Saturday, August 21, 2010

Trade and the Welfare State

Working on a paper about the Southern Europe Euro crisis, I came across the data on current account balances in the EU - it's pretty strong stuff, with a clear divide between surplus countries in the North (excepting UK and Ireland) and deficit countries in the South (with France however between the two).

What's especially interesting is that all the surplus countries have relatively low inequality, whilst the deficit nations are more unequal. This says something about the persistence of David Cameron (no not that one)'s argument about welfare states being a necessary adjunct of exporting economies - Cameron's argument was that wage restraint, corporate restructuring, labour mobility and other good things (for competitiveness) are made possible by redistributive policies that provide worker security and legitimize politically the economic risks of openness to trade.

Here's a chart that illustrates the point - high inequality in the mid-2000s is associated with external deficits in 2008: