Ethnic diversity and the Nordic model

There seems to be a consensus of opinion on the Nordic model around two points:

1. It's admirable.
2. It can't be exported to countries that aren't as small and ethnically homogeneous as the Nordic countries.

In a recent interview in the New Perspectives Quarterly (h/t to New Economist's very helpful series on the Nordic model), Milton Friedman summarises the argument in this way:

Gardels: Perhaps the Scandinavian countries are a model to look at. They are high-tax but also high-employment societies. And they have freed up their labor markets much more than in Italy, France or Germany.

Friedman: Though it is not as true now as it used to be with the influx of immigration, the Scandinavian countries have a very small, homogeneous population. That enables them to get away with a good deal they couldn’t otherwise get away with.

What works for Sweden wouldn’t work for France of Germany or Italy. In a small state, you can reach outside for many of your activities. In a homogeneous culture, they are willing to pay higher taxes in order to achieve commonly held goals. But “common goals” are much harder to come by in larger, more heterogeneous populations.

That sounds reasonable, and Friedman may well be right. And it would appear that there are reasons to believe that the Nordic model can't be applied to the US in the near future. But it's less clear that those reasons apply to Canada, notwithstanding the fact that we are far from being ethnically homogeneous.

There's a very useful paper by Alberto Alesina, Edward Glaeser and Bruce Sacerdote: Why Doesn't the US Have a European-Style Welfare System?. Here's the abstract:

European countries are much more generous to the poor relative to the US level of generosity. Economic models suggest that redistribution is a function of the variance and skewness of the pre-tax income distribution, the volatility of income (perhaps because of trade shocks), the social costs of taxation and the expected income mobility of the median voter. None of these factors appear to explain the differences between the US and Europe. Instead, the differences appear to be the result of racial heterogeneity in the US and American political institutions. Racial animosity in the US makes redistribution to the poor, who are disproportionately black, unappealing to many voters. American political institutions limited the growth of a socialist party, and more generally limited the political power of the poor.

So if a higher level of altruism - call it solidarity or a sense of community, if you prefer - increases the likelihood that a country will adopt redistributive policies, what determines altruism? Since their focus is the US, the obvious place to look is the extensive literature on racial fragmentation in the US, and the conclusions aren't promising:

Since minorities are highly over-represented amongst the poorest Americans, any income-based redistribution measures will redistribute particularly to minorities. The opponents of redistribution have regularly used race based rhetoric to fight left-wing policies...

Racial differences between the poor and non-poor in the US will tend to create the perception of the poor as “other” in the US, but geographic or social isolation might do this as well. If the poor in the US are more geographically or socially isolated, this might create a situation where non-poor Americans have little sympathy for the poor. Furthermore, as Lipset (1996) noted, (page 133) several polls suggest that a large majority of white American, believe that African Americans would be as wealthy as whites if they tried hard enough.

Hard evidence on the importance of race and in-group status in the support for welfare corroborates these anecdotes. Luttmer (2001) looks at support for welfare in the General Social Survey in the US. He finds that support for welfare is higher among people who live near to many welfare recipients who are of the same race. This confirms the idea that geographic isolation from the poor may lead Americans to think of them as member of some out-group.

Conversely, support for welfare is lower among people who live near welfare recipients who are of a different race. The difference between within race and across race effects seems to mean that people have a negative, hostile reaction when they see welfare recipients who are of a different race and a sympathetic reaction when they see welfare recipients who are of their own race.

Their analysis is convincing, albeit somewhat depressing. But I'm less convinced about how the US experience can be extended to make conclusions about Canada.

The obvious place to start is ethnic homogeneity. I'm hardly an expert on these matters, but my - possibly naive - impression is that redistribution from rich to poor would not be perceived as being primarily a transfer from one ethnic group to another. Toronto and Vancouver are probably the most multicultural cities on the planet, and they seem to make it work pretty well. I'm not saying that life in Canada is a never-ending United Colours of Benetton commercial, or that there aren't real problems (eg: the First Nations). But I don't think racial animosity - the sense that only "the others" will benefit - is strong enough to doom to failure any attempt to implement more redistributive policies.

Unfortunately, there's another, possibly more potent obstacle. An important source of division in Canada is the regional cleavages that go along with having too much geography - and it's not just limited to Quebec. Bashing other provinces is a time-honoured tradition in Canada, and no-one seems to see the point in being subtle about it, either. When an election is going badly near the end of a campaign, desperate Canadian politicians don't reach for the race card: they point to their opponent's province of origin, and hope that everyone else will recoil in horror ("A Prime Minister from Alberta?!?").

But there's still hope. Canada's federal structure - and the fact that responsibility for most social programs lie with the provinces - mean that we don't have to build a coast-to-coast sense of altruism. We can still do it at the provincial level.

The standard counter-argument to this approach, of course, is the 'race-to-the-bottom' hypothesis. But I'll deal with that in another post.

[Update: see Federalism and the race to the bottom]

Comments

[Mandos]

Those quotes seem to suggest an ontological problem with the studies. It isn't ethnic diversity, it's the conditions under which the diversity came about, particularly in the USA. Because one population was once a slave population, there's still some latent mutual resentment. Let's get the causes straight here.

[Stephen Gordon]

That's sort of what I was thinking as well; the obvious follow-up question is 'why would ethnic diversity matter?' In the US, it's not hard to come up with a plausible answer to that, and it may well be that their history has irretrievably poisoned things there. But that doesn't mean it can't work elsewhere.

OTOH, I'm wary of playing the role of Clueless, Complacent White Guy. I'd be curious to know if there have been similar studies of racial antagonism in Canada, and what they say.

[Mandos]

Well, where I live in the US, there are two neighbouring counties that are very illustrative of the issue. There's a county that is mostly Black. The scutwork is disproportionately done by Hispanics. There's a county that's white and Asian. The scutwork is disproportionately done by black people. At least that's been my impression.

I haven't seen anything so stark in Canada, and I've been to a lot of places. However, our neglect of our Aboriginal populations may be the exception that proves your rule.

[mr_trudo]

What Milton Friedmann argued racial homogenity is the reason why the welfare state has only been successful in Nordic countries at one point actually partly convinced me into changing my vote, but I regret it now.

Canada has probably the most racially intergrated societies in the world. Anyone in an urban area socializes, goes to school and works with people on different ethnic backgrounds. Other than the Bloc, there are no race-dominated parties in Canada and even the Bloc is trying to be more ethnically diverse. The states, on the other hand, has a president with only 2% of blacks in approval. On economic equality, it's all races who are working low wages jobs and going to university so it's not immigration or racism that causes the most poverty. While Canada does have much poverty initially in immigration, it is clear most immigratant relatively quickly succeed with some immigratant communities doing better than the general population seemingly, using Brampton or Kanata as an example.

Canada does have race issues with aborginials much like or worse than the US with blacks but it represents a small part of the population and ignorance on the issue by much of the public is much to do with geographic distribution. Geographic distribution with recent suburban development might also be an issue as increasingly more people are sheltered by the less well off living and working solely in the suburbs.