Social democracy as a development strategy

Social democracy, it is often said, is nice but pricey. Whatever its merits in the rich countries of Western Europe, social democracy is frequently dismissed as an infeasible model for developing countries. Based on generosity towards the poor and protection against market competition, the argument goes, social democracy is only possible in consensual, homogeneous and affluent societies with an extraordinary commitment to equality. In third world countries that are conflict-ridden, heterogeneous and poor, does the social democracy have any relevance? In this article we offer a more agnostic view of the feasibility of the social democratic model of development in the third world. First, we argue that consensus, homogeneity, and affluence are products of the social democratic model, not prerequisites. Second, we claim that the central social democratic policy as a development model was the policy of wage compression attained through highly centralized wage-setting institutions. Third, we argue that the economics benefits of wage compression would be as significant in South Africa, Brazil or India today as they were in the Nordic countries between 1935 and 1970. The political feasibility of a policy of wage compression, however, is open to doubt, hence our agnosticism regarding whether or not the social democratic road to affluence can be repeated. In this paper we consider social democracy to be model of development rather than an end state. In particular, we will not enter into the debate regarding the future prospects of social democracy in Western Europe within the context of European economic integration, a common currency, an aging population and the ever increasing cost of providing the best health care that money can buy. The achievements of social democracy as a development strategy in terms of combining the socialist virtues of equality and security without losing the capitalist virtues of economic efficiency and technological dynamism are not seriously in dispute. What are disputed are the answers to the following questions: What was the contribution of specifically social democratic policies to the high level of affluence and equality in Northern Europe today. Would the policies that successfully promoted development in Northern Europe be equally effective and feasible in the third world in the context of an increasingly integrated global economy

Cursed by resources or institutions?

Natural resource abundant countries constitute both growth losers and growth winners, and the main difference between the success cases and the cases of failure lays in the quality of institutions. With grabber friendly institutions more natural resources push aggregate income down, while with producer friendly institutions more natural resources increase income. Such a theory finds strong support in data. A key question we also discuss is if resources in addition alter the quality of institutions. When that is the case, countries with bad institutions suffer a double resource curse - as the deterioration of institutions strenghtens the negative effect of more natural resources.Natural resources; Institutional quality; Growth; Rent-seeking

Unequal power and the dynamics of rivalry

By incorporating positional dynamics into a conflict model relevant to battlefields and politics, we show that the conditions that induce regime stability can also induce hard conflicts. We show that in contests with incumbent-challenger turnover, i) asymmetric power across groups and positions may magnify conflicts; ii) more severe conflicts can occur with lower turnover of incumbents; iii) power can be self-defeating, as cost advantages can reduce payoffs; and iv) double inequality across positions and groups can maximize the graveness of conflicts and the social waste of resources. The propositions in our paper are contrary to the standard implications of static conict models

The equality multiplier: How wage setting and welfare spending make similar countries diverge

The complementarity between wage setting and welfare spending can explain how almost equally rich countries differ in economic and social equality among their citizens. More wage equality increases the welfare generosity via political competition in elections. A more generous welfare state fuels wage equality via an empowerment of weak groups in the labor market. Together the two effects generate a cumulative process that adds up to a social multiplier explaining how equality multiplies. Using data on 18 OECD countries over the period 1976-2002 (determined by the availability of the generosity index of welfare spending) we test the main predictions of the model and identify a sizeable magnitude of the equality multiplier. We obtain additional support by using spending data to extend the panel up to 2007, and by applying another data set for the US over the period 1945-2001

Employment as a Price or a Prize of Equality: A Descriptive Analysis

To put Scandinavian employment in perspective, we ask whether wage compression hampers employment rates, or not. We answer by reviewing the most important theoretical arguments and the most informative regularities across countries with different wage distributions. The pattern seems to be that countries with compressed wage distributions tend to have higher employment, and countries with higher wage inequality tend to have lower employment. This also holds when we consider the rate of labor force participation. In line with the theoretical arguments, coordination in wage bargaining seems to contribute to both employment expansion and wage compression. There is a clear positive correlation between coordination and employment even when we control for inequality, country, and year-specific effects

Aggressive elites and vulnerable entrepreneurs: Trust and cooperation in the shadow of conflict

We explore the implications of having a divided society where group leaders have motives for aggression towards other groups but where entrepreneurs have a desire for cooperation and peace. We assert that it is members of the elites who start conflicts and wage wars while the entrepreneurs undertake the type of economic activities that they find most profitable given the circumstances. We derive implications for peace and conflict. We find conflict induced poverty traps with self-fulfilling expectations about conflict and we derive implications for peace building strategies

Opium for the Masses? Conflict-Induced Narcotics Production in Afghanistan

We show that the recent rise in Afghan opium production is caused by violent conflicts. Violence destroys roads and irrigation, crucial to alternative crops, and weakens local incentives to rebuild infrastructure and enforce law and order. Exploiting a unique data set, we show that Western hostile casualties, our proxy for conflict, have strong impact on subsequent local opium production. This proxy is shown to be exogenous to opium. We exploit the discontinuity at the end of the planting season: Conflicts have strong effects before and no effect after planting, assuring causality. Effects are strongest where government law enforcement is weak.conflict, narcotics production, resource curse, Afghanistan

Miserly developments

In many countries extreme poverty is unnecessary. Yet it persists. We propose a simple index, denoted the Miser index, to measure the extent to which societies have poverty in the midst of affluence. It builds on the generalized Lorenz curve, but can also be seen as a measure of polarization between the rich and the poor. We calculate the index for a number of developing and emerging economies and rank them according to their revealed miserliness. We also identify important correlates of the Miser index. Countries that score high on the index tend to be socially fractionalized, bureaucratically inefficient, and politically corrupt. They provide their citizens with a low level of health care and education. Democracy and high growth rates do not moderate miserliness. Finally, considering the world as a single entity, we find a dramatic rise in global miserliness over the last 30 years