Social Democratic Capitalism Lane Kenworthy 2017.10.10 - - PowerPoint PPT Presentation

Social Democratic Capitalism

Lane Kenworthy

2017.10.10

thegoodsociety.net

What institutions and policies are most conducive to human flourishing in an affluent democratic society? My answer: capitalism + big welfare state + high employment

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

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

What do we want?

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

thegoodsociety.net

What is social democratic capitalism?

Social democratic capitalism

• 1. Capitalism: private ownership, markets
• 2. Expansive, generous public insurance (big

welfare state)

• 3. Employment-oriented public services: early

education, affordable college, retraining, job placement assistance, individualized monitoring and support, lifelong learning

• 4. Modest regulation of product and labor

markets

Social democratic capitalism

The best exemplars are the Nordic countries, especially Denmark and Sweden Good comparison cases Less public insurance: US, Can, Asl, Ire, Swi, Sp, Por, Ja, Kor Less commitment to employment: Bel, Fr

Social democratic capitalism

Asl Aus Bel Can Fr Ger Ire It Ja Kor Nth NZ Por Sp Swi UK US Den Fin Nor Swe 5% Employment-oriented public services 11 28% Public insurance

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

Social democratic capitalism

Asl Aus Bel Can Fr Ger Ire It Ja Kor Nth NZ Por Sp Swi UK US Den Fin Nor Swe 68 87 Ease of doing business 11 28% Public insurance

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

Social democratic capitalism

Asl Aus Bel Can Fr Ger Ire It Ja Kor Nth NZ Por Sp Swi UK US Den Fin Nor Swe 68 87 Ease of doing business 5% Employment-oriented public services

Ease of doing business: average score on ease of starting a business, dealing with construction permits, getting electricity, registering property, paying taxes, trading across borders, getting credit, protecting minority investors, enforcing contracts, resolving insolvency, and flexibly employing

• labor. 2014. Data source: World Bank Group. Employment-oriented public services: public expenditures on active labor market policy and family

(early education, paid parental leave, child allowances) as a share of GDP. 2000-2010. Data source: OECD. "Asl" is Australia; "Aus" is Austria.

Social democratic capitalism

51 87% Employment rate 9 28% Public insurance

1980-2015. Solid red lines: Denmark and Sweden. Dashed red lines: Finland and Norway. Public insurance: public social expenditures as a share

• f GDP, adjusted for the size of the elderly population and the unemployment rate. Data source: OECD. Employment rate: Employed persons as a

share of all persons. Age 25-64. Data source: OECD. "Asl" is Australia; "Aus" is Austria.

My analytical strategy

My analytical strategy

Data: country-level Preferred test: difference in differences But data for many outcomes don't go back very far in time, and most of the change in public insurance generosity occurred in the 1960s and 1970s So I use second-best analytical strategies

Static cross-country comparisons Single-country over-time comparisons

Economic security

Public insurance ê relative poverty

Asl Aus Can Ger Ire It Ja Kor Nth NZ Por Sp Swi UK US Den Fin Nor Swe Bel Fr 12 24% Relative poverty 8 21% Public insurance (minus health and ALMP)

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

Employment ê relative poverty

Asl Aus Can Ger Ire It Ja Kor Nth NZ Por Sp Swi UK US Den Fin Nor Swe Bel Fr 12 24% Relative poverty 63 82% Employment rate

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

Public insurance ê material hardship

Asl Aus Ger Ire It Ja Nth Por Sp UK US Den Fin Nor Swe Bel Fr 5 19% Material deprivation 16 28% Public insurance

Material hardship: share of households experiencing one or more of the following: inability to adequately heat home, constrained food choices,

• vercrowding, poor environmental conditions (e.g., noise, pollution), arrears in payment of utility bills, arrears in mortgage or rent payment,

difficulty in making ends meet. The data are for 2005. Public insurance generosity: public social expenditures as a share of GDP, adjusted for the size of the elderly population and the unemployment rate. The data are for 2000-2010. Data source: OECD. "Asl" is Australia; "Aus" is Austria.

