July 06, 2015

Sounds like a lot of money

Everyone likes to visit Southern Europe with its good weather and tasty food, but policy wonks abhor the failure of Greece, Italy, Spain, etc. to achieve anything remotely resembling economic convergence with their chillier neighbors to the north. And while US liberals like to throw the Nordics in the face of small government boosters, Scott Sumner echoed by Tyler Cowen says "I’d have more confidence in progressive ideas if they even had an explanation for the failed welfare states of southern Europe."

Everyone agrees about Southern Europe

What's interesting here is that there actually doesn't seem to be much disagreement about Southern Europe. Sumner references explanations "tied to cultural differences" as the main ones he's heard -- in other words, it's nothing to do with welfare state design. But he dismisses that as an inadequate response for progressives to offer because those are "conservative explanations." But Robert "Making Democracy Work: Civic Traditions in Modern Italy" Putnam isn't a conservative. When I asked Cowen how he explains Southern Europe he pointed to Edward Banfield's "Moral Basis of a Backward Society". Francis Fukuyama has also treated the subject well in his recent books "The Origins of Political Order" and "Political Order and Political Decay".

These authors all stake out somewhat different accounts but there is a broad family resemblance. Southern Europeans are stuck in a dynamic of low trust, excessive localism, and extreme reliance on family networks. There is a lack of impartiality in institutions and an ethic that "doing what's right for my family" rather than "following the law" is the right thing to do. A country that gives you the mafia rather than a correctly functioning legal system and police services is also not going to give you highly effective schools or job training programs. 

What nobody seems to think is that Greece is poorer than Denmark or Spain is poorer than Germany or Italy is poorer than France because those countries spend more money on their welfare states. It's convenient that people don't think that because it's not true.


Who's corroding public virtue?

My view is that the biggest relevance of Southern Europe to the United States is the current high social prestige enjoyed by the twin ideas that the social responsibility of a corporation is to be profitable and that the primary moral and legal obligation of a corporate manager is to enrich shareholders. These ideas combine to create a toxic moral climate that is undermining the social context in which a successful market economy can flourish.

In a healthy society, a business leader might invest time and resources in rent-seeking but he wouldn't brag about doing so and certainly he might choose to take the honorable path and not do it. But the current paradigm in the implicit US political philosophy is that he has a moral obligation to divert resources away from R&D and toward lobbying if the ROI on lobbying is higher. It says he has a moral obligation to find ways to trick customers into overpaying if he can find them. It says he has a moral obligation to violate regulations if the Net Present Value of paying the fines when you are caught exceeds the cost of compliance.

In other words, it replicates Banfield's amoral familism but with shareholders replacing the nuclear family as the local of ethical thinking.

This is all further exacerbated by the ideas of Public Choice Economics which tend to move from (correctly) asserting that government institutions' performance is often undermined to some extent by the self-interest of government officials to a kind of perverse fatalism which suggests that wholly selfish and inept behavior is all that is possible from public institutions.

Song of the Day

Art Brut, "18,000 lira".