Economic Growth & Welfare Systems. Jean Monnet Chair in European Integration Studies Prof. PASQUALE TRIDICO

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1 Economic Growth & Welfare Systems Jean Monnet Chair in European Integration Studies Prof. PASQUALE TRIDICO

2 Welfare states and its history

3 Peter Lindert Most of the historical data and the arguments are based on Peter Lindert s Growing Public (Vol1 and 2). Social spending and Economic Growth Since the eighteenth century Period (18 th century onwards) Most of the focus OECD World Bank data Educational expenditure Birth rates

4 Complex issue There is always political struggle between those who are likely to benefit from redistribution and those who would be taxed by it Welfare spending is complicated as government must help people and at the same time must give incentive people for not depending on the government Also keeping down budget is an important task

5 Social spending before 1850 England & Wales Fr Nether SWE US Belgium Public education Relief for the poor 0 0,5 1 1,5 2 2,5 % shares of GNP

6 Government welfare spending in developed and developing countries Nita Rudra (2002) Globalization and the decline of the welfare states in Less-Developed countries. Industrial organization. Vol 56(2).

7 Social transfer in OECD countries Austria Denmark Finland France Germany

8 Social transfer in OECD countries Japan Netherlands Sweeden Uk US

9 Important questions Why social spending is so late in the history? Why did no country spend even 3 percent of its national product to its redistributive programs? Why now one thirds of GDP is allotted for social spending? Will the developing countries follow the same route as the developed countries?

10 Age distribution Share over 65 Share under 15 Electoral variables Other Religion Openness to trade Military spending Income (real gdp) Social spending/gdp Public pensions Welfare and unemployment Public health Public education Accumulated capital Nonhuman human Prior development Macro economy

11 How social spending emerged before World War II There was little spending before 20 th century because the political voice was restricted The important role of political voice is shown in Britain s high poor relief in and its cut backs in 1834 and 1870 Germany and the US were leaders in tax-based public schooling whereas Britain lagged behind.

12 Contd.. The great advance of social transfers since 1880 is explained partly by political voice, partly by population aging, and partly by income growth Ethnic homogeneity have better welfare states

13 An interesting historical event The Boer war see wikipedia During this war, in South Africa, Britain realized how poor and badly educated and ill were their solders in comparison with german solders German solders were more educated and healthier because they already enjoyed the benefit of the bismarkian conservatist welfare state (based on employment category and corportation such as Army)

14 % of household heads having the right to vote (UK) 1918 % of HH having right to vote % of HH having right to vote ,00 55,00

15 Poor relief (welfare) Governments of Europe intervened to keep food affordable during famines But their price control and market integration decides food crisis in the long run In 1740 England passed a law for imprisonment of Rouges, vagabonds, idle and disorderly people

16 Dutch and German view before 1850 on poor relief Dutch view: The state must prohibit beggary. But the state can never alleviate poverty. As far as relief for poor is concerned the best institution is the church. German view: Due to excessive charities of the church the number of poor greatly increased. 19 th century Germans viewed that in France and England pauperism grown though the excessive almsgiving of the Church

17 Reasons for denying relief to poor in great Burstead, Essex, Failing to attend worship last Sunday (n=17) Failing to provide an accurate report of family labor earnings, or known to earn too much for the relief they requested (16) Refusing to work for a local farmer (10) Keeping a dog as a pet (5) Using a doctor other than the one designated by the parish (5)

18 Literacy and public spending

19 Literacy during (1) Country Literacy in 1500 Literacy in 1800 Austria Belgium France Germany Italy Netherlands Sweden Portugal Spain

20 Literacy during (2) Country Literacy in 1500 Literacy in 1800 Eastern Europe Russia USA UK China India Japan Other Asia Africa

21 Public spending on education, Total (% of GNP) 10 8 France Finland Sweden Switzerland Mexico USA UK

22 Public spending on education, Total (% of GNP) 9 7 China Chile Netherlands Japan Canada Australia New Zealand

23 Expenditure per student, primary (% of GNP per capita) France Sweden USA 20 UK 10 China Netherlands Japan 0 India

24 Expenditure per student, secondary (% of GNP per capita) Japan Netherlands India China UK USA Sweden France

25 Expenditure per student, tertiary (% of GNP per capita) France Sweden 55 USA UK Netherlands Japan

26 Expenditure per student, tertiary (% of GNP per capita) China India

27 Impact of population growth

28 Elderly in the EU and US % of elderly 2000 (%) 2050 France Germany Italy UK EU USA

29 Ageing and economic burden in the EU The process of ageing is putting European social services under considerable stress: Old age expenditure (as a % of GDP) has risen significantly since the 1980s and remained stable during much of the 1990s Old age expenditure represents two fifths of all social expenditure (highest incidence in Italy, Greece, and Spain)

30 Dependency problems Old age structures and young age structures both create problems with supporting dependents; they are just different problems. Young age structure requires expanding labor markets, investments in education Investments in older people less likely to enhance productivity

31 Population Pyramids: 1998

32 Age dependency ratio

33 Migration and welfare

34 Complex relation Though many industrialized countries talk about their looming pension crisis, US, Canada, Australia and New Zealand are spared relatively due to migration Many questions to ask in this area Are the fresh immigrants a net burden on native tax payers Can Italy solve pension crisis by admitting more young Albanians and France from West Africans Tax payers and immigrants schooling

35 Immigration to USA 1850 to Ireland Germany Germany Italy Italy 962,000 1,967,000 2,663,000 1,790,000 1,257,000 2 Germany Ireland Ireland Germany Germany 584,000 1,855,000 1,615,000 1,609, ,000 3 Britain Britain Canada United Kingdom Canada 379, ,000 1,180,000 1,403, ,000 4 Canada Canada Britain Canada United Kingdom 148, ,000 1,168,000 1,310, ,000 5 France Sweden Sweden Poland Poland 54, , ,000 1,269, ,000 6 Switzerland Norway Italy Soviet Union Soviet Union 13, , ,000 1,154, ,000 7 Mexico France Russia Ireland Mexico 13, , , , ,000 8 Norway China Poland Mexico Ireland 13, , , , ,000

36 Italy Mexico Mexico Mexico 1,009,000 2,199,000 4,298,000 7,841,000 2 Germany Germany China China 833, , ,000 1,391,000 3 Canada Canada Philippines Philippines 812, , ,000 1,222,000 4 Mexico Italy Canada India 760, , ,000 1,007,000 5 United Kingdom United Kingdom Cuba Cuba 686, , , ,000 6 Poland Cuba Germany Vietnam 548, , , ,000 7 Soviet Union Philippines United Kingdom El Salvador 463, , , ,000 8 Cuba Poland Italy Korea 439, , , ,000

37 For all countries 1_form.php e/en/

38 China China : government expenditure, growth, poverty, and infrastructure, For information please visit:

39 Ottoman Empire