The key conclusion of my Would Democratic Socialism Be Better? book is that capitalism — particularly its social democratic version — has performed better than many socialists seem to think on many of the outcomes they say they care about. That includes poverty, the quantity and quality of jobs, economic growth, middle-class income growth, the provision of public goods and services, health, democracy in politics, gender equality, and community.

Over at Crooked Timber, John Quiggin suggests (here and here) we could do better by replacing large private companies with public ones in utilities, finance, education, healthcare, energy, manufacturing, and information technology. In the United States this would increase public employment from around 15% of total employment to perhaps 50%.

John’s view is that more public ownership would reduce economic inequality with little, if any, loss in economic performance. This seems a very plausible hypothesis. What kinds of things would we expect to see if it were true?

One, which John points to, is the over-time pattern in the rich democratic nations. The several decades following World War II are commonly viewed as the period in which public ownership reached its height, before declining during the neoliberal era that began around 1980. This seems to fit with the shifts in income inequality and wealth inequality. Both were lower in the first of these two periods and higher in the second. Unfortunately, for most of these countries we don’t, to my knowledge, have good data on public employment or output that go very far back in time.

What about comparing across countries? We would expect nations with more public ownership to have less inequality of income and wealth. The OECD has public employment data beginning in 2007. The horizontal axis in figures 1 and 2 shows the public employment average for each country in the years 2007-2019. There’s a good bit of variation. Japan, South Korea, Switzerland, and Germany are at the low end with public employment at around 10% or less, and Norway, Denmark, and Sweden are at the high end with 30%. In figure 1 the vertical axis has a measure of income inequality, and in figure 2 it has a measure of wealth inequality. Neither chart offers any support for the hypothesis that public employment reduces economic inequality.

Figure 1. Public employment and income inequality across countries
Average for the years 2007-19. Income inequality: top 1%’s share of income. Pretax income. Excludes capital gains. Data source: World Inequality Database. Public employment: government employment as a share of total employment. Data source: OECD, Government at a Glance Database. Public employment data are missing for Australia and New Zealand. “Aus” is Austria. The line is a linear regression line.

Figure 2. Public employment and wealth inequality across countries
Average for the years 2007-19. Wealth inequality: top 1%’s share of wealth. Data source: OECD, Wealth Distribution Database. Public employment: government employment as a share of total employment. Data source: OECD, Government at a Glance Database. Public employment data are missing for Australia and New Zealand. Wealth distribution data are missing for South Korea and Switzerland. “Aus” is Austria. The line is a linear regression line.

Let’s return to the over-time story, because some countries do have a lengthy data series for public employment. One is the United States. Figure 3 again shows public employment on the horizontal axis and income inequality on the vertical. This time the data points are years. I’ve drawn two lines through the data points: one for 1946-1979 and the other for 1980-2018. In the first period, we see the expected downward slope — public employment is increasing and income inequality is decreasing. However, there were a number of other causes of the decline in top-end income inequality during those years, including union strength, a stakeholder-oriented corporate governance orientation, and high income tax rates.

In the second period we again see the predicted downward slope. Here public employment is falling and income inequality is rising. However, the magnitude of the implied causal effect is implausible. Public employment decreases by just a few percentage points while the share of income going to the top 1% jumps from 11% to 21%. Here too social scientists tend to agree that other developments — globalization, technological change, a shift to “shareholder value” corporate governance, financialization, and union decline — were the key contributors to the rise in inequality.

Figure 3. Public employment and income inequality in the United States
The data points are years. Income inequality: top 1%’s share of income. Pretax income. Excludes capital gains. Data source: World Inequality Database. Public employment: government employment as a share of total employment. Data source: FRED database, series usgovt and payems. The lines are linear regression lines for 1946-79 and 1980-2018.

Figure 4 is a similar plot with data for Denmark. As in the United States, we see a downward slope for the post-WW2 era. But once again we know there were other contributing factors that likely played a more prominent causal role. After 1980 the pattern runs in the wrong direction; public employment has continued to rise, yet income inequality has increased.

Figure 4. Public employment and income inequality in Denmark
The data points are years. Income inequality: top 1%’s share of income. Pretax income. Excludes capital gains. Data source: World Inequality Database. Public employment: government employment as a share of total employment. Data source: Henrik Christoffersen, Michelle Beyeler, Reiner Eichenberger, Peter Nannestad, and Martin Paldam, The Good Society: A Comparative Study of Denmark and Switzerland, Springer, 2014, p. 255, using data from Statistics Denmark. The lines are linear regression lines for 1946-79 and 1980-2012.

This simple data check suggests there might be something to the notion that public employment matters for income inequality. But it also offers substantial grounds for skepticism.

It could be that differences in public ownership at or below 30% of total employment don’t have much impact on economic inequality but moving to 50%, as John proposes, would. But why, exactly?

There is the additional question of whether reducing economic inequality should be high on our list of priorities. In a society where many of life’s core needs — housing, childcare, schooling, healthcare, a job, retirement income, eldercare, and more — are assured by government programs, inequality might not cause much consternation. I think we see this in today’s Nordic countries, which have comparatively high levels of wealth inequality but also enviable quality of life and high subjective well-being.

I’m not averse to more public ownership if it will yield better outcomes. But at the moment I don’t see compelling evidence or reasoning to support the case.