Social Policy In line with corporatist thinking, Germany has an income tax system that mandates dual rather than individual taxation of couples. Couples are taxed on their combined income, with a tax concession if the wife is a homemaker. So, compared with countries that rely on individual taxation, German wives have less incentive to undertake paid work. In West Germany, prior to reunification, only about 40 per cent of women worked (OECD, Gender Data Portal, 2021). The national figure was then boosted by reunification, because most women in communist East Germany worked, and continued to do so after the change. The female participation rate gradually increased, rising from 43.3 per cent in 1990, to 55.9 per cent in 2017. This is now above the Organisation for Economic Co-operation and Development (OECD) average, but below the level in social democratic and liberal regimes (OECD, Gender Data Portal, 2021).24 Old age and disability pensions have a very long history in Germany. The oldest social security document in the world is said to be the Goslar Certificate,

23 The final decision lies with the federal government. So far it has accepted the commission’s recommendations. 24 All the other corporatist regimes have female participation rates lower than social democratic and liberal regimes; see Chapter 7.

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first issued in 1260 as a pension entitlement for coal miners. Over 600 years later, Chancellor Bismarck launched the first state pension system. The Disability and Old-Age Pension Law (1889) envisaged retirement at age 70 with a pension set at 40 per cent of final salary (Fodor, 2018). Bismarck’s chief motivation is usually said to have been to counteract the rising influence of socialist parties and trade unions, by providing workers with substantial state benefits (Rimlinger, 1971). However, at the time the average life expectancy was 60, so the plan was not all that costly (Fodor, 2018). The country’s modern state pension system was set up under Chancellor Adenauer in 1957. In corporatist style its main features were agreed by all main political parties, and by employers and unions. It was (and is) primarily a social insurance system in which pensions are calculated on the basis of earnings and the number of years a person has worked. Pensions are linked to (generally) rising salaries, and so are expected to go up most years. The Bismarckian system had been partly funded by contributions. The 1957 system was entirely pay-as-you-go (PAYG). Employers and employees each paid 7 per cent of wages into a state fund (that is, 14 per cent combined), so savings accumulated. However, payments to current retirees essentially come from the taxes paid by those still in the workforce (Fodor, 2018). In German this is explicitly referred to as an intergenerational contract (Generationenvertrag). The method of calculating and adjusting pensions is intended to ensure that a family’s income in retirement enables it to maintain its previous standard of living, and hence social status. The goal is to provide financial/economic security in old age. For many years the system worked well, at least for families headed by an employee on a permanent contract. But the long-term ageing of the population means that the state pension funds are now seriously inadequate, and the situation will only get worse. In 2005 the ratio of older, mainly retired people to working age people (the age dependency ratio) was 32 per cent. By 2050 it will be about 60 per cent (Federal Statistical Office, 2006).25 This changing ratio has already led to a fall in the replacement rate of the state pension. In 1990 the pension (on average) replaced 55 per cent of earnings. That figure has now fallen to 48 per cent, and is forecast to be 44.5 per cent in 2030 (Fodor, 2018). The problem is well understood, and it is fair to say that there is now a broad consensus among policy-makers that state pensions, usually referred to as Pillar 1 of the German pension system, will need increasing supplementation from occupational pensions (Pillar 2) and private pensions (Pillar 3).

25 The total dependency ratio – the ratio of those above and below working age relative to those of working age – is forecast to reach 89 per cent in 2050 (Federal Statistical Office, 2006).

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Occupational pension plans became much more common after passage of the Retirement Savings Law of 2001. Employers and employees received tax incentives to set up pension funds.26 Most large firms proceeded to do so, although it was not compulsory. By 2015, about 57 per cent of employees were covered (Fodor, 2018). The plans are mostly ‘defined contribution’: that is, employees make a fixed contribution each month. Benefits are not guaranteed; they depend on investment performance. They are mostly paid as lifetime annuities. Unfortunately, due to declining interest rates on investments during the Global Financial Crisis and since, many occupational funds are likely to deliver lower benefits than originally expected (Fodor, 2018; OECD, 2019). The Minister of Labour and Social Affairs, Walter Riester, who led the drive to reform the pension system in 2001, was also keen to increase availability of private pensions. ‘Riester pensions’, named after him, are drawn from funds run by private fund managers. They were intended to be attractive to both high and low earners. In the case of high earners, contributions attract substantial tax concessions. The contributions of low-income earners are heavily government-subsidised. The government audits the quality of investment products sold to clients. As of 2017, 16.5 million Riester pension contracts had been signed (Fodor, 2018). The German pension system, and the systems of all the corporatist and proto-corporatist regimes, are extremely expensive, currently absorbing 10‒16 per cent of GDP (Castles, 2009; OECD, Social Expenditure Database (SOCX)). Unemployment and Social Assistance As in other European countries, and also in the US, social security contributions insure against unemployment, at least for a specified period. Prior to the Hartz reforms, unemployment benefits could last for three years in the case of claimants with a substantial work history. They provided 60 per cent of previous pay for individuals without children, and 67 per cent for those with children (Bauer and King, 2018; Centre for Public Impact, 2019). Since the Hartz reforms, most people’s benefits have been restricted to a year (longer for those over 50). People who become unemployed after having made zero or insufficient social security contributions receive a lower level of benefits, now known as Hartz IV benefits (previously as social assistance). In 2004, when the

26 Germany is moving towards a so-called exempt exempt taxation (EET) system for pensions, such that contributions, income and capital gains will not be taxed while funds are accumulating. When benefits are paid out, normal income tax rates will apply.

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Hartz IV changes were made, a single person received only €374 per month. Couples can receive payments for both partners, plus children. Eligibility is means-tested, taking account of savings, life insurance and partner’s income, if any. Claimants are required to sign a legally binding contract, committing them to take steps to improve their job prospects, and to take any kind of legal job. There are currently about 7 million people on Hartz IV benefits, of whom 2.2 million are unemployed (Centre for Public Impact, 2019). ‘Hartz IV’ has entered the German language as a term for the non-working poor. Low-end daytime television is sometimes referred to as ‘Hartz IV TV’. Child Support In line with corporatist thinking, the German regime provides generous child support. Child benefits are currently €219 per month for the first two children; more for later children. Further, each child attracts a tax-free allowance of €5460 per couple. Kindergartens and child care are publicly provided and heavily subsidised. The subsidies are such that it is usually unprofitable for private operators to try and enter the market. One aim of all this support is to encourage couples to have more children. It fails: Germany continues to have one of the lowest birth rates in the world. The Regime is Changing The corporatist regime in Germany is changing. It is no longer reasonable to describe it as a regime that mainly confers benefits on the ‘male breadwinner’, and only derivatively, via him, on his wife and family. A majority of German women, including wives/partners, now do paid work. Many have permanent contracts, and so receive the benefits that come with the social insurance system. They are potentially financially independent. Be this as it may, the priority of corporatist regimes remains one of keeping families together, providing for their financial security even in hard times, and so (it is hoped) ensuring social stability.

THE ITALIAN PROTO-CORPORATIST REGIME The policy priorities of the Southern European proto-corporatist regimes are the same as those of corporatist regimes, but results are very different. Italy, Greece, Portugal and Spain have all endured fairly recent periods of dictatorship. There are deep divisions between right- and left-wing parties, and between employers and employees. There is a low level of trust in government: the public does not trust either the motives or the competence of politicians and public officials (Eurostat, European Social Survey, 2002‒18; Quality of

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Government Institute, 2021). This makes it difficult to run a modern welfare state; fairly high levels of impartiality, honesty and competence are needed to administer complicated social policy programmes with varying eligibility criteria and time limits. In Italy the largest party for most of the post-World War II period was the Christian Democratic party. It was closely aligned with the Catholic church. Some of its leaders were also found to have links with the Mafia (De Feo and De Luca, 2017). The Christian Democrats were bitterly opposed by the country’s Communist Party (PCI), which was the largest communist party in Western Europe, regularly attracting around a quarter of the national vote, until the collapse of communism in Eastern Europe in 1989. In the early 1990s, as a result of extensive judicial investigations into bribery (the Tangentopoli scandals) all the main parties dissolved. At one point more than half the members of the Parliament were under indictment (Koff, 2002). Former communists and other left-wing people joined the Democratic Party (PDS). Previously Christian Democratic voters dispersed among several parties; the largest group supporting Silvio Berlusconi’s Forza Italia. More recently, Italian politics has been characterised by the emergence of populist, anti-immigrant parties that rapidly attract electoral support, and then rapidly lose it. On several occasions, the inability of party politicians to form a stable government has led to the appointment of a ‘technocratic’ administration led by a non-party figure. The government that has just collapsed at the time of writing in October 2022, led by the economist and banker Mario Draghi, fitted that mould. It was replaced by a coalition in which the largest party was another ‘new’ populist party – Brothers of Italy – whose leader, Giorgia Meloni, became Prime Minister. The limitations of the Italian state and its social policies put pressure on the family, the church and other sub-national agencies to support people in need. The extended, three-generation family remains stronger in Italy than elsewhere in Europe, but is now under stress as young women, in increasing numbers, want to continue with their careers, delay marriage, and if they do marry, may decline to have children. (The usual shorthand expression is: ‘Young women have gone on strike’.) In many cases, young men remain in the parental home until well into their twenties, especially if they are unable to land a full-time job. The Labour Market, Collective Bargaining, Wages The most striking characteristic of the private sector of the Italian economy is that almost all businesses are micro-businesses. There are, of course, some very large companies – Fiat is still the largest – but it is estimated that about 80 per cent of annual hirings are by micro businesses with less than 16 employees

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(Namuth, 2013). These businesses are exempt from labour laws and from any obligation to engage in collective bargaining. There is also a large underground (black, informal) economy in which employees are usually paid in cash. Parts of this underground economy are controlled by Mafia-linked gangs. Workers are mainly immigrants and young people with limited formal education. Seasonal vegetable and fruit picking is particularly notorious for being under gang control.27 The underground economy is usually estimated to account for somewhere between 15 per cent and 30 per cent of GDP (Ferrera, 2010). The existence of so many tiny businesses and a large underground economy makes life difficult for trade unions and limits the scope of collective bargaining. Historically, industrial relations, like politics, have been confrontational. Strikes are commonplace; there is even an official website that, as a service to the public and tourism, lists current and forthcoming strikes (calendario scioperi). It has become common in official documents to refer to employers and employees as ‘social partners’, but the term, meaningful in Germany, is vacuous in Italy. Collective bargaining takes place mainly at a national, industry-wide level, but these arrangements are subject to increasing resistance from employers who would prefer to bargain at company level (Namuth, 2013). The 2009 collective bargaining agreement, for the first time, explicitly allowed for variations in national agreements (almost always downward variations to pay and conditions) to be negotiated at company level.28 The main employer confederation is Confindustria. CGIL used to be aligned with the Communist party; it was expressly anti-capitalist, and remains the most left-wing of the confederations. The CSIL was linked to the Christian Democrat party and would still like to see dispersed Christian Democrats reunite. The UIL is more or less aligned with secular centre-left parties such as the PDS. There are no official statistics on union coverage; a reasonable estimate is 35 per cent of the workforce and declining (Namuth, 2013).29 The unions have a combined membership of about 12.5 million, but half are already retired! They are strongest in the public sector. Like unions elsewhere, their main focus is on the interests of existing members, especially those with permanent contracts. They have not been effective in organising non-standard workers (Karamessini, 2008; Ferrera, 2010; Petmesidou, 2013; Namuth, 2013). The labour force participation of both men and women has declined since the onset of the Global Financial Crisis; men’s more than women’s. In 1990 27 In 2011, a law was passed prohibiting gang-controlled work of this kind (caporalato). Enforcement is problematic, to say the least. 28 The largest union confederation, CGIL, refused to agree to this change, but had to accept the downward revisions that were made (Namuth, 2013). 29 This estimate excludes retirees.

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the participation rate of men was 75 per cent, in 2017 it was 59 per cent. The equivalent figures for women were 44 per cent and 41 per cent (OECD, Employment, 2021). Women’s participation is held back by expectations (enshrined in Catholic social teaching) that they will stay home after marriage, or at least after they have children. A shortage of child care places is another barrier (Ferrera, 2010). Unemployment is persistently high, particularly among young people. It has remained at around 30 per cent in the 15‒24 age group for most of this century (OECD, Employment, 2021). Basically, the economy does not generate enough ‘good jobs’, and most of those that are available have already been taken by insiders with permanent contracts. The split or bifurcation of the labour market between ‘insiders’ and ‘outsiders’ is even sharper in proto-corporatist than corporatist regimes.30 Insiders are found primarily in the public sector and large private firms. They are predominantly men of mature age (‘male breadwinners’) on permanent contracts. Outsiders are, on average, much younger and disproportionately include women and immigrants (many undocumented/illegal). The state, trade unions and the collective bargaining system primarily look after insiders. The most egregious example of insider favouritism used to be a regulation that allowed civil servants to retire after 20 years. This led to generations of ‘baby pensioners’. Insiders benefit from strict employment protection legislation that makes dismissal almost impossible, unless their employer is in dire financial straits. Their wages too have been protected. At minimum, they rise in line with inflation. The 2009 collective bargaining agreement stipulated that future rises would be linked to the EU’s harmonised index of consumer prices (Namuth, 2013). Outsiders have no such protections. They have to fend for themselves at the bottom end of the labour market, dealing with small-scale employers. There is no effectively enforced minimum wage. We will review attempts to improve social assistance entitlements in the next section. The Tax-Benefit System and Social Policy Resistance to paying income taxes is ingrained, so most state revenue has to come from payroll taxes and value-added taxes. Even so, there are many exemptions. There is a tacit agreement that small family businesses will largely avoid taxation (Ferrera, 2010), Mafia/gangster organisations do not pay up, and the church, which has vast property holdings, many of which are rented at market prices, is legally exempt. Social security taxes (payroll taxes) are now at the astonishingly high level of 45 per cent of gross earnings; the

30 The health care sector is a major exception to this generalisation. Italy, Greece, Portugal and Spain all have universal national health care systems.

Worlds of welfare capitalism

43

employer pays 35 per cent, employees on average 10 per cent. Value-added tax (VAT) is levied at 22 per cent on most goods and services. In most of Western Europe and North America it is more or less assumed that welfare state benefits will be paid or refused by a bureaucracy that assesses applications on the basis of need, defined according to explicit criteria. In Italy and other proto-corporatist regimes this cannot be assumed. Political parties intervene to obtain benefits in exchange for votes. Ferrera (1996) describes the Christian Democratic party as a ‘mass patronage party’, which routinely obtained welfare payments and public sector jobs for its voters, particularly in the agricultural South (Ferrera, 1996, 2010; De Feo and De Luca, 2017). In many cases benefits were dispensed by party supporters, who had been found jobs in the bureaucracy, and were in a position to over-rule decisions to reject bogus applications. Trade unions and the parties of the left also ran networks of patron‒client relationships, trading jobs, small contracts and welfare benefits in return for votes (Ferrera, 1996). The proto-corporatist welfare state had its origins in the Fascist era. The Mussolini regime promulgated Italy’s first national system of old age pensions, unemployment benefits and health insurance (Giorgi, 2019). The system was notionally funded by social security contributions, but benefits were paid on a PAYG basis. Pensions were intended to secure a comfortable retirement for men with an established work history. Women were actively discouraged from working, and urged to have children. A Battle for Births was launched in 1927. Generous maternity benefits were provided, and the woman who had the most children in each of the 93 provinces was awarded a prize. Fascist society was supposed to be classless; all fasci (leagues) in society were supposed to work together. Unions were outlawed. The history of attempted reform of the social security system in the last 30 years has been one of trying to redress the balance between insiders and outsiders, while simultaneously trying to reduce the total cost of social security as a percentage of GDP. These two objectives are politically difficult to combine. It would be easy to redress the insider‒outsider balance if policy-makers could just increase benefits to outsiders, and it would be less difficult to reduce overall costs if benefit reductions could be shared across the board, and phased in gradually. The Dini Reform (1995) was an early attempt to tackle these competing objectives. The situation facing the reformers was as follows. Italy had the highest pension expenditure in Europe as a percentage of GDP: 14.5 per cent in 1994 (Hamman, 1997). Its payroll tax for pensions, at 32 per cent of gross wages, was second-highest after Portugal (also a proto-corporatist regime). It was projected to have about the same age dependency ratio as Germany by 2050, at 60 per cent. Calculations based on intergenerational accounting resulted in a projection that people born after 1990 would face a tax burden

44

Western welfare capitalisms in good times and bad

three times as heavy as previous generations in order to fund social security, if no changes were made (Franco et al., 1994). The Dini Reform merged what were called ‘seniority pensions’ with other old age pensions. This produced some savings, because previously ‘seniors’ had been permitted to retire at any age if they had already made 40 years of social security contributions. A Notional Defined Contribution scheme was introduced, which linked contributions more closely to future benefits, making the system more actuarially sound in the long term (Hamman, 1997). However, it still operated as a PAYG system in the medium term. Changes were only due to be fully implemented by 2036. The next push for reform came during the Global Financial Crisis. It is estimated that, at the onset of the crisis in 2008, 8.5 million Italian employees had no prospective unemployment benefits of any kind (Berton et al., 2012). The Berlusconi government tried to cope – or pretend to cope ‒ with rapidly increasing unemployment by extending the short-time work scheme (cassa integrazione, CIG). In the past, short-time work had been negotiated at firm level as a temporary measure to share available work when a firm was in difficulties. Berlusconi’s government allowed firms to extend the duration of CIG indefinitely, and also provided subsidies to make it available to firms and sectors of the economy previously ineligible. These contrivances were called ammortizzatori in deroga (AD), which means income support ‘in derogation’ of the rules. The central government paid for AD by transferring funds (that is, subsidies) to the regions, which then made regional tripartite agreements (government, employers, unions) to administer them. In practice, the flow of funds continued whether or not any work was done, or any goods produced (Sacchi, 2018). Accidentally or otherwise, the Berlusconi government created a powerful ‘distributive’ coalition of central government, regional governments, employers and unions (Molina and Rhodes, 2007; Rhodes, 2012; Sacchi, 2018). The firms and employees who benefitted from the AD gravy train were mainly insiders; large firms and employees with permanent contracts. The existence of this coalition, and the size of its pay-offs, made it still more difficult in later years to reform the system for the benefit of outsiders. In Germany, short-time work was deployed as a method of reducing national unemployment. In Italy, only insiders benefited. Unemployment kept on rising. It stood at 6.2 per cent at the start of the crisis and reached 12.8 per cent in 2014 (OECD, Employment, 2021). A ‘technocratic’ government, led by Mario Monti, was installed in 2011 with EU approval to deal with Italy’s sovereign debt crisis (part of the eurozone debt crisis; see Chapter 4). Its brief was to repair public finances. It made some social policy changes to this end. The retirement age of women was immediately raised to be the same as men’s, and the minimum retirement age

Worlds of welfare capitalism

45

was raised to 67 from 2021 onwards. In the longer term, retirement ages would be automatically adjusted to life expectancy (Sacchi, 2018). Nothing was done about short-time work, or the magic pudding of ammortizzatori in deroga. The Jobs Act of 2015, passed by Prime Minister Renzi’s government, was the next significant attempt at reform. Changes were made to employment protection legislation. Previously, the courts would order that employees who had been ‘unfairly’ dismissed had to be reinstated. Now they could just order tax-free monetary compensation (Sacchi, 2018). Unemployment benefits were extended so that more non-standard, non-permanent contract employees were covered. The maximum benefit was increased by 10 per cent to €1300 per month. Sacchi’s (2018) evaluation shows that in 2016 about 6 per cent more unemployed people received benefits than would have occurred prior to the Jobs Act. Limits were at last imposed on short-time work (CIG). After lengthy debate, and many amendments, it was eventually restricted to a maximum of two years in a five-year period. It was uncertain how effectively this modest change could be implemented (Sacchi, 2018). A comprehensive reform of social assistance was attempted, but failed to pass the legislature. However, a minimum income law did squeeze through with many amendments. It raised the income supplement that a single person could receive to €190 a month, and raised the maximum for a family of five (or more) to €530 a month. It was estimated that about 2.45 million people would be eligible for these meagre payments (Sacchi, 2018). In summary, reform objectives were not achieved. In the 21st century, pension expenditure rose rather than fell as a percentage of GDP. By 2019, it was 16.2 per cent of GDP; an increase of 2.7 per cent on the average for 2000‒2015 (OECD, 2019).31 Nor had much progress been made towards the reformist aim of improving social assistance for outsiders not covered by the social security system. A fundamental problem remained: too many people, working in micro businesses or in the informal economy, were almost beyond the reach of government.

CONCLUSION In this chapter we have described regime priorities/values, institutions and policy programmes in four worlds of welfare capitalism. But the proof of the pudding is in policy outcomes: the results that regimes deliver, or fail to deliver, for their citizens. That is the focus of the main, empirical part of the book (Part II). Second only to Greece (16.9 per cent) in Western Europe.

31

3. International comparisons, international data Our research questions are comparative: How do Western welfare-capitalist regimes compare on a range of policy/welfare outcomes? How do they deal with crises? What have they learned from crises? Are their public (welfare) policy programmes and outcomes becoming more similar, or they do they remain distinctive? It is crucial to have internationally comparable evidence in trying to answer this set of questions. Differences between countries on several of the policy outcomes we are considering are not so obvious or clearcut that we can rely primarily on national rather than international sources. Government agencies and academic researchers in different countries measure policy outcomes (and everything else) in different ways, depending on local conventions, and also on the objectives and structure of specific policy programmes. Until quite recently researchers had no choice but to use mainly national sources. This has changed. From the 1990s onwards researchers interested in Western politics and public policy have had at their fingertips international social and economic surveys, and statistical data sources, provided by agencies that make it their business to provide data that are as internationally comparable as possible. The jargon word is ‘harmonised’: our data are internationally harmonised. The purpose of this chapter is to describe our main data sources, and the measures we use to assess policy/welfare outcomes.

INTERNATIONAL SURVEYS European Union Statistics on Income and Living Conditions (EU-SILC) Cross-sectional and Panel Surveys, the European Social Survey (2002‒) and National Panel Surveys for Australia, Germany, Switzerland and the United States (US) The data sources which we use the most are surveys conducted for European Union Statistics on Income and Living Conditions (EU-SILC). EU-SILC began in 2004 and now covers all European Union (EU) member countries, plus a few others that decided to take part (for example, Norway, Switzerland). A cross-sectional survey is undertaken every year; all household members age 46

International comparisons, international data

47

16 and over are interviewed. The annual sample size is now about 270 000 individuals in 130 000 households. About 200 000 of these individuals in 100 000 households additionally participate in four-year rotating panels. A quarter of each panel’s members join each year, they remain in their panel for four consecutive years, and then rotate out. The focus of the questionnaire is on measurement of all sources of income (labour income, asset income, business income, imputed homeowner rent, public and private transfers) and on labour force participation. The European Social Survey (ESS) is a second main data source. Interviews for the ESS have been conducted every two years since 2002. Not all European countries participate in each wave, so we pool data for all available years. On average, there are about 10 000 respondents per country (all waves combined). The ESS is particularly useful for us, because unlike EU-SILC, it contains a great deal of interesting attitudinal data on such matters as public support for welfare state interventions. It is also one of our main data sources on life satisfaction. A limitation of both EU-SILC and the ESS from the standpoint of our project is that only two liberal welfare-capitalist regimes – the United Kingdom and Switzerland – are included. To remedy this, we have added panel survey data for two more liberal regimes: Australia and the United States (US). The panels are: the Household, Income and Labour Dynamics Australia Survey (HILDA) and the American Panel Study of Income Dynamics (PSID). The Australian panel has been running since 2001 and is based on annual interviews with about 15 000 respondents (Watson and Wooden, 2010). The US PSID (CNEF, 1968‒2019) is the longest-running of all national socio-economic panel studies, starting in 1968.1 There are approximately 75 000 respondents per wave. We also analyse additional panel data for Germany and Switzerland. These two countries are included in EU-SILC, but their national panels have the advantage of providing larger sample sizes and more consecutive years of panel data than are available in EU-SILC. The German panel is run by the German Institute for Economic Research in Berlin. It began in 1984; annual interviews have been conducted ever since. There have been about 25 000 respondents per year in recent waves (Wagner et al., 2007). The Swiss Household Panel Survey is run by FORS (the Swiss Centre of Expertise in the Social Sciences) at the University of Lausanne. It began in 1999 and has interviewed about 12 000 respondents in recent annual waves (Tillman et al., 2016).

1 Annual interviews were conducted up to and including 1997. Since then, interviews have been conducted every two years.

48

Western welfare capitalisms in good times and bad

Statistical Data Compiled by International Agencies In addition to these social and economic surveys, we rely heavily on data supplied by international statistical agencies. The Organisation for Economic Co-operation and Development (OECD) is a key source of data on income inequality, gender inequality (the OECD Gender Data Portal is regularly updated), employment protection (job security) and pension entitlements (Pensions at a Glance is an annual volume). Other invaluable sources of economic data are Eurostat (the European Union’s statistical agency), the World Bank, the International Monetary Fund, and the Penn World Table of macroeconomic indicators, compiled at the University of Groeningen in the Netherlands (Feenstra et al., 2015).

MEASURES OF POLICY OUTCOMES Relative Poverty When we think about poverty, what first comes to mind is a lack of basics: a lack of food, clothing and shelter/housing. This type of dire poverty is referred to by social scientists as ‘absolute poverty’. It is now relatively uncommon in Western countries, so rates of absolute poverty are not usually reported. Instead, the EU, the OECD and other Western agencies have for many years used measures of ‘relative poverty’. Individuals are defined as living in relative poverty if they have a household income that makes them badly off relative to other people in their own country. The underlying idea is that, if people are much poorer than their neighbours, they will be unable to participate adequately in the life of the community. They will not be able to afford goods, services and recreational activities that most people take for granted. The EU now uses more than one relative poverty line. For many years it defined people as poor if they were living in households with a disposable income of less than 50 per cent of their own country’s median.2 More

2 For estimating poverty, household incomes are ‘equivalised’, that is, adjusted for household size and composition to allow for the fact that a household’s material standard of living depends on how many members it has, and how many are adults and how many are children. We use the ‘international experts’ equivalence scale (Hagenaars et al., 1994). Using this scale, household disposable incomes are divided by the square root of household size. This scale was proposed as a reasonable compromise for the purpose of making international comparisons of poverty and material living standards, given the wide variety of equivalence scales that, by implication, are used in different countries to set social assistance benefit levels.

International comparisons, international data

49

recently, it has published a suite of measures relating to poverty, including a definition set at 60 per cent of median income (‘at risk of poverty’), plus indicators of material deprivation, including housing deprivation, and weak (or non-existent) attachment to the labour force (‘households with low work intensity’). Recent developments in EU poverty research are discussed in Chapter 5 (Eurostat, 2020). In this book we will rely mainly on the older, 50 per cent of median poverty line, although we will report checks to confirm that conclusions about comparative poverty rates in the four regimes are not altered if the 60 per cent line is used. In the main chapter on poverty (Chapter 5), we report percentages of people who were below the 50 per cent-of-median poverty line: (1) on an annual basis; and (2) over four-year periods (‘medium-term poverty’), in which respondents remained in an EU-SILC rotating panel. The latter measure is based on calculating how many people had equivalised incomes below 50 per cent of the four-year national median income. Relative poverty measures are often criticised on the grounds that, as incomes generally rise over time, the measured poverty rate may not decline, because about the same percentage as before fall below 50 per cent of a rising national median. In looking at evidence during the Global Financial Crisis (GFC), we will encounter the flip-side of this phenomenon. In all countries in our dataset except Australia, there was some decline in real incomes during the GFC. But in some countries the relative poverty rate, as conventionally measured, either did not increase at all, or only increased by a small percentage. Anchored Poverty To deal with this issue, and gain perspective on the impact of the GFC, we also make use of an anchored poverty measure for the year 2007, the last year before the onset of the GFC. The aim is to calculate how many people would have been viewed as poor in later years, if a pre-crisis standard of poverty had still been in use. Pre-government Poverty We also include a measure of pre-government poverty. When we refer to ‘pre-government poverty’, we mean the percentage of a population that might have been poor if there were no welfare state, no government taxes, no welfare payments. In that imaginary counterfactual world everyone would be forced to

50

Western welfare capitalisms in good times and bad

rely on market income and/or gifts.3 The purpose is solely to get estimates of pre-government poverty rates in order to compare them with post-government rates. We can then calculate percentages of people who might have been poor if they had not been transferred out of poverty by the state. The EU-SILC annual cross-sectional surveys are our data source for annual (one-year) measures of relative poverty and pre-government poverty. The panels are especially valuable for providing evidence on the duration of poverty, for assessment of how many people remain poor in the medium and long term. Income Inequality The most widely used measure of national income inequality is the Gini coefficient. It ranges between 0 and 100. A Gini coefficient of 0 would indicate perfect equality – everybody with exactly the same income – while 100 would mean that one household received all income. An advantage of the Gini coefficient is that it can be ‘decomposed’. Decomposition allows us to assess the percentage reduction in the Gini coefficient due government taxes and transfers.4 OECD Main Economic Indicators (updated monthly) is our source for data on income inequality. International comparisons of income inequality are notoriously difficult due to differing national treatments of the various components of disposable income. The OECD makes strenuous efforts to make things comparable. Wealth and Wealth Inequality Governments collect detailed information on resources which they intend to tax, and tend to ignore resources which they do not tax. Most governments do not tax wealth, so the data available to researchers is less abundant than that on income and consumption. The Zurich-based bank Credit Suisse has assembled time-series on household wealth (Shorrocks et al., 2010‒, annual). The bank relies primarily on household balance sheet (HBS) data, included in each country’s National Income Accounts.

3 Plainly, this counterfactual is not realistic, although it is used by many welfare researchers and official statistical agencies, including Eurostat. If welfare payments were abolished, poor people in the West would be reduced to selling cheap items on street corners, as happens in many developing countries. 4 A limitation of the Gini coefficient is that it is more sensitive to differences and changes in the middle of the income distribution than at the top or bottom ends, which are of more interest to some social scientists.

International comparisons, international data

51

HBS data are fine if one’s main concern is with aggregate measures, with knowing how much wealth is held by households and the breakdown between financial and non-financial (property) assets. However, the data are limited if one’s interest is also in the distribution of wealth, in wealth inequality. Partly to assess inequality, some governments undertake household wealth surveys, often in conjunction with surveys of income and consumption. However, when household survey data are matched with HBS data, it becomes clear that in most countries they seriously underestimate total wealth, and particularly the wealth (and also the debts) of the richest few percent. In recent times the OECD, the Luxembourg Wealth Study and the World Inequality Database have combined HBS and household survey data, interpolating where necessary to get improved estimates, especially at the top end of the distribution (Balestra and Tonkin, 2018; Luxembourg Wealth Study Database, 2021; World Inequality Database, 2021). Gender Inequality Measures of gender inequality are taken from the OECD Gender Data Portal. This source provides indicators of women’s political influence, labour force participation and the gender pay gap. The political influence measures are the percentages of women parliamentarians and government ministers. Labour force indicators are the percentage of women in paid employment, absolutely and relative to men. The gender pay gap is defined as the gap between the median earnings of women and men who are employed full-time. Personal Autonomy Personal autonomy is not measured directly in this book. The reason is that we have no way of assessing whether, in practice, individual respondents in the European surveys exercise effective choice in deciding how they want to live, in making major decisions. Instead, following Sen (1999), we measure whether respondents meet conditions (Sen’s word is ‘capabilities’) that give them the potential to exercise effective choice. Two crucial conditions are having enough money and enough time. What is enough? Somewhat arbitrarily, we deem that a person is ‘potentially autonomous’ if they live in a household that has an income above the poverty line and do not undertake more than 40 hours of paid work per week. This is admittedly a rather crude, dichotomous measure, but despite that, we will find that it yields plausible and interesting results, indicative of regime differences in personal autonomy.

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Western welfare capitalisms in good times and bad

Economic Security: Stability of Household Incomes Some Western governments have enacted detailed employment protection legislation, which is intended to provide job security for employees. An indication of the financial security of elderly people is given by their pension entitlements, which are also set out in legislation. We add to these legislative indicators (which really only tell us what is supposed to happen) with survey-based indicators of economic/financial security. We use the EU-SILC four-year panels to assess the stability of household incomes. Our indicator is the coefficient of variation. This is the standard deviation of household income over a period of years, divided by the mean, then multiplied by 100. In general, the higher the coefficient of variation, the less stable is a family’s income, and the more likely it is that family members will feel financially insecure. Also reported are perceptions of job and employment security taken from the European Social Survey. Life Satisfaction Social scientists used to be sceptical of the possibility of measuring life satisfaction or happiness in surveys. It used to be thought that responses would just reflect transient moods, rather than considered judgements. In recent times that scepticism has diminished to the point where international organisations such as the European Union (Eurostat) and the OECD routinely include life satisfaction and satisfaction with various aspects of life (for example, ‘your job’, ‘your health’, ‘your standard of living’) in official statistics. Detailed methodological research on the reliability and validity of these measures has indicated that when people are asked about obviously important aspects of their life – matters they presumably think about every day ‒ they usually answer quickly and confidently. Their answers are reasonably stable over time, and are more or less in line with what family members and friends would say about them (Diener et al., 1999; Argyle, 2001). It is also claimed that subjective satisfaction judgements are plausibly linked to objective conditions. For example, people with higher incomes report higher levels of satisfaction with their standard of living than people on low incomes; and people whose health is poor, as rated by physicians, report poor health and low levels of health satisfaction (Diener et al., 1999; Argyle, 2001; Schwarze et al., 2002). Life satisfaction is measured in the European Social Survey and the Australian panel by a single question asking respondents on a 0‒10 scale how satisfied they are with their lives (0 = ‘very dissatisfied’, 10 = ‘very satisfied’). In the American panel, a 1‒5 scale is used. We also use data from United Nations World Happiness Reports, which have been issued annually every

International comparisons, international data

53

year since 2012 (United Nations, 2012‒22). The UN reports are based on survey data collected annually in about 95 countries in the world by Gallup International. Respondents are asked to rate the life they have at present on a ladder with ten rungs: the top rung represents ‘the best possible life for you’ and the bottom rung is ‘the worst possible life for you’.5 Inequality of Life Satisfaction Inequality of life satisfaction is measured at the national (not the individual) level, and is assessed by the national standard deviation. This is the indicator of inequality used in recent United Nations World Happiness Reports (2016‒). Arguably, it is a measure of questionable validity. A 0‒10 life satisfaction scale is an ordinal scale, not a ratio scale. In effect, this means that international comparisons of both levels and standard deviations require an assumption that, when people in country x report a rating of, say, 9 on the scale, they are (at least on average) ‘genuinely’ more satisfied with life than people in country y who give a rating of, say, 7. This is a fairly brave assumption, although one routinely made by life satisfaction researchers. It is a further stretch to assume that differences in standard deviations between countries can be validly compared (Frey and Stutzer, 2002; Clark et al., 2018).

CONCEPTUAL AND DATA ANALYSIS ISSUES Readers who prefer not to be burdened with technical issues might want to skip this section and go straight to Part II of the book. The framework guiding our research is laid out in Figure 3.1. The policy outcomes we try to account for are shown in the box on the right of the figure. As explained, our expectation is that regimes will perform ‘best’ in delivering outcomes to which they attach the highest priority. The key explanatory variables are the four types of welfare-capitalist regime. They are included in statistical models as a set of dummy variables. Additional explanatory variables which we expect to be implicated in accounting for policy outcomes are: gender, age, marital/partner status, educational level, household income and gross domestic product (GDP) per capita. A particularly important control is GDP per capita. Almost all the outcomes in the model are related to GDP, so results would biased towards favourable readings for the relatively wealthy Scandinavian countries if this control were omitted.

5 The Gallup organisation releases aggregate data based on these surveys. Individual-level data are not generally available for secondary analysis.

Western welfare capitalisms in good times and bad

54

Figure 3.1

The effects of welfare-capitalist regimes on policy outcomes

Data Analysis Equation 3.1 sets out the pooled OLS fixed-effects regression equation underlying parts of our analysis. The outcome variable included for illustration is poverty (per cent of population below the poverty line): Poverty ​= B0 + B1[regime type] + B2[individual-level controls] + B3[national-level controls] + GFC + After GFC + e

(3.1)

In this equation, poverty is viewed as a function of ‘regime type’, plus individual-level controls (for example, gender, age, age-squared marital/ partner status), plus national-level controls (for example, GDP per capita), and a set of dummy variables for the GFC (pre-GFC, GFC and post-GFC). The main explanatory variable of interest is ‘regime type’. It is entered into the equation as a set of dummy variables, with the type of regime that gives priority to the welfare outcome in question as the reference category. Reducing poverty is viewed as a social democratic priority. So, in this equation, social democratic regimes are the reference category.

International comparisons, international data

55

SUMMARY Our methods have been described. In Part II of this book we focus on policy outcomes in welfare-capitalist regimes before, during and after the Global Financial Crisis.

PART II

Comparing policy performance

4. The Global Financial Crisis: a crisis within the economic system The first of the three crises that have so far hit the world in the 21st century was the Global Financial Crisis (GFC). It was a crisis within the economic system; what economists call an ‘endogenous’ crisis. More specifically, it was a crisis that started within the financial sector of the economy. Because the crisis was endogenous, the first order of business was to rescue the financial sector. There were other interesting policy developments that occurred during the crisis and its long aftermath, but ‘rescue and repair’ had to come first.

THE GLOBAL FINANCIAL CRISIS The GFC came out of an almost clear blue sky. All Western countries enjoyed strong economic growth at the start of the 21st century; in fact, the highest growth rates since ‘les trentes glorieuses’, the 30 years of prosperity after World War II. There was no widely recognised economic evidence that anything was wrong. Stock markets were booming, house prices were soaring. Then in 2008, the United States (US) sub-prime housing market – risky loans to people with low credit ratings – collapsed. There was also a surge in small business bankruptcies.1 Both retail banks and investment banks realised that they had many dubious loans on their books, both housing loans and business loans, and were at risk of bankruptcy themselves. So they stopped lending to each other on the overnight money markets, which in itself meant that many small and medium-sized businesses were deprived of funds to meet their normal payroll commitments. So more businesses went bankrupt, mortgagees lost their homes, and the stock markets of the world, led by Wall Street, collapsed.

1 An underlying imbalance that facilitated high-risk lending was a surplus of funds in China and Japan, and a vast appetite for credit in the West (Garnaut and Llewellyn-Smith, 2009). Many bankers must have realised that they were making riskier loans than in the past. But they presumably calculated that, if they did not join the stampede, their profits would be less than their competitors, and their boards and shareholders would react negatively.

57

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Western welfare capitalisms in good times and bad

Whatever else it was, the GFC was not a short, sharp shock. It was an extended period of economic pain, a series of rolling recessions (Wolf, 2014). An initial decline in economic growth and rise in unemployment in 2008 was followed by much worse in 2009. All Western countries suffered, except Australia.2 Then there was a false dawn in 2010‒11, as growth picked up everywhere except in Southern Europe. It seemed that the worst might be over. The worst was over in the US, where a slow but steady recovery took place, although unemployment remained over 9 per cent until 2012. In most European countries there was a ‘double-dip’ recession in 2012‒13 that was accompanied by and partly caused by ‘austerity’ measures. These measures were aimed at winding down public debt that had been built up during the first ‘dip’. Governments cut back on welfare (and other) spending in an effort to repair public finances, in the mistaken belief (referred to as ‘expansionary austerity’) that private investment would increase to fill the gap. In most countries unemployment reached higher levels in the second dip than the first, and the contraction in economic activity worsened budget deficits. In Greece and Spain unemployment was over 20 percent. By 2014 the worst was finally over. All countries had positive economic growth rates in 2014‒19. Still, a decade and a half had been wasted by the bankers. Most countries had experienced several years of negative growth. There had been seven negative years in Greece; six in Portugal and Spain; five in Finland and Norway; three each in Austria, Belgium, Denmark, France, Germany, the Netherlands and Sweden. In the Southern European regimes real annual growth averaged 0.18 per cent in 2005‒19; just a bit better than nothing. Growth rates were also anaemic in other regimes: 0.87 per cent in social democratic regimes, 0.92 per cent in liberal regimes, and 0.99 per cent in corporatist regimes. Tables 4.1 and 4.2 provide detailed evidence on economic growth and unemployment. It should be mentioned that on both measures, most countries with the same type of regime recorded similar performance. The three somewhat outlying cases are Australia, Greece and the US. If Australia is omitted from the liberal category, on the grounds that it never had a technical recession, liberal regime growth for the GFC period (2008‒13) turns from slightly positive to slightly negative. If Greece is omitted from the Southern European proto-corporatist category, on the grounds that its economic crises were exceptionally severe and prolonged, proto-corporatist growth rates are scarcely affected and average annual unemployment goes down from 13.8 per 2 Australia never entered into a ‘technical’ recession in the sense that there were never two consecutive quarters of negative economic growth. China is Australia’s main trading partner. It is generally considered that the main reason why Australia avoided recession was the huge stimulus to effective demand provided by the Chinese government; clearly the biggest Keynesian stimulus ever enacted by any regime (Wolf, 2014).

