April 30, 2007

New insight into public spending (or lack of it).

It is common knowledge that the US spends less on public welfare programs than many of the advanced countries in Europe. As a fraction of national income, US spends a third less than Italy, France or Belgium, and half as much as Sweden. Public welfare programs include health, unemployment benefits, social security etc. It is widely assumed that the reason is a stronger libertarian current in American way of thinking and the consequent suspicion of government's ability to do things.

It is impossible to deny this, but there appears to be another reason which is quite interesting. As this article in NYT details, there is a growing body of research suggesting that a major reason for American skepticism of welfare is its rich diversity.

The basic idea is simple enough: one is less likely to be willing to give money for the benefit of "others". This is further supported by the fact that Americans contribute much more than other countries for private charity. That is, Americans are more willing to give money away to specific beneficiaries. One example cited in the article is the following.

In a 1997 study, [the authors] looked at the relationship between social spending and ethnic diversity in 2,700 cities, counties and metropolitan areas across the United States.

They found that in more diverse cities and counties, the share of local government spending on public goods — in this case, roads, sewage treatment, trash clearance and education — was generally lower than it was in more homogeneous localities. “Our results are consistent with the idea that white majorities vote to reduce the supply of productive public goods as the share of blacks and other minorities increases,” they wrote.

Another study calculates that about half the discrepancy between American and European public spending can be attributed to "America’s more varied racial and ethnic mix".

This is a really interesting idea. At one level, this reveals the efficacy of democratic politics in these advanced countries. A majority of the citizens can, it seems, influence these decisions, which is what a democracy strives to do.

Comparison with India is irresistible. Surely India is diverse in more significant ways. But we were never half-hearted when it came to public spending. The interventionist impulse of Indian politics was way too strong, I suppose, for this factor to have any influence.


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