The Influence of Political Institutions on Social Security Policies: A Public Choice View

In recent years a heated debate has been taking place (and is still going on) whether the development of social (security) policies influences the general economic growth in a positive or negative way. Whereas Korpi (1985) finds a positive relationship and Rothschild (1982, 580) concludes, “that there are at the present no signs that Welfare State activities have by themselves net harmful effects on economic efficiency or economic growth”, Bernholz (1982, 584) asks, “can modern Western democracies survive with an expanding system of social welfare?” In his latest study (1985) Bernholz is quite sceptical in his answer, where he is in line with most other studies. They all reach more or less the same conclusion that, due to the rapid increase of social expenditures after the Second World War, welfare state activities have at least reached an absolute maxium or have even passed their limits so that the negative consequences (e.g. like rising disincentives to work, a low savings rate, increasing shadow activities), outbalance the benefits₁. That social expenditures have increased quite drastically over the last 25 years in most Western democracies (see Table 1) should impress any observer. But to conclude from these developments that one should simply reduce state activities and the negative consequences will diminish may be quite misleading2. Before suggestions are proposed, e.g. to cut drastically social expenditures, it should be considered that “social policy has become an essential element in the political economy of all modern industrial states” (Rothschild 1982, 579). Therefore, first a positive analysis of the political institutions should be made in which social policies take place and which set the frame where the most important actors (voters/taxpayers, government, interest groups) operate₃. When we know how voters/taxpayers and important interest groups will react to government policy proposals, we are able to evaluate how successful changes in social policies can be achieved.