In a review of a book by Arthur C. Brooks, President of the conservative American Enterprise Institute, Brink Lindsey, from the libertarian Cato Institute, writes:
A 2001 paper, "Why Doesn't the United States Have a European-Style Welfare State?" by economists Alberto Alesina, Edward Glaeser, and Bruce Sacerdote, provides powerful evidence that race is at the center of the story. There's a strong negative relationship between a country's racial heterogeneity and its levels of social spending, and within the U.S., states with larger black populations spend less on welfare programs. "Americans think of the poor as members of some different group than themselves, while Europeans think of the poor as members of their group," the paper concludes.Australia now has a level of government spending as a percentage of GDP lower than the US. It is unlikely that racial patterns explain that difference.
If the argument is reformulated to cover cultural diversity instead of being so focused on racial diversity, I believe that it picks up a significant factor in explaining differences in policy regimes. That the Scandinavian societies were monocultural I would suggest was absolutely fundamental in developing their "social democratic" policy regime, just as that all the Anglosphere societies were culturally diverse from the beginning was absolutely fundamental in developing their "liberal" policy regimes and that continental Western European states were overwhelmingly Catholic was absolutely fundamental in developing their "corporatist" policy regimes.
Cultural homogeneity tends to mean higher convergence in preferences, closer communications between citizens and officials, so less inefficiency, waste etc in provision encouraging higher levels of centralised provision. Cultural diversity means more divergences in preferences, more difficult communications between citizens and officials so more inefficiency, waste, disagreement, etc encouraging lower levels of centralised provision.
I do not think it an accident that the most extreme form of (classical) liberal economics—Austrian economics—developed in the Danubian Monarchy, the reductio ad absurdem of culturally diverse polities. Or that Anglosphere economics has tended to be more liberal (in the pro-market, pro-private property sense) than continental European economics. Cultural diversity makes the reality of divergent preferences salient and encourages scepticism that centralisation will be desirable or effective. Conversely, a shared culture with a strong, longstanding identity, is likely to encourage belief that a wide level of commonality will be desirable and achievable. The US, for example, has such strong "culture wars" precisely because of its diverse culture (Louisiana does not have the same culture as New York or Northern California: it has a related or connected culture, but not the same culture). Race is part of that diversity, but hardly the core of it.
This is also why the US Constitution is so important. It provides a focus of loyalty above what are quite wide cultural diversities.