The Global Financial Crisis: a crisis within the economic system

Table 4.1

Regimes

59

Growth and decline in real annual gross domestic product (GDP) per capita before, during and after the GFCa,b 2005–19

Pre-GFC 2005–07

During GFC

After GFC

annual GDP

annual GDP

2008–13 annual

2014–19 annual

per capita

change %

GDP change %

GDP change %

change % social democratic

0.9

2.6

-0.6

1.4

liberal

0.9

2.0

0.2

1.2

corporatist

1.0

2.3

0.1

1.2

proto-corporatist

0.2

2.0

-2.3

1.8

Notes: GDP growth per capita is measured in constant 2011 US dollars; Results are weighted so that each country has the same weight as other countries with the same type of regime. Source: Feenstra et al. (2015). a

b

cent to 12.7 per cent. Adjustments for the US are also minor. As explained, its crisis was mainly confined to 2008‒09. In all regimes annual growth rates in the years before the GFC were satisfactory by historical standards; the social democratic regimes led the way, averaging 2.6 per cent. Growth turned negative in all regimes in 2008. It was slightly negative for the 2008‒13 GFC period in the social democratic and corporatist regimes, and severely negative in the Southern European proto-corporatist regimes (-2.3 per cent per year). The small positive rate in the liberal regimes was, as mentioned, mainly due to Australia, where the economy grew at 0.9 per cent a year during the GFC. In 2012‒13 only the liberal regimes avoided a double-dip. Market-oriented liberal economists might comment on this that: ‘the liberal economies were “fast-in and fast-out”. Markets adjust rapidly if you do not intervene too much and avoid delaying labour market adjustments and other reallocations of resources.’ The Southern proto-corporatist regimes did not benefit from a period of remission in 2010‒11 and had easily the worst double-dips in 2012‒13. Over the whole period, social democratic, liberal and corporatist regimes had very similar rates of economic growth. The unemployment data in Table 4.2 point to several more regime similarities and divergences. Plainly, the unemployment figures for Southern Europe point to a human disaster. The consequences for poverty are described below. Further, it is well known that young people who leave school or university, and are forced to try and enter the labour market for the first time in a period of serious economic recession, wind up with substantially lower lifetime earnings than those whose entry happens to be better timed (Cockx and Ghirelli, 2016).

60

Table 4.2 Regimes

social democratic

Western welfare capitalisms in good times and bad

Unemployment before, during and after the GFCa 2005‒19 annual

Pre-GFC

During GFC

After GFC

rate %

2005‒07 annual

2008‒13 annual

2014‒19 annual

rate %

rate %

rate %

5.6

6.4

6.3

6.2

liberal

5.4

4.6

6.3

4.9

corporatist

6.6

7.3

6.6

6.3

proto-corporatist

13.6

8.1

14.5

15.6

Note: a Results are weighted so that each country has the same weight as other countries with the same type of regime. Source: OECD Main Economic Indicators (2019).

POLICY RESPONSES TO THE GFC According to what had become mainstream economic theory by the early 21st century, the GFC could not have happened (Wolf, 2014). The ‘efficient markets theorem’ held that markets could not substantially overprice (or underprice) assets, except temporarily. Temporary mispricing would be corrected due to rational expectations. Markets could not move far from equilibrium and would soon return to that blessed state. The logic of the theory implied that the only serious economic crises that could happen would be due to exogenous shocks; that is, shocks to the economy that came from outside the system.3 The Covid-19 pandemic, the other crisis that we study, was an exogenous shock – a public health shock – to the economic system. But the GFC was an endogenous shock. Problems started within the economic system, specifically in the banking and shadow banking sectors. Faced with a crisis that in theory could not happen, policy-makers did two things. Firstly, they rescued the banks, providing them with so much public funding that, as Martin Wolf wrote, they became wards of the state (Wolf, 2014). Secondly, they turned to a theory that most professional economists had discarded. They adopted policies for dealing with economic depressions put forward in the 1930s by the British economist John Maynard Keynes. Keynes

3 Mainstream theory also allows for the possibility that a crisis could be triggered by ‘market failure’: that is, the absence of a competitive market in the sector or sectors of the economy in which the crisis started. The GFC started in the US with mortgage defaults, small business bankruptcies and then banking failures. No one would seriously suggest that in the US any of these sectors is characterised by lack of market competition.

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advocated fiscal stimulus – sometimes called ‘pump priming’ – and also loose monetary policy. What follows is a brief account of policy responses in welfare-capitalist regimes. Space precludes covering all 17 countries, so we again concentrate on the regimes that come closest to ‘ideal type’: the US, Sweden, Germany and Italy. We begin with the US, because that is where the crisis started and where the first policy responses were initiated.

UNITED STATES: A LIBERAL REGIME RESPONSE In the US, rescuing the banks began with the wonderfully named Troubled Asset Relief Program (TARP), which authorised the federal government to buy or insure up to $700 billion of ‘troubled assets’; mainly bank assets, but also including mortgages. This was a massive injection of equity – public funds – into private sector banks. TARP was enacted under President Bush. Then under President Obama came the American Recovery and Reinvestment Act (ARRA), which was a fiscal stimulus measure that injected $831 billion into the economy. This brought the total fiscal stimulus enacted to date to over 4 per cent of GDP (OECD, 2009). The ARRA was pure Keynesianism; the aim was to boost aggregate demand by replacing a large decline in private spending with a large increase in public spending. There were tax cuts that mainly benefited middle-class taxpayers, food stamps that assisted poor people, and extended unemployment benefits. There was also provision for infrastructure investments ($105.3 billion), and tax write-offs for small companies that were losing money ($15 billion). Monetary stimulus to the US economy far exceeded the fiscal stimulus. The Federal Reserve (Fed) began by lowering its base rate to 0.25 per cent; an exceptionally low interest rate, but within the bounds of orthodox monetary policy, which relies on changing the base rate to influence other interest rates in the economy. The essential aim of this type of policy is to get banks to loan money to businesses at low rates in order to kick-start the economy. In the event, economic performance remained sluggish. The Fed could not lower interest rates much more without going below the so-called ‘zero bound’, so it embarked on an unorthodox venture into what became known as ‘quantitative easing’ (QE).4 QE involves buying back bonds and other securities from banks, which are then expected to use the money for business lending. QE had first been tried in Japan, well before the GFC, with the explicit aim of generating inflation. It failed to do so. When the policy was tried in the US, many

4 If interest rates actually became negative, borrowers would be paying banks for the honour of depositing money with them.

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economists claimed that it would lead to inflation. It did not. Nor, at first, did it stimulate sufficient business lending. So more and more QE was implemented, eventually amounting to $4.7 trillion dollars. This amounted to 32 per cent of GDP (2008). The extent to which federal policy interventions helped to revive the economy is debated (see below). What is known is that $2.7 trillion of the $4.7 trillion remained in the hands of the banks. They appear to have kept the money in order to repair their own balance sheets rather than lending it out. It is also obvious that a lot of money found its way into the share market, which boomed despite sluggish economic revival. So, in the end, many shareholders did quite well out of the crisis. In summary, the measures taken to save the banks achieved their aim. Measures to assist small and medium-sized High Street businesses and to assist ordinary homeowners were less successful. There were tens of thousands of business bankruptcies, and millions of people could not pay their mortgages and so lost their homes. Unemployment did not return to the 2007 pre-crisis level (5 per cent) until 2015. Still, the liberal regime priority of saving the banking system, and with it perhaps the capitalist system, was achieved. Further, although it took four years (until 2012) for GDP to regain its pre-crisis level, this was a faster rebound than in other Western countries (Australia excepted). As previously noted, the US liberal regime was ‘fast-in, fast-out’ of the GFC. Viewed in terms of liberal priorities, this was perhaps a moderately satisfactory result.

SWEDEN: A SOCIAL DEMOCRATIC REGIME RESPONSE There was a sharp contraction in international trade during the GFC (as in all recessions). The Swedish economy is highly export-dependent, so it was hard hit by the crisis. Most banks were unscathed, so no major banking rescue was needed. The main requirement was to boost demand. The Swedish government’s fiscal stimulus amounted to about 2.75 per cent of GDP in 2008‒14 (Baccaro and Pontusson, 2020). The initial fiscal stimulus was relatively modest, compared with the US stimulus of 4 per cent, but it was similar to that of other European countries (OECD, 2009).5 However, in Sweden, unlike most of Europe, fiscal stimuli measures were continued in 2009‒14, which probably helped to reduce the severity of an impending double-dip recession (Baccaro and Pontusson, 2020; Hall, 2020). The measures included tax cuts that were



5

The Chinese stimulus was 19 per cent of GDP (OECD, 2009).

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regressive in their effects and contributed to a rise in income inequality (see Chapter 5). Monetary policy also took part of the load. The Riksbank lowered its base interest rate to 0.25 per cent in 2009, and then in 2015 the rate was lowered to -0.5 per cent. Of course, no real business or household borrowed money at this rate, but it was used for some inter-bank loans. QE was also implemented on a large scale. By 2015 the Riksbank held 30 per cent of the entire stock of government bonds on its balance sheet. There were some distinctive social democratic features of the response to the crisis. In Sweden, also in Denmark, employees who became redundant were virtually guaranteed the option of retraining in a government or employer-sponsored ‘active labour market programme’. Active labour market programmes (ALMPs) had been in operation for decades, but funding was increased in the GFC as part of the fiscal package. These programmes are controversial in Scandinavia and among labour economists internationally. Evaluations yield mixed results. An OECD report issued shortly after the end of the GFC found that, annually, 2.1 per cent per year of Swedish employees had lost their jobs in 2002‒12. Of these, 85 per cent had been re-employed within 12 months, a higher rate than in other OECD countries (OECD, 2015a). Job security councils, which are private agencies paid for by employers to provide counselling and advise on retraining, were credited by the OECD with playing a major role in achieving this outcome.6 Some previous evaluations of ALMPs and flexicurity programmes had been less favourable, finding that employees on retraining schemes displace other employees, making them unemployed instead (Forslund and Krueger, 1997; Sianesi, 2005). Another more promising finding is that the productivity and hence employability of people who undertake retraining is improved in the medium term, even if in their first few years back at work they have to take a pay cut (Madsen, 2005; van den Berg, 2009; Muffels et al., 2014).7

GERMANY: A CORPORATIST REGIME RESPONSE Germany led the policy responses of the eurozone to the GFC. The eurozone comprises the countries that adopted the euro as their single currency. Of the countries in this study, the zone includes Austria, Belgium, Finland, Germany, Greece, Italy, the Netherlands, Portugal and Spain. 6 Employer-funded ‘job security councils’ were first set up in the 1970s in Sweden. The OECD (2015a) reports that funding increased and they played a more significant role in the GFC than in previous economic recessions. 7 Five years after job loss, employees in their new jobs were, on average, paid 4‒5 per cent less than before being made redundant (OECD, 2015a).

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In Germany, as in Sweden, most banks remained sound during the GFC. The government’s initial response to the crisis was a fiscal stimulus. It amounted to about 3 per cent of GDP (OECD, 2009). A special feature of this package – special to a corporatist regime – was a sharing of the reduced working time that was still available. The government agreed to pay substantial subsidies to make up the wages of employees placed on short-time work (Kurzarbeit). Kurzarbeit programmes had previously been implemented, mainly for the benefit of East Germans, following German reunification in the 1990s. Many firms, acting with the agreement of trade unions and works councils, took advantage of the opportunities that Kurzarbeit afforded. The result was that work was shared and unemployment was lower than it would otherwise have been. Relatively low unemployment was also due to what might be regarded as extreme wage restraint. For several years trade unions agreed to wage increases that were lower than increases in productivity. Real wages barely improved and domestic consumption barely increased (Baccaro and Pontusson, 2020). The pay-off was a price structure that amounted to ‘internal devaluation’. Costs were lowered, the real exchange rate declined. German exports remained highly price-competitive, so an export-led recovery was achieved.8 The government’s handling of the crisis was widely approved: Chancellor Merkel and the CDU did spectacularly well in the 2013 federal election, winning a higher percentage of the vote than at any election since the reunification election of 1990. Other eurozone countries also began with a fiscal stimulus, although their stimuli were mostly a smaller proportion of GDP than in Germany, reflecting the weaker state of their public finances. But after the initial phase of the GFC, serious problems arose in the Southern European eurozone countries, and also in Ireland. These countries had built up large household and corporate sector debts (Wolf, 2014). In some countries, there were large external public sector debts as well. As the GFC continued, bond markets revolted. Governments in the ‘weaker’ parts of the eurozone began to find it impossible to sell their bonds, unless they offered excessively high interest rates. Hitherto it had been assumed that a sensible approach for investors was to treat the bonds of all governments in the eurozone as if they were equally safe (Wolf, 2014). But not now. The spread between safe German government bonds and Southern European bonds kept getting wider. In January 2009 the spread between Greek and German bonds reached 280 basis points (2.8 per cent). In practice, this meant that the Greek and other Southern European governments

8 Germany’s recovery, like Australia’s avoidance of a recession, rode on the back of the enormous fiscal stimulus that the Chinese government implemented during the GFC.

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could not borrow. The Southern European countries then experienced severe balance-of-payments crises as inflows of foreign money dried up. What could the Southern governments do? They could not devalue their currencies – a remedy from the past – because they were now part of a single currency zone. In practice, they had to do what the German government and its North-Western European allies (notably the Netherlands) told them. The German government blamed them for mismanaging their public finances. The prescribed remedy was a long period of ‘internal devaluation’ and ‘austerity’. This was really the same failed remedy that had been attempted in most countries following the Great Depression that started in 1929 (Bernanke, 2000; Blyth, 2012; Quiggin, 2019). Internal devaluation meant reducing the cost of producing goods and services. In practice, this required holding wages down, as in Germany. Austerity also translated into cutting public expenditure, since the alternative or complementary way of repairing public finances, which was to raise taxes, was almost impossible during a severe recession. Cutting expenditure meant, inevitably, cutting health, education and welfare, since they make up more than half of the budget. The German government and its allies insisted that Southern regimes take loans from the European Central Bank and the International Monetary Fund. They made bailout funds conditional on adhering to a timetable for repaying loans. The eurozone barely survived, perhaps rescued by a declaration made by the European Central Bank that it would spend whatever was needed to protect the zone. This was essentially a promise to buy large quantities of bonds issued by Southern European governments, if that became necessary. The bank may have been bluffing, but if so its bluff worked (Wolf, 2014). Even so, the eurozone barely survived. The Greek government considered pulling out, and if it had done so, others might have followed. The consequences of ‘internal devaluation’ and austerity can be seen in the unemployment and GDP figures discussed earlier. The Southern European proto-corporatist regimes were caught in a cycle of what the economist Irving Fisher called ‘debt deflation’ (Wolf, 2014). That is, a substantial proportion of GDP was used just to repay debts. Inflation was close to zero, as their economies declined or (at best) stagnated. Their paymasters would not allow them to reflate their economies, achieve normal rates of growth, and so reduce their debts more slowly and less painfully.

ITALY: A PROTO-CORPORATIST REGIME RESPONSE The governments of Italy and the other proto-corporatist regimes might as well not have existed for all the control they exerted over policy once the eurozone crisis had started. Or, to be more precise, the only choice they had was either to abandon the euro and revert to their previous domestic currency, or to follow

66

Western welfare capitalisms in good times and bad

orders coming from Germany (ostensibly the European Union), the European Central Bank and the International Monetary Fund. At the beginning of the crisis the Italian government did try to adhere to its proto-corporatist priority of job protection. It passed a law in 2009 stating that employees could not be sacked during the crisis (Wolf, 2014). This did no good. Legislative job protection and rising wages had contributed to making the Italian economy relatively uncompetitive in the lead-up to the GFC. As the crisis deepened, even employees on ‘permanent’ contracts were laid off in large numbers (OECD, 2009; Wolf, 2014).

POLICY LEARNING: LESSONS OF THE CRISIS? It is reasonable to ask what was learned from policy responses to the GFC. Which policies succeeded, and which failed? Were any programmes developed that seemed worth continuing in normal, non-crisis times? What about lessons that could be applied in future crises? Reasonable though the questions may be, they do not have unambiguous or uncontroversial answers. We have already commented in Chapter 1 on the difficulty of evaluating large-scale policy programmes, in part because there is usually no agreed counterfactual. The counterfactual questions to ask about policy interventions in the GFC are: What would have happened if governments had not introduced large fiscal stimulus packages, or had not loosened money supply, or not engaged in QE? These issues can be illustrated by a debate among American economists about the merits of the ARRA stimulus package. Paul Krugman, a Nobel laureate and professor at the City University of New York, used his column in the New York Times to claim that the ARRA was initially successful and was ‘working just about the way textbook macroeconomics said it would’ (Krugman, 2009). He reported that GDP was now growing at a faster rate than previous official forecasts had estimated would be achieved (his counterfactual). In later years Krugman went on to argue that the main thing that was wrong with the stimulus was that it was nothing like big enough. The economic depression could be ended quickly if only the US government would take the opportunity to borrow money at historically low interest rates (1‒2 per cent). According to Krugman, this was a ‘no-brainer’. Borrowed money should be used to make large investments in infrastructure, and to enable state and local governments to rehire employees laid off during the crisis (Krugman, 2012). A quite different view of the ARRA was offered by Gregory Mankiw of Harvard University (Mankiw, 2009). Mankiw plainly did not endorse the same textbooks as Krugman (although, like Krugman, he is a neo-Keynesian). He set up two counterfactuals: the projected unemployment rate that the Council of Economic Advisers estimated would eventuate if no stimulus package were

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adopted, and a lower rate projected if the package passed. He then showed that the actual rate – the rate that transpired after the ARRA was enacted ‒ was higher than either of the projected rates. He inferred that the ARRA had the effect of increasing unemployment and delaying economic recovery. So these two distinguished macroeconomists arrived at more or less contradictory assessments of the ARRA. We can only say ‘more or less’, because Krugman’s assessment was based on using a GDP counterfactual, whereas Mankiw used unemployment counterfactuals. Krugman and Mankiw are not outliers; there was and is nothing like consensus in the economics profession about how to handle financial crises. But then, after Krugman and Mankiw had made their initial evaluations, a strange thing happened that shifted the balance of the debate. Two more Harvard economists, Carmen Reinhart and Kenneth Rogoff, published a paper which claimed to show that countries with high levels of external debt have poor rates of economic growth (Reinhart and Rogoff, 2010). More specifically, they claimed that debt levels over 90 per cent of GDP are associated with negative growth. This seemed to drive a nail into the case for large, debt-increasing fiscal stimuli in the many countries that were already at or approaching a 90 per cent debt level during the GFC. But then researchers at Amherst University in Massachusetts discovered that some of the evidence on which the article was based had been incorrectly entered from Excel spreadsheets (Herndon et al., 2013). There were also coding errors. Using corrected data, the Amherst researchers found no relationship between national debt and growth rates for debt levels between 30 per cent and 120 per cent of GDP. Reinhart and Rogoff claimed that correcting the data made no difference to their main conclusions, and the debate rumbled on (Reinhart and Rogoff, 2013). But the damage had been done. In a not entirely logical sequel, the spreadsheet and coding fiasco gave the impression that the conservative position of fiscal restraint had been undermined, and that a Keynesian pro-stimulus stance had been supported. In the next great crisis – the Covid-19 crisis – all Western countries passed fiscal and monetary stimuli packages that were even larger than those enacted during the GFC (Chapter 13).

WINNERS AND LOSERS FROM FISCAL AND MONETARY STIMULUS In recent decades, monetary policy has displaced fiscal policy as the main instrument of macroeconomic policy. Annual government budgets still get top billing in the media, but monetary policy stimuli and contractions have become the main ways of managing the economy. Reliance on monetary policy further increased during the GFC. In the US ‒ the most dramatic example ‒ trillions

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Western welfare capitalisms in good times and bad

of dollars of QE stimulus dwarfed hundreds of billions of dollars of fiscal stimulus. The winners and losers from fiscal and monetary policy are generally not the same groups in society. As we have seen, fiscal policy is often used to assist ordinary families, employees and small businesses. It does so through such measures as directly increased welfare payments, subsidised employment (for example, Kurzarbeit), extended unemployment benefits, and small business loans backed by government guarantees. Monetary measures, by contrast, basically involve providing banks with more money to do more lending. The first effects of this are to make banks more profitable and enrich their shareholders. The banks then lend money to customers who they judge to be well placed to pay them back. These customers include other banks and financial intermediaries, large businesses, and investors. It was obvious that much of the money provided to the banks during the GFC found its way into the world’s share markets, which boomed in most Western countries (though not in Southern Europe) from 2010 onwards.

SUMMARY OF POLICY RESPONSES TO THE GFC: ANY LESSONS FOR THE FUTURE? In addition to fiscal policies to boost demand, and monetary policies to boost business lending, regime responses to the GFC included: • Welfare policies: extensions to the duration of unemployment benefits (all regimes); increased funding for food stamps (US). • Labour market policies: increased funding for active labour market programmes (Sweden); short-time work in order to share available work time and reduce unemployment (Germany, Italy); job protection, prohibiting sacking of employees (Italy). In each of the remaining chapters of Part II we review welfare outcomes before, during and after the GFC. Did welfare-capitalist regimes change their priorities during or after the crisis, or did they more or less continue to deliver the same outcomes for the same client groups?

5. Reducing poverty and income inequality Many concepts are easy to define but hard to measure. Poverty is the opposite: many of us find it hard to arrive at a definition that we regard as satisfactory, although if we settle for someone else’s definition it can be easy to measure. Adam Smith, the founding father of modern economics, struggled with the concept and, in the end, settled for an illustration. He wrote that a labourer would be considered poor, not only if he lacked food, clothing and shelter (‘absolute poverty’), but also if he lacked a linen shirt to wear on special occasions.1 Not having a linen shirt would mean that he was visibly poor, and so shamed in the eyes of his neighbours. Two hundred years later, Amartya Sen, who won a Nobel Prize in economics partly for research on poverty, also struggled. He too rejected the idea that avoiding poverty just meant having the basic necessities. For him, poverty was the absence of freedom. To avoid poverty, one needed the capabilities – including an adequate income and education – to be free to choose ‘a life one had reason to value’ (Sen, 1999). Neither Smith’s definition nor Sen’s lends itself to straightforward measurement (unless, absurdly, we rely just on shirts), but at least they grappled with the concept. Most social scientists, and also international organisations such as the European Union and the Organisation for Economic Co-operation and Development (OECD), have until recently settled for a definition that is straightforward and practical in that it enables sensible comparisons to be made between countries and regimes. They deploy a purely ‘relative’ definition by which a family is designated as poor if it has an ‘equivalent income’ below 50 per cent or 60 per cent of the median (equivalent) income in the country in which it lives. The idea is that a family with an income below this level lacks the resources to participate in ordinary social life; like Adam Smith’s labourer, they may feel excluded or shamed in the eyes of their neighbours.

1

A direct quote from The Wealth of Nations (Smith, 1999/1776): A linen shirt, for example, is, strictly speaking, not a necessary of life. The Greeks and Romans lived, I suppose, very comfortably, though they had no linen. But in the present times, through the greater part of Europe, a creditable day-labourer would be ashamed to appear in public without a linen shirt, the want of which would be supposed to denote that disgraceful degree of poverty, which, it is presumed, nobody can well fall into without extreme bad conduct. 69

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Western welfare capitalisms in good times and bad

In recent years the European Union (EU), through its statistical agency Eurostat, has taken praiseworthy steps towards improving both the conceptualisation and measurement of poverty. Eurostat has branched out in two directions (Eurostat, 2020). One involves making the concept of poverty broader and more fuzzy by suggesting that what should be assessed is being ‘at risk of poverty or social exclusion’ (AROPE). Using the AROPE approach, people are said to be ‘at risk’ if they have either a low income, or suffer from material deprivation (assessed by multiple indicators that include indicators of poor housing and lack of consumer durables), or live in a household with ‘low work intensity’ (sometimes referred to as ‘jobless households’). Measured in this way, 21.9 per cent of EU citizens (nearly 100 million individuals) were deemed to be ‘at risk of poverty or social exclusion’ in 2018 (Eurostat, 2020). The EU has set itself the target of reducing this figure by 15 million (including 5 million children) by 2030. It should be mentioned that this AROPE or social exclusion approach is highly controversial. It is favoured by many social scientists and left-wing commentators. Liberal regimes and right-wing commentators scarcely hide their scorn. It can be safely assumed that the liberal regimes included in this book have no plans to try and achieve the EU’s AROPE targets. A second direction in which Eurostat has tried to improve poverty assessment is by combining measures of income, consumption and wealth (ICW) (Eurostat, 2020). Conceptually, this ICW approach is a huge improvement. Concepts and measures of poverty based solely on household income have been relied on for at least 100 years, but are clearly limited. If a household has substantial wealth (that is, net worth: assets minus debts), it cannot reasonably be designated as poor, because if its normal income is temporarily unavailable it can cope, at least for a while, by drawing down on its assets or borrowing against them.2 Consumption (household expenditure) also needs to be taken into account. Indeed, poverty can quite sensibly be defined as involuntary low consumption. One might think that households could not avoid poverty by regularly consuming goods and services worth more than their income. However, Australian and German panel survey data indicate that, somehow, a non-trivial percentage of households appear to do this (Headey, 2008). They must be getting a subsidy from someone (for example, parents subsidising adult children or vice versa); a subsidy that they are not recording as income in surveys.

2 It is not clear that this is Eurostat’s view. The agency’s 2020 report comes close to suggesting that individuals should be regarded as being ‘at risk of poverty’ if they have low income, or low consumption, or low wealth.

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At present, Eurostat regards its ICW research as falling under the heading of ‘experimental statistics’ (Eurostat, 2020). It has issued preliminary analyses, but these do not cover all EU member countries, let alone all 17 countries that we report on.3 In this book we are obliged to rely on ‘old-fashioned’ monetary measures of poverty ‒ mainly the 50 per cent of median line ‒ but we look forward to a near-future time in which comprehensive ICW evidence will become available.

REGIME DIFFERENCES IN POVERTY RATES BEFORE, DURING AND AFTER THE GFC Figures 5.1 and 5.2 report relative poverty and anchored poverty rates in welfare-capitalist regimes. Results are given for all years combined in Figure 5.1, then separately for the years before, during and after the GFC in Figure 5.2. (Some readers may prefer to see the evidence presented as a table of percentages; see Appendix 5.1 to this chapter.) The historically social democratic Scandinavian regimes record the lowest relative poverty rates and the lowest anchored rates for the entire time period. Their headcount poverty rate was in the 6.4‒7.4 per cent range throughout 2005‒19. However, poverty trends differ among the Nordic countries. In Sweden the annual poverty rate averaged 6.4 per cent before the GFC. It then rose during the GFC and kept on rising afterwards.4 In Finland and Norway annual poverty rates fluctuated but showed no clear trend in 2005‒19. In Denmark there was a small increase during the GFC, then poverty remained at about the same level (7‒7.5 per cent) for the rest of the period. The corporatist regimes have poverty rates averaging about 0.6 per cent a year higher than the social democratic regimes; a difference that, while not large, is statistically significant at the 0.001 level. However, the mean corporatist poverty rate is pulled down by the Netherlands, which actually recorded the lowest national rate for the entire period at 5.8 per cent.5 The mean corporatist poverty rate would actually be 8.1 per cent ‒ which is 1.0 per cent higher than the social democratic mean – if the Netherlands were to be omitted from the corporatist grouping.

3 The early evidence could be read as indicating that the social democratic regimes of Denmark, Finland and Sweden have relatively low levels of ICW poverty and financial inequality (evidence is not yet available for Norway). 4 This was mainly due to high rates of poverty among the rapidly increasing number of non-EU immigrants and refugees; see Table 5.2 below. 5 This is the first of several pieces of evidence indicating that the Netherlands has much in common with the social democratic regimes; evidence that led Esping-Andersen (1990) to view it as a regime borderline between social democratic and corporatist.

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Note: Results are weighted so that each country’s sample has the same weight as other countries with the same type of regime. Sources: EU-SILC annual cross-sectional surveys 2005‒19; national panel surveys for Australia, Switzerland, Germany and the United States (US); OECD (2022) Social and Welfare Statistics: Poverty Rate (Indicator).

Figure 5.1

Relative poverty and anchored poverty (anchor = 2007) in welfare-capitalist regime, 2005‒19

In sharp contrast to the social democratic and corporatist regimes, relative poverty is at much higher levels in liberal and Southern European proto-corporatist regimes. Annual poverty rates are mostly in a 12.5‒13.5 per cent range. What happened to poverty, to low-income people, in the GFC? Figure 5.2 shows regime differences in relative poverty and anchored poverty rates in the periods before the GFC (2005‒07), during the GFC (2008‒13) and post-GFC (2014‒19). At first sight, the results in Figure 5.2 are scarcely credible. Especially if only relative poverty rates are considered, it looks as though poverty hardly changed during the GFC. Relative poverty only went up by an annual average of 0.8 per cent in the social democratic regimes, and by 1.1 per cent in corporatist regimes. In the liberal regimes it actually appears to have fallen, and in the proto-corporatist regimes the increase in poverty appears minimal. These relative poverty results are seriously misleading. The anchored poverty results tell a different and more realistic story. In the social democratic and corporatist regimes anchored poverty was lower than relative poverty

Reducing poverty and income inequality

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Note: Results are weighted so that each country’s sample has the same weight as other countries with the same type of regime. Sources: EU-SILC annual cross-sectional surveys 2005‒19; national panel surveys for Australia, Switzerland, Germany and the US; OECD (2022) Social and Welfare Statistics: Poverty Rate (Indicator).

Figure 5.2

Relative poverty and anchored poverty (anchor = 2007) in welfare-capitalist regimes before the GFC (2005‒07), during the GFC (2008‒13) and after the GFC (2014‒19)

during the GFC and in the following years.6 In other words, using the 2007 poverty line, fewer people were poor in later years than had been poor in 2007. But in some liberal and corporatist regimes, anchored poverty just kept on rising. In the United Kingdom (UK), where 11.8 per cent had been poor in 2007, anchored poverty reached a peak of 24.3 per cent in 2011 and was still above 2007 levels in 2018.7 So, at the end of the period, many more people were 6 There were a few minor exceptions. In Sweden in 2010, anchored poverty was 9.7 per cent and relative poverty 8.6 per cent. In the Netherlands in 2014, anchored poverty was 6.6 per cent and relative poverty 6.2 per cent. 7 Data are not available for the UK for 2019 due to the country’s exit from the EU and hence from EU-SILC surveys.

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Western welfare capitalisms in good times and bad

poor, by 2007 standards, than were poor in that last year before the crisis. The plight of low-income people was masked by official poverty figures based on a poverty line that kept on falling in value in real terms. The US is the other liberal country in which relative poverty figures tell a somewhat misleading story. Relative poverty is always high in the US, in part because of a high degree of income inequality (see below), and partly because the official poverty line is set at about 40 per cent of median income, rather than 50 per cent.8 In 2007, the last year before the crisis, relative poverty based on the EU 50 per cent line stood at 19.9 per cent. It remained in a 16‒19 per cent range for the rest of the period, and was still at 18.1 per cent in 2019. The clear inference is that the incomes of low-income people only recovered slowly, leaving many in dire straits for years after the national economy had rebounded (Hacker, 2019). The anchored poverty results for the Southern European proto-corporatist regimes indicate that the living standards of low-income people appear not to have fallen during the first few years of the crisis. But they fell disastrously during the second-dip recession and the period of continuing austerity in 2014‒19. In Greece relative poverty stood at 13.0 per cent in 2007. Seven years later in 2014, the relative rate was 15.5 per cent, but anchored poverty stood at 29.9 per cent. By 2019 the anchored rate indicated that 19.1 per cent were still poor, judged by 2007 standards. In Italy the relative and anchored poverty rates stood at 12.3 per cent in 2007. On both measures, poverty fell slightly in 2008‒10, but was above the 2007 level in every year from 2011 to 2019. Spain and Portugal followed a similar course. In Spain both relative poverty at 14.6 per cent and anchored poverty at 13.6 per cent were still higher in 2016 than they had been in 2007. In Portugal the relative poverty rate was 11.5 per cent in 2007. It peaked at 13.1 per cent in 2014‒15. Anchored poverty rates were also close to 13 per cent at this time, but then improved markedly in 2017‒19. It should be mentioned that none of our statements here, or in later parts of the chapter, about comparative levels of poverty in the four regimes would need changing if the EU’s alternative higher poverty line, set at 60 per cent of median income, were used. The social democratic regimes are still found to have somewhat lower levels of poverty than the corporatist regimes, with the liberal and proto-corporatist regimes having much higher levels. Appendix 5.2 to this chapter reports some results based on the 60 per cent line.

8 The official poverty line varies by state, and between city and countryside. It is based on estimates of the cost of paying for an adequate diet (Orshansky, 1977).

Reducing poverty and income inequality

75

THE IMPACT OF GOVERNMENTS ON POVERTY The next set of comparisons shows pre- and post-government poverty rates under the different regimes. The aim is to assess the effects of government taxes and transfers in reducing poverty. The focus is just on working age people, defined as those aged 18 to 65. They are the people who earn market incomes and whose families may or may not be transferred out of poverty by government taxes and transfers. In most Western countries retired people depend wholly or partly on pensions, which they have contributed to by compulsory saving during their working lifetimes. Not unreasonably, they do not consider themselves as being transferred out of poverty by government just because they are now collecting their pension. Table 5.1 shows the pre- and post-government poverty rates of working age people for all years combined, and then for the years before, during and after the GFC. Column (4) shows the percentage by which governmental taxes and transfers reduced poverty. Results for the type of regime that most strongly prioritises the outcome in question are printed in bold in this and later tables. Governments in all regimes reduce poverty via the tax-transfer system, but some do much more than others. Social democratic and corporatist regimes take about 55‒60 per cent of those who might otherwise have been poor out of poverty, compared with about 30‒40 per cent in liberal and Southern European proto-corporatist regimes. Interestingly, poverty reduction is as substantial in corporatist as in social democratic regimes, but more people earn market incomes that keep them out of poverty in Scandinavia, so similar poverty reduction rates still leave more people in post-government disposable-income (‘final’) poverty in the corporatist world. The regime averages for the liberal regimes in Table 5.1 obscure substantial intra-regime differences. The UK has high pre-government poverty rates among working age people – averaging 21.8 per cent a year for the whole period – but its tax-transfer system moved 52.3 per cent of those people out of poverty, while still leaving 10.4 per cent post-government poor. Swiss pre-government income figures are not really comparable to other European countries because, in some cases, they include cantonal-level public transfers.9 So the European Union Statistics on Income and Living Conditions (EU-SILC) estimate of pre-government poverty for working age Swiss people, averaging 9.4 per cent a year in 2005‒19, cannot be taken at face value. The national government reduces poverty by only about 20 per cent, but in combination with cantonal measures that is sufficient to reduce working age, post-government 9 Switzerland is divided into 26 cantons that exercise a high degree of governmental autonomy, even though some have very small populations.

Western welfare capitalisms in good times and bad

76

Table 5.1

The impact of government on poverty: reducing poverty among working age people (age 18‒65)a,b

(1)

(2)

(3)

(4)

Regimes and periods

Pre-government

Post-government poverty

Reduction in poverty by

poverty

%

government %

% Social democratic regimes all years: 2005‒19

18.3

7.8

57.4

pre-GFC: 2005‒07

17.0

6.5

61.8

during GFC: 2008‒13

18.5

7.7

58.4

after GFC 2014‒19

18.6

8.5

54.3

16.7 (inc Switz)

10.3 (inc Switz)

37.7 (inc Switz)

19.2 (exc Switz)

11.3 (exc Switz)

41.1 (exc Switz)

pre-GFC: 2005‒07

16.3 (inc Switz)

10.8 (inc Switz)

33.7 (inc Switz)

18.2 (exc Switz)

11.9 (exc Switz)

34.6 (exc Switz)

during GFC: 2008‒13

17.2 (inc Switz)

9.9 (inc Switz)

42.4 (inc Switz)

19.9 (exc Switz)

10.8 (exc Switz)

45.7 (exc Switz)

after GFC: 2014‒19

16.4 (inc Switz)

10.4 (inc Switz)

36.6 (inc Switz)

19.1 (exc Switz)

11.4 (exc Switz)

40.3 (exc Switz)

Liberal regimes all years 2005‒19

Corporatist regimes all years: 2005‒19

18.8

7.8

58.5

pre-GFC: 2005‒07

18.2

6.4

64.8

during GFC: 2008‒13

18.8

7.6

59.6

after GFC: 2014‒19

19.0

8.4

55.8

13.7

33.2

Proto-corporatist regimes all years 2005‒19

20.0

pre-GFC: 2005‒07

16.6

11.6

30.1

during GFC: 2008‒13

19.8

12.9

34.8

after GFC: 2014‒19

20.9

14.9

28.7

Notes: a Results are weighted so that each country’s sample has the same weight as other countries with the same type of regime; b Results for the corporatist regimes are given both including and excluding Swiss data. As explained, the reason is that in Switzerland, unlike other Western countries, substantial transfer payments that reduce poverty are paid by sub-national (cantonal) governments. These payments are not recorded in the survey data. Sources: EU-SILC annual cross-sectional surveys (2005‒19); national panel surveys for Australia, Switzerland, Germany and the US; OECD Social and Welfare Statistics: Poverty Rate (Indicator) (2022).

poverty to 7‒8 per cent a year; a rate comparable to social democratic and corporatist regimes, rather than to other liberal regimes.

Reducing poverty and income inequality

77

The results in Table 5.1 offer no clear evidence that governments in any type of regime deviated substantially from their ‘normal’ tax-transfer settings during the GFC. The percentage of working age people transferred out of poverty declined in the social democratic and corporatist regimes in 2008‒13, but remained at a much higher level than in other regimes. It appears that existing taxes and transfers were mainly allowed to take their usual effects with the result that, as we have seen, relative poverty scarcely rose, although in some countries many people became worse off in real terms. The evidence suggests that Southern European proto-corporatist regimes were a partial exception to these generalisations. There, close to 35 per cent were transferred out of poverty in 2008‒13; a higher figure than in the years before the crisis. However, in 2014‒19 when most of Europe was recovering, the Southern European economies remained weak. They were in receipt of bailouts from the International Monetary Fund (IMF), the EU Central Bank, and other lenders, with a key condition being that they cut back on government expenditure (Wolf, 2014). Consequently, in the 2014‒19 period, the poverty reduction rate declined to under 30 per cent; a much lower rate than in other regimes. An important reason for rising poverty in many countries in the ‘second-dip recession’ is policy-related. People who became unemployed during the crisis were initially eligible for earnings-related social insurance unemployment benefits, which kept many above the poverty line. Later on, during the ‘second dip’ and period of austerity, many unemployed people had used up their time-based eligibility for these benefits (typically one or two years), and had to fall back onto lower social assistance payments (Adema et al., 2011).

