Torben Iversen

• Professor at Harvard University

The postwar welfare state provides social insurance against economic, health, and related risks in an uncertain world. Because everyone can envision themselves to be among the unfortunate, social insurance fuses self-interest and solidarism in a normative principle Friedman (2020) calls probabilistic justice. But there is a competing principle of s...

While economic inequality has risen in every affluent democracy in North America and Western Europe, the last three decades have also been characterized by falling or stagnating levels of state-led economic redistribution. Why have democratically accountable governments not done more to distribute top-income shares to citizens with low- and middle-...

Growing economic inequality has raised concerns that democratic governments are no longer responsive to popular demands for redistribution either because the state capacity is eroded by footloose capital or because the wealthy subvert democracy through the power of money. In this paper we critically assess these conjectures against long-standing ar...

A core principle of the welfare state is that everyone pays taxes or contributions in exchange for universal insurance against social risks such as sickness, old age, unemployment, and plain bad luck. This solidarity principle assumes that everyone is a member of a single national insurance pool, and it is commonly explained by poor and asymmetric...

A core principle of the welfare state is that everyone pays taxes or contributions in exchange for universal insurance against social risks such as sickness, old age, unemployment, and plain bad luck. This solidarity principle assumes that everyone is a member of a single national insurance pool, and it is commonly explained by poor and asymmetric...

Chapter 3 offers a historical account of the emergence of the welfare state. In the absence of private or public insurance and faced with new, poorly understood, and existential risks, workers set up mutual aid societies (MASs) to cope with industrialization and urbanization. At their peak, MASs covered up to half of the (male) population but only...

A core principle of the welfare state is that everyone pays taxes or contributions in exchange for universal insurance against social risks such as sickness, old age, unemployment, and plain bad luck. This solidarity principle assumes that everyone is a member of a single national insurance pool, and it is commonly explained by poor and asymmetric...

Chapter 4 chronicles the status quo and innovations in underwriting practices in the life insurance domain and shows how private markets deal with information problems and how they eagerly capitalize on novel ways – such as tracking devices – to mitigate asymmetric information. Using quantitative analysis, the chapter also shows that private life i...

Chapter 6 focuses on labor market developments and preferences for unemployment policies. Using data from Germany, we show that increasingly, labor market risks can be predicted with a small set of observables (education, occupation, and location), while the relevance of private information has declined over time. Polarization over unemployment pol...

Chapter 1 introduces the topic and motivates our study. It explains the general logic of our argument and introduces the methods and evidence we rely on. The chapter gives an overview of the book’s organization and main insights and hence serves as a preview.

Chapter 2 presents the (formal) theoretical framework and advances four arguments. First, whether or not majority support for public provision of insurance exists depends on the distribution of information. Second, some insurance is best provided via pay-as-you-go systems, but these involve a difficult time-inconsistency problem that private market...

Chapter 5 extends our framework to credit markets, which are not usually analyzed by scholars of the welfare state, yet fulfill many of the same income-smoothing functions. Much like in private insurance markets, more and better information allows for better risk classification, which enables lenders to tie interest rates more directly to default r...

A core principle of the welfare state is that everyone pays taxes or contributions in exchange for universal insurance against social risks such as sickness, old age, unemployment, and plain bad luck. This solidarity principle assumes that everyone is a member of a single national insurance pool, and it is commonly explained by poor and asymmetric...

A central function of the welfare state is to provide social insurance. Most scholarship assumes that social insurance cannot be provided effectively through the market, mainly due to incomplete and asymmetric information. But, while this assumption may have held in the past, the data revolution is making it untenable today. This chapter asks what...

Driven by financialization and rising demand for credit, household sector debt in OECD countries has risen sharply. We argue that this rise in private debt has become a significant driver of inequality because access to, and the terms of, credit vary by the risk of default, which is closely tied to income. The effect is magnified by a trove of new...

Digitalization is likely to have a lasting impact on work, welfare, health, education, and the income distribution. It will radically transform not only social risks but also the means by which these are addressed. The contributions to this volume explore how digitalization—in different forms—affects the welfare state. They study how it influences...

