Alberto Alesina and Edward L Glaeser,

Fighting Poverty in the US and Europe

(Oxford University Press 2004)

This book addresses the reasons why Europe and the United States developed different attitudes towards redistribution. The authors intend to resolve a long dated puzzle: why did Europe develop such a different attitude toward redistribution than the United States? Since the United States and Europe are rich countries, with a democratic system and with shared values, why are Americans less enthusiastic to redistribute wealth than Europeans?

The book is aimed at answering these questions. It is written in a manner that gives the reader a sense of journey, which at the end will attempt to provide the answer to these puzzles. Fighting Poverty in the US and Europe shows awareness of the socio-economic differences between the two sides of the Atlantic and the implementation of their respective poverty eradication policies. Thus, although not directly touched upon, the Human Rights Based Approach (HRBA),1 understood as an approach to development that guarantees the accomplishment of human rights, could be indirectly implied into the workings of this analysis. In this connection, this book contributes to the evaluation of the effects produced by the design of welfare policies in the United States and Europe.

At the commencement of the book, Alesina and Glaeser, both economists from Harvard University, tackle the welfare enigma using economic explanations in chapters 2 and 3. Since the base of the book is redistribution, the term is defined as, to ‘favour the poor and disadvantaged (health, unemployment subsides, transfers to low income families, disability, etc.), by means of progressive taxation to collect revenues for the government, and also by certain types of labour and goods market regulation’ (p 2).

Another key concept in this book is social mobility, which is defined as the movement up and down the income ladder. Although this concept seems to be quite simplistic, one interesting finding in this section is the authors claim, based on survey findings, that Americans believe their society to be mobile while Europeans believe the poor are ‘trapped’.

The book explains that these differences of perceptions are marked by the fact that Americans believe that people live in poverty because of a lack of effort, while Europeans believe that they are poor because of a system full of obstacles and a lack of luck. Indeed, Americans feel their society offers more chances for everybody to become rich, and those who do not take the chance are lazy and do not deserve much support. However, the authors asseverate that Americans living in poverty work as much as their European counterparts.

The authors present a discussion of the evidence for these arguments distinguishing between beliefs about income mobility and actual measures of mobility. Although they recognise there are enormous difficulties in making measurements and comparisons of income mobility across countries, the data provided seems to suggest that US-Europe differences are small and, if anything, the poor in the United States are more likely to stay poor than the poor in Germany and Italy. Alesina and Glaeser consider however, that neither past nor present realities of mobility and opportunity can actually explain the differences between European and American attitudes towards redistribution.

A positive contribution of the book has to do with the idea that higher social mobility in the United States is viewed as a substitute for redistributive policies. So, even if Americans do not observe much more upward mobility of the poor than in Europe, they seem to believe that this is not because there are no opportunities for the poor in the United States, but because the poor do not try hard enough. However, perceptions about the extent of social mobility may not be completely consistent with the available hard evidence. Whether the middle class is more upwardly mobile in the United States than in Europe is unclear.

One possible explanation is that Americans are less risk averse than Europeans, and therefore less worried about downward mobility. In that sense, since the United States is a country of immigrants, those who left their countries of origin in search of fortune to escape poverty were risk-taking by nature. The authors also suggest based on evidence that business failure is associated with fewer stigma in the United States than in Europe. Despite these reasons, the questions about the redistribution differences are still unanswered.

Another view is that European countries may be more redistributive because they are more unstable. This theory states that given their smaller size, European economies are more volatile, contrary to the belief of the authors. Indeed, the authors are aware that the US economy has been less stable than Europe in terms of variability of GDP growth and unemployment rates. However, it could be argued that the authors were too optimistic about the power of the European Union, particularly in light of the effects of the financial crisis and the current instability of the euro.

One explanation based on the discipline of economics is that if tax collection involved fewer social losses, then the cost of the welfare state would be lower in Europe. However, the authors argue that it is quite unlikely that differences in the efficiency of the tax system can explain the large transatlantic differences in the size of the welfare state. The authors claim that there are huge differences in tax collection within Europe, and that there are cases where the United States should be better prepared than certain European countries, for instance Italy. Even if it is found that the United States has a much less efficient tax system than Europe, it is not sufficient evidence that this is a “cause” of different redistributive policies in the United States.

