An interesting analysis via Freakonomics, comparing social welfare payments in the US to those in Nordic countries.

The Nordic countries collect income taxes on the cash payments made to social welfare recipients at rates that are four to five times the rates paid by American recipients.  Then when the Nordic recipients go out to make purchases, they pay consumption tax rates on their purchases that are 4 to 5 times the rate paid by the poor in America.  Furthermore, the U.S. government offers a series of tax breaks to promote social welfare that are not found in the Nordic countries.

The difference between the U.S. and the Nordic countries is closed further when expenditures per total population are considered. … If the adjustments for purchasing power are correct, net public social expenditures by government in America in 2003 ranked roughly in the middle of the Nordic countries.  Per capita net public social welfare spending in 2003 (in 1990 dollars) in the U.S. was $5,400, while Sweden’s was $6,300, Norway’s $5,900, Denmark’s $5,472, and Finland’s $4,200.

Americans have more opportunity to reach higher incomes because Americans in the upper half of the distribution have much higher incomes than Nordic people in the upper half of their income distributions.  On the other hand, households below the 10th percentile in America fare much worse on average than the lowest group in the Nordic countries.  Despite a large array of poverty programs, people in the U.S. are falling through holes in the safety net.

Nevertheless, it is undeniable that there is more income inequality in the US.  But the study seems to suggest that a high Gini coefficient in the US might have just as much to do with the prevalence of high income earners, as it does with the occurrence of low income earners.

What would be more interesting to see, is whether the differences in redistribution model have an effect on lifetime mobility.  I would imagine that a high marginal tax rate over still relatively low incomes – which is the norm in Nordic countries, will dissuade people from leaving all the welfare benefits behind and enter, or re-enter the labour force.

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From the Economist, on three factors that sets the British apart from its continental cousins.

One, a history of trading (as opposed to French farming, for example), common law system, and early industrialization.

Historians describe the English (more than the British) as unusually individualist and market-minded since medieval times, working for wages and trading property. England has had a central system of common law for centuries. It industrialised early. It has not been occupied in a long while. All this matters.

Two, the fact that the British has other options – part geography, part history.

These are all reasons why the British are different. Why, though, is Britain unique? The Nordics are free-traders who joined late and believe their national standards to be higher than Europe’s. Lots of east Europeans look to America for their security. Germany and Austria have their own Brussels-bashing tabloids. Sweden and Denmark both declined to join the euro.

The difference is that, although many of the others dislike aspects of the EU, they feel they have no real alternative. On many fronts, the British think they do. If a common EU foreign policy fails, Britain is still on the UN Security Council. If the euro collapses, Britain has the pound. Should EU regulation get too burdensome, there is always the chance of opt-outs.

Three, Britain does not share in the collective defeatist sentiment from WWII (except for the imperial decline part) as those on the continent.

To de Gaulle’s generation, the EU was a solution to the “German problem”, above all. Yet the post-war cry of “never again” resounds less in Britain. But it matters greatly that, almost uniquely in Europe, the second world war is a positive memory in Britain—and that Britain has not been invaded for centuries.

But smugness and schadenfreude aside, few in even the most reactionary corner of the British press could deny that, like it or not, UK and the EU are stuck with each other for the foreseeable future.

The best part of blogging is when the world echoes back, and someone challenges me on my ideas.  The latest question came from a dear reader, Amit, on the post I did a while ago on women’s labour participation in the OECD, particularly that of Japan and the Netherlands.

I’ve edited our email exchange slightly for easier web consumption.

Amit says:

1) The use of “abysmal” suggests that there is a pre-posited ideal state. Why so? It remains unclear as to whether the US and Scandinavian experiences with bringing vast numbers of women into the workforce fulltime are “correct” in an absolute sense.

Elizabeth Warren points out in her analysis of the US middle class, that women in the US workforce are there not just because they “want” to be, but often because they “need” to be, to afford housing and consumption at levels conditioned by media/pop-culture. She shows how the debt burden has risen per family, consistently, to the point where a prole+/bourgeoisie family has no alternative but to post 2 incomes to afford its suburban house (to which schooling is tied).