THE ELDERLY, CHILDREN, SINGLE PARENTS AND NON-EU FOREIGNERS Table 5.2 documents poverty rates in four groups usually considered to be at higher risk of poverty than the general population: the elderly, children, single-parent households and non-EU foreigners. In social democratic, corporatist and proto-corporatist regimes, poverty rates among the elderly are lower or about the same as national average rates. Not so in liberal regimes, where the elderly appear to be neglected. In 2005‒19 elderly poverty rates averaged 33.0 per cent in Australia, 20.6 per cent in Switzerland, 12.8 per cent in the UK and 20.4 per cent in the US. In all Western countries, families with children receive both family/child support payments and tax concessions. However, these benefits do not fully compensate for the cost of raising children, so child poverty is somewhat

Western welfare capitalisms in good times and bad

78

Table 5.2

Regimes

Poverty: the elderly, children, single-parent families and non-EU foreigners (2005‒19)a Poverty: elderly

Poverty: children

Poverty:

Poverty: non-EU

%

%

single-parent

foreigners

families

%

% social democratic

4.1

8.8

11.4

liberalb

20.4

15.2

18.8

19.4 17.6b

corporatist

6.9

10.0

16.3

19.5

Southern European

10.0

20.8

26.0

25.3

proto-corporatist

Source: EU-SILC annual cross-sectional surveys (2005‒19). Notes: a Results are weighted so that each country’s sample has the same weight as other countries with the same type of regime; b Switzerland and the UK only.

higher than the national average in most countries.10 Australia is an exception, with a child poverty rate that averaged 9.7 per cent in this period, compared with a population mean of 11.9 per cent.11 This outcome was due to unusually generous family tax benefits. In all regimes single-parent families record substantially higher poverty rates than dual-parent families with children. The evidence in the final column in Table 5.2 indicates that non-EU foreigners living in Western Europe also have high poverty rates.12 They are mostly first generation immigrants or refugees from non-European backgrounds, who are struggling to get a foothold in the labour force.13 As is well known, the integration of these immigrants and their children into the labour force, and into educational and job training institutions, has become a major concern of Western governments.

10 This statement is heavily dependent on the weights attributed to children in the construction of equivalence scales. If the weights are high, then measured child poverty appears higher in large families. 11 In Switzerland the child poverty rate and the national average rate were approximately the same in 2005‒19 at close to 10 per cent. 12 Australia and the US are not included in Table 5.2. In Australia, first-generation immigrants from non-English-speaking backgrounds have relatively high poverty rates. In the US, as is well known, blacks and Hispanic Americans have above-average poverty rates. 13 In Sweden the poverty rate in this group was 22.8 per cent in 2005‒19, and over 25 per cent towards the end of the period.

Reducing poverty and income inequality

79

MEDIUM-TERM POVERTY An advantage of panel data is that it is possible to assess whether results found in the short term also hold in the longer term. EU-SILC provides four-year panels, so we can assess how the regimes compare on medium-term poverty. Clearly, remaining poor for several years at a time must usually cause greater suffering than a single year of poverty. To calculate four-year poverty, we summed each person’s income over four years, divided by four, then took the median. If a person’s income fell below 50 per cent of the four-year median, they were deemed to be four-year (medium-term) poor.14 Table 5.3 shows four-year poverty rates for regime populations, working age people and the elderly.15 Table 5.3

Regimes

Medium-term poverty rates: entire population, working age and elderly 2005‒19a (2)

(3)

(4)

4-year poverty:

4-year poverty: working

4-year poverty: elderly

population

age

%

%

%

social democratic

5.5

5.0

7.0

liberal

9.1

6.7

16.2

corporatist

5.3

5.4

5.3

proto-corporatist

9.4

10.1

7.0

Note: Results are weighted so that each country’s sample has the same weight as other countries with the same type of regime. Sources: EU-SILC four-year rotating panels (2005‒08, 2006‒09 to 2016‒19); Australian, German, Swiss and US national panels. a

Four-year poverty rates are substantially lower than annual rates. This is because household incomes fluctuate, so that most people who become poor only remain so for a year or two, although a small percentage remain mediumor long-term poor. The results in Table 5.3 indicate that social democratic and corporatist regimes prevent many more people from suffering medium-term poverty than other regimes. In typical four-year periods, 5.5 per cent of Scandinavians and 5.3 per cent of people living in corporatist regimes had equivalised incomes

14 For countries with missing data in the 2005‒07 or 2015‒19 periods, it was necessary to take two- or three-year averages, deeming them to be ‘medium-term’. 15 Sample sizes are too small in the longitudinal data to obtain reliable results for children, single-parent households or non-EU foreigners.

80

Western welfare capitalisms in good times and bad

which, when averaged, left them still below the poverty line. It is interesting that, in contrast to our previous results for short-term poverty, medium-term poverty rates for the population as a whole are estimated to be slightly lower in corporatist than social democratic regimes. As is clear from column (4) of the table, this is primarily because the corporatists, and also the proto-corporatists, treat older people relatively favourably, providing pensions that keep the large majority out of medium-term poverty (see also Castles, 2009). In liberal regimes, 9.1 per cent of the population were poor in a typical four-year period; in proto-corporatist regimes, 9.4 per cent. The longitudinal results confirm that the elderly fare particularly badly in liberal regimes. This is especially true of Australia, where over 30 per cent of the elderly were in poverty for most of the period; a figure that has only come down to about a quarter in recent years (Saunders, 2002, 2011).

CHECKING THE ROBUSTNESS OF POVERTY RESULTS: LOGISTIC REGRESSIONS A possible objection to the results we have been considering is that they are too simple: no account is taken of potential confounding factors that might affect the relationship between regime type and poverty outcomes. In particular, no account is taken of socio-economic variables (gender, age, years of education) that are known to affect poverty rates.16 Table 5.4 reports three sets of logistic regression estimates in which the outcome variable is relative poverty (1 = poor, 0 = not poor). In model 1, the poverty measure is just regressed on regime type and standard socio-economic variables (reference category = social democratic regimes). In model 2, dummy variables are added for the GFC and post-GFC periods (reference category = pre-GFC). This equation assesses the main effects of the GFC on poverty. Model 3 then adds interaction terms: regime types are interacted with GFC and post-GFC. This equation assesses the poverty performance of each regime in the GFC and post-GFC periods (reference categories = social democratic regimes and pre-GFC). A key to understanding the results in Table 5.4 is to keep in mind the reference categories. All results are based on comparisons with social democratic regimes, the pre-GFC time period, and interactions between social democratic regimes and time periods. To assist with interpretation, the coefficients in the

16 Gross domestic product (GDP) per capita is not included in the regression equations, because relative poverty measures already take account of country/regime differences in economic level.

Reducing poverty and income inequality

Table 5.4

81

Poverty in welfare-capitalist regimes 2005‒19: logit regression odds ratios (robust standard errors in parentheses)a

Regimes

social democratic

Model 1

Model 2

Model 3

relative poverty

relative poverty

relative poverty

odds ratio

odds ratio

odds ratio

reference

reference

reference

liberal

3.21*** (0.02)

3.17*** (0.02)

3.39*** (0.05)

corporatist

1.36*** (0.01)

1.35*** (0.01)

1.18*** (0.02)

proto-corporatist

2.44** (0.02)

2.53*** (0.01)

2.42*** (0.03)

female

1.08*** (0.00)

1.08*** (0.00)

1.08*** (0.00)

age: under 18 (ref: 18‒65)

0.65*** (0.01)

0.64*** (0.01)

0.64*** (0.01)

age: elderly (66+)

0.75*** (0.00)

0.73*** (0.00)

0.72*** (0.00)

marital/partner status

0.55*** (0.00)

0.55*** (0.00)

0.55*** (0.00)

years of education

0.92*** (0.00)

0.91*** (0.00)

0.91*** (0.00)

single parent household

1.67*** (0.02)

1.67*** (0.01)

1.66*** (0.01)

GFC (ref: pre-GFC)

 

0.97*** (0.00)

0.99ns (0.01)

post-GFC

 

1.18*** (0.01)

1.16*** (0.02)

liberal*GFC (ref: social dem*pre-GFC)

 

 

0.98ns (0.02)

liberal*post-GFC

 

 

0.88*** (0.02)

corporatist*GFC

 

 

1.07*** (0.02)

corporatist*post-GFC

 

 

1.28*** (0.02)

proto-corporatist*GFC

 

 

0.91*** (0.02)

proto-corporatist*post-GFC

 

 

1.01ns (0.02)

pseudo-R2

0.06

0.06

0.06

N

3945014

3945014

3945014

Notes: *** significant at 0.001; ** significant at 0.01; * significant at 0.05; ns not significant; a Results are weighted so that each country’s sample has the same weight as other countries with the same type of regime. Sources: EU-SILC cross-sectional surveys (2005‒19); national panels for Australia, Germany, Switzerland and the US.

table are given as odds ratios. So, for example, the odds of being poor in other regimes are relative to a fixed value of 1.0 for social democratic regimes. Net of the effects of other variables, the historically social democratic Scandinavian regimes clearly have lower poverty rates than the other regimes, all inter-regime differences being statistically significant at the 0.001 level. In model 3 – our preferred model ‒ the odds ratios indicate that in liberal regimes people are at 3.39 (p < 0.001) times greater risk of relative poverty than people in social democratic regimes. In corporatist regimes, net of the effects

82

Western welfare capitalisms in good times and bad

of other variables, the risk is 1.18 times greater, and in Southern European proto-corporatist regimes it is 2.42 times greater. The effects of the GFC on relative poverty in the differing regimes are clarified here. The main effects of the GFC (that is, averaging across the four regimes) are shown in model 2. The interaction coefficients in model 3 tell us that, compared with social democratic regimes, the corporatist regimes recorded somewhat worse trends in poverty in both the GFC and post-GFC periods. Compared with the social democrats, poverty in proto-corporatist regimes trended downwards in the GFC (odds ratio = 0.91, p < 0.001), then was similar to the social democratic trend post-GFC. In the liberal regimes, a different trend occurred. Compared with social democratic regimes, relative poverty trended downwards in the post-GFC period. Of course, this is no way gainsays the earlier evidence about anchored poverty, which showed that many low-income people in the UK and the US still had incomes below the 2007 poverty line for years after the crisis.

INCOME INEQUALITY In the West, reducing income inequality is a stated objective only of social democratic (and communist) parties and regimes. In corporatist and proto-corporatist regimes, social status differences – and hence income differences ‒ are regarded as normal, desirable, and worth maintaining through the social security system. In liberal regimes, income differences are viewed as essential incentives for the efficient functioning of the labour market: essential for promoting productivity and economic growth. As explained in Chapter 3, the standard internationally used measure of income inequality is the Gini coefficient, which ranges between 0 (all households receive the same income) and 1 (one household receives all available income). Table 5.5 reports Gini coefficients of equivalised disposable incomes in the four regimes. Data are given for the full 2005‒19 period, then separately for the periods before, during and after the GFC. The EU-SILC annual surveys are our main data source, supplemented by national panel data for Australia and the US. The Scandinavian regimes clearly have the most equal income distributions, with an average Gini coefficient of 0.258 for the entire period. Inequality is on the rise in Scandinavia, especially in Sweden, but remains lower than elsewhere.17 The corporatist regimes are also comparatively equal. Their average Gini coefficient of 0.277 is 7.4 per cent higher than the Scandinavian figure.

17 Prior to the GFC in 2005‒07 the Swedish Gini coefficient was 0.236, lower than the social democratic mean. In the post-GFC period it rose to 0.273, a higher figure than

Reducing poverty and income inequality

Table 5.5

83

Income inequality in welfare-capitalist regimes: Gini coefficients of equivalised incomesa

Regimes and

All years

Pre-GFC

During GFC

After GFC

periods

2005‒19

2005‒07

2008‒13

2014‒19

social democratic

0.26

0.26

0.25

0.26

liberal

0.33

0.33

0.33

0.33

corporatist

0.28

0.27

0.28

0.28

proto-corporatist

0.34

0.34

0.34

0.33

Note: a Results are weighted so that each country’s sample has the same weight as other countries with the same type of regime. Sources: EU-SILC annual cross-sectional surveys (2005‒19), supplemented by national panel data for Australia, Germany, Switzerland and the US.

The Southern European proto-corporatist regimes, far from being similar to the West European corporatist countries, have much more unequal income distributions (mean = 0.335). The US records easily the highest level of inequality in the dataset (Gini coefficient for 2005‒19 = 0.409). The other three liberal regimes have Gini coefficients similar to the post-corporatist regimes. Contrary to some media reports, there appears to be no widespread trend towards greater inequality. Inequality has been somewhat higher after the GFC than before the crisis in social democratic and corporatist regimes. In liberal regimes the level of inequality has barely changed, and in proto-corporatist regimes it is lower than before the GFC.

GOVERNMENTAL REDUCTION OF INEQUALITY Differences in disposable income inequality depend both on inequality of market incomes and on the amount of redistribution effected by governments through the tax-transfer system. Table 5.6 summarises regime similarities and differences in the distribution of market (or ‘pre-government’) incomes and disposable (or ‘post-government’) incomes. The percentage reduction in inequality – the redistribution ‒ brought about by government through the tax-transfer system is shown in the final column of the table.18 In the 21st century there has been little difference among the four regimes in market income inequality (Table 5.6, column 2). They all more or less let

the regime mean. The increase was partly due to tax cuts introduced as a fiscal stimulus during the GFC. 18 For the purposes of this analysis, social security pensions and benefits, as well as social assistance payments, are treated as ‘transfers’ and as part of post-government, disposable income.

84

Table 5.6

Regimes

Western welfare capitalisms in good times and bad

Governmental redistribution of income reduces inequality in welfare-capitalist regimes 2005‒19a (2)

(3)

(4)

Market

Disposable

Redistribution by

(pre-government)

(post-government)

governmentb

equivalised incomes

equivalised incomes

%

Gini coefficient

Gini coefficient

social democratic

0.49

0.26

46.9

liberal

0.50

0.33

34.0

corporatist

0.49

0.28

42.9

proto-corporatist

0.51

0.34

33.3

Notes: a Results are weighted so that each country’s sample has the same weight as other countries with the same type of regime; b Redistribution (%) = (market income – disposable income)/market income * 100. Sources: EU-SILC annual cross-sectional surveys (2005‒19), supplemented by national panel data for Australia and the US.

the market determine remuneration, and this can result in relatively high levels of market income inequality. Sweden actually has one of the highest levels of market income inequality in the dataset, at 0.541 for 2005‒19. However, the social democratic and corporatist regimes effect much more income redistribution through the tax-transfer system than liberal and proto-corporatist regimes. All four Scandinavian regimes and all five corporatist regimes reduce market income inequality by over 40 per cent. In the liberal and proto-corporatist regimes the tax-transfer system still has substantial effects: inequality is reduced by about a third.

SUMMARY In concluding this review of poverty and inequality, the following summary points should be registered: • Social democratic and corporatist regimes had much lower rates of relative poverty and anchored poverty in 2005‒19 than liberal and Southern European proto-corporatist regimes. • Differences between poverty rates in the social democratic and corporatist regimes were statistically significant, but not substantively large. • The Netherlands had the lowest relative poverty rate of all countries in the dataset in 2005‒19, substantially below that of other corporatist countries. • Switzerland had relative poverty and anchored poverty rates lower than other liberal regimes.

Reducing poverty and income inequality

85

• The UK and the Southern European proto-corporatist regimes scarcely recovered from the GFC. They were recording high anchored poverty rates even at the end of the period. • All regimes substantially reduce inequality of market incomes through government taxes and transfers, resulting in disposable (final) incomes that are less unequal than the market distribution. • Final (disposable) income inequality is somewhat lower in social democratic than in corporatist regimes. Liberal and proto-corporatist regimes record substantially higher levels of inequality than the social democracies and corporatists, with the US being an extreme case.

Western welfare capitalisms in good times and bad

86

APPENDIX 5.1 This appendix presents the same poverty results as Figures 5.1 and 5.2. The difference is just that exact percentage estimates are given rather than bar charts. Table A5.1

Relative poverty and anchored poverty in welfare-capitalist regimes, based on a poverty line set at 50 per cent of median incomea

(1)

(2)

(3)

(4)

(5)

(6)

Regimes and periods

Relative

Anchored

Regimes and

Relative

Anchored

poverty

poverty:

periods

poverty

poverty: 2007

%

2007 poverty

%

poverty line %

line %  

 

Liberal regimes

 

 

all years: 2005‒19

7.1

5.9

all years: 2005‒19

13.0

14.2

pre-GFC: 2005‒07

6.4

7.0

pre-GFC: 2005‒07

14.1

14.7

GFC: 2008‒13

7.2

6.0

GFC: 2008‒13

12.7

15.0

after GFC: 2014‒19

7.4

5.4

after GFC:

12.8

13.2

 

 

2014‒19 Corporatist regimes

 

 

Proto-corporatist regimes

all years: 2005‒19

7.7

6.6

all years: 2005‒19

12.9

14.0

pre-GFC: 2005‒07

6.6

6.8

pre-GFC: 2005-07

12.4

12.3

GFC: 2008‒13

7.7

6.7

GFC: 2008‒13

12.5

12.3

after GFC: 2014‒19

8.1

6.5

after GFC:

13.5

16.5

2014‒19

Note: a Results are weighted so that each country’s sample has the same weight as other countries with the same type of regime. Sources: EU-SILC annual cross-sectional surveys (2005‒19); OECD Social and Welfare Statistics: Poverty Rate (Indicator) (2022).

Reducing poverty and income inequality

87

APPENDIX 5.2 Results based on the EU’s 60 per cent of median line confirm that comparative statements about levels of poverty in the four regimes are not affected if the higher poverty line is used. Table A5.2

Relative poverty in welfare-capitalist regimes, based on a poverty line set at 60 per cent of median incomea

(1)

(2)

(4)

(5)

Regimes and periods

Relative

Regimes and periods

Relative poverty %

poverty %  

Liberal regimes

 

all years: 2005‒19

12.6

all years: 2005‒19

18.7

pre-GFC: 2005‒07

12.3

pre-GFC: 2005‒07

19.6

GFC: 2008‒13

13.4

GFC: 2008‒13

18.4

after GFC: 2014‒19

12.2

after GFC: 2014‒19

18.7

Corporatist regimes

 

Proto-corporatist regimes

 

all years: 2005‒19

13.4

all years: 2005‒19

18.8

pre-GFC: 2005‒07

12.7

pre-GFC: 2005‒07

19.4

GFC: 2008‒13

13.8

GFC: 2008‒13

19.3

after GFC: 2014‒19

13.3

after GFC: 2014‒-19

18.2

Note: a Results are weighted so that each country’s sample has the same weight as other countries with the same type of regime. Sources: EU-SILC annual cross-sectional surveys (2005‒19); OECD Social and Welfare Statistics: Poverty Rate (Indicator) (2022).

6. Wealth inequality: the one that got away In 1792, directly after the French Revolution, the government ordered an audit of wealth in preparation for breaking up big landed estates, but wound up collecting what turned out to be a very modest wealth tax. This pattern continued. French citizens still had to report their wealth to the tax authorities, but the effective rate of tax declined, until President Macron’s government finally abolished the feather-weight tax that still remained in 2018 (Forbes, 2020).1 Thirty years ago, around 1990, 12 Western countries had small wealth taxes, but now only four do so: Belgium, Norway, Spain and Switzerland. As we shall see, social democratic regimes, which might have been expected to take the lead in wealth taxation, have permitted particularly high levels of wealth inequality.

WEALTH INEQUALITY Piketty: Patrimonial Capitalism? The French economist Thomas Piketty reignited European debates about wealth inequality with the publication of Capital in the 21st Century (Piketty, 2013). He claimed that Western countries are in danger of reverting to the degree of inequality characteristic of ‘the gilded age’ before World War I. He pointed out that, while wealth inequality decreased markedly between World War I and about 1975, since then average returns to capital have exceeded rates of national economic growth, with the consequence that the finances of those whose income comes mainly from assets have improved faster than those whose income comes mainly from labour. His prognosis is that, without changes in public policy, we are headed towards an age of ‘patrimonial capitalism’ in which wealthy families gain increasing influence and are able to secure quasi-hereditary privileges, not just via bequests to their children, but

1 Forbes magazine reported that, after the abolition, the rich became much richer (Forbes, 2020). However, it is likely that part of the apparent effect was due to reduced concealment of wealth.

88

Wealth inequality: the one that got away

89

also by securing favourable educational and job opportunities for them (see also Smeeding, 2011; Hacker and Pierson, 2020). Piketty’s preferred policy intervention is a worldwide wealth tax, levied on net worth at a uniform rate in order to prevent the rich from changing the country in which they appear to reside for tax purposes. In practice, Western governments have shown little interest in this proposal. Apart from the difficulty of combating evasion, policy-makers and economists who oppose wealth taxes claim that the main purpose of saving to increase one’s wealth is to generate future income, particularly retirement income. From a national economic standpoint, saving and investing are usually regarded as desirable behaviours for which incentives should be offered. Saving means foregoing current consumption. The time to impose taxes is when savings are converted to income and spent. So income and consumption taxes may make more economic sense than wealth taxes. It is clear, however, that wealth confers additional benefits beyond generating income. It confers economic security: the ability to tide a family over emergencies when its normal flow of income is cut off or reduced. It also provides opportunities for risk-taking, knowing that if risky ventures or investments fail, there are reserves to fall back on. A family’s wealth is probably the best indicator of its long-term economic well-being, or what economists call ‘permanent income’. An important general point is that the wealthiest households usually have most of their wealth in financial assets (mainly shares), whereas middle-class people tend to own property. Homeownership, in effect, spreads wealth to the middle class. A second general point is that, while wealth and income are of course positively correlated, wealth is more heavily concentrated in older people’s hands. This is mainly due to the effects of compound interest. Any household that saves a certain percentage of its income each year will get (exponentially) wealthier each year. In middle-class families, savings are commonly run down in retirement (although many people have a bequest motive: a desire to leave assets to their heirs). But in the wealthiest families, assets just keep on growing and then are passed on to the next generation, perpetuating inequality. We will return to the public policy issues surrounding wealth inequality at the end of the chapter. How to Measure Wealth Inequality? The Zurich-based bank Credit Suisse provides high-quality time-series data on household wealth (Shorrocks et al., 2000‒, annual). The bank relies on household balance sheet (HBS) data, included in each country’s National Income Accounts. HBS data usually give higher and more accurate estimates of wealth than surveys in which respondents are asked to report their assets and

90

Western welfare capitalisms in good times and bad

debts. Asset-rich (and income-rich) people are invariably under-represented in surveys. In measuring wealth inequality, we need to take account of the fact that wealth has a very skewed distribution, much more skewed than income. In most Western countries the richest 1 per cent own between 20 per cent and 40 per cent of assets, and the richest 10 per cent own 50‒75 per cent (see Table 6.2 below). The least-wealthy 60 per cent typically own only 5‒15 per cent of total household wealth, and the bottom decile typically has negative net worth. Given these parameters, standard measures of inequality used for income distributions, such as the Gini coefficient, may not be appropriate for summarising wealth inequality. It is also not clear that the unit of analysis used for income distribution ‒ the household ‒ is the right choice for wealth. Wealth is usually held in one person’s name, or just in the names of adult household members, and is not normally pooled for purposes of consumption, as income is. For these and data limitation reasons, a widely used measure of wealth is dollars per adult, rather than dollars per household (or equivalised household). A simple indicator of inequality, which can be calculated from household balance sheets and used to compare countries, is the ratio between mean wealth per adult and median wealth per adult (Balestra and Tonkin, 2018; Shorrocks et al., 2010‒, annual). The median may be regarded as indicating the wealth of a typical adult. Then the higher the mean relative to the median, the greater is national wealth inequality. Wealth Inequality Before, During and After the Global Financial Crisis We begin with mean‒median ratio measures taken from the annual Credit Suisse Global Wealth Databooks for 2007, 2013 and 2019 (Shorrocks et al., 2000‒). 2007 is selected as the last year before the Global Financial Crisis (GFC), 2013 was the last year of recession in most countries, and 2019 is our latest data point. Wealth is measured in United States (US) dollars at the official exchange rate for the year in question. Columns (2), (3) and (4) in Table 6.1 provide ratio measures for the selected years. Then, in columns (5) and (6), we put some flesh on the bones by showing how widely levels of mean and median wealth differ among Western countries that have roughly similar levels of national income. Column (7) summarises the trend in wealth inequality in each country between 2007 and 2019. In this section, unlike most of the book, results are given for each country separately, although they are grouped by regime. The reason is that we expect and find considerable intra-regime variation, given that no regime actually prioritises reduction of wealth inequality. As a rough guideline, countries with mean‒median ratios over 2.5 may be regarded as having comparatively high inequality.

Wealth inequality: the one that got away

Table 6.1

Regimes

91

Wealth inequality in welfare-capitalist regimes before, during and after the GFC: ratio of mean to median wealth per adult (2)

(3)

(4)

(5)

(6)

(7)

2007 mean‒

2013 mean‒

2019 mean‒

2019 mean

2019 median

Trend in

median

median

median

wealth US$

wealth US$

wealth

ratio

ratio

ratio

inequality

Social democratic Denmark

4.5

3.1

4.8

284002

58784

down then up

Finland

2.1

2.5

3.3

183124

55532

up

Norway

2.9

2.2

3.8

267348

70627

down then up

Sweden

5.2

5.8

6.4

265260

41582

up

Regime

3.7

3.4

4.6

249934

 

down then up

Australia

1.9

2.0

2.1

386058

181361

up

Switzerland

2.3

2.2

2.5

564653

227891

down then up

UK

2.1

2.6

2.9

280049

97452

up

USA

5.1

6.9

6.6

432365

65904

up then down

Regime

3.3

3.4

3.5

415781

 

up

Austria

3.8

3.8

2.9

274919

94070

no change then

Belgium

1.7

1.7

2.1

246135

117093

France

2.1

2.2

2.7

276121

101942

up

Germany

3.8

4.2

6.1

216654

35313

up

Netherlands

2.0

2.1

9.0

279077

31057

up

Regime

2.7

2.8

4.6

238581

 

up

mean Liberal

mean Corporatist down no change then up

mean Proto-corporatist Greece

1.9

2.0

2.4

96110

40000

up

Italy

1.6

1.8

2.6

234139

91889

up

Portugal

2.3

2.3

3.0

131088

44025

up

Spain

1.8

2.0

2.2

207531

95360

up

regime

1.9

2.0

2.5

167217

 

up

mean

Source: Credit Suisse, Global Wealth Databook (Shorrocks et al., 2000‒, annual). Mainly calculated from Table 3.1.

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Western welfare capitalisms in good times and bad

It is certainly not the case that the countries and regimes with low levels of income inequality also have low levels of wealth inequality. On the contrary, the historically social democratic regimes, which rate lowest on income inequality, all have high or moderately high levels of wealth inequality. The Southern European proto-corporatist regimes record high income inequality, but they have had lowest levels of wealth inequality before, during and after the GFC. This is partly because homeownership is the prevalent form of tenure in Southern Europe. Dollar levels of mean and median wealth per adult are higher by a considerable margin in the liberal regimes than elsewhere. As in Southern Europe, homeownership has been the main form of tenure for many decades. But unlike in Southern Europe, home values increased rapidly for most of the period. So large numbers of households in the liberal regimes own valuable property outright, or at least have substantial equity. Homeownership is now increasing quite rapidly in most other Western countries, but fewer households have paid off a large proportion of their mortgage. In the liberal regimes, except for the US, wealth inequality is not extreme. The mean‒median ratios for the corporatist countries could be regarded as somewhat misleading. They are at moderate levels in Austria, Belgium and France, but appear much higher in Germany, and recently in the Netherlands. On closer inspection, it becomes clear that the German and Dutch results are partly due to median households having extremely low levels of wealth in what are, after all, high-income countries. So the denominators used in calculating the mean‒median ratios are unusually low. Low middle-class levels of wealth reflect relatively low rates of homeownership.2 That said, it should also be pointed out that the wealthiest few percent of German households do own a comparatively high share of total wealth (see Table 6.2 below). The evidence in Table 6.1 indicates that wealth inequality has been on the rise almost everywhere. Mean‒median ratios are higher now than before the GFC in 16 of the 17 countries. The effects of the GFC on wealth in different countries depended mainly on what happened to the value of financial assets relative to property assets. Financial assets fell in value sharply during the GFC, but then recovered as central banks pumped trillions of dollars into recession economies. Property prices also initially fell, but then recovered rapidly in all the liberal countries. They stayed low for longer in the Southern European proto-corporatist regimes, depressing middle-class wealth and increasing wealth inequality there.

2 Homeownership rates are now just over 50 per cent in Austria and Germany. Rates have historically been lower than those in most Western countries.

Wealth inequality: the one that got away

93

THE WEALTHY AND THE VERY WEALTHY For recent years, Credit Suisse provides more detailed information about the distribution of wealth, with particular focus on the richest few percent. Table 6.2 shows the wealth shares of the richest 1 per cent and 10 per cent of households in 2019, then the shares of deciles 7‒9 (the ‘middle class of wealth’), and in column (5) the share of the bottom six deciles. The final column reports a Gini coefficient for each country, but with the proviso that the measure is flawed because the Gini coefficient cannot take account of negative values. In fact, the least-wealthy decile in most countries have negative net worth. The evidence in this table confirms that the social democratic regimes have the highest levels of wealth inequality, with the top 1 per cent and 10 per cent owning larger shares than in other regimes, and the least-wealthy six deciles owning a lower share (only 5.8 per cent) than elsewhere. The Southern proto-corporatist regimes are the least inegalitarian, with the richer deciles owning less exceptional shares than elsewhere, and the poorest six deciles owning more (13.1 per cent). The corporatist and liberal regimes have similar levels of inequality. Notice that the mean for liberal regimes is somewhat distorted by the US, which has the second-highest level of wealth inequality in the dataset. Similarly, the corporatist mean is bent upwards by the Netherlands, which according to Credit Suisse has the highest level of wealth inequality among these 17 countries. It is worth recording that in all countries the Gini coefficient for wealth is at least twice that for income. The Credit Suisse Global Wealth Databook, the Luxembourg Wealth Study Database and the World Inequality Database unambiguously back up Piketty’s claim that wealth has been growing faster than gross domestic product (GDP), and by implication faster than wages or median household incomes (Shorrocks et al., 2000‒, annual; Luxembourg Wealth Study, 2020; World Inequality Database, 2017). Columns (2) and (3) of Table 6.3 show changes in the ratio of household wealth to GDP in 2000‒2019 for those Western countries for which data are available. Columns (4) and (5) then show the annual growth rates that brought about the changed ratios. It is clear that in most Western countries household wealth has been growing two to three times faster than GDP. It is now five or more times annual GDP in seven of the nine countries included in Table 6.3. The OECD wealth database indicates that since about 1980 the wealthiest 1 per cent have captured more of national gains in wealth than other groups (Balestra and Tonkin, 2018). They have been helped by large-scale transfers of public capital into private hands. Public capital, originally paid for by taxpayers, has been sold – often at below-market prices ‒ to wealthy inves-

Western welfare capitalisms in good times and bad

94

Table 6.2

Regimes

The distribution of household wealth in welfare-capitalist regimes, 2019 (2)

(3)

(4)

(5)

(6)

Wealth share: top 1%

Wealth share: top decile

Wealth share:

Wealth share:

Gini

(%)

(%)

deciles 7‒9

deciles 1‒6

(%)

(%)

Social democratic Denmark

29.3

66.6

31.8

7.6

0.84

Finland

27.2

60.7

30.5

8.8

0.74

Norway

32.2

65.0

29.8

5.1

0.80

Sweden

37.4

75.3

22.9

1.8

0.87

Regime mean

31.5

66.9

28.8

5.8

0.81

Australia

22.2

52.4

32.7

15.0

0.66

Switzerland

24.5

56.3

32.4

11.2

0.71

UK

24.5

59.3

32.4

8.3

0.75

USA

35.4

75.9

19.9

3.2

0.85

Regime mean

26.7

61.0

29.4

9.4

0.74

Austria

23.8

57.3

34.6

8.2

0.74

Belgium

17.0

47.4

35.3

17.5

0.60

France

22.2

54.6

34.3

11.1

0.70

Germany

30.2

65.1

32.2

2.8

0.82

Netherlands

26.6

68.0

36.1

-4.0

0.90

Regime mean

24.0

58.5

34.5

7.1

0.75

Liberal

Corporatist

a

Proto-corporatist Greece

23.0

53.0

32.4

14.7

0.65

Italy

22.0

53.6

33.1

13.4

0.70

Portugal

20.0

56.1

30.4

11.4

0.68

Spain

23.8

55.0

32.3

12.7

0.69

Regime mean

22.2

54.4

32.1

13.1

0.67

Note: a In the Netherlands the four deciles with the lowest net worth are all estimated to have negative net worth. This may be somewhat misleading in that many of these households presumably have substantial assets, although also even more substantial debts. Source: Credit Suisse, Global Wealth Databook, 2019 (Shorrocks et al., 2010‒, annual). Calculated from Tables 7.5 and 7.6.

tors. This has happened in China and the ex-communist countries of Eastern Europe, as well as in the West. National Accounts show that private capital has grown rapidly, but that public capital in now negative in many countries.

Wealth inequality: the one that got away

Table 6.3

95

Changes in the ratio of wealth to GDP 2000‒2019: selected Western countries (2)

(3)

(4)

(5)

2000 household wealth/

2019

2000‒19 annual

2000‒19 annual

GDP ratio

household

change in wealth

change in GDP per

wealth/GDP

per adult

adult

ratio

(%)

(%)

2.0

3.7

4.7

1.4

France

3.4

5.0

2.7

0.7

Germany

3.2

3.7

1.9

1.0

Australia

3.8

5.1

2.7

1.2

Switzerland

4.7

5.5

1.5

0.6

UK

4.0

5.1

2.2

0.9

USA

4.1

5.0

1.9

0.9

Regimes

Social democratic Sweden Corporatist

Liberal

Proto-corporatist Italy

4.8

5.6

-0.1

0.8

Spain

4.2

5.4

2.4

0.9

Source: Credit Suisse, Global Wealth Databook (Shorrocks et al., 2000‒, annual) mainly calculated from Tables 4.5 and 4.6.

As well as transfusions of public capital, well-off families are of course able to help themselves through inheritances. A recent Organisation for Economic Co-operation and Development (OECD) report found that about one-third of wealthy families benefit from bequests, with the wealthiest, of course, making and receiving the largest bequests (Balestra and Tonkin, 2018).

A NOTE ON THE EFFECTS OF THE GLOBAL FINANCIAL CRISIS ON WEALTH HOLDINGS The immediate effect of the GFC was to reduce wealth holdings, due to declines in the value of both housing and shares. In most countries the initial decline in share prices was larger than the decline in housing prices. However, loose monetary policy soon reversed these trends. Quantitative easing in the US, and the open market operations of the European Central Bank, were intended primarily to stimulate business lending. It is hard to quantify, but most observers agree that business lending picked up less than expected. In practice, the banks appear to have loaned much of the money for investment in

96

Western welfare capitalisms in good times and bad

stock markets and housing (Wolf, 2014). By 2011, in most Western countries, prices in both these markets were back to pre-crisis levels (adjusted for inflation). Some stock markets were particularly attractive, because loose monetary policy ensured that returns to all other financial investments were low. North American and some European share markets saw extended bull runs. So many shareholders, in the end, were not burned by the GFC.3

PUBLIC POLICY AND WEALTH INEQUALITY It was implied earlier that it is puzzling that social democratic regimes have not set out to reduce wealth inequality. An alternative viewpoint, intended to explain the quiescence of social democratic regimes on the issue, was canvassed in the Credit Suisse Global Wealth Report for 2014 (Shorrocks et al., 2010‒, annual): Strong social security programs, good public pensions, free higher education or generous student loans, unemployment and health insurance can greatly reduce the need for personal financial assets. Public housing programs can do the same for real assets. This is one explanation for the high level of wealth inequality we identify in Denmark, Norway and Sweden: the top groups continue to accumulate for business and investment purposes, while the middle and lower classes have no pressing need for personal saving. (Shorrocks et al., 2014)

The argument here is that it would be economically irrational for most Scandinavians to forego current consumption for the sake of future wealth, because the state guarantees their economic security. The argument is perhaps overstated. Why would the wealthy not just blow their assets on jet-set lifestyles, knowing that the state would look after them afterwards? In other words, saving could be regarded as irrational for them too. However, the argument does point to a significant deficiency in the wealth statistics which we have been looking at. The deficiency is that they do not include as ‘assets’ the pension entitlements (or potential health, invalidity and unemployment benefits) that citizens build up through contributions to social insurance funds.4 In the case of old age pensions, a substantial flow of benefits is virtually guaranteed, unless one dies too young to collect.

3 This statement holds for shareholders who did not sell and realise losses when markets plunged in 2008. It does not hold for investors in the Southern European regimes who invested mainly in their own domestic stock markets. These markets recorded huge losses in 2008, and still have not recovered to pre-crisis levels. 4 Wealth statistics sometimes include the estimated value of voluntary private pensions, but not public pensions (Balestra and Tonkin, 2018).

Wealth inequality: the one that got away

97

It is appreciated that imputing the value of future pensions and other benefits in order to include them in wealth statistics would require making a range of debateable assumptions ‒ indeed, guesses ‒ about future GDP, future public finances and future policy settings. That said, the point remains that by not taking account of state benefits, international wealth statistics do not provide an accurate picture of international – and welfare-capitalist regime ‒ differences in family financial/economic security. We address these issues again in a later chapter on corporatist priorities relating to economic security and social stability. The conclusion to this chapter has to be that, from an equity standpoint, wealth inequality is ‘the one that got away’.

7. Reducing gender inequality All Western countries are now officially committed to moving towards gender equality. Regular reports, providing evidence of uneven progress, are issued by the European Union and the Organisation for Economic Co-operation and Development (OECD). The data in this chapter come from the OECD’s Gender Data Portal (OECD, selected years). We focus on four areas: women in political office, women on the boards of large companies (the ‘glass ceiling’), women’s employment and pay relative to men’s, and entitlement to parental leave. As in other fields, political rights preceded and presumably helped to bring about economic and social change. In most Western countries women gained the right to vote and hold political office in the years directly before and after World War I, but in France this was delayed until 1944. Australia was first to legislate political rights in 1902, but no woman actually entered Parliament until 1943. A higher barrier, or so it seems, was scaled in 1965 when Australian women were first allowed to enter public bars.1

POLITICAL OFFICE Table 7.1 shows the percentage of women in national legislatures (‘parliamentarians’) and the percentage of women ministers in welfare-capitalist regimes before, during and after the Global Financial Crisis (GFC). Female representation in Parliament/national legislatures and around the Cabinet table is clearly higher in social democratic regimes than elsewhere. All the Scandinavian countries had a higher proportion of women in Parliament throughout the period than any other country in the dataset. They have also had a higher proportion of female ministers than the other countries, with the recent exceptions of France and Spain.2 The gap between the social democratic regimes and the rest was greatest before the GFC. Since then the level of female political representation in Scandinavia has scarcely changed, but it has been increasing quite rapidly in the other regimes. 1 Before that some pubs had ‘ladies’ lounges’, which usually charged the ladies more for their drinks. 2 Fifty per cent of French ministers and 64.7 per cent of Spanish ministers were women in 2019.

98

Reducing gender inequality

Table 7.1

99

Women in Parliament (national legislature) and women ministers in welfare-capitalist regimes before, during and after the GFCa Women in

Women in

Women in

Women

Women

Women

Parliament

Parliament

Parliament

ministers

ministers

ministers

before the

during the

after the

before the

during the

after the

GFC

GFC

GFC

GFC

GFC

GFC

(%)

(%)

(%)

(%)

(%)

(%)

40.0

41.5

42.9

44.3

48.5

44.3

liberal

20.1

23.1

29.5

19.3

27.0

26.9

corporatist

25.7

32.9

35.4

30.6

35.1

37.8

proto-corporatist

16.5

26.9

32.8

20.2

17.8

36.7

Regimes

social democratic

Note: a Data are not available for all years. Parliamentary data are for 2002, 2012 and 2019. Ministerial data are for 2005, 2012 and 2019. Source: OECD, Gender Data Portal (selected years).

