1. The welfare state and middle class political dominance The Finnish Academy of Science and Letters Centennial Celebration Seminar in Social Sciences Helsinki Jan 28, 2008 Professor Bo Rothstein University of Gothenburg

2. Some basic facts Nordic countries (ex. Norway)US Nordic countries (ex. Norway)US Growth: 3,1%3,2% Growth: 3,1%3,2% WEF rank: 3,4, & 61 WEF rank: 3,4, & 61 GDP/Cap: 3300041000 GDP/Cap: 3300041000 Public exp: 48%27% Public exp: 48%27% Inf. Mort: 3,5%7% Inf. Mort: 3,5%7% Life exp: 7977 Life exp: 7977 Hours worked: 16001800 Hours worked: 16001800 In poverty all: 5%17% In poverty all: 5%17% Poverty child: 3,5%22% Poverty child: 3,5%22% Social Trust: 59%33% Social Trust: 59%33% In prison: 72 /100000725 /100000 In prison: 72 /100000725 /100000

3. Income and Life Satisfaction

4. Economic Growth and Equality No correlation between levels of public spending and economic growth No correlation between levels of public spending and economic growth There is no “trickle down” effect There is no “trickle down” effect Lindert: Public spending on investments in “human capital” increases growth Lindert: Public spending on investments in “human capital” increases growth Social policies may increase flexibility on labor markets Social policies may increase flexibility on labor markets Policies for equality increases social trust that may increase economic growth Policies for equality increases social trust that may increase economic growth

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

6. Meta Index 1. Sweden 1. Sweden 2. Denmark 2. Denmark 3. Iceland 3. Iceland 4. Norway 4. Norway 5. Finland 5. Finland 6. Switzerland 6. Switzerland 7. Canada 7. Canada

7. Conclusions Government spending can reduce inequality Government spending can reduce inequality Equality does not harm growth Equality does not harm growth Equality “from below” is more important than equality “from above” Equality “from below” is more important than equality “from above”

8. The Linguistic Problem Welfare State or Welfare State or Social Insurance State or Social Insurance State or Social Service State or Social Service State or Social Protection State or Social Protection State or

9. Gustav Möller’s 1948 discovery Contrary to the predictions of the Marxist theory, the industrial proletariat did not grow larger Contrary to the predictions of the Marxist theory, the industrial proletariat did not grow larger The white-collars strata had started to grow faster than the traditional working class The white-collars strata had started to grow faster than the traditional working class The while-collars strata would start to play a key-role in the elections The while-collars strata would start to play a key-role in the elections If the Social Democrats would continue in power, the party had to create new policies that would appeal to the white-collar segment without alienating the traditional blue-collar working class voters If the Social Democrats would continue in power, the party had to create new policies that would appeal to the white-collar segment without alienating the traditional blue-collar working class voters A strategic dilemma A strategic dilemma

10. The solution: A conceptual innovation From workers to wage-earners From workers to wage-earners From ”middle-class” to wage-earners From ”middle-class” to wage-earners From working class (or middle-class) politics to wage-earners’ politics From working class (or middle-class) politics to wage-earners’ politics To unite people without property To unite people without property Support of a strong and well-organized white-collar union movement Support of a strong and well-organized white-collar union movement

11. Four policy solutions 1. Universal social services and benefits 1. Universal social services and benefits 2. Income-related social insurance system 2. Income-related social insurance system 3. A strong emphasis on eduction 3. A strong emphasis on eduction 4. Gender equality policies 4. Gender equality policies MÖLLER’S STRATEGY: CREATING SOLIDARITY BY POLICIES FROM ABOVE MÖLLER’S STRATEGY: CREATING SOLIDARITY BY POLICIES FROM ABOVE

12. . GroupAverage income Tax (40%)Transfers Net Income A (20%) 1000 400 240 840 B (20%) 800 320 240 720 C (20%) 600 240 600 D (20%) 400 160 240 480 E (20%) 200 80 240 360 Ratio between groups A & E 5/1(= 1200)(1200/5=24) 2.33/1 How does the system works?

13. The efficiency argument Could the market do it? Could the market do it? Would privatization be more efficient? Would privatization be more efficient? Would the middle class be better of with lower taxes that would make it possible to by private insurances? Would the middle class be better of with lower taxes that would make it possible to by private insurances? The theory about ”assymetric information says” – probably not. The theory about ”assymetric information says” – probably not.

14. ”Information failures provide both a theoretical justification of and an explanation for a welfare state which is much more than a safety net. Such a welfare state is justified not simply by redistributive aims one may (or may not) have, but because it does things which markets for technical reasons would either do inefficiently, or would not do at all” ”Information failures provide both a theoretical justification of and an explanation for a welfare state which is much more than a safety net. Such a welfare state is justified not simply by redistributive aims one may (or may not) have, but because it does things which markets for technical reasons would either do inefficiently, or would not do at all” ”Both theory and the performance of systems in practice overwhelmingly support the view that a hypothetical pure private market for medical care and medical insurance would be highly inefficient and also inequitable” ”Both theory and the performance of systems in practice overwhelmingly support the view that a hypothetical pure private market for medical care and medical insurance would be highly inefficient and also inequitable” Nicholas Barr: Economic theory and the welfare state” Nicholas Barr: Economic theory and the welfare state”

15. Conclusions The Nordic welfare state is very much program that serves the middle-class (wage earners more than small business) The Nordic welfare state is very much program that serves the middle-class (wage earners more than small business) This was, at least in Sweden, a very deliberate political strategy This was, at least in Sweden, a very deliberate political strategy Non-socialist (centre-right) governments seem to be locked-in into this system Non-socialist (centre-right) governments seem to be locked-in into this system However, the system works pretty well, However, the system works pretty well, so far so far

16. Thanks for listening! Questions Questions Comments Comments Critique Critique