The US does not frown upon “assisted childcare” to allow women to work fulltime, but it also does not provide such care (though Scandinavian states do). For a mom to work fulltime in the US, the family takes on an additional expense burden (that eats away further into that debt servicing cash flow) of nannies and playschools, and the angst of knowing that this type of care is unregulated, and is held to a standard only on a caveat emptor basis.

Why is the US model good? Most American women (of a bourgeoisie status anxious grad schooled variety) I know, feel severe pressure to work and retain the “victories” of feminism, despite the strain it brings to their nesting and breeding instincts.

2) The Atlantic this week features the “millennial response” to the hook up culture, see it if you have time, and juxtapose with the Japanese sub-20 aspiration

You say integration, I say delegation

by Dana on May 19, 2010

The question on everyone’s mind right now is the issue of how the EU can better monitor and regulate the fiscal health of its member states, given the historical and cultural back droppings of this diverse continent.  Most of the ideas point in the path of more fiscal and political integration.  Some are nothing but populist and reactionary rants. But fantasy or not, the intent is there.

So given such an astounding lack of creativity, it’s interesting to see ideas that suggest smarter, and not more integration.  It might require a large degree of tinkering to make it work, but this makes more sense to me than most rhetoric I come across.

In referring to proposals that have member states monitoring each other’s budgetary decisions:

It would clearly be anathema to the German government to have its spending and tax policies approved by France, let alone by Greece and Portugal. The problem for the EMU leadership is therefore to find a way to prevent excessive deficits while leaving member states free to shape their own spending and tax policies.

Instead of imposing such intrusive measures, a united continent of Europe can conceivably impose stricter constitutional measures within its member states – certainly ones that are part of the currency zone, that place limits on state deficits. The United States is held up as such am example.

Although the 50 states share a currency and each sets its own spending and tax policies, state deficits remain very low. Even California has a deficit of only about 1 percent of the state’s GDP and total general obligation debt of less than 4 percent of state GDP. The basic reason for these small deficits is that each state’s constitution prohibits borrowing for operating purposes. States can issue debt to finance infrastructure but not salaries, services, transfer payments or other operating expenses.

So far, most of the discussion over the Eurozone crisis has centered on the lack of economic feasibility of such currency union in a a non-optimal currency zone.  But the more interesting question we could’ve been asking all along is: whether the union in its current incarnation – having been achieved with much hand-wringing and backdoor dealings, in fact signals a progress of democratic ideals, or a regression of such.  That’s to say, were the ideals of a singular economic and political union a misguided exercise to start off with, and has the pursuit of such impossibility led everyone involved in precisely the opposite direction?

Ambrose Evan-Pritchard seems to think the EU has gone too far, if not from inception, but certainly the hard line behaviour it has engaged in the past few years.

In my view, the EU elites overstepped the line by ignoring the rejection of the European Constitution by French and Dutch voters, then pushing it through under the guise of the Lisbon Treaty without a popular vote, except in Ireland, and when Ireland voted ‘No’, to ignore that too. The enterprise has become illegitimate – it is starting to exhibit the reflexes of tyranny.

Slipping into tyranny and illegitimacy aside, the EU leadership also seems to have learned little from their predecessors the last century. The singled-mindedness in deficit reduction may very well push the entire zone into deflation.  And while Germany still harbours a collective paranoia of its hyperinflationary days, few seem to recollect that reinforced deflation was the root of the problem.

This is the Gold Bloc fallacy of Continental Europe from 1931 to 1936, the policy that led to Bruning’s destruction of Weimar, Laval’s near destruction of the Third Republic in France with his deflation decrees. It was a precursor to Laval’s fateful role as the Nazi enforcer of Vichy. He was later executed by firing squad, vomitting from a botched suicide with cynanide.

End of the day, standing on the other side of the Channel, this is a sober question to chew on.

