A discussion on Would Democratic Socialism Be Better?
Would public ownership be better? Response to John Quiggin
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.
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 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.
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.
Blurbs for “Would Democratic Socialism Be Better?”
“We are at a critical juncture and need to build new institutions for a fairer, more equitably shared, and environmentally less damaging economic growth. But how? Lane Kenworthy has been the leading proponent of social democratic institutions both in the US and around the world. This spirited and readable book develops the powerful argument that social democracy is much better for our future than both unregulated global capitalism and democratic socialism. It is a must-read for all of those who are worried about our current predicament.”
– Daron Acemoglu, Institute Professor, Massachusetts Institute of Technology
“A readable, sober, grounded, empirically-based, humane, and even hopeful presentation of social democratic capitalism. Even for the US!”
– Lawrence Mishel, Former President, Economic Policy Institute
“Lane Kenworthy has produced a briskly written and utterly convincing argument for the benefits of social democracy over an alternative socialist system that has never existed. His book is a splendid example of how what Michael Harrington called ‘the left wing of the possible’ has bettered the lives of tens of millions of people and has the potential to do so for billions more.”
– Michael Kazin, Professor of History, Georgetown University, and author of What It Took to Win: A History of the Democratic Party
“In a series of compelling books, Lane Kenworthy has convincingly argued that ‘social democratic capitalism,’ the Nordic model, delivers high levels of equality and social inclusion, low levels of poverty, high levels of employment, and a cleaner environment without sacrificing economic growth. In this book, Kenworthy carefully considers whether democratic socialism would be an even better alternative. He is skeptical, emphasizing the advantages of social democratic capitalism.”
– John D. Stephens, Lenski Professor of Political Science and Sociology, University of North Carolina
My new book: “Would Democratic Socialism Be Better?”
You can get it from Amazon, Barnes & Noble, Oxford University Press, and elsewhere. It’s available now in kindle and nook; the hard copy version will be out later this month.
The introductory chapter is online here.
Here is the opening and the table of contents:
Socialism is back in the conversation. In the United States, of all places, recent polls suggest the share of young people who have a favorable impression of socialism is about the same as the share that have a favorable view of capitalism. A self-described democratic socialist, Bernie Sanders, was runner-up in the Democratic Party’s presidential primary in 2016 and 2020. Think tanks and magazines devising plans for socialist policies and institutions have sprouted up. The New York Times and the Washington Post have each had an avowed socialist among their op-ed writers in recent years. Since 2016, membership in the Democratic Socialists of America (DSA) has jumped from a few thousand to nearly 100,000.
Is there a compelling case for socialism? Should we aspire to shift, in the reasonably near future, from a basically capitalist economy to a socialist one?
Let’s stipulate that socialism refers to an economy in which two-thirds or more of employment and output (GDP) is in firms that are owned by the government, citizens, or workers. Two-thirds is an arbitrary cutoff, but it’s as sensible as any other. It connotes a subsidiary role for the private non-worker-owned sector.
Since the Bolshevik revolution in Russia in 1917, much of the debate about socialism has focused on lessons that can be drawn from the experience of the former Soviet Union, Cuba, and other actually existing self-styled socialist countries. I will ignore this almost entirely. Because each of those cases featured an autocratic political system, they are of little or no relevance to most modern proposals for socialism. Similarly, while the contemporary Chinese model is attractive to some, my focus is on the kind of socialism currently desired by proponents in the world’s affluent democratic nations. That socialism presupposes a democratic political system. That socialism would be a democratic socialism.
Some of the debate over democratic socialism concerns goals. The case for democratic socialism typically is motivated by goals such as freedom, opportunity, democracy, equality, and solidarity, among others. While I have some quibbles — as I explain in later chapters, I think some attach too high a priority to economic equality and to a particular form of economic democracy — for the most part I endorse the outcomes democratic socialists say they want. The aim of this book isn’t to question those goals.
To offer a realistic alternative, socialism must be workable. Socialism’s proponents have put a good bit of effort into designing institutions and policies that might make a democratic socialist economy function effectively. I will draw on these proposals. In doing so I’ll assume they are in fact workable, though I’ll also emphasize that there is considerable uncertainty, since evidence is thin or nonexistent.
A potentially significant consideration in evaluating democratic socialism is the possibility of a “transition trough” — a steep and lengthy downturn in economic well-being during the shift from capitalism to socialism. There might indeed be a significant economic cost to transitioning if opponents stop investing or shift their assets to other countries. But maybe not. Perhaps the transition trough would be like an ordinary economic recession — painful but temporary. This too I will set aside.
