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«Bo Rothstein Marcus Samanni Jan Teorell = = = = = = = = = QoG WORKING PAPER SERIES 2010:6= = THE QUALITY OF GOVERNMENT INSTITUTE Department of ...»

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Quality of Government, Political Power and

the Welfare State

Bo Rothstein

Marcus Samanni

Jan Teorell













Department of Political Science

University of Gothenburg

Box 711


March 2010

ISSN 1653-8919

© 2010 by Bo Rothstein, Marcus Samanni and Jan Teorell. All rights reserved.

Quality of Government, Political Power and the Welfare State Bo Rothstein Marcus Samanni Jan Teorell

QoG Working Paper Series 2010:6

March 2010 ISSN 1653-8919


Why have different industrialized capitalist market economies developed such varying systems for social protection and social insurance? The hitherto most successful theory for explaining this is the Power Resource Theory (PRT), according to which the generosity of the welfare state is a function of working class mobilization. In this paper we argue however that there is an undertheorized link in the micro-foundations for PRT, namely why wage earners trying to handle the type of social risks and inequalities that are endemic for a market economy would turn to the state for the solution Our complementary approach, the Quality of Government (QoG) Theory, stresses the importance of trustworthy, reliable, impartial and reasonably uncorrupted government institutions as a precondition for citizens' willingness to support policies for social insurance and redistribution. Drawing on time-series crosssectional data on 18 OECD countries in 1984-2000, we find (a) that QoG positively affects the size and generosity of the welfare state, and (b) that the effect of working class mobilization on welfare state generosity is increasing in the level of QoG.

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Marcus Samanni The Quality of Government Institute Department of Political Science University of Gothenburg marcus.samanni@pol.gu.se Introduction This article starts from a simple, yet important question: Namely, why have different industrialized capitalist market economies developed so very different systems for social protection and social insurance? This question has generated a huge amount of research over the last three decades and one reason for this is that the societies we have in mind share a number of basic structural, social, political and institutional features. This, one could argue, should have produced similarity and convergence in their levels of social protection and equality enhancing policies and not the huge and persisting, and in some cases increasing, differences that exist (Alber 2006; Goodin et al. 1999; Huber and Stephens 2001; Iversen 2005; Kenworthy and Pontusson 2005; Korpi and Palme 1998; Lindbom 2001; Pontusson 2005; Rothstein 1998; Scruggs and Allan 2006). For example, given that they are all culturally to be seen as western liberal market oriented democracies, the variation in their systems of social protection can hardly be explained by reference to basic historically inherited cultural traits that would result in generally held beliefs about what is just and fair, or what sort of risks should be handled by individual responsibility rather than by collective/public systems. As Larsen and others have shown, there is in fact very little that speaks for the notion that the variation between, for example, on the one hand the encompassing and universal character of the Scandinavian welfare states and on the other hand the residual and targeted system for social protection that exists in the United States can be explained by reference to variation in popular beliefs about social justice or wage inequalities (Larsen 2006; Larsen 2008).

A different approach to the values/beliefs explanation would be to refer to the level and spread of religious beliefs in the population. However, if the extent and coverage of the welfare state would be connected to Christian values where humans are obliged to support the poor and the needy, then why are the most secular countries also the ones with the most extensive programs for economic support and why are they having the lowest percentage of children living in poverty (Norris and Inglehart 2004; Smeeding 2004)? One of the worlds richest and, among developed nations, most religious society, the United States, also has the highest percentage of children living in poverty and the highest percentage of newborns that do not reach their first birthday among the OECD countries. Simply put, why are the least religious countries in the developed world the most generous to the least fortunate and most vulnerable of their members (Zuckerman 2008)?

A more utility-based line of thought could start from neo-classical economic theory which should predict that given that these are all societies where the logic of the market dominates the economy, economic agents (workers, employers, unions, firms, associations, bureaucracies, etc.) should have acted on the basis of similar utility functions and perceptions about risks and their demand for protection from these risks and the following interactions should then have resulted in similar systems for social protection. Alternatively, the less efficient social insurance systems should by the logic of increased global economic competition have been weeded out by the more efficient ones. However, what we see is that the differences, both in terms of institutional configurations and coverage, are huge and stable (Alber 2006; Pontusson 2005; Swank 2002).

One of the most successful approaches for explaining variation in the size and coverage of welfare states is the so-called Power Resource Theory (henceforth PRT), according to which this is largely a function of working class political mobilization (Huber and Stephens 2001;