As the Eurozone crisis rages on, the depth of analysis that goes behind the very construction of the union gets deeper.  This is my favourite today, a discussion on European national identities, and a lack of continental common identity.

For the past two centuries, the European obsession has been the nation. First, the Europeans tried to separate their own nations from the transnational dynastic empires that had treated European nations as mere possessions of the Hapsburg, Bourbon or Romanov families. The history of Europe since the French Revolution was the emergence and resistance of the nation-state. Both Nazi Germany and the Soviet Union attempted to create multinational states dominated by a single state. Both failed, and both were hated for the attempt.

There is a paradox in the European mindset. On the one hand, the recollection of the two world wars imbued Europeans with a deep mistrust of the national impulse. On the other hand, one of the reasons nationalism was distrusted was because of its tendency to make war on other nation-states and try to submerge their identities. Europe feared nationalism out of a very nationalist impulse.

Thus, the foregone conclusion on the other side of the Atlantic is that the Eurozone project has failed, as the very essence of the integration project worked against the cultural and historical backdrop on the continent.

The European Union is an association — at most an alliance — and not a transnational state. There was an idea of making it such a state, but that idea failed a while ago. As an alliance, it is a system of relationships among sovereign states. They participate in it to the extent that it suits their self-interest — or fail to participate when they please.

Lastly, check out the Viewsflow Daily Briefing, which has focused heavily on the Eurozone crisis for the past week.  Some samples here, here, here, and here. Check them out, sign up here, or follow it on Facebook here.

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Europe’s lingering hostility towards the market economy which sways from suspicion to outright resentment is rearing its head again, and has Tony Barber fuming.

One reason why the eurozone is sliding into ever deeper trouble is because its political and bureaucratic elites do not like, do not understand and have no wish to understand financial markets.

In the last few weeks, European leadership has alternately attacked everything from hedge funds, sovereign wealth funds, to now rating agencies.  On the surface, it might resemble same kind of populist outbursts American politicians served up on a plate when confronted with public outrage during the bail-out and ensuring bonus debate.  But in a European context, the public rage has been largely directed towards rising unemployment and prospects of potential cutbacks.  The leadership on the other hand, have been largely playing victims to the boogeyman that is financial market participants.

In the meantime, British and American analysts are racing to decipher the long-term implications of what took place over the last few weeks.

First stab: Germany is clearly emerging from its WWII guilt-ridden, Euro-centric, and multi-lateral stance, to a national psyche that is more focused on self-preservation.  It will have its fiscal sustainability, within or without the Eurozone.

Characteristically, one of the key terms of fiscal conservatism in Germany is borrowed from environmental politics: Nachhaltigkeit or sustainability. Unsustainable debts are associated rhetorically with a diffuse and contradictory bundle of future-angst – worries ranging from climate change to Germany’s declining population. Quirky it may be, but it would be wrong to deny that this eco-enhanced fiscal conservatism does have some grip on reality.

Secondly, part of the fiscal imbalance within the Eurozone itself, in which northern and southern Europe more or less mirror the financial co-dependence between China and the US, needs to be addressed.  Opinions differ as to just exactly what Germany’s options are, aside from its long-term pursuit of and export-led model, given its demographics and fiscal conservatism.

Links of the day, European edition

by Dana on May 3, 2010

1. On the difference between empiricists and philosophers, and the size of blunders they commit.

Most of the world seems to think that the Americans are the ones who do the crazy things, but it is really the Europeans who commit the colossal blunders. Americans are empiricists – they will try anything, but if it doesn’t work they stop doing it. Europeans are thinkers, philosophers. They theorize and analyze brilliantly creating castles in their minds, turning them over and over to perfect them. The tradition starts with Plato, then Machiavelli, and goes through Karl Marx, Nietzsche, and Pareto, to the creators of the euro. Every philosophy can be discredited. It is only when a concept works in the real world over time and is adjusted to fit changing circumstances – like Communism in China – that one can be sure of success. All empiricists know that the euro can not work as constructed, but the Euroleaders will destroy their economies, harming the Swiss as well, until they are forced from power.

