The Institutional Origin of Social Trust:

The Configuration of Social Policies and The Coordination of Interests in Rich Democracies

Cheol-Sung LeeUniversity of Chicago

Overall Research Agenda I

Dissertation (Completed in 2005)

The Social Bases and Outcomes of Welfare States in the Era of Globalization and Post-Industrial Economy

“Income Inequality, Democracy, and Public Sector Size” (ASR 2005)

“Income Inequality, Global Economy, and the State” (SF 2007)

An Inverted U-shaped Relationship between Public Sector Size and Income Inequality in 64 Countries, 1970 to 1994

4 4

4 4

4

4 4

54

47 38 7

36

31

42 36 42

15

15

42 36

42

36

42 36 36 36 36 36

15

64 19

29 42

15 63

42 42

77

64

42 42 42 42 59 42

15 15

42

80 63

61 61

29

61 29 42

19

29 61

43 42

52

61

84

77

45 45

80 77 19 20 43

63 52

3 84

3

37

3

37

9

3 3

19

64

62

70

77

45

48

70

63

16

84

45

12

3

3

12 45

45 84

45

9

77

9

83

72

41 70 83 83

84

52

12

70

52

12

83

12

83

37 12 83

12

16

83

16

37

37

9

83

77 48

83 83

16

83 12

83 83 83 70

12

84

83 83 83 37

23

9

52

72

12 12 83 12

3

72 71

9

72

48

2

21

84

51

12

83

62

43

2 12 12

83

51

9 13 9

72

2

16 72

12

44 3

70 84 2

48 87

37 37

53

62 16

71

48

2 51

57

30

2 72

88

2

28

16

53

11

28

79 2

66

71

79

28 28

79 40

28 24

79

40

24

41

24 24 24

40

71

26

5

24 24

84

39

13

21

74 24

40

56

71 71

8

40

24

66

82

40

24

18

82 71

66

56

82

74 40 56

82

39 40 56 60

82

18

78

60

74

82

56 56 74

82

74 74

82 82 82

82

56

60

82

82

56

82 74

25

18 56 40 60 74

82 82 82

82 74

82 60

82

40 82 39

82

40 74 60 25 56 18 74

78

74 74 60

56

40 74 40 40 25 40

6 55 6 55 55 55 55

55 55 6 55

6 55 55 55 55

20

30

40

50

60 In

com

e I

ne

qu

alit

y (G

ini)

0 10 20 30 40 Public Sector Size (tax revenue, % of GDP)

Theoretical Models of the Relationships between Public Sector Size and Income Inequality: A Curvilinear Model and An Interaction Model

Transition to Democracy

Autocracy or Limited Democracy

Institutionalized Democracy

Inco

me

Ineq

uali

ty (

Gin

i)

Public Sector Size (Government Tax Revenue: % of GDP)

Positive Effects of Public Sector Size on Income Inequality in Autocracy or Limited Democracy, 125 Observations on 36 Countries

44

4

4

4

4

4

54

38

36

31

36

15

15

36

36

363636

3636

15

64

19

29

1563

77

64

59

15

8063

6161

29

61

29

19

29

61

43

52

61

77

45

45

77

19

43

6352

3737

9

19

64

62

70

77

45

48

70

63

45

45

45

45

9

9

72

70

52

70

52

37

37

37

9

7748

70

37

9

52

72

72

71

9

72

48

21

62

43

913

9

72

72

44

70

48

37

37

53

6248

57

30

72

88

53

11

7979

79

79

26

13

21

78

25

25

78

25

2030

4050

60In

com

e In

equa

lity

(Gin

i)

0 10 20 30 40Public Sector Size (tax revenue, % of GDP)

bandwidth = .8

Lowess smoother

Negative Effects of Public Sector Size in Fully Institutionalized Democracy, 216 Observations on 32 Countries