Table 7.2 Regimes

Women on the boards of large private companies Before the GFC

During the GFC

After the GFC

%

%

%

social democratic

20.9

29.6

35.5

liberal

UK only: 12.7

UK only: 24.2

all 4 liberal regimes:

corporatist

7.9

24.2

36.5

proto-corporatist

5.1

14.9

24.4

28.7

Note: Data are not available for all years; selected years are 2005, 2014 and 2019. Source: OECD, Gender Data Portal (selected years). a

WOMEN ON THE BOARDS OF LARGE COMPANIES: THE GLASS CEILING In this segment on employment and pay we begin by reviewing female representation on the boards of large private companies, which is often taken as an indicator of whether women and breaking through the ‘glass ceiling’ (Table 7.2). Until recently, the social democratic regimes had the highest level of female representation on company boards. However, in all regimes female representation has been increasing over the years, and is now at about the same level in corporatist regimes as in Scandinavia.

100

Western welfare capitalisms in good times and bad

EMPLOYMENT AND PAY In all the countries in our dataset, there is legislation requiring equal pay for equal or comparable work. However, a gender pay gap is always found, whether one uses unadjusted figures or adjusts for differences between men and women in educational attainment, work experience, hours worked and occupations chosen (the ‘adjusted pay gap’). The causes of pay gaps are fiercely debated. Some economists have taken the position that Western women could not be substantially underpaid, relative to their skills and productivity, because if they were, shrewd employers (why not women employers?) would just hire those who were most unproductively employed, pay them decently, and make bigger profits than less shrewd or more chauvinistic employers. On the other side of the argument, many economists and social scientists take the view that social expectations and traditional occupational segmentation inhibit women’s career progress and lead them towards ‘female’ occupations (for example, teaching, nursing, social work) that tend to be poorly paid relative to the required qualifications. We cannot hope to resolve these debates. So in Table 7.3 we restrict ourselves to presenting two relatively uncontentious measures of employment, and a more contentious measure of the gender pay gap. The employment measures relate to the percentage of prime age (25‒54) women in paid employment, and then the ratio of females to males in paid work.3 Our measure of the gender pay gap relates to women and men who are full-time, full-year earners at the median of the earnings distribution for their gender. Data are for 2018 or 2019, depending on the latest year available for each country. The social democratic regimes have the highest rates of female employment and the highest ratios of female-to-male employment. These results as in line with regime priorities. The differences among regimes in female-to-male employment ratios diminished during the 2005‒19 period. The social democrats still had the highest ratio in 2018‒19, as shown in Table 7.3, but the other regimes are catching up. In corporatist regimes, as in Scandinavia, the female-to-male employment ratio is now over 90 per cent. The ratio is sharply lower in proto-corporatist regimes, although Portugal, which has long had a high rate of female employment, is an exception (ratio = 0.82).

3 In making international comparisons it is preferable to focus just on prime age (25‒54) employment. If people of all ages were included (national employment to population ratios), results would be confounded by differences in national age distributions (Australia and the United States have younger populations than the other countries), and also by national differences in student populations and early retirement.

Reducing gender inequality

Table 7.3

Regimes

Female and male employment, and the gender pay gap in welfare-capitalist regimes, 2018‒19 (2)

(3)

(4)

Women in paid

Ratio: employed women to

Ratio: female to male

employment (age

employed men (age 25‒54)

earnings (full-time

25‒54)

(%)

earners)

0.94

0.91

(%)

(%) social democratic

101

81.1

liberal

78.0

0.88

0.84

corporatist

79.6

0.91

0.89

proto-corporatist

68.3

0.82

0.92

Source: OECD, Gender Data Portal (2018‒19).

Data on the pay gap in column (4) of the table make it appear that women fare best in the proto-corporatist regimes. This result is almost certainly misleading. As the economist James J. Heckman famously pointed out, women who choose to undertake paid work are a self-selected group, who are certain to have greater earning capacity (on average) than women who do not undertake paid work (Heckman, 1979). So unless researchers correct for this ‘selection bias’ (known as a ‘Heckman correction’), they will be trapped into making misleading comparisons between female and male earnings, and in the present context, between gender pay gaps in countries/regimes that have differing rates of female employment. How does this affect our results? It is clear that more women do paid work in social democratic and also in corporatist regimes, than elsewhere. So, if Heckman corrections were made, it is probable that the ‘adjusted’ ratio of women’s to men’s earnings in post-corporatist regimes would be lower than in social democratic and corporatist regimes, rather than appearing to be a bit higher (as in Table 7.3). Only 68.3 per cent of women were in paid work in the proto-corporatist regimes in 2018‒19. If another 10‒15 per cent of women worked – bringing Southern Europe up to a social democratic or corporatist regime level – it is almost certain that the Southern ratio of female-to-male earnings would fall substantially.

THE GIG ECONOMY: A PAY GAP WITHOUT OBVIOUS DISCRIMINATION It is usually thought that pay in the gig economy depends directly on performance: the more pizza, you deliver the more you get paid. So one might expect no gender pay gap. Surprisingly, a Stanford University study of the earnings of over 1 million Uber drivers showed that the gap is 7 per cent (Cook et al.,

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Western welfare capitalisms in good times and bad

2018). Uber’s pay algorithm does not take account of the gender of its workers, but men earn more than women because they do a better job of choosing which jobs to accept and which to reject, choosing when to work and in which areas of the city. Men drive 2.2 per cent faster than women, which gives them a better rate of pay per unit of time.

MATERNITY AND PARENTAL LEAVE An early target for gender equality reformers was introduction and then extension of paid maternity and parental leave. The Scandinavian countries led the way, and others, with the exception of the United States (US), have followed. We report the total number of weeks of maternity and parental leave available for women in the four regimes. Data are for the latest year available, which is 2018 for most countries (OECD, 2019): • social democratic regimes: average = 89.4 weeks: Denmark 50, Finland 161, Norway 91, Sweden 55.7. • corporatist regimes: average = 41.7 weeks: Austria 60, Belgium 32.3, France 42, Germany 58, Netherlands 16. • liberal regimes: average=17.8 weeks (23.7 if the US is omitted): Australia 18, Switzerland 14, United Kingdom (UK) 39, US 0. • proto-corporatist regimes: average = 34.2 weeks: Greece 43, Italy 47.7, Portugal 30.1, Spain 16. Clearly, the Scandinavian countries have much the most generous provisions. The family-oriented corporatist and proto-corporatist regimes mostly have intermediate levels of provision, ranging from 16 weeks paid leave in the Netherlands and Spain, to 60 weeks in Austria. The liberal regimes have the least-generous provision, with the US taking the liberal approach to its logical conclusion of zero leave: ‘You chose to have kids ‒ why should anybody else pay for them?’4 Scandinavian regimes also pioneered the granting of paternity leave, with Sweden now making it possible for new fathers to take up to 90 days of paid leave (Ward, 2020). Several other countries have followed the Scandinavian lead, with varying degrees of enthusiasm. All the corporatist and Southern European countries offer some paternity leave, with France and Portugal at the generous end of the spectrum (28 and 22.3 weeks, respectively), and Greece, Italy and the Netherlands at the low end (less than a week). The liberal regimes

4 Papua New Guinea appears to be the only other country with zero paid maternity leave.

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offer little or nothing: two weeks in Australia and the UK; zero in Switzerland and the US. Perhaps not too much should be made of legislated paternity leave. When legislatures debate paternity leave, a polite assumption is made that every man on the planet would enjoy a period at home bonding with his wife and newborn child. Not really. In Scandinavia most fathers take at least some leave, but not all they are entitled to (Ward, 2020). Japan is the limiting case. There, fathers are allowed 30 weeks paid leave, but only 1 in 20 take any: ‘I’d rather be at work, thanks.’

DISCUSSION The Scandinavian social democratic regimes have reduced gender inequality to a greater extent than other regimes. However, other regimes are catching up; there is clear evidence of change, with less inequality in all areas in the latest, post-GFC period. Perhaps surprisingly, more progress toward equality appears to have been made in corporatist than in liberal regimes. The Southern European proto-corporatist regimes, like the liberals, lag on most measures of gender equality.

8. Enhancing personal autonomy At the core of liberal and social democratic ideals of personal autonomy is a belief that individuals should be able to decide how to live their lives, relatively free from societal pressures and from severe financial constraints (Sen, 1999; Goodin et al., 2008). In Sen’s famous formulation, individuals should be free to choose a life they ‘have reason to value’ (Sen, 1999). Sen stressed that ‘feeling free’ was not enough. People might ‘feel free’ even though they were living in objective circumstances that an outside observer (a Sen-like observer) would judge to make it impossible for them to exercise effective choice. Sen stresses that one goal of public policy should be to ensure that people have the ‘capabilities’ (his word) required to function autonomously. He has been deliberately vague, deliberately unwilling to specify precisely what capabilities are needed, stressing that they should be viewed as depending on local conditions and, ideally, should result from democratic deliberation. However, key capabilities/conditions in Western countries must surely include sufficient money to make a range of choices affordable, and sufficient discretionary time to implement choices and experience their benefits. But how much time and money are sufficient? We made a crude initial attempt to operationalise the concept of personal autonomy – or really, ‘potential autonomy’ ‒ in our 1999 book on welfare capitalisms (Goodin et al., 1999). An individual was defined as ‘potentially autonomous’ if they had an equivalised income that was above the poverty line, and were also in paid employment for no more than the conventional 40 hours a week. If either of these conditions was not met, the person was classified as ‘not autonomous’. Subsequently, Goodin and colleagues undertook a finer-grained analysis, based on data collected in time use diaries (Goodin et al., 2008). National samples of respondents in Finland and Sweden (social democratic), France and Germany (corporatist), and Australia and the United States (US) (liberal) completed diaries, recording exactly how they spent their time.1 In analysing the data, Goodin and colleagues aimed to compare the amount of discretionary 1 The Multinational Time Use Study (MTUS) has data files for 23 countries (Centre for Time Use Research, 2020). Goodin et al. (2008) were interested in differences among welfare-capitalist regimes, so they focused on the six countries mentioned here.

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105

time available to respondents. They reasoned that, out of the 168 hours available each week, three blocks of time are taken by activities that, for most of us for most of our lives, are necessities: paid work, unpaid household labour (housework, child care), and personal care (sleep, personal hygiene). When necessary time taken for these activities is subtracted from 168, the hours that remain are discretionary time.2 The higher-quality evidence from time use diaries augmented and broadly confirmed previous results on personal autonomy. In the social democratic regimes (Finland and Sweden), people had more discretionary time, and there was less income poverty than in corporatist France or Germany. In liberal Australia and especially the US, people had much less discretionary time and relative poverty rates were higher.

PERSONAL AUTONOMY 2005‒19: EU-SILC SURVEYS AND OECD TIME USE DATA In bringing the evidence on personal autonomy up to date, we mainly rely on European Union Statistics on Income and Living Conditions (EU-SILC) cross-sectional data for 2005‒19, supplemented with data from the Organisation for Economic Co-operation and Development (OECD) Time Use Database. The EU data only allow us to replicate the dichotomous measure of autonomy used in our 1999 book (Goodin et al., 1999). In Table 8.1 we report the percentage of people in each regime deemed to be potentially autonomous, based on having an income above the poverty line and not working 40+ hours a week. On this evidence the historically social democratic regimes do far better than liberal regimes in providing the conditions for personal autonomy. The liberal regimes, which purport to prioritise autonomy, actually rate lowest of all. The Southern proto-corporatist regimes also rate low, well below the social democrats and corporatists. Regime rankings remained almost unchanged throughout the period; that is, before, during and after the GFC. In Table 8.2 we report the separate contributions to autonomy of having an income above the poverty line and not working long hours. These results are for the full 2005‒19 period. The evidence in Table 8.2 makes it clear that, in both liberal and proto-corporatist regimes, relatively high levels of poverty and working long 2 Goodin et al. (2008) did not treat all the time actually taken for paid work, housework, sleep, and so on, as ‘necessary’ time. For example, necessary time on paid work was defined as only the time required to earn a non-poverty income at the hourly rate of current household earners. Of course, most people actually work longer than this. Adjustments were also made to estimate necessary time spent on housework and child care (adjusted for household structure, including number of children). Necessary time spent on sleep and other personal care was set at eight hours.

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Table 8.1

Regimes

liberal

Personal autonomy in welfare-capitalist regimes before, during and after the GFCa Potential

Potential

Potential

Potential

autonomy: all

autonomy: before

autonomy: during

autonomy: after

years

the GFC

the GFC

the GFC

(%)

(%)

(%)

(%)

54.8

53.2

55.5

54.6

social democratic

71.1

70.3

74.1

68.5

corporatist

67.9

72.5

67.5

66.6

proto-corporatist

57.0

55.1

58.2

56.8

Note: Results are weighted so that each country’s sample has the same weight as other countries with the same type of regime. Source: EU-SILC, cross-sectional surveys (2005‒19).

Table 8.2

Personal autonomy in welfare-capitalist regimes 2005‒19: not poor and not working 40+ hours per weeka Potential autonomy

Income above the

Not working 40+ hours

2005‒19

poverty line

per week

(%)

(%)

(%)

liberal

54.8

87.0

66.3

social democratic

71.1

92.9

77.3

corporatist

67.9

92.3

74.8

proto-corporatist

57.0

87.1

67.4

Regimes

Note: a Results are weighted so that each country’s sample has the same weight as other countries with the same type of regime. Source: EU-SILC, cross-sectional surveys (2005‒19).

hours combine to contribute to low levels of potential autonomy. In all the liberal regimes people work longer hours than under other regimes. Further, all except Switzerland have comparatively high poverty rates, so more people lack the financial wherewithal for autonomy. Switzerland is notable for having the highest percentage of the population working 40+ hours a week among the countries in our dataset. On average the corporatist regimes appear to rate highly on potential autonomy. However, they vary quite widely. In Belgium, France and the Netherlands just over 70 per cent are classified as potentially autonomous, but in Germany the figure is only 54.6 per cent. In Germany both long working hours and a moderately high poverty rate limit people’s autonomy. The evidence in Tables 8.1 and 8.2 relates to entire national populations and so obscures group differences. Prime working age people (25‒54) are the group least likely to achieve the conditions for autonomy. Elderly people, most

Enhancing personal autonomy

Table 8.3

107

Personal autonomy: prime working age (25‒54) and retired people, 2005‒19 Age 25‒54

Age over 65

potential autonomy

potential autonomy

(%)

(%)

liberal

42.1

73.3

social democratic

60.4

94.8

corporatist

54.8

92.4

proto-corporatist

39.8

88.4

Regimes

Note: a Results are weighted so that each country’s sample has the same weight as other countries with the same type of regime. Source: EU-SILC, cross-sectional surveys (2005‒19).

of whom are retired and can budget their time as they wish, are most likely. Regime autonomy ratings for these groups are shown in Table 8.3. As before, the liberal and proto-corporatist regimes record the lowest ratings, and the social democratic regimes the highest. Due primarily to long working hours, only 42.1 per cent of prime age people in liberal regimes fulfil the conditions for autonomy, compared with 60.4 per cent in the social democracies. In all regimes, a large majority of retirees fulfil these conditions, but the figure is lowest (73.3 per cent) in the liberal regimes because of high aged poverty rates.3 Differences among the corporatist regimes are even clearer for prime age people than in the general population. In Germany 62.8 per cent of prime age men work 40+ hours a week. In Austria only 32.8 per cent do so, and in the Netherlands only 44.4 per cent. It is perhaps reasonable to suppose that the conditions for autonomy are more likely to be met in better-off countries than in relatively poor ones. We check on this possibility with logistic regressions in which personal autonomy (1‒0) is regressed on our usual set of regime dummy variables, plus gross domestic product (GDP) per capita and standard socio-economic variables. Results are given for the whole population, prime working age people, and those over 65 (Table 8.4). The coefficients in the table are odds ratios. Liberal regimes are the reference category, so odds ratios greater than 1.0 indicate higher odds of ‘potential autonomy’ in other types of regime than in liberal ones. Clearly, net of GDP and standard controls, the odds of meeting the conditions for personal autonomy are higher in social democratic regimes than elsewhere. As previously discussed, elderly people do particularly well under 3 Clearly, some elderly people lack autonomy – the capacity to exercise a range of choices ‒ for health and disability reasons. The EU-SILC data on health are not fine-grained enough to permit detailed analysis.

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Table 8.4

Personal autonomy in welfare-capitalist regimes: logistic regressions (2)

(3)

(4)

Population

Age 25‒54

Age over 65

potential autonomy odds

potential autonomy odds

potential autonomy odds

ratio

ratio

ratio

liberal

reference

reference

reference

social democratic

2.54*** (0.01)

2.24***(0.01)

7.48***(0.12)

corporatist

2.38***(0.01)

2.09***(0.01)

5.00***(0.06)

proto-corporatist

1.29***(0.01)

1.06***(0.01)

3.07***(0.04)

GDP per capita

1.11***(0.01)

1.39***(0.01)

0.55***(0.01)

female

2.45***(0.01)

3.46***(0.01)

1.05***(0.01)

age

0.83***(0.00)

0.94***(0.00)

1.72***(0.03)

age-squared

1.25***(0.00)

1.08***(0.00)

0.70***(0.01)

partnered

1.10***(0.00)

0.98***(0.00)

1.66***(0.02)

single parent

0.96***(0.01)

0.75***(0.01)

-

education (years)

0.98***(0.00)

0.97***(0.00)

1.07***(0.00)

pseudo-R2

0.14

0.09

0.08

N

3945014

1905626

792445

Regimes

(ln)

family

Notes: The coefficients are odds ratios with robust standard errors in parentheses; *** significant at 0.001. Source: EU-SILC, cross-sectional surveys (2005‒19).

social democracy compared with other regimes. Results here confirm that, despite having autonomy as a priority welfare outcome, liberal regimes appear to do least to realise it in practice. In this set of countries – all classified as ‘high income’ by the World Bank ‒ GDP per capita is positively but not strongly related to autonomy.4 Married/partnered people are more likely to meet autonomy criteria than singles, widowed and divorced people. This is because their combined incomes (based on their combined working hours) are higher, with fewer left below the poverty line. Unsurprisingly, people living in single-parent households rate low on autonomy.

4 Although the relationship is estimated to be positive for the population as a whole (Table 7.3 column 2), it is negative for the sub-sample of elderly people (column 4).

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LEISURE: HOW MUCH, AND HOW SATISFYING? We conclude this chapter with supplementary evidence on leisure time from the OECD Time Use Database (OECD, 2020). It needs to be clear that leisure time is not the same as what Goodin et al. (2008) term ‘discretionary time’. Leisure time is defined in the OECD files as time spent on sports, participating/ attending events, visiting or entertaining friends, watching television or listening to radio, and ‘other leisure’. ‘Discretionary time’ certainly includes leisure, but as explained above, it also includes all time not required for paid work, housework, caring for family members, personal care and hygiene. Analysis of leisure time is particularly useful to gain a better understanding of the relative autonomy of men and women. The EU-SILC-based measure of autonomy plainly overstates women’s autonomy by not explicitly taking account of time spent on housework and caring for family members. The OECD time budget data show that once these activities are accounted for, women on average have less time remaining for leisure than men. The data in Table 8.5 refer to average minutes in a typical day (a day is 1440 minutes) used for leisure activities. (In effect, the OECD just averages the differing amounts of leisure time that most of us have on the weekend compared with working days.) Data are for the latest year available for each country, and cover people age 15‒64.5 Table 8.5 Regimes

Leisure time in welfare-capitalist regimes: men and womena Population,

Men,

Women,

Women’s

minutes per day

minutes per day

minutes per day

leisure as % of

liberalb

291

310

273

88.1%

social democratic

337

352

324

92.0%

men’s

corporatist

314

334

295

88.3%

proto-corporatist

305

344

269

78.2%

Notes: Results are weighted so that each country’s sample has the same weight as other countries with the same type of regime; b Data are not available for Switzerland. Source: OECD, Time Use Database (2020). a

Both men and women have more leisure time in the Scandinavian social democratic regimes than elsewhere.6 In all regimes women have less leisure 5 People over 64 are excluded on the assumption that most have a great deal of leisure. 6 An exception is corporatist Belgium, where leisure time averages 339 minutes per person per day; a result that puts Belgium in the social democratic range.

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110

than men, due to the combined load of paid work, housework and caring activities. However, in Scandinavia the ratio of women’s leisure time to men’s is somewhat higher (92.0 per cent) than it is in liberal or corporatist regimes. It is lowest, by a considerable margin, in the Southern European proto-corporatist regimes. The liberals again appear to fall short of their aim of promoting personal autonomy; average leisure time is less than in other regimes, although women appear to fare less badly than in the proto-corporatist regimes. Our final table (Table 8.6) reports satisfaction with leisure time under the four regimes. Satisfaction is measured on a 0‒10 scale, with 0 indicating a low level of satisfaction and 10 a high level. Results are annual averages for the 2005‒19 period. Table 8.6 Regimes

Satisfaction with leisure time: regime and gender differencesa Population

Men

Women

satisfaction with leisure

satisfaction with leisure

satisfaction with leisure

time

time

time

(0‒10 scale)

(0‒10 scale)

(0‒10 scale)

liberal

7.0

7.0

7.1

social democratic

7.6

7.5

7.7

b

corporatist

7.0

7.1

7.0

proto-corporatist

6.4

6.4

6.3

Notes: a Results are weighted so that each country’s sample has the same weight as other countries with the same type of regime; b Data are not available for the US. Sources: EU-SILC, annual cross-sectional surveys (2005‒19). Data for Australia, Germany and Switzerland are from their national panel surveys.

Regime differences in satisfaction with leisure appear to reflect the amount of leisure time that people actually have. Satisfaction is highest in Scandinavia, and lowest in Southern Europe. Even though women objectively have less leisure, reported gender differences in satisfaction are slight.

SUMMARY Regardless of whether one uses the crude measures available in the EU-SILC dataset, or the more fine-grained measures available from the Multinational Time Use Study and the OECD, the story is the same. In the social democratic regimes more people meet the required conditions for personal autonomy than in other regimes, although the corporatists are not far behind. Liberal regimes, which were expected to prioritise autonomy, in fact bring up the rear on most measures. Citizens in liberal regimes are at relatively high risk of poverty, and also work considerably longer hours than citizens in other regimes. So, in

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111

comparative terms at least, they lack both the time and the money required to exercise autonomy.

9. Promoting economic growth and rising living standards Promoting economic growth, and so achieving rising living standards, are manifestly high priorities for all regimes. The public expects rising living standards, and politicians know they must deliver in order to be re-elected. In liberal regimes, growth and increased living standards are plainly the top priorities. Market-oriented liberal economists, and international institutions such as the International Monetary Fund, clearly believe that they have identified the mechanisms that drive economic efficiency and growth: maintenance of competitive markets, enforcement of commercial contracts, low marginal rates of taxation, strong incentives for employers and employees to work long hours, low levels of public transfers for working age people, and a government that allows market-driven production and distribution of goods and services, rather than trying to determine priorities itself. The bulk of this chapter is taken with comparing economic growth rates in welfare-capitalist regimes. Then, towards the end of the chapter, we compare increases in living standards. Of course, faster growth rates usually translate into greater increases in living standards, and slower increases depress living standards. This is bound to be the case if the shares of labour income and capital income in gross domestic product (GDP) remain unchanged. However, in recent decades this has not been the case. The labour share has been declining in nearly all Western countries, on average by about 2.5 per cent a decade since 1970 (Piketty, 2013; OECD, 2015b). The decline has been particularly steep in Spain, Italy, the United States (US) and Australia. This trend partly explains a long-term increase in income inequality in some countries, although increases in house prices (housing being a component of the capital share of GDP) could perhaps be said to benefit ordinary families, and are not always linked to increased inequality (Piketty, 2013; OECD, 2015b).

ECONOMIC GROWTH When liberal economists make claims about the superior performance of liberal regimes, they tend to focus on American economic performance and on the high level of the US GDP, rather than focusing on rates of economic growth, or on broader measures of welfare such as life satisfaction and the availability 112

Promoting economic growth and rising living standards

113

of leisure time. They point out that the level of the US GDP is based on strong performance at (more or less) the ‘technological frontier’. Similar or higher economic growth rates in other types of economy, they suggest, may just be due to ‘catch-up’; the assumption being that it is easier to achieve high rates of growth if one can more or less copy what has already been achieved elsewhere. In moments of hubris American liberal economists sometimes appear to suggest that all European governments need to do in order to improve their allegedly lagging economic performance is to adopt American policy settings. For example, the Chicago economist and Nobel laureate Robert E. Lucas used his presidential address to the American Economic Association to drop this pearl: ‘The steady-state welfare gain to French households of adopting American tax rates on labor and consumption would be the equivalent of a consumption increase of about 20 percent’ (Lucas, 2003).1 European, non-liberal economists tend to use historical evidence about economic growth – focusing more on growth rates than levels – to claim that social democratic and centrist regimes in Europe achieve levels of efficiency and growth similar to market-liberal economies, managing to combine efficiency with greater equity (Sinn, 1995; Atkinson, 1999). European economists, and other European social scientists, also focus more on broader welfare objectives: not just on GDP, but also on the availability of leisure and levels of life satisfaction. Plainly, we cannot hope to resolve long-running debates about which regimes and economic systems are most effective at delivering economic growth. All we can do, in practice, is marshal some evidence to show why the jury is still out, and is likely to remain so for ever. Tables 9.1 and 9.2 compare regimes by showing levels of GDP per capita (column 2) and growth rates per capita (column 3). Then the two components of economic growth per capita, namely economic growth and population change, are shown in columns (4) and (5).2 The final column shows GDP per hour worked, a measure of labour productivity. In both tables GDP is measured in 2017 US dollars with adjustments for inflation in the countries concerned. Table 9.1 covers just the 2005‒19 period.3 In the hope of finding less inconclusive evidence, Table 9.2 covers a 60-year period from 1960 to 2019.

1 He further suggests that a flat tax rate would do just as well, although it would require cuts in government spending. However, no one need worry about these cuts, because it would just be a question of reducing government transfers, and provision of goods that most people would buy anyway. Current French taxes are just distortionary. 2 Annual GDP growth per capita (%) is the growth (%) minus population change (%). 3 Growth rates for the years before the GFC, during the GFC and after the GFC are given in Chapter 4.

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114

Table 9.1

Regimes

Welfare-capitalist regimes: levels of GDP, GDP growth per capita, components of growth, and GDP per capita per hour of paid work, 2005‒19 (2)

(3)

(4)

(5)

(6)

GDP per

GDP per capita

Component:

Component:

GDP per

capita in

annual growth

GDP annual

population

hour of work

2017 US

rate

growth rate

change

in 2017 US

dollars

(%)

(%)

(%)

dollars

(mean: 2005‒19) liberal

55078

0.9

2.0

1.1

32.58

social democratic

52264

0.9

1.5

0.6

35.03

corporatist

47062

1.0

1.4

0.4

31.09

proto-corporatist

34145

0.2

0.2

0.0

18.72

Na

255

 

 

 

 

Note: a N = ‘country-years’: 17 countries for 15 years (2005‒19). Source: Feenstra et al. (2015).

Table 9.2

Welfare-capitalist regimes: levels of GDP, GDP growth per capita, components of growth, and GDP per capita per hour of paid work, 1960‒2019 (2)

(3)

(4)

(5)

(6)

GDP per capita

GDP per capita

Component:

Component:

GDP per capita

in 2017 US

annual growth

GDP annual

population

per hour of

dollars (mean:

rate

growth rate

change

work in 2011

1960‒2019)

(%)

(%)

(%)

US dollars

liberal

40 248

1.8

2.8

1.0

22.71

social democratic

36 315

2.3

2.8

0.5

23.16

corporatist

33 288

2.3

2.8

0.5

20.55

proto-corporatist

24 898

2.6

3.1

0.5

13.12

Na

1 020

 

 

 

 

Regimes

Note: a N = ‘country-years’: 17 countries: each with 60 years of growth data. Source: Feenstra et al. (2015).

The 1960 starting date is selected because, by that time, the period of rapid economic recovery after World War II was more or less complete. We focus first on the wealthier liberal, social democratic and corporatist countries (leaving aside the lower-income proto-corporatist regimes). In both the shorter period (2005‒19) and the longer period (1960‒2019), all three regimes had fairly similar levels of GDP per capita (albeit highest in the liberal

Promoting economic growth and rising living standards

Table 9.3

Regimes

115

Economic growth in welfare-capitalist regimes, controlling for GDP per capita, 1960‒2019: OLS regression (2)

(3)

GDP per capita annual growth

GDP per capita mean annual

rate

growth rate

liberal

reference

social democratic

0.20 (0.22)

2.3

corporatist

-0.05ns (0.21)

2.3

proto-corporatist

-0.30ns (0.24)

2.6

GDP per capita/1000

-0.07*** (0.01)

 

R2 (adj)

0.14

 

Na

1020

 

ns

1.8

Notes: *** significant at 0.001 ** significant at 0.01 *significant at 0.05 ns = not significant; a N = country-years, i.e., 17 countries each with 60 years of annual growth data. Source: Penn World Tables (1960‒2019).

regimes), and fairly similar per capita growth rates; higher in the social democratic and corporatist regimes over the longer term, then almost the same in 2005‒19. The evidence on GDP per hour worked is interesting but not conclusive. It appears that, particularly in the 2005‒19 period, the Scandinavian countries produced approximately the same amount of goods and services per capita as the other regimes, but with less time on the job. However, this conclusion has to be tentative because of the arbitrariness of comparing regime differences in GDP per capita, measured in 2011 US dollars at then-current exchange rates. In this context it is worth noting that Americans work especially long hours and take short holidays. The ‘overworked American’ (Schor, 1992) puts in about 15 per cent more paid work hours per year than the average Scandinavian. In the corporatist regimes, the level of GDP per capita is somewhat lower, and output per hour appears to be about the same as in liberal regimes in recent years. In considering the performance of the Southern European proto-corporatist regimes, we need to take account of the fact that the growth they achieved was from a lower economic base, well below any ‘technological frontier’. In 1960‒2019 the poorer Southern European countries had the highest per capita growth rate (2.6 per cent). However, regression analysis indicates that, if a control for baseline GDP per capita is imposed, the adjusted proto-corporatist growth rates are no longer estimated to be higher than those of other regimes (Table 9.3, column 2). Although they achieved some ‘catch-up’ growth in earlier years, all of the Southern European countries have recently suffered a lengthy period of high

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116

unemployment with very low growth. Some repercussions of high unemployment are considered in the next chapter on economic security/insecurity.

CHANGES IN LIVING STANDARDS IN 2005‒19 We now check on how increases or decreases in GDP in 2005‒19 translated into changes in material living standards. Changes in living standards are measured here by changes in real equivalised disposable incomes: that is, incomes after taxes and benefits, with adjustments for both household size and inflation. The inflation adjustment is the same as in Chapter 5 on poverty: that is, incomes are indexed to 2007 prices. Data come from the EU-SILC annual cross-sectional surveys. Table 9.4

Regimes

Welfare-capitalist regimes: changes in living standards measured by changes in equivalised (disposable) incomes, 2005‒19 (2)

(3)

Average regime increase in real

Average annual regime increase in real

equivalised incomes 2005‒19a

equivalised incomes 2005‒19a

(%)

(%)

liberal

+ 20.1

+ 1.4

social democratic

+ 16.1

+ 1.2

corporatist

+ 14.2

+ 1.0

proto-corporatist

- 2.5

- 0.2

Note: a Income changes are indexed for inflation, using a 2007 base. Sources: EU-SILC, annual cross-sectional surveys (2005‒19); national panel surveys for Australia, Germany, Switzerland and the US.

These results broadly confirm what we gleaned from the GDP data. In this latest period, liberal regimes recorded somewhat higher growth in equivalised incomes than social democratic regimes, averaging gains of 1.4 per cent per year (20.1 per cent in aggregate) versus 1.2 per cent (16.1 per cent in aggregate). Among liberal regimes, Australia had the highest growth rate in incomes at 25.8 per cent in aggregate (1.8 per cent a year). As already mentioned, Australia avoided recession during the Global Financial Crisis (GFC), largely due to trade with China. There were also some quite significant differences among the historically social democratic regimes. Sweden had the fastest income growth rate at 1.6 per cent a year, while Norway lagged at less than 1 per cent a year. The corporatist regimes had somewhat lower average growth in real equivalised incomes than the liberals or social democrats (1.0 per cent a year, 14.2

Promoting economic growth and rising living standards

117

per cent over the entire period). Corporatist growth rates in incomes ranged between 1.6 per cent a year in France and 0.4 per cent in Germany. In the proto-corporatist regimes household incomes fell by an average of 2.5 per cent in 2005‒19. According to the EU-SILC data, equivalised incomes in Greece fell by 28.8 per cent during the period (-2.1 per cent a year). In Italy the decline was just 2.9 per cent in the period (-0.2 per cent per year). In Spain equivalised incomes rose by 14.4 per cent in 2005‒19; in Portugal by just 3.8 per cent.

SUMMARY As forewarned, the evidence does not come close to determining which regime or regimes perform ‘best’ in terms of delivering economic growth. Differences in aggregate economic performance between developed countries are small, and rankings vary depending on choice of criterion and time period. The evidence gives no support to claims that expensive welfare states and greater equity result in a loss of economic efficiency, slower economic growth, or slower increases in living standards. It may well be that welfare states ‒ social security and welfare provisions – are more important determinants of the economic resources available to individuals and families than differences between regimes in productivity and economic growth.

10. Promoting economic security and social stability PRIORITIES OF CORPORATIST AND PROTO-CORPORATIST REGIMES The priorities of the corporatist and proto-corporatist Western and Southern European regimes revolve around maintaining social stability and economic security. For working age people economic security means job security. For retired people it means an adequate pension.

ECONOMIC SECURITY: WORKING AGE PEOPLE Legal and Regulatory Employment Protection The Organisation for Economic Co-operation and Development’s (OECD) annual reports on employment protection (OECD, Indicators of Employment Protection, 2021) include ratings of each country on a 0‒5 ratings index, indicative of strength of protection. Index ratings reflect national performance on more than 20 specific indicators of job security; indicators that cover ease/ difficulty of dismissal for ‘subjective reasons’ (mainly breaches of contractual obligations) and ‘business reasons’ (the business is financially strapped). Version 4, which is the latest version of the OECD index, also seeks to cover the extent to which protection regulations are actually enforced. The index only covers protection for what are described as ‘regular workers’ on formal job contracts. In nearly all cases, temporary workers have little protection or security. The average (mean) ratings of social democratic, liberal, and corporatist regimes on the 0‒5 index changed little during 2005‒19. However, the Southern European regimes recorded declines. Average regime ratings on the 0‒5 scale for 2019 are calculated from the OECD’s most recent report (OECD, Pensions at a Glance, 2021): • Corporatist regimes: 2.38 • Proto-corporatist regimes: 2.64 118

Promoting economic security and social stability

119

• Social democratic regimes: 2.24 • Liberal regimes: 1.57. So, on paper, the corporatist and proto-corporatist regimes provide the strongest job protection. Social democratic and liberal regimes, so it appears, offer weaker protection. But these are just legal protections; what happens in reality? One aspect of reality is that legal employment protection applies primarily to employees who have signed formal job contracts, and work in formal sectors of the economy. In corporatist and proto-corporatist regimes this means mainly men working in the public sector or for large private companies (Karramessini, 2008; Ferrera, 2010; Petmesidou, 2013). In the informal sectors of the economy – in much of the hospitality industry, in construction, and in the so-called ‘gig’ economy ‒ employment is highly precarious (Standing, 2016; Ferrera, 2010). Southern Europe in particular, and to a lesser extent corporatist Western and Central Europe, have bifurcated labour markets: ‘insiders’ and ‘outsiders’. The insiders with ‘permanent’ contracts are relatively secure. But their security is at the expense of the outsiders who bear the costs of market change, including changing labour market demands. The insider labour market is inflexible; the outsider market is flexible and insecure in the extreme (Muffels et al., 2014). In Chapter 2 we described how the German corporatist regime has introduced changes to employment laws that alter the status of ‘outsiders’. The Hartz reforms, which were implemented gradually between 2002 and 2011, designated two new categories of jobs ‒ ‘Midi jobs’ and ‘Mini jobs’ – to co-exist alongside traditional ‘permanent’ jobs. These new jobs were mainly in the service sector. The Hartz reforms were generally described in Germany as making the labour market more flexible. However, to an outside observer they appear, in a sense, to extend the scope of corporatism by creating additional employee ‘corporations’ at lower levels than standard ‘permanent’ employees. At these new levels employees have more rights and protections than gig workers, but are less protected than ‘permanent’ employees. Income Stability/Instability Our main method of assessing economic security is measuring the stability of incomes. The purpose of stratified corporatist social insurance programmes is to stabilise family incomes. Do the corporatists manage this more effectively than other regimes? Table 10.1 reports coefficients of variation in real equivalised incomes (deflated to 2007 values), calculated from the European Union Statistics on Income and Living Conditions (EU-SILC) panels. The coeffi-

Western welfare capitalisms in good times and bad

120

Table 10.1

Stability/instability of real equivalised household incomes (index = 2007 incomes) before, during and after the Global Financial Crisis: working age (18‒65)a Disposable

Disposable

Disposable

Disposable

incomes

incomes

incomes

incomes

all years,

before GFC,

during GFC,

after GFC,

2005‒19,

2005‒07,

2008‒13,

2014‒19,

coefficient of

coefficient of

coefficient of

coefficient of

variation

variation

variation

variation

(%)

(%)

(%)

(%)

corporatist

16.0

18.1

16.3

15.0

proto-corporatist

28.6

21.2

28.7

30.3

Regimes

social democratic

14.7

14.6

14.7

14.9

liberal

19.6

20.2

20.1

19.0

Note: a Results are weighted so that each country’s sample has the same weight as other countries with the same type of regime. Source: EU-SILC panel surveys (2005‒19).

cients cover three-year periods.1 In general, the higher the coefficient of variation, the more unstable are incomes (but see below: ‘measurement caveats’). The corporatist and Southern European proto-corporatist regimes that intend to prioritise income stability for working people actually record higher coefficients of variation than the social democratic regimes. Coefficients of variation under social democracy stayed within the narrow range of 14.6 per cent to 14.9 per cent for the entire period. The corporatists averaged 16.0 per cent. In the proto-corporatist regimes the average coefficient of variation in disposable incomes at 28.6 per cent was nearly twice as high as the social democratic benchmark. Liberal regimes recorded the second-highest levels of income instability (coefficient of variation for 2005‒19 = 19.6 per cent).2

1 The panels cover four-year periods. However, we calculated three-year rather than four-year coefficients of variation because only three years of data are available for the period before the Global Financial Crisis (GFC). 2 Regression estimates from equations that include controls for gross domestic product (GDP) per capita and standard socio-economic variables confirm the regime rankings summarised here.

Promoting economic security and social stability

121

The Impact of Government Taxes and Transfers on Income Stability/ Instability To what extent do governments reduce fluctuations in the incomes of working age people (18‒65) through the tax-transfer system?3 Table 10.2 provides some estimates. Variation in market or ‘pre-government’ real incomes (equivalised) is reported in column (2), column (3) repeats the disposable income results from the previous table, and column (4) provides calculations of reductions in income instability due to government intervention. Table 10.2

The impact of governments on the stability/instability of market and disposable (equivalised) household incomes, 2005‒19: working age (18‒65)a (2)

(3)

(4)

Market (pre-government)

Disposable

Gov. reduction in

income,

(post-government) income,

income instabilityb

coefficient of variation

coefficient of

(%)

(%)

variation

corporatist

23.7

16.0

32.5

proto-corporatist

37.2

28.6

23.1

social democratic

24.8

14.7

40.7

liberal

24.1

19.6

18.7

Regimes

(%)

Notes: Results are weighted so that each country’s sample has the same weight as other countries with the same type of regime; b Reduction in instability (%) = (market income – disposable income)/market income; * 100. Source: EU-SILC panel surveys (2005‒19). a

The extent to which Western governments stabilise incomes is probably not widely known. In this period the social democratic regimes reduced instability by a very substantial 40.7 per cent; and the corporatists, in line with their priorities, reduced it by a substantial 32.5 per cent. The proto-corporatist and liberal regimes are less interventionist, but still reduce volatility by around 20 per cent. The very high estimate for market income volatility in the proto-corporatist regimes plainly reflects their travails during the GFC and 3 As in Chapter 5 on poverty, we do not include elderly people in the analysis of government reduction of income instability, because their incomes depend largely on the old age pensions they receive. In most cases they have contributed throughout their working lives to savings that finance their pensions. So they would not consider that the government of their country was instrumental in ‘stabilising’ their incomes just because they were collecting pensions to which they felt fully entitled.

