There’s been a fair amount of debate around Jim Manzi’s recent piece on the differences between Europe and the US. I contributed a bit myself in the Bloggingheads with Dan Drezner linked above (with discussion of Iceland, Stephen Cohen and Brad DeLong’s recent book, and other stuff too). In this wrap-up reply to his critics, Manzi maintains that some of the criticisms that have been made by e.g. Paul Krugman are flat out wrong (Paul seems to have misattributed the data series that he was using), while saying that he was not in fact setting out to prove empirically that European style welfare redistribution systems limit innovation and growth (if I understand him correctly, he still believes this to be true, but doesn’t claim that the figures he adduces show it). As he notes, he is actively advocating that the US turn to redistribution – but is also claiming that there are trade-offs involved. I should also note that I’ve met him a few times, and always found him to be a straightforward, decent and, fwiw, mildly Europhilic guy (with whom I disagree, obviously, on multitudes of things). But as per my original Bloggingheads, I am dissatisfied with one of the most basic claims of the argument – that there is a distinct “European model,” followed by all states within Europe, which can readily be distinguished from the American approach. This is a claim that you sometimes see on both left and right – but it is one that I think is very wrong indeed.
The nub of Manzi’s defense is as follows:
Critics argue that since we all know the social welfare state is only present in Western Europe, it is disingenuous to bundle together Western and Eastern Europe.
In the article, I explicitly defined the “European model” as I used the term by methodically listing out each element of it:Seen together, these initiatives — shifting government spending away from defense and public safety toward social programs; deeper direct involvement of the government in the operation of large corporations across a substantial portion of the economy; energy rationing in the name of managing climate change; more direct government control of health-care provision; and higher tax rates that probably include a VAT — point in a clear direction. The end result would be an America much closer to the European model of a social-welfare state, which prioritizes cohesion over innovation.
It turns out that Europe as whole is systematically different from the U.S. on each of the listed dimensions. As a further and more severe statement, it is also true that Eastern Europe as a region (defined as Russia and other west-of-Urals components of the old Soviet Union and countries of the old Soviet bloc) and Western Europe as a region (defined as all other countries in Europe from Iceland to Greece) are also each systematically different from the U.S. on each of the listed dimensions.
Manzi then goes through a point-by-point defence of each of these claims.
However, it seems to me inarguable that some of these dimensions are more important to the ‘America is converging on an European-style welfare state’ argument than others. It may be that action against global warming is alleviating economic inequality within European states – but I would like to see the argument spelled out. Similarly I imagine that the effects of heavier product market regulation on cohesion and inequality is at best moderate and indirect. VAT is actually a regressive tax that hits ordinary consumers and workers much harder than the rich (the story of why the US has no VAT and, say, France does is a historically complicated and interesting one). And while Manzi is correct that taxes’ percentage of GDP is lower in the US than all European members of the OECD, it isn’t by much, only edging Switzerland by a nose. I would be very hesitant about making claims about profoundly different models given evidence like this.
All the more so, because usually, when we talk about ‘welfare states,’ we are talking about various forms of direct social protection. And here, I think Manzi’s evidence is weak:
shifting government spending away from defense and public safety toward social programs
The governments of both Eastern and Western Europe have a much higher weighting of social spending than does the government of the U.S. According to the OECD’s common governmental-expenditure classification system, in 2006 the ratio of (a) government spending on the sum of Housing and Community Amenities, Health, Recreation, Culture and Religion, Education, and Social Protection to (b) government spending on the sum of Defense plus Public Order and Safety was about twice as high or higher in every country for which the OECD reports in Eastern Europe (Czech Republic, Estonia, Hungary, Poland, Russia [using transaction code P3CG], Slovak Republic, and Slovenia), and every country for which the OECD reports in Western Europe (Austria, Belgium, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden, and the U.K.), as it was in the U.S.
The problem here is that the defense and public safety/social programs binary is an artificial one. There is no necessary reason (at least none that is obvious to me), why less spending on the military is more likely to lead to higher spending on social welfare than cuts, say, in road building, or subventions to business, or any other item in the budget. The argument that the US is not able to afford a strong welfare state, in contrast to Europe, because of its heavy military spending seems to me to be rather post hoc – or, to put it another way, I am aware of no evidence that heavy military spending directly lowered spending on welfare in the US (what evidence I am aware of mostly points in the other direction).
And it matters that it is artificial. I would lay good money that defense spending that is doing most of the work in Manzi’s weighting. While I haven’t been able to find a dataset covering social protection programs in all European countries as well as the US, I am pretty sure that the US is not an outlier from all European states (which is what Manzi is interested in) on social welfare spending alone. Eyeballing OECD data on social protection, together with data on EU member states (which covers some poorer E. European countries that aren’t covered in the OECD data), it is clear that (a) the OECD data is biased in favor of richer European states, and (b) that the poorer European states not counted in the OECD data have considerably lower levels of social protection as percentage of GDP than do the richer ones.
While the data sets are clearly not comparable (presumably they focus on different measures of social protection), the Eurostat data shows that poorer East European states such as Romania, Bulgaria and the Baltics have very low spending on social protection – they spend roughly half what rich social democratic states such as Sweden and the Netherlands do as a percentage of GDP (and much much less, obviously, in terms of per capita expenditure). While the Eurostat figures don’t include the US, I would again lay money that US spending on social protection as a percentage of GDP is higher than these countries – i.e. that if the US was included, it would be a bigger spender than some of the countries included in Manzi’s definition of the European model.
None of this is to say that there aren’t important differences between, say, Sweden and the US. But it is to say that these differences are probably rather less marked than the intra-European differences between, say, Sweden and Albania. And this is all the more true when we start looking at the detail of institutions, rather than crude comparisons of spending levels. On welfare states – the US has more in common with European states such as the UK and Ireland than Bulgaria has in common with Norway (readers interested in the different forms that welfare states take should start with Gosta Esping-Andersen and read out from there). So too for tax policy – or perhaps even more so – are countries such as Lithuania and Latvia, which have implemented flat taxes that American conservatives can only dream of, really exemplars of a European welfare state model? There is a good discussion to be had about differences between approaches to inequality in the US, and in various European states, but this discussion needs to start from an explicit recognition of the variety of European approaches.