477

424242

4242

4242424242424242

15

42

42

42

84

80

20

384

33

33

16

84

12

3

3

12

84

77

83

41

8383

84

1212

83

12

83

1283

12

16

83

16

83

8383

16

83

12

838383

12

84

8383

83

23

1212

83

12

3

2

84

51

12

83

2

12

12

83

512

16

12

3

84

2

87

16

71

251

2

2

28

16

28

2

66

71

2828

40

2824

40

24

41

242424

40

71

5

2424

84

39

7424

40

56

7171

8

40

24

66

82

40

24

18

8271

66

56

82

74

40

56

82

39

4056

60

82

18

60

74

82

56

5674

82

7474

82

82

82

82

56

60

82

82

56

82741856

4060

74

82

82

82

8274

82

60

82

4082

39

82

407460

56

18747474

60

56

4074

40

4040

6

55655555555

5555655

655

555555

2030

4050

60In

com

e In

equa

lity

(Gin

i)

0 10 20 30 40Public Sector Size (tax revenue, % of GDP)

bandwidth = .8

Lowess smoother

Overall Research Agenda II Civic Association Networks and

Institutional Performances

“Labor Unions and Good Governance” (ASR 2007)

“Unions’ Brokerage and Gender Equality” (R&R in AJS)

Unions in Network (Book Manuscript)

Union

Church

Sports Welfare

Culture

Church

Profe-ssional

Culture

Union Sports

Culture

Church

Union Sports

Welfare

2.1.Swedens

2.2. United States

2.4. Argentina 2.5. Russia

Culture

Church

Union

Health

Youth

Culture

Welfare

Union Health

Local

2.3. South Korea

Nordic Countries: Denmark

union

0.59

women

party

0.05 0.73

Liberal Countries:The United States

union

0.28

women

party

0.24 0.18

Conservative Countries: Japan

union

0.15

women

party

0.17 0.08

Overall Research Agenda III

Sectoral Conflicts and Distributional Outcomes in Post-Industrial Democracies (Forthcoming in ASR)

Sectoral Conflicts and Collapse in Wage Bargaining Institutions (Work in Progress)

Over-time Inequality Trajectories: Nordic Countries

20

25

30

35

gin

i re

po

rte

d

1970 1980 1990 2000 2010year

idn = 5 idn = 6idn = 14 idn = 15

Note: Idn denotes country code: 5 = Denmark, 6 = Finland, 14= Norway; 15 = Sweden

Sectoral Conflicts and Formation of Cross-class Alliances Stage I. Inter-class Conflict and Coordinated Wage Bargaining

Export Sector Employers

Public Sector Employees

Public Sector Employers

Export Sector

Employees

Stage II. Emergence of Sectoral Conflicts

Public Sector Employees

Public Sector Employers

Export Sector

EmployeesExport Sector

Employers

Stage III. Cross-Class Alliances

Public Sector Employees

Public Sector Employers

Export Sector

EmployeesExport Sector

Employers

Sectoral Conflicts and Formation of Cross-class Alliances

(High)Public Sector

Employment

(Increasing) Income Inequality

(Decreasing or Stagnant) Total

Employment

(High) Productivity Gap between Sectors

Collapse of Coordinated

Wage Bargaining

(High) Inter-sectoral Conflicts

(High)Wage Differentials between Private and

Public Sectors

(High)Wage Differentials within

Private Sector

Overall Research Agenda: Other and Future Projects

Developmental States and Research Fraud in Asia(2010 SF)

Institutional Origin of Social Trust (R&R in SF) (Today)

The Development and Retrenchment of Welfare States in Less Developed Countries (Next 3-5 Years)

Formal and Informal Control of Scientific Misconduct

Degree of Formal Control

High Low

Degree of Informal Control

High

Low

Anglo-American Model Universities in Regulatory State Illiberal research regime; liberal lab culture; formal and informal control inhibit fraud

Anglo-American Model Universities in Developmental State Liberal research regime; liberal lab culture; informal control inhibits fraud

German Model Universities in Regulatory StateIlliberal research regime; illiberal lab culture; formal control inhibits fraud

German Model Universities in Developmental State Liberal research regime; illiberal lab culture; fraud relatively common

Overview of This TalkInstitutional Origin of Social Trust

To explore the role of social policy design and skill formation in accounting for social trust

To bring sociological perspectives (social exchange theory and institutional theory) into comparative political economy

