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To Grow the Welfare State, Keep It Small

June 19, 2013 in Economics

By Dalibor Rohac

Dalibor Rohac

Libertarians have been having a bit of a love affair with Nordic countries. Notwithstanding their high levels of redistribution, Nordic economies rank among of the world’s freest—mostly due to their light-touch regulation and a legacy of large-scale pro-market reforms in the 1990s.

The assumption that the “nation-state” is the only possible node of redistribution is unwarranted.”

One of the things that make Nordic countries tick are their civic virtues. Scott Sumner, an economist at Bentley University, cites data from the World Values Survey, which indicate that Danes are more likely than any other nationality to find it unacceptable to claim government/state benefits to which they have no rights.

High levels of trust and willingness to cooperate make it easier to sustain redistribution. But how to explain these cultural traits? Two factors seem relevant: homogeneity and size. Clearly, homogeneity along different margins—cultural, ethnic, religious—reduces social distance and makes people more prone to cooperate, for example, to provide public goods.

It’s not difficult to see where that idea can lead. In his forthcoming book on immigration, Paul Collier, a development economist at Oxford University, blames increased cultural diversity for an alleged decrease in support for redistribution in the West:

Despite the growing need for redistributive policies, actual policies have shifted in the opposite direction. Not only has there been a drift to lower taxation of incomes. More subtly, many goods and services which used to be supplied through the government are now supplied through the market. Michael Sandel has brilliantly anatomized this process, which since the 1960 has shrunk the role of the state and thereby contributed to rising inequality.

Many influences contributed to the policies of reduced taxation and increased reliance on the market, not least that of the economics profession. But the pronounced increase in cultural diversity brought about by immigration my have been one of them.

Among other sources, Collier cites a paper by Harvard economists Alesina, Glaeser, and Sacerdote, who find that higher level of racial heterogeneity in the United States may explain its lower level of redistribution compared to European countries. That leads him to conclude that immigration restrictions are desirable:

At minimum, the task for migration policy is to prevent its acceleration to rates which would become damaging, both for those left behind in poor countries of origin, and for the indigenous people of host countries.

A couple of things seem odd …read more

Source: OP-EDS

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