Democratic Capitalism at the Crossroads: Technological Change and the Future of Politics. By Carles Boix. Princeton: Princeton University Press, 2019. 272p. $27.95 cloth. - Volume 18 Issue 2 - Torben Iversen, David Soskice

Response to Carles Boix’s review of Democracy and Prosperity: Reinventing Capitalism through a Turbulent Century - Volume 18 Issue 2 - Torben Iversen, David Soskice

Rising inequality has caused concerns that democratic governments are no longer responding to majority demands, an argument the authors label the subversion of democracy model ( sdm ). The sdm comes in two forms: one uses public opinion data to show that policies are strongly biased toward the preferences of the rich; the other uses macrolevel data...

Women shoulder a heavier burden of family work than men in modern society, preventing them from matching male success in the external labor market. Limiting working hours is a plausible way to level the playing field by creating the possibility of less gendered roles for both sexes. But why then are heavily regulated European labor markets associat...

This chapter considers the “second-order” effects of the transition to the knowledge economy. This means the set of preferences, beliefs, and party allegiances that are crystallizing as a consequence of the political-economic realities brought about by the knowledge economy. Chapter 3 considered “first-order” effects—immediate policy responses refl...

It is a widespread view that democracy and the advanced nation-state are in crisis, weakened by globalization and undermined by global capitalism, in turn explaining rising inequality and mounting populism. This book argues that this view is wrong: advanced democracies are resilient, and their enduring historical relationship with capitalism has be...

This chapter argues that governments in the developed world pursue policies to expand the advanced capitalist sectors, including tough competition policies, which force capitalists to compete and take risks rather than guaranteeing them safe and high returns on their capital. The resulting national frameworks both supply the public goods required f...

This chapter argues that the information and communications technology revolution clearly illustrates the underlying hypotheses of the book: first, that advanced capitalist democracies have been remarkably resilient in the face of major shocks—even given the rise of populism, neither advanced capitalism, nor advanced democracy, nor the autonomy of...

Industrialization and democratization were historically intimately linked in today's advanced democracies. The forging of this linkage marks the beginning of the symbiotic relationship between democracy and capitalism, which is the focus of this book. This chapter seeks to explain how this came about. Although the mechanisms are different across co...

A central element of the argument of this book is the symbiosis between the interests of the skilled, educated workforces of the advanced capitalist sectors and their support for the political maintenance and promotion of those sectors. This chapter examines how this argument works in the technological regime of Fordism. It outlines how differences...

Most work on redistribution in democracies is anchored in longstanding unidimensional models, notably the seminal Meltzer-Richard-Romer model. When scholars venture outside the security of unidimensionality, many either abandon theoretical rigor or miss the full consequences of adding more dimensions (whether ideological or economic). There is now...

This chapter presents an argument about the underlying reasons for the persistent economic troubles in the Eurozone based on the two different and divergent growth models in the Eurozone’s member states: the export-oriented, skill-intensive, coordinated model of the northern and continental welfare economies and the demand-driven model with strong...

We formalize and examine two overlapping models that show how rising inequality combined with ethnic and racial heterogeneity can explain why many advanced industrial countries have experienced a drop in support for redistribution as inequality has risen. One model, based on altruism and homophily, focuses on the effect of increasing “social distan...

Growing polarization in the American Congress is closely related to rising income inequality. Yet there has been no corresponding polarization of the U.S. electorate, and across advanced democracies, mass polarization is negatively related to income inequality. To explain this puzzle, we propose a comparative political economy model of mass polariz...

The knowledge economy, deindustrialization, and the decline of Fordism have undermined the economic complementarities that once existed between skilled and semiskilled workers. The result has everywhere been a decline in coordinated wage bargaining and unionization and a notable rise in labor market inequality. Yet, the political responses have bee...

We argue that the welfare state operates very differently in the advanced sectors of modern economies and in the low-skill sectors. Governments are concerned to promote the advanced sectors of their economies in which they have comparative advantage. This is a valence issue not a partisan one. Where companies and employees in advanced sectors co-in...

In this paper, we address two empirical puzzles: Why are cross-country differences in the division of labour between public and private education funding so large and why are they politically sustainable in the long term? We argue that electoral institutions play a crucial role in shaping politico-economic distributive coalitions that affected the...

