Wednesday, March 7, 2012

Trade-off or free lunch?

Not much blogging at the moment, in part because I'm writing a paper and need to focus on that. So, I'll blog about the paper. Here goes.

The paper is provisionally entitled 'Equality and Efficiency in Advanced Democracies: Revisiting the Leaky Bucket Hypothesis'. We (Mark Blyth, Seth Werfel and I) address Arthur Okun's classic book 'Equality and Efficiency: The Big Trade-off', which as the title suggests, argues that equality and efficiency are fundamentally in tension, with higher efficiency tending to imply higher inequality, and viceversa. We don't agree. A long tradition in comparative political economy suggests that not only is the trade-off not clearly visible in the data, but that the relationship may actually be the opposite, with equality and efficiency tending to move together (or 'trade in').

This paper is a follow-up to Hopkin and Blyth 2012, which just came out in the Review of International Political Economy. There we argued that rather than a straight trade-off, there is a curvilinear relationship between equality and efficiency across advanced countries: countries can combine efficiency and equality, inefficiency and inequality, or efficiency and inequality. So, for instance Northern European welfare states tend to have low inequality but also high levels of economic efficiency (what Peter Lindert calls a 'free lunch', in which equality doesn't have an apparent efficiency cost), whereas in English-speaking countries efficiency is combined with high inequality (a trade-off). Moreover, some countries, particularly the newer OECD members and the Southern European nations, manage to combine high inequality with low levels of efficiency (an expensive and lousy lunch?). In other words, there are a range of combinations to choose from, rather than a stark trade-off between equality and a good economy.

In the current paper we try to move beyond this in two ways. First, we use panel data to see whether our cross-sectional results hold over time. Second, we try to predict why increases in efficiency produce different effects in different cases. The results so far suggest that the three combinations seem to be present over time, that movements along the curve produce trade-ins and trade-offs, depending on the country's level of efficiency, and that we have a tentative explanation for why that is.

On which, more later...