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Some elements of a welfare state
Why America will need some elements of a welfare state
Martin Wolf, Financial Times, 14/2 2007
Ben Bernanke, chairman of the US Federal Reserve, laid out the issues in a thought-provoking speech last week. He embedded his analysis in three principles: “That economic opportunity should be as widely distributed and as equal as possible; that economic outcomes need not be equal but should be linked to the contributions each person makes to the economy; and that people should receive some insurance against the most adverse economic outcomes, especially those arising from events largely outside the person’s control.”
Mr Bernanke himself comes to the standard and, in my view, largely correct, conclusion that “the influence of globalisation on inequality has been moderate and almost surely less important than the effects of skill-biased technological change”. This has long been the persuasively argued view of Jagdish Bhagwati of Columbia University (see Technology, not globalisation, is driving wages down, FT, January 4, 2007). Support for it is given in a very recent paper by Robert Feenstra of the University of California, at Davis.***
Surprisingly perhaps, evidence suggests that inter-generational mobility is smaller in the US and in the UK than in the Nordic countries and even Germany.
Intergenerational Mobility in Europe and North America
In a country in which much social insurance has historically been supplied by employers, the loss of jobs and the closure of businesses is particularly traumatic. Protectionism then emerges as the politically correct form of resistance to the market.
There are two possible responses. One is to insist that people are simply on their own. The present administration will, I predict, be the high water mark of this conservative tide. The other is to create a system of support that does not destroy incentives. That would have to contain at least two elements: greater funding of education for the disadvantaged (ideally, with private supply) and universal health insurance.
Comment by Rolf Englund:
Now we live in a New Era. The Socialdemocrats under Göran Persson have
accepted the Market Economy and said farewell to Socialism;
and the Swedish Conservatives under Reinfeldt have accepted the Welfare state.
End of History
But the market economy, as well as the welfare state, can be run with hearts and minds, more or less.