The influential work by Goldin and Katz (2007, 2008) argues that rising levels of inequality are caused by skill-biased technological change (SBTC). This chapter, in contrast, claims that the institutional setup of the training system and the centralization of collective wage bargaining are two important factors shaping the impact of SBTC and, ther...

This paper explains the enduring disparities in inequality and welfare states across advanced economies in terms of varieties of capitalism and political systems. Where capitalism is coordinated as in much of Northern Europe, political systems are consensus-based with Pr elections; consensus politics and coordinated capitalism reinforce each other...

Classical rational choice explanations of voting participation are widely thought to have failed. This article argues that the currently dominant Group Mobilization and Ethical Agency approaches have serious shortcomings in explaining individually rational turnout. It develops an informal social network (ISN) model in which people rationally vote i...

A major puzzle in the open economy literature is why some countries have persistently higher real exchange rates than others. Even more puzzling is the fact that countries with high real exchange rates are strong export performers. We solve both puzzles with a model that integrates two central debates in the comparative political economy of advance...

This article begins by explaining the positive relationship between distributional equality and redistribution. It proposes in the second section that the correlation is indirect: two factors, the electoral system and the degree of economic coordination, each impact on both distribution and redistribution. Proportional representation (PR) promotes...

Protocorporatist West European countries in which economic interests were collectively organized adopted PR in the first quarter of the twentieth century, whereas liberal countries in which economic interests were not collectively organized did not. Political parties, as Marcus Kreuzer points out, choose electoral systems. So how do economic intere...

Looking at women's power in the home, in the workplace, and in politics from a political economy perspective, Torben Iversen and Frances Rosenbluth demonstrate that equality is tied to demand for women's labor outside the home, which is a function of structural, political, and institutional conditions. They go on to explain several anomalies of mod...

I present a theoretical account of the politics of privatization that predicts left-wing support for the policy is conditional on the long-run strength of left-wing parties in a political system. In marked contrast to predictions derived from a traditional interest group approach, my claim is that a stronger systemic position will make it more like...

The authors present an alternative to power resource theory as an approach to the study of distribution and redistribution. While they agree that partisanship and union power are important, they argue that both are endogenous to more fundamental differences in the organization of capitalist democracies. specifically, center-left governments result...

Every dictator dislikes free media. Yet, many non-democratic countries have partially free or almost free media. In this paper, we develop a theory of media freedom in dictatorships and provide systematic statistical evidence in support of this theory. In our model, free media allow a dictator to provide incentives to bureaucrats and therefore to i...

Conflict scholars have devoted considerable attention to the natural resource curse, and specifically to connections between natural resources, state weakness, and civil war. Many have posited a state weakness mechanism– that significant oil production causes state weakness, and state weakness consequently increases the likelihood of civil war onse...

Why is there so much alleged electoral fraud in new democracies? Most scholarship focuses on the proximate cause of electoral competition. This article proposes a different answer by constructing and analyzing an original dataset drawn from the German parliament's own voluminous record of election disputes for every parliamentary election in the li...

Standard political economy models of redistribution, notably that of Meltzer and Richard (1981), fail to account for the remarkable variance in government redistribution across democracies. We develop a general model of redistribution that explains why some democratic governments are more prone to redistribute than others. We show that the electora...

Low levels of female labor force participation contribute to female underrepresentation in democratic polities, both by reinforcing traditional voter attitudes toward women (a demand-side feature) and by constraining the supply of women with professional experience and resources who are capable of mounting credible electoral campaigns. Female labor...

The authors propose a synthesis of power resources theory and welfare production regime theory to explain differences in human capital formation across advanced democracies. Emphasizing the mutually reinforcing relation- ships between social insurance, skill formation, and spending on public educa- tion, they distinguish three distinct worlds of hu...

We review the use of macroeconomics in political science over the past 40 years. The field has been dominated by new classical theory, which leaves little room for economic policy and focuses attention on what democratic governments can do wrong in the short term. The resulting literatures on political business cycles and central bank independence...

The Oxford Handbook of Political Economy surveys the field of political economy. Over its long lifetime, political economy has had many different meanings: the science of managing the resources of a nation so as to provide wealth to its inhabitants for Adam Smith; the study of how the ownership of the means of production influenced historical proce...

