Book Review of Fighting Poverty in the United States and
Europe
Albert Alesina and Edward L. Glaeser,
in the book Fighting Poverty in the
United States and Europe, analyze the following research question: why do countries
in Western Europe redistribute more resources to the poor than the United
States (Alesina and Glaesar, 1)? To answer this question, the authors analyzed data
from the Organization for Economic Cooperation and Development (OECD) and conducted
an historical analysis of states in the developed world. They reached several conclusions.
Approximately half of the gap in welfare spending between Western Europe and
the United States can be explained by differences in political institutions. Most
states in Western Europe have parliaments with proportional electoral systems,
which has made it easier for left wing parties to win control of the government
and enact reforms. More controversially, the other half of the gap in social
spending is explained by the salient nature of social cleavages in the United
States—specifically, the divide between whites and blacks. Pro-free market
politicians in the United States have a long history of using racial resentment
and xenophobia as a way to convince poor whites to vote against economic redistribution.
In comparison, European countries tend to have more homogenous populations and
social cleavages that are less salient. Consequently, Europeans are more likely
than Americans to believe that the poor are deserving of welfare.
One of the strengths of this book
are the extensive number of measurements that are used to operationalize the
dependent variable (Alesina and Glaeser, 15-54). This is critical since there
are many different ways that governments can redistribute wealth. First, Alesina
and Glaeser analyze social spending as a percentage of GDP. Using data from
1998 and 1999, they find that countries in the European Union spend
approximately 25% of GDP on social spending whereas the United States only
spends 15%. These statistics take into account spending at the local level for
countries that have federalist systems. The authors also brake down social
spending into the following components: healthcare, social security, family
benefits, unemployment, disability, and poverty relief. The United States only
achieves parity with Europe on health care spending and lags far behind on all
other types of welfare. Alesina and Glaesar also analyze social spending from
1870 to the present, and they find that welfare states in Europe began earlier
than the United States and have been persistently larger since the late
nineteenth century. To compare the extant in which government spending has been
going to the bottom quartile of the population, the authors also conducted a
micro-level analysis of poor families in Sweden, Germany, and America using
data from the late 1990’s. They found that families in the bottom quartile in
Sweden and Germany received greater access to family benefits, healthcare,
sickness/injury benefits, disability, poverty relief, and retirement pensions.
The authors also summarized the findings of the Luxembourg income study of OECD
countries, which showed that social spending in Western Europe flows more to
the lowest quartile than in the United States. In addition, the authors analyzed
OECD data on labor regulations. The OECD has several indexes to measure the
strength of laws that protect labor by taking into account factors such as the
degree of protection for employees in the workplace, unemployment benefits, environmental
protection, and the minimum wage. These indexes show that countries in the
European Union have much stronger regulatory systems that benefit labor unions.
The only area of the political economy where the United States performed better
in terms of redistribution was private sector charity, but this does not come
close to making up for the deficiencies in public spending. OECD data shows
that European countries have lower levels of economic inequality before and
after taxes are collected.
What explains the differences in the
redistribution of wealth between these countries? To answer this question, Alesina
and Glaeser start by comparing the economies of the developed world (Alesina
and Glaeser, 55-76). In the political science literature, there are several
theories that connect economies to the size of welfare states. First, having a
larger economy means that there is more wealth to redistribute. Past studies
show that this explains some of the differences in the size of welfare states
between poor and wealthy nations (Haggard and Kaufman, 2008). Additionally,
countries that have more opportunities for economic mobility and have lower
rates of inequality will have less of a need to redistribute wealth. In a more
mobile society, citizens will make less demands on the state in terms of
redistributing wealth. Finally, countries that are more open economically to
foreign trade are also more likely to expand the welfare state since they need
to protect the country from the external shocks of the global market place. In
other words, economic instability creates a need for greater poverty relief
during recessions.
To test whether economic variables
explain the gap in redistribution between the United States and Europe, Alesina
and Glaeser analyzed data from the OECD. They found that economics is not an
explanatory variable. The United States has a similar GDP per capita as countries
in Western Europe, and poor Americans are not more economically mobile than the
average European. Americans in the bottom quartile are about as likely as
Europeans to stay in their income bracket throughout the course of their lives.
While the authors did find that European countries have more extensive imports
and exports than the United States as a percentage of GDP, they also found that
America’s economy is far more unstable despite the fact that it is less exposed
to the international market place. There are less controls on America’s free
market economy, which makes it more susceptible to booms and busts. In
comparison, most European countries have coordinated market economies. In spite
of having less economic instability and higher rates of inequality before
taxes, America still redistributes less resources to the poor.