My focus is on what has tended to be the centerpiece of the case for democratic socialism: the notion that capitalism is bad, or at least not very good. In reaching this conclusion, most have either analyzed a theoretical ideal-type of capitalism, as Karl Marx famously did in Capital, or used a single country, often the United States, as a stand-in for capitalism. To fully and fairly assess democratic socialism’s desirability, we need to compare it to the best version of capitalism that humans have devised: social democratic capitalism, or what is often called the Nordic model. I try in this book to offer such an assessment. My conclusion is that capitalism, and particularly social democratic capitalism, is better than many democratic socialists seem to think.
1. Is Capitalism Not Good Enough?
2. An End to Poverty in Rich Countries
3. An End to Poverty Everywhere
4. More Jobs
5. Decent Jobs
6. Faster Economic Growth
7. Inclusive Growth
8. More Public Goods and Services
9. Affordable Healthcare for All
10. Helpful Finance
11. Truly Democratic Politics
12. Economic Democracy
13. Less Economic Inequality
14. Gender and Racial Equality
15. More Community
16. A Livable Planet
17. Would Democratic Socialism Be Better Than Social Democratic Capitalism?
Two new discussions
- On social democratic capitalism, politics, and the left, with Steve Williamson
- On economic justice in post-pandemic America, with Oren Cass and Dan DiSalvo
Podcast with “The Politics Guys”
A discussion on Social Democratic Capitalism with Michael Baranowski.
Will the Covid-19 crisis expand America’s safety net?
My thoughts at Foreign Affairs.
Podcast with AEI’s Jim Pethokoukis
A discussion on Social Democratic Capitalism at Jim’s “Political Economy” podcast.
Social Democratic Capitalism: how to get it cheaper
If you’re interested in purchasing my new book, there are ways to pay less than the $27.95 list price:
- The kindle version is $9.99.
- The hardcover version at Amazon is currently $22.26.
- If ordering it from Oxford University Press, promotion code ASFLYQ6 will give you 30% off.
America has moved left in some important respects
What’s the best type of healthcare system?
If we’re going to improve our healthcare system, it’s worth looking closely at the experiences of other rich democratic countries. There are two principal types. They’re sometimes referred to as the Beveridge model and the Bismarck model. I’ll label them “single payer” and “insurance funds.”1
Single payer systems
In this type of system, the government pays providers (from tax revenues), decides prices, decides what procedures are covered, decides copayments, and more. It also runs some or most of the hospitals and employs some or most of the medical providers. The best-known example of this type of system is the United Kingdom’s National Health Service (NHS).
Health care is paid for via taxes. Britons don’t pay health insurance premiums. There are no copayments for diagnosis and treatment, whether for a visit to the doctor or specialized surgery. There is a small copayment for medicines, but it is waived for the elderly, people with chronic conditions, and other needy groups.
A government agency draws on available research to decide what treatments and medications are sufficiently effective and affordable to justify coverage. Some basic things, like eyeglasses and some types of dental care, aren’t covered. Patients must see their general practitioner first and get a referral in order to see a specialist, much like with HMOs in the United States. Patients can see any general practitioner of their choosing, and once they get a referral they can choose which specialist to see next.
How is cost control achieved? The key is that a single agency decides what tests, procedures, and medicines will be covered and how much providers will be paid. In addition, administrative costs are very low because there are no disputes about eligibility, there is a single set of rules, and there is a single price list.
General practitioners are paid based on the number of patients they have (“capitation”), not the number of patient visits or the number of tests and procedures they perform or the number of referrals they make to specialist doctors. Most general practitioners in the UK aren’t government employees. Formally, they are self-employed doctors who contract with the government. But this is a distinction that makes little difference, as what they can do and how much they can charge are determined by the NHS. Doctors can provide private medical care on the side, charging what they like. But the private market is utilized by a small minority of Britons; 90% use only the NHS for their health care.
Britons pay for health care via their taxes and some small copayments. And if they want to avoid waiting to see a specialist or for a “nonessential” procedure, or if they’d like to get a procedure that isn’t covered by the NHS, they pay out of pocket.