Another cause could be that the United States has a more unequal income distribution than continental European countries, both pre- and post-taxes. In fact, the United States has a personal income tax which is among the least progressive, based upon several indexes of progressivity. For instance, although it was not the intention of the book to make a comparative study of the pension system in the United States and in Europe, one interesting finding is that the poor in Europe receive much more than the poor in the United States as a share of their salary when they retire. The pension systems in Europe imply some redistribution from rich workers to poor retirees. In that sense, the authors claim that the United Sates has a more unequal distribution of wealth accumulated during working years, and the US public pension system is less targeted towards reducing inequality than European systems. Of course, this is important for a HRBA analysis, since it allows the identification of potentially vulnerable groups.

Alesina and Glaeser also believe that if one were born at the bottom end of the income distribution, one would be much better taken care of by government policies in Europe than by those in the United States. For instance, the health system in the United States is based on individual responsibility, while in Sweden or Germany the state will pay. The point of this book, however, is not to argue in favour of high taxes and extensive regulations, but rather to explain why such differences in the welfare states of the US and Europe exist.

On the other hand, discourse of the European Union in support of labour market regulations suggests that they defend the underprovided workers against the business community, but this may just be rhetoric. Both, Alesina and Glaeser believe that there is in fact an increasing awareness in Europe that these labour market regulations, perhaps originally introduced with a goal of protecting the disadvantaged, have produced more harm than good. However, this assertion by the authors could be fairly argued, particularly after the lack of protection given to Europeans after the financial crisis of 2008. In fact, one of the main key components of legal empowerment is legal rights and protection.

In any case, for the purpose of the book it is argued that although labour market regulations tend to redistribute in favour of the labour force, they are not necessarily in favour of the poorest and least protected section of it. HRBA will add that this has to be overcome in order to eliminate these power constraints and to provide the latter group with the capacity of empowerment in order to have decent opportunities in life.

In general terms, European countries could make a much larger effort to protect the poor and redistribute wealth than the United States. Is the redistributive effort in Europe successful? The authors do not address this question in the book. Income inequality both before and especially after taxes is higher in the United States. Despite various shortcomings of the welfare state in Europe, it certainly has achieved a certain degree of equalisation of income.

The authors argue that perhaps, the difference in preferences over spending may be the cause of different degrees of efficiency of the tax system at collecting taxes. In fact, Americans do not oppose every form of government spending. For instance, the United States spends much more on military defence than European governments do. The point that Alesina and Glaeser consider important is that it does not seem that Americans object to all forms of government activities, but only to a section of them, especially those having to do with redistribution and help to the poor.

The last economic explanation that the authors provided in the book is that Americans are less generous than Europeans, and therefore want to redistribute less. However, interesting information is presented, which indicates that private charity in the United States is more generous than in Europe. The authors claim that this is perhaps due to the Europeans’ perception that they are highly taxed. Also, another interesting finding is that Americans may prefer private charity to public charity, since in this way they can choose freely whom to support. This is explained by the fact that Americans like many other people would rather contribute to the causes that benefit their own race, religion and ethnicity.

In this chapter, the authors also maintain that if democracies desire equality, then more intrinsic inequality should lead to more aggressive government redistribution. However this has not been the case of Scandinavian countries, where equality policies were not prompted by past enormous inequalities, or on the contrary, the case of Latin America, the most unequal region in the world, which has not managed to mitigate this challenge through successful policies. Anyhow, the authors agree that this theory cannot explain the differences in redistribution between the United States and Europe.

Just as the HRBA is also aware of the necessity of exploring different variables and approaches beyond legal means in order to design the right policies, the authors, who are economists, are not convinced that their own discipline can provide a full answer. Indeed, after exploring economic theories based on pre-tax income inequality, openness, the efficiency of the tax structure, and social mobility, they believe sole reliance on this discipline is not enough to explain the causes of the “American exceptionalism”, a term used by many scholars, including Seymour Martin Lipset (1996), who studied why the US is different from other nations.

The authors looked for reasons as to the differences in redistribution by moving to other fields, such as history, political science, sociology, and even psychology, and there, they have greater success. In chapter 4, the book analyses reasons linked to political institutions in the United States and Europe, focusing on the differences and their impact on redistribution.

Alesina and Glaeser claim that proportional electoral systems tend to produce multiparty systems and allow the representation of many, even relatively small groups. One element, they say, is that proportional suffrage has generally been the policy of socialists who thought it would strengthen their power. The proportional system in Europe (with some exceptions) has allowed socialist parties to acquire an important representation in the region. On the contrary, the authors have the opinion that the political system in the United States has not allowed the arrival of new political parties. The authors believe that a major reason why socialism failed to develop within existing American institutions is because these institutions were precisely arranged against socialism, or any comparable minority movement.