122

Western welfare capitalisms in good times and bad

afterwards. In the United States (US) liberal regime volatility has increased sharply in recent decades (Hacker, 2019; see also Marston et al., 2010). Measurement Caveats There are two population groups for which the coefficient of variation of family incomes is probably not an appropriate measure of economic security. Most people who are living in poverty surely feel financially insecure whether or not their incomes are stable over time. At the other end of the spectrum, people whose incomes keep rising rapidly in real terms year after year probably do not feel financially insecure, even though they record a high coefficient of variation. In practice, if these two groups are excluded, the ranking of regimes does not change. The resulting coefficients of variation are 1‒2 per cent lower than shown in Tables 10.1 and 10.2, but the social democratic regimes still record the lowest levels of income instability, followed by the corporatists, the liberals and then the proto-corporatists. Working Age People: Perceived Job and Employment Security How do people feel about their job and employment security under different regimes? In this section we review employees’ perceptions of security/insecurity elicited by questions in the biennial European Social Survey (ESS, 2002–). Respondents are asked how likely it is that they will become unemployed, and so will be looking for work in the next 12 months. This is a question about the security of one’s current job. The second question is about longer-term employment security. Respondents are asked how likely it is that, if they lost their current job, they could get another one which was just as good. In columns (2) and (3) of Table 10.3 we report mean responses in each regime to the job security question, which was asked in the 2008 and 2016 waves of the survey. Then in columns (4) and (5) come responses to the question about employment security, asked in 2004 and 2010. The evidence here is that the corporatist regimes, and especially the Southern European proto-corporatist regimes, which claim to prioritise economic security, actually do relatively poorly in protecting employees from fear of job loss and from fears relating to their longer-term employment prospects. It was employees in social democratic regimes who reported the least concern in all periods; before, during and after the GFC. Table 10.4 provides checks on these results, showing whether they still hold when controls are in place for national GDP per capita and other potentially confounding socio-economic variables.

Promoting economic security and social stability

Table 10.3

123

Perceptions of job security and employment prospects under welfare-capitalist regimes; perceptions before, during and after the Global Financial Crisis (GFC)a (2)

(3)

(4)

(5)

During GFC,

After GFC,

Before GFC,

During GFC,

2008,

2016,

2004,

2010,

fear of losing job

fear of losing job

likely get good job

likely get good job

(1‒4 scale)

(1‒4 scale)

(0‒10 scale)

(0‒10 scale)

corporatist

1.8

1.7

4.1

4.7

proto-corporatist

2.0

2.1

3.8

3.7

social democratic

1.6

1.6

5.2

5.5

liberal

1.7

1.7

4.8

5.0

Regimes

Note: a Results are weighted so that each country’s sample has the same weight as other countries with the same type of regime. Source: European Social Survey (2004‒18, biennial). This survey does not include Australia and the US.

Table 10.4

Regimes

Perceptions of job security and of future employment prospects, net of GDP and socio-economic variables: ordinary least squares (OLS) regressionsa During GFC,

After GFC,

Before GFC,

During GFC,

2008,

2016,

2004,

2010,

fear of losing job

fear of losing job

likely get good job

likely get good job

(1‒4 scale)a

(1‒4 scale)a

(0‒10 scale)a

(0‒10 scale)a

corporatist

0.11***(0.02)

0.08***(0.02)

-1.38*** (0.07)

-0.85***(0.10)

proto-corporatist

0.14***(0.02)

0.37***(0.02)

-1.82***(0.11)

-1.26*** (0.15)

social democratic

reference

reference

reference

reference

liberal

0.08***(0.02)

0.12***(0.03)

-0.42*** (0.08)

-0.39***(0.11)

GDP per cap (ln)

-0.38***(0.03)

-0.21***(0.05)

-1.04*** (0.19)

0.91***(0.17)

R2

0.10

0.11

0.08

0.08

Na

19560

17657

10758

8757

Notes: a The equations also include controls for gender, age, age-squared, marital/partner status and years of education; *** significant at 0.001, ** significant at 0.01, *significant at 0.05, ns = not significant. Source: European Social Survey (biennial, 2002‒18); the survey does not include Australia and the US.

The regression results do not change our inferences. It is clear that fear of job loss and unemployment have been lowest in the social democratic regimes and highest in proto-corporatist Southern Europe.

124

Western welfare capitalisms in good times and bad

One reason for the relative confidence of Scandinavians about their employment security is probably the existence of well-established ‘flexicurity’ labour market programmes. As previously discussed, these programmes guarantee that individuals who lose their job get an opportunity to retrain for work in a sector where jobs are expected to be available (Korpi, 1985; Nickell and Layard, 1999; Bjorklund, 2000; Easterlin and Switek, 2014; Muffels et al., 2014).

THE ELDERLY Retirement Pensions: Do They Provide an Adequate Income? We next consider the financial security of elderly, retired people under different regimes. The results in this section are particularly relevant to the priorities of corporatist and proto-corporatist regimes. These regimes aim to promote family income stability with a view to maintaining the family’s economic security and social status in good times and bad. For elderly people this requires providing pensions that keep them close to the standard of living they had during their working lifetime. Two measures are used to assess retirement incomes. The first is the ‘net replacement rate’ (NRR), which measures the percentage of their previous net (after-tax) earnings that a pensioner receives on retirement.4 The measure takes account of mandatory public and private pensions, plus voluntary pension schemes. It is well suited to assessing the extent to which corporatist regimes manage to protect economic security in old age. A second measure is the percentage of older people (over-65s) who fall below the European Union (EU) poverty line set at 50 per cent of median income. In Table 10.5, columns (2) (3) and (4) report the pension NRRs of men living under different regimes. (The data for women are misleading, for reasons discussed below.) To provide indications of redistribution, we report the NRRs of men at three levels of earnings prior to retirement: 0.5 of average earnings, average earnings, and 2.0 times the average. The final column of the table gives poverty rates for people over 65. Again, because rates and the ranking of countries have not changed much in recent years, we just report data for the latest year available, which for most countries is 2018. First, the corporatist regimes. The NRRs indicate that the corporatists provide most of their elderly citizens with a reasonable degree of economic

4 The measure also takes account of taxes paid on pensions. In some countries pensions are tax-free, in others they are taxed at concessional rates, and in still others at normal marginal rates.

Promoting economic security and social stability

Table 10.5

Regimes

125

Welfare-capitalist regimes: pension net replacement rates (NRRs) and poverty rates of elderly people (over 65)a (2)

(3)

(4)

(5)

NRR

NRR

NRR

Poverty rate:

0.5 of average

average weekly

2.0 times average

over-65s

weekly earnings

earnings

weekly earnings

(50% median

(%)

(%)

(%)

poverty line) (%)

corporatist

73.2

72.4

67.4

6.6

proto-corporatist

79.1

79.2

79.4

9.5

social democratic

71.8

60.0

60.0

7.6

liberal

60.5

40.8

34.6

19.7

Note: a Data are for the latest year available; 2018 for most countries. Source: Calculations from OECD, Pensions At A Glance (2021), Tables 4.4 and 7.2.

security. Most get pensions that are 70‒75 per cent of their previous earnings, which seems adequate, given that some expenses (for example, commuting costs, the cost of suitable clothes for work) are reduced in retirement. There are some variations in provision among the corporatist regimes. The Netherlands has very flat NRRs, in that men who worked for 0.5, 1.0 and 2.0 times average earnings all get about the same percentage of their previous earnings when they retire (80‒85 per cent). That is status maintenance par excellence. In Austria, France and Germany, men who worked for average earnings, or 0.5 of the average, get about the same percentages of previous income in retirement. Those whose earnings were twice the average get substantially lower NRRs. Belgium is a exception among the corporatists. There the system is quite redistributive. Men previously on 0.5 of average earnings have a NRR of 83.0 per cent, the NRR of average earners is 61.9 per cent, and for men who made twice average earnings it is 43.9 per cent. When it comes to poverty rates among the elderly, there is also some variance. In the Netherlands and France less than 5 per cent of elderly people are poor, but in Austria the figure is 12.1 per cent, in Belgium 9.5 per cent, and in Germany 9.1 per cent. The Southern proto-corporatist regimes provide somewhat higher NRRs than Western and Central European corporatists. Except for Greece they have fairly flat NRRs all the way across the earnings distribution. In Greece low-income earners get an NRR of 94.1 per cent, compared with 83.6 per cent for middle-income earners and 77.5 per cent for high earners. The Southern regimes keep most elderly people out of poverty; poverty rates among over-65s are 3‒4 per cent below national average rates. All the Scandinavian social democratic regimes, in line with their priorities, record poverty rates among older people that are close to their national

126

Western welfare capitalisms in good times and bad

average. Denmark and Norway have highly redistributive NRRs. Finland has almost perfectly flat NRRs; one reason why Esping-Andersen (1990) regarded it as having a regime that is ‘borderline’ between social democratic and corporatist. Swedish NRRs appear to be electorally perverse. Middle-income men – the largest segment of the male population ‒ get pensions with lower NRRs than higher- or lower-income men. The liberal regimes are all of a piece. Their NRRs are higher for lower-income men, partly due to means-testing that reduces or eliminates pensions and/or other welfare benefits for higher-income people. But as we have seen, despite some redistribution, elderly poverty rates remain extremely high. Elderly Women Most pension statistics, including those from the Organisation for Economic Co-operation and Development (OECD), are presented as if the elderly population consisted mainly of single men whose living standards depend on their pension NRR. But in fact, because women live longer, most elderly people are women. Furthermore, 58 per cent of them are not married; they are mostly widows. So it is generally accepted that published pension statistics for women are misleading. In most Western countries, women get the same NRRs as men only if they have the same work history. But they do not. A majority have interrupted careers, mainly due to raising children. On average in OECD countries, women’s pensions are 25 per cent below men’s (OECD, Pensions at a Glance, 2021). The gap is over 40 per cent in corporatist Germany and the Netherlands, regimes that, in this respect, remain exponents of the ‘male breadwinner’ welfare state. The gender gap is under 10 per cent only in Denmark. Income Stability: The Elderly How stable are the incomes of elderly people? One might expect the answer to be: ‘Very stable – they just collect the same pension every year.’ Table 10.6 shows that this answer is more wrong than right. It is true that, under most regimes, elderly people’s incomes are more stable than working people’s. However, in liberal regimes this is not the case: the elderly have much lower incomes (on average) than the rest of the population, and their incomes fluctuate just as much. There are substantial differences among other regimes. Income volatility is lowest in the social democratic

Promoting economic security and social stability

Table 10.6

Regimes

127

Stability/instability of equivalised disposable incomes in welfare-capitalist regimes 2005‒19: elderly people (over 65)a Disposable

Disposable incomes

Disposable

Disposable

incomes

before GFC,

incomes

incomes

all years,

2005‒07,

during GFC,

after GFC,

2005‒19,

coefficient of

2008‒13,

2014‒19,

coefficient of

variation

coefficient of

coefficient of

variation

(%)

variation

variation

(%)

(%)

(%) corporatist

12.5

15.1

13.5

10.8

proto-corporatist

25.0

16.0

25.1

26.9

social democratic

8.9

7.6

8.8

9.4

liberal

19.9

20.6

21.2

18.7

Note: a Results are weighted so that each country’s sample has the same weight as other countries with the same type of regime. Source: EU-SILC panel surveys (2005‒19).

regimes. The corporatist regimes have the next-lowest levels of volatility.5 In the proto-corporatist regimes the stability of older people’s incomes has been reduced in recent years due to pension cutbacks intended to help repair public finances in the wake of the GFC.

SUMMARY Corporatist and proto-corporatist regimes aim to provide their citizens with a high degree of financial security, in pursuit of the broader objective of maintaining social stability. In this chapter we have compared the financial security of employees, and also of retired people under different regimes. In summary, both objective evidence about the income stability/instability of employees, and their subjective perceptions of current job security and future employment prospects, indicate that the historically social democratic Scandinavian regimes provide greater financial security than is found elsewhere. Corporatist regimes are not far behind, but incomes are much less stable in liberal and proto-corporatist regimes. The situation for retired people is somewhat different. The corporatists and proto-corporatists provide pensions with higher earnings replacement rates than other regimes. However, elderly poverty rates are lower, and income stability is greater in the social democratic regimes.

5 As was the case with the working age population, regression estimates from equations that include controls for GDP per capita and standard socio-economic variables confirm the regime rankings.

128

Western welfare capitalisms in good times and bad

Liberal regimes record easily the highest elderly poverty rates, coupled with the highest rates of income instability.

11. Enhancing life satisfaction: a shared priority? Until recently, when governments wanted to assess policy/welfare outcomes, they relied exclusively on ‘objective’ quantitative measures. Examples in this book have included percentage measures of poverty, representation and ratio measures of gender inequality (for example, percentage of female ministers, gender pay gap), percentage measure of economic growth per capita, and variance-based measure of income stability. In the last 20 years or so there has been increasing support for the view that these measures should be supplemented by ‘subjective’ measures that assess how citizens evaluate government programmes, and more broadly how they evaluate their own lives. As mentioned in Chapter 1, the European Union and the Organisation for Economic Co-operation and Development (OECD) have issued influential reports, co-authored by two Nobel laureates in economics, Joseph E. Stiglitz and Amartya Sen, advocating that subjective measures should be included in official national and international statistics (Stiglitz et al., 2008; Stiglitz et al., 2018). The aim is broaden the concept of welfare, moving away from focusing primarily on economic measures, to offer alternative indicators of social progress. In practice, the most widely used subjective measures are straightforward measures of ‘consumer’ satisfaction, based on asking survey respondents how satisfied or dissatisfied they are with institutions of government (for example, the federal government, the police), public policy (for example, public transport in your city), aspects of their own lives (for example, your health), or their ‘lives-as-a-whole’ (‘life satisfaction’). In previous decades, most social scientists – certainly most economists – regarded satisfaction measures, and subjective measures more generally, as too unreliable, too likely to be based on transient impressions, to be worth including in official statistics. However, these views have slowly changed, to the point where it is now quite widely accepted that satisfaction measures, including life satisfaction, are reasonably reliable and valid, and so provide useful additional information to standard objective measures (Diener et al., 1999; Argyle, 2001; but see Deaton, 2008).

129

Western welfare capitalisms in good times and bad

130

LIFE SATISFACTION IN WELFARE-CAPITALIST REGIMES In this chapter we focus on the most general and most widely reported of all subjective measures, namely life satisfaction. It seems reasonable to suppose that promoting high levels of life satisfaction, rather than being the preserve of one particular type of regime, is a high priority in all regimes. Our first evidence comes from Gallup International, which conducts an annual survey in which representative samples of respondents in 95 countries around the world are asked to rate their current life on a 0‒10 scale. The scale is presented as a ladder with the 10th (top) rung meaning ‘the best possible life for you’ and the bottom rung meaning ‘the worst possible life for you’. These are the data now published annually in United Nations (UN) World Happiness Reports (United Nations, 2012‒22). Table 11.1 reports average (mean) life satisfaction ratings in the four regimes before, during and after the Global Financial Crisis (GFC). Table 11.1

Regimes

social democratic

Life satisfaction in welfare-capitalist regimes before, during and after the Global Financial Crisisa Life satisfaction:

Life satisfaction:

Life satisfaction:

Life satisfaction:

all years

before the GFC

during the GFC

after the GFC

(2005‒19)

(2005‒07)

(2008‒13)

(2014‒19)

(0‒10 scale)

(0‒10 scale)

(0‒10 scale)

(0‒10 scale)

7.5

7.6

7.6

7.5

liberal

7.2

7.2

7.2

7.2

corporatist

7.0

7.0

7.0

7.1

proto-corporatist

6.0

6.5

5.9

5.9

Note: Results are weighted so that each country’s sample has the same weight as other countries with the same type of regime. Source: United Nations, World Happiness Reports (2012‒22). The UN data are provided by Gallup International and are for 2005‒19. a

Satisfaction is markedly higher under the social democratic regimes than elsewhere (Pacek and Radcliffe, 2008; Radcliff, 2013). This holds true for men and women, and all age groups. Satisfaction levels did not decline during the GFC in social democratic, corporatist and liberal regimes. In Southern Europe there was a sharp fall in satisfaction – precipitous in Greece – and, of course, life did not improve in the subsequent long period of austerity. The UN reports have the advantage of providing annual data, but they only report national averages. For a more detailed understanding of factors that

Enhancing life satisfaction: a shared priority?

131

affect life satisfaction, we turn to the European Social Survey (ESS), in which respondents are interviewed every two years. We use data for 2004‒18.1 Life satisfaction is generally higher in wealthier countries and regions of the world than in poorer places, so comparisons are often made after adjusting for the effects of national income (Deaton, 2008; United Nations, 2012‒22). Here, we want to compare regimes. Our approach is to regress life satisfaction on gross domestic product (GDP) per capita, plus our usual set of dummy variables for regimes. Remaining differences in satisfaction (known in statistical jargon as ‘residuals’) are regime differences, stripped of the effects of GDP. A positive residual means that life satisfaction is above the level expected on the basis of regime GDP, whereas a negative residual means that satisfaction is lower than expected (see Figure 11.1).

Source: European Social Survey (2004‒18).

Figure 11.1

Welfare-capitalist regimes: comparing differences between actual life satisfaction and the level predicted by GDP per capita

1 In the ESS survey members respond to a 0‒10 satisfaction scale on which the end-points are labelled ‘very dissatisfied’ and ‘very satisfied’. The ESS data are supplemented by data from the Australian Household, Income and Labour Dynamics Australia Survey (HILDA), and the American Panel Study of Income Dynamics (PSID).

Western welfare capitalisms in good times and bad

132

Table 11.2

Life satisfaction under welfare-capitalist regimes: fixed-effects OLS regressiona

Regimes

Life satisfaction (0‒10 scale)b

social democratic

reference

liberal

-0.41***(0.02)

corporatist

-0.68***(0.01)

proto-corporatist

-0.91***(0.02)

GDP per capita (ln)

0.87***(0.03)

Household income (decile)

0.15***(0.00)

R2

0.14

N

121 387

Notes: a The equation includes controls for gender, age, age-squared, marital/partner status (1-0), years of education. Also included are fixed year effects; *** significant at 0.001, ** significant at 0.01, *significant at 0.05, ns = not significant. Source: European Social Survey (2004‒18).

The bar for the social democratic regimes is positive: they rate 0.4 points higher on the 0‒10 life satisfaction scale than ‘predicted’ by their GDP. The liberal regimes rate a bit above predicted levels; the corporatists and Southern European regimes are well below. Adjusting for GDP is a start. We next control for a more complete list of variables that might confound assessment of regime differences in life satisfaction. Table 11.2 reports estimates for a fixed-effects regression with controls in place for gender, age, marital (partnership) status, level of education, and household income as well as national income. Our measure of household income – household net income decile ‒ is a relative rather than an absolute measure.2 The reason for this choice is that it is well established that people’s life satisfaction depends more on their relative position in the income distribution than on absolute income levels (Easterlin, 1974; Diener et al., 1999). Adjusting for these variables, people living in the Scandinavian regimes are 0.41 points more satisfied than their counterparts in liberal regimes, 0.68 points more satisfied than in conservative regimes, and 0.91 points more satisfied than in Southern European regimes.



2

Household net incomes divided into ten equal groups (deciles) of 10 per cent.

Enhancing life satisfaction: a shared priority?

133

INEQUALITY OF LIFE SATISFACTION: REGIME DIFFERENCES Our next hypothesis is that inequality of life satisfaction is lower under social democratic than other regimes. The measure of inequality used here for each regime in each year is the standard deviation of life satisfaction (see also United Nations, World Happiness Report, 2016). The standard deviation is a measure of spread/variation around the mean, so the larger the standard deviation, the greater is the degree of inequality. Data again come from the biennial European Social Survey, 2004‒18. In Table 11.3, column (2) we report the mean standard deviation of life satisfaction for each of the four regime for all years combined. This is the main result. It indicates that inequality of life satisfaction appears to be lower in the social democratic regimes than elsewhere; the mean standard deviation being 1.6, compared with 1.9 in liberal regimes, 2.0 in corporatist regimes, and 2.2 in proto-corporatist regimes. Table 11.3

Inequality of life satisfaction: standard deviations of satisfaction in welfare-capitalist regimes (2)

(3)

(4)

(5)

Life satisfaction,

Life satisfaction,

Life satisfaction,

Life satisfaction,

mean annual

standard deviation

lowest annual

largest annual

standard

of annual standard

standard deviation

standard deviation

deviation

deviations

social democratic

1.6

0.1

1.4

1.8

liberal

1.9

0.2

1.5

2.2

corporatist

2.0

0.3

1.4

2.5

proto-corporatist

2.2

0.2

1.8

2.6

N

32

32

32

32

Regimes

a

Note: N = ‘regime-years’. We have four types of regime with biennial data (standard deviations) for 8 years (2004, 2006 … 2018). So the N = 32 (4*8). Source: European Social Survey (2004‒18). a

It should be understood that the results reported in this table are aggregate-level, not individual-level. That is, they relate to regimes, and not (unlike most results in this book) to individual survey respondents. Aggregate data need to be treated with caution because we are dealing with only a small number of cases (N = 32; that is, eight years of data for four regimes), rather than with thousands of survey respondents. With this in mind, some additional checks are reported in Table 11.3. Column (3) of the table shows the standard deviation of the annual standard deviations for each regime. This, too, is lower in

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social democratic regimes than elsewhere. Finally, columns (4) and (5) show the lowest and highest annual standard deviation recorded by each regime; again, the social democratic regimes look comparatively equal.3 There are exceptions to the overall picture. Australia, a liberal regime, actually has a lower degree of life satisfaction inequality than the Scandinavian countries; and the Netherlands, a corporatist regime, has a standard deviation comparable to the Scandinavians. An additional, perhaps rather obvious, hypothesis is that life satisfaction inequality is partly due to income inequality. The Pearson correlation between national Gini coefficients and national standard deviations of life satisfaction for the 17 countries in our dataset is 0.50 (2004‒18). The link remains strong, net of GDP per capita.

EVIDENCE ON DESTRATIFICATION: A SOCIAL DEMOCRATIC META-OBJECTIVE? As an addendum to results on life satisfaction, we consider some evidence relating to what sociologists call ‘destratification’. By this they mean a reduction in differences between social groups or social strata. As Esping-Andersen (1990, 1999) wrote, destratification can be thought of as a meta-objective of social democratic regimes. It is perhaps an objective dearer to the hearts and minds of intellectuals and party theoreticians than ordinary party members or the general public. We review here some potential ‘destratification’ consequences – second-order effects ‒ of the combination of low levels of poverty with reduced income and gender inequality in social democratic regimes. It might be expected that, in these circumstances, differences in life satisfaction between people of higher and lower socio-economic status would be smaller under social democratic than other regimes (Samuel and Hadjar, 2016). Similarly, we hypothesise that the life satisfaction gap between high- and low-income people will be smaller in the social democratic regimes. Technically, one way to test these hypotheses is to add interaction terms to equations that we have already run. To test the hypothesis about socio-economic status, we constructed four interaction terms between regime type and the 3 As a further check, we ran a fixed-effects regression equation in which the outcome variable was regime standard deviations of life satisfaction and the explanatory variables were the four regimes (dummy variables), plus GDP per capita and a dummy variable for each year of data collection. The results suggested that regimes/ countries with higher levels of GDP per capita also have lower inequality of life satisfaction. However, regime differences remained strongly statistically significant (p < 0.001).

Enhancing life satisfaction: a shared priority?

Table 11.4

Life satisfaction is less dependent on socio-economic status in social democratic regimes than in other welfare-capitalist regimes: fixed-effects ordinary least squares (OLS) regressiona

Regimes

life satisfaction (0‒10 scale)b

Main effects

 

social democratic

reference

liberal

-0.64***(0.05)

corporatist

-1.41***(0.05)

proto-corporatist

-1.77***(0.06)

Socio-economic status (ISEI)

0.00ns(0.00)

 

 

Interaction terms

 

social democratic*ISEI

reference

liberal*ISEI

0.01***(0.00)

corporatist*ISEI

0.01***(0.00)

proto-corporatist *ISEI

0.02***(0.00)

GDP per capita (ln)

1.04***(0.04)

R

0.14

2

N

135

89390

Notes: a. The equation includes controls for gender, age, age-squared, marital/partner status (1-0) and years of education. Also included are fixed year effects; *** significant at 0.001, ** significant at 0.01, *significant at 0.05, ns = not significant.

‘international socio-economic index of occupational status’ (ISEI). To test the hypothesis of reduced differences in life satisfaction between income groups, we interacted regime type with household income decile; that is, with a measure of relative household income. Social democratic regimes are the reference category in Tables 11.4 and 11.5 both for tests of the main effects of regime on life satisfaction (in the top half of the tables) and also for testing interaction effects (the lower half). The positive and statistically significant (p < 0.001) interaction terms in Table 11.4 show that there is a stronger link between socio-economic status and life satisfaction in the other three types of regime than in social democratic welfare states. Table 11.5 reports similar results, showing that there are smaller difference in life satisfaction among income groups in social democratic regimes than elsewhere. Again, positive and significant interaction terms for liberal, corporatist and proto-corporatist regimes in Table 11.5 tell us that income matters more to life satisfaction in these regimes than under social democracy.

Western welfare capitalisms in good times and bad

136

Table 11.5

Life satisfaction is less dependent on household income in social democratic regimes than in other welfare-capitalist regimes: fixed-effects OLS regressiona

Regimes

Life satisfaction (0‒10 scale)b

Main effects

 

social democratic

reference

liberal

-0.54***(0.04)

corporatist

-1.21***(0.04)

proto-corporatist

-1.36***(0.05)

Household income decile

0.11***(0.00)

 

 

Interaction terms

 

social democratic*income decile

reference

liberal*income decile

0.02***(0.01)

corporatist*income decile

0.09***(0.01)

proto-corporatist*income decile

0.08***(0.01)

GDP per capita (ln)

0.84***(0.03)

R

0.14

N

121387

2

Notes: a The equation includes controls for gender, age, age-squared, marital/partner status (1-0) and years of education. Also included are fixed year effects; *** significant at 0.001, ** significant at 0.01, *significant at 0.05, ns = not significant.

Let us state these results the other way round: the gap between high- and low-status individuals, and between high- and low-income individuals, is reduced in social democratic regimes. This is destratification.

REGIME DIFFERENCES IN LIFE SATISFACTION BETWEEN MEN AND WOMEN Gender inequality is lower in the Scandinavian social democratic regimes than other Western regimes, so it is reasonable to hypothesise that Scandinavian women may be more satisfied with life, relative to their menfolk, than women elsewhere. The simplest way to test this hypothesis is just to report gender differences in life satisfaction in the four regimes. In most Western countries women report slightly higher life satisfaction than men. Their mean satisfaction level in Scandinavia is 0.06 points higher than men’s, at 8.06 versus 7.99 (p < 0.001); in the liberal and corporatist regimes it is just 0.01 points higher; a difference that is not statistically significant. However, in the less egalitarian

Enhancing life satisfaction: a shared priority?

137

Southern European proto-corporatist regimes, women’s satisfaction rates 0.21 points lower than men’s (6.30 versus 6.51). Clearly, then, women are more satisfied relative to men in the social democratic regimes than elsewhere.

SUMMARY The results in this chapter are all of a piece. Life satisfaction is higher and less unequal in social democratic Scandinavia than under other Western regimes. Satisfaction is also less strongly related to either socio-economic status or family income in Scandinavia than elsewhere. Gender differences in satisfaction favour women in Scandinavia, and men in proto-corporatist Southern Europe.

PART III

A current crisis: coping with Covid

12. Coping with Covid: public health responses – the trade-off that didn’t exist PUBLIC HEALTH VERSUS THE ECONOMY: IS THERE A TRADE-OFF? When Covid-19 struck in early 2020 the idea that dominated the minds of most Western policy-makers – their frame of reference ‒ was that they faced a trade-off. They believed that the more restrictions they imposed to protect public health, the greater would be the damage to the economy. Conversely, if they accepted more disease and death, economic losses could be reduced. The trade-off approach turned out to be wrong, but most policy-makers persisted with it throughout the pandemic – through multiple waves of Covid – with unnecessarily damaging consequences for both public health and the economy. That said, policy-makers were extraordinarily active and innovative in their interventions to try and protect their economies and the welfare of citizens. Contrary to economic orthodoxy, and especially contrary to the doctrines of the dominant Chicago school, they unleashed a barrage of fiscal, monetary and welfare interventions. These included making large grants and guaranteed loans to businesses that were not producing – businesses that were wholly or partially shut down – paying ‘wages’ to employees who were not working (‘temporarily’ on leave), increasing and extending the duration of unemployment benefits to individuals who were definitely out of work, and giving one-off grants to those at risk of poverty. All this was contrary to what the public had long been told were the ‘laws of economics’. In particular, it was contrary to injunctions about the importance of not undermining work and business incentives. It was not Chicago or even Keynesian economics. It was government intervention in economic life on a scale sometimes denigrated as ‘socialistic’. Unlike the Global Financial Crisis (GFC), Covid-19 was an exogenous crisis: a public health crisis, not one that originated in the economic system. As a matter of history, exogenous crises often lead to the adoption of lasting reforms. It remains to be seen whether, when the Covid crisis is over (not 139

140

Western welfare capitalisms in good times and bad

definitely the case at the time of writing in October 2022), policy-makers are able to return to the old orthodoxies, or whether publics and pressure groups will call their bluff and demand continued support. In this chapter we set out the evidence which indicates that there was no trade-off between public health and the economy. We then describe public health responses under the four regimes. The next chapter outlines diverse and, in some cases, innovative policy responses across a wide range of policy areas: labour market policy, welfare, education, housing, mental health, gender equality, even foreign aid.

THE TRADE-OFF THAT DID NOT EXIST Here is initial evidence that the expected trade-off between public health and economic performance did not exist (Table 12.1). Columns (1) and (2) show reported deaths per million population in the first year of Covid (2020), and the change in real ross domestic product (GDP) (not GDP per capita) in each regime during that year. Columns (3) and (4) continue the story into the second year, showing deaths per million up to the end of 2021, and changes in GDP for 2020 and 2021 combined. The mortality data are taken from Worldometer, published and updated daily by Johns Hopkins University in Baltimore, Maryland. For Western countries, Worldometer reports official, recorded deaths as shown on death certificates. The table reports regime averages of deaths per million and changes in GDP. However, one of the social democratic regimes – Sweden – and one of the liberal regimes – Australia ‒ adopted policies to deal with Covid that were quite different from the policies adopted by other countries with the same regime. We will describe Australia’s and Sweden’s distinctive policies in later pages. Here it just needs to be noted that results for social democratic and liberal regimes in Table 12.1 are given with and without the inclusion of Sweden and Australia. If there had been a genuine trade-off between public health and economic performance during the pandemic, we would expect to find higher death rates associated with better economic performance, with smaller declines in GDP. In fact, the Pearson correlations between the two variables are negative: -0.63 for the first year of Covid, and -0.53 for the longer period up to the end of 2021. These are large negative correlations. So this initial evidence indicates that a higher death rate was linked to worse economic performance, not better. The historically social democratic Scandinavian regimes, with the partial exception of Sweden (details follow), recorded both the lowest death rates and the least-worst changes in GDP. The liberal regimes, with the exception of Australia (more details follow), fared second-best. The corporatist regimes recorded both somewhat higher death rates than the liberals, and worse GDP performance. The proto-corporatists did easily the worst on both counts,

Public health responses – the trade-off that didn’t exist

Table 12.1

Regimes

141

The Covid pandemic: the trade-off that did not exist (deaths per million population and changes in GDP) (2)

(3)

(3)

(4)

1st year of Covid:

1st year of Covid:

2020 and 2021

2020 and 2021

reported deaths

changes in real

combined:

combined:

per million to end

GDP,

reported deaths

changes in real

2020b

Q4 2019 to

per million to end

GDP,

Q4 2020c

2021b

Q4 2019 to Q4 2021c

(%)

(%) social democratic

317 (137)

-1.1 (-0.8)

570 (272)

3.2 (3.2)

769 (1013)

-2.9 (-3.5)

1357 (1793)

2.1 (1.6)

corporatist regimes

879

-4.2

1466

0.5

proto-corporatist

867

-7.3

1804

-1.5

Correlations between

-0.63 (2020)a

 

-0.53 (2020‒21)a

 

(excluding Sweden) liberal (excluding Australia)

deaths (ln) and changes in GDP

Note: a These correlations are for all 17 countries. Excluding Sweden and Australia, the correlations are -0.63 for 2020, and -0.52 for 2020‒21. Sources: b Worldometer, https://www.worldometers.info/coronavirus (February 2022). Reprinted in Ritchie et al. (2020); c OECD, Main Economic Indicators (2022). These are growth rates in real GDP in volume terms, seasonally adjusted.

although they were not helped by the fact that, when Covid started, their economies had barely recovered from the GFC. Economic developments during Covid have followed an interesting course. The countries that had the worst growth rates ‒ the biggest declines in GDP ‒ during 2020 achieved the biggest rebounds in 2021. In a sense they regained production lost in 2020. So there was, in fact, a negative correlation between national growth rates in 2020 and 2021.1 Nevertheless, the central point remains that, over the whole period, the relationship between death rates and changes in GDP was strongly negative.

HOW SHOULD DEATHS BE COUNTED? A MEASUREMENT ISSUE It is often said that the first casualty of war is truth. Perhaps it is the same with all national emergencies. There are two main ways of measuring the number

1

The year-on-year correlation was -0.61.

142

Western welfare capitalisms in good times and bad

of deaths in wars and epidemics. One is to rely on statements of the cause of death on death certificates; the type of data reported in Table 12.1. The other is to calculate what is termed ‘excess mortality’. This involves comparing the number of deaths that occur in a normal period (for example, the average of the previous five years) with the number occurring in an emergency. The difference is ‘excess deaths’ or ‘excess mortality’. In wars there is always a big difference between the number of deaths that are directly due to military action, and estimates of excess mortality that include deaths due to, among other factors, dietary deficiencies, the spread of disease in trenches, overstretched health care facilities, and the problems suffered by displaced people and refugees. In an epidemic such as Covid, there can be excess mortality due to people who really died of Covid not being recorded as such, and due to people not seeking health care for other problems because they fear that attending a clinic or hospital might expose them to infection. It should be mentioned that some side-effects of an epidemic actually reduce total deaths. For example, there has been a reduction in both deaths from influenza and road deaths during Covid, due to lockdowns keeping people at home (The Economist, 2022; IHME, 2021). In 2022, after lockdowns had ended, deaths from flu and deaths on the road were back to normal. Of the two methods of counting deaths – death certificates versus excess mortality – there is no doubt which comes closer to measuring the true effects of an emergency. The death certificate method is easy to implement and gives precise figures, but the excess mortality method surely provides more valid estimates of deaths caused by an emergency, even though the ‘confidence interval’ (the band of uncertainty around estimates) is larger. Not surprisingly, in issuing their official figures of Covid deaths, governments mostly opted for the death certificate method.2 In the early days of the epidemic this led to severe undercounting, especially in countries such as the United States (US) and the United Kingdom (UK), which at first mainly counted hospital deaths, and did not even count deaths in elderly care (nursing homes) and prisons, partly because it was rare for death certificates issued at those institutions to specify death from Covid. As Covid continued, sources such as The Economist (a weekly magazine based in London) and the Institute of Health Metrics and Evaluation at the University of Washington, estimated excess mortality and pointed out that public authorities were more or less deliberately understating total deaths by omitting deaths in non-hospital institutions, and also by referring vaguely to ‘co-morbidities’ that had perhaps killed patients in conjunction with Covid.

2 Belgium appears to be the only country that, from the start, opted for the excess mortality method.

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143

Are the inferences that we drew from the previous table changed if we use data on excess mortality, instead of reported death rates? We report estimates of excess mortality made by The Economist, which updates its figures regularly. So let us use The Economist’s estimates for the period towards the end of December 2021, the longer of the two periods covered in Table 12.1. Several countries in our dataset are estimated to have excess mortality rates well in excess of their officially reported rates. Greece tops the list, with excess mortality estimated to be 29 per cent higher than the official death rate. The Dutch excess rate is 18 per cent higher than the official rate, the Danish excess is 17 per cent, the German 16 per cent, the American 15 per cent (down from 32 per cent three months earlier) and the British 11 per cent. Australia’s excess mortality is actually estimated to be negative: 3 per cent lower than the official death rate from Covid; mainly due to a reduction in deaths from flu.3 Use of excess mortality data, rather than officially reported rates, makes a huge difference to the worldwide ranking of countries on Covid death rates.4 However, for the Western countries in our dataset, country and regime rankings are unchanged. The social democratic regimes are still estimated to have the lowest death rates, followed by the liberals, then by the corporatist and proto-corporatist regimes. Further, the relationship between excess mortality and changes in GDP is much the same as given in Table 12.1. The Pearson correlation for the period up to the end of 2021 is -0.52, compared with -0.53 using official death rates. There are some other adjustments that could reasonably be made to our estimates. The most obvious relates to the age distribution of national populations. Covid has mainly killed older people, leaving middle-aged and younger people less affected. The age distributions of the countries in our dataset vary to a moderate degree. Australia’s population has the youngest median age, 37.5, followed by the US at 38.7. Germany and Italy, with medians of 47.8 and 46.5, respectively, have the oldest populations. Adjustment for median age does make some difference to results. The partial correlation between excess mortality and changes in GDP, controlling for national differences in median age, for the period up to the end of 2021, is -0.32. (The partial correlation using the official reported death figures is -0.33.)

3 The latest Australian (and also Italian) data are for the period up to 28 November 2021, rather than the end of the year. 4 The Economist estimates that Covid had directly or indirectly killed about 19 million people worldwide by the middle of February 2022. This compares with an official reported death figure approaching 6 million.

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Western welfare capitalisms in good times and bad

EXPLAINING REGIME AND NATIONAL RESULTS: WHY WAS THERE NO TRADE-OFF BETWEEN PUBLIC HEALTH AND ECONOMIC PERFORMANCE? AN EXAMPLE OF POLICY LEARNING We next try to understand the reasons for the absence of a trade-off between public health and economic performance. We begin with evidence from an unlikely source, namely the United Nations World Happiness Reports, which in 2021 and 2022 focused on the Covid pandemic and, in doing so, developed a convincing explanation of international differences in death rates (United Nations, 2021‒22). The reports demonstrate that just one world region coped with Covid far better than others. That region was the World Health Organization’s Western Pacific Region (WHO-WPR). The region consists of 28 countries, including China, Japan, South Korea, Vietnam and Australia. It suffered more than any other part of the world from the SARS epidemic in 2002‒03.5 The WHO-WPR tried to learn lessons from SARS, and became a forum during the ensuing years for developing guidelines about how to deal with the next serious epidemic. The countries of the region, or rather their public health officials, were closely involved in contributing to a detailed manual for emergency response (World Health Organization, 2017). When Covid struck in 2020, the WHO-WPR countries followed their own guidelines. Their policy strategy was to persist with disease control measures until daily new cases reached zero, or very close to it. So they adopted such measures as banning international travel, and in some cases inter-state travel, closing businesses and schools (or requiring work and education from home), imposing social distancing requirements, and implementing trace and control measures to find and isolate people who were contacts of those already infected. If a new wave of Covid began – another spike in cases – they clamped down hard again, and again drove cases down close to zero. All new waves were just mini-waves. It was a fine, rare example of policy learning. The rest of the world did not learn enough from SARS. The WHO guidelines were, of course, available to all, but Western governments ‒ and, so far as one can judge, medical professionals ‒ did not choose to follow them. They stuck with the concept of a trade-off, and so with policy interventions that tried to

5 The countries in WHO-WPR that recorded serious SARS death rates were China (Hong Kong particularly), Singapore, Taiwan and Vietnam. The only country outside the region that suffered was Canada. It is interesting that Canada, too, may have learned lessons about emergency response. It has had quite a low death rate from Covid: 802 per million population by the end of 2021.