To re-situate the conventional knowledge of welfare state-trust linkage

To conduct empirical Data Analyses using four waves of World Values Surveys for 17 rich democracies

What is trust & Why Does it Matter? Trust:

“Placing resources at the disposal of another party” (Coleman)

Trust Matters because: √ Basic Source of Social Order √ Source of Efficiency in Transactions

√ Positive Social and Political Outcomes

Dimensions and Sources of Trust

Interest and Transaction-

based

Non-economic Social Relation-based

Cultural Norm-based

Associational/Community-based

Cultural/ Psychological

Social Exchange √ Structure of exchange√ Sanctioning and monitoring mechanisms√ Information of social identities (trustworthiness)

Institutional

Cross-national and Over-time Variations in Trust

a. Residual (Liberal) Countries25

3040

4550

trus

tpop

1980 1985 1990 1995 2000year

Australia CanadaUK US

Cross-national and Over-time Variations in Trust

b. Universal (Social Democratic) Countries40

4550

5560

65tr

ustp

op

1980 1985 1990 1995 2000year

Denmark FinlandNetherlands NorwaySweden

Cross-national and Over-time Variations in Trust

c. Social Insurance (Conservative) Countries

2025

3035

40trus

tpop

1980 1985 1990 1995 2000year

Austria BelgiumFrance GermanyItaly Japan

Micro-Macro Combinational Model of

Trust

Employers

Employees

Welfare State Institutions

Local, Cultural or Structural

Factors

Employers’ Trust of General Others

Employees’ TrustOf General Others

Social Exchange and Social Dilemma(Cook and Colleagues)

A B C D

A B

D C

Group Generalized Exchange

Network-generalized Exchange

ALMP/PSST

A

B

D

C

T = 1

ALMP/PSST

C

A

D

B

T = 2

A

ALMP/PSST

B

C

D

T = 3

Social Exchange Process among Four Labor Market Actors around ALMP (Active Labor Market Policies) in Universal Countries

A: Skilled

B: Unskilled

C: Unemployed

D: Employers

Social Exchange Process under Firm-centered Training in Social Insurance Countries

A

D2D1

B

C

Social Insurance/Assistance

• Firm level Training

• Higher Wage & Benefit

• Strong Employment Protection

• Generous Earning-related Insurance

• Little Training

• Lower Wage

• Weak Employment Protection

• Inferior Earning-related Insurance

Insiders

Outsiders

Skill-based Division

A: Skilled

B: Unskilled

C: Unemployed

D: Employers

Supplement: Social Exchange Process

along Racial Division in Residual Countries

A

D2D1

B

C

Social Insurance/Assistance

• Strong Educational Credentials (General

Skills)

• Individual Bargaining

• Strong Community Resources

• Weak Educational Credentials

• Low Wage

• Low Social Protection

• Weak Community Resources

Majority

Minority

Labor Market Division + Residential Segregation

Immigration

A: Skilled

B: Unskilled

C: Unemployed

D: Employers

Social Exchange Structures & Welfare State Functions (T>1)

Free-riding Monitoring

Group-generalized Exchange

Possible No

Transfer-based Welfare State

High Means-test, butNo Monitoring below threshold

Network-generalized Exchange

Impossible Yes

Training-based Welfare State

Low Institutional

Degree and Scope of Encapsulation of Mutual

Interests

Types of Welfare Regimes

Degree Scope

Universal Countries

High Wide

Social Insurance Countries

Selectively High Divided

Residual Countries Low Fragmented

Supplement: Decision-Making Process

Skilled Workers and Employers’ Decision in Three Welfare Regimes

A’s (or D’s) Decisions

Labor Solidarity of Entire Working Class Strong?

No

NoYes

Yes

Stay with ALMP

Defect ALMPIs A strongly organized?

Firm-level Skill Training with D (or A)

Skill Depreciation for A

Skill and Labor Control for D

Outsourcing/FDI/Immigrants

cf. Decision Choice for B and C?

Universal Countries

Social Insurance Countries

Residual Countries

Causal Flows

Mode of Labor Solidarity

Encom-passing

Divided:P(A)>P(B&C)

Frag-mented

Skill-Supply Welfare Regime

Insurance-Supply Welfare Regime

Minimalist Welfare Regime

High Trust

Low Trust

Low Trust (?)