Korpi 1988).1 However, when PRT scholars reflect upon the importance of institutions for explaining variations in welfare states, they do not touch upon issues such as problems of legitimacy or quality of government. Instead, institutions are just seen as arenas for political conflicts generated by forces of social class or as useful political tools for the parties involved The PRT has of course been challenged by other approaches as well, such as theories focusing on the importance of employers and cross-class alliances Mares, Isabela. 2003. The politics of social risk : business and welfare state development, Cambridge studies in comparative politics. Cambridge: Cambridge university press, Swenson, Peter. 2002. Capitalists against markets: The making of labor markets and welfare states in the United States and Sweden. New York: Oxford University Press., on variation in systems of skill formation Estevez-Abe, Margarita, Torben Iversen, and David Soskice. 2001. Social protection and the formation of skills: A reinterpretation of the welfare state. In Varieties of capitalism: The institutional foundations of comparative advantage, edited by P. A. Hall and D. Soskice. Oxford: Oxford University Press., on the importance of autonomous state bureaucracies Weir, Margaret, and Theda Skocpol. 1985. State Structures and the Possibilities for 'Keynesian' Responses to the Great Depression in Sweden, Britain, and the United States. In Bringing the State Back In, edited by P. B. Evans, D. Rueschemeyer and T. Skocpol. Cambridge: Cambridge University Press., and on the importance of electoral systems Iversen, Torben, and David Soskice. 2006. Electoral institutions and the politics of coalitions: Why some democracies redistribute more than others. American Political Science Review 100 (2):165-181.. In our evaluation of the debate, the latter three should be seen as complements and additions to the PRT Iversen, Torben, and John D. Stephens. 2008. Partisan politics, the welfare state, and three worlds of human capital formation. Comparative Political Studies 41 (4-5):600-637. or, as in the first case, has been successfully refuted Korpi, Walter. 2006. Power resources and employer-centered approaches in explanations of welfare states and varieties of capitalism - Protagonists, consenters, and antagonists. World Politics 58 (2):167-+, Paster, Thomas. 2009. Choosing Lesser Evils: The Role of Business in the Development of the German Welfare State from the 1880s to the 1990s (Diss.). San Domenica Di Fiesole (Florence): European University Institute, Department of Political and Social Science..

in this struggle. In other words, in the PRT, institutional factors do not have an independent explanatory power (Korpi 2001).

Our argument is precisely the opposite. In each country, the historically inherited government institutions, have an important impact on the choice of both individual wage earners and their representatives whether or not to give the state the responsibility for extracting resources for and implementing policies for social insurance and welfare state redistribution. More precisely, this causal effect springs from the generally established perceptions and the following ideological and political discourses of the quality of the government institutions (Schmidt 2002; Schmidt 2009). We want to underline that the argument we will present is not a rebuttal of the power resource theory, however, but a complement to it. We agree that working class mobilization is a key to understanding welfare state expansion, but we clarify the hitherto neglected underlying condition for when this process is likely to take place: an environment of high quality of government.

The argument will unfold in four steps. We first present the background, key virtues and our critique of the Power Resource Theory. We then present our own theoretical understanding of the problem – called the Quality of Government Theory – and state its observable implications. A section on data and research design is followed by a large-n test based on time-series cross-sectional data on 18 OECD countries in 1984-2000. We find (a) that QoG positively affects the size and generosity of the welfare state, and (b) that the effect of working class mobilization on welfare state generosity is increasing in the level of QoG. We end by discussing our conclusions.

The Power Resource Theory – Appraisal and Critique

The Power Resource Theory grew out of an effort by a group of scholars who during the late 1970s tried to find a “middle way” between on the one hand the then popular Marxist-Leninist view that the welfare state should be understood as merely a functional requisite for the reproduction of the capitalist exploitation and on the other hand the idea that welfare states follow from a similar functionalist logic of modernization and industrialization. As a reaction against these functionalist explanations, the PRT puts forward two important issues. First, the PRT scholars were the first to point out the variation in things like coverage, extension and generosity among existing welfare states and that this variation needed to be explained.

Second, they introduced the importance of political mobilization based on social class as an explanation for this variation (Korpi 1974; Korpi 1983). Variation in welfare states reflects, according to this theory, “class-related distributive conflicts and partisan politics” (Korpi 2006, p. 168). The more political resources the working class is able to muster, such as a strong and united union movement that gave electoral support to Labour or Social Democratic parties, the more extensive, comprehensive, universal and generous the welfare state would become (Esping-Andersen 1990). The reason for this is according to the theory that the splits in the employment situation, that is a reflection of the class divisions, “generate interactions between class, life-course risks and resources, so that categories with higher life-course risks tend to have lower individual resources to cope with risks”. The argument is that such diversity of social risks would generate “a potential for class related collective action” (ibid).

As stated in the introduction, we believe that this theory has been more successful than its contenders to explain the outcome that we are interested in (Allan and Scruggs 2004; Huber and Stephens 2001; Korpi and Palme 2003).

The analytical problem in the Power Resource Approach that we would like to point out is that, while we agree that social class positions give rise to different social risks and that reasonably rational wage workers (and their representatives) would opt for some kind of protection from these risks, we still need an explanation for why they would turn to the state for such protection. There are, not only in theory, many other possibilities. First, unions or national union movements could have taken care of many of these risks and created large insurance organizations which also could have worked as “selective incentives” when recruiting and keeping members. Secondly, strong unions could have forced employers (or employers’ organizations) to take on either the whole or a part of the costs. A third possibility could have been that various “friendly societies”, or similar voluntary non-profit organizations, would have handled the demand for social protection. Another possibility could of course have been to rely on extended family networks. Our point is that in order for wageearners and their representatives to turn to the state for solving their demand for protection against social risks, they have to have a high degree of confidence in “their” state. We can easily see that from a Nordic or maybe North European perspective, this has rarely turned out to be an issue since there is much that speaks for that, compared to other European states even before the emergence of democracy, the Nordic states were historically less corrupt, less clientelistic, less prone to use violence against their citizens and more open to popular influence than most Continental and South European States (Rothstein 2007).

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