Public health responses – the trade-off that didn’t exist

145

strike a non-existent balance between death rates and economic performance. Consequently, they experienced repeated waves of Covid, and their waves were maxi-waves not mini-waves. Having first observed that the Western Pacific region coped best with Covid, the authors of the World Happiness Reports proceeded to write a simple but convincing equation. They had complete data for 63 of the world’s 195 countries. Just eight variables accounted for about two-thirds of the differences in international death rates; a remarkable result.6 The variables were: • Membership of the WHO-WPR region. • Distance from countries with a high rate of SARS-infection; the further away countries were, the higher their death rates: they did not absorb lessons from the SARS epidemic. • Distance from countries that had high infection rates at the start of the outbreak in the first three months of 2020; the greater the distance, the lower their death rates. • Whether a country is an island; island countries could more easily close their borders to keep out infected individuals. • The median age of the population; countries with younger populations had lower death rates. • Whether the country had a female head of government; countries with female heads gave higher priority to public health in making the assumed trade-off between health and economic performance. • Trust in government (details follow). • Trust in one’s fellow citizens (details follow). Let us consider each of these variables. They certainly help to account for Australia’s low death rate. Australia is the only country in our dataset that is a member of the WHO-WPR, and also the only country (or continent, really) that is an island. It is far from countries that suffered from SARS, and far from the Western countries that recorded the most severe Covid outbreaks in the world in early 2020. As noted, its population also has the lowest median age of any country in our dataset. The claim in the World Happiness Reports that countries with female heads of government had lower death rates than average, while factually correct, sounds like something that might be a coincidence rather than a causal factor. There were 23 female heads of government in the WHR dataset. Most of them were in middle- and low-income countries that doubtless recorded low death rates partly because they have younger populations than Western countries. It may nevertheless be the case that female heads nudged their governments in

6

R-squared = 65.3%.

146

Western welfare capitalisms in good times and bad

a pro-health direction. At the other extreme, there were certainly ‘outstanding’ examples of male heads who did more than nudge their countries in an anti-health direction. Presidents Trump and Bolsanero led the charge. In fact, just four of our 17 welfare-capitalist regimes had female heads in 2020: Denmark, Finland, Norway and Germany. The first three are the social democratic regimes that had the lowest Covid infection rates after Australia. The reason for hypothesising that trust in government might be important in accounting for national/regime differences in death rates is that citizens are more likely to comply with lockdown restrictions if they have trust in public authorities. Trust in one’s fellow citizens may also be an important factor, because restrictions can only be effective if almost everyone complies. More specifically, in the Covid pandemic, older citizens who were at greater risk of the disease had to rely on the compliance of younger citizens whose risk levels were much lower. How is trust measured? There are five highly correlated items in the European Social Survey about trust in government. They relate to trust in the national Parliament, the legal system, the police, politicians and political parties. The questions are asked on a 0‒10 scale (0 = ‘no trust at all’, 10 = ‘complete trust’). We combined answers to these questions into an index labelled ‘trust in government’. Trust in people (trust in one’s fellow citizens) is measured by a single question, which is asked in surveys all over the world. Again, respondents answer on a 0‒10 scale (0 = ‘you can’t be too careful’, 10 = ‘most people can be trusted’). As the evidence in Table 12.2 shows, there are huge international differences in the extent to which people trust their governments and trust their fellow citizens, and these differences correlate strongly – strongly in a negative direction – with death rates from Covid. The correlation between officially reported national death rates from Covid and trust in government is -0.47, and the correlation between death rates and trust in people is -0.59.7 Results are almost identical if the excess mortality measure is used. This amounts to strong confirmation that in national emergencies, or at least national epidemics, trust in public authorities and in one’s fellow citizens are both key determinants of policy performance.8 The evidence in Table 12.2 shows that trust in government and trust in one’s fellow citizens are considerably greater in the historically social democratic regimes than elsewhere. Trust is at about the same levels in liberal regimes 7 It is not practical to undertake regression analysis with a set of just 17 countries, so we rely on reporting means and Pearson correlation as in Table 12.2. 8 There is strong evidence that people tried to help each other. The World Happiness Reports for 2020 and 2021 found increases in charitable donations and voluntary work in almost all countries (United Nations, 2020, 2021).

Public health responses – the trade-off that didn’t exist

Table 12.2

147

The Covid pandemic: links between national death rates, trust in government and trust in people (one’s fellow citizens) (2)

(3)

Trust in government

Trust in people

(0‒10 scale)

(0‒10 scale)

social democratic

6.16

6.71

(excluding Sweden)

(6.32)

(6.86)

liberal

5.11

5.41

(excluding Australia)

(5.15)

(5.37)

corporatist

5.30

5.39

proto-corporatist

3.71

correlations between

-0.47

regimes

4.48 a

-0.59a

officially reported deaths from Covid (ln deaths) in 2020‒21 and measures of trust

Note: a The correlations are for all 17 countries. If Sweden and Australia are omitted, the correlation between deaths and trust in government is -0.69, and between deaths and trust in people is -0.83. Source: European Social Survey (2018 or latest year available for each country). Results for Australia and the US, which are not in the European Social Survey, were imputed, using measures of trust for these countries in the United Nations World Happiness Report (2021) and the World Values Survey (2010‒14).

as corporatist ones. The liberal averages are pulled up by Switzerland, where trust in government is within the social democratic range, and trust in other people is higher than in other liberal regimes. Trust in government is at much the lowest levels in the Southern European proto-corporatist countries. The fact that they have all had autocratic regimes in the not too distant past may be part of the explanation.

DOGS THAT DID NOT BARK: VARIABLES THAT MADE LESS DIFFERENCE THAN EXPECTED Readers may be surprised at some of the variables omitted from the model in the World Happiness Report. All Western governments (except for the US under President Trump) have repeatedly urged people to get vaccinated ‒ double-vaccinated, triple-vaccinated ‒ with the promise that vaccination saves lives. Well, obviously it does; almost nobody doubts evidence that lower death rates have been recorded for multiple-vaccinated people than for vaccine-refusers. However, in practice there is no statistically significant relationship at an aggregate level between vaccination rates in our 17 countries and either official or excess death rates. Some countries with high vaccination

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rates ‒ notably Portugal (89.4 per cent double-vaccinated by the end of 2021), Spain (81.3 per cent) and Italy (74.2 per cent) ‒ also have high death rates. Why? What happened? The answer appears to be that these countries, like most others, got their policy objectives and policy sequencing wrong. Their frame of reference ‒ the trade-off idea ‒ led them to oscillate between clamping down on Covid and trying to reopen their economies. They repeatedly omitted to impose lockdowns for long enough to get Covid cases down close to zero, so many people died. The big policy ‘effort’ that then went into getting people vaccinated was no substitute for getting national policy objectives right in the first place. Vaccination drives must have helped to reduce deaths, but they came too late. Many people had already died, and large pools of infection remained in the population, risking the development of new variants of the disease and so new spikes in infections. Much the same points may be made about the stringency with which national lockdowns were imposed. The Blatvinik School of Government at Oxford University constructed a widely cited ‘stringency index’, updated daily, to measure the scope of laws and regulations adopted in different countries to combat Covid (Blatvinik School of Government, 2022). The designers of the index concede that it is based on codifying the apparent strictness of laws and regulations, and does not measure the effectiveness of enforcement. Perhaps, however, there was an expectation that there would be a negative relationship between stringency and death rates. That is not what we find for the 17 countries in our dataset. The correlation between stringency and official death rates (at the end of 2021) was positive (not negative) at 0.39, and between stringency and excess death rates it was 0.43. These correlations of course do not indicate causation. Presumably regulatory crackdowns were partly a response to the severity of outbreaks. However, the correlations do not suggest that stringency did much to save lives.9 The explanations again appear related to policy objectives and sequencing. It was no use first to let Covid take hold, then relax lockdown rules before case numbers were very low, and then later impose stringent controls. This is what Germany and Greece did: countries that recorded stringency ratings of 84.3 and 77.3, respectively, on a scale of 0‒100.10 The same could be said of Italy, which also recorded a high stringency rating (76.9). Stringency only worked effectively if it was imposed early, as a tool to achieve the policy objective of reducing the Covid caseload close to zero. This is what happened in Australia, 9 Results are scarcely affected if we control for national differences in the median age of the population. Countries with older populations have had higher death rates, but with a control for age in place, we still find that the covariance between the Blatvinik stringency index and death rates is positive, rather than negative. 10 Ratings for 31 December 2021.

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which recorded high stringency ratings for most of 2020‒21, but then relaxed controls when almost the entire population was double-vaccinated towards the end of the period.

PUBLIC HEALTH RESPONSES BY THE WHO AND WELFARE-CAPITALIST REGIMES All but the Australian government (among those in our dataset) viewed policy-making as requiring trade-offs between public health and economic performance. Even so, there were interesting variations in public health responses that almost certainly affected death rates. We offer some brief summaries of these responses.11 We begin with the WHO. The WHO, previously considered a success story among international organisations, was heavily criticised by President Trump and some other Western leaders for its handling of the pandemic; but let us see what it actually said and did. The World Health Organization and Covid The WHO declared Covid-19 to be a ‘public health emergency’ on 30 January 2020, and then upgraded to a pandemic on 11 March. In declaring a pandemic, the Director of WHO, Dr Tedros Adhanom, said: WHO has been assessing this outbreak around the clock and we are deeply concerned both by the alarming levels of spread and severity, and by the alarming levels of inaction. We have rung the alarm bell loud and clear. Of the 118,000 cases reported globally in 114 countries, more than 90 percent of cases are in just four countries, and two of those – China and the Republic of Korea ‒ have significantly declining epidemics. If countries detect, test, treat, isolate, trace, and mobilize their people in the response, those with a handful of cases can prevent those cases becoming clusters, and those clusters becoming community transmission. Even those countries with community transmission or large clusters can turn the tide on this virus. Several countries have already demonstrated that this virus can be suppressed and controlled.

In this and later media conferences, WHO officials drew attention to the guidelines for combating epidemics set out in the agency’s 2017 report. They also

11 The main source for this section is the International Monetary Fund (2021), Policy Responses to Covid-19: Policy Tracker.

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pointed out that all viruses mutate, and that later mutations tend to spread more easily. This is for standard evolutionary reasons: the more easily they spread, the more their gene pool expands. It follows that, if you want to stamp out a virus, it is best to stamp it out in the first wave before it mutates.

LATER WAVES OF COVID WERE WORSE THAN THE FIRST WAVE IN MOST COUNTRIES Western publics were deeply shocked by the onset of Covid. People were used to winter flu epidemics, but the idea that a serious new epidemic could take hold in Western countries with modern medical systems seemed unthinkable. The shock might have been even greater if it had been widely realised that, in most countries, the 2021 waves of Covid turned out to be about twice as bad as the 2020 waves; worse in terms of both caseloads and deaths. These outcomes in themselves suggest, to put it mildly, a failure of policy learning based on a failure to follow WHO guidelines. The first wave occurred in most countries in March‒May 2020, the second wave came in the Northern Hemisphere’s late summer/early autumn, and the third and most deadly wave (as of the time of writing in October 2022) ran through the Northern Hemisphere winter from October 2020 to February 2021. The fourth wave (the second most deadly to date) occurred in April‒May 2021.12 The fifth Delta wave (the Delta mutation) was at its height in August‒ September 2021, and the latest wave to date (the Omicron mutation) has been running since December 2021. This latest wave generated many more cases around the world in 2022 than occurred in previous years, although it tapered off in the second half of the year. The caseload was high, although the death rate was lower than in previous years due to high vaccination rates.

SOCIAL DEMOCRATIC REGIMES Sweden’s initial policy response to Covid differed from that of other social democratic regimes. The government relied on voluntary compliance with moderate restrictions. Many businesses shops, restaurants and bars stayed open. Masks were not compulsory, although many people chose to wear them. Social distancing was advised but not enforced; over-70s were advised to self-isolate. Some schools and universities switched to distance learning. In taking these moderate measures, the government said it wanted to respect Swedish traditions of ‘free will’, social solidarity, and trust in public author-

12 ‘Deadly’ measured in terms of both reported deaths and excess mortality worldwide.

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ities. It was claimed that the Swedish constitution protects freedom of movement and so prevents the imposition of a lockdown in peacetime. The media reported that policy-makers believed that the public needed to learn to live with Covid, because it will be around for the long term. The claim was that the government intended to slow Covid down, but allow it to spread, so that the population gradually built up ‘herd immunity’. The setting of ‘herd immunity’ as a policy goal was attributed to Dr Anders Tegnell, the state epidemiologist. Dr Tegnell denied it, but communications obtained by the media show that he thought it a sensible long-term aim (Hjelmgaard, 2020; Karlsson, 2020; Bjorklund and Ewing, 2020). As documented in Table 12.1, Sweden recorded a much higher death rate than its Scandinavian neighbours. In December 2020, by which time Europe was experiencing its third wave of Covid, King Carl XVI Gustaf politely indicated that he thought his country’s response to Covid was a failure. He had never made a politically sensitive statement before in his life. The government had to admit mistakes, and wound up imposing restrictions as stringent as those of its neighbours. Denmark, Finland and Norway began by imposing stricter lockdowns than Sweden, while still relying on social solidarity and public trust in authorities. Schools, universities and non-essential businesses were closed down in March 2020, as the first wave of Covid took hold. The first wave of lockdowns rapidly reduced the incidence of the disease. Crucially, however, decisions were taken to open up the economy before cases were close to zero. Norway, for example, had 7785 active cases when reopening was permitted on 7 May. Lockdowns were reinstated in the Scandinavian countries in later waves, but were lifted when new daily cases and active cases were still higher than they had been at the end of the first wave. Scandinavian publics were compliant with restrictions on social and economic life. There were only minor protests and demonstrations. Plainly, however, compliance did not prevent moderate death rates.

LIBERAL REGIMES Just as Sweden was the exception among social democratic regimes, so Australia was a liberal exception. In March 2020, when the country still had only a handful of cases, the Liberal/Coalition government announced that it was forming a National Cabinet that would meet every week during the emergency. The National Cabinet’s membership comprised the Prime Minister and the Premiers and Chief Ministers of States and Territories. Previously, national cabinets had only ever been set up in wartime. It was an unexpected but skilful move aimed at achieving social solidarity, and locking opposition parties into decisions for which their state leaders had collective responsibility.

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The Prime Minister announced that the National Cabinet had decided to close the country’s international borders on 20 March 2020. State Premiers were determined not to be outdone – they wanted to share the limelight – so they all took the stage to announce the closing of state borders (that is, citizens could not travel inter-state).13 At the same time, non-essential businesses (the exceptions were mainly supermarkets and pharmacies) were closed. Schools and universities moved to distance learning. Social distancing was required, and was largely observed. Every day, during the first wave of Covid, the Prime Minister held a national media conference, and the State Premiers held their own conferences intended for media outlets in their own state. Each Premier tried to outdo their colleagues (or rivals) in claiming to take ‘tough decisions’ to protect the health of people in their own state. By 8 May 2020, when plans for reopening society and the economy were announced, the reported number of new daily cases nationwide was just 18.14 Later mini-waves occurred; the worst being in Melbourne in late 2020, and again in late 2021. Strict lockdowns were again imposed, and lasted many weeks.15 Again, they were not lifted until new daily cases were quite close to zero. Australia was the only country in our dataset in which later waves were not clearly more serious than the first wave. The policy response in other liberal regimes was quite different. President Trump and the UK’s Prime Minister, Boris Johnson, both of whom later got the disease, initially denied its seriousness. President Trump declined to support lockdowns or social distancing, refused to wear a mask, and hosted what he was told in advance might be a ‘super-spreader event’ in the White House Rose Garden. He persistently recommended quack remedies, including hydroxychloroquine (which was fine for malaria and rheumatoid arthritis). In a more real world, some State Governors ignored the President’s views and imposed their own lockdowns and social distancing regulations. So, as often happens in the US, there were diverse policy responses in different parts of the country. Democratic Governors in California and New York tried to enforce

13 Partitioning the population in this way probably made a substantial contribution to reducing the disease caseload. However, the degree of partitioning in Australia did not come close to what was imposed in China. In most urban areas in China, people were not allowed to leave their own city block, except for one person just once a day for supermarket shopping or medical reasons. Village people could not leave their village. China reports a death rate of just 3 per million. 14 Of course, there must have been unreported asymptomatic cases. 15 It was regularly claimed in news reports in the second half of 2021 that Melbourne and Victoria had endured longer periods of lockdown than anywhere else in the world. This may be correct, but it is hard to verify.

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strict measures; Republican Governors in Florida and Texas repeated the President’s nostrums. Faced with conflicting messages, the public’s compliance with health restrictions was limited. Protests were commonplace, endorsed by Republican politicians and so-called ‘libertarians’. When President Biden took office in January 2021, during another caseload spike, he urged people to observe restrictions, although he could only enforce his views on national agencies and those who used their services, not on state governments. Nevertheless, over 70 per cent of people chose to wear masks during Covid spikes, or at least told pollsters they did so (USA Today, 2021). In the US the number of new daily cases recorded between spikes in the disease never dropped below 20 000, and there were always millions in the ‘active caseload’. So there was always a pool (or ocean) of infection ready to incubate a new wave. The UK government was less laissez-faire than the US federal government, but it kept repeating the same policy sequencing mistakes. After imposing a national lockdown in the first wave (March‒April 2020), it later resorted to dividing the country into ‘tiers’, based on caseloads. So when a new wave of Covid emerged, it only imposed restrictions in tiers with high caseloads, hoping that infections would not spread to tiers with lower caseloads. It never worked: half-baked measures had to be replaced with harsher and more widespread measures. The virus did not know that it was not supposed to cross local government boundaries. As in other countries, a greater effort to reduce caseloads was made in the first wave than later waves. But even towards the end of the first wave, a reduction in restrictions was announced (10 May 2020) when the three-day moving average of cases was still close to 4000 (Worldometer, 2021). Public compliance with social and economic restrictions was variable. It appears to have been more or less complete during the initial national lockdown. However, in later tier-based lockdowns, people living in tiers with greater restrictions protested against what seemed to them unfair discrimination. Still, despite its evident mis-steps, the Johnson-led Conservative government gained popularity during the first year of the crisis. Polls indicated that it received credit for a comparatively fast vaccine roll-out (Politico, June 2021).

CORPORATIST REGIMES Corporatist regimes also adopted half-measures. Germany will serve as an example. A national lockdown, starting in March 2020, was replaced by a phased reopening (early May) that was subject to ‘emergency brakes’ being applied by state (Land) governments if infections exceeded 50 per 100 000 population during a seven-day period. In October 2020, during the third

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wave, emergency brakes were replaced by what was hopefully described as a common ‘hot-spot strategy’ agreed by federal, state and local governments. However, on this and other occasions, regulations had to be amended or withdrawn, because lower levels of government found them too complicated to be effectively implemented (IMF, 2021). In November a nationwide ‘lockdown light’ was introduced. When infection rates were still high approaching Easter 2021, Chancellor Merkel announced a complete lockdown for the holiday period. A day later she cancelled it, when leaders of her own party said it was unenforceable. The famously cautious, consultative Chancellor bravely but implausibly said, ‘The mistake is mine alone. The whole process has caused unnecessary uncertainty for which I apologise to all citizens’ (BBC News, 24 March 2021). At every stage the measures taken were insufficiently effective or were abandoned too soon. When restrictions were first eased in early May 2020, new infections were still running at around 1000 a day. In later waves restrictions were partially lifted with infections at much higher rates, oscillating between 5000 and 10 000 a day (Worldometer, 2021). In general, the public was compliant with public health measures, although in Kassel in central Germany police used water cannon and pepper spray to break up a protest as early as March 2021. Later, especially during the third/ fourth waves of the disease, protests became more common. Even so, most Germans approved of the government’s handling of the pandemic (United Nations, 2021). The Chancellor remained popular and could probably have won another term of office if she had not chosen to retire in 2021. Proto-corporatist Regimes and the European Union The proto-corporatist regimes can barely cope with national emergencies. As the evidence in Table 12.2 indicates, people do not trust their governments and do not trust each other. So it is difficult to get public compliance with emergency measures. Governments know this, and are reluctant to push hard. The Italian experience during Covid illustrates the problems. Italy had Europe’s worst initial outbreak in March‒April 2020. At first, the hardest-hit cities and regions (Lombardy, Emilia Romagna) were almost left to fend for themselves. A national lockdown had been declared on 10 May, but in practice it was widely disregarded. Astoundingly, a Champions League soccer match, scheduled to be held in Bergamo on 25 May, was allowed to go ahead. The Associated Press labelled it in advance as ‘Game Zero’. Already 7000 people in the city were infected. The match was a ‘super-spreader’ event. Thousands more were infected; Bergamo recorded the highest death rate in Europe (Worldometer, 2020).

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The first Italian national lockdown ended on 4 May. On that date there were about 100 000 active cases, and new infections were still running at over 1000 a day. Later lockdowns have been regional or local, rather than nationwide. In August, faced with a second wave, the government introduced what the International Monetary Fund (IMF, 2021) described, perhaps ironically, as ‘some containment measures including closing night clubs and capacity limits at cultural sights’. In October, with case numbers still rising, the regions were assigned to different ‘risk levels’, with restrictions graded accordingly. Public protests against restrictions were more or less continuous. Bar and restaurant owners formed a movement called, ‘I’m opening’. When they demonstrated in Rome in April 2020 they were tear-gassed. The same thing happened when demonstrators protested against new regional restrictions in Naples in October.

DISCUSSION Most governments botched their public health response to Covid. They continued to believe in a trade-off between public health and economic health long after it was clear that no such trade-off existed. The point was reached at which, even if they had renounced the trade-off concept, there were too many pools of infection around the world for the disease to be controlled. Mutations kept occurring, some more infectious or more deadly than the original variant. In early 2022 even the Western Pacific countries, that had controlled the first outbreak effectively, were experiencing very high caseloads with the Omicron variant of the disease. This variant was more infectious than previous variants, but it was less lethal than its immediate predecessor, the Delta variant. In these circumstances, Western governments all tried to sell an optimistic narrative about the future. They all made announcements indicating that the time had come for everyone ‘to live with the disease’ and rely on vaccination to mitigate its effects. The intention was that lockdown rules would be largely revoked and economies would rebound. An unspoken implication, perhaps, was that the Omicron variant of the disease would be the last, and that it was time to plan for a future in which Covid would only be a bit-player. Arguably, it is part of the job of governments to project optimism. But the pools of infection around the world, multiplied by the Omicron variant, perhaps make it implausible to assume that dangerous new mutations will not occur. In the last two years the epidemic has falsified many predictions, and shown mainstream policy objectives to be misguided. A safe (if rather vacuous) prediction is that there will be more twists and turns before we get through.

13. Coping with Covid: fiscal, monetary, labour market, welfare and environmental policy responses The public health response to the Covid-19 pandemic was botched, but in other areas of public policy Western regimes reacted swiftly and, in some cases, innovatively. The policy initiatives launched during Covid may influence policy-makers, and shape public and interest group demands on government for decades to come. Once policy programmes have been launched, and been perceived to benefit sections of the community, it is hard to put them back in the box: ‘You were able to help me last time – why not again?’

FISCAL, MONETARY, LABOUR MARKET, WELFARE RESPONSES TO COVID So far we have painted a picture that has highlighted international differences in response to Covid. In contrast to this, the economic policy responses of national governments were similar in most respects. Similar, but striking. The Keynesian response to the Global Financial Crisis (GFC) was followed by a reassertion of the post-1970s economic orthodoxy, under the banner of ‘austerity’. This orthodoxy, as enshrined in both monetarist and ‘real business cycle’ economics, emphasises the primacy of the market. Keynesian-style fiscal interventions during economic depressions (‘depression economics’) are held to be counterproductive; a confidence trick that can only temporarily deceive businessmen into believing that there is an increase in demand for their products. ‘Real business cycle’ economists claim that large fiscal and monetary stimuli, which necessarily require substantial government borrowing, are counterproductive and inevitably lead to high rates of inflation. The Keynesian response to the Global Financial Crisis was viewed either as an over-reaction, or as a response to a unique emergency, in which the financial solvency of the system was endangered. So what did Western governments do in response to Covid? They defied orthodoxy again, and launched a series of initiatives that amounted to a revival of Keynesianism, on an even larger scale than in the Global Financial Crisis. As we saw in Chapter 4, first responses to the GFC in many countries ‒ for 156

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example, Sweden, the United States (US) and the United Kingdom (UK) ‒ included Keynesian fiscal stimuli. Later, in the US, there was a brave venture into uncharted territory known as ‘quantitative easing (QE)’. As discussed, there was really no way of evaluating these policies to determine whether they were ‘successful’: the problem of setting up a reasonable counterfactual could not be solved. Nevertheless, some economists and policy-makers believed that unorthodox policies adopted during the GFC saved the capitalist system (Wolf, 2014). As far as they were concerned, there was some policy learning to be done. They were sufficiently emboldened to try again during Covid, but now on a considerably larger scale (Uren, 2020; IMF, 2021). The diverse set of stimulus measures adopted during Covid are described below. They doubtless reduced the severity of economic recessions in Western countries in 2020‒21. However, there is now debate about the extent to which the stimuli are responsible for the rising inflation that started in the winter of 2021‒22 and has continued since. Inflation had remained at low levels in most Western countries for the previous 30 years. Contrary to the expectations of many economists, including those of the dominant Chicago School, the stimulus measures introduced during the GFC did not prove to be inflationary. Still, it seems almost certain that the sheer size of further stimulus packages, enacted during Covid, has reignited inflation. The evidence is not completely unambiguous, because the Russia‒Ukraine war also contributed by putting extreme upward pressure on energy prices. That said, it is clear that inflation had already begun to increase before the outbreak of war in February 2022. The US was the Western country in which the strongest initial surge in inflation occurred in winter 2021‒22, and this may have been because the US Covid stimulus was exceptionally large as a percentage of gross domestic product (GDP) (details below). At the time of writing in late 2022, inflation is running at 8‒11 per cent in most Western countries, and at 10.2 per cent in the Organisation for Economic Co-operation and Development (OECD) as a whole.

SWEDEN: POLICY RESPONSES IN A SOCIAL DEMOCRATIC REGIME1 All regimes in our study introduced what were billed as emergency or supplemental budgets during Covid. These budgets substantially increased public expenditure as a share of GDP. In social democratic regimes, that share

1 The main source used for descriptions of fiscal and monetary policy programmes during Covid is the International Monetary Fund (2021), Policy Responses to Covid-19: Policy Tracker. The tracker is regularly updated.

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was already close to 50 per cent before the crisis. In Sweden, fiscal stimuli announced in 2020 were expected eventually to amount to 19.8 per cent of GDP, so in 2020 public expenditure was at its highest level for 20 years.2 Monetary policy was loosened too, to put it mildly. The government undertook to make bond purchases, mainly from banks, amounting to SEK 700 billion, about 15 per cent of GDP (IMF, 2021). As in other countries, the expectation was that the banks would lend the money to businesses to reboot economic growth. The following initiatives were included in fiscal packages: • Labour market policy: wage subsidies paid to employees who were ‘on leave’ during Covid; increased funding for active labour market programmes (ALMPs); funding of summer jobs for young people who were out of work; requirement to work from home at several stages of the crisis. • Business support: grants and subsidised loans, mainly for small and medium-sized businesses; initial deferral for 12 months of company social security contributions, value-added tax and payroll taxes ‒ some tax deferrals were then extended until March 2022; rent subsidies for firms. • Welfare policy/income support: unemployment benefits increased, and extensions to time limits on receipt of benefits. • Education policy: schools and universities required to offer ‘distance education’. • Housing policy: increases to rent subsidies and housing allowances. • Public transport: additional subsidies for regional public transport. • Arts, media, culture: grants to arts, media and cultural organisations that had to cancel events during Covid. • Environmental policy: subsidies for ‘green jobs’. • Foreign aid: extra funding for the World Health Organization (WHO) to assist its support for low-income countries during Covid.

THE UNITED STATES: POLICY RESPONSES IN A LIBERAL REGIME In March 2020, under the Trump administration, the US Congress passed the CARES Act (Coronavirus Aid, Relief and Economic Security) which injected $2.3 trillion into the economy, about 11 per cent of GDP. The Biden administration, as soon as it took office, just managed to get what was labelled the ‘American Rescue Plan’ through Congress. This was projected to pump $1.8

2 There was, however, no expectation that the money would all be spent in the first year. Public expenditure in 2020 rose from 49 per cent to 53 per cent of GDP.

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trillion into the economy, or 8.8 per cent of GDP. In 2020, public expenditure exceeded revenue by almost 16 per cent of GDP, the biggest deficit of any Western country (IMF, 2021).3 These enormous fiscal stimuli were complemented by monetary policy stimulus. In June 2020 the Federal Reserve announced that it would buy back from banks and financial intermediaries $120 billion per month in bonds and mortgage-backed securities. It stated that it would do this ‘until further notice’. However, at the time of writing (October 2022), the Federal Reserve has sharply reversed its approach, and in order to combat inflation it is imposing what will probably turn out to be a long series of interest rate rises during 2022 and 2023. The following initiatives were included in fiscal packages introduced during Covid: • Labour market policy: employees able get two weeks on full pay, and up to three months of emergency leave on two-thirds pay if they catch Covid. • Business support: business loans at below market interest rates, backed by federal government guarantees; Payback Protection Program loans for companies to help them retain employees; rent subsidies for firms; deferral of collection of social security taxes paid for employees. • Welfare policy/income support: increases in unemployment benefits and extension to the time limits on receipt of benefits; food assistance channelled through private charities; one-off payments of $600 per person under President Trump, then $1400 per person to about half the population (family incomes under $160 000) under the Biden administration; health insurance premiums reduced by payment of federal subsidies. • Access to pension funds: ability to draw down up to $100 000 from individual pension/retirement funds; the money could be spent or used as collateral. • Education policy: deferral of student loan repayments; imposition of school closures and commencement of distance education was a matter for state governments; federal funding provided to assist schools with the cost of providing distance education, and then with the cost of reopening following Covid closures. • Housing policy: no mortgage foreclosures for 12 months for homeowners unable to meet mortgage payments; prohibition on eviction of tenants unable to pay rent due to Covid. 3 The US benefits from having the world’s main reserve currency. This being so, foreign entities (mainly banks), as well as American financial intermediaries, are willing to buy Treasury bonds offered at low interest rates. There is a fair prospect that deficits can be financed and debts repaid without taking too large a slice of future GDP.

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• Health and mental health policy: ‘telehealth’ services set up to provide telephone and video consultations for health and mental health problems.

GERMANY: POLICY RESPONSES IN A CORPORATIST REGIME As we saw, corporatist and proto-corporatist regimes implemented austerity measures during the Global Financial Crisis. Not this time. The German federal government introduced three emergency/supplementary budgets in 2020, which in combination injected a stimulus worth 10.3 per cent of GDP (IMF, 2021). Monetary policy stimulus for the whole euro area was undertaken by the European Central Bank (ECB). Running monetary policy partly at the European level made it easier for the Southern European countries to implement fiscal stimuli, with less fear that increases in their national budget deficits would cause them to be penalised by the money markets. In March 2020, right at the start of the Covid crisis, the ECB announced a Pandemic Emergency Purchase Programme, which provided €120 billion for purchasing bonds and other securities from banks in member countries. As always, the aim was to lower borrowing costs for businesses. Additional Covid initiatives in Germany were: • Labour market policy: federal government funds to enable 0.5 million firms to put their employees on short-time work (Kurzarbeit); relaxation of eligibility criteria for apprenticeships. Note: both France and the UK adopted modified versions of the German short-time work programme (IMF, 2021). • Business support: grants, loans and interest-free tax deferrals, mainly for small and medium-sized businesses; suspension of rules governing obligations to file for insolvency. • Welfare policy/income support: duration of social security unemployment benefits extended; child care benefits increased; three-month moratorium on repayment of consumer loans (March‒June 2020).

ITALY: POLICY RESPONSES IN A PROTO-CORPORATIST REGIME Italy’s initial response to Covid was relatively cautious. A budgetary package worth 1.6 per cent of GDP was introduced in March 2020. Then, as the number of Covid cases climbed rapidly in spring 2020, successive fiscal stimuli were enacted that potentially released up to €455 billion (28.5 per cent of GDP) of state guarantees for business loans.

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Initiatives included in the fiscal packages were: • Labour market policy: suspension of social security contributions for newly hired employees; firms banned from sacking employees (May 2020) – this was ineffective due to the onset of the next wave of Covid, which resulted in increased redundancies (IMF, 2021). • Business support: business loans guaranteed by the state; interest-free tax deferrals for firms; deferral of payment of utility bills for firms in areas with high infection rates (March 2020); National Tourism Fund to finance temporary takeover of hotels at risk of going out of business. Further business support packages were introduced in March and May 2021. • Welfare policy/income support: increased unemployment benefits and extended periods of eligibility; subsidies to reduce utility bills for low-income families; increased income support payments. • Housing policy: moratorium on mortgage repayments, but a second extension of this programme was declared illegal by the Constitutional Court.

THE EUROPEAN UNION: POLICY RESPONSE WITH A FOCUS ON CLIMATE CHANGE Remarkably, the European Union (EU) decided to deal with a current crisis by looking to the medium and long-term future. It launched its Next Generation EU initiative in December 2020. The main focus was on making investments in ‘green’ energy and ‘green’ industries in order to mitigate climate change. The aim was to build a ‘greener and more resilient Europe’. Funding amounted to €750 billion which would be disbursed to member states, about half in grants and half in loans. Altogether 30 per cent of Next Generation EU funding and 30 per cent of the EU’s budget for 2021‒27 was earmarked for ‘green investments’ (IMF, 2021). The intention was to spend most of the Next Generation money in 2021‒23 in order to stimulate economic recovery. In this context, specific mention was made of the need to support what were referred to as ‘debtor countries’, meaning the Southern European proto-corporatist regimes and some of the Eastern European member states (IMF, 2021).

THE RESPONSE OF WESTERN PUBLICS TO GOVERNMENT INITIATIVES TAKEN DURING COVID How did Western publics respond to the efforts of their governments to combat Covid? The answer in most cases is ‘extremely positively’, and that answer holds for governments which could be said to have repeatedly blundered, as well as governments which adopted policies leading to fewer deaths. The UN’s World Happiness Report reviewed public reactions as measured by opinion

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polls, and found strong public approval even in countries with low trust in government (United Nations, 2021). In retrospect at least, we can see that Covid – as a public health crisis – was a gift to incumbent presidents, prime ministers and health ministers, and a curse for politicians out of office. Every shrewd presidential or prime ministerial adviser surely said to their boss: ‘Hold a media conference every day, stand next to medical professionals in white coats, announce that you are taking their advice, and try to look and show that you really care.’ Most leaders had the sense to accept this advice and, if they faced election, won easily. The only political leaders who did not gain electorally from Covid were the ‘deniers’: those who said that Covid did not matter (‘a little flu’ in the words of the Brazilian President). The most prominent of the deniers was, of course, President Trump. His advisers presumably gave him the same advice as other incumbents. Waste of breath. He looked a political gift horse in the mouth, and shot it. Why did Western publics approve so strongly? The probable answer is that there was a widespread sense, even in countries with low or moderate trust in government, that political leaders were doing their best to take decisions to benefit the whole community. During Covid everybody faced health dangers (although the elderly were more at risk than others), so there was a strong sense of social solidarity. Governments could and did ask people to pull together, to cooperate with health regulations in a national emergency. Opposition parties could quibble, they could say that some groups were not getting enough assistance, or that too much economic damage was being incurred, but basically they were hamstrung. They had to support the main planks of government policy. It may also have been the case, as the World Happiness Report suggests, that social solidarity was enhanced because people felt grateful to each other during the crisis. Donations to charity and time spent in voluntary work increased (United Nations, 2020‒21). People could observe that their fellow citizens were nearly all obeying the new health regulations, and they were obeying themselves: ‘People are better than I thought’. One group who benefited greatly from policy responses to Covid, and who may have been suitably grateful, were shareholders. A side-effect of loose monetary policy was that, after a sharp fall during the first wave of Covid, most Western share markets boomed. Most shareholders would have seen the value of their portfolios increase by over 25 per cent between mid-2020 and mid-2021. So it appears that funding which was intended to provide business loans again found its way into share markets. It is possible that shareholder gains were an unintended effect of monetary policy, because such gains provide few or no benefits to the ‘real’ economy. On the other hand, similar share market gains had resulted from loose monetary policy in the Global

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Financial Crisis. It may be that monetary authorities and governments were deliberately currying favour with investors.

DISCUSSION: POLICY INNOVATION AND LEARNING Policy innovations launched during Covid provide opportunities for major changes to the welfare state; that is, to health, education and welfare. The delivery of health care changed, with much increased use of telephone and email consultations. In fact, because of the risk of infection from attending medical practices or hospitals, telephone consultations became the norm. Patients could link up with their doctor by telephone, using video if necessary to display symptoms or learn how to comply with treatments. It was faster, cheaper and more convenient than standard face-to-face consultations. It seems likely that in most cases patient treatment and outcomes were not compromised. This is all subject to ongoing policy evaluation, but it may be that health policy innovations adopted during Covid will prove important for the future. Education became distance education. Schools and universities went online. Policy evaluations will soon inform both educators and governments about the costs and benefits of these changes. It may turn out that distance education is effective for many university students, for adult education, and perhaps for senior secondary (high) school students. In the medium and long term, it has to be less expensive than face-to-face teaching. This, of course, means that for the same amount of money, more students could be educated. Again, policy innovations launched during Covid may hold promise for the future. Subsidised wages and increases in welfare and social security payments made during Covid appeared to receive strong public support. It was obvious that people who lost work hours or became totally unemployed during the pandemic could not be blamed for these outcomes. Payments of subsidised wages, made by central governments to employees who were temporarily working reduced hours (or none at all), appeared to have public support. In federal systems, such as the US and Australia, they also plainly had the support of sub-national governments. These governments kept urging the federal government to reinstate payments whenever there was a local surge in cases. It seems likely that, in future economic downturns, there will be immediate demands to subsidise wages, rather than just force people to rely on unemployment benefits. Job sharing, made possible by the reduced working hours of previously full-time employees, may also be an idea whose time will keep on coming. Several countries (Australia, Denmark, Mexico, New Zealand and the US) allowed people to dip into their retirement (old age pension) savings during Covid (Inter-American Development Bank, 2020). This was regarded as an emergency measure, and was criticised for potentially leading to poverty in old age. An alternative view, well grounded in economic theory, is that it makes

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sense, even in non-emergency situations, to allow people to draw down on savings to smooth their consumption over a lifetime (Beshears et al., 2015). A similar line of argument is that it should also be possible to withdraw savings to make a human capital investment; for example, to fund an education or training course for yourself or a family member. Beshears et al. (2015) have proposed that national retirement savings schemes should be run on these lines. The UK government took up this idea in 2018 and is currently trialling a system in which contributors make a financial plan, and then save money out of their pay cheques in two ‘jars’: a long-term savings jar and an emergency savings jar (Inter-American Development Bank, 2020). The prognosis for the panoply of business grants and loans made during Covid seems positive. These subventions did not just prevent many businesses from going bankrupt, but they also enabled some to be remodelled. Even small businesses found that they could profitably go online, as did start-up businesses. Powerful business interest groups will have observed these results and will press governments to continue with programmes launched during the crisis. Finally, we ordinary citizens. Commuting to and from work has been found to be the most disliked part of most people’s day (Kahneman et al., 2004). During Covid, many people found that they could work effectively from home. Some enjoyed it, some did not. Some even decided that, instead of living within commuting distance of work, they would move to the country or the coast. It can be advantageous for employers to have some of their employees working from home: substantial savings in office space and rent, for a start. Less office politics, perhaps fewer meetings. So an increase in working from home – and new locations for homes – may be another interesting set of changes stimulated by response to Covid. Crises break the mould. Novel policy options and lifestyles get tried. The genie is out of the bottle and cannot easily be put back. Much can be learned. Governments should not and probably will not just be able to revert to the status quo ante. Groups that were subsidised during the Covid crisis will ask for similar subsidies again in the next crisis. Politicians and governing parties will be inclined to accede. They are ‘yea-sayers’. They know that they get ahead in politics partly by doing many favours for many people. Saying ‘no’ just loses support. The big unknowns at the time of writing are the extent to which economic stimulus measures, taken during Covid, stoked inflation, and how long high rates of inflation will last. If the inflation surge proves relatively short-lived, and is primarily blamed on the Russia‒Ukraine war, drastic stimulus measures of the kind taken during Covid will not be ruled out in future crises. But if inflation persists for several years, and is perceived to drastically reduce

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living standards, then less radical approaches to crisis policy-making may be reinstated.