2. On the problematic side of free education, of which the lack of standards naturally emerge as a side effect, as manifested in the Swedish educational experiment.

Yet the Swedish authorities’ own research has concluded that over the last fifteen years since the free schools were introduced, the number of low performing pupils has increased in Sweden, while the high performing pupils have neither increased in numbers nor have they become more successful.

The free school system, implemented without imposing clear standards, has seen schools opening with sub-standard facilities, often without libraries, and with a far greater number of unqualified teachers.

What’s more, the introduction of free schools has led to increased segregation where pupils from the same social background increasingly concentrate in certain attractive free schools.

This matters because segregation and poorer facilities serve no-one but the Conservatives seem to specifically think that these “freedoms” are positive aspects of the policy. This is a serious mistake.

I can’t say it better than what’s already been said below.  Outrage over Arizona’s new law that mandates citizens to carry IDs at all time has been the way of life in Europe for years.

In America (and really in the Anglo-Saxon world in general) there is a very different attitude toward national identification than in Europe. There is no national ID card in the US. In fact, many have argued that to require people to get such an ID would be unconstitutional. Several states are even challenging a 2005 federal initiative that would just harmonise the way state driving licenses are designed. Because there is no national ID most Americans use their driving license as identification.

This is pretty true.  In Canada, you can pretty much get away with a driver’s license plus your social insurance number card for the majority of your bureaucratic dealings with the government.

Contrast that with the Netherlands.  As a side note, although I give the country a hard time, I hardly think that goes on in this country is any more paternalistic and Big Brother-like than any of its continental neighbours.

Exhibit one: I had to register with the local government as soon as I enter the country to notify them of my presence.  And should I move, they must be notified at all times.  For us, address changes are made out of a sense economic necessity and convenience (you want to get your tax returns, insurance papers, bills and home-order catalogues), not government dictation.

Exhibit two: In order to verify my partnership status with my boyfriend to renew my residence permit, I had to provide a not-married certificate from Canada.  It was simply inconceivable to the Dutch government that we had no such document in Canada, since marriage is a provincial matter and not legislated federally.  With much resignation, I handed over 30 euros to the Canadian embassy for a piece of paper with zero significance, which they handed over with a wink.  This piece of paper was then taken to a Dutch bureaucratic counter for a 10 euro stamp to validate its meaningless authenticity.

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I’m cross-posting a pretty link-rich post from our corporate blog, in case you are interested in the Shanghai World Expo and want more info.

Short background: it’s a 6-month long extravaganza kicking off May 1st in Shanghai.  It’s  such a big deal inside the country that citizens of Shanghai are getting a few days off work as a way of clearing people off the street and channeling all resources into maintaining order and ensuring smooth running of the event.

All week here on Viewsflow, we are following the 2010 World Expo in China.

  • Flickr photostreams of various Pavilions are here, and the official Expo site introduces five themes of the exhibition.
  • Pavilion overview from ChinaSmack: Computer generated graphics of what various pavilions look like.  Walk through one, and walk through two.
  • Pictures of when trial runs turn away crowds courtesy of LostLaowai.

And don’t forget to follow our Twitter account as we update you with real time links all week on the Expo, and follow our Twitter Expo list too!

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Party’s over, everyone cut back now!

by Dana on April 26, 2010

Unless you live in an emerging economy where the recession hasn’t hit public finances, for the rest of us that are stuck on the wrong side of the divide, it’s cutback time baby!

In the US, public deficits are still tolerated on the backs of a still troubled economy and underlying optimism that when things turn around, the coffers will fill up again.  In Europe, there’s little room for such fantastically sanguine outlook.  From Club Med countries that are now forced to scale back, to Britain where deficit reduction debates as one of the driving issues of next week’s election, to the northern Calvinists and Lutherans where austerity is once again on the “in” word, public spending cuts is the inevitable future.