Employment ê material hardship

Asl Aus Ger Ire It Ja Nth Por Sp UK US Den Fin Nor Swe Bel Fr 5 19% Material deprivation 62 81% Employment rate

Material hardship: share of households experiencing one or more of the following: inability to adequately heat home, constrained food choices,

• vercrowding, poor environmental conditions (e.g., noise, pollution), arrears in payment of utility bills, arrears in mortgage or rent payment,

difficulty in making ends meet. The data are for 2005. Data source: OECD. Employment rate: employed persons age 25-64 as a share of the population age 25-64. The data are for 2000-2007. Data source: OECD. "Asl" is Australia; "Aus" is Austria.

Public insurance ê income insecurity

Asl Aus Can Ger Ire It Kor Nth Por Sp Swi UK US Den Fin Nor Swe Bel Fr 34 66% Income insecurity 8 21% Public insurance (minus health and ALMP)

Income insecurity: share of households with a person experiencing a year-to-year earnings decrease of 20% or more in which the household's income decreases by 20% or more. The data are for 2005-2010. Data source: Cournède et al, "Effects of Pro-Growth Policies …" 2015, figure 17. Public insurance generosity: public social expenditures as a share of GDP, adjusted for the size of the elderly population and the unemployment rate and subtracting spending on health and ALMP. The data are for 2000-2010. Data source: OECD. "Asl" is Australia; "Aus" is Austria.

Employment ê income insecurity

Asl Aus Can Ger Ire It Kor Nth Por Sp Swi UK US Den Fin Nor Swe Bel Fr 34 66% Income insecurity 62 81% Employment rate

Income insecurity: share of households with a person experiencing a year-to-year earnings decrease of 20% or more in which the household's income decreases by 20% or more. The data are for 2005-2010. Data source: Cournède et al, "Effects of Pro-Growth Policies …" 2015, figure 17. Employment rate: employed persons age 25-64 as a share of the population age 25-64. The data are for 2000-2007. Data source: OECD. "Asl" is Australia; "Aus" is Austria.

Equality of opportunity

Early educ é intergenerational mobility

Asl Can Ger It UK US Den Fin Nor Swe Fr .1 .5 Intergenerational mobility 1.5% Early education expenditures

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

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

An "expanded Rawlsian" result

Distribution favoring the least well-off and equality of opportunity (with basic liberties) Today he likely would add income security

Social democratic capitalism

Better on economic security (decent income floor and income stability) Probably better on equality of opportunity

Tradeoffs?

We want more than "expanded Rawls"

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

Freedom

Personal freedom

Den Aus, Nor, Nth, Ger Fin, Swi, Swe Ire, Asl, UK, Bel, Can Por It, NZ Fr, US Ja Kor, Sp

8 10 1980 90 2000 10 Year

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

Freedom

Perceived freedom to make life choices

Nor, Fin, Den Swi, NZ, Asl, Swe Can, Nth Aus, Ire, Ger, Bel Por, Ja, UK Fr Sp, US It, Kor

50 100% 1980 90 2000 10 Year

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

Freedom

Innovation

Innovation rank

Swi Fin, US, Swe Nth, UK Ger, Den Ja Ire Nor, Kor, Aus Can, Fr, NZ, Asl Bel Por It, Sp

1 32 1980 90 2000 10 Year

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

Economic growth

GDP per capita (log)

Nor Swi, US Ire, Nth, Asl, Swe Aus, Ger, Can, Den Bel, UK, Fin, Fr Ja, NZ It, Sp Por

15 30 $60k 1980 90 2000 10 Year

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

Economic growth

Asl Aus Can Ger Ire It Ja Nth NZ Por Sp Swi UK US Den Fin Nor Swe Bel Fr Low High Economic growth 30% 60% Government revenues

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

Economic growth

Denmark

Government revenues: share of GDP. Includes all levels of government: federal, state, and local. The line is a loess curve. Data sources: for 1960- 2007, OECD; for 1913-60, Vito Tanzi, Government versus Markets, Cambridge University Press, 2011, pp. 9, 92 (with a minor adjustment). GDP per capita: natural log of inflation-adjusted GDP per capita. A log scale is used to focus on rates of change. The vertical axis does not begin at

• zero. The line is a linear regression line; it represents a constant rate of economic growth. Data source: Angus Maddison, "Statistics on World

Population, GDP, and Per Capita GDP," ggdc.net/maddison/oriindex.htm.

Economic growth

United States

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

• f economic growth. Data source: Angus Maddison, "Statistics on World Population, GDP, and Per Capita GDP," ggdc.net/maddison/oriindex.htm.