PART IV

Western welfare capitalisms: convergence or continuity?

14. Welfare-capitalist regimes in the 21st century: still delivering distinctive policy outcomes, little evidence of convergence The purpose of this chapter is to summarise our empirical results on differences in regime performance in the 21st century. We start by ranking the four regimes in terms of policy performance: their delivery of policy/welfare outcomes relating to poverty, income and wealth inequality, gender inequality, personal autonomy, economic security and life satisfaction. Then we focus on trends. The issue here is whether the regimes are converging; more specifically, converging towards a liberal model.

RANKING REGIMES We began with an expectation that regimes would be likely to perform best – most effectively – in delivering welfare outcomes to which they attach high priority. What have we found? In the case of the liberal regime priority of promoting national economic growth, results were indeterminate. The historical evidence does not allow us to rank regime performance. However, the evidence is decisive in relation to regime objectives relating to equity, personal autonomy and economic security priorities.

EQUITY PRIORITIES In Table 14.1 the regimes are ranked 1‒4 in performance on equity objectives. The historically social democratic Scandinavian regimes clearly deliver on their own priorities, at least in a comparative sense. Whether we rely on simple measures of mean differences in regime performance, or whether we control for socio-economic variables and gross domestic product (GDP), the Scandinavian regimes always achieve more egalitarian outcomes than other regimes in relation to income poverty, income inequality and gender inequality. This is something of a surprise, given the relative electoral decline of social democratic parties. However, it should be recorded that poverty and income 167

Western welfare capitalisms in good times and bad

168

Table 14.1

Regime

Regime performance on welfare outcomes: social democratic priorities relating to poverty, income inequality and gender inequality, ranks 1‒4 Reduce income

Reduce

Reduce

Reduce

Reduce

poverty:

income

income

gender

gender

working age

poverty:

inequality

inequality:

inequality:

(see Tables 5.1,

the elderly

(see Table

political

employment

5.2)

(see Tables

5.6)

influence

(see Table 7.3)

(see Table

5.2, 5.3)

7.1) social democratic

1

1

1

1

1

corporatist

2

2

2

2

2=

liberal

3

4

4

3=

2=

proto-corporatist

4

3

3

3=

4

inequality have increased in Scandinavia in the 21st century, particularly in Sweden. The corporatist regimes, which are not in principle favourably disposed towards egalitarian outcomes, are quite close to the social democrats on poverty and income inequality; the Dutch ‘borderline’ corporatist regime actually does better on poverty (although not inequality). The explanation (in hindsight) is probably that the corporatist priority of maintaining family income stability requires substantial income redistribution when families face financial hard times during which their usual market income is no longer available. The gap between the social democrats and the corporatists on one side, and the liberal and Southern European proto-corporatist regimes on the other side, is substantial. There is less income poverty in the general population in the liberal regimes than the Southern proto-corporatist ones, but poverty rates among the elderly are higher. Income inequality is also higher in the liberal than the proto-corporatist regimes. Historically, the corporatist regimes have not been sympathetic to gender equality, but now rank second to the social democrats. So it is no longer accurate to classify them as ‘male breadwinner’ welfare states. The Southern proto-corporatist regimes, on the other hand, rate low on gender equality. The highly inegalitarian distribution of wealth in Western societies has to be viewed as something of an anomaly in regimes that pursue equity objectives. It remains the case that no regime in recent times has targeted wealth redistribution.

Welfare-capitalist regimes in the 21st century

169

PERSONAL AUTONOMY: A SOCIAL DEMOCRATIC AND LIBERAL PRIORITY Personal autonomy is a high priority in both social democratic and liberal regimes. It should not be considered as a goal at all in corporatist and proto-corporatist regimes. It runs counter to the corporatist aim of achieving social stability by integrating individuals into families, work groups, religious and other community groups. Indicative regime rankings are given in Table 14.2. Table 14.2

Regime

Regime performance on welfare outcomes: personal autonomy, a social democratic and liberal priority, ranks 1‒4 Working age

The elderly

(see Tables 7.1, 7.2)

(see Tables 7.1, 7.2)

social democratic

1

1

corporatist

2

2

proto-corporatist

3

3

liberal

4

4

It is worth recalling that our measures of personal autonomy are indirect. We are unable to assess whether individuals ‘really’ act in an autonomous way. So we rely on measures that are intended to indicate whether or not people have an adequate income and a reasonable amount of leisure/discretionary time. Using these measures, the social democratic regimes rank first, the corporatists and proto-corporatists second and third, and the liberal regimes last. The low liberal ranking is primarily due to the fact that employees in liberal regimes work longer hours than elsewhere. Ranks are the same for working age and elderly people.

ECONOMIC SECURITY PRIORITIES Economic security is a relatively high priority in corporatist and proto-corporatist regimes. Suggested regime rankings are shown in Table 14.3. The corporatist regimes rank just below the social democratic regimes in delivering income stability both for working age people and for retirees. The proto-corporatists have been able to provide a measure of security for older people via pensions with high earnings replacement rates. But the performance of Southern European economies in the Global Financial Crisis (GFC) and since has scuppered any hope of providing stable incomes. For economic incentive reasons, liberal regimes are sceptical of the value of state-sponsored economic security

170

Table 14.3

Regime

Western welfare capitalisms in good times and bad

Regime performance on welfare outcomes: corporatist and proto-corporatist economic security priorities, ranks 1‒4 Income stability:

Pension income

Income

working age

adequacy:

stability:

(see Tables 10.1)

the elderly

the elderly

(see Table 10.5)

(see Table 10.6)

social democratic

1

3

1

corporatist

2

2

2

liberal

3

4

4

proto-corporatist

4

1

3

for working age people. It is hard to see why they also rank low on providing security for the elderly, but they do.

LIFE SATISFACTION Regime ranks on life satisfaction are reproduced in Table 14.4. Life satisfaction is moderately correlated with GDP, but regardless of whether one controls for GDP or just relies on mean differences, regime rankings are as shown in the table. The social democratic regimes record the highest mean levels of satisfaction and the lowest inequality (that is, the smallest standard deviations of satisfaction). Table 14.4

Regime performance on welfare outcomes: life satisfaction, ranks 1‒4 Life satisfaction:

Life satisfaction:

average (mean)

inequality (standard deviation)

(see Table 11.1)

(see Tables 11.3, 11.4, 11.5)

social democratic

1

1

liberal

2

2

corporatist

3

3

proto-corporatist

4

4

Regime

SUMMARY: REGIME RANKS The historically social democratic Scandinavian regimes perform better than other regimes in relation to their own equity priorities, and also in promoting life satisfaction. They at least match the corporatist regimes in providing citizens with economic security. The corporatists, but not the proto-corporatists,

Welfare-capitalist regimes in the 21st century

171

are close to the social democratic regimes on equity outcomes. Liberal regimes do not intend to promote egalitarian outcomes, and are ambivalent about the desirability of economic security.

CONVERGENCE OR CONTINUITY? WHAT IS CHANGING AND WHAT IS NOT? The evidence so far indicates that, taking the 2005‒19 period as a whole, the regimes still deliver distinctive policy/welfare outcomes. But what about trends in the 21st century? At the start of this book we flagged the continuing debate among students of the welfare state about whether Western regimes are converging towards an Anglo-American liberal model of welfare. The convergence proposition is endorsed by both some left- and some right-wing observers. The claim is that the competitive pressures of globalisation, coupled with the increasing influence of the financial sector in modern capitalism, are leading to a convergence in public policy towards a liberal, market-driven model, requiring cut-backs in public expenditure and the welfare state (Lindbeck, 2006, 2008; Schmitt and Starke, 2011; Piketty, 2013; Standing, 2016; Abrahamson, 2017b; but see Ringen, 2006). We now try to assess the main lines of evidence relevant to conclusions about convergence, and about what has been changing and what is relatively unchanged in Western regimes. These regimes are certainly not static. Changes to laws and regulations governing the welfare state are made every year in every country. But our concern is not primarily with laws and regulations, it is with policy/welfare outcomes. What is the balance between evidence of continuity or path dependence and evidence of convergence? Below is a summary of trends in policy/welfare outcomes. The focus is on whether outcomes became more similar – trending in a liberal direction – during and after the GFC compared with before the GFC. Poverty In all but the liberal regimes relative poverty rates were 1‒1.5 per cent higher in the post-GFC period than pre-GFC (see Chapter 5, Figures 5.1 and 5.2, Table A5.1). Poverty rates in liberal regimes declined by an average of just over 1 per cent. However, anchored poverty results (using a pre-GFC 2007 poverty line) tell a somewhat different story. Anchored poverty rates were 1.6 per cent lower in the historically social democratic regimes, and 1.5 per cent lower in liberal regimes, during the post-GFC period than they had been before the crisis. In corporatist regimes anchored poverty scarcely changed (down from 6.8 per cent to 6.5 per cent), whereas in proto-corporatist regimes the rate rose from 12.3 per cent to 16.5 per cent.

172

Western welfare capitalisms in good times and bad

Conclusion: virtually no convergence, but (if anything) there was convergence in liberal regimes towards the comparatively lower levels of poverty in social democratic and corporatist regimes. Income Inequality In all four regimes income inequality, measured by Gini coefficients, remained virtually unchanged throughout the period. Conclusion: no convergence. Gender Inequality The ratios of female to male politicians (parliamentarians and ministers), and of employed women to employed men, remained much higher throughout the period in social democratic regimes than elsewhere. However, the other regimes are catching up. The gaps between the social democrats and the other three regimes in the post-GFC period were much smaller than they had been before. Conclusion: convergence is happening and it is in a social democratic direction. Personal Autonomy Our data only allow us to assess potential personal autonomy. Potential autonomy was greatest in the social democratic regimes, followed at a distance by the corporatists, the proto-corporatists and the liberals. The data are not fine-grained enough to draw any inferences about time trends. Conclusion: social democrats rate highest; no evidence on convergence. Economic Growth and Material Living Standards Evidence for the 2005‒19 period was almost inevitably inconclusive on comparative economic performance. However, some economists believe that, in the long run, technological convergence will tend to reduce differences in economic development and living standards.1 Conclusion: long-term convergence is possible. 1 The Solow‒Swan theory of economic growth implies convergence in the long term (Solow, 1956). Later economists have analysed the social, economic, human capital, technological and governmental factors that promote or inhibit growth in lowand middle-income countries (e.g., Abramovitz, 1986; Lucas, 1990; Sokoloff and Engerman, 2000; Sachs, 2005).

Welfare-capitalist regimes in the 21st century

173

Economic Security Family economic/financial security was mainly measured by the stability/ instability of disposable incomes over time. Throughout the period, income stability was at much higher levels in social democratic and corporatist regimes than in liberal or proto-corporatist regimes. It steadily increased in corporatist regimes and was significantly greater in the post-GFC years than before. This was true for both working age people and the elderly. In social democratic and liberal regimes there was little change in income stability for working age people. However, the stability of elderly people’s incomes declined after the GFC in social democratic regimes, and improved in liberal regimes, although these regimes remained far apart. In proto-corporatist regimes the incomes of both working age people and the elderly became much less stable. Conclusion: no clear evidence of convergence; the strongest trend was declining income stability and hence economic security in proto-corporatist regimes. Life Satisfaction Life satisfaction remained at a higher level and was less unequal in the historically social democratic regimes than other regimes. Satisfaction was much lower in proto-corporatist regimes during and after the GFC than it had been before. In the other regimes it was virtually unchanged. Conclusion: no evidence of regime convergence. Summary This is a mixed set of results, but there is plainly no evidence of convergence in a liberal direction. Only in the domain of gender equality, and perhaps economic growth (rising living standards), is there any indication of convergence. In the gender domain, convergence is in a social democratic direction; and in the domain of economic growth, technological change and globalisation may drive convergence. In most domains the comparative evidence is clear-cut: the regimes continue to deliver distinctive sets of outcomes. We still have multiple welfare capitalisms, not just one.

GOVERNMENT SOCIAL SPENDING: CONVERGING LEVELS OF EXPENDITURE ON SOCIAL POLICY? But have we missed something? Is it possible that by proceeding sequentially ‒ comparing regime performance on a range of policy/welfare outcomes ‒ we have somehow failed to see the wood for the trees? Proponents of welfare state

174

Western welfare capitalisms in good times and bad

convergence have commonly used evidence about alleged convergence in government social spending to support their thesis (Standing, 2016; Abrahamson, 2017b). In our view, the validity of this evidence would be doubtful, even if it strongly indicated convergence. Esping-Andersen, ourselves, and others who claim that welfare-capitalist regimes are distinctive, have always based that claim on differences in the priorities (values, goals) driving public policy and on the policy/welfare outcomes that appear to flow from those priorities. Obviously, government expenditures are a means to an end. They are neither values nor outcomes, although they may reflect values/priorities and may lead to more or less intended outcomes. That said, it could be still be argued that if a trend towards regime convergence in social expenditures has been under way, then it might at some future date lead to a convergence in welfare outcomes. Let us see what has been happening. Economists distinguish between two types of convergence: beta-convergence and sigma-convergence. Beta-convergence refers to increasing similarity of means (averages) over time, and sigma-convergence refers to decreasing dispersion (variability) over time. Our measure of sigma-convergence in ‘government social spending’ is the coefficient of variation. The proposition that Western welfare states are converging towards a liberal model implies that: (1) mean levels of expenditure in non-liberal regimes are declining towards a (comparatively) low liberal level; and (2) variability within and between regimes is declining. Table 14.5 provides evidence on ‘government social spending’ as a percentage of GDP in each type of regime before, during and after the GFC.2 The data source is the OECD’s Social Expenditure Database (SOCX) (OECD, 1980‒). OECD’s researchers try to ensure that their estimates are as internationally comparable as possible (Adema et al., 2011). Government social spending is broken down into nine policy areas: old age, survivors, incapacity/disability, health, family (including child care), active labour market programmes, unemployment, housing, and ‘other social policy’ (for example, food subsidies). As background information it is useful to know that old age pensions and health are the two most expensive areas of social policy, averaging 7 per cent and 6 per cent, respectively, of GDP in Organisation for Economic Co-operation and Development (OECD) member countries. Corporatist regimes (especially France, Austria and Belgium) spend more than other 2 Private social expenditures are excluded. Of course, in regimes with lean welfare states, private social spending is substantial. In the United States private social spending is about 11 per cent of GDP, health care being much the largest component (Adema et al., 2011). Some private spending is subsidised by tax breaks. However, tax breaks benefit better-off households more than those with low incomes, since their marginal rates of tax are higher.

Welfare-capitalist regimes in the 21st century

Table 14.5

175

Government social spending as a share of GDP in welfare-capitalist regimes: (1) has spending declined in non-liberal regimes? (2) has there been regime convergence in social spending?a

Regimes and periods

(2)

(3)

(4)

Mean

Coefficient of variation

Coefficient of variation

(%)

within regimes

between regimes

(%)

(%)

All regimes Pre-GFC: 2005‒07

21.9

2.4

11.1

GFC: 2008‒13

24.0

3.0

12.5

After GFC: 2014‒19

24.3

3.1

12.8

Pre-GFC: 2005‒07

23.8

10.5

 

GFC: 2008‒13

26.2

11.8

 

After GFC: 2014‒19

27.5

8.0

 

Pre-GFC: 2005‒07

16.6

10.0

 

GFC: 2008‒13

18.4

14.8

 

After GFC: 2014‒19

18.4

9.0

 

Pre-GFC: 2005‒07

25.7

14.9

 

GFC: 2008‒13

26.0

18.0

 

After GFC: 2014–19

26.0

25.8

 

Pre-GFC: 2005‒07

21.6

7.8

 

GFC: 2008‒13

25.2

6.2

 

After GFC: 2014‒19

25.2

7.2

 

Social democratic regimes

Liberal regimes

Corporatist regimes

Proto-corporatist regimes

Note: a Each country has the same weight as other countries with the same type of regime. Source: OECD, Social Expenditure Database (SOCX) (1980‒).

regimes on pensions and health combined, which accounts for the fact that they have the highest aggregate levels of spending; slightly higher than social democratic regimes (Table 14.5).3 The historically social democratic regimes are distinctive in spending more than other regimes in three areas: working 3 This statement needs some unpacking. Both corporatist and proto-corporatist regimes spend a great deal on old age pensions; more than other regimes. In fact, all Western countries currently spend between 10 and 16 per cent of GDP on pensions (OECD, SOCX, 1980‒). Differences among regimes in health spending are not

176

Western welfare capitalisms in good times and bad

age income support (for example, unemployment benefits), pre-school child care and kindergartens, and active labour market programmes (Castles, 2009; Kautto, 2010). These spending priorities help to account for our empirical results showing that the social democratic regimes reduce poverty, income inequality and gender inequality more effectively than other regimes (Castles, 2009; Kautto, 2010). They also do more, partly through active labour market programmes, to promote a sense of financial/economic security, or at least employment security (Chapter 10). There is no clear quantitative evidence of regime convergence during this period. In all regimes, including liberal ones, government social spending was higher, not lower, in the post-GFC years than it had been before the crisis. Further, spending differences between regimes did not diminish over time: there was neither beta-convergence nor sigma-convergence.4 The coefficients of variation in column (4) show a steady rise in between-regime differences. Differences were larger in 2008‒13 than in 2005‒07, and larger still in 2014‒19. The within-regime coefficients in column (3) also show no clear trends. In none of the four regimes was there a consistent trend towards greater similarity in social spending. The corporatist regimes actually became less similar to each other, in large part because of a steady decline in social spending in the Netherlands. The convergence proposition is further refuted by finding that differences in spending between liberal regimes and each of the other regimes were as large (or a bit larger) in the post-GFC period than they had been pre-GFC. Take, for example, differences between liberal and social democratic regimes. Prior to the GFC, liberal regimes averaged 16.6 per cent of GDP on social spending, with social democratic regimes averaging 23.8 per cent: a difference of 7.2 per cent. After the GFC, liberal regime spending was actually higher at 18.4 per cent of GDP, while social democratic regime spending had risen to 27.5 per cent: a difference of 9.1 per cent. Of course, spending in all regimes rose during the crisis years, because the need increased for income support, particularly unemployment payments. Proponents of welfare states would say that this is how welfare states are supposed to work. Some economists would add that welfare payments are

clear-cut, although the corporatists and proto-corporatists are all in the top half of the OECD distribution (OECD, Social Expenditure Database (SOCX). 4 These aggregate-level expenditure results do not gainsay claims that entitlement to income support in both social democratic and corporatist regimes is becoming increasingly correlated with previous earnings and increasingly conditional on job search (Schmitt and Starke, 2011; Standing, 2016; Abrahamson, 2017b). ‘Conditionality’ is sometimes regarded as a ‘liberal’ feature of welfare regimes.

Welfare-capitalist regimes in the 21st century

177

useful in an economic recession because they act as countercyclical ‘economic stabilisers’. The Netherlands is an interesting outlier. Unlike other Western governments, Dutch governments have repeatedly reduced public social spending, cutting it from 24 per cent of GDP in 1990 to 16 per cent in 2019. The Netherlands now ranks second only to the US in private social spending, with most of the money being spent on pensions and health care (OECD, SOCX, 1980‒, annual). So the Netherlands has made changes in the direction of a liberal welfare model. But even this inference needs hedging. We commented in Chapter 5 that the Netherlands still looks more social democratic than corporatist in some respects, particularly in continuing to record very low levels of poverty. In the ‘second-dip’ recession of the GFC, there was pressure on the governments of the Southern European proto-corporatist regimes ‒ pressure from the International Monetary Fund (IMF), the European Central Bank and Germany – to make cuts in social spending, among other areas of public expenditure. In practice, overall cuts to social spending only amounted to 1‒2 per cent of GDP (OECD, 2019), although substantial cuts to family payments in Greece, Spain and Portugal were reported to have caused serious hardship (OECD, SOCX, 1980‒, annual; Petmesidou and Guillen, 2017).

EXPLAINING PATH DEPENDENCE: POWERFUL POLITICAL COALITIONS What accounts for the continuing distinctiveness of the four regimes: the strong evidence of path dependence? First, all four regimes and welfare states have long or fairly long histories. As every historian of social policy repeats, the world’s first welfare state in Germany was launched by the conservative Chancellor Count Otto Bismarck in the 1880s to try and shore up public support for the Reich, and prevent working people joining socialist parties and trade unions.5 American welfare also had 19th century origins in benefits paid to veterans and mothers (Skocpol, 1992, 1995), although the landmark legislation that provided the framework for modern social insurance and the welfare state was not passed until the 1930s (the Social Security Act of 1935). The Swedish welfare state was gradually developed during the long period of social democratic hegemony from the early 1930s to 1990. The Italian proto-corporatist welfare state was last to develop. As we saw in Chapter 2, it had origins during Mussolini’s dictatorship, and then was extended (but not

5 He did not succeed in these aims. Support for socialist parties and union membership continued to increase throughout his chancellorship. He had previously passed anti-socialist laws, which were presumably even less effective.

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cleaned up) after World War II, when the Christian Democrats were the largest political party. Powerful political coalitions have developed in each of these welfare states to support the status quo or, better still from their point of view, to increase the flow of benefits to client groups. Billions of dollars, 20‒40 per cent of GDP, are spent on social security and welfare programmes. The coalition partners who support these programmes are not just direct programme recipients, who get benefits in cash and kind, but also the political parties and unions that propose and continue to support them. Then there are the armies of civil servants who are paid good salaries to administer social insurance and welfare. In sheer numbers, bureaucrats working in health, education and welfare departments form the bulk of the Civil Service in all Western countries. In general elections they mostly vote for parties that intend to maintain or extend the welfare state (Lijphart, 1999; European Journal of Political Research, annual, 1991‒). In Sweden, the main supply-side coalition ‘partners’ supporting the Swedish welfare-capitalist regime are the Social Democratic Party, all three large union confederations, and civil servants in the main social policy departments. Most of these civil servants are women and they mostly still vote for the Social Democratic Party. Arguably, they are now the key members of the social democratic coalition, given the party’s electoral decline in other sections of the community. On the demand side are sections of the public whose income consists mainly of public transfers and social security payments, who are currently more than half the population (Arter, 2015; Castles, 2009). Additionally, and perhaps surprisingly, employer groups have supported key welfare state programmes, especially active labour market programmes (Bjorklund, 2000; Madsen, 2005; van den Berg, 2009; Muffels et al., 2014). These job training and retraining programmes can be viewed as meeting business needs at state expense (Hall and Soskice, 2001; Muffels et al., 2014). In Germany the supply-side coalition that is broadly supportive of the corporatist welfare state consists of the two biggest parties – the Christian Democratic Union (plus its Bavarian partner, the Christian Social Union) and the Social Democrats ‒ the main union confederation, the DGB, and federal and state civil servants who work in welfare departments. Welfare and social security recipients are, of course, the demand-side coalition members. As is also true in Sweden, employer groups are supportive of important elements of the welfare state. Social insurance that covers workplace injury and pays employee sickness benefits can also be thought of as the state covering costs that employers might otherwise have to meet out of their own or their customers’ pockets (Baldwin, 1990; Mares, 2003). The American pro-welfare coalition is much weaker, although, as we have seen, support for social security programmes is locked in. The Democratic Party used to be pro-welfare, but from President Clinton’s time onwards it

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has supported provision of only short-term benefits, coupled with insistence on workfare. American trade unions, which in any case have always been more supportive of social security than social assistance, are now seriously weakened and have limited influence over public policy. Civil servants in health, education and welfare departments vote disproportionately for the Democratic Party, but that no longer implies voting for welfare programmes. Lower-income sections of the public, who might benefit from more generous welfare programmes, support public provision of health care (at least in principle; see Appendix 2) but are suspicious of anything that smacks of welfare for ethnic minorities. In Italy, political and welfare coalitions that appeared strong for decades after World War II fell apart during the Tangentopoli scandals in the early 1990s. Prior to that time the Christian Democratic party had penetrated the welfare state apparatus in the South, dishing out benefits to its party supporters and client groups (Ferrera, 1996). In the North the communist and socialist parties, together with trade union allies, ran similar patron‒client operations. Now the old parties are gone, and the unions are somewhat weakened. The new populist parties are nothing like so well entrenched within the welfare state apparatus. They rail against ‘welfare hand-outs’ to immigrants. However, serious welfare cuts have not yet occurred, because during both the Global Financial Crisis and Covid many more people than before have been desperately in need of income support. However, without a solid coalition of support, the future of the Italian welfare state must be very uncertain.

SUBSTANTIAL REFORMS THAT NEVERTHELESS REFLECT REGIME VALUES/PRIORITIES The political clout of system-maintaining coalitions means that reform packages usually have to be tailored to fit the values and economic interests of coalition members. For example, we noticed how the Hartz labour market reforms in Germany, which were intended to reduce unemployment by improving labour market flexibility, were packaged by adding new occupational layers – Midi jobs and Mini jobs ‒ to the existing corporatist structure. Ministers in Chancellor Schroeder’s government routinely implied that a Midi or Mini job would usually be held only for a short time before transition to a standard job (Jacobi and Kluve, 2007; Montoriol-Garriga, 2013). This may have been a pretence. In general, people in Midi and Mini jobs remain poorly paid at the bottom end of the labour market (Motoriol-Garriga, 2013). In Sweden, reforms to collective bargaining were made in ways that respected norms of wage solidarity, while reducing the danger of driving firms exposed to international competition out of business. For decades collective bargaining had occurred primarily at the nationwide level in negotiations

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between the main employer and union confederations. The result was a pay structure that was flat by international standards (Arter, 2015; Fulton, 2021). When it became clear in the 1980s that pay increases were making some well-run companies uncompetitive, the system was gently modified (Fulton, 2021). Bargaining moved from the nationwide level towards the industry level. But it did not go all the way. Both unions and employers now negotiate in ‘bargaining groups’. It is understood that wage differentials should not become too large, but that more account than in the past should be taken of a firm’s competitive position and international exposure. On average, manufacturing firms have the greatest international exposure, so pay is set at levels designed not to force them out of business. Agreements in other sectors of the economy are then influenced by changes in the manufacturing sector (Fulton, 2021). Reform has happened, but it is ‘within-system’ or ‘within-regime’ reform. Existing norms are respected.

A KEY AREA OF DISCRETION: REGIME PRIORITIES ARE REFLECTED IN GOVERNMENTAL SOCIAL SPENDING A simple point that is critically important in explaining path dependence is that national governments still retain substantial discretion on how to divide up social expenditure (Castles, 2009; Kautto, 2010; Kangas and Kvist, 2013). At any given time, national and international economic conditions, competitive pressures, and confidence ratings in governments expressed via bond markets, may impose constraints on total public expenditure, including total social spending.6 But unless external agencies directly intervene, as happened in Southern Europe during the Global Financial Crisis, it is still substantially

6 The evidence does not really support the view that public expenditure as a percentage of GDP is declining. Again, the story is mainly one of path dependence. Public expenditure reached a high watermark in most Western countries around 1995, at which time the Finnish and Swedish governments were taxing and spending over 60 per cent of GDP. At the other end of the spectrum, the liberal regimes were all spending under 40 per cent. Between 1995 and the start of the GFC, the share of public expenditure in GDP fell in all countries considered here, except for Portugal. It then rose in all countries during the early years of the GFC due to the increased cost of paying unemployment benefits and other entitlements, plus the cost of countercyclical stimulus measures. After the end of the GFC, public expenditure stayed at about the same percentage of GDP or declined in most Western countries. It rose again during Covid. Its ‘normal’ level is still over 50 per cent in Belgium, Denmark, Finland and France. It remains below 40 per cent in all the liberal regimes, except for the United Kingdom where it was 40.4 per cent in 2019. Again, this is not a record of convergence towards a liberal model.

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within the discretion of Western governments to decide how to divide up government social spending; to decide what their priorities shall be (Kautto, 2010). How is this discretion used? All the Scandinavian regimes continue to give higher priority than other regimes to working age income support, and to local government programmes covering child care, kindergartens and nursing care. These programmes all contribute substantially towards promoting equity/ equality objectives (Castles, 2009; Kautto, 2010). It is true that, after the end of the Global Financial Crisis, all the Scandinavian governments (except for oil-rich Norway) cut back on public expenditure as a percentage of GDP, but they all maintained their social spending priorities (Castles, 2009; Kautto, 2010; Kangas and Kvist, 2013). Similarly, corporatist and proto-corporatist regimes continue to implement their priorities by allocating higher levels of expenditure than other regimes to old age pensions (Castles, 2009; OECD, SOCX, 1980‒).

POLICY LEARNING AND INNOVATION DURING THE GFC AND COVID: DIFFERENCES BETWEEN AN ENDOGENOUS CRISIS AND AN EXOGENOUS CRISIS The Global Financial Crisis was an endogenous crisis; the Covid-19 crisis was exogenous. It is too early to be sure, but it appears that the exogenous crisis may have engendered more policy innovation, and more learning for the future, than the endogenous crisis. The GFC was defined by a near collapse of the banking system, the financial system. The essential and immediate requirement was to rescue and repair that system. Extensive fiscal and monetary measures were implemented, but there was no intention on the part of government, and perhaps no demand from the public or interest groups, for these measures to be continued after the crisis. When the Covid crisis struck, many of the same measures were implemented again: subsidies to firms and small businesses, income support for families, and very accommodative monetary policies, including quantitative easing. So lessons learned in one crisis were applied in the next crisis. But much more was done during Covid. Policy response was more innovative. Furthermore, most Western publics approved of the way their governments handled the crisis. This being so, politicians and party apparatchiks will try to figure out how and why they gained public support, and will try to learn some lessons for the future; some lessons for ‘normal’ or even ‘good’ times, as well as for crisis times. Sections of the public and interest groups that benefited from innovations adopted during Covid may demand that they be continued. Social scientists will evaluate programmes launched during Covid and recommend ways in which they could be modified for continued implementation.

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We tried to give a sense of the array of programmes that were initiated or greatly expanded during Covid in Part III of the book. Some appear to hold promise for the future. These include increased use of telehealth (health and mental health consultations by telephone and video), and increases in the range of courses available through distance education. Businesses are likely to lobby hard in future for subsidies that helped them during Covid: subsidies to enable them to retain their employees during downturns in their sector of the economy, and also subsidies to change their business model (for example, to go online and provide home delivery). Individuals and families will remember that during Covid they got temporary relief from mortgage payments, from utility bills and from consumer loan repayments. They will ask why similar relief could not be provided during a period of ill-health or unemployment. They may again ask for early access to their pension savings in order to cope with an emergency, or make an educational or business investment for the future. Welfare and social security payments do not have to be doled out in small increments (‘drip feeding’). Lump-sum payments for emergencies or investments make sense, although it is admittedly difficult for state agencies to ensure that they are made prudentially and without substantial waste (Latham, 1998; Beshears et al., 2015). The downside of the Covid innovations, coupled with the effects of the Russia‒Ukraine war, was a sharp increase in inflation. The prognosis for these innovations is likely to depend on how long inflation lasts, and how damaging its effects prove to be for economic growth and living standards.

INTERNATIONAL COMPARISONS: SUMMING UP This is a book of international comparisons. So we should end with our main comparative conclusion. It is that the historically social democratic Scandinavian regimes have created more equitable societies, and given their citizens a greater sense of economic security than other regimes in Europe and North America. Economists usually consider that there is a trade-off between equality and economic efficiency (Okun, 1975). We have not found any convincing comparative evidence that the Scandinavian regimes have paid a high price in lost economic efficiency for gains in equality. They have adopted a broad concept of welfare, and the outcomes they have achieved probably help to explain why levels of life satisfaction are highest, and inequality of satisfaction is lowest and less linked to social status and incomes, in Scandinavia than elsewhere in the Western world.

Appendix 1. Ireland: a welfare-capitalist regime that defies classification Ireland has not been included in the main part of the book, because it more or less defies classification. Welfare state scholars have tried, but their assessments differ almost comically, with some classifying the regime as liberal, some as corporatist, and some as similar to Southern European proto-corporatist regimes (Arts and Gelissen, 2010).

BACKGROUND: IRELAND’S POLITICS, WELFARE STATE AND ECONOMY Ireland’s politics are relatively consensual. Most governments are coalitions. Historically, the two largest parties have been Fianna Fail and Fine Gael. They are not divided on a left-wing, right-wing dimension, nor on any other ideological line. Between 1987 and 2009 coalition governments entered into a series of corporatist-style ‘social partnership agreements’ with the main private sector employers and the Irish Congress of Trade Unions. These agreements traded wage moderation for tax reductions, during a period when real incomes were rising rapidly. Irish welfare state institutions and programmes are influenced by both the Catholic church (Catholic social doctrine) and developments in the United Kingdom’s (UK) welfare state. Catholic influence leads towards development of corporatist welfare-capitalism, whereas UK influence leads in the direction of a liberal regime. Ireland enjoyed exceptionally rapid economic growth of 6.3 per cent a year in the 20 years prior to the Global Financial Crisis (GFC) (Daly, 2019). This led to its being routinely referred to as the ‘Celtic Tiger’ economy. From the 1980s onwards, Irish governments implemented a deliberate, consistent strategy of trying to attract foreign direct investment (Baccaro and Pontusson, 2016, 2020; Hall, 2020). Major foreign companies (for example, Amazon, Apple, Facebook, Google) were attracted by exceptionally low corporate tax

183

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Western welfare capitalisms in good times and bad

rates.1 Foreign multinationals came to employ about a quarter of the private sector workforce, and paid 80 per cent of business taxes (Quiggin, 2019). Foreign investment now amounts to such a large percentage of gross domestic product (GDP) that Irish economists no longer use changes in real GDP per capita as their main indicator of changes in living standards. Instead they use an adjusted measure of gross national income (referred to as GNI*) that is intended to give a better indication of changes in the domestic economy. The country was severely hit by the GFC. Several of its major banks became insolvent, having exposed themselves to high-risk mortgage and business lending, coupled with low deposit requirements. Faced with a collapsed banking sector, the government bailed out the banks, and the European Central Bank and the International Monetary Fund then bailed out the government. The international lenders imposed a four-year austerity package, comprising about two-thirds public expenditure cuts, and one-third tax increases (Daly, 2019). Cutting public expenditure required public sector wage cuts, which were opposed by trade unions, and led to the demise of ‘social partnership’ agreements. House prices, which had quadrupled in 1996‒2007, plummeted during the GFC, with many people losing their homes, forced to sell in a down-market. Unemployment rose rapidly, reaching a peak of 15.5 per cent in 2012. About 120 000 people, many of them young and well educated, emigrated.

WELFARE OUTCOMES The main purpose of this appendix is to provide a summary of evidence on policy/welfare outcomes. These outcomes will illustrate how difficult, or impossible, it is to try and classify the Irish regime into one of Esping-Andersen’s ‘types’. Relative Poverty and Anchored Poverty Table A1.1 provides relative poverty and anchored poverty results for the periods before, during and after the GFC. Using the 50 per cent of median income line, Ireland records a relatively low level of relative poverty: 8.0 per cent for 2005‒19. It falls within the corporatist range, rather than the social democratic, liberal or proto-corporatist ranges (compare with Figures 5.1, 5.2 and Table A5.1 in Chapter 5). But there is a catch. Using the higher 60 per cent

1 Some foreign companies with a subsidiary in Ireland use tax inversion manoeuvres. The subsidiary is relabelled as the parent company, and the ‘real’ parent company is relabelled as the subsidiary.

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185

of median line does not change the comparative standing of most countries (see Table A6.1), but it makes a big difference in the case of Ireland. Using the 60 per cent line, the average annual poverty rate was 16.3 per cent, which is above the social democratic and corporatist means, although still below the liberals and proto-corporatists. Table A1.1

Relative poverty and anchored poverty in Ireland, based on a poverty line set at 50 per cent of median income

Ireland

Relative poverty

Anchored

(%)

poverty: 2007 poverty line (%)

All years: 2005‒19

8.0

10.0

Pre-GFC: 2005‒07

9.6

12.7

GFC: 2008‒13

7.8

10.1

After GFC: 2014‒19

7.3

8.3

Source: EU-SILC annual cross-sectional surveys (2005‒19).

The anchored poverty results in Table A1.1 imply that real, inflation-adjusted incomes stayed below their 2007 pre-crisis level for many years during and after the crisis. To be more precise, median real incomes only just topped their 2007 level in 2016. However, economic growth and real incomes then rose rapidly in 2017‒19. In the end, taking the 2005‒19 period as a whole, Ireland appeared to record higher growth and larger income increases than any of the 17 countries in our main dataset. As we have seen, economic growth figures may be misleading. However, the changes we can measure in real equivalised median incomes, using European Union Statistics on Income and Living Conditions (EU-SILC) survey data, seem real enough. Incomes increased by 27.7 per cent in 2005‒19, or just short of 2 per cent a year (EU-SILC, 2005‒19). This is considerably lower than the recorded annual increase in GDP per capita, which was 3.4 per cent, but it is still substantial (Feenstra et al., 2015). Income Inequality Table A1.2 provides evidence on income inequality. These Gini coefficients are higher than those recorded by social democratic and corporatist regimes, but lower than in liberal and proto-corporatist regimes (compare Chapter 5, Table 5.5).

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Table A1.2

Income inequality: Gini coefficients of equivalised incomes

Regime Ireland

All years,

Pre-GFC,

During GFC,

After GFC,

2005‒19

2005‒07

2008‒13

2014‒19

0.30

0.32

0.30

0.30

Source: OECD (2005‒19).

Wealth Inequality Table A1.3 provides information on wealth inequality. Wealth inequality is at comparatively low levels in Ireland (compare Tables 6.1 and 6.2). This is partly because it is a country that has a long history of homeownership; a characteristic usually associated with a relatively equal wealth distribution. Table A1.3 Wealth

Wealth inequality in 2019 Mean‒

Share of

Share of

Share of

Share of

median

top 1%

top decile

deciles 7‒9

deciles 1‒6

28.1

62.9

31.5

5.7

Gini coefficient

ratio Ireland

2.6

0.80

Source: Credit Suisse, Global Wealth Report (Shorrocks et al., 2010‒, annual).

Gender Inequality Results for gender inequality are given in Table A1.4. On this evidence, Ireland is a laggard in reducing gender inequality. Its current levels on all measures in Table A1.4 are in the Southern European proto-corporatist range, well below levels in social democratic, liberal or corporatist regimes. Gender inequality: Ireland 2019

Table A1.4 Regime

Women in

Women

Women

Women

Ratio of

Paid

Parliament

ministers

on boards

in paid

employed

maternity

(%)

(%)

of large

employment

women to

leave

companies

(age 25‒54)

employed

(%)

(%)

men (age 25‒54) (%)

Ireland

20.2

27.3

17.5

Source: OECD, Gender Data Portal (2019).