Among the world’s rich longstanding-democratic nations, Australia, Canada, Ireland, New Zealand, Italy, Portugal, Spain, Denmark, Finland, Norway, Sweden, and South Korea have healthcare systems that are broadly similar to the British one. The United States does too; about 40% of Americans get their health care via Medicare (elderly), Medicaid (low income), the Veterans Administration (former military), or the Military Health System (current military). So this is the type of system favored by the English-speaking nations, the southern European countries, the Nordic countries, and most recently South Korea.
There are differences among these countries — whether or not medical providers are formally government employees, what tests and procedures are covered (two out of three nonelderly Canadians have private insurance to supplement the government package), whether patients must see a primary-care physician first or can go straight to a specialist, how much choice patients have about doctors and hospitals, the existence and size of copayments and deductibles, whether the key decisions are made mostly by a central government agency (UK) or by local governments (Canada, Denmark, Italy, Sweden), whether private health insurance can cover the same procedures as the public system (in Canada and Italy it can’t), and more. But the basic structure is the same: government decides what tests, procedures, and medicines are covered, how much providers are paid, and where the money comes from (taxes, copayments, something else).
In this type of system, these matters are political decisions. If citizens aren’t satisfied with their access to medical care, with its quality, with waiting times, or with the amount of taxes they’re paying to fund it, they can lobby the government to make changes or vote in a new government that will do so.
Insurance funds systems
Austria, Belgium, France, Germany, Japan, Netherlands, and Switzerland — the affluent continental European nations plus Japan — organize healthcare differently. Health insurers, usually referred to as insurance funds, are the principal payers. Citizens pick an insurance fund and pay a fee, often supplemented by a payment from their employer. The insurance fund determines what tests, procedures, and medications will be covered. Hospitals and doctors are mostly nonprofit or private; relatively few are administered or employed by the government.
In this respect, things work similarly to the way they do for a majority of working-age Americans who get health insurance through an employer-sponsored plan and get treated by nonprofit or private physicians and hospitals. But there the similarity ends. First, everyone is covered. Individuals typically are required to purchase health insurance through an insurance fund, and those who don’t or can’t are either assigned to a fund or are covered by the government. The insurance funds must accept all applicants; they can’t refuse coverage on grounds of age, risk, preexisting conditions, or for any other reason. Second, there is a basic plan that all insurers must offer at a fixed price. Typically they also can offer better plans, which cover more services or allow more choice among doctors or shorter waits, at a higher price. Third, prices are tightly controlled. Sometimes, as in France and Japan, government sets the prices in consultation with representatives of hospitals and doctors. In other countries, such as Germany and the Netherlands, prices are determined, for the nation as a whole, via bargaining between representatives of the insurance funds and representatives of medical providers. If those negotiations break down, government steps in to impose a resolution. Fourth, insurance funds can’t be for-profit. (They do compete with one another, though.)
There are differences across these countries. The number of funds varies: France has about 15, Germany 120, Japan 3,400. People can choose to join whatever insurance fund they like in most of these nations, but in France they must go with the one set up for their line or work or the region where they live, and they stay with that fund for life, even if they move across the country or lose their job. Japanese must go with their employer’s fund. In some nations people can switch between funds on short notice (Germany, Switzerland), whereas in others switching can only be done once a year (Netherlands). In some countries patients can go to whatever doctor or hospital they like (France, Japan), while in others they must first see a primary-care physician. Copayments and deductibles vary. In some of these countries, lots of people purchase supplementary private insurance to cover things the insurance plan doesn’t (90% of the working-aged in France, 84% of the population in the Netherlands). In Germany, but not in most other countries, the affluent (about 7% of the population) are allowed to opt out of this system and purchase private insurance on their own.
Using employer payments as a major source of financing for health care seems outdated. In a society where people switch jobs frequently, it makes little sense for insurance against a potentially major and very costly risk to be tied to one’s employer. Moreover, providing health insurance is expensive for firms, putting them at a disadvantage relative to foreign competitors. And it likely acts as a brake on wage increases. Nevertheless, employer-based health insurance seems to work reasonably well in these insurance funds countries. An important reason why is that if people quit or lose their job, they are automatically kept with their existing insurance fund or switched into a government health insurance plan. And the cost of health care is contained, so it’s less of a burden for employers.
Which type of system works better?
Figure 1 shows average life expectancy since 1980 in the twelve rich democratic countries that have a single-payer system and the seven countries that have an insurance fund system.2 There is no meaningful difference between them.