Moreover, proportional representation is more likely to produce larger redistributive policies than a majoritarian system or a district system like in the United States. The authors say that in proportional systems with national districts, legislators will favour spending programs that are universal and benefit large groups like pensioners, workers, the poor, etc. Proportional representation failed to catch on in the United States due to its tendency to favour particularly new immigrant population and African Americans, making it unappealing for the white majority. This, the authors believe, is linked to the racial divisions in the US. This argument provides the reader with an understanding as to the reasons why vulnerable groups in the US have been unable to organise themselves and achieve a voice in the political system, a key requirement for a HRBA. However, HRBA does not claim that a national system that carries out universal programs targeting large groups is more favourable. In fact for a HRBA, the empowerment of the less protected constitutes a major concern, and should thus receive priority attention.

Furthermore, the authors believe that suffrage reform and proportional representation were generally accompanied by a breakdown in law and order, which in most cases were produced either by general strikes or actual revolutions. This breakdown in order, they say, reflects both the growing power of the left to agitate society and often a failure in the power of the military to defend the status quo. As such, the political power of socialist and labour groups in the early part of the century are the primary cause of proportional representation in Europe. But why did the socialist party not flourish in the US? In chapter 5, the authors allege that the lack of proportional system is due to historical differences between the United States and Europe. The authors point out three elements:

On the contrary, in the United States, the socialist and communist movements were never able to reform the Constitution. The US was never defeated on its own territory and therefore the generally victorious US army was a much more reliable tool against leftist movements.

  1. Geography: Alesina and Glaeser consider that it was impossible to organise an effective nationwide movement that threatened the entire nation. The vast size of the US also allowed for an escape from poverty in the cities of the east through migration to the west in order to search for individual fortune rather than collective redistribution. They suggest that countries that are bigger are less likely to have proportional representation whilst smaller countries are more likely.

  2. Military success: the authors allege that small European countries, such as the Netherlands and Belgium, had small army personnel before World War I. In this way, the labour movement’s strikes were strong enough to push for proportional representation.  On the contrary, in bigger countries, such as Germany and Italy, proportional representation was introduced after World War I, when the army was weaker and labour unrest dominated the country. As a result, the socialist and communist groups managed to implement policies that benefited their constituencies. France, the authors claim, introduced proportional representation after World War II, when the left was triumphant and the right was connected to those who collaborated with the Nazis.

  3. Ethnic and racial heterogeneity: the authors consider that the white majority in the US was afraid that proportional systems would give representation to racial minorities, such as the Afro-Americans. They remind the reader about Marx’s awareness of the problem that many immigrants in the US felt that it was more important to distinguish themselves based on their origins than to say that they were workers. Another factor is that immigrants arriving in the US were living previously in poverty and thus came with the purpose of seeking a new and better life, rather than to start a revolution.

The authors are aware of cases that do not follow these patterns, such as Sweden, which has never been defeated in its own territory, but then they allege that the density of the population also matters because poor American workers in the cities of the east could search fortune in the unexplored west. Furthermore, while the Swedish population is relatively homogenous, the United Sates is very diverse on ethnic, racial, and religious lines.

A second difference is that the US Constitution emphasises a system of checks and balances, making it difficult for politicians to implement policy changes, and therefore redistribution policies. The American Constitution establishes at least three major institutions, which work against socialist parties: the Presidency, the Senate, and the Supreme Court, each of which has been a major obstacle to progressive policies. Furthermore, Alesina and Glaeser claim that since the US Constitution is much older than those in Europe, many of the latter were the result of revolutionary periods where the workers had some impact. In contrast, the current American Constitution was created by wealthy white men in 1776, although with some amendments since.

In this connection, the separation of powers designed in the American Constitution prevented the introduction of radical welfare policies. American courts have traditionally defended property against government interference and redistribution. More generally, the authors allege, courts in the United States are representative of the way in which the Founding Fathers tried to create checks and balances to avoid an excessive taxation on wealth. One example provided in the book is the moderated effect produced by the mid-term loss in legislative elections of the party holding presidency. Often Democratic majorities in Congress had to face a Republican President, making it more difficult to pass welfare legislation.2 This relates to a HRBA analysis, which claims that legal means cannot per se be positive generators of change in favour of poverty alleviation, contrary to popular beliefs.

Another important aspect has to do with the degree of decentralisation and the federal system of government in the United States, which may interfere with the adoption of state redistributive programs. Alesina and Glaeser have the opinion that since the United States is a more decentralised country than European ones, with the exception of Switzerland, the different states have strong incentives not to redistribute, as this could produce the exodus of the rich and their industries.

