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]

[I'm taking a break from blogging over the holidays, and recycling some earlier posts. This one was first published on February 8, 2006.]

Comments

[Doc Merlin]

Any attempts at local forced altruism in a highly mobile people group will result in an exodus towards less expensive areas by those who do the majority of the earning. This has been the experience in the United States and is becoming also the experience in Europe now that the EU has made travel and work across borders much easier.

I don't think racial homogeneity had anything to do with the "success" of the nordic countries at establishing a powerful welfare state. In the case of Norway the answer was with oil, Norway as one of the third largest oil exporter (per capita and total) in the world. It exports 718.485 barrels a day per 1,000 people (From Nationmaster). As the state in Norway owns the oil, this means that the country can fund an extremely generous welfare state. The other states near it can reap the benefits of this by selling products to the Norwegians.

[Kyle O]

If you're into some philosophy about the composition of Canadian society and how the USA model may or may not translate up here I would suggest John Ralston Saul's A Fair Country.

Biased of course, but make an interesting argument.

[asp]

Except the real poor in Canada are the natives. And non of the immigrant races want to share with them! We came, we conquered, we'll be damned if we are going let "them" in on the game.

[seaandthemountains]

I think two things are key re the Canadian experience:

1) As others have suggested the biggest key re ethnic-based redistribution in Canada. You should check out some polling etc., there is more opposition to this then you might think. A lot more. (which is not to say that some 'smart' proposals could not help to alleviate that).

2) I think it also depends on how wide the margins we are talking about. I live in TO, in the vast majority of service-industry type places I go (coffee shop, retail), the overwhelming majority - like at least 75% i think - those relatively low-wage earners are visible minorities. To some degree that is about the demographic makeup. to some degree it isn't. are we talking about that? or just the widest relative disparities? i think it matters.

But your overall point is a good one. we have done little to consider the types of policies that could encourage more equitable redistribution and what would build support for it. these are excellent questions!

[Frances Woolley]

I think I remember Steve arguing a little while ago that redistribution occurred primarily through the expenditure side of the budget (transfers, universal programs such as health and education etc).

Arguably, homogeneous communities will find it much easier to agree to publicly provide goods and services. Think of small-town Quebec portrayed in stories like "the hockey sweater". Life revolved around the community rink; everybody(or, more accurately, every male) played. It's easy to build a consensus around providing a community hockey rink. However if some people play hockey, other soccer, others basketball, others cricket, it's hard to agree upon which facilities to provide publicly. But without public provision, there is less redistribution.

The same arguments can be made for lots of other things governments do - education (why should I pay for public education when I want my child to be educated in my own language/religion?), pensions (why should I pay for public pensions when in my community children care for their elders?), childcare, etc.

I don't know what's going to happen in Canada over the next 20 to 30 years. But I do think culture matters, so things will change as a result of immigration.

And as a result of the decline in the relative importance (population wise) of Quebec - where corporatist or social democratic values have often found relatively more support (think $7/day childcare etc).

[Mick Marrs]

Since the majority of the immigration into Canada for the last 20 years and the foreseeable future is from large socially uncohesive countries (Pakistan, India, Phllipines, China) I don't think there will be a bright future for reduction in income inequality or a increase in social cohesiveness.

I see a large disparity in the values goals of cities like toronto and vancouver and the rest of Canada.