Child Poverty Across Political Traditions

One of the funnier things about economic discourse among the chattering classes is the opportunistic way in which people appeal to "institutions," meaning the rules and policies that comprise a country's economic system. When the discussion is about why some countries have developed economies at the technological frontier while others do not, it's always: institutions, institutions, institutions. When the discussion turns to why some countries have more equal income/wealth distributions and less poverty, institutions hardly get a mention. Instead, we are directed to look at the personal inferiority and behavior of the poor and let that explain it.

This is inconsistent on the rhetorical level, but it's not ultimately inconsistent. In both cases, the point is to promote liberal market institutions (meaning market institutions more laissez-faire in nature) no matter what. When it comes to developing economies, liberal market advocates feel (rightly or wrongly) that they have a good case to make for their liberal market preferences, and so they are happy to talk about institutions when that topic arises. When it comes to inequality and poverty reduction within developed countries, liberal market institutions do not look very promising. Thus, in the the case of distribution, institutional explanations get short shrift.

With the rise of just-the-facts data wonks who go wherever the information leads them, you might think this would change. But it hasn't. Even when the topic of economic inequality has gone red hot, the best commentators have to offer is myopic looks inside the U.S. in which the goal is to separate out poor from non-poor and find correlations.

This is unfortunate because, if you actually do cross-country comparisons (for which there is substantial data these days), the institutional explanations for why some countries have better distributive outcomes than others are extremely well-supported. If you take a taxonomy of countries split up by their political traditions (or perhaps more specifically the kinds of economic institutions promoted by those traditions) and map them against various distributive indicators, the same pattern emerges again and again. The so-called social democratic countries (which feature high tax levels, high transfers, and robust social welfare states) are the most equal. Continental market economies (with more socially conservative and Christian democratic traditions) are in second place. And liberal market societies bring up the rear. (The European ex-dictatorships seem to be oddballs of sorts).

For example, here is a chart with the relative child poverty rates of various countries, broken up by their political-economic institutional traditions (the taxonomy for which comes from this paper).

The liberal market economies, which consist of the Anglo-derived countries and Japan, are always tanking at the bottom on all things inequality, material security, and poverty. The child poverty figures here even seem to understate it somewhat as the UK's 9.8 percent rate in 2010 is an anomaly. Normally, it's in the 12 to 16 percent range.

Why the countries with the social democratic traditions do so much better on these metrics is so straightforward that, again, you wonder where the data journalists are on this. In the case of how they keep child poverty in check, Austria, Denmark, Finland, Norway, Sweden all have robust family benefit programs in which they give parents with children a bunch of extra income. Iceland, which is not included in the list above but also has very low child poverty, does the same thing.

Meanwhile, in Anglo-economy America, we have piddling levels of family benefits, and the benefits we do have are specifically designed to partially or fully exclude poor families. Even efforts branded as populist that are premised upon jacking up benefits to families are cruelly designed so as to exclude poor families.

Figuring out why some countries are more equal than others isn't hard. Economic institutions play the dominant role.