When public spending cuts took place in Canada back in the 90s, we had school strikes every other year, and public transit strike pretty much every single year.  Now the talks of cutbacks is happening again both in Canada – conservative, considering we’ve ran current account surpluses for the past 12 years, as well as here in the Netherlands.

Here are some of the ideas brain-stormed so far, the most contentious ones are the most universal – namely, healthcare and mortgage interest deduction.

Let me quickly go over both.

Healthcare reforms during the past decade have made healthcare a considerable cost in every family’s budget here in the Netherlands.  During the American health reform debates, the Dutch healthcare system was held up as the system to aspire to.  Coming from the land of universal (and more or less free) healthcare, I beg to differ.

In Canada (and to a lesser extent also in America), healthcare is a cost shared between the government and businesses that employ individuals.  Those of us from the system knows that a job is not a job unless it comes with “benefits”, which in my experience, includes coverage for all preventative and curative dental, optometrist and other rehabilitative care.  But all is not perfect.  In recent years, a number of provinces in Canada now require a yearly income-tested payment from its residents, at no more than a few hundred dollars a year.

Demise of Project Belgium?

by Dana on April 24, 2010

Belgium’s government dissolved, and the almost 200 years experiment of constructing two (maybe 3 if you count the German minority to) major linguistic groups – based on mutual resentment and suspicions, amongst other national interests of its neighbours, is on the brink of collapse.

This is hardly shocking.  The Belgians have gone without a government before, and the linguistic divide between the Flemish and the Walloons are well known.  I wrote about encroachment of Catholicism in Netherlands and the potential of a unified Flemish and Dutch state a while back.  And as far as Belgium background pieces go, it doesn’t get better than this.

What I do find interesting is the parallel between what is going on in Belgium and what is potentially in store for the EU in the foreseeable future.  Consider this piece from the Telegraph three years ago.  Obviously written from a rather euro-skeptic point of view, but worth looking at nevertheless.

Belgium functions – or malfunctions – on the same basis as the EU. There is no Belgian language, no Belgian culture, precious little Belgian history.

As the winner of June’s election, Yves Leterme, has put it, Belgium resides in the king, the football team and some beers. To paraphrase René Magritte (one of the few unquestionably famous Belgians): “Ceci n’est pas une nation”.

Unable to appeal to a shared identity, the fledgeling Belgian government had to buy people’s loyalty though massive public works schemes. Every state institution was dragged into the racket: the trade unions, the nationalised enterprises, the social security networks.

Belgium, in short, became a microcosm of what the EU is becoming: a mechanism for the arbitrary reallocation of money.

Is the same happening within the EU experiment? Substitute northern Flanders for the northern constituents of the EU, and Walloons in the south for the southern and eastern constituents of the EU, do you get a comparable situation in the EU?

Belgium is failing because there are no real Belgians, just as there are no real Europeans. Rather, there are discrete peoples, with their own languages, television stations and political parties.

Europe has a plan

by Dana on April 19, 2010

Long-term economic planning is not limited to the former USSR and China.  Every country has one, and here is Europe’s version of it.

As it is everywhere else, “competitiveness” is on people’s mind.

The Lisbon agenda, the predecessor to the EU 2020 strategy that targeted Europe as the most competitive economy in the world by 2010, was a confused strategy with conflicting ambitions that silently left the centre of EU politics long before the crisis started.

Only the childishly innocent think it will be different this time. The 2020 strategy has fired up the chattering classes in Brussels. It panders to those who believe governments can steer economies to growth and that the solution to every economic problem in Europe is stronger harmonization of policy.

But despite reductionist pandering, the last 10-year-plan didn’t quite go as planned, and little has changed since then.  Again, its singled-minded insistence of an imaginarily uniform market neglect the realities of internal competition within the region.

[T]he belief that one central strategy can fit the entire EU, with 27 disparate economies of different profiles and reform requirements, borders to a mentality of economic planning that can only do damage to ambitions of growth.