Economic growth

Source: Jon Bakija, "Would a Bigger Government Hurt the Economy?" In How Big Should Our Government Be? University of California Press, 2016.

Economic growth

Is social democratic capitalism better for economic growth?

Encourages entrepreneurship Facilitates employment by women and those from less-advantaged backgrounds Allows unemployed workers more time to reskill and choose a productive job Limits income inequality

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

Employment

Employment rate

US Swi, Swe Nor, NZ Ger, Ja Den, UK, Nth Can, Asl, Aus, Fin Kor Por, Fr Ire, Bel Sp, It

50 64 84% 1980 90 2000 10 Year

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

Health

Life expectancy

US Ja, Sp, Swi, It Fr, Asl, Swe, Nor, Can Nth, NZ, Aus, UK, Fin Ire, Ger, Por, Bel, Den

60 79 83 1980 90 2000 10 Year

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

Health

Healthy life expectancy

Swe Nor UK, Ire Swi Bel, Sp, Fr It Den Nth Aus Fin Por, Ger

50 58 70 1980 90 2000 10 Year

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

Education

PISA scores, 15-year-olds

Ja Ca, Fin Kor Ire, Ger, Nth, Swi, NZ Den, Nor, Bel, Asl UK, Por, Swe, Fr Aus, Sp US, It

485 530 1980 90 2000 10 Year

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

• OECD. "Asl" is Australia; "Aus" is Austria.

Education

College degree

US Nor Nth, UK Kor, Fin Den, Asl NZ, Ja Swe, Can, Ire Swi, Por Fr, Sp Bel, It Aus Ger

20 40% 1980 90 2000 10 Year

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

Safety

Homicides

US Fin, NZ, Can Por, Asl, Bel, Nth, Swe, UK Fr, Den, Ire, It, Nor, Sp Ger, Aus, Swi, Ja

5 10 1980 90 2000 10 Year

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

Safety

Feel safe walking alone at night

Nor Swi Fin, Den Can, Sp, Aus, Nth UK, Ire, Swe Ger, US Fr, Ja, Bel, Por Kor NZ Asl It

50 60 90% 1980 90 2000 10 Year

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

Shared prosperity

Median household income

Nor, Swi US Asl, Can, Aus Den, Swe, Fin Ger, Bel, Nth, Fr Kor Ja, Ire, It, UK Sp Por

20 40 $60k 1980 90 2000 10 Year

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

Income inequality

Top 1%'s income share

US Can, Kor, UK Ger, Ire, Swi It, Ja, Por Asl, Fr, Sp NZ, Nor, Swe Nth, Den, Fin

10 20% 1980 90 2000 10 Year

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

Wealth inequality

Top 1%'s wealth share

US Ger, Aus, Nth Por Nor, Fr, UK Can Sp, It Asl, Bel, Fin

12 37% 1980 90 2000 10 Year

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

Family

Children living in two-parent families

It Aus, Ja, Nth Sp, Asl Por, Ire, Swe Ger Can, Fr UK, US Den

50 66 89% 1980 90 2000 10 Year

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

Family

Fertility rate

NZ, Ire, Fr Swe, US, Asl, UK Nor, Den, Bel Nth, Fin, Can Swi, Ger, Aus, Ja It, Sp, Por Kor

1 2 3 1980 90 2000 10 Year

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

Work-family-leisure balance

Work more than 50 hours per week

US Kor Ja NZ, Asl, UK Por Fr, Aus Swi, Sp Ger, Bel, Ire, Can, It Fin, Nor, Den Swe, Nth

23% 1980 90 2000 10 Year

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

Civic engagement

Active member of a voluntary organization

Can NZ UK Swi Asl, US Nth, Nor Swe, Fin Fr Ger, It Kor Ja Sp

18% 1980 90 2000 10 Year

Average for 8 types of organization: sports-recreation, religious, art-music-education, charitable, professional, labor union, environment,

• consumer. Question: “Now I am going to read off a list of voluntary organizations. For each organization, could you tell me whether you are an

active member, an inactive member or not a member of that type of organization?” Response options: active member, inactive member, not a

• member. Data source: World Values Survey, worldvaluessurvey.org. “Asl” is Australia.

