THE POLITICAL ECONOMY OF SOCIAL POLICY AND THE WELFARE STATE
(The Theoretical Foundations)
Ivan Csaba
Fall, 1995
Department of Political Science
CENTRAL EUROPEAN UNIVERSITY


Course Description

The aim of the course is to introduce students into the analysis of public policies aiming to modify the primary distribution of resources or to provide specific services that are typically associated with the welfare state. The issues of social policy are often in the centre of heated ideological, political or economic debates. The intention is not to argue for a particular set of policies, but to present normative and positive arguments that seem to be the most useful in the assessment of specific institutional arrangements or welfare systems as a whole.

The first part of the course is designed to study the main approaches to the subject of social policy, that will be applied in the Winter trimester when looking at particular policy fields (i.e. income maintenance, public pensions, health, education, housing). The analysis of welfare policies is inherently of an interdisciplinary nature, which is reflected in the topics covered and the readings as well. The emphasis is given, however, to the interaction between politics and economy with the use of the analytical tools of economic theory (primarily microeconomics). While no particular background in economics is required for the successful completion of the course and the technical analysis typically does not go beyond graphical exploration, for better understanding participants with no previous economics education are advised to attend the crash course in microeconomic theory organised in the first teaching week.

Requirements and grading

Students are required to attend regularly the lectures and the seminars as well. For the active participation of seminars it is necessary to follow the core readings continuously. The participants will also be given the opportunity to give short presentations on selected works or topics. There will be two tests to assess the understanding of the material. In addition students are requested to submit an essay related to the topics covered by the course.

The final grade is based on the following weighting:
In class activity: 30%
Tests: 35%
Final essay: 35%

The Syllabus

The following topics will be discussed is the Fall trimester:

1-2. The Welfare State Development
(The origins of the welfare state; the Bismarckian social insurance reforms; the golden age, the 80s: crisis, reconstruction or contraction?)

3. Interpretations of the Welfare State
(Industrialization, modernization, politics based explanations and the social democratic hypothesis)

4. The Public Choice Approach
(The median voter theory and redistribution; Interest groups and rent-seeking, The role of the middle-classes)

5-6. Social Policy in Eastern and Central Europe
(Social policy under communism and in the period of the political and economic transition Comparative political economy; Economic transition and the fiscal crisis; Are radical welfare reforms feasible or desirable?)

7. The Problem of Distributive Justice
(An overview competing arguments; Pareto-equilibrium and equity; Procedures and end-state requirements, Equality of what?)

8. Definition and Measurement
(Social welfare functions; Definitions of poverty and inequality; Empirical findings)

9. Redistribution Analysis
(Measuring the incidence of tax and expenditure programs; The standard method, The problem of counter-factual; The Luxembourg Income Studies)

10. Economic Justifications of Public Welfare
(Market failures and state intervention in finance, regulation and provision; Meritocratic goods and caring externalities; Consumer choice or paternalism?)

11. Insurance Market Failures and Social Insurance
(The insurance principle; Efficiency conditions in insurance markets; Does Social Insurance improve efficiency?)

12. Economic Arguments Against the Welfare State
(Taxes and benefits: the problem of incentives; Public provision, non-price rationing and potential efficiency losses; The trade-off between equity and efficiency)


Reading list.

The core material of the course is covered by the obligatory reading list and by the lecture series. The recommended literature is for special interest and it is nor required for the examination. For non-technical readers alternative readings are suggested where it might be needed.

1-2.Welfare State Development
Required Readings:
Pierson,C. (1991): Beyond the Welfare State? pp. 102-132 and 159-178. Chapters 4 and 5: Origins and Development of the Welfare State; Contradiction and Crisis in the Developed Welfare State. Polity Press: Cambridge.
Recommended literature:
On expenditure trends and structure:
OECD (1985): Social Expenditure 1960 -1990, Paris
OECD (1994): New Orientations in Social Policy, Paris
Comparative history:
Flora,P. and A. J. Heidenheimer (1981): The Development of Welfare States in Europe and America, New Brunswick and London

3.Interpretations of the Welfare State
Required Readings:
Palme,J. (1990):Pension Rights in Welfare Capitalism. The Development of Old-Age Pensions in 18 OECD countries 1930 to 1985 : pp.1-13 Chapter I.: Approaches to the study of welfare state development. University of Stockholm, Swedish Institute for Social Research N.14
Flora,P. and J. Alber (1981): Modernization, Democratization and the Development of Welfare States in Western Europe, pp. 37-47. In: Flora,P. and A. J. Heidenheimer (1981) The Development of Welfare States in Europe and America, New Brunswick and London
Esping-Andersen, G (1990): The Three Worlds of Welfare Capitalism, pp.16-34. Chapter I.: The three political economies of the welfare state. Polity Press: Cambridge.
Pierson, C. (1991): Beyond the Welfare State? pp.41-61.Chapter 2: Capitalism, Social Democracy and the Welfare State II: Political Economy and the Welfare State. Polity Press: Cambridge.
Recommended literature:
Marshall, T. H.(1950): Citizenship and Social Class In: Marshall, T.H. and Bottomore (1992): Citizenship and Social Class, Pluto Press.
Hayek,F.A.(1960): The Constitution of Liberty, pp.253‹67, Chicago, The University of Chicago Press.
Offe,C. (1981): Some Contradictions of the Modem Welfare State pp. 147- 162. In: Offe,C. (1984): Contradictions of the Welfare State, MIT Press

4. The Public Choice Approach

Stigler, G.J. (1970): Director's Law of Public Income Distribution. Journal of Law and Economics, 13, pp.1-10.
Goodin R.E. and J. Le Grand (1987):Not Only the Poor; pp.203-18 (Chapter 10) Allen & Unwin: London.
An elementary introduction to Public Choice:
Stiglitz, J.E.(1988): Economics of the Public Sector, pp.145-177 Chapter 6.:Public Choice. Norton: New York.