Power Constellation Institutional Design

Interest and Trust

Building Hypotheses:Social Policies as a Source of Trust

--Universal Countries --

ALMP-based skill provision provides both monitoring mechanisms and incentives to participate in skill exchange process for all actors

Employees: High confidence in maintaining stable living conditions

Employers: High confidence in upgrading skill levels with relative flexibility

Hypothesis 1: Public provision of skill investment will lead to a higher level of social trust.

Building Hypotheses:Social Policies as a Source of Distrust

-- Social Insurance Countries --

Strong Distinction between Insiders and Outsiders

Social insurance programs (originating from firm-level training) perpetuate skill-based status hierarchy Employees: No need to find commonalities Employers: Little Flexibility, High Tax and Co-pay Burden

Hypothesis 2: Higher reliance on corporatist models of insurance programs will lead to lower level of social trust.

Building Hypotheses:Testing the Effects of

Institutional Configuration on Trust

Passive Social Transfers combined with Active Job Training Programs All contributors perceive passive transfers as a part of employment/skill insurance, rather than philanthropic donations to the poor

Hypothesis 3: The effects of passive social transfers on trust will be conditional upon active labor market policies.

Data and Measures:Dependent Variable

Generalized Trust

“Would you say that most people can be trusted or that you can’t be too careful in dealing with people?” (World Values Surveys)

Measurement Issues

√ Particularized Trust

√ Trustworthiness

Generalized Trust

Trust of Neighbors

Trust of Employers

Trust of Colleagues

Data and Measures:Independent Variables

– Welfare State Efforts

Social Policy Spending Structure

-- Measure of Skill-Supply Welfare State Efforts: ALMP Spending

-- Measure of Passive Social Transfers:

Sickness, Family Allowances, and Other Social Assistance and Welfare

-- Measure of Institutional Design: Interaction Between ALMP and Passive Social Transfers

Data and Measures:Independent Variables

-- Control Variables

Individual level: Income, Gender, Age, Religion, Labor Market Status Occupational (Class) Categories: Managers, Professionals, White Collar, Skilled Manual, Unskilled Manual, Agricultural, and Others

Country level: Income Inequality, Ethnic Fragmentation (International Migration), GDP per capita, Unemployment Rate, Net Union Density

Methods: Multi-Level Logit Model

Log(Pji/(1-Pji)) = β0j + β1j (Occupational Categories)ij + β2j (Other Individual Characteristics)ij + γij

β0j = γ00 + γ01(ALMP)j + γ02(Other Country-level Controls)j + u0j

β1j = γ10 + γ11(ALMP)j + γ12(Other Country-level Controls)j + u1j

β2j = γ20

Descriptive Results

Trust

ALMP(% of GDP)

Passive Transfers

(% of GDP)

Old Age/Survivor Pension

(% of GDP) Gini

Universal 55.61 1.27 10.43 8.60 26.85

Social Insurance 30.35 0.70 5.32 10.48 29.15

Residual 41.15 0.40 5.21 5.84 32.40

[Skill Supply Regime Trust] CausalityRelationship between ALMP and Trust

Correlation Coefficient = 0.45, but 0.61 without Belgium and France

AUL

FRA

USAUSAJPN

USA

SWZ

ITA

JPN

AUS

JPNJPN

UKMITA

DEN

CANSWZ

AUS

CAN

ITA

UKMNET

UKM

NOR

FRG

AUL

FRA

NOR

IRE

DEN

FRG

NET

BEL

FIN

FRG

FRG

BELBEL

NOR

IRE

FRA

NET

IRE

FIN

SWE

SWEDEN

SWE

20

30

40

50

60

70

TR

US

T

0 .5 1 1.5 2 2.5

ALMPbandwidth = .8

Lowess smoother

Outliers: Severe Ethnic Fragmentation

Regression Results from Multi-level Logit Model * significant at 10%; ** significant at 5%; *** significant at 1% Total Obs = 49,051;

Results for Controls and Constants are not Shown

Model (1) Model (2) Model (3)

