Chapter 22: The impact of public policies by J ørgen Goul Andersen

1. Chapter 22:The impact of public policiesby Jørgen Goul Andersen Caramani (ed.) Comparative Politics Section V: Public policies

2. Chapter 22: The impact of public policies Introduction (1/1) Introduction Economic paradigms and approaches to welfare Welfare regimes, varieties of capitalism, and flexicurity Tensions between welfare and economic efficiency Policy feedback and path dependence CP has increasingly turned attention from “output” to “outcomes”. This chapter deals with the economic and social effects of public policies. The relationship between politics and the economy is of special interest. One of the most important aspects – and one of the most controversial – is the impact of welfare policies on the economy.

3. Chapter 22: The impact of public policies Welfare regimes, varieties of capitalism, and flexicurity (1/6) Introduction Economic paradigms and approaches to welfare Welfare regimes, varieties of capitalism, and flexicurity Tensions between welfare and economic efficiency Policy feedback and path dependence The political science perspective on the impact of public policies usually refers to a concept of an “ideal type”. The two most known concepts are: • The concept of welfare regimes (Esping-Andersen 1990): • Welfare states are the result of political conflicts • The concept of varieties of capitalism: • Welfare states are the result of a common interest between employers and workers • Functionalist approach

4. Chapter 22: The impact of public policies Welfare regimes, varieties of capitalism, and flexicurity (2/6) Introduction Economic paradigms and approaches to welfare Welfare regimes, varieties of capitalism, and flexicurity Tensions between welfare and economic efficiency Policy feedback and path dependence The concept of welfare regimes (Esping-Andersen 1990): (1) Conservative welfare regime: • Aim of securing income replacement. Security > equality. • Payments dependent on contribution records • Low women labour force participation (2) Liberal welfare regime: • Aim of supporting the ones in need and alleviating poverty • Coverage is for all citizens • Less disturbing labour-markets effects

5. Chapter 22: The impact of public policies Welfare regimes, varieties of capitalism, and flexicurity (3/6) Introduction Economic paradigms and approaches to welfare Welfare regimes, varieties of capitalism, and flexicurity Tensions between welfare and economic efficiency Policy feedback and path dependence The concept of welfare regimes (continued) (3) Social democratic welfare regime: • Aim of maintaining the standard of living • Granted regardless of employment record • Favourable to female labour force participation

6. Chapter 22: The impact of public policies Welfare regimes, varieties of capitalism, and flexicurity (4/6) Introduction Economic paradigms and approaches to welfare Welfare regimes, varieties of capitalism, and flexicurity Tensions between welfare and economic efficiency Policy feedback and path dependence Varieties of capitalism: The concept of varieties of capitalism refers to different methods of coordination within an economy. • Liberal market economies (LMEs): - Develop competitive advantages in “radical innovation” - General skills of labour force • Coordinated market economies (CMEs): • Develop competitive advantages in company specific skills • Highly skilled and strongly specialized labour force

7. Chapter 22: The impact of public policies Welfare regimes, varieties of capitalism, and flexicurity (5/6) Introduction Economic paradigms and approaches to welfare Welfare regimes, varieties of capitalism, and flexicurity Tensions between welfare and economic efficiency Policy feedback and path dependence Varieties of capitalism (continued) Welfare states are efficient because they help to develop competitive advantages which make for economic performance. Workers are only willing to invest in specialized skills if they have an insurance against losing their job  comparative institutional advantage of welfare states.

8. Chapter 22: The impact of public policies Welfare regimes, varieties of capitalism, and flexicurity (6/6) Introduction Economic paradigms and approaches to welfare Welfare regimes, varieties of capitalism, and flexicurity Tensions between welfare and economic efficiency Policy feedback and path dependence Flexicurity (= combination of flexibility and security) The concept of flexicurity refers to a particular, successful hybrid between liberal (LMEs) and coordinated market economies (CMEs). Flexicurity is characterized by a combination of the “golden triangle”: (1) Liberal employment protection legislation (2) Generous employment compensation (3) Active labour market policies

9. Chapter 22: The impact of public policies Tensions between welfare and economic efficiency (1/5) Introduction Economic paradigms and approaches to welfare Welfare regimes, varieties of capitalism, and flexicurity Tensions between welfare and economic efficiency Policy feedback and path dependence Social and economic impact of welfare regimes: • Social impact: With respect to equality and poverty reduction, there seems to be a rank order with social democratic regimes first and liberal regimes last. Social democratic regimes also perform best with respect to social integration, stability in life and social capital. • Economic impact: With respect to economic performance measured in labour market integration, liberal regimes perform better.