Life expectancy is influenced not only by a nation’s healthcare system but also by lifestyle, diet, education, affluence, violence, and more. A measure that more directly gets at the impact of the healthcare system on longevity is “avoidable deaths,” defined as deaths among persons aged 0 to 74 from diseases or conditions that are treatable or that could have been prevented through better public health interventions. Comparable data are available only for European nations and only for recent years. This includes nine countries with a single-payer system (Denmark, Finland, Ireland, Italy, Norway, Portugal, Spain, Sweden, and the United Kingdom) and six countries with an insurance-funds system (Austria, Belgium, France, Germany, the Netherlands, and Switzerland). As we see in figure 2, the avoidable death rate is virtually identical across the two system types.
Figure 3 shows health expenditures as a share of GDP. Here we see a slight advantage for single-payer countries, and that advantage increases a bit over time. It may be that this is due to greater efficiency — for instance, lower administrative costs or less waste. Then again, it could be a result of political choices to cover fewer procedures or medications, which might result in longer wait times or less use of medical care. We lack data that would permit the sort of detailed comparison we need in order to reach a confident conclusion about the sources of this difference in health expenditures.
In 2013 and 2016, the Commonwealth Fund conducted thorough assessments of the healthcare systems of eleven of these countries. They included six countries with a single-payer system (Australia, Canada, New Zealand, Norway, Sweden, and the United Kingdom) and four with an insurance-funds system (France, Germany, the Netherlands, and Switzerland), along with the United States. They scored each nation in five areas — care process (preventive care, safe care, coordinated care, and engagement and patient preferences), access (affordability and timeliness), administrative efficiency, equity, and healthcare outcomes — and they used these scores to determine an overall ranking.
Figure 4 shows the countries’ ranking in each year along with the averages for the two groups. In 2013 the average rank for countries with a single-payer system was exactly the same as the average for countries with an insurance-funds system. In 2016 the average ranking was better for single-payer countries than for insurance-fund countries. But the difference was small — small enough that it easily could disappear if more nations from each group were included. It might also be a product of error; while these assessments are careful and thorough, that doesn’t mean they are perfectly accurate.
Given what we observe in the data, I see little, if any, basis for concluding that one of the two types of healthcare system works better than the other.
For the United States, transitioning to an insurance funds system would seem, at first glance, to be easier, because we could build on our existing employer-based provision of health insurance. But it would be no small matter. Insurers would need to shift from for-profit to nonprofit. Government would need to create a policy whereby the noninsured are assigned to an insurer or covered by a government program. Government would need to ensure that there is a basic plan that everyone can get. Prices paid to providers could be decided by negotiations between insurers, doctors, and hospitals, but government would need to be willing to step in and impose a decision if such negotiations fail to yield an agreement.
A transition to an American single-payer system could be done in one fell swoop, by expanding either Medicare or Medicaid to the entire population. Or it could be done gradually: lower the age at which Americans can get Medicare, raise the income limit for Medicaid eligibility, and add a Medicare-like program (“public option”) that individuals and families can purchase on health insurance exchanges and that firms can purchase for their employees. Or simply allow any employer or individual to buy into Medicaid or Medicare, with subsidies for those who need them. Eventually, much of the population would be covered by these public programs. This would achieve universal coverage, and the government, as the dominant payer, would be in a strong position to control healthcare costs.3
- The following draws heavily from T.R. Reid, The Healing of America: A Global Quest for Better, Cheaper, Fairer Health Care, Penguin, 2009; Elias Mossialos, Ana Djordjevic, Robin Osborn, and Dana Sarnak, eds., International Profiles of Health Care Systems, Commonwealth Fund, 2017. ↩
- South Korea isn’t included in the comparison here because it switched from one type of healthcare system to the other in 2000. ↩
- Jacob S. Hacker, “Stronger Policy, Stronger Politics,” The American Prospect, 2016; Hacker, “The Road to Medicare for Everyone,” The American Prospect, 2018; Dylan Matthews, “Donald Trump Promised ‘Insurance for Everybody’. Here’s How He Can Do It,” Vox, 2016; Sarah Kliff and Ezra Klein, “The Lessons of Obamacare,” Vox, 2017; Paul Starr, “The Next Progressive Health Agenda,” The American Prospect, 2017; Starr, “A New Strategy for Health Care,” The American Prospect, 2018; Michael S. Sparer, “Buying into Medicaid: A Viable Path for Universal Coverage,” The American Prospect, 2018. ↩
State tax levels and tax progressivity
In the United States, state and local governments collect a significant share of the taxes. These include consumption taxes (general sales taxes and specialized excise taxes), property taxes (taxes on homes, businesses, and motor vehicles), and income taxes (on individuals and businesses).