Furthermore, more decentralisation implies limits on the state’s ability to tax, and therefore to redistribute. In this sense, fiscal decentralisation serves as an obstacle for the central government acting in fiscal matters by limiting their ability to tax the localised rich in one part of the country and redistribute the proceeds in favour of the localised poor in other parts.

To summarise, political and institutional variables such as the lack of a strong socialist party; the nature of the electoral system in the United States versus Europe; the nature of the federal Constitution in the United States versus more centralised states in Europe; and the different roles of the courts, provide explanatory answers, that in the opinion of the authors, can account for one-half of the difference in the level of redistribution between the United States and Europe. The question of why American political institutions are different from those in Europe still remains.

In chapter 6, the authors argue that one important reason for the differences between the United States and Europe that cannot be explained by reasons of an institutional nature is racial and ethnic fractionalisation. Indeed, their estimates suggest that racial fractionalisation can also explain about half of the difference in redistribution between the United States and Europe.

The United States, Alesina and Glaeser say, is a more fragmented society than Western Europe. In fact, no European country has a level of racial division which is comparable to that of the United States. Moreover, the United States also has a very high level of linguistic and religious fractionalisation. The authors consider that racial divisions constitute an important element since different races often have significantly different incomes which are themselves the legacy of slavery, colonialism, and widely different levels of development across continents.

Alesina and Glaeser claim that the evidence of attitudinal surveys proves that race relations are a critical element of individual preferences towards welfare, redistribution, and the fight against poverty. For instance, while European governments strove to eradicate ethnic and cultural differences over the last centuries, American government put less effort in this task, since it would have been impossible. As a result, the authors consider that it is easier to convince a white middle class person in the United States that a poor is different (black), than to convince a person in Sweden. An interesting reminder in the book is that the relative concentration of minorities among the poor is not recent, and throughout American history minorities have been overrepresented among the most disadvantaged. Precisely, these unfair relations in the structure of power are being tackled by a HRBA.

Therefore, Alesina and Glaeser argue that redistributive policies should be more limited in more fragmented societies where generosity among people is constrained by racial cleavages. In fact, they claim that research on American cities shows that participation in social activities, interpersonal trust, redistributive policies, and provision of public goods are lower in more racially fragmented communities. For example, within the United States, they found that states with a lower share of African-Americans offer more generous welfare systems. The poverty of blacks in the United States make it inevitable that redistribution to the poorest Americans will lead to racial redistribution. After all, in the United States the poverty rate among blacks is 23.6 percent. This point is certainly important for the HRBA, since it focuses precisely on non-discriminatory policies and advocates for the participation of all sectors of society.

Among whites, the authors also found that racially oriented variables predicted the level of support for pro-poverty spending. Survey evidence in the book shows that Americans think the poor are lazy, whereas Europeans think the poor are unfortunate. Based on surveys, Americans who are convinced poverty is due to lack of effort are also more strongly opposed to redistribution. To this day, they allege, the southern states are the least generous to their poor, while the western states are among the most generous in their welfare payments. The authors consider that people are inclined to support welfare if they live close to recipients of their own race, with whom they presumably identify.

However, the authors regard this way of thinking as the result of American politics, and not a cause. While American institutions have strengthened the political right, Europeans institutions have empowered the left; as a result, leftist leaders have been able to indoctrinate Europeans with Marxist ideas about class solidarity and the disadvantages of the capitalist system. In fact, anti-Marxist discourse was not just a tool of the right, but a fundamental part of American foreign policy. Why did right-wing ideology continue to dominate the schools? Surely, the most general answer is local funding and control over public schools. As such, the authors consider that ideology is a natural accompaniment to national policies on welfare, and not a separate cause. Alternately, based on a HRBA, it could be argued that by acting in this manner, a government is not accountable and transparent towards its people.

Another implication for the authors is that fractionalisation reduces redistribution and that if Europe becomes more heterogeneous due to immigration, ethnic division will be used to challenge the generous welfare state. However, the authors are silent about the case of Canada and its welfare system, and how in being a country based also on multi-ethnicity, it has managed to have a better redistribution system than the US.

On the other hand, Alesina and Glaeser consider that nowadays there are politicians, for instance in France, that favour less redistribution policies and emphasise the flaws of recent immigrants. In this connection, based on a HRBA, those politicians that advantage from policies of racial fractionalisation can be considered unaccountable since they can worsen the poverty conditions of minorities.

In chapter 7, the book adds explanations based on the cultural differences between Europe and the United States regarding the perception of the poor. The authors consider that beliefs about the nature of poverty are important because they reflect deeper forces, which have ensured the relatively greater strength of the right in the United States and the left in Europe.