Environment

Carbon dioxide emissions per capita

US Asl Can Kor, Nor Nth, Ja Ger, Fin, Bel Ire, NZ, Aus, UK, Den It Fr, Sp, Swi, Swe, Por

4 16 1980 90 2000 10 Year

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

Openness to other countries

Trade

Swi, Nor 13 others US, Asl, NZ Fr, Ja Kor

60 73 90 1970 80 90 2000 10 Year

Scale of 0 to 100, with higher scores indicating greater freedom. The score is based on a country’s average tariff rate and the extensiveness of non-tariff barriers to imports. Data source: Heritage Foundation, heritage.org/index. "Asl" is Australia; "Aus" is Austria.

Openness to other countries

Foreign-born

Swi, Asl NZ Can Aus, Ire Swe, Bel Nor, Sp, US, Ger UK, Fr, Nth It Den, Por Fin Ja, Kor

28% 1980 90 2000 10 Year

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

Government debt

Government net debt

It, Ja US Por Bel US Sp, UK, Fr, Ire Aus Ger, Nth Can Swi, Den, NZ Bel Asl Swe Fin

• 50

100% 1980 90 2000 10 Year

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

Happiness

Suicides

Kor Ja Bel Fr, Fin, Aus, US NZ, Asl, Swi, Swe Can, Ire, Ger, Den Nor, Nth, Por Sp, UK, It

8 29 1980 90 2000 10 Year

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

Happiness

Life satisfaction

US Den Nor, Ire Swi Fin, Can, NZ UK, Swe, Nth Ger Asl Aus, Por Fr, It, Ja Sp, Bel Kor

5.5 8.5 1980 90 2000 10 Year

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

Are the Nordics uniquely able to avoid tradeoffs?

Put another way …

Is the Nordic countries' ability to use social democratic policies (and thereby achieve "expanded Rawlsian" outcomes) while avoiding tradeoffs nonreplicable?

Why nonreplicable?

Intelligence Work ethic Trust Coherent gestalt Small size and ethnic homogeneity Effective government

More intelligent?

If so, shouldn't we trust them to have figured

• ut the best policies?

More intelligent?

PISA scores, 15-year-olds

Ja Ca, Fin Kor Ire, Ger, Nth, Swi, NZ Den, Nor, Bel, Asl UK, Por, Swe, Fr Aus, Sp US, It

485 530 1980 90 2000 10 Year

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

Harder working?

Does their "Viking work ethic" make them immune to work disincentives created by generous social programs? No: In the late 1980s, when sickness insurance benefits were very generous and easy to qualify for, Swedes missed work due to "sickness" an average of 25 days per year

Harder working?

Hours worked per employed person

US US Por Ire NZ It, Ja, Can Sp, UK, Asl Fin, Aus Swe, Swi Bel Fr, Den Nor, Nth Ger

1.4k 2.1k 1980 90 2000 10 Year

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

More trusting?

"Most people can be trusted"

US Den, Nor Nth Swe, Fin NZ Asl, Swi Ger Can Ire, Ja UK, Bel, It, Kor Fr, Sp

75% 1980 90 2000 10 Year

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

More trusting?

Some believe trust is the key to good outcomes, but I'm skeptical

More trusting?

More important: trust very likely is replicable The key determinant seems to be confidence/ trust in government

More trusting?

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

More trusting?

United States

Share of adults. Trust in government question: “Do you trust the government in Washington to do what is right always, most of the time, some of the time, or never?” Data source: Pew Research Center, “Public Trust in Government, 1958-2017,” using data from assorted public opinion

• surveys. Trust question: “Generally speaking, would you say that most people can be trusted or that you can’t be too careful in life?” Data sources:

General Social Survey, sda.berkeley.edu, series trust; National Opinion Research Corp. The correlation is +.85.

More trusting?

How to increase trust in government? A big universalistic welfare state

A more coherent gestalt?

The Nordic countries' configuration hasn't been more coherent than that of Germany, Japan, the US, and some others Their policies and institutions have changed over time There is no empirical association between coherence and economic success

Small size and ethnic homogeneity?

These likely helped the Nordic countries adopt social democratic policies But it isn't clear why they would contribute directly to successful outcomes

Effective government?

