Globalization and the Race to the Bottom

Globalization and the Race to the Bottom

Economic Competition (a.k.a. Globalization)

Aging populationsIncreasing frustration/distrust of

public authorityFiscal Crises

Economic Competition (a.k.a. Globalization)

Aging populationsIncreasing frustration/distrust of

public authorityFiscal Crises

Expected Effects of Globalization on Taxes and Public Spending

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10

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60

1980 1990 2000 2010

Perc

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t G

DP

Sweden Germany USA Japan

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20

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1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

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Tota

l Tax

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Unweighted OECD Ave. United States Japan Sweden

In Fact we see Variation - Not Convergence

In Fact we see Variation - Not Convergence

Variation: Not ConvergenceVariation: Not Convergence

Is Globalizationlike

Global Warming?

The Scientific Method - Derived from the Hard Sciences

The Scientific Method - Derived from the Hard Sciences

[Social scientists] envision a world composed of linear relationships among variables, parity in the size of cause and effect, recurrent patterns over time, and the fundamental insignificance of chance happenings. Alan Zuckerman (1997)

[Social scientists] envision a world composed of linear relationships among variables, parity in the size of cause and effect, recurrent patterns over time, and the fundamental insignificance of chance happenings. Alan Zuckerman (1997)

Evolutionary Science?Evolutionary Science?

Evolutionary science has required an investigation of “additional principles that apply only to living organisms… This required a restructuring of the conceptual world of science that was far more fundamental than anyone had imagined at the time.” Ernst Mayr, 2004

Evolutionary science has required an investigation of “additional principles that apply only to living organisms… This required a restructuring of the conceptual world of science that was far more fundamental than anyone had imagined at the time.” Ernst Mayr, 2004

If politics were mechanics:If politics were mechanics:We could:Assume variable independenceOmit or control for:

emergence contingency Human Agency

Accurately predict change.

We could:Assume variable independenceOmit or control for:

emergence contingency Human Agency

Accurately predict change.

My argument:Political Systems are

Complex Adaptive Systems:They Evolve and Adapt in a dynamic environment

(which they, in part, create themselves)

My argument:Political Systems are

Complex Adaptive Systems:They Evolve and Adapt in a dynamic environment

(which they, in part, create themselves)

This model explicitly brings in:•Historical context (the dynamic ecology)•Contingency•Emergence•Symbiosis and Co-Evolution•Agency (source of Variation)

This model explicitly brings in:•Historical context (the dynamic ecology)•Contingency•Emergence•Symbiosis and Co-Evolution•Agency (source of Variation)

How Political Systems EvolveHow Political Systems Evolve

• Institutions are the ‘rules’ structuring political life • Institutions, like genes, are nothing more than

behavioral instructions (rules).• Human agency and creativity are the sources of

variation in institutional evolution.• Humans rationally calculate as much as they can,

but are biased thinkers.• History Matters:

• Institutions structure strategic choices AND ultimately shape preferences because institutional choices at time A become part of the ecological context at time B.

• Institutions are the ‘rules’ structuring political life • Institutions, like genes, are nothing more than

behavioral instructions (rules).• Human agency and creativity are the sources of

variation in institutional evolution.• Humans rationally calculate as much as they can,

but are biased thinkers.• History Matters:

• Institutions structure strategic choices AND ultimately shape preferences because institutional choices at time A become part of the ecological context at time B.

Two Evolutionary Narratives (if time allows)

Two Evolutionary Narratives (if time allows)

The USA - The Land of Milk and Honey, racing toward the bottom.

Sweden - The Bumble-bee that should not fly

The USA - The Land of Milk and Honey, racing toward the bottom.

Sweden - The Bumble-bee that should not fly

The United States: Contingent Conditions

The United States: Contingent Conditions

Massive natural resources and huge land mass to exploit.

Destination for world’s greatest migration

Fear of the democracy.Institutional fragmentationChecks and balances, federalism, etc.Slavery

Massive natural resources and huge land mass to exploit.

Destination for world’s greatest migration

Fear of the democracy.Institutional fragmentationChecks and balances, federalism, etc.Slavery

America Adaptation and Institutional Choices

America Adaptation and Institutional Choices

Early Century - FDR and the push for a public sphere. Why did it fail?

Both Political Institutions and Cognitive Frames are Biased against Government(New Deal, Great Society, War on Poverty)

Second best choices: Targeted social welfare benefits (esp. via tax incentives)

Increasing Distrust of Government Growing inequality

Early Century - FDR and the push for a public sphere. Why did it fail?

Both Political Institutions and Cognitive Frames are Biased against Government(New Deal, Great Society, War on Poverty)

Second best choices: Targeted social welfare benefits (esp. via tax incentives)

Increasing Distrust of Government Growing inequality

Welcome to the Tea PartyWelcome to the Tea Party

Sweden: Contingent Conditions

Sweden: Contingent Conditions

Small homogeneous population Significant natural resourcesNorthern edge of expanding EuropeAble to stay neutral in TWO wars - arms

supplier and manufacturing advantageLate/concentrated industrial

developmentHuge conflict between economic classes

Small homogeneous population Significant natural resourcesNorthern edge of expanding EuropeAble to stay neutral in TWO wars - arms

supplier and manufacturing advantageLate/concentrated industrial

developmentHuge conflict between economic classes

Sweden:Adaptation and

Institutional Choice

Sweden:Adaptation and

Institutional ChoiceHighly concentrated economy (unions

and employers)Electoral Rules bias towards

compromiseThe “Historic Compromise” - SaltsjöbadWomen instead of immigrants into labor

market

Highly concentrated economy (unions and employers)