In fact, evidence presented in the book supports another hypothesis which explains that differences in popular beliefs about income mobility and laziness are shaped by politics and indoctrination, not by reality. This is a very important finding for the HRBA framework, since it reveals a lack of transparency on behalf of governments, which could impede the design of effective development policies.

In this regard, the book takes into account the long debate about the relationship between religion and politics. The authors added that the Protestant ethic is also a strong cultural force that leads Americans to view success as a sign of blessing, at least more than Catholic Europe. Indeed, Catholic parties in Europe have been (together with Socialist parties) strongly supportive of redistributive policies.

Furthermore, Alesina and Glaeser allege that immigrants who left the old continent to travel to the new world might have been those more likely to believe in the value of individual initiative. Survey evidence suggests that individual risk aversion is indeed related to demand for redistribution. Americans may, therefore, be less averse to the inequality that they see as a result of different abilities and different comfort levels in risk taking than Europeans.

Final Thoughts

This book is useful for policy makers, politicians, academia and those interested in applying a HRBA to development, since it provides an explanation that allows an understanding of how Europe has managed to implement a redistributive system. From the practical point of view, it also provides some tools to analyse the policies implemented by socialist political parties. The book reminds us that not all government activities are designed to redistribute from the rich to the poor, but certain public policies end up creating unintended redistributive flows, which are not well targeted. In fact, Alesina and Glaeser claim that distortions, mistargeting, and the growth of overprotected minorities (public employees, certain retirees, and union members) are common even in relatively well functioning welfare states.

In general, after showing these kinds of distortions on welfare, it could be inferred that although the book did not talk directly about human rights, it is concerned about poverty eradication and therefore connected to the HRBA. Indeed, it provides new arguments that can definitely contribute to the goals of human rights. For instance, it compiles information about the fragmentation of a society and how the welfare policies have not been effective particularly towards minorities, such as the African-American. The fact that studies like this one are carried on contributes to mobilising collective action and changing current erroneous policies.

The authors consider that no simple economic theory provides a one-line answer. In fact the ethnic heterogeneity and political institutions seem to explain most of the differences in the welfare system of Europe and the United States. More specifically, they believe that the welfare state did not develop as much in the United States as in Europe because of American political institutions, such as majoritarianism (as opposed to proportional representation), federalism, checks and balances, American ethnic heterogeneity, and different beliefs about the nature of poverty in the United States.

This book emphasises the importance of institutions and race, but the authors do not want to leave out other factors that may have a lesser influence on the development of welfare in the United States and Europe. Instead, they argue, it is necessary to take into account economic, political, social, and attitudinal variables, and of course, history. This can be likened to the HRBA, which also avoids its basis solely in legal terms, by arguing the importance of using multiple disciplines and variables. Today, the world is much more complex and interconnected, making it necessary to be open to different reasons and explanations.

Another general finding in the book is that people in bigger countries are much more likely to think that the poor do not work hard. A reason for this finding is that in places that are bigger, politics has tended to favour the right, and as result, right-wing views have become more dominant. However, this assertion should be developed in more detail, in order to prove its applicability.

The authors concluded that the reasons why Americans and Europeans differ on their choices over the welfare state and redistribution run very deep into their different history and culture. This is a key concept inside of the HRBA. Each country is unique, and needs to be analysed taking into account all sectors in society, guaranteeing the participation of civil society and those without a voice, not only governmental.

This book has more relevance today than ever. It was published in 2004, before the financial crisis. In its year of publication, it compiled a large amount of interesting data about perceptions on poverty and welfare policies on both sides of the Atlantic. After the financial crisis, it could be argued that this book’s vision is reinforced, since poverty in the US continues to be very fragmented, particularly towards Blacks and Latinos, suggesting therefore that the right policies to tackle this issue have not been implemented. In 2004, nobody was expecting a crisis of such magnitude, but certainly it forced the American government (and the European as well) to realise there was a huge problem of inequality within its “solid” system. Moreover, a HRBA reminds us that accountability must be reflected in the outcome of policies and since governments have to comply with human rights obligations, they cannot only be focused on growth indicators, but rather on the people, particularly the most vulnerable.

The “American exceptionalism” has been debated over decades. Not only have questions, such as the difference between welfare in the US and Europe been studied, but also, more concretely, why there has not been any socialism in the United States.3 In summary, this book definitely complements and nourishes this long dated debate. However, beyond this, it could be argued that socialist parties in Europe have not achieved deep transformations either, and perhaps they have ended up ruling in a similar manner as the American political parties. The future will show if the US has been behind Europe, or viceversa, or if both are behind in terms of the development of welfare policies.