10. Chapter 22: The impact of public policies Tensions between welfare and economic efficiency (2/5) Introduction Economic paradigms and approaches to welfare Welfare regimes, varieties of capitalism, and flexicurity Tensions between welfare and economic efficiency Policy feedback and path dependence Tax/welfare system and economic efficiency: To what extent do taxes and transfers harm economic efficiency (Okun’s thesis)? Empirical analysis shows: • No correlation between the level of social expenditure and the GDP-level • No correlation between equality and economic performance There is only little evidence of welfare states having adverse effects on economic growth.

11. Chapter 22: The impact of public policies Tensions between welfare and economic efficiency (3/5) Introduction Economic paradigms and approaches to welfare Welfare regimes, varieties of capitalism, and flexicurity Tensions between welfare and economic efficiency Policy feedback and path dependence Impact of labour market policies and institutions: The paradigmatic change from Keynesian to supply-side economics was due to a reinterpretation of unemployment  structural unemployment Theoretical explanations of structural unemployment: • High minimum wages • Wrong incentives • Insider-outsider problem • Insufficient geographic mobility

12. Chapter 22: The impact of public policies Tensions between welfare and economic efficiency (4/5) Introduction Economic paradigms and approaches to welfare Welfare regimes, varieties of capitalism, and flexicurity Tensions between welfare and economic efficiency Policy feedback and path dependence Impact of labour market policies and institutions (continued) Results of empirical analysis: • Unemployment protection: • Duration of unemployment benefits have adverse effects on duration rates and proportions of long-term unemployment • Minimum wages: • No correlation between the level of minimum wages and the level of employment • Taxation: • Some contested evidence that targeted reductions in taxes may have an effect on unemployment

13. Chapter 22: The impact of public policies Tensions between welfare and economic efficiency (5/5) Introduction Economic paradigms and approaches to welfare Welfare regimes, varieties of capitalism, and flexicurity Tensions between welfare and economic efficiency Policy feedback and path dependence Impact of labour market policies and institutions (continued) • Activation: • Only small effects compared to costs • Corporatism: • Unorganized labour: Beneficial impact on unemployment • Sectoral bargaining: Detrimental effects on unemployment • Centralized wage coordination: Beneficial impact on unemployment

14. Chapter 22: The impact of public policies Policy feedback and path dependence (1/4) Introduction Economic paradigms and approaches to welfare Welfare regimes, varieties of capitalism, and flexicurity Tensions between welfare and economic efficiency Policy feedback and path dependence Policy feedbacks on politics: Policies have an impact on interest-constellations in society: • Formation of new interest groups • Interest in maintaining particular programs (vested interest) • Influence on power distribution in society • Creating divisions of interests as well as unity of interests • Opening/closing of access opportunities .. which again influences policies in the future.

15. Chapter 22: The impact of public policies Policy feedback and path dependence (2/4) Introduction Economic paradigms and approaches to welfare Welfare regimes, varieties of capitalism, and flexicurity Tensions between welfare and economic efficiency Policy feedback and path dependence Policy learning is another form of policy feedback: • Policy learning: The process by which civil servants, policy experts, and elected officials evaluate the performance of previously enacted policies. Policy learning takes place within a paradigm, but even paradigm shifts may be ascribed to learning.

16. Chapter 22: The impact of public policies Policy feedback and path dependence (3/4) Introduction Economic paradigms and approaches to welfare Welfare regimes, varieties of capitalism, and flexicurity Tensions between welfare and economic efficiency Policy feedback and path dependence Policy transfer and policy diffusion are further policy feedback mechanisms: • Policy transfer: Deliberated across national/sectoral policy learning • Policy diffusion: Broader concept than policy transfer. It refers to all conceivable channels of influence between countries Policy convergence is not only a result from “functional necessity”, but also from policy transfer and –diffusion. Policy transfer and diffusion are serious disturbances in cross-national research.

17. Chapter 22: The impact of public policies Policy feedback and path dependence (4/4) Introduction Economic paradigms and approaches to welfare Welfare regimes, varieties of capitalism, and flexicurity Tensions between welfare and economic efficiency Policy feedback and path dependence Path dependence: • Path dependence: Policies at one point of time impact policies at a later point of time. Path dependence occurs because of political or administrative switching costs. There are several lines of interpretation of path dependence: • Lock in effects • Positive feedbacks • Path dependence as a perspective • Path dependence is one of the main explanations of continuing cross • national-differences in politics.