While economics cannot explain differences
in redistribution of wealth between these countries, the structure of political
institutions can. The political science literature shows that institutions with
more veto points have greater difficulty enlarging the welfare state; in other
words, systems with checks and balances make it harder for a government to write, enforce,
and interpret laws (Alesina and Glaesar, 77-93). For example, the United States
has a presidential system where power is divided between the legislative,
executive, and judicial branches of government, so control of Congress and the
Presidency is often split between the Democratic and Republican parties. Interest
groups favoring businesses have been able to take advantage of these veto
points by blocking labor regulations and welfare reforms. The Supreme Court has
also played a role as a conservative force in American politics by frequently striking
down labor laws and welfare reform through the judicial review process. In
comparison, most political systems in Europe have parliaments where legislative
and executive powers are fused together, so whenever a left wing party wins an
election, they are able to govern without being encumbered by the opposition
parties. Once a welfare program is created, it becomes very difficult
politically for future right wing governments to retrench it due to the
popularity of the program. Furthermore, the United States also has a federalist
system where some political power is devolved to the subunits; in comparison, most
political systems in Europe are unitary. Consequently, it is easier for the
more centralized governments of Europe to enact reforms that effect the whole
country. In addition, most political systems in Europe have proportional
electoral systems, which has made it easier for small parties to win seats in
the legislature. The United States has a single-member district systems that
encourages the formation of two centrist parties, which discourages third
parties from forming. Populist and socialist parties in late nineteenth and
early twentieth century America struggled politically as a result.
Along with conducting a qualitative
comparison of the different political institutions of each country, Alesina and
Glaesar also conducted a quantitative analysis. To see if a strong correlation
exists between public social spending and the nature of political institutions
in OECD countries, they ran a series of regression analyses while controlling
for GDP per capita. They found that presidential systems, federalism, and SMD
electoral systems were all negatively correlated with social spending. This
explains why Switzerland, the United Kingdom, and democracies in Latin America,
which share some similarities with the United States in terms of political
institutions, also have a comparatively weak welfare states in comparison with
the rest of Western Europe.
To explain why these institutional differences
exist, Alesina and Glaeser analyzed the history of each of these case studies
(Alesina and Glaeser, 94-132). Institutions are not created randomly but are
the product of specific historical processes. Since the late nineteenth century,
labor movements have been stronger in continental Europe. They have used their
political strength to pressure governments to enact institutional reforms that
have made it easier for social-democratic parties to win elections and enact reforms.
There are several reasons why labor unions were stronger in Europe than in the
United States. In order to obtain the right to vote and improve working
conditions, left wing movements in continental Europe had to engage in
revolutions to overthrow monarchs and eliminate aristocratic privileges. In
contrast, America was born a liberal democracy; the country was populated by
economic and political migrants fleeing persecution. The United States never experienced
a period of feudalism in its history. As a result, labor unions in Europe were
more cohesive and militant, whereas left wing movements in the United States were
co-opted and weakened through political compromise. Furthermore, states in continental
Europe periodically dealt with invasions and destructive wars throughout the
nineteenth and twentieth century. Leftwing movements were often able to use
moments of military weakness to seize control of the government. In comparison,
the United States rarely had to worry about foreign invasion, and its military
always had the strength to suppress militant labor movements. Lastly, the
United States is far larger geographically and more diverse than any country in
Europe. Labor protests in America usually took place far away from Washington
D.C., and labor movements struggled to form a cohesive national movement due to
the heterogeneous nature of the country. As a result of these factors, leftwing
movements in Europe were more successful in terms of pressuring their
governments to reform political institutions.
While political institutions are
heavily correlated with government social spending, it only explains
approximately half of the gap between the United States and Europe. The other
half is explained by social cleavages (Alesina and Glaeser, 133-81). In the
political science literature, there is strong evidence that ethnic diversity
has a negative impact on economic redistribution, but certain conditions need
to be in place for ethnic fragmentation to have a negative effect on welfare
spending. The minority in question has to be poorer than the majority, and the
social cleavage has to be salient. As poverty becomes more associated with a minority
group, members of the majority become less likely to empathize with the poor.
