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Distribution
and Redistribution in Post-Industrial Democracies

David
Bradley, Evelyne Huber, Stephanie Moller, François Nielsen, and John
Stephens

University of North Carolina,
Chapel Hill

Revision # 3 by Evi and John

26
June 2002

Wordcount 11,741 (without accepting changes)

 

Abstract
Distribution
and Redistribution in Post-Industrial Democracies

This article analyzes the processes
of distribution and redistribution in post-industrial democracies. 
We combine a pooled time series data base on welfare state effort and
its determinants assembled by Huber, Ragin, and Stephens (1997) with
data on income distribution assembled in the Luxembourg Income Survey
(LIS) archive.  In the case of the LIS data, we re-calculate the
micro-data in order to remove the distorting influence of pensioners
on pre-tax, pre transfer income distribution.  We examine the determinants
of two dependent variables:  pre-tax, pre-transfer income inequality
and the proportional reduction in inequality from pre to post tax and
transfer inequality.  We test
hypotheses derived from power resources theory against alternatives
derived from the literature on the development of the welfare state
and the determinants of income inequality.  Our results support
offer strong support for power resources theory, particularly in the
case of reduction in inequality. 
Union density, unemployment, and percent of female headed households
were the main determinants pre-tax and transfer inequality (R<sup>2=.64),
while left government, directly and indirectly through its influence
on the size of the welfare state, was found to be by far the strongest
determinant of distribution (R<sup>2=.81).

 

Introduction

Questions of the governments role in shaping distribution
and redistribution have long been one of the core concerns of political
science, from Lasswells (1936) classic to Page and Simmons (2000)
recent work on the United States.  In this article, we analyze
data which shed light on the age-old question of politics who gets
what, when, and how for the case of complex post-industrial democracies. 
We seek to understand HOW different social strata (WHO) get WHAT share
of income.  Specifically, we investigate to what extent distribution
and redistribution are driven by demographic and economic or by institutional
and political variables.  In doing so we provide a powerful vindication
of the class analytic power resources approach to distributive politics. 

Power resources theory (e.g. Esping-Andersen
and Korpi 1984, Korpi 1982, Stephens 1979) has long been considered
one of the three main theoretical approaches in the literature on welfare
state development, along with the functionalist logic of industrialism
theory (e.g. Pampel and Williamson 1989, Wilensky 1975) and the state
centric institutionalist or bureaucratic initiative approach (e.g. Heclo
1974, Wier and Skocpol 1985).  While some scholars have characterized
the power resources approach as the dominant mainstream theory (Orloff
1993), both qualitative and quantitative studies have shown that the
other theories have considerable explanatory power.  For example,
three recent quantitative studies, all pooled time series analyses of
social expenditure, by leading proponents of variants of power resources
theory (Hicks 1999, Huber and Stephens 2001, Swank 2002) find that variables
associated with both logic of industrialism (GDP per capita, aged population)
and state centric theories (constitutional veto points, federalism,
electoral institutions) are also powerful predictors of social spending.  

Moreover, more recent research has
added to the list of competitive theories.  Many of the studies
which examine gender dimensions of the welfare state argue that variations
in women's political mobilization explain variations not only in women
friendly policies (e.g. O'Connor et al. 1999, Sainbury 1996, Stetson
and Mazur 1995) but also in traditional spending indicators of welfare
state generosity (Huber and Stephens 2000, 2001).  Iversen and
Cusack (2000) find that deindustrialization has contributed to the expansion
of social spending.  Others argue that employers and workers both
support the expansion of social insurance because social insurance removes
private employer benefits from wage competition (Swenson 2001) or because
it encourages workers to invest in industry and firm specific skills
(Iversen and Soskice 2001).  Moene and Wallerstein (2001) argue
that wage inequality spurs different types of social spending. 
Indeed, this recent work in comparative political economy tends to regard
power resource theory as outmoded and simplistic. 

However, to consider this work on
welfare state development as tests of power resources theory is missing
the mark because power resources theory is really a theory about the
causes of distributive outcomes.  This is most clear in the works
of two of its earliest proponents, Korpi (1978, 1982: esp 184-198) and
Stephens (1976, 1979: esp. 105-08, 163-76).1 
Both scholars argue that different working class power resources are
mobilized at two points in the distributive process:  Union strength
reduces pre tax and transfer income inequality while left government
redistributes income by increasing the size and affecting the distributive
profile of taxes and transfers.

In this article, we test these central
hypotheses of power resources theory against a number of rival hypotheses
with data on distributive outcomes.  As we note at the beginning
of this article, these questions not only concern power resources theory
but have long been one of the core concerns of political science. 
Given that the degree to which governments redistribute income is arguably
one of the most consequential outcomes of the political process for
citizens' living conditions, it is surprising that there have been so
few studies which attempt to explain variation across advanced industrial
societies in distributive outcomes and the redistribution process. 
One might suppose that this topic would have been a major preoccupation
of the comparative welfare states literature, but only a handful of
cross national studies of the determinants of distributive outcomes
have been produced, compared to literally hundreds of studies of social
spending.  Hardly any studies have attempted to account for variations
in the degree to which governments redistribute income. This is odd
given that, as Esping-Andersen (1990) observes, governments do not spend
money just to spend money but rather to affect an outcome and certainly
one of the most important political outcomes is redistribution. 

The answer to the paradox of why
such important processes have been so little studied is simple: 
lack of comparable data on an adequate number of cases.  For example,
the OECD sponsored study by Sawyer (1976) was only able to develop "reasonably
comparable" data for ten countries and, by the standards of the
Luxembourg Income Survey (LIS), Sawyer's figures were of questionable
comparability.  The first wave of LIS studies improved comparability
greatly and allowed the researcher to measure how much of the final
distributive outcome was due to governmental redistribution in a much
more rigorous fashion than previously possible (e.g. see Mitchell 1991). 
However, the number of cases, ten to twelve, was far too small to allow
multivariate statistical analyses of the causes of variation in distributive
and redistributive processes.  Fortunately, the subsequent development
of the LIS data archive - expanding of the number of countries covered
and the time points for which there are available data now makes such
analyses possible. 

In this article, we examine the
determinants of distributive and redistributive processes in post-industrial
democracies using two measures calculated from the LIS data as dependent
variables:  pre-tax, pre-transfer income distribution and the proportional
reduction in inequality from pre to post tax and transfer inequality.2 
Following the hypotheses of power resource theory, we expect strong
effects of union organization on pre tax and transfer inequality and
of left government on governmental redistribution via its effect on
the size on size of the welfare state and the distributive profiles
of taxes and t