Palgrave Macmillan, 2008, xiii + 242 pp, hbk 0 230 538061, £58
This book tackles an important question: Do social protections, such as free education and health care, state pensions and social security benefits, reduce an economy’s efficiency? In particular, does the European Social Model make for economies less efficient than those in countries such as the USA where social protections are less well developed? To put the question another way: Is state-sponsored equality less economically efficient than free market inequality?
Professor A. B. Atkinson discusses Europe’s rather loose system of social policy co-ordination and its consequences: low poverty in the Nordic countries, and higher ones in the UK, Ireland and Southern Europe. There are therefore pressures for more robust social protections, but in a globalising world there are contrary pressures to reduce them so that Europe’s tax rates don’t make its labour costs uncompetitive. Unfortunately, employment on its own does not ensure escape from social exclusion, as Munzi’s and Smeeding’s chapter shows.
The heart of the book’s argument is in Bowles’ and Jayadev’s chapter, ‘The Enforcement-Equality Trade-off’. They point out that ‘guard labour’ (supervision, policing, prisons, security personnel, etc.) costs money, and they show that in unequal societies we need more of it. Importantly they also show that there is more evidence for a correlation between social inequality and the costs of guard labour than there is for a trade-off between equality and economic efficiency. They recommend that more resources should be redistributed to the less well off to enable the costs of guard labour to be reduced.
Artoni and Casarico show that welfare states are insurance systems and so are no different in principle from private insurance schemes, with which their costs should be compared; Costabile and Scazzieri show that the dollar’s function as a reserve currency explains US economic dominance, and that expanding the euro area is the right European policy response and reducing our social protections is not; Bettio and Plantenga construct a typology for care work regimes in different countries, particularly in relation to the labour market participation of carers; Gustafson discusses continuities and changes in the Swedish system ( – an important continuity is the high level of gender equality); and D’Antoni and Pagano discuss a Europe in which institutional integration and the redistribution of wealth complements national and regional diversity.
Costabile sums up: ‘Many versions of the “equality-Efficiency trade-off” … do not survive closer scrutiny; … abdication of the insurance function of the welfare state produces efficiency losses in our second-best world; … progressive redistributions may not entail efficiency losses or higher costs because the alternative system of order maintenance, namely disciplinary enforcement, is also costly; … poverty rates are more closely related to the incidence of low pay and low welfare state expenditures than they are to unemployment rates [and] the objective of poverty reduction can only be achieved by integrating full employment policies with policies aimed at social inclusion; … distributive policies … produce dynamic efficiency gains if, by reducing poverty and inequality, they positively influence the welfare the cognitive abilities of children and hence human capital formation; … the under-provision of [care] services acts as an ‘inactivating influence’ on market participation and employment, particularly for women; … economic arguments counsel in favour of an active role for the EU in the definition of Europe’s common social ambitions; … social policies in Europe should incorporate measures able to conjugate the objectives of equity and efficiency ….’ (pp.225-231). Costabile recommends a social insurance / social assistance system for income maintenance. A social insurance / Citizen’s Income scheme would give her more of both the equity and the efficiency which the book shows to be compatible.