Nordic governments have been willing to experiment and adjust ("The streets of Stockholm are awash with the blood of sacred cows") Yet they've made plenty of mistakes: Sweden's rapid reduction of capital controls coupled with austerity in the early 1990s, sometimes overly generous social policy, and more

Effective government?

GDP per capita (log)

Nor Swi, US Ire, Nth, Asl, Swe Aus, Ger, Can, Den Bel, UK, Fin, Fr Ja, NZ It, Sp Por

15 30 $60k 1980 90 2000 10 Year

Adjusted for inflation and converted to US dollars using purchasing power parities. Data source: OECD. "Asl" is Australia; "Aus" is Austria.

Four important problems social democratic capitalism doesn't necessarily solve

Four problems

• 1. Wage stagnation
• 2. Decline of good jobs in small cities/towns
• 3. Unaffordable housing in large cities
• 4. Economic and social exclusion of less-skilled

immigrants

• 1. Wage stagnation

Wages in the United States

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

• 1. Wage stagnation

Slow household income growth in the US

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

• 1. Wage stagnation

Unions can solve this, and collective bargaining coverage remains fairly high in many rich nations But unionization rates have been declining in most, and this may lead to declines in bargaining coverage

• 1. Wage stagnation

Collective bargaining coverage

Aus, Fr, Bel Fin, Swe Nth, Den It, Sp Nor, Por Asl, Ger Swi Ire UK, Can Ja, NZ Kor, US

12 98% 1960 70 80 90 2000 10 Year

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

• 1. Wage stagnation

Unionization

Fin, Swe, Den Bel, Nor It, Ire Can, Aus, UK NZ, Por, Nth, Ja Ger, Asl, Sp, Swi US, Kor, Fr

10 35 70% 1960 70 80 90 2000 10 Year

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

• 1. Wage stagnation

Two potential solutions Heavy regulation of wages: Australia tribunals, France extension An EITC that rises in sync with GDP per capita (also more generous and individualized)

• 2. Loss of jobs in small cities/towns

Manufacturing employment

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

• 2. Loss of jobs in small cities/towns

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

• 2. Loss of jobs in small cities/towns

What to do? Education, (re)training Infrastructure investment Temporary wage subsidy for new jobs Assistance with moving out or incentives for in- migration (including by immigrants)

• 3. Unaffordable housing in large cities

It's harder to find affordable housing in Stockholm than in San Francisco

• 3. Unaffordable housing in large cities

What to do? Increase housing supply via fewer or different regulations Support for affordable rental units

• 4. Exclusion of less-skilled immigrants

Immigrant-nativeborn employment rate gap

US It Swi UK, Por Sp, Aus, Ger Fin, Can, Ire Asl, Fr NZ, Den Nor, Nth Bel Swe

• 18

17% 1980 90 2000 10 Year

Employment rate for immigrants with less than secondary education minus employment rate for native-born persons with less than secondary

• education. Age 15-64. Data source: OECD, Settling In: OECD Indicators of Immigrant Integration, 2012, figure 6.2. "Asl" is Australia; "Aus" is

Austria.

• 4. Exclusion of less-skilled immigrants

What to do? Support for education (including language) Incentives for geographical integration Perhaps a lower wage floor (with a wage subsidy)

What if we care more about the upper-middle class?

What about the upper-middle class?

P75 household income

US Swi, Nor, Asl, Can Den, Aus, Ja, Ger, Nth UK, Fin, Ire, Fr Kor, Bel Swe, It, Sp

25 50 $75k 1980 90 2000 10 Year

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

What about the upper-middle class?

Note that the upper-middle class in the Nordic countries gets free or nearly-free health care, child care/preschool, and college Australia and Canada (like Norway) cheated with commodity booms

Is the model suited for the more flexible/precarious labor market of the future?

Suited for the flexible/precarious future?

Yes Transfers and services are paid for mainly by government rather than by employers Extensive supports for work-family balance

Even if my conclusion is correct, it gives no guidance

• n important policy details

Details, details

Should early education be universal or targeted to the poor, or to the poor plus middle? Should paid parental leave be for six months or

• ne year? Should it include a "daddy quota"?

Should there be a statutory minimum wage? If so, how high? Supplement low wages with a tax credit? And many more …

Might other not-yet-tried institutions and policies do even better than social democratic capitalism?

Other not-yet-tried policies

Basic income Economic democracy I'm skeptical, but open to argument and evidence