Political Rationale Of Welfare And Political Instability

Political Rationale Of Welfare And Political Instability

Abstract

Social welfare development history in the capitalism society in the 19th century has shown that social welfare is an essential factor that may cause political instability. Analysis of social welfare is often limited to its economic and social functions; this article focuses on the political perspective to analyze the political function of social welfare. Then comparing Sen and Atkinson’s classic welfare economics theories and discuss the limitations and flaws, I draw on my own economic welfare index, which can be used to forecast the risk of political instability. This model is only applicable on the scope on economic welfare under the hypothesis that ‘mode of production of material life conditions the social, political and intellectual life process'(1970:181; Marx), therefore, analyzing the cause of conflicts from political perspective, still must start with the foundation of economy.

Keywords: Social welfare; Political Instability; Welfare economics; Economic welfare

Introduction

Political rationale of social welfare

There is significant difference between modern capitalism thriving in the 20th century and classical capitalism that spread in the 19th century. That is, modern developed countries such as Germany, France, Britain, the United States, and Japan have a mature, highly developed social security system. The system provides social security including healthcare and unemployment to the majority of citizens in their society and the development of this system ensures that there is stability in majority of the population. Existence of such schemes is the reason such countries have little or no populations of extreme poverty. This has the meaning that such countries succeeded in the elimination of proletariat amidst their society. Elimination of individuals of low income assists such countries to eliminate the danger of violence outbreak in their country. The outcome of this is that cases of violent revolutions are low in developed countries in comparison to their developing counterparts.

It was after World War II that capitalist countries adopted the social welfare scheme. Developed countries that were spreading capitalism ideology against communism used social security systems for the purposes of improving the social structure and patterns and succeeded on it. In the 1930s, the economic crisis in capitalist world has led a profound social crisis, forcing Western countries to adopt and improve their social welfare measures. It was not until 1935 that the U.S. Congress passed the “Social Security Act”, to provide national assistance to elders, unemployed, orphans, and blinds. Before the end of World War II, social welfare was mainly a social relief on a narrow scope and scale.

With the rapid development of world economy, and advanced countries increasingly promoting generous welfare policies the share of total government expenditure is unprecedentedly growing. By the early 1970s, apart from some countries, governments’ expenditure on social welfare in the other developed capitalist countries accounted for more than half of total government spending. Social security system developed into a range of social welfare measures with a set of components and requirements hence, the role of social welfare is experiencing tremendous growth in social and economic life.

By the late 1990s, government social welfare spending in the major developed capitalist countries usually accounted for 1/2 to 2/3 of the total government spending and 20% -30% of GNP. Thus, social welfare system has become the main form of wealth distribution system of modern capitalism. Since the 1930s, UK, Germany, and France passed through lots of social legislation to ensure the statute of social security system.

In fact, the western democratic system foundation is on top of the social security system. It is for this matter that the happenings of political or ideological debates, the harm to the interest of majority people have limitations and there is no harm on the fundamental basis of the society. Western capitalism countries suffered hundreds of years of frequent social revolution and endless turmoil between the 17th and 19th century. After the World War II, there was sustained peace and fostering of long-term permanent stability and safety. Based on historical development, there is no usage of the social security system as an expedient but rather as a way of safeguarding national stability and security.

Historical evidence shows that rapid economic development will destroy the balance of social order and lead to an enhanced social and political instability in the process of modernization. On the other hand, in this era of globalization appropriate economic development has become an important factor of social and political stability. Of course, economic development and social and political stability does not have a simple linear relationship, there must be some factors sustaining the status, the key factor behind is a strong social welfare system.

Economic development inevitably leads to division of social interests and economy is the root cause of conflict. Marx said that the mode of production of material life conditions are social, political, and intellectual life process (1970:181; Marx). Therefore, analyzing the cause of conflicts from political perspective, it is mandatory to start with the foundation of economy. Huntington indicated that there are two major factors affecting political stability the first is social mobilization and the second is economic development (Huntington, 1968). Economic development leads to improvement of living standards, social mobilization providing a new lifestyle and increasing the desire of people and their need for newer standards. Contrary to this, for people in a transitional society, their ability of fulfilling their desire grows lower than the desire itself. For such reasons, there has been a huge gap between forming their needs and fulfilling their needs, and this gap causes social depressed and will be the factor of political unrest. Meanwhile, although the long-term economic development will balance income distribution, short term economic growth often expands income inequality and results to an increasing rich-poor divide, and social mobilization will increase the awareness of this inequality and become a stimulus for rebelling (Huntington,1968). Venieris (1985) believe that failure to achieve expected revenue generates social and political instability. Although income of different groups has increased in the process of economic growth, the speed of this increase differs and with the increase in the absolute term, the relative income may decline.

