Understanding the Social State
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- Authors: Emmanuel Saez
- Published: March 1, 2022
Growth of government and tax revenues
- The size of government, measured by the proportion of tax revenue to national income, increased from less than 10 percent at the beginning of the 20th century to levels between 30 percent and 50 percent by 1980.
- In France, Sweden, the United Kingdom, and the United States, the tax ratio was below 10 percent until World War I, increased until about the late 1970s, and remained largely stable thereafter.
- Country-level stabilization noted: France and Sweden stabilizing around 50 percent, the United States around 30 percent, and the United Kingdom around 40 percent.
What governments now provide: the social state
- The expansion of government over the 20th century was almost entirely due to growth in the social state, which provides:
- education and childcare support for the young,
- health care for the sick,
- retirement benefits for the old,
- income support programs for the disabled, the unemployed, and the poor.
- The social state extends to the full population quality education, health, and retirement support that previously only the elite could afford.
Human nature and the origins of socialization
- Standard economic models emphasize rational, self-interested individuals interacting through markets, implying private solutions (borrowing for education, private insurance for health care, private saving for retirement).
- The article argues these models are at odds with human social behavior: humans are social beings who act together within families, workplaces, communities, and nations and care about inequality.
- Evolutionary perspective: early hunter-gatherer societies provided community support for the young, sick, and elderly; modern social states mirror these deep evolutionary social interactions.
Effectiveness of social-state policies in reducing poverty and promoting development
- Mass education:
- Historically state-driven and the first pillar of the social state, developing as early as the 19th century in Prussia and the United States.
- Achieved through compulsory schooling and government funding because low- and moderate-income families cannot afford quality education.
- Provides opportunities for economic success to children from disadvantaged backgrounds.
- Health care:
- Modern health care is even more expensive than education in advanced economies.
- Universal health insurance largely funded by government has been the only successful way to provide quality care to all and has contributed to continuously rising longevity in richer countries.
- Retirement and income support:
- Individuals are not good at saving on their own for retirement or for temporary income losses.
- The social state organizes saving through taxes and corresponding retirement or unemployment benefits, reducing poverty in old age or during unemployment and receiving broad popular support.
- Market failures highlighted:
- Examples such as unbearable student loans and predatory for-profit schools in the United States illustrate markets and the profit motive working much worse for education.
Policy implications: “Backward logic” of standard economics
- Standard economics often worries about growth effects of large social states and incentive reductions from social programs.
- The article concludes that this logic is backward: the rise of large social states in the mid-20th century coincided with extraordinary and equitable growth in Western countries.
- Societies voluntarily reduced work for the young and the old via mass education and retirement benefits and reduced overwork through labor regulations.
International comparison and development risks
- Fast-developing economies such as China and India have experienced growth in the size of their governments relative to GDP, but it has not been nearly as large as in advanced economies (Chancel and others 2022).
- Implication: large segments of the populations in these countries may remain excluded from high-quality education, health care, and old-age support, hampering broad-based economic growth and widely shared economic well-being.
Source: Emmanuel Saez, F&D Magazine, March 2022.
Content in this bundle
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- Comprendre l’État social
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- Understanding the Social State
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