There is considerable variation in the extent to which governments redistribute income, and there is broad agreement that the explanation for such redistribution lies in the design of political institutions and partisan responses to inequality (see also the chapters by Brandolini and Smeeding, Beramendi and Cusack, and Rueda, this volume). But just...

Despite numerous predictions to the contrary, globalization has not led to convergence in redistribution policies in different countries. This chapter argues that this does not come as a surprise, at least if we conceptualize the politics of redistribution as interaction between exogenous shocks, popular demand for compensation, and government resp...

A recent wave of studies explores the effects ofelectoral institutions on economic interests. This paper instead examines the effects of economic interests on electoral institutions. We argue that electoral rules are a function of the nature and geographical dispersion of economic interests. Where class is the only economic division, the right alwa...

This chapter explores whether governments in different varieties of capitalism respond differently to common economic shocks. It is often assumed that such shocks have a homogenizing effect on government policies, but I find the opposite to be the case (using OECD data and nonlinear regression techniques). In economies with training systems that em...

To comprehend how the welfare state adjusts to economic shocks it is important to get a handle on both the genesis of popular preferences and the institutional incentives for governments to respond to these preferences. This paper attempts to do both, using a general theoretical framework and detailed data at both the individual and national levels...

Mainstream political economy has tended to treat the family as a unit when examining the distributional consequences of labor market institutions and of public policy. In a world with high divorce rates, we argue that this simplification is more likely to obscure than to instruct. We find that labor market opportunities for women, which vary system...

We develop a general model of redistribution and use it to account for the remarkable variance in government redistribution across democracies. Weshow,that the electoral system plays a key role because it shapes the nature of political parties and the composition of governing coalitions, whether these are conceived as electoral alliances between,cl...

Based on the key idea that social protection in a modern economy, both inside and outside the state, can be understood as protection of specific investments in human capital, Torben Iversen offers a systematic explanation of popular preferences for redistributive spending, the economic role of political parties and electoral systems, and labor mark...

This article shows how cross-national variation in labor market attributes, social policies affecting female employment, and divorce laws affect both female labor force participation and divorce. These in turn lead to a systematic gendered pattern in the preferences for government spending on social services. By analyzing data on household division...

Rational partisan theory's exclusive focus on electoral uncertainty ignores the importance of policy uncertainty for the economy. I develop a theory of policy risk to account for this uncertainty. Using an innovative measure of electoral probabilities based on Iowa Electronic Markets futures data for the U.S. from 1988-2000, I test both theories. A...

In much of the political economy literature, social democratic governments are assumed to defend the interests of labor. The main thrust of this article is that labor is divided into those with secure employment (insiders) and those without (outsiders). I argue that the goals of social democratic parties are often best served by pursuing policies t...

Central bankers' careers are shown to influence inflation outcomes. I present two theories in which careers explain central bank behavior, develop them in a game theoretic model, and test them using a comprehensive new data set of central bankers' career backgrounds which spans twenty rich democ-racies and half a century. Career experiences vary co...

Mainstream political economy has tended to treat the family as a unit when examining the distributional consequences of labor market institutions and of public policy. In a world with high divorce rates, we argue that this simplification is more likely to obscure than to instruct. We find that labor market opportunities for women affect women's bar...

The effects of financial capital mobility on monetary policy autonomy are relatively well understood, but the importance of particular monetary regimes in distinct national-institutional settings is not. This article is a theoretical and empirical exploration of the effects of monetary policy regimes on unemployment in different national wage-barga...

Atranscription error in Iversen's article in the Summer 1998 InternationalOrganization (volume 52, no. 3, pages 469 504) led to an error in Equation 13 on page 480. Below we print the correct equation. This change has no bearing on the accuracy of the model.

We provide an political-institutional explanation for the enormous variance in the extent to which democratic governments redistributes income from rich to poor. In addition to the number of veto points, which has been emphasized in the existing literature, we show the importance of the skill system and of the electoral system. The nature of skills...

We present a theory of social policy preferences that emphasizes the composition of peopleÕs skills. The key to our argument is that individuals who have made risky investments in skills will demand insurance against the possible future loss of income from those investments. Because the transferability of skills is inversely related to their specif...

