## Monday, July 13, 2009

### Real Worlds without quite enough reality

The Real Worlds of Welfare Capitalism by Goodin and others is a serious scholarly attempt to compare the three basic types of Western welfare policy regimes—liberal, social democratic and corporatist. The study centres on data from three compatible longitudinal studies from each of the three types of policy regimes. The US for the liberal regime, the Netherlands for the social democratic and Germany for the corporatist.

The results from the longitudinal data and other indicators is used to compare the regimes in terms of efficiency, poverty, equality, integration, stability and autonomy. The authors' conclusion is that, although all three policy regimes achieve broadly similar outcomes with different strengths and weaknesses, the social democratic regime produces superior outcomes across all sets of criteria.

It is a very solid and impressive piece of work. I was not always convinced by some of the detail, but overall it is clearly an important contribution to the policy debate.
Other data broadly supports their conclusions. Looking at the UN’s Human Development Index (HDI) data for the top 21 countries, the six social democratic countries (Norway, Iceland, Sweden, Netherlands, Finland and Denmark) score an average of 0.949 on the index, the six liberal countries (Australia, Canada, Ireland, US, UK and New Zealand—the Anglosphere) score an average of 0.944 and the nine corporatist countries (Luxembourg, Switzerland, Belgium, Japan, France, Austria, Italy, Germany and Spain) score an average of 0.939. Not differences much worth worrying about.

As number three country on the HDI ranking (out of 177), Australia is hardly under strong pressure to change its policy regime.

Comparing welfare expenditure for the above 21 countries, the social democratic countries average 25% of GDP on welfare, the corporatist countries 24% and the liberal countries 18%. Or, in US$terms,$7,200, $6,400 and$4,600 per head respectively.

Looking at the rankings under the Human Poverty Index gives a much stronger differentiation than the HDI results. (Though Iceland, Switzerland, Austria and New Zealand are not included.) As lower is better, the social democratic countries do noticeably better (7.9 average) than the corporatist countries (11.1) who do noticeably better than the liberal countries (14.2). Looking at the components of the index, the liberal regimes do badly on inequality, the corporatist on long-term unemployment, the liberals and the corporatists on functional literacy and they all do essentially the same on rate of surviving to age 60.

Which looks like strong support for everyone choosing to go social democratic, as the authors of Real World clearly think. The question arises, however, why different countries chose different policy regimes.

One possibility is that the Nordics are just more moral than the Anglos, so they went social democratic while the Anglos went liberal. Another possibility is that the choices made sense in terms of features of the different countries.

One clear sorting factor is religion. All countries more than 70% Catholic have corporatist regimes, except Ireland (presumably an origin and contagion effect from the UK and then the rest of the Anglosphere). All countries more than 70% Protestant have social democratic regimes. All other countries with Protestant majorities or Protestant pluralities are liberal. One Catholic plurality country is social democratic (Netherlands, but Protestantism has collapsed in the Netherlands which used to be a strongly Protestant country), two (Germany and Switzerland) are corporatist (but West Germany was Catholic-majority before unification) and one (Canada) is liberal (again, presumably an origin and contagion effect from the UK, US and rest of the Anglosphere).

Another sorting factor is cultural diversity. All polycultural countries have liberal regimes, except Belgium (more than 70% Catholic, corporatist and slowly coming apart) and Switzerland (Catholic plurality, corporatist with strong federal system and lots of referenda to manage diversity). No country with an overwhelmingly dominant culture (for practical purposes, monocultural) has a liberal regime, except Ireland (again, presumably an origin and contagion effect from the UK and then the rest of the Anglosphere, though it is possible that the deep and enduring divisions of the Irish Civil War may have been a factor).

The Catholic concern for social stability makes the link between Catholicism and corporatist regimes, with their emphasis on family and social stability, unsurprising.

That Protestant monocultural societies would go social democratic makes perfect sense. Equality is a strong element of Protestantism and the common culture makes a strong state both less threatening and less problems in performing well. Monocultural societies—particularly relative geographically compact ones—are much more likely to have the unimpeded information flows, commonality of problems, preferences and concepts plus the long-term trust to make the system work without disabling waste and inefficiency

That polycultural societies would go liberal also makes sense. An emphasis on personal freedom and more reserved reliance on state action is a sensible way to manage larger degrees of social differences. The area of persistently greatest policy failure in Australia has been the attempt to apply a specific social democratic regime across the largest barriers of cultural difference and diversity—indigenous policy. It is surely no accident that, historically, the major centres of liberal economics have been the Danubian Monarchy, almost the reductio of polycultural societies, with the Austrian school of economics, the C18th and C19th UK-with-Empire and the US (which have both always been polycultural).

That Australia is becoming more culturally diverse, not less, is even less reason to change policy regime. Indeed, I am deeply sceptical that countries such as Norway and Sweden will be able to keep their policy regimes functioning so well if they continue to import large numbers of quite culturally different migrants. The problem not being that they are migrant, but that the social democratic policy regime simply will not work as well in a situation of increased cultural diversity, and therefore decreased information flows, increased differences in preferences and social concepts and decreased social trust.

It is conspicuous that Goodin et al do not deal with the issue of cultural diversity at all. They implicitly treat cultural diversity as if it was the equivalent of hair colour. I suspect what Goodin et al actually show is that public policy is easier in monocultural societies. Quite.