73.5

0.85

26 weeks

Appendix 1: Ireland

187

Income Instability Table A1.5 provides evidence about the stability/instability of the incomes of working age people (18‒65). The coefficient of variation in real incomes in Ireland in 2005‒19 at 18.1 per cent is close to the liberal average (19.6 per cent), and higher than in social democratic or corporatist regimes. It is well below the proto-corporatist average of 28.6 per cent. Table A1.5

Income instability 2005‒19: working age (18‒65)

Regime

Real disposable equivalised

Governmental reduction in

incomes

income instability

coefficient of variation

(%)

(%) Ireland

18.1

25.8

Reduction of instability due to governmental taxes and transfers at 25.8 per cent is much less than in social democratic and corporatist regimes. It is fairly close to the proto-corporatist average of 23.1 per cent, while being well above the liberal average (18.7 per cent). Table A1.6 provides an estimate of the variability of elderly people’s (age 65+) incomes in 2005‒19, plus evidence on pension replacement rates. Table A1.6

Regime

Income instability and net pension replacement rates (NRRs): elderly people (over 65) Real disposable

NRR

NRR

NRR

Poverty rate:

equivalised

0.5 of average

average weekly

2.0 times

over-65s

incomes

weekly

earnings

average weekly

(%)

coefficient

earnings

(%)

earnings

of variation

(%)

(%)

(2005‒19) (%) Ireland

15.9

67.5

39.9

24.0

7.4

Source: calculations from OECD, Pensions at a Glance (2021), Tables 4.4 and 7.2. NRR data are for 2018.

The Irish coefficient of variation in elderly people’s disposable incomes in 2005‒19 is comparatively high at 15.9 per cent; closer to the liberal mean of 19.7 per cent than the social democratic, corporatist or proto-corporatist means. At first sight, pension replacement rates also appear to follow a liberal trajectory, being higher for people who earned low incomes during their working lives, and lowest for high earners. These differences (as in liberal

Western welfare capitalisms in good times and bad

188

regimes) are due to complicated interactions between the value of contributory social insurance pensions and state old age (non-contributory) pensions. State (non-contributory) pensions are means-tested and so taper down as income from social insurance and other sources increases. Despite this initial evidence, it would be mistaken to conclude that the Irish government takes a full-blown liberal approach to pensions. Compared with other liberal regimes, state (non-contributory) pensions are relatively generous in Ireland. For example, at the end of the period they were about 16 per cent higher than the corresponding UK pensions (Daly, 2019). Unlike other welfare benefits, state pensions were not cut during the GFC and the period of austerity that followed. So, on balance, Ireland treats elderly people fairly well. A clinching piece of evidence is that poverty (50 per cent of median line) among over-65s in 2018 was estimated by the Organisation for Economic Co-operation and Development (OECD) to be at exactly the same level (7.4 per cent) as poverty in the population as a whole. This clearly differentiates Ireland from liberal regimes, and is line with outcomes in the other three types of regime. Life Satisfaction Table A1.7 gives life satisfaction results for Ireland. The measure is the Gallup organisation’s ‘ladder of life’ (0‒10 scale). Table A1.7 Regime

Ireland

Life satisfaction before, during and after the GFC Life satisfaction:

Life satisfaction:

Life satisfaction:

Life satisfaction:

all years,

before the GFC,

during the GFC,

after the GFC,

2005‒19

2005‒07

2008‒13

2014‒19

(0‒10 scale)

(0‒10 scale)

(0‒10 scale)

(0‒10 scale)

7.1

7.1

7.1

7.0

Source: United Nations, World Happiness Reports (2012‒22).

This Irish mean of 7.1 for the whole period compares with a mean for social democratic regimes of 7.5, 7.2 for liberal regimes, 7.0 for corporatists, and 6.0 for proto-corporatist regimes. Irish people are -0.36 points (on the ladder) less satisfied than would be predicted by their GDP per capita. (However, to repeat, the country’s GDP per capita may be a misleading indicator of living standards.) Inequality of life satisfaction appears high. Our measure of inequality is the standard deviation of aggregate (nationwide) life satisfaction ratings. Evidence comes from the European Social Survey for 2004‒18. The Irish standard deviation for this period was 2.1. This compares with a standard deviation of 1.6

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189

in social democratic regimes, 1.9 in liberal regimes, 2.0 in corporatist regimes, and 2.2 proto-corporatist regimes (European Social Survey, 2004‒18). So, on this final measure, Ireland is closest to the proto-corporatists.

SUMMARY It is easy to see why Ireland defies classification. No one would label it as a social democratic regime, but some of the welfare outcomes that the country records fall in the liberal range, some in the corporatist, and some in the proto-corporatist range.

Appendix 2. Western welfare publics support the welfare state ‒ in principle Regimes and policy-makers diverge on a standard left‒right ideological dimension in their degree of support for the welfare state and its health, education and welfare programmes. The general public is not so strongly divided. There is a degree of in-principle support – but in-principle only ‒ in all regimes for comprehensive welfare provision. The public’s views on the role of government in welfare provision are regularly canvassed in both the European Social Survey (ESS) and the International Social Survey Programme (ISSP). The ESS asks respondents to rate the government’s responsibility for providing ‘jobs for everyone’, ‘health care for the sick’, ‘the standard of living of old people’, ‘the standard of living of the unemployed’, ‘child care services for working parents’ and ‘paid leave from work to care for sick family members’. The response scale runs from 0 to 10 (0 = ‘not at all the government’s responsibility’, 10 = ‘entirely the government’s responsibility’). These six survey items are highly correlated, so it makes sense to combine them into an ESS welfare state index. The ESS covers all the countries included in this book except for Australia and the United States (US). Regime average ratings for 2004‒18 on the ESS index are: • • • •

Social democratic regimes: 7.8. Liberal regimes (only Switzerland and the United Kingdom): 6.8. Corporatist regimes: 7.2. Southern European proto-corporatist regimes: 8.3.

Mean ratings for each survey item are over 5.0 on the 0‒10 scale in all regimes. ‘Health care for the sick’ receives the strongest support, with a mean rating over 8.0, not just in all regimes but in all countries. The ISSP has a battery of eight questions, also asking about areas of government responsibility. The ISSP response scale has just four points (1= ‘definitely should not be the government’s responsibility’, 4 = ‘definitely should be the government’s responsibility’). The items deal with responsibility to provide ‘jobs for all’, ‘price control’, ‘health care for the sick’, ‘standard of living of the elderly’, ‘standard of living of the unemployed’, ‘reduce income 190

Appendix 2: Western welfare publics support the welfare state

191

differences between rich and poor’, ‘student aid’ and ‘decent housing’. These items, too, are highly correlated and so can be combined into an ISSP welfare state index. The ISSP has adequate coverage of all welfare-capitalist regimes, except the Southern European proto-corporatist ones (only Spain is included). In particular, it includes Australia and the US, so it has all the liberal regimes included in this book. Regime average ratings on the ISSP welfare state index are: • • • •

Social democratic regimes: 3.2. Liberal regimes: 2.9. Corporatist regimes: 3.2. Southern Europe (only Spain): 3.6.

Once again, in all regimes, average ratings for each welfare item are above the scale mid-point. Again, government provision of health care has the strongest support: over 3.0 on the four-point scale in all countries, including the US. In summary, Western publics support appear to support welfare provision in principle, even though many of their leaders do not. Support is strongest in the less well-off countries of Southern Europe. It is least strong in liberal regimes; this probably being both cause and consequence of regime priorities, and of the propensity of politicians and publics to distinguish between ‘deserving’ and ‘undeserving’ welfare recipients.

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van Kersbergen, K. (1995) Social Capitalism: A Study of Christian Democracy and the Welfare State. London, Routledge. Vernengo, M. (2021) The consolidation of dollar hegemony after the collapse of Bretton Woods: Bringing power back. Review of Political Economy, 33, 529–51. Vox (2019, May 18) The recession has not ended for gig economy workers. https://​corp​ .voxmedia​.com, accessed 15 July 2021. Wagner, G.G., Frick, J.R. and Schupp, J. (2007) The German Socio-Economic Panel Study (SOEP) – Scope, evolution and enhancements. Schmollers Jahrbuch, 127, 139–69. Ward, M. (2020, 6 May) 10 countries that show how far behind the US is in paid parental leave for new mothers and fathers. Business Insider. Watson, N. and Wooden, M. (2010) Data survey: The HILDA Survey: Progress and future developments. Australian Economic Review, 43, 326–36. Weaver, K. and Willen, A. (2014) The Swedish pension system after twenty years: Mid-course corrections and lessons. OECD Journal on Budgeting, 13(3), 1‒26. Wolf, M. (2014) The Shifts and the Shocks: What We Have Learned – And Still Have to Learn – From the Financial Crisis. Harmondsworth, Penguin. World Economic Forum (2019) Global Competitiveness Report 2019. Geneva, World Economic Forum. World Health Organization (2017) Asia-Pacific Strategy for Emerging Diseases and Public Health Emergencies (APSED III: Advancing implementation of the International Health Regulations (2005): working towards health security. https:/​iris​ .wpro​.who​.int/​bitstream/​handle/​10665​.1 /13654/9789290618171-eng.pdf. World Inequality Database (WID) (2021) https://​wid​.world. Worldometer (updated daily) Covid-19 coronavirus pandemic. https://​ www​ .worldometers​.info/​coronavirus/​. World Values Survey (2010–14) https://​www​.worldvaluessurvey​.org

Index banks, rescue of 8, 57, 60–61, 62, 181 Belgium as corporatist regime 2, 19 Covid 142 economic growth 58 gender inequality 102 leisure time 109 pensions 125, 174–5 personal autonomy 106 public expenditure 180 wealth 88, 91, 92, 94 boards of large companies 99, 186

active labour market programmes (ALMPs) 9, 23, 63, 68, 158, 174, 176, 178 Affordable Care Act 2013 (Obamacare) 31 Aid to Families with Dependent Children (AFDC) 30, 31 ALMPs see active labour market programmes (ALMPs) American Recovery and Reinvestment Act (ARRA) 61, 66–7 American regime see US regime anchored poverty in Ireland 184–5 measures 49 regime rates 71, 72–3, 74, 82, 84–5, 86, 171 Australia Covid 140, 143, 144, 145, 146, 147, 148–9, 151, 152, 163 economic growth 58, 59, 62, 112 gender inequality 98, 100, 102–3 as liberal regime 19 life satisfaction 52, 134 living standards 116 poverty 49, 70, 77, 78, 80, 105 response to crises 7 wealth 91, 94, 95 welfare state 16, 19, 191 Australian surveys 46–7, 52, 70, 72, 73, 76, 79, 81, 82, 83, 84, 104–5, 110, 116, 131, 147, 191 Austria as corporatist regime 2, 19 distribution of household wealth 94 economic growth 58 gender inequality 102 pensions 125, 174–5 personal autonomy 107 wealth inequality 91, 92

child support 39, 77–8 children corporatist regimes 3 German social assistance 38–9 origins of Italian regime 43 poverty 70, 77–8 Swedish child care 22–3 US program assistance 30 climate change 161 coalitions see political coalitions collective bargaining coordinated market economies 15 German 34, 35 Italian 41, 42 Swedish 23, 179–80 US 28 convergence beta- and sigma- 174, 176 expenditure on social policy 173–6 regime 6, 11, 171–7 welfare state 5–6 coordinated market economies (CMEs) 15, 16 corporatist regimes classification 2 coordinated market economies as 15 countries classified as 19–20 Covid 203

204

Western welfare capitalisms in good times and bad

deaths and GDP 140–141, 143 fiscal and monetary response 160 policy responses 153–4 trust in government 147 degree of support for welfare state 178, 190, 191 economic growth convergence or continuity 172 GFC 58–9 rates 114–15 economic security convergence or continuity 173 expectations of 10 performance 169–70 gender inequality convergence or continuity 172 female representation in Parliament 99 female-to-male employment and gender pay gap 100, 101 maternity and parental leave 102 progress towards 103 women on boards of large private companies 99 Germany as example of 4–5, 11, 32–9 government social spending 174–5, 176, 181 income inequality convergence or continuity 172 government reduction of 84 rates 82–3, 85 Ireland’s features 183, 184–5, 186, 187, 188–9 leisure time 109–10 life satisfaction convergence or continuity 173 destratification 135–6 differences between men and women 136 inequality of 133, 134 performance 170 rates 130, 132 living standards changes in 116–17 convergence or continuity 172 personal autonomy

convergence or continuity 172 data collection 104–5 performance 169 rates 105–8, 110 policy priorities economic security for working age people 118–24 for elderly 124–7 equity 168 expectations of 10 highest 3 implementing 181 reforms reflecting 179 summary 127 poverty checking robustness of results 81–2 convergence or continuity 171–2 differences in rates of 71–3, 84, 86, 87 elderly, children, single-parent families and non-EU foreigners 77–8 impact of governments on 75, 76, 77 medium-term 79–80 response to crisis Covid 153–4, 160 general 9 GFC 63–5 unemployment 60 wealth inequality changes in ratio of wealth to GDP 95 differences in rates of 93 distribution of household wealth 94 ratio of mean to median wealth 91, 92 counterfactuals 9–10, 49–50, 66–7, 157 Covid-19 ALMPs expanding during 23 counting deaths 141–3 European policy response 161 as exogenous shock 8, 139 explaining regime and national results 144–7 fiscal, monetary, labour market and welfare responses to 156–7

Index

by regime 157–61 later waves as worse than first wave 150 lessons for the future 163–5 ‘opening clauses,’ use of 36 policy innovation and learning 163–5, 181–2 as public health crisis 8, 139 public health responses by regime 150–155 by WHO 149–50 trade-off between economy and public health 139–41, 144–5 variables making less difference than expected 147–9 Western publics’ response to government initiatives taken during 161–3 crises, role in policy change 6–8, 18 see also Covid-19; Global Financial Crisis (GFC) cross-class coalitions 16 data analysis 53–4 decommodification 3, 26 defamilisation 3, 26 Denmark anti-immigrant parties 26 Covid 143, 146, 151, 163 distribution of household wealth 94 economic growth 58 gender inequality 102 GFC 63 government social spending 180 labour market 9, 23 pensions 126 poverty 71 as social democratic regime 19, 20 wealth inequality 91, 96 destratification 26, 134–6 disposable income 50, 75, 82, 83–4, 85, 116, 120, 121, 127, 173, 187 Earned Income Tax Credit (EITC) 30–31 economic growth changes in living standards 116–17 convergence or continuity 173 crises damaging 182 and financialisation 17

205

and GFC 57–9, 67 inconclusive regime performance 117, 172 in Ireland 183, 185 liberal regimes expectations of 10 and income differences 82 as priority of 3, 167 US 27 private ‘capitalist’ sector for 22 rates across regimes 112–16 in Swedish regime 24, 158 economic performance 25, 61, 112–13, 117, 140–141, 144–5, 149, 172 economic security convergence or continuity 173 elderly 124–7 factors endangering 18 goal of pensions 37 link with wealth 89, 97 measures 52, 122, 173 as priority of corporatist and proto-corporatist regimes 118, 169–70 regime performance expectations of 10 priorities 169–70 summary 127–8, 170–171, 182 working age people 118–24 education and training and Covid 144, 158, 159, 163, 182 drawing down on savings for 164 expansion in EU 15 Germany 33–4 growth strategy 17 non-EU foreigners 78 and personal autonomy 108 and poverty 81 VoC approach 16 egalitarianism 16, 21–2, 28, 167–8, 171 elderly Covid 142, 162 financial security 52, 124, 173 income stability/instability 126–7, 128, 170, 187 in Ireland 187–8 personal autonomy 106–8, 169 poverty 77–8, 79, 80, 81, 124–6, 127–8, 163 regime performance 168–70

206

Western welfare capitalisms in good times and bad

retirement pensions 124–6, 170 Swedish regime 24–5 US regime 30 women 126 employment and pay by gender 100–101 employment protection data sources 48 insiders benefiting from 42 intention behind 52 Italian regime 45 legal and regulatory 3, 118–19 employment security see job security equity priorities 4, 10, 167–8, 170, 181 Esping-Andersen, G. 2–3, 4, 5, 6, 12, 14, 15, 18–20, 26, 71, 126, 134, 184 European Social Survey (ESS) 4, 39, 46–7, 52, 122, 123, 131, 132, 133, 146, 147, 188–9, 190 European Union focus on climate change 161 improving conceptualisation and measurement of poverty 70 Lisbon Strategy 15 policy response to GFC 7 poverty line 48–9, 124 proto-corporatist regimes and 154–5 publications and reports 9, 129 European Union Statistics on Income and Living Conditions (EU-SILC) 4, 46–7, 49, 50, 52, 72, 73, 75, 76, 78, 79, 81, 82, 83, 84, 86, 87, 105–11, 119, 185 Eurostat 23, 24, 39, 48, 49, 50, 52, 70–71 family income 3, 119, 122, 124, 137, 159, 168 Finland Covid 146, 151 distribution of household wealth 94 economic growth 58 gender inequality 102 government social spending 180 pensions 126 personal autonomy 105 poverty 71, 105 as social democratic regime 19, 20 wealth inequality 91 fiscal responses to Covid 156–61 fiscal stimuli 61, 62–3, 64, 67–8, 83, 156–7, 158, 159, 160

France as corporatist regime 2, 19 cross-class coalitions 16 economic growth 58, 113, 117 gender inequality 98, 102 government social spending 174–5, 180 labour market 160 pensions 125 personal autonomy and income poverty 105, 106 wealth 88, 91, 92, 94, 95 gender inequality convergence or continuity 172 data sources 48 employment and pay 100–101 gig economy 101–2 in Ireland 186 maternal and parental leave 102–3 measures 51 reducing, as priority of social democratic regimes 3, 10, 54, 176 regime performance 103, 167–8 relationship with life satisfaction 136–7 women in political office 98–9 women on boards of large private companies 99 German regime as changing 39 child support 39 coalitions 178 collective bargaining 35–6 as corporatist 2, 4–5, 9, 11, 19, 32–3 crisis response Covid 143, 146, 148, 153–4, 160 GFC 58, 63–5, 68, 177 World War I 8 economic growth 17 education and training system 33–4 elderly 125, 126 gender inequality 102 growth models 18 labour market 9, 34–5, 119, 179 living standards 117 personal autonomy 104, 106, 107 political economy 13

Index

tax-benefit system and social policy 36–8 unemployment and social assistance 38–9, 44 wages 33, 34, 35, 36, 37 wealth 91, 92, 94, 95 Germany surveys 46–7, 70, 72, 73, 76, 79, 81, 83, 104, 110, 116 GFC see Global Financial Crisis (GFC) gig economy 28, 101–2, 119 glass ceiling 99 global financial crisis 181–2 Global Financial Crisis (GFC) corporatist regime 35, 36, 38, 58–60, 63–5, 68, 71–7, 80–87, 90–92, 160 data analysis 54 effect on wealth holdings 95–6 as endogenous 8, 181 expansion of ALMPs 23 fiscal and monetary stimulus 7, 67–8 household incomes 120 income inequality 82–3 Keynesian response to 58, 60–61, 67, 156–7 liberal regime 58–60, 61–2, 68, 71–7, 80–87, 90–92, 116, 120 overview 57–60 policy learning from 66–7, 181 policy responses to 60–66 poverty rates 49, 71–7, 80–82, 84–5 proto-corporatist regime 41–2, 44, 58–60, 65–6, 68, 71–7, 80–87, 90–92, 120, 161, 169–70, 179, 180–181 rescue the banks 8, 57, 60–61, 62, 181 social democratic regime 25, 58–60, 62–3, 68, 71–7, 80–87, 90–92, 120 wealth inequality 90–92 governments impact of taxes and transfers on income stability/instability 121–2 impact on poverty 75–7 means of change 9–10 purpose 1–8 reduction of inequality 83–4 relevant terminology 12–13

207

response of Western publics to efforts to combat Covid 161–3 social spending levels of expenditure on social policy 173–7 regime priorities reflected in 180–181 and VoC approach 15–16 see also individual countries; individual regimes Greece Covid 143, 148 distribution of household wealth 94 economic growth 45, 58 gender inequality 102 GFC 64–5, 177 having endured dictatorship 39 life satisfaction 130 living standards 117 national health care system 42 pensions 125 poverty 74 as proto-corporatist regime 20 wealth inequality 91 growth models/growth strategies 16–18 Hartz reforms 34–5, 38–9, 119, 179 household incomes 48, 52, 70, 79, 117, 120, 121, 132, 135, 136 household wealth distribution in welfare-capitalist regimes 94 measures 50, 51, 89–90 ratio to GDP 93, 95 ‘ideal types’ 11, 19–20, 61 income inequality convergence or continuity 172 data sources 48 as equity priority 3, 10, 167–8 governmental reduction of 83–4 in Ireland 185–6 labour share trend relating to 112 and life satisfaction 134 measures 50, 82 reducing, as priority of social democratic regimes 3, 10, 54, 176

208

Western welfare capitalisms in good times and bad

relation to wealth inequality 92 in welfare-capitalist regimes 63, 74, 82–4, 85, 92, 167–8, 172 income stability/instability convergence or continuity 173 elderly 126–7, 170 impact of government taxes and transfers on 121–2 measures 129 regime performance 119–20, 124, 126–7, 169–70 working age people 119–20, 170 industrial relations 33, 41 insiders 4, 9, 17, 34, 42, 43, 44, 119 International Social Survey Programme (ISSP) 190–191 international surveys 46–7 see also Australian surveys; European Social Survey (ESS); Germany surveys; International Social Survey Programme (ISSP); US surveys Ireland as defying classification 19, 183, 189 policy/welfare outcomes in 184–9 politics, welfare state and economy 183–4 problems arising from GFC 64 Italian regime coalitions 179 collective bargaining 40–41 crisis response Covid 143, 148, 154–5, 160–161 GFC 65–6 economic growth 112, 117 gender inequality 102 growth strategy 17 labour market 9, 40–42, 68 poverty rates 74 as proto-corporatist regime 9, 11, 18, 20, 39–40 tax benefit system and social policy 42–5 wages 42, 43 wealth 91, 94, 95

job security 3, 48, 52, 63, 118, 122–4, 127, 176 Keynesian depression economics 7, 58, 60–61, 67, 156–7 labour market bifurcated 4, 34–5, 119 Covid policy responses 156–61 German 33–5, 68, 160, 179 Italian 40–42, 68, 161 Swedish 22–3, 68, 124, 158 US 28–9, 68, 159 legal and regulatory employment protection 3, 42, 45, 52, 118–19 leisure time 109–10, 112–13 liberal market economies (LMEs) 15, 16 liberal regimes classification 2 countries classified as 19 Covid deaths and GDP 140–141, 143 fiscal and monetary response 158–60 policy responses 151–3 trust in government 146–7 economic growth convergence or continuity 172 expectations of 10 GFC 58–9 high priority given to 3, 112 overview 112–13 performance 167 rates 114–15 economic security convergence or continuity 173 employment protection 118–19 income stability/instability 120, 121–2, 126–8 pensions 125–6 perceptions of job security and employment prospects 123 performance 169–70 gender inequality convergence or continuity 172, 173 female representation in Parliament 99

Index

female-to-male employment and gender pay gap 101 maternity and parental leave 102–3 performance overview 103 women on boards of large private companies 99 government social spending 174, 175, 176, 177, 180 income inequality convergence or continuity 172 government reduction of 84 performance 168 rates 82–3, 85 Ireland’s features 183, 187–9 leisure time 109–10 liberal market economies as 15 life satisfaction convergence or continuity 173 destratification 135–6 differences between men and women 136 inequality of 133–4 performance 170 rates 130, 132 living standards convergence or continuity 172 expectations of 10 high priority given to 3 rates 116 personal autonomy convergence or continuity 172 as core objective 3, 104 data collection 104 performance 110–111, 169 rates 105–8 poverty checking robustness of results 81–2 convergence or continuity 171–2 differences in rates of 72, 73, 74, 79, 80, 84, 86, 87 elderly, children, single-parent families and non-EU foreigners 77–8 impact of governments on 75, 76 performance 168

209

scorn for social exclusion response 70 response to crisis Covid 151–3 general 9 GFC 61–2 unemployment 60 US as example of 11, 19, 27–32 wealth inequality changes in ratio of wealth to GDP 95 differences in rates of 93 distribution of household wealth 94 ratio of mean to median wealth 91, 92 welfare state degree of support for 190, 191 possible convergence towards 5 liberal, terminology 12, 27 life satisfaction convergence or continuity 173 data sources 47 and destratification 134–6 differences between men and women 136–7 inequality of 53, 133–4 in Ireland 188–9 measures 52–3 overview 129 as stated aim of Western governments 5 in welfare-capitalist regimes differences in 133–4, 136–7 performance 170, 182 rates 130–132 living standards changes in 116–17 convergence or continuity 172, 173 and economic growth 112 and inflation 164–5, 182 insiders and outsiders 9 in Ireland 184, 188 liberal regimes expectations of 10 US 27 proto-corporatist regimes 74 rising, top priority given to 3 logistic regressions 80–82, 107–8

210

Western welfare capitalisms in good times and bad

maternity and parental leave 102–3 measuring policy outcomes 48–53, 89–90, 129 medium-term poverty 49, 79–80 monetary responses to Covid 156–61 monetary stimuli 61, 67–8, 156–7 Netherlands as corporatist regime 19 with social democratic features 20 Covid 143 distribution of household wealth 94 economic growth 58 gender inequality 102 government social spending 176, 177 life satisfaction 134 pensions 125, 126 personal autonomy 106, 107 poverty rates 71, 73, 84, 168 wealth inequality 91, 92, 93 welfare state 5, 12–13 non-EU foreigners 71, 77–8 Norway anti-immigrant parties 26 Covid 146, 151 economic growth 58 gender inequality 102 government social spending 181 living standards 116 pensions 126 poverty 71 as social democratic regime 19, 20 wealth 88, 91, 94, 96 ‘outsiders’ 4, 9, 34, 42, 43, 44, 45, 119 path dependence 5, 171, 177–9, 180 patrimonial capitalism 88–9 pensions adequacy of 124–6, 170 and Covid 159, 163, 182 data sources 48, 118 and economic security 52, 118 elderly women 126 in Germany 35, 36–8 income stability/instability 121, 126–7, 187–8

in Ireland 187–8 in Italy 42, 43–4, 45 as most expensive area of social policy 174–5 net replacement rates 124–6, 187 and poverty 75, 80 regime performance on 127–8, 169–70, 174–5, 177, 181 in Sweden 24–5 and wealth inequality 96–7 performance see regime performance personal autonomy convergence or continuity 172 decommodification, destratification and defamilisation 26 defining 104 leisure time 109–10 measures 51, 104–5, 169 regime performance 105–8, 110–111, 169 social democratic and liberal regimes giving high priority to 3, 169 Piketty, T. 7, 22, 88–9, 93, 112, 171 policy changes main beneficiaries of 18 and policy evaluation 9–10 role of major crises 6–8, 18 social, in Italy 44–5 policy learning from Covid 144–7, 150, 163–5, 181–2 from GFC 66–7, 157, 181–2 and innovation 9–10, 163–5, 181–2 within regime framework 9–10 policy priorities assessing outcomes according to regime type 10–11 changes in, due to crises 6–8 differing 2–4 relationship with policy outcomes 4–5 policy/welfare outcomes analysis issues 53–4 assessing 10 effects of welfare-capitalist regimes on 54 and egalitarianism 16, 22, 28, 171 future convergence 174 and governments 2

Index

international comparisons 46 in Ireland 184–9 from liberal values 27 measuring 48–53, 129 regime performance on 168, 169, 170, 171–3 relationship with policy priorities 4–5 political coalitions 5, 16, 20, 21, 24, 40, 44, 177–9, 183 political office, women in 98–9 political values, egalitarian 21–2 Portugal Covid 148 distribution of household wealth 94 economic growth 58 gender inequality 100, 102 government social spending 177, 180 having endured dictatorship 39 living standards 117 national health care system 42 pensions 43 poverty 74 as proto-corporatist regime 18, 20 wealth inequality 91 poverty among working age people 24 checking robustness of results 80–82 children, single parents and non-EU foreigners 77–8 convergence or continuity 171–2 corporatist regime engaged in reduction of 4–5 data analysis 54 defining and measuring 69–71 differences in rates of 84–7 of elderly 77–8, 79, 80, 81, 124–6, 127–8, 163, 187–8 and financial insecurity 122 impact of governments on 75–7 medium-term 79–80 reducing, as priority of social democratic regimes 3, 10, 54, 176 regime differences in rates of 71–4 regime performance 167–8 relationship with personal autonomy 104–8, 110–111 in US 30, 32

211

see also anchored poverty; pre-government poverty; relative poverty pre-government incomes 83–4, 121 pre-government poverty 49–50, 75–6 ‘private welfare’ 31 proto-corporatist regimes classification 2 countries classified as 20 Covid deaths and GDP 140–141, 143 fiscal and monetary response 160–161 policy responses 154–5 trust in government 147 degree of support for welfare state 190, 191 economic growth convergence or continuity 172 GFC 58–9 rates 114–16 economic security convergence or continuity 173 performance 169–70 gender inequality convergence or continuity 172 female representation in Parliament 99 female-to-male employment and gender pay gap 100–101 lagging on most measures of 103 maternity and parental leave 102 women on boards of large private companies 99 government social spending 175, 177, 181 income inequality convergence or continuity 172 governmental reduction of 84 rates 82–3, 85 Ireland’s features 184–5, 186, 187, 188–9 Italy as example of 11, 18–19, 39–45 leisure time 109–10 life satisfaction convergence or continuity 173

212

Western welfare capitalisms in good times and bad

destratification 135–6 differences between men and women 137 inequality of 133 performance 170 rates 130, 132 living standards changes in 116, 117 convergence or continuity 172 personal autonomy convergence or continuity 172 performance 169 rates 105–8 policy priorities economic security for working age people 118–24 for elderly 124–7 equity 168 expectations of 10 implementing 181 overview 3–4 summary 127 poverty checking robustness of results 81, 82 convergence or continuity 171 differences in rates of 72, 74, 84, 85, 86, 87 elderly, children, single-parent families and non-EU foreigners 77–8 impact of governments on 75, 76, 77 medium-term 79–80 response to crisis Covid 154–5, 160–161 general 9 GFC 65–6 unemployment 59–60 wealth inequality changes in ratio of wealth to GDP 95 differences in rates of 93 distribution of household wealth 94 ratio of mean to median wealth 91, 92 public health and economic performance 144–5 versus economy 60, 139–41

responses to Covid as botched 155, 156 by regime 150–155 by WHO 149–50 public policy regime values/priorities influencing 20, 174 suggested goal of 104 and wealth inequality 96–7 quantitative easing (QE) 7, 10, 61–2, 63, 67–8, 157, 181 real world cases 19–20 reforms exogenous crises often leading to 139 German regime 38 see also Hartz reforms identifying with growth models 18 Italian regime 43–5 reflecting regime values/priorities 179–80 Swedish regime 24–5, 179–80 US regime 30 regime classification 2 alternative 14–18 amendments to 18–19 ‘ideal types’ and ‘real world’ cases 19–20 Ireland defying 19, 183, 189 values/priorities influencing public policy 20, 174 regime convergence 6, 11, 171–7 regime distinctiveness 11, 12, 19, 63, 171–7 regime performance comparative summary 182 as continuing to deliver distinctive outcomes 173 convergence or continuity 171–3 economic growth 115, 172 economic security 169–70, 173 equity priorities 167–8 gender inequality 172 income inequality 172 life satisfaction 170–171, 173 living standards 172 personal autonomy 169, 172

Index

poverty 80–82, 171–2 ranked 167, 170–171 regime values/priorities economic security 169–70 equity 167–8 guiding Covid interventions 150–155, 157–61 influencing all areas of public policy 20 reflected in governmental social spending 180–181 substantial reforms reflecting 179–80 relative poverty checking robustness of results 80–81 data sources 50 in Ireland 184–5 measures 48–9 regime rates 71–4, 77, 81–2, 84, 86–7, 105, 171–2 single parents 77–8 social assistance 12, 21, 24, 29–30, 32, 35, 38–9, 45, 48, 77, 179 see also welfare state programmes social democratic regimes classification 2 coordinated market economies as 15 countries classified as 19–20 Covid deaths and GDP 140–141, 143 distinctive policy response 150–151 fiscal and monetary response 157–8 trust in government 146–7 decommodification, destratification and defamilisation 26 degree of support for welfare state 190, 191 economic growth convergence or continuity 172 GFC 58–9 rates 114–15 use of historical evidence 113 economic security convergence or continuity 173 employment protection 118–19 income stability/instability 120, 121, 122, 126–7

213

pensions 125–6 perceptions of job security and employment prospects 122, 123 performance 169–70, 182 equity priorities achievements 4 expectations of 10 highest 3, 181 performance 167–8, 170–171 gender inequality convergence or continuity 172 female representation in Parliament 98–9 female-to-male employment 100–101 maternity and parental leave 102 performance overview 103 reducing, as priority of 3 women on boards of large private companies 99 government social spending 175–7 income inequality convergence or continuity 172 government reduction of 83–4 rates 82–3, 85 reducing, as priority of 3 leisure time 109–10 life satisfaction convergence or continuity 173 destratification 134–6 differences between men and women 136–7 inequality of 133–4 performance 170–171 rates 130, 132 living standards changes in 116–17 convergence or continuity 172 personal autonomy convergence or continuity 172 data collection 104 high priority given to 3 performance 169 rates 105, 106, 107, 108, 110 political coalitions 178 poverty checking robustness of results 80–82

214

Western welfare capitalisms in good times and bad

convergence or continuity 171–2 differences in rates of 71–3, 74, 84 impact of governments on 75–80 reducing, as priority of 3, 10, 54, 176 response to crisis Covid 150–151, 157–8 general 9 GFC 62–3 Sweden as example of 11, 19, 21–6 unemployment 60 wealth inequality alternative viewpoint 96–7 changes in ration of wealth to GDP 95 distribution of household wealth 94 permitting high levels of 88, 92, 93 ratio of mean to median wealth 91 social policy convergence of government spending on 173–7 Germany 36–8 Italy 40, 42–5 Sweden 178 US 29–32 in VoC approach 16 social stability 3, 10, 32, 39, 118, 127, 169 Spain Covid 148 economic growth 12, 58 gender inequality 98, 102 government social spending 177 having endured dictatorship 39 living standards 117 national health care system 42 poverty 74 as proto-corporatist regime 18, 20 wealth 88, 91, 94, 95 welfare state 191 statistical data 48 Swedish regime

broad concept of welfare resting on egalitarian political values 21–2 coalitions 178 crisis response Covid 140–141, 147, 150–151, 157, 158 general 9 GFC 62–3, 68 Great Depression 7 economic growth 58 electoral system 20, 21, 177 gender inequality 102 growth models 17, 18 income inequality 82, 84, 167–8 labour market and collective bargaining 22–3 living standards 116 pensions 126 personal autonomy 105 poverty rates 71, 73, 78, 167–8 public expenditure 180 reforms 179 as social democratic 11, 19, 21 tax-benefit system 24–6 VoC approach 15 wealth 91, 94, 95, 96 welfare state 13, 20, 24–6 Switzerland gender inequality 102, 103 governmental autonomy 75 as liberal regime 15, 19 personal autonomy 106 poverty 75–6, 77, 78, 84 trust in government and people 147 wealth 88, 91, 94, 95 welfare state 190 Switzerland surveys 46–7, 72, 73, 76, 78, 79, 81, 83, 110, 116 tax-benefit system German 36–8 Italian 42–5 Swedish 24–5 US 29–31 Temporary Assistance for Needy Families (TANF) 30, 31, 32 time use data 105–8 time use diaries 104–5

Index

trade-offs 139–41, 144–5, 148, 149, 155, 162, 182 Troubled Asset Relief Program (TARP) 61 trust in fellow citizens 145, 146–7, 162 trust in government 9, 39–40, 145, 146–7, 162 UK

Covid 142, 153, 157, 160, 164 gender inequality 99, 102, 103 government social spending 180 growth models 17 as liberal regime 19, 190 pensions 188 poverty 73, 75, 77, 82, 85 response to crises 7–8 wealth 91, 94, 95 welfare state 16, 183 unemployment and Covid 139, 158, 159, 160, 161, 182 effect of GFC 7, 44, 58, 59–60, 61, 62, 64, 65, 66–7, 68, 77, 180 in Germany 34–5, 36, 38–9, 44, 64, 68, 160, 179 government social spending 174, 176, 180 in Ireland 184 in Italy 42, 43, 44–5, 68, 161 in proto-corporatist regimes 115–16, 123 in Sweden 24 in US 28, 61, 62, 159 and wealth inequality 96 universal entitlements 24, 26 US regime crisis response Covid 142, 143, 147, 152–3, 157, 158–60, 163 GFC 57, 58–9, 61–2, 66, 67–8, 95 Great Depression 7 economic growth 112–15 gender inequality 100, 102–3 government social spending 177 growth strategy 17 income inequality 83, 85 income instability 122 ISSP coverage 191

215

labour market and wages 28–9 as liberal 11, 19, 27–8 personal autonomy 105 poverty rates 74, 77, 78, 82, 105 tax-benefit system and social policy 29–32 wealth inequality 90, 91, 92, 93, 94, 95 welfare 12, 16 US surveys 46–7, 52, 72, 73, 76, 79, 81, 82, 83, 84, 104, 116, 131, 147 VoC (varieties of capitalism) approach 14–16, 18 wages during Covid 139, 158, 163 Germany 33, 34, 35, 36, 37, 64 Ireland 183, 184 Italy 42, 43, 66 reservation 17 Sweden 23, 179–80 US 28–9 wealth changes in ratio to GDP 95 distribution of 7, 93–4, 168 and economic growth 114–15 effects of GFC 95–6 having skewed distribution 90 and life satisfaction 131 measures 50–51 used to assess poverty 70 wealth inequality before, during and after GFC 90–92 in Ireland 186 measures 50–51, 89–90 Piketty’s view on 88–9 and public policy 96–7 in welfare-capitalist regimes 90–92, 93 welfare broad concept of 21–2, 182 private 31 responses to Covid 156–61, 163 terminology 12–13 welfare capitalisms 2–4 welfare-capitalist regimes differing policy priorities 2–4 assessing welfare outcomes 10

216

Western welfare capitalisms in good times and bad

relationship with policy outcomes 4–5, 54 ‘ideal types’ of 11 values and priorities influencing all areas of public policy 20 Western governments as 2 see also corporatist regimes; liberal regimes; proto-corporatist regimes; social democratic regimes welfare outcomes see policy/welfare outcomes welfare state after World Wars 6–7 Antipodean 19 in classification of regimes 2 and convergence 5–6, 171, 173–4 in corporatist regimes 20, 178 decommodification 26 as determinants of economic resources 117 Esping-Andersen typology of 14, 16 having history of path dependence 5, 177 of Ireland 183 in liberal regimes 3, 29 ‘male breadwinner’ 126, 168 political coalitions 178–9 post-communist 19 in proto-corporatist regimes 17, 18–19, 40, 43, 177–8, 179 in social democratic regimes 20, 24, 26, 135, 177, 178 spending during crises 176–7 terminology 12–13 Western welfare publics supporting 190–191 welfare state programmes 6, 10, 12, 16, 18, 178 see also social assistance women

on boards of large companies 99, 186 elderly 126 employment in bifurcated labour markets 34 in corporatist regimes 3 in Germany 36, 39 in gig economy 102 in Italy 40, 41–2, 43 and pay 100–101 in social democratic regimes 22, 26 gender inequality 51 leisure time 109–10 life satisfaction 130, 136–7 maternity and parental leave 102–3 ministers during GFC 98–9 in Ireland 186 regimes 172 as ‘outsiders’ 4, 42 in Parliament during GFC 98, 99 in Ireland 186 regimes 172 in public sector jobs 22 retirement age in Italy 44–5 voting rights 7 working age people economic security 118–24, 169–70, 173 German regime 37 income instability in Ireland 187 personal autonomy 106–7, 169 poverty 24, 75–7, 79, 168 Scandinavian regimes giving priority to 181 Swedish regime 24 US regime 27 World Health Organization (WHO) 9, 144, 149–50, 158