Rediscovering social investment in developmental welfare state ...
Rediscovering social investment in developmental welfare state ...
Rediscovering social investment in developmental welfare state ...
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R E D I S C O V E R I N G S O C I A L I N V E S T M E N T I N D E V E L O P M E N T A L W E L F A R E S T A T E P O L I C I E S :<br />
B A C K T O T H E F U T U R E<br />
<strong>in</strong>terrelation that is pert<strong>in</strong>ent than the actuality that many <strong>social</strong> conditions may turn out to have<br />
economic implications, whether fully recognized or not.<br />
Among the various schools of neoclassical economics, the Chicago School has offered the most<br />
strident criticism of redistribution and the <strong>welfare</strong> <strong>state</strong>. The microeconomic work of Stigler (1961,<br />
1966, 1975) and macroeconomic work of Friedman (1953, 1956, 1960, 1968)—<strong>in</strong>spir<strong>in</strong>g public<br />
choice theory (Buchanan & Tullock, 1962; Niskanen, 1971) and m<strong>in</strong>imal government arguments<br />
(Canto et al., 1983)—form a generalized view of the <strong>welfare</strong> <strong>state</strong>. The <strong>welfare</strong> <strong>state</strong> is generally<br />
considered to have ―distort<strong>in</strong>g effects on the automatic clear<strong>in</strong>g mechanism by affect<strong>in</strong>g wages, labor<br />
supply, or labor costs‖ (Esp<strong>in</strong>g-Andersen, 1990, p. 144). In other words, it <strong>in</strong>terferes with the<br />
clearance of surpluses and shortages by restrict<strong>in</strong>g the ability of prices to change and obstruct<strong>in</strong>g the<br />
ability of the economy to achieve equilibrium. If markets were generally efficient to beg<strong>in</strong> with,<br />
distort<strong>in</strong>g them is likely to produce <strong>in</strong>efficiencies. While research has dealt with issues such as<br />
sav<strong>in</strong>gs rates, crowd<strong>in</strong>g out of capital <strong><strong>in</strong>vestment</strong>, and the like, the literature has tended to focus on<br />
the negative-<strong>in</strong>centive effects of <strong>social</strong> benefits on labor supply and mobility at the micro level, along<br />
with attempts to argue their effects at the macro level (Danziger et al., 1981; L<strong>in</strong>dbeck, 1981). In this<br />
view, transfers are least likely to do harm when they remediate severe poverty.<br />
In contrast, <strong>in</strong> the <strong>developmental</strong>ist view, markets are likely to leave some <strong>in</strong>dividuals with limited<br />
resources. A <strong>social</strong> policy that redistributes <strong>in</strong>come may enable these <strong>in</strong>dividuals to ga<strong>in</strong> capabilities<br />
that will then be productive <strong>in</strong> the long run. Moreover, redistribution may lead to low-<strong>in</strong>come<br />
<strong>in</strong>dividuals hav<strong>in</strong>g more access to goods, services, and opportunities, and this may also have<br />
productive consequences <strong>in</strong> the future. From a <strong>developmental</strong>ist perspective, long-term <strong><strong>in</strong>vestment</strong>s<br />
are important and can lead to growth. Moreover, transfers are most likely to have positive effects<br />
when they prevent poverty.<br />
Beyond a generalized critique of the <strong>welfare</strong> <strong>state</strong>, neoclassical theory does address <strong>in</strong> some detail<br />
likely effects of various types of <strong>social</strong> policies. The neoclassical view prefers cash benefits to <strong>in</strong>-k<strong>in</strong>d<br />
benefits, as I discuss below. It has a more nuanced perspective on means-tested versus universal<br />
benefits, see<strong>in</strong>g disadvantages of each. Neoclassical theory does not speak <strong>in</strong> as much detail to family<br />
policy and ALMP beyond suggest<strong>in</strong>g that the earn<strong>in</strong>gs-related, contributory approach should be<br />
expanded, benefit duration and replacement rates kept low, and subsidies provided should take the<br />
form of cash. I briefly elaborate on each of these <strong>in</strong> turn. 52<br />
From an economic efficiency perspective, cash transfers are generally deemed to be superior to <strong>in</strong>k<strong>in</strong>d<br />
transfers because they do not directly <strong>in</strong>fluence market prices. Economic efficiency is enhanced<br />
to the extent that the marg<strong>in</strong>al benefit of goods and services sold <strong>in</strong> an economy is equivalent to<br />
their marg<strong>in</strong>al <strong>social</strong> cost. Transfer programs that lower prices of target goods for the poor will<br />
cause <strong>in</strong>dividuals to consume more of these goods than they would <strong>in</strong> the absence of the program,<br />
which will result <strong>in</strong> resources that could be used more efficiently <strong>in</strong> produc<strong>in</strong>g other goods and<br />
<strong>welfare</strong>. Mishan (1962) notes that it makes design<strong>in</strong>g second-best policies for all situations impractical. However, one<br />
could argue that to the extent that the latter is a goal, broader more encompass<strong>in</strong>g and uniform <strong>social</strong> policies are less<br />
likely to <strong>in</strong>troduce undesirable and unexpected distortions. In other words, the adverse effects (and foregone benefits) of<br />
piecemeal policymak<strong>in</strong>g undertaken on a grand scale are reduced with preventive <strong>in</strong>stitutional policies (Esp<strong>in</strong>g-Andersen<br />
& Korpi, 1987) that anticipate failures and distortions (i.e., universal and <strong>in</strong>-k<strong>in</strong>d benefits may be best suited to<br />
overcom<strong>in</strong>g the two ma<strong>in</strong> second-best critiques).<br />
52 The follow<strong>in</strong>g discussion provides a cursory overview of much more complex arguments regard<strong>in</strong>g the possible<br />
antipoverty effectiveness and efficiency implications of various types of transfers. A thorough and authoritative<br />
exploration of these issues is available <strong>in</strong> Garf<strong>in</strong>kel (1982).<br />
C E N T E R F O R S O C I A L D E V E L O P M E N T<br />
W A S H I N G T O N U N I V E R S I T Y I N S T . L O U I S<br />
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