Economic Growth & Welfare Systems Jean Monnet Chair in European Integration Studies Prof. PASQUALE TRIDICO
Welfare states and its history
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
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
Social spending before 1850 England & Wales Fr Nether SWE US Belgium 1850 1829 1850 1822 1790 1833 1850 1820-21 1776 1850 1820 Public education Relief for the poor 0 0,5 1 1,5 2 2,5 % shares of GNP
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).
Social transfer in OECD countries 35 30 25 20 15 10 5 0 1880 1890 1900 1910 1920 1930 1960 1970 1980 1980 1990 1995 Austria Denmark Finland France Germany
Social transfer in OECD countries 35 30 25 20 15 10 5 0 1880 1890 1900 1910 1920 1930 1960 1970 1980 1980 1990 1995 Japan Netherlands Sweeden Uk US
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?
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
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 1782-1834 and its cut backs in 1834 and 1870 Germany and the US were leaders in tax-based public schooling whereas Britain lagged behind.
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
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)
% of household heads having the right to vote (UK) 1918 % of HH having right to vote 1886 1867 1831 % of HH having right to vote 1688 5,00 55,00
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
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
Reasons for denying relief to poor in great Burstead, Essex, 1823-1828 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)
Literacy and public spending
Literacy during 1500-1800 (1) Country Literacy in 1500 Literacy in 1800 Austria Belgium France Germany Italy Netherlands Sweden Portugal Spain 6 10 7 6 12 10 10 1 1 21 49 37 35 22 68 85 3 2
Literacy during 1500-1800 (2) Country Literacy in 1500 Literacy in 1800 Eastern Europe Russia USA UK China India Japan Other Asia Africa 1 1 0 10 5-10 2 5-10 3 0 4 4 50 51.5 16-22 3 25-30 3 2
Public spending on education, Total (% of GNP) 10 8 France Finland 6 4 2 1960 1965 1970 1975 1980 1985 1990 1995 Sweden Switzerland Mexico USA UK
Public spending on education, Total (% of GNP) 9 7 China Chile 5 3 1 1960 1965 1970 1975 1980 1985 1990 1995 Netherlands Japan Canada Australia New Zealand
Expenditure per student, primary (% of GNP per capita) 50 40 30 France Sweden USA 20 UK 10 China 1960 1965 1970 1975 1980 1985 1990 1995 Netherlands Japan 0 India
Expenditure per student, secondary (% of GNP per capita) Japan Netherlands India China UK USA Sweden France 0 10 20 30 40
Expenditure per student, tertiary (% of GNP per capita) 95 75 France Sweden 55 USA 35 15 1960 1965 1970 1975 1980 1985 1990 1995 UK Netherlands Japan
Expenditure per student, tertiary (% of GNP per capita) 360 260 160 China India 60 1960 1965 1970 1975 1980 1985 1990 1995
Impact of population growth
Elderly in the EU and US % of elderly 2000 (%) 2050 France 15.93 25.48 Germany 16.35 28.36 Italy 18.17 34.88 UK 16.03 24.89 EU 16.41 28.86 USA 12.51 21.73
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)
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
Population Pyramids: 1998
Age dependency ratio
Migration and welfare
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
Immigration to USA 1850 to 2000 1850 1880 1900 1930 1960 1 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 1,609,000 990,000 3 Britain Britain Canada United Kingdom Canada 379,000 918,000 1,180,000 1,403,000 953,000 4 Canada Canada Britain Canada United Kingdom 148,000 717,000 1,168,000 1,310,000 833,000 5 France Sweden Sweden Poland Poland 54,000 194,000 582,000 1,269,000 748,000 6 Switzerland Norway Italy Soviet Union Soviet Union 13,000 182,000 484,000 1,154,000 691,000 7 Mexico France Russia Ireland Mexico 13,000 107,000 424,000 745,000 576,000 8 Norway China Poland Mexico Ireland 13,000 104,000 383,000 641,000 339,000
1970 1980 1990 2000 1 Italy Mexico Mexico Mexico 1,009,000 2,199,000 4,298,000 7,841,000 2 Germany Germany China China 833,000 849,000 921,000 1,391,000 3 Canada Canada Philippines Philippines 812,000 843,000 913,000 1,222,000 4 Mexico Italy Canada India 760,000 832,000 745,000 1,007,000 5 United Kingdom United Kingdom Cuba Cuba 686,000 669,000 737,000 952,000 6 Poland Cuba Germany Vietnam 548,000 608,000 712,000 863,000 7 Soviet Union Philippines United Kingdom El Salvador 463,000 501,000 640,000 765,000 8 Cuba Poland Italy Korea 439,000 418,000 581,000 701,000
For all countries http://pwt.econ.upenn.edu/php_site/pwt6 1_form.php http://www.who.int/nutgrowthdb/databas e/en/ http://www.fao.org/es/ess/index_en.asp http://www.ifpri.org/data/data_menu.asp
China China : government expenditure, growth, poverty, and infrastructure, 1952-2001. For information please visit: http://www.ifpri.org/data/dataform.htm
Ottoman Empire http://www.ottoman.uconn.edu/data.htm