Michael Wallerstein

STRUCTURAL DEPENDENCE OF THE STATE ON CAPITAL

A central claim of both Marxist and neoclassical political theory is that under capitalism all governments must respect and protect the essential claims of those who own the productive wealth of society. This is the theory of “structural dependence of the state on capital.” Using a formal model, the internal logic and the robustness of the theory is examined. We conclude that in a static sense the theory is false: virtually any distribution of consumption between wage earners and owners of capital is compatible with continual private investment once an appropriate set of taxes and transfers is in place. Yet the state may be structurally dependent in a dynamic sense. Policies that, once in place, redistribute income without reducing investment do reduce investment during the period in which they are anticipated but not yet implemented.

Earnings Inequality and Welfare Spending: A Disaggregated Analysis

The welfare state is generally viewed as either providing redistribution from rich to poor or as providing publicly financed insurance. Both views are incomplete. Welfare policies provide both insurance and redistribution in varying amounts, depending on the design of the policy. The authors explore the political consequences of the mix of redistribution and insurance in the context of studying the impact of income inequality on expenditures in different categories of welfare spending in advanced industrial societies from 1980 to 1995. They find that spending on pensions, health care, family benefits, poverty alleviation and housing subsidies is largely uncorrelated with income inequality, but that spending on income replacement programs such as unemployment insurance, sickness pay, occupational illness and disability are significantly higher in countries with more egalitarian income distributions. They show that this pattern is exactly what a theory of political support for redistributive social insurance programs would predict.

Unions, Employers' Associations, and Wage-Setting Institutions in Northern and Central Europe, 1950–1992

The eight countries examined in this study—Austria, Belgium, Denmark, Finland, Germany, the Netherlands, Norway, and Sweden—have long been viewed as exemplifying “corporatist” industrial relations systems, in which union coverage is high, unions are influential and commonly have strong ties to political parties, and collective bargaining is institutionalized and relatively centralized. Many observers have recently argued that such corporatist bargaining institutions are everywhere being undermined by changes in the global economy. The authors, using data from a wide variety of primary and secondary sources, test whether changes in patterns of wage-setting in the private sector are consistent with that claim. Although they find some signs that corporatist wage-setting institutions are in decline, they also find offsetting signs of the resiliency of such institutions. Overall, the evidence does not indicate that wage-setting in the private sector is undergoing a general process of decentralization in these eight countries.

The Structure of Class Conflict in Democratic Capitalist Societies

The article presents a theory of class conflict between workers and capitalists who pursue their material interests under a form of societal organization that combines private ownership of instruments of production with representative political institutions. There exist economic and political conditions under which both classes would simultaneously choose courses of action that constitute a class compromise: workers consent to the institution of profit and capitalists to democratic institutions through which workers can effectively press claims for material gains. When these conditions hold and a compromise is in force, the role of the state consists in institutionalizing, coordinating, and enforcing the terms of a compromise that represents the preferences of workers as well as capitalists. The combination of private ownership of the instruments of production with representative political institutions based on widespread suffrage constitutes a compromise between workers, who consent to the private appropriation of profit by owners of capital, and capitalists, who accept the democratic institutions through which workers can make effective claims for an improvement of their material conditions. This form of societal organization was con

Union Organization in Advanced Industrial Democracies.

I suggest a new explanation of cross-national differences in unionization rates: the size of the labor force. Size matters because the gains unions are able to achieve in collective bargaining depend on the proportion of substitutable workers who are organized, while the costs of organizing depend in part on the absolute number to be recruited. The comparison of the costs and benefits of organizing new workers yields the conclusion that unions in larger labor markets will accept lower levels of unionization. Statistical analysis of cross-national differences in unionization rates among advanced industrial societies in the late 1970s indicates that the size of the labor force and the cumulative participation of leftist parties in government explain most of the variance.

The Fragmentation of the Bargaining Society Wage Setting in the Nordic Countries, 1950 to 1992

It is commonly believed that corporatist bargaining institutions have been in general decline in the 1980s and 1990s. The leading explanations of the purported universal trend toward greater decentralization of collective bargaining are the impact of technological change, changes in the occupational structure, and growing international economic integration. Decentralization should be particularly visible in the Nordic countries, because collective bargaining was more centralized in these countries in the 1960s and 1970s than in any others in Western Europe. In this article, the authors present data on the changes in the centralization of wage bargaining in the four Nordic countries since 1950. They document that a significant decentralization of collective bargaining has occurred in Sweden, as is well known, but not in the other three. The article concludes with a review of possible explanations of Swedish exceptionalism.

Trade union behaviour, pay-bargaining, and economic performance

Part 1 Can political models predict union behaviour?, Robert J. Flanagan: trade unions - models and institutions classical voting models and union behaviour the descriptive power of the median voter model institutional structure and voting outcomes union leaders and union members a stocktaking comment, Alistair Ulph comment, Assar Lindbeck. Part 2 Bargaining structure and economic performance, Karl Ove Moene et al: wage demands by unions and employers bargaining models of wage-setting conflicts over the level of bargaining comment, Assar Lindbeck comment, Lars Calmfors.

Capital taxation with open borders

Since 1975, both corporate income tax rates and top marginal income tax rates have been lowered in most OECD countries. A common explanation of this phenomenon is that increased international capital mobility reduced the ability of governments to tax income from capital. In this paper, we examine the constraints on the taxation of income from capital with free capital mobility. We demonstrate that capital mobility increases the constraints on the taxation of income from capital only when investors expect future taxes to rise. As long as taxes are stable, governments using the right tax instruments can collect substantial taxes on uninvested profits without affecting private investment whether capital is mobile or not. We conclude that increased capital mobility is not a compelling explanation of the reduction in tax rates that has occurred in the past fifteen years.

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?

Domestic and International Causes for the Rise of Pay Inequality in OECD Nations Between 1980 and 2000

Purpose – We study the determinants of growing wage inequality in 16 OECD countries in the past two decades of the twentieth century. The main independent variables that we consider are those pertaining to labor market institutions, to international trade with less developed nations, and to deindustrialization. Methodology – We specify a statistical model of pay differentials using first differences over five-year periods. The main estimation method used is weighted ordinary least squares. Where necessary, we use instrumental variables and two-stage least squares. We also undertake extensive robustness exercises, including a version of extreme bounds analysis and deleting each individual country from the analysis. Findings – The determinants of wage inequality are different in the 1980s and in the 1990s. In the 1980s, growing wage dispersion is due to changes in the institutions of the labor market, including declining unionization and declines in the level at which wages are bargained collectively. In the 1990s, increases in pay inequality are due to increasing trade with less developed nations and weakening of social insurance programs. Originality – This is the first study to report that the causes for pay inequality differed between the 1980s and the 1990s. It is also the first to document statistically that trade with the less developed nations systematically increases pay inequality in the developed world in the 1990s.