The second issue is assessing just exactly what Europe should be competitive in.

The 2020 strategy gives voice to a vexing conception of competitiveness that lately has been growing in Europe: the perception that competitiveness means global commercial dominance in all sectors.  It is a perception that feasts on fear – a fear similar to the transatlantic doomsday notion in the 1980s that held that Japan would out-compete Europe and the United States. This time it is China, emerging markets and other fast-growers that represent the outside threat.

Now it motivates a program that aims at beefing up the competitiveness of the agricultural, industrial (heavy, light and advanced) and services sectors – of all production in Europe. In Europe’s 2020 paradigm that involves a return of industrial policy activism – the belief that governments can “pick winners” by writing cheques to coddled sectors.

Have you had the pleasure of witnessing, whether in real life or on TV, of European soccer (football) hooligan rants and violence?  To me, the sight of black riot vans, police armed with riot gear with horses and dogs is an essential part of the game.

A few days ago, local government officials in both Amsterdam and Rotterdam openly discussed whether they had the will to hold those expected games in April at all, citing fears of rabid fan clashes, and the exhaustive efforts involved in dispatching the police force.

During the last decade, the damage caused by rival team fans have been so large, that all over Europe, and more specifically here in the Netherlands, that a concerted and very public effort has been made by the government, police force, and football teams to contain and control crowd violence.

Nowadays, all those tagged as hooligans are registered with the police, whom must report their whereabouts at game times.  At game times, the clubs are responsible for transporting their fans either through shuttle buses or special trains, so as to avoid contact with the general public.  Additionally, cities have invested considerable amounts in constructing specific walkways/tunnels that lead fans directly from their mode of transportation to the arena, so as to avoid contact with fans from the home team (check out the video below, it is pretty insane).  The stadium is also blocked in sections so as to segregate fanatical supporters of each side from the general public.

But this game now underway between old-time rivals, Amsterdam Ajax and Rotterdam Feyenoord, which have caused large-scale damage, and even death, not too long ago, has the cities worried again.

Fears of large-scale hooliganism have been prompted by campaigns on the websites of hardcore Ajax fans, who are threatening “to flatten Rotterdam again”. The port city was bombed by the Germans in 1940, and a chilling picture of the flattened city centre has been posted to illustrate the threat. Calls to go rioting have also been posted on Feyenoord fansites.

Healthcare fallout happening everywhere

by Dana on April 12, 2010

I don’t normally write about Canada, usually because it is always blissfully uneventful back home.  But it looks as though I missed out on a couple of pieces of news the past week that might have suggest almost certain changes in the Canadian healthcare system for the foreseeable future (h/t to my mom!).

First off, facing steep demographic declines and consecutively higher spending on health care for the past decades, the government of Quebec has proposed a $25-per-visit charge for doctor’s visit.

While I am not all that familiar with Quebec’s health-care system, as each province has the mandate to run its own, the concept of paying (somewhat) for healthcare is no longer new to the rest of the country.  A number of provinces, including Ontario, for the past few years, has put in place an income-based healthcare contribution, usually paid at tax times.  The amount is income-tested, and does not exceeds more than a few hundred dollars even for the richest.  However, the idea of a per-visit co-pay rings a bit too American to most Canadians, but that’s really the least of our worries here.

What it does signify is a shift in practice from the ideals of universal healthcare, so troubling to some that some claim it contravene the Canada Health Act.  Whether that will be challenged in a court of law once the law comes into place is still to be seen.  But what the proposals do reflect is the economic realities of our times – more pensioners supported by a healthcare system buckling under its weight.

The rest of the country is watching this development with keen interest and little smugness, knowing fully well that despite appearance of healthy budgets, we are all going down that road of re-visiting the feasibility of free health care, with Quebec leading the pack.

The second piece of news has to do with the Ontario government’s attempt to cut the price of generic drugs sold in the province, by eliminating a middle-men fee between the generic drug makers and the pharmacies.