Markets and states--and the survey says...

Risk-averse individuals are more likely to prefer protectionism to free trade, and that is true wherever people live. But their protectionist leanings are moderated in countries where the government is bigger (measured by the share of government spending in GDP). This is the remarkable finding in a recent paper  written by my student and co-author Anna Maria Mayda along with two other scholars, Kevin O'Rourke, and Richard Sinnott.  The paper is based on responses by individuals to a survey carried out in 18 countries (drawn from Europe and Asia). The authors speculate that the reason is people feel better insured against the risks of globalization in economies where the public sector is larger. Hence in their sample the country where risk aversion translates to protectionist desire the least is Sweden.

Here is how they summarize their results:

Our results provide microeconomic evidence consistent with the long-standing argument that the state and the market are in fact complementary. Openness and globalization can introduce uncertainty into peoples’ lives, and this additional risk can lead some people to oppose trade. Government expenditure can help to reduce this risk, and thus shore up support for open markets. It would seem that the ‘grand bargain’ that was embedded liberalism is politically effective. Whether that grand bargain can survive the additional political pressures which the interaction of mass migration and the welfare state can give rise to will be one of the key issues determining the sustainability of this institutional compromise in the decades ahead.

UPDATE: Here is the link to the paper from a non-password protected site (thanks to Justin Rietz).

Comments

[paine]

i myself wouldn't
put a lot of stock
into that clean co relation

i'm all for a robust transfer system

and the worsed ain't coming soon
at least not quite soon
but longer haul global dynamics might prove different
if the collision mats
become perminent subsidies

now just
comping
the stream
of good job high wage losers is doable by way of swedens road
note devaluation option used there also

so okay first gen losers
but if the next gen
needs not an inter job class trans fer system
but a perminent wage subsidy
that might entail
a forced charity transfer
from the property income class

after all the national prospect
must remain
to at least
stay even with the older gen....
right ???

but as global wages reach their true bottom ??

get my drift .....

a better life for "my " kids
requires a north world
ponzi scheme
where " immigrant others "
are payrolled taxed
so enough
of the younger native gen
can stay on a generational job/wage up slope
ie
by lording it over
these fresh
boundless waves of new folks from abroad
creating a newer kind of apartheid purgatory

wait your turn for
a generation
facing entering
property-less immigrants

otherwise we get
the late roman repiblic effect
where hopeless
hick citizen plebs now landless
are idled as prole
disorderly empire spectators
and
orderly uniformed empire ruffians

now thats a sick class syndrome eh ???

but there's a part whole limit here

short of a reversal
of coming planetary
population stabilization
ain't we headed there anyway ????

keep this system up
and
no matter how
we cut the mid term cake
most of our grand to the third power
kids
will be belower wage rated then we be

[Emmanuel]

slink--

if you'd rather do away
with the correls
and dastardly maths
Ruggie who the authors cite
has a good one
on globalization and "embedded liberalism":

http://www.cid.harvard.edu/events/papers/LSE-final.pdf

[Arthur Goldhammer]

Is the French case reason for skepticism about this claim? See my note at http://artgoldhammer.blogspot.com/2007/06/reconciling-with-globalization.html

[Ali Sohail (pakistan)]

Agreed! I feel that the above stated findings are consistent with human pyscology!
In addition the size of the the Government can be synonomously be used as a proxy to the support of the political system i.e the framework under which each govt works ( the infrastructure) rather than the specific govt in power at a given time. Therefore on a broader level the size of the govt can be used as a proxy for the reliability and belief in the underlying system (the country first attitute, watch dog body , defend to the very end, greater prosperity and accountability).
The bigger the size of the system, the greater such beliefs hence the greater the support towards the system driven way forward which in general in the 21st century has been in support of globalisation atleast on the govt level i.e an ideology relatively in favor of free trade to protectionism as it has been noted as the most effective and result oriented way forward to industralisation.
To simplify, since most developed countries relative to developing countries have a larger underlying political system and if linked to the hypothesis of greater support of the infrasture of their system, it can be argued that people coming from the developed communities are relatively pro-the new fashion statement to industralisation compared to the developing world as they are pro their underlying system relative to the individuals in the developing world.
Hence sweden being ranked as the most in favor of free trade makes sense if it is one of the largest govt's (interms of size etc)
Note: The analysis can be further nailed if the list of all 18 countries and their relative standing in the world economy and the size of their govt spending relative to their GDP is available
Cheers

[Justin Rietz]

There is a leap in this argument's logic that I don't believe is supported:

1. What the paper claims to establish: people living in countries with a large public sector are more open to foreign trade

2. The conclusion of the paper and the post: states and markets are complementary

All the paper has purported to determine is which societies, in today's* social and political climate, are more likely to embrace international trade. From what I can tell (the paper is password protected) it does not address how well free markets operate compared to markets regulated by government.

I briefly read Dani's and Anna's 2003 paper "Why are some people (and countries) more protectionist than others?" ** One thing immediately jumped out at me: on page 5, the paper states "...Bulgaria is the most protectionist (Pro-Trade Dummy = 0:08), regardless of the indicator used." From anecdotal evidence - I have been visiting Bulgaria every year since 2002 for both business and pleasure - Bulgarians in general are not against free trade (and many want less government interference in their business lives) and tend to be quite open to foreigners in comparison to other Balkan and Eastern European countries.

At first this presented quite a conundrum, but the answer is actually quite simple: the data used is from 1995. Most Bulgarians at that time still did not understand what free trade or capitalism is or how it would affect them. In addition, Bulgaria was in the middle of an economic hangover from its transition from communism to democracy, had a corrupt government, and was experiencing an inflation rate of 122% (1994). I understand some attempt to control for poor economic conditions was included in the econometric model, but there is no way to mathematically control for changes in people's psychology due to political and social upheaval.

* I use "today" but I don't know the age of the data used in this most recent paper.
** http://www9.georgetown.edu/faculty/amm223/trademigrpreferences.pdf

[Justin Rietz]

Sorry, wrong link for the 2003 paper: http://ksghome.harvard.edu/~drodrik/TradePref.PDF

[Arash]

If we assume that "risk-averse individuals are more likely to prefer protectionism to free trade", then we can conclude that democracy is not great for globalization as the median voter is more risk averse than a dictator or a king.

[Kalle]

First of all two confessions: I have only very quickly browsed the paper (so I might have missed some important parts), and I am Swedish and supportive of a strong welfare state. This is, because, among other reasons, I believe it produces the results the article claims it does. Hence, I'm predisposed to be supportive.

Nonetheless, I would like to raise a question that might be of relevance here. The issue of market size. If we assume that people in general have a reasonably good basic grasp of what makes a business and nation prosper (I know this might be stretching it "a little", but for arguments sake...), and they are aware that they come from a small country that will have a hard time maikng it on it's own. Then by the very fact that they live in a market that is insufficiently large enough to grow without trading with others this will result in a more "pro-openness" attitude. Perhaps this is part of the explanation for a pro-openness attitue in Sweden?

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