Social protection does not always mean 'politics against markets.' In this chapter we argue, as did Polanyi (1944), that social protection rescues the market from itself by preventing market failures. More specifically, we contend that social protection aids the market by helping economic actors overcome market failures in skill formation. We show,...

The welfare states of the affluent democracies now stand at the centre of political discussion and social conflict. In this book, which grew out of two conferences held at the Center for European Studies, Harvard University, in November 1997 and October 1998, an international team of leading analysts reject simplistic claims about the impact of eco...

Little attention in the EMU literature has been paid to the interaction between central bank monetary rules and systems of collective wage bargaining. Analytically and empirically, coordinated wage-bargaining systems respond with real wage restraint to non-accommodating monetary policy. Since wage determination is dominated by collective bargaining...

: This chapter considers the politico-economic management of unemployment and inflation in developed capitalist democracies, focusing on the institutional and structural features of labor and goods markets and the credibility and conservatism of the monetary-policy authority. It reviews the central-bank-independence (CBI) and coordinated-wage-/pric...

An influential line of argument holds that globalization causes economic uncertainty and spurs popular demands for compensatory welfare state spending. This article argues that the relationship between globalization and welfare state expansion is spurious and that the engine of welfare state expansion since the 1960s has been deindustrialization. B...

Monetary rules matter for the equilibrium rate of employment when the number of price-wage setters is small, even when assuming rational expectations, complete information, central bank precommitment, and absence of nominal rigidities. If the central bank is nonaccommodating, sufficiently large unions, bargaining independently, have an incentive to...

Buy this book Cambridge University Press Amazon.co.uk Blackwell Waterstone's WHSmith Google Product Search Borrow this book Find this book in a library This book focuses on some of the most important political-economic changes in advanced industrialized countries over the past two decades, namely, the sharp rise in unemployment in some countries a...

The causes of inflation are commonly analyzed as the function of either the organization of wage bargaining or the independence of the central bank. Although these explanations are widely treated as competing, recent evidence suggests that there may be merit to both arguments. This paper presents a game-theoretic model of wage bargaining and moneta...

We analyse the institutional determinants of economic performance, taking European labour-market institutions as a case in point. European economic growth after the Second World War was based on Fordist technologies, a setting to which the continent's institutions of solidaristic wage bargaining were ideally suited. They eased distributive conflict...

The causes of inflation are commonly analyzed as the function of either the organization of wage bargaining or the independence of the central bank. Although these explanations are widely treated as competing, recent evidence suggests that there may be merit to both arguments. This paper presents a game-theoretic model of wage bargaining and moneta...

Little attention in the EMU literature has been paid to the interaction between central bank monetary rules and systems of collective wage bargaining. Analytically and empirically, coordinated wage-bargaining systems respond with real wage restraint to non-accommodating monetary policy. Since wage determination is dominated by collective bargaining...

This article presents an analysis of the postindustrial economy from a political economy perspective. It identifies a set of specific distributional trade-offs associated with the new role played by the services sector as the chief source of employment growth in advanced democracies over the last three decades. It is argued that three core policy o...

Scandinavian social democracy represents one of the most systematic attempts to shape economic institutions and policies in pursuit of equality and full employment. Increasingly, however, these goals have eluded governments, and their institutional supports have eroded. This paper seeks to understand this shift through a comparative analysis that p...

The political and economic couplings between wage bargaining institutions and macro-economic policy regimes are explored in this article. It is argued that in advanced industrialized democracies with well-organized unions and employers' associations, macro-economic performance (especially unemployment) is the outcome of an interaction between the c...

Highly corporatist countries such as Denmark and Sweden have recently moved away from centralized wage bargaining. A general sectoral coalition model explains the decentralization of wage bargaining as the outcome of a cross-class realignment between employers and wage earners in response to changes in the political, economic, and technological env...

The traditional spatial theory of elections has recently been challenged by alternative conceptualizations, which either dispute the role of euclidean distance in voting (directional theory) or argue that voter preferences are endogenous to the political process (mobilizational theory). In contrast to spatial theory, these alternative models predic...