Income Inequality (Gini) -0.023 -0.038 -0.035

(5.22)*** (8.50)*** (7.31)***

Net Migration Rate -0.037 -0.240 -0.169

(0.60) (3.86)*** (2.65)**

ALMP 0.470 -0.023

(8.36)*** (0/13)

Passive Social Transfers -0.037 -0.067

(6.67)*** (6.95)***

ALMP*Passive Social Transfers

0.025

(3.19)***

Regression Results from Multi-level Logit Model * significant at 10%; ** significant at 5%; *** significant at 1% Total Obs = 49,051;

Results for Controls and Constants are not Shown

Cross-level Interaction Terms Model (1)

ALMP*Professionals 0.279***

(3.52)

ALMP*White Collar 0.197**

(3.12)

ALMP*Skilled 0.164*

(2.36)

ALMP*Unskilled 0.228***

(3.33)

ALMP*Agriculture 0.279*

(2.50)

Predicted Probabilities of Trust by Labor Market Status/Large Industry/Occupational Categories

.4.5

.6.7

.8.9

Pre

dict

ed P

roba

bilit

ies

0 1 2 3Active Labor Market Policy

employers professionalswhite_collar skilled_manualunskilled_manual agricultural

Empirical Findings

State-centered investment in workers’ skill provision leads to higher accumulation of social trust.

Contrary to popular belief, the study shows that higher government spending on pension-related benefits and social assistance-related benefits (passive social transfers) are negatively associated with social trust.

Passive social transfers have positive effects on social trust when they are jointly configured with higher spending on active labor market policies.

Theoretical Implications

Linked interest-based account of trust with welfare state typology and designs

Linked Employment relationships with Trust Social Exchange Processes among Class

Actors around skill formation Importance of Institutional Design:

A social policy design combining skill training and income transfers shapes a new constellation of interests and trust among labor market actors

Theoretical Implications

Bringing Sociology Back into Comparative Political Economy:Reformulated VC (the Varieties of Capitalism) School’s skill formation argument in the context of power resource and institutional theories.

It is the Configuration, not the Generosity of Welfare States that accounts for variations in social trust.

한국사회에서의 함의• 사회투자국가론

• 적극적 노동시장 정책과 전통적 사회지출 : -- “ 보완적 관계”

• 적극적 노동시장 정책과 보편적 복지

• 적극적 노동시장 정책과 비정규노동

Supplement: Employers’, Skilled Workers’, and Unskilled Workers’ Trust

by Welfare State Typology20

4060

8020

4060

80

1980 1985 1990 1995 2000

1980 1985 1990 1995 2000

Universal Countries Social Insurance Countries

Residual Countries

Employer SkilledUnskilled

year

Q. Endogeneity: Countries with more trustors might develop ALMP more

actively.

ALMP was created by social democratic policy makers in 50s and 60s. At that point, trust levels in Nordic countries were no more than modest (based on the trajectories shown before).

Netherlands and Germany have increased ALMP (and subsequently boosted trust levels) recently and trust levels were very low in early 80s.

Q. Is trust the same as social capital?

If social capital is equivalent to ”social ties/networks,” or “connections among individuals,” trust (& trustworthiness) could be desirable norms of reciprocity or expected behaviors arising from those ties.

Q. Trust vs. Trustworthiness?

Trustworthiness of trustee (p): the probability that a trustee will behave as a trustor originally expected.

Decision of trust relies on comparing expected gain (G*p) with expected loss (L*(1-p)).

P is dependent upon trustee’s consideration of reputation.

For generalized trust, general others’ trustworthiness will be highly correlated with an individual’s trust of general others, because “general trustworthiness” provide an individual with positive information for trusting decision.Generalized Trust Generalized Trustworthiness≈

Q. Trust of Institutions? Trust of general others and trust of

institutions are highly correlated (Design and Quality of Institutions Both Generalized Trust and Trust of Institutions).

Trust of institutions are closely connected to the probability of trustworthiness (p), but it is very difficult for actors to gauge expected gain (G*p) and expected loss (L*(1-p)) from trusting institutions at current time point.