Literature review

Jong-A-Ping (2006) identified four important dimensions of political instability reflected by civil protests, politically motivated aggression, instability within the political regime, and instability of the regime. These four factors have examined their relationship to economic outcomes of nations. Political instability affects economic outcomes particularly in regards to uncertainty generated by the future policy makers and intuitions, which affects the behaviors of private investors and their accumulation of capital. This uncertainty also changes the behaviors of incumbent policy makers, who may attempt to provide incentives to private investors as an attempt to extend their terms or exploit the benefits and influence they have during their time in political office. From another dimension, political instability may have a direct impact on the productivity of the country due to its ability to disrupt economic relations as well as critical market functions.

De Hann (2007) presented an overview of methods for investigating the effect that political intuitions have on overall economic growth. In his argument, the author described institutions as “a set of rules, compliance procedures and moral and ethical behavioral norms designed to constrain the behavior of individuals in the interests of maximizing the wealth or utility of principles” (p. 281). In such a case, the constraints described here are central to the functioning of institutions, as such, must also be relatively durable or permanent. There will be application of the understanding political regimes as institutions with the prescribed institutional objectives.

In the identification of the four dimensions, there was achievement of political instability in Jong-A-Ping’s model of measuring political instability by testing the applicability of other dimensions of political stability identified in previous empirical studies such as Hibbs (1971) who identified only two dimensions, to Feierabend and Feierabend (1996) who identified nine dimensions. In total, Jong-A-Ping tested 26 widely considered dimensions and indicators of political instability before coming up with the most the four dimensions of civil protest, politically instigated aggression, instability within the regime, and the instability of the political regime. The four dimensions found to have varying effects on the long-term economic growth states.

Moreover, because individuals within their cultural or class groups will identify with the group’s progress, the cultural or class groups act as a powerful agent of mobilizing individuals who ultimately generate a variety of political disturbances. As such, Stewart stresses on the importance of assessing the well-being of groups and social classes in order to militate against political disturbances that may culminate in violence. Stewart also noted highlighted another important reason for taking proactive action to correct existing social inequalities as means for efficiently achieving other goals and objectives such as political stability and economic growth. Achieving the goal of reducing group inequalities is not possible without the identification and definition of the dimension such as equality of inputs that may include increasing access to resources.

Improving the overall wellbeing of groups that are considered to be deprived bears merit because in increases output, reduces vertical inequality and poverty by raising the human capital within such groups and thereby contributing to social and political stability. Groups, which are significant for the self-esteem of their members and general well-being, can critically threaten social and political stability if this self-esteem is undermined. This is true for groups or classes that have reduced access to resources, a factor that may fundamentally affect their self-esteem.

Hurwitz (1993) observed that the issue of political stability has confinement by factors such as operations of the concept, formation and its measurement. Political stability as a concept may have divergent meanings to various individuals who attempt “to measure the degree or amount of political stability present in their universe” (Hurwitz, 1973, p. 449). In most cases, the understanding of political stability is through behavioral perspectives, based on the notion that there can be measurement and definition of stability through the verifiable and reproducible approaches. However, there is still prevalent disagreement in regards to the terms used to define the concept as well as its operations.

In regards to measuring political stability, Brunette (1997, p. 164) observed that the majority of existing literature tended to measure the political variable through measures on democracy in a cross-country analysis of growth. A second approach of measuring political stability was through assessing government stability. The approach entailed analyzing the “the effects of the number of or the probability of changes in government on economic development” (Brunette, 1997, p. 164). Another approach of measuring political stability is measuring political violence, while a newer approach has basis of measuring policy volatility.

Measuring policy volatility generally perceives the volatility of policies as an important political variable that can be used to measure political stability. Another approach is the use of surveys for assessing the perception of politics of country experts and entrepreneurs, which is fundamentally different from other methods as it does not rely on objective measures of political stability but attempts to understand the subjective perspectives of the agents that contribute to growth related decision making. Brunette pointed out the empirical literature has further developed from more general measures and assessment of political institutions to measuring increasingly specific attributes of a political system. As such, there has been increased focus on measuring the degree of stability within the institutional framework.