The Institute on Taxation and Economic Policy (ITEP) calculates average effective tax rates in each of the US states at various points along the pretax income distribution. As the charts below show, households pay, on average, about 10% of their income in state and local taxes.
State and local taxes tend to be regressive — people with higher incomes pay a smaller share of their pretax income in state and local taxes than do people with lower incomes. (For a good discussion, see Katherine Newman and Rourke O’Brien’s Taxing the Poor.) This is clearly visible in these charts. If the line for a state slopes up to the right, its tax system is progressive, If the line is flat, the tax system is proportional. If the line slopes down to the right, the tax system is regressive.
Sales taxes are almost always regressive, while income taxes tend to be progressive. In most states, the regressive impact of sales taxes outweighs the progressive effect of income taxes. And a handful of states don’t have income taxes.
ITEP calculates a progressivity index, measured as the degree to which state and local taxes make the distribution of income in a state more equal (progressive) or more unequal (regressive). If state and local taxes make a state’s income distribution more equal by more than 2.5%, I’ll call the tax system progressive. If they make the income distribution more unequal by more than 2.5%, I’ll call it regressive. If they change the income distribution in either direction by 2.5% or less, I’ll call the tax system proportional. By this measure, no state has a progressive tax system (California’s comes closest), 19 states have proportional systems (e.g., New York and New Jersey), and 32 have regressive systems (especially states with no income tax, such as Texas, Florida, and Washington).
My new book: Social Democratic Capitalism
It’s available today. The Oxford University Press and Amazon pages have the table of contents, blurbs, and more. You can read the first chapter online. Here is the opening:
For nations, as for individuals, it’s good to be rich. Affluent countries are more likely to be democratic, more likely to have government programs that cushion life’s bumps and boost the capabilities and well-being of the less fortunate, and more likely to prioritize personal liberty. Their citizens tend to be more secure, better educated, healthier, freer, and happier.
The world’s twenty or so rich democratic countries aren’t all alike, and they’ve changed a good bit over the past century. Their experiences give us helpful clues about what institutions and policies best promote human flourishing. To this point in history, the most successful societies have been those that feature capitalism, a democratic political system, good elementary and secondary (K–12) schooling, a big welfare state, employment-conducive public services, and moderate regulation of product and labor markets. I call this set of policies and institutions “social democratic capitalism.”
Social democratic capitalism improves living standards for the least well-off, enhances economic security, and very likely boosts equality of opportunity. It does so without sacrificing the many other things we want in a good society, from liberty to economic growth and much more. Its chief practitioners have been the Nordic nations: Denmark, Finland, Norway, and Sweden. Contrary to what some presume, there is no good reason to think social democratic capitalism will work well only in these countries. Its success almost certainly is transferable to other affluent nations. Indeed, all of those nations already are partial adopters of social democratic capitalism.
The United States, the largest of the world’s rich democracies, is one of those partial adopters. If the United States were to expand some of its existing public social programs and add some additional ones, many ordinary Americans would have better lives. Despite formidable political obstacles, there is good reason to think America will move in this direction in coming decades.
Those are my conclusions. This book provides the evidence and the reasoning.
Prospects for economic democracy
The most prominent forms of employee voice are worker participation, labor unions, works councils, board-level employee representation, and worker control. What do we know about them? My take is here.
What are the prospects for a revitalization of unions in the United States? When asked, many workers say they would like to have a union or union-like organization represent them. We can point to various aspects of US labor policy that, if changed, seemingly would facilitate an increase in union membership — the 1949 Taft-Hartley Act’s permission for states to implement anti-union “right to work” laws, the lack of a Canadian-style card check procedure for forming a union, weak enforcement of labor laws under Republican administrations, and more. And there is no shortage of proposals for how the American labor movement could organize more effectively.
Yet optimism about unions’ future in America must reckon with the story told by the chart below. In a handful of countries, procedures established nearly a century ago require that workers be a member of a labor union in order to have access to unemployment insurance, and unionization rates there have remained fairly high. In virtually every other rich democratic nation, despite policies and governments far less hostile to unions than in the US, union membership has fallen just as sharply as it has here.
What do we know about voters, groups, parties, and elections?
What are Americans’ policy preferences? What groups and political parties do they identify with? Who do they vote for and why? Some thoughts and data.