Week 3: Rethinking the Trade-off Between Equality and Efficiency

Democratic politics is about distributive conflict tempered by a common interest in economic growth. This lecture is about rethinking the trade-off between growth and equality. We do this through an examination of income distribution, labour markets, wage bargaining and employment growth in liberal market economies (Ireland, UK, USA, Canada and Australia), social market economies (Sweden, Norway, Finland and Denmark), corporatist market economies (Germany, Netherlands, Austria), and Mediterranean market economies (Italy, Spain and France). The lecture concludes with a discussion on the fiscal crisis facing the nation-state, welfare state retrenchment, the monetary union and directions for progressive reform in Europe.

Modern industrial societies have generated a conflict between the egalitarian logic of democracy versus the inegalitarian logic of the market. The attempt to reconcile these tensions has given birth to democratic capitalism: popular elections among competing political parties whereby citizens across the income distribution can make their political demands on the state. This democratic process riles any notion that the economy can be separated from politics. On the one hand, employers and employees, are free to organise themselves into peak organisations and engage in collective bargaining. On the other, political parties are free to organise and seek direct election to the state. The latter is, constitutionally speaking, more embedded and prioritised in liberal representative democracy. The complex institutional relationship between the two is central to the evolution of post-war welfare states. This connects social policy with labour market policy in the social economies of Europe.

This lecture builds upon Jonas Pontusson’s study into the political and policy trade-offs facing the USA and Western Europe in their pursuit of equality, economic and employment performance. It begins from the assumption that those across the income distribution have different material interests that either do or do not get reflected in the public policies of the state. In terms of outcomes these 16 countries vary significantly. Some have kept inequality low, but unemployment high, equality low and employment high. Like most comparative political economists, this study traces the divergence to politics and the construction of institutions: political parties, the welfare state and collective bargaining. As argued last week by Esping Anderson, underpinning these institutions are political-class coalitions. It is the variation in these political-class coalitions that generated liberal, social and corporatist economies.

The full lecture can be read here

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