Jong-A-Ping (2006) noted that difficulty in the conducting the direct measurement of the variable, most researchers have used other indicators of political instability such as the number of coups or the number of political revolutions experienced by a country. Others that have identified the measurement error linked to this approach have resulted to combining a variety of variables using methods such as discriminated analysis (Alesina & Peroti, 1996).

Theoretical framework

Tavits (2006) stated that there is an increase in social capital recognized as an important predictor of economic growth. As the performance of governance and public administration efficiency influences both economic and social development, the quality and nature of governance may also predict political stability in a nation. This is especially the case in a situation where there is insufficient development of market or economy to facilitate adequate socio-economic progress. In regards to stability of the government, the interrelationship between economic development, social capital, and government performance is vital. Knack and Keefer (1997) described social capital as the coherence that exists between the cultural and internal social norms, attitudes and values that direct the relationships among the populace as well as the institutions influence the behavior and performance of the government and bureaucratic elite.

Ingelhart (1990; 1995) proposed one the most prominent descriptions of political and social change especially in developed nations. The theorist argued that the most important factor in understanding the behavior and political preferences is through early experiences and socialization that facilitate the formation of differing value priorities. As such, individuals who have experienced economic hardships demonstrate a tendency of developing materialistic or economic values, while those who experienced relative economic prosperity and physical safety will mostly post-material issues and quality of life over the materialist issues.

Ingelhart social change theory also argued that post-materialist development conditioning is through growth and prosperity. As such, Ingelhart (1995) proposed that there is a relationship between dominant social values and the level of social development primarily indicated by standard of living. This assumption had the basis of the shortage hypothesis that proposed that individual preferences largely conditioning by socio-economic conditions. As such, in conditions characterized by economic shortages, the main motivation is survival, whereas.

Particularly, Inglehart (1997; 1995) used age cohorts to identify variances in values within specific age cohorts using the Percentage Difference Indexes (PDI), which are obtained from the cross tabulations of age cohorts and values. In such a case, the PDI is the percentage of post-materialists within the cohort, minus the percentage of materialists. There is subsequent projection of PDI values against the cohort and time in order to indicate proportions of post-material values for each age cohort, ultimately demonstrating that the younger generation in developed nations is likely to be more post-materialistic compared to their older generation counterparts.

The situational reaction model (Stulhofer, 2000) is premises upon the assumption that “in moments of major social changes, the perception and evaluation of the current economic political and social conditions will determine the dominant values” (Rimac & Stulhofer, 2004, 307). In this case, extensive injustices, abuses, irregularities during a period of political and economic changes and the failure to punish or penalize them will create extensive opportunism and cynicism among the populace. The situational reaction model evidently transcends the values-based social changes by Ingelhart in the sense that a change in values determination is through the specific change-taking place at the time. The model also assumes that the negative situational reactions also act as suppressants to social change.

Research and Findings

Economic development and political stability is an important benchmark of social development, it is essential to address the relationship between stability and development in any modern society. There is always the usage of social welfare as an economic means of solving social problems and thus achieve a specific political purpose of the institutional arrangements, has its important political function in the process of economic development and globalization. As it shown in the table below, least-risky countries are often those that have strong social welfare system.

Country Risk Rankings

Rank Previous country Overall score

1 1 Norway 94.05

2 2 Luxembourg 92.35

3 3 Switzerland 90.65

4 4 Denmark 88.55

5 6 Finland 87.81

6 5 Sweden 86.81

7 7 Australia 86.81

8 11 Canada 86.50

9 8 Netherland 84.86

10 9 Australia 84.16

In order to have an idea of the connection between countries having the highest number of poor populations and their level of violence, it would be better to focus on the poorest countries of the world. Some of the poorest countries are vulnerable to constant violence. According the international monetary fund (IMF), the poorest country in the world is the Democratic Republic of Congo (DRC). The country is one of the countries in Africa that continue to face the threat of civil war. Many revolutions continue to plague the country maybe an indication of the fact that high number of population having large populations are at risk of violence. Somalia is also among the poorest. Rebellious movements such as the terror group Al-Shabaab continue to increase the threat of violence in the country. The population of this country is poor to an extent that most young boys aspire to be pirates when they grow since it’s the only paying profession in that country.