Political entrepreneurs in favor of free market economics are also more likely
to use a salient social cleavages as a way to convince citizens to favor small
government and low taxes. While many European countries do have problems with
ethnic fragmentation, the social cleavages are often not of the right variety
to produce negative attitudes towards economic redistribution. For example, Belgium
has two ethnic groups—the Flemish and the Walloon—but both groups are similar
to each other socioeconomically. In Spain, northern minorities in Catalonia and
the Basque country have political movements in favor of separatism but they are
wealthier on average than the majority of Spaniards in the south. Most
countries in Europe also have a Jewish minority and anti-Semitism has been
prevalent through Western history, but since the beginnings of
industrialization, Jews have been wealthier than the average European. In
comparison, the United States has several salient social cleavages that impact
welfare spending. First, approximately ten percent of the country consists of
African Americans, whose ancestors were almost all brought to the country as
slaves. Despite the fact that the era of Jim Crow segregation in the south came
to an end over half a century ago, blacks continue to be much poorer than the
average white person. In addition, America has a longer history of immigration
than Europe. The majority of America’s immigrants—legal and illegal—have come
from Latin America, and these Hispanic immigrants have come to the country in
search of a better life. Politicians on the right have often used racial
resentment and anti-immigrant sentiments as a means to obtain power. It is
important to note that Alesina and Glaesar predicted that as the immigration of
poor migrants from the Middle East and North Africa increased in Europe, right
wing parties would use social tensions over immigration to call for reductions
in welfare states. It seems this prediction was correct. In recent years, right
wing political parties have used anti-immigration platforms to increase their
popular support throughout the continent.
To provide quantitative evidence that
social cleavages affect economic redistribution, Alesina and Glaesar first created
different fractionalization indexes for ethnicity, race, language, and
religion. They then conducted a series of regression analyses by using these
indexes as the independent variables and public social spending as the
dependent variable. They found a strong correlation in the OECD between these
variables and social welfare spending.
Alesina and Glaesar conclude that institutional
and social differences between Europe and the United States led to different
attitudes towards economic redistribution (Alesina and Glaesar, 182-216). To
measure these attitudes, the authors use the World Values Survey, which is
distributed every ten years in countries through the globe. They analyzed
questions that asked respondents to state their opinions on welfare, government
redistribution, and the poor. Europeans are far more likely to think that the
poor are deserving of welfare and that the government’s responsibility is to
redistribute wealth. More importantly, Alesina and Glaesar claim that these cultural
attitudes do not directly explain the reasons for the differences in economic
redistribution; instead, these attitudes are a product of differences in
political hegemony. In Europe, left wing political movements have been
relatively dominant over the past century, and these movements have had greater
control of each country’s educational institutions and media outlets. In
comparison, supporters of free market policies have controlled equivalent
institutions in the United States. In other words, the information citizens
receive are being filtered through the political system. This is how Alesina
and Glaesar can explain why Americans have persistently believed that their
society is more economically mobile than other developed countries even though
the data tells a much different story. Due to these political differences,
Europeans have more positive attitudes towards economic redistribution and more
sympathetic views towards the poor.
While this book is impressive in
terms of the extensive number of qualitative and quantitative methods used to
analyze the links between the independent and dependent variables, there are
several problems that need to be addressed. First, the authors conducted a
series of separate regression analyses that either had no controls or only
controlled for GDP per capita of the different states. The reason for the lack
of a sufficient number of control variables is because of the limited number of
samples on the dependent variable. They only used data from the late 1990’s. Other
comparative works on welfare states have used data from the past half century
so that they could include many political, economic, and demographic controls
in their analysis (Haggard and Kaufman, 2008; Huber and Stephens, 2001). There is also a problem with the authors’
qualitative analysis. While Alesina and Glaesar decided to include statistics
on Latin America in their regression analyses to create more variability on the
dependent variable, they did not include a qualitative analysis of their
welfare states. The authors never explain why they did this. It could have
enriched the study. Would a qualitative analysis reveal that Latin American
countries with larger Amerindian minorities have a history of political
entrepreneurs using bigotry as a tool for promoting free market policies?
Finally, Alesina and Glaesar decided not to answer a very important normative
question directly related to this study. This question is as follows: would the United States and the world
in general be better off if the country distributed more resources to the poor?
While much of their work implies that this might be the case, they deliberately
chose not to address the question. There is a possibility that America’s free
market economy is more innovative, which leads to the creation of new
technology that also benefits the economies of the European Union. Furthermore,
part of the gap in social spending might be a result of America’s spending on
defense, which European members of NATO benefit from substantially. If
countries in continental Europe had to spend more money on defense as a percentage
of GDP, would they have to make cuts to their welfare states?
Work Cited Page
Alesina, Alberto, and
Edward L. Glaeser. 2004. Fighting Poverty
in the US and Europe: A World of Difference. Oxford: Oxford University
Press.
Haggard, Stephan and
Robert Kaufman. Development, Democracy, and Welfare States: Latin America, East
Asia, and Eastern Europe. Princeton
University Press: Princeton, 2008.
Huber, Evelyne and
John D. Stephens. 2001. Development and
Crisis of the Welfare State: Parties and Policies in Global Markets. The
University of Chicago Press: Chicago.