5-6. Social Policy in Eastern and Central Europe
Required Readings:
Adam J. (1991): Social Contract pp.1-25. In: Adam J. (1991): Economic Reforms and Welfare Systems in the USSR, Poland and Hungary, McMillan.
Kornai, J. (1992): The Socialist System; pp.312-330. The chapter on Consumption and Distribution, OUP.
On the transitory period:
Barr, N and R.H. Harbison (1994): Overview: Hopes, Tears and Transformation, pp.1-25. in Barr, N. (1994): Labor Markets and Social Policy in Central and Eastern Europe, OUP.
Recommended literature:
Marx,K: "Critique of the Gotha Program", In: Ryan A. ed.(1993): Justice, OUP, pp.159-163.
Atkinson, A.B. and J. Micklewright (1992): Economic Transformation in Eastern Europe and the Distribution of Income, CUP.
Deacon, B. and Szalai J. ed. (1990): Social Policy in the New Eastern Europe, Avebury, Gower Publishing Company ,
Deacon B ed. (1992): Social Policy, Social Justice and Citizenship in Eastern Europe, Avebury, Gower Publishing Company
Ferge Zs. and Kolberg J.E.(1992): Social Policy in a Changing Europe, Campus: Frankfurt.

7. The Problem of Distributive Justice
Required Readings:
Barry Norman (1981): An Introduction To Modern Political Theory; pp.110-138. Chapter 6: Justice. St. Martin's: New York..
Musgrave, R.A. and P.B. Musgrave (1989): Public Finance in Theory and Practice, pp.73- 85. Chapter 6: Equity in Distribution. McGrew-Hill: London.
Recommended literature:
Ryan, A. ed.(1993): Justice, OUP. Chapters by J. Rawls, R. Nozick and F.A. Hayek.
Goodin, R.E. (1988): Reasons for Welfare: The Political Theory of the Welfare State. Chapter 6: "Dependency" Princeton University Press
Le Grand (1992): Equity and Choice. Harper-Collins

8. Definition and Measurement
Required Readings:
Barr, N. (1993):The Economics of the Welfare State, .132-162. Chapter 6: "Problems of Definition and Measurement." Weidenfeld & Nicolson
Ringen, S. (1987):The Possibility of Politics pp.l66-91. Chapter 8: Equality. Clarendon Press: Oxford.
Recommended literature:
Atkinson, A.B. and J. Micldewright (1992): The Distribution of Income in Eastern Europe, WSP/72, STICERD:London.
Sen, A. K. (1983):Poor Relatively Speaking and Townsend, P (1985) A Sociological Approach to the Measurement of Poverty: A Rejoinder to Professor Amartya Sen, Oxford Economic Papers Vol.35,Vol.37.

9. Redistribution Analysis
Required Readings:
Ringen S. (1987): The Possibility of Politics. Chapter 8: Equality; pp. 166-191. Oxford: Clarendon Press.
Recommended literature:
Smeeding, T., O'Higgins, M. and Rainwater, L., ed. (1990): Poverty, Inequality and Income Distribution in Comparative Perspective, Harvester Wheatsef: London.

10. Economic Justifications of Public Welfare

Required Readings:
Barr, N. (1993): The Economics of the Welfare State, pp.70-103. Chapter 4: Economic Theory 1: State Intervention. Weidenfeld & Nicolson.
Stiglitz, J. (1988): Economics of Public Sector, pp.61-90. Chapter 3: The Economic Rationale for State Intervention; London W.W. Norton: New York.
Recommended literature:
Barr, N. (1992): Economic Theory and the Welfare State: A Survey and Reinterpretation, Journal of Economic Literature, June
A non-technical alternative
Glennerster H (1992):Paying for Welfare - The 1990s, pp.15-30. Chapter 2: The Theoretical Basis for the State Funding of Services; Harvester, Weatsheaf

11. Social Insurance and Insurance Market Failure
Required Readings:
Barr, N. (1993): The Economics of the Welfare State, pp. 111-30. Chapter 5: Economic Theory2: Insurance. Weidenfeld & Nicolson.
Atkinson (1989): Private and Social Insurance, and the Contributory Principle, pp.20-44. In Barr,N. and D.Whynes (1993): Current Issues in the Economics of Welfare. MacMillan.
a. A non-technical alternative:
Stiglitz, J.E. (1989): Economics of the Public Sector, pp. 325-46. Chapter 13: Social Insurance. London W.W. Norton & Company

12. Economic Arguments Against the Welfare State
Required Readings:
Musgrave, R.A. and P.B. Musgrave (1989): Public Finance in Theory and Practice pp.297-313. Chapter 17: Taxation Effects on Capacity Output: A Supply Perspective
Okun, A.M. (1975): Equality and Inefficiency -The Big Tradeoff, pp.89-100. Chapter 4: Increasing Equality in an Efficient Economy. The Brookings Institution.
Recommended literature:
Friedman, M. and R. Friedman (1980): Free to Choose pp.118-59. Chapter 4: Cradle to Grave. Penguin: London




CRC-Curriculum Resource Center
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Modified: July, 1996

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