In accordance to the statistics below it is evident that there is a direct correlation between the level of economic growth in a country and the social stability of a country. Burundi has experience a series of civil wars that lead to genocide of its population. It is for this reason that capitalist country sought to have a scheme that will take care of the poor, elderly, and unemployed, physically and mentally challenged. Through such arrangements and scheme, such countries succeeded in the eradication or reduction of the risk of a revolution. Unfortunately, for the poor countries, such incentives are expensive and the government cannot afford them give the number of individuals that would require the attention of the government. As such, they continue to be at the risk of social violence.

World’s poorest countries

Country GDP per capita ($)

Democratic Republic of Congo 328

Zimbabwe 395

Liberia 392

Burundi 410

Somalia 600

Eritrea 681

Central African Republic 744

Niger 755

Sierra Leone 759

Afghanistan 906

In order to construct social welfare index correctly and build a scientific model in my research, this paper first explores the social welfare index created by Sen and discuss the limitations. Based on my purpose of examining the relationship between social welfare and political instability, I absorb some great idea of Sen’s theory and finally I propose my own social welfare index.

Researches relating to welfare mainly based on two routes, one is accounting national economic welfare, and the other is social welfare index. Back in the 1920s, the founder of welfare economics Pigou has pointed out in his book

‘The economics of welfare’ that economic welfare is equal to national income (Pigou, 1920) [4], and it has laid a theoretical foundation for the national welfare research. National welfare measurement is only within the scope of economic welfare but there are other non-economic welfares lead to human happiness increase. As such, economic welfare is not e only indicator of total welfare. Because non-economic welfare is hard to monetize, so it there is no integration into the national welfare research framework. Therefore, since the 1970s, there was introduction of many welfare-related indices all over the world, such as Physical quality of life index (PQLI) developed by sociologist Morris David Morris in the 1970s, and the happy planet index introduced in 2006 and United Nations Development Program’s Human Development Index (HDI.

Admittedly, these indices are very important in a specific field of research, and reflected social aspect on a certain degree. Based on the previous research results, through assessment and learning, I proposed new social welfare indices in my research.

In 1974, A. Sen created the concept of welfare index, as shown in the following formula:

EMBED Equation.3 (1)

In formula (1), S represents the welfare index; RY represents real income per capita, G for the Gini coefficient. So what is the methodology of this formula? In other words, why Sen structured the welfare index in this way?

A closer look at Sen’s theoretical basis of welfare index indicates it is possible to trace it back to that of Pigou’s welfare theory. In Pigou’s view, when the amount of national income is certain, the smaller the gap of income distribution, the greater the utility of personal money income, or the greater welfare it reflects, vice versa [5]. This is because ‘for any person at any time, the economic welfare depend on the level of income that are used for consumption rather than his total income’, ‘to the rich, their satisfaction comes from a relative volume rather than an absolute volume'[6]. By the premise of this theory, it is true that any factors that can increase the absolute term of real income of the poor without causing a decrease of national income will maximize economic welfare [7]. Therefore, the value of national income does not equal to the value of economic welfare if there is income inequality, specifically, the value of economic welfare reflected by national income is less than the value of national income. Thus, national income is only a nominal level of economic welfare, to solve this problem; we need to consider income distribution in order to achieve an actual level of economic welfare. However, Pigou did not discuss the impact of income distribution in his theory; he asserts that economic welfare is equal to national income.

Sen’s methodology transformation was from a well-known economist Atkinson’s index of inequality (1970). In this model, Atkinson firstly proposed ‘equally distributed equivalent (EDE) income’ concept, and establishment a formula of this concept.

EMBED Equation.3 (2)

In formula (2), is the equally distributed equivalent income. By definition, it

Means the sum of each individual’s actual level of welfare is equal to the sum of the welfare when each individual’s average income is equal to. In other words, when each individual’s income level is equal to, the total welfare is exactly equal to the level of total welfare under the current income distribution, namely, the total welfare corresponding to each individual’s income level.

As we let equal to, and because the utility function is concave, namely the marginal utility is decreasing, we can assume that would not be larger than the actual average income. According to this idea, Atkinson proposed the following income inequality formula:

EMBED Equation.3 (3)

Based on Atkinson’s model, using a reversed transformation, Sen constructed a linear homogeneous welfare function.

EMBED Equation.3 (4)

In formula (4), W is the welfare of each individual; and implies the same meaning as above. Obviously, this welfare function, which is from Atkinson’s inequality function, the value of W is relatively smaller than the value of under the condition that the income is unequally distributed; the adjusted factor is the Atkinson coefficient. Obviously, the more the income is equally distributed, the more closer of the values between actual income per capita and individual welfare. Be noted that the in inequality coefficient, is just a theoretical indicator, because this indicator can only be calculated when given the welfare level corresponding to the actual income distribution. Therefore, we face two puzzles: First, how to separate the welfare part from the actual income distribution? Second, when calculating individual welfare, it is important to know the value of, in order to obtain this, we also need to know the data of individual welfare corresponding to the current income level, and this methodology may hardly avoid double counting problem.

