Scott Sumner  

Hard Asia, Soft Europe

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Former Singapore Prime Minister Lee Kuan Yew died today. He was famous for being dismissive of "soft" European welfare states. But was Lee as important as most friends and foes assume? I'm not sure; the other two small Chinese tiger economies (Hong Kong and Taiwan) also did very well. Perhaps his greatest impact was making Singapore more neat and tidy, not richer.

Many intellectuals view the US model as a sort of outlier, less soft than the European model. They talk as if the US is the only developed country that still doesn't have a big welfare state, and that still uses the death penalty. This discussion merely illustrates the ignorance, or should I say eurocentrism, of many western intellectuals. Here I'd like to suggest that the actual split is between Western Europe and East Asia with the immigrant societies being somewhere in between. I'll look mostly at developed countries, adding China for the sake of comparison.

Let's start with the death penalty. With some quick research I think I established that among developed East Asia only Hong Kong has abolished the death penalty. All the rest still have it. Western Europe has completely abolished the death penalty, whereas the immigrant countries have mostly abolished the death penalty (it still exists in parts of the US, and is on the books in Israel (although not currently used.)

Now let's look at which countries have a "get a job" attitude toward the unemployed. I'll use two metrics: government spending as a share of GDP, and the unemployment rate. My hypothesis is that the softer countries will spend more money on social programs, and end up with higher unemployment rates by making the condition less painful. Obviously government spending goes well beyond social programs, but in the modern world the two are highly correlated.

Country Gov./GDP Unemployment rate

China 28.4% 4.1%
Hong Kong 18.2% 3.3%
Japan 39.8% 3.4%
Malaysia 27.6% 3.0%
Singapore 17.6% 1.9%
South Korea 21.3% 2.7%
Taiwan 19.3% 4.2%

And here are the immigrant societies:

Australia 37.6% 6.4%
Canada 44.0% 6.5%
Chile 24.3% 6.1%
Israel 40.3% 5.9%
New Zealand 34.8% 5.6%
USA 36.9% 5.5%

Note that the US is a fairly typical immigrant society.

Europe has too many to list individually, but here are a few data points. The EU unemployment rate is 9.9%, far higher than the other two regions. If you focus just on Western Europe, only Ireland and Switzerland have government spending below 40% of GDP, and Austria, Belgium, Denmark, Finland, France, Italy and Sweden exceed 52% of GDP. Most of the rest are above Canadian levels, the biggest spender of the immigrant societies.

So my hypothesis is that the immigrant societies are a bit tougher than Western Europe. Perhaps this reflects cultural differences in the sort of people who migrated vs. those who stayed home. But it could also reflect lots of other factors. In the US the legacy of slavery plays a role, with the South being "tougher" than the rest of the country. Israel obviously has a very special history, while Chile is the richest of the Latin America group. I included Chile for comparison purposes, not because it "fit" particularly well. Ditto for Malaysia, which has a PPP per capita GDP around $26,000, and thus is a borderline developed country. China was included because I believe it will eventually become developed, and its size makes it important.

My other claim is that East Asia is much tougher than Europe. That "reframes" the US, which now looks "normal" on issues like the death penalty and the size of the welfare state. It is Europe and East Asia that are the extremes. The perception that the US is an extreme case may come from the fast that Western intellectuals simply don't take East Asia seriously. They tend to think in terms of crude caricatures:

Critics mock Singapore for being like North Korea or as "Disneyland with the death penalty", as William Gibson described it in 1993.

I don't recall the exact quote, but the great Simon Leys once suggested that 5000 years of Chinese history could be divided up into two types of periods.

A. Times when the status of the Chinese masses was little better than slaves.

B. Periods of turmoil, when the Chinese masses yearned for period A.

Singapore is changing, and will continue to change. But even so, it's not hard to see why many Chinese might see "Disneyland with the death penalty" as a positive first step.

So is toughness good or bad? Like many Econlog readers, I tend to have libertarian views, although I'm more moderate than some. So I view toughness as a mixed bag. I don't like the illiberal attitudes often associated with toughness, but do like the small government policies. For me the ideal setup is closer to Australia, or Washington (state)---fairly liberal on social issues, but opposed to high taxes. For international readers, Washington is the only liberal American state with no state income tax, and it has legalized pot and physician assisted suicide. Australia has a small government by western standards, and has legalized prostitution.

And in neither place is it illegal to chew gum.

PS. I am well aware of the fact that within regions like Europe the unemployment rate does not always correlate well with the size of government; there are many other factors involved. But I do think the three regional differences in unemployment are interesting, and these differences were there even before the Great Recession. Europe has had high unemployment for many decades. Indeed from soon after the time they created their huge welfare states.

PPS. The unemployment numbers would have looked quite different in 2009, but I'm more interested in the "natural rates of unemployment."

Update: Today I have my first opinion piece in the New York Times, on the strong dollar.


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COMMENTS (8 to date)

Interesting to think of "immigrant societies".

In the old EU, Luxembourg is a sort of immigrant society (~50% of residents were born abroad) and has low taxes (gov spending at just above 40%, it was lower a few years back), lowish unemployment (7%, which is what passes as low around these parts) and a general "Get a Job" attitude the welfare system (there is a strong pro-family welfare system, with a lot of redistribution from no-kids households towards many-kids households; but it's not so generous for non-parents who would prefer not to work—fine by me, as a worker with kids). No death penalty, but pretty harsh on criminals.

Of course, in this case, it was the low taxes that caused the immigration, but maybe it's a self-sustaining equilibrium.

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Scott Sumner writes:

Luis, Thanks for that info, and good points. Only in Europe would a G/GDP ratio over a little over 40% be viewed as small government.

E. Harding writes:

Do the Latin American ways (which are mostly failures at getting to first-world status) classify as "Hard" or "Soft"?

John Voorheis writes:

Half baked, but doesn't the extremely low fertility rates in the East Asian countries have something to do with this? Compositionally, there are just fewer people in "high unemployment" age groups relative to US/Australia/Canada.

To see this, think about fitting a curve to the pooled data, versus for each group separately. It looks to me like the East Asian countries just have a "shifted down" unemployment rate, consistent with the fertility story.

Quick R-markdown doc for visuals here: http://pages.uoregon.edu/jlv/east_asia.html

LK Beland writes:

About the unemployment rates, be careful, it depends on methodology. For example, if Canada used the US method, its unemployment rate would be around 5.5%.

Also, the employment ratio (25-55) is much higher in Canada than in the US. Then again, methodology matters.

I suspect the same is true for the other countries in this comparison.

Scott Sumner writes:

E. Harding, I'd guess a mixture of the two.

John, Italy and Spain also have very low fertility, and extremely high unemployment. Singapore has massive immigration.

LK, Good point, but if we used total hours worked it would still fit. The East Asians work more hours than Americans, and the Europeans work fewer hours.

RobF writes:

Congratulations on the invitation to participate in the NY Times roundtable!

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