Social Europe Vs. Liberal America? Inequality and (non-)Coordinated Policy Making in Europe

“Social Europe vs. Liberal America” is a legendary storyline in comparative political economy. In contrast to the United States, especially the coordinated economies in Northern Europe are argued to successfully combine economic growth with the maintenance of generous welfare states and high degrees of economic equality. As a result of insufficient recognition of declining coordination, shrinking welfare states and growing inequality in Europe since the 1980s, this storyline neglects important similarities across the Atlantic. Declining marginal tax rates on the highest incomes echelons and an array of policy reforms to cut back on social entitlements have caused growing economic disparities also in the heartland of Social Europe. The development is not as extreme as in America, but it is significant.

 The contribution from market pressures such as skill-biased technological change and deindustrialization to growing income disparities is well-documented, while the declining influence of European labor in policy making with redistributive implications is ignored in much of the literature. We submit the hypotheses that inequality enhancing policies in Europe also were fostered by a decline in coordinated policy making since the late 1970s. Disruptions in the logic of trustworthy coordinated exchange among economic actors have disempowered organized labor. Corporatist institutions are controllable by resources of mobilization and capabilities of collective action on which labor normally thrives. This and looser organizational ties to left-of-center parties are serious obstacles in labor’s pathways to arenas of redistributive decision making.

 Since these factors are already recognized in parts of the literature on the causes of inequality in America, we propose that there are important yet unexplained similarities in the politics and roots of rising inequality in Europe and America. Building methodologically on a most-different systems design we evaluate the theoretical propositions in a longitudinal study of processes and outcomes of all significant labor market and social policy reforms in Denmark, Sweden, Germany and the United States since the early 1980s. Observing converging trends between such different countries strongly challenges existing influential accounts. A database that includes the most significant reforms completed in each of the four countries during the period of research is established. On basis of parliamentary and congressional records, and a reading of the country specific literature, we make a first selection of reforms for the database. In the next step we conduct a survey among two specialists from each country to adjust and validate the selection of reforms. The reform content is coded for its potential effect on economic inequality, and we use multiple sources to map the participation and policy position of all political parties and interest groups participating in the process. We observe the participation of organized labor and thus the promotion of preferences for equality to have faded during the period.