Corporate my idea into Sen and Atkinson theories on welfare index constructing, I developed my own index to solve above problems that these two theories have that is the social contributions index. According to the explanation of International Monetary Fund (IMF):

‘Social contributions include social security contributions by employees, employers, and self-employed individuals, and other contributions whose source cannot be determined. They also include actual or imputed contributions to social insurance schemes operated by governments’. [8]

Why do I use this index? Firstly, welfare should include both of the private welfare and the public welfare, Sen’s welfare index narrowed down the diameter without considering the public welfare. Traditional welfare economics believes that social welfare is the sum of each individual’s welfare. In addition, when defining individual welfare, is often limited to individual’s consumption level, namely, individual purchase products and services with his income, thus, consumption on public goods and services has exclusion from the scope of each individual’s welfare. For example, Tobin and Nordhausen advocated that public spending, such as police services, sanitation, road maintenance, and national defense requires classification as intermediate products category instead of final products, which represent the traditional Western welfare theory [9]. Sen positioned welfare within the scope of personal income without including government-provided public welfare; consequently, the diameter is greater than the traditional concept of welfare. While using social contributions index can reflect fully both the personal and public welfare in an overall country level. This is Comparing the overall welfare level of each country, without taking the impact of personal income on personal welfare into consideration, which constitutes the absolute gross value of welfare that the country’s citizens share.

Second, there are many external factors may influence individual’s well-being, not only the economic factors but also the non-economic factors. These factors generated either positive or negative utility, such as environmental pollution that causes negative effects. Therefore, more and more welfare index is taking more and more factors into account to measure the level of welfare and human happiness. In my opinion, only the economic contradiction directly causes political instability, due to the fact as I stated in Marx’s word: ‘mode of production of material life conditions the social, political and intellectual life process'(1970:181; Marx) [10]. Typically, variables like environmental pollution rate, literacy rate, and divorce rate should not be included in political instability forecasting model since they do not necessarily cause political instability. Also the value of GDP should not be included in welfare based political instability forecasting model , because GDP reflects all the goods and services produced, including a number of economic indicators has nothing to do with welfare, and the social contributions indicator only reflects the national revenue that are used for welfare construction.

Economic welfare based forecasting model of political instability

EMBED Equation.3

My index seeks to identify and quantify the main economic factors and traits that are causally associated with, or that can predict, political instability, my thought was stimulated from the classic welfare theory literature, and differentiated my own model after a careful discussion of the limitations that pervious researches have. These data are available in World Bank database, which is in favor of providing an accurate statistical result.

Defining variables

Political instability

I define political instability or unrest, according to the classic definition that are commonly used in many political instability indexes, as those events or riots that pose a serious threat to governments or the existing political order. These events need not necessarily end up with a toppling of government or regime, the assessment will only defined with the number of people died in the battle related violence, which is judged obviously by the quantity.[11]

Absolute economic welfare

Absolute economics welfare is a variable as I discussed in the last session, it is the social contributions index, which can reflect fully both the personal and public welfare in an overall country level without taking the impact of personal income on personal welfare into consideration.

Relative economic welfare

Data source: Gini Coefficient World CIA Report 2009

Available at HYPERLINK “https://www.cia.gov/library/publications/the-world-factbook/fields/2172.html” https://www.cia.gov/library/publications/the-world-factbook/fields/2172.html

Gini coefficient composes the relative economic welfare variable. Gini coefficient is ‘a measure of the inequality of a distribution, a value of 0 expressing total equality and a value of 1 maximal inequality'(Wikipedia). According to Venieris, income inequality result in rich-poor divide and will become a stimulus for rebel.

The graph above indicates the relationship between Giniindex, market capitalisation, and population growth. It therefore indicates emprical results.

A table of selected Countries.

Sample Countries Giniindex Market Capitalization Population Growth Adjusted R. squared

Argentina -0.01447 0.04009 -0.02444 0.35609

-0.051 0.991 -0.573 Australia 0.01735 0.2051 -0.521 0.46952

0.0608 2.007 -1.214 Brazil -0.03348 0.0