Electoral Rules bias towards compromise

The “Historic Compromise” - SaltsjöbadWomen instead of immigrants into labor

market

Universalism: A simple Model

Universalism: A simple Model

Pre-Tax Income

Tax Rate 30% After tax Income Benefit per Family

Final Income

10,000 3,000 7,000 16,000 23,000 50,000 15,000 35,000 16,000 51,000 100,000 30,000 70,000 16,000 86,000

* 3,000 + 15,000 + 30,000 = 48,000 / 3 = 16,000 Income Ratio before taxes and benefits 1 to 10

(10,000 to 100,000) Income Ration after taxes and benefits 1 to 3.7

(23,000 to 86,000)

Pre-Tax Income

Tax Rate 30% After tax Income Benefit per Family

Final Income

10,000 3,000 7,000 16,000 23,000 50,000 15,000 35,000 16,000 51,000 100,000 30,000 70,000 16,000 86,000

* 3,000 + 15,000 + 30,000 = 48,000 / 3 = 16,000 Income Ratio before taxes and benefits 1 to 10

(10,000 to 100,000) Income Ration after taxes and benefits 1 to 3.7

(23,000 to 86,000)

Increasing Support for the Universal Welfare State

Sweden

Increasing Support for the Universal Welfare State

Sweden

Opinion Balance Opinion Balance

Answers to the following question: ÒTaxes are used for various purposes. Do you think the revenues spent on the purposes mentioned below should be increased, held the same, or reduced?Ó The figures in the table represent the percentage of those wishing to increase expenditures minus the percentage of those wishing to reduce them.

Program 1981 1986 1992 1997 2002 Health care +42 +44 +48 +75 +77 Support for the elderly +29 +33 +58 +68 +69 Support to families with children +19 +35 +17 +30 +26 Housing allowances -23 -23 -25 -20 -40 Social assistance -5 -5 -13 +-0 -7 Primary and secondary education +20 +30 +49 +69 +70

Table 2.1 Sweden: Social and Economic Data and World Ranking Figure World Rank

Tax as % GDP (2005) 50.7 Public Spending as % GDP (2006) 54.3 1 (highest) Social Spending as % GDP (2003) 35.1 1 (highest) Public Spending on Education as % GDP (all levels) 6.5 2 (from highest) Global Competitiveness Rank 3 (from highest) R+D per capita (US $) 1112 1 (highest) Employment rate (2006) 74.5 6 (from highest) Internet users per 1,000 inhabitants 320 3 (from highest) Gini Index 2.52 1 (most equal) Human Development Index (World Bank, 2005) .956 6 (from highest) Life expectancy (2005) 80.6 6 (from highest) Paid maternity + parental leave (weeks) (1998-2002) 78 1 (highest) WomenÕs employment rate (2006) 76.0 3 (from highest) Gender wage gap (%) (2004) 14.8 6 (from lowest) Poverty Rate 6.5 3 (from lowest) Infant mortality rate per 1000 3.7 4 (from lowest)

Table 2.1 Sweden: Social and Economic Data and World Ranking Figure World Rank

Tax as % GDP (2005) 50.7 Public Spending as % GDP (2006) 54.3 1 (highest) Social Spending as % GDP (2003) 35.1 1 (highest) Public Spending on Education as % GDP (all levels) 6.5 2 (from highest) Global Competitiveness Rank 3 (from highest) R+D per capita (US $) 1112 1 (highest) Employment rate (2006) 74.5 6 (from highest) Internet users per 1,000 inhabitants 320 3 (from highest) Gini Index 2.52 1 (most equal) Human Development Index (World Bank, 2005) .956 6 (from highest) Life expectancy (2005) 80.6 6 (from highest) Paid maternity + parental leave (weeks) (1998-2002) 78 1 (highest) WomenÕs employment rate (2006) 76.0 3 (from highest) Gender wage gap (%) (2004) 14.8 6 (from lowest) Poverty Rate 6.5 3 (from lowest) Infant mortality rate per 1000 3.7 4 (from lowest)

Sweden: A case of Increasing Returns?Sweden: A case of

Increasing Returns?

Sweden’s success is neither obvious, nor

inevitable.

Sweden’s success is neither obvious, nor

inevitable.

Competitive, open economy and the “Universal Social Welfare State”

High trust society

Competitive, open economy and the “Universal Social Welfare State”

High trust society

Political Evolution and Institutional Choice

Political Evolution and Institutional Choice

Institutions, like genes, are rules that structure behavior by telling actors how to behave in particular contexts.History “evolves” precisely because humans have the capacity to create, select and copy institutions.When building institutions, we build part of the ecological contexts in which future generations make new choices. Human’s thus make their own ‘evolutionary history’ but they cannot make it exactly according to their wishes.

Institutions, like genes, are rules that structure behavior by telling actors how to behave in particular contexts.History “evolves” precisely because humans have the capacity to create, select and copy institutions.When building institutions, we build part of the ecological contexts in which future generations make new choices. Human’s thus make their own ‘evolutionary history’ but they cannot make it exactly according to their wishes.