Joseph E Stiglitz Beijing March 2006 Objectives of Social Policies Redistribution Enhancing opportunity Access to education Access to finance Partially reflections of market failure Improving Outcomes ID: 469794
Download Presentation The PPT/PDF document "SOCIAL POLICIES IN A MARKET ECONOMY" is the property of its rightful owner. Permission is granted to download and print the materials on this web site for personal, non-commercial use only, and to display it on your personal computer provided you do not modify the materials and that you retain all copyright notices contained in the materials. By downloading content from our website, you accept the terms of this agreement.
Slide1
SOCIAL POLICIES IN A MARKET ECONOMY
Joseph E. Stiglitz
Beijing
March 2006Slide2
Objectives of Social Policies
Redistribution
Enhancing opportunity
Access to education
Access to finance
Partially reflections of market failure
Improving Outcomes
Even if market is efficient, it may not lead to socially acceptable distribution of incomeSlide3
Objectives
Social Protection
Market failures—absence of insurance to cover major risks
Huge loss of welfare
Lack of security cited as major problem
Problems in insurance risks: Unemployment, annuities, disability, insurance against inflation
Explained in part by theories of asymmetric information
But government has sometimes acted as a catalyst
Basic human needs
Education
Food
Social obligation (specific egalitarianism)Slide4
Full Employment
Most important social policy
Unemployment represents waste of resources
But also leads to adverse social consequences
Market economies do not automatically lead to full employment
And excessive focus on inflation can lead to higher unemployment than necessarySlide5
Trade-offs
Inflation vs. unemployment
Little evidence that moderate to low inflation has any effect on growth
Social programs can insure poor against inflation (indexing social security, etc.)
Continuing debate about broader distributive effects of inflation
With many studies claiming inflation “cruelest tax” flawed in identifying source of problem (oil price shock)
Well functioning markets have unskilled wages adjust fairly quicklySlide6
Trade-offs
Do unemployment benefits lead to higher unemployment, because of reduced incentives to search?
If there is a lack of jobs, more search does not produce more employment (search externality—just increases expenditures on search)
But in Efficiency Wage (Shirking—Shapiro/Stiglitz) models higher unemployment benefits can result in higher equilibrium unemployment
But increased job security has more ambiguous effects on unemployment
What is clear is that
markets by themselves
do not necessarily result in optimal levels of severance pay and unemployment insurance (private markets typically provide little) Slide7
Thinking about Redistribution
Neoclassical dichotomy—can separate “efficiency” concerns from “distributional concerns”
Today, we recognize that such separation is not possible (if there are imperfections or asymmetries of information, incomplete markets)
Social policies/concerns need to be integrated into all government programs
Assessing who benefits
Though often incidence is a complicated matterSlide8
Redistribution
Government needs to think of impact of policies on pre-tax distribution of income (not just adjustments to given after tax income distribution)
China today is in a markedly different position from many market economies
Who are worried about deficiencies in savings/investment
And hence have been pushing for low taxation of capital
In spite of adverse effects on distribution of income
In spite of limited evidence on the impact of such “incentives” on savings
Tax preferences may actually lower net national savingsSlide9
China today is trying to encourage consumption
So can employ progressive capital taxes
China is also in a different position from other developing countries
Traditional debates focused on need to extract “surplus” from rural sector
China needs to increase well-being of those in rural sector
But guard against problem in U.S.,EU, where agriculture subsidies mainly go to large, corporate farmers—huge distortion of resources and increase in inequitySlide10
Opportunities
Unequal access to opportunities
Education, finance
affected by parental wealth
Lowering social mobility
Horatio Alger mainly myth
But also discrimination—discriminatory market equilibrium
Gender, race
Becker was wrong
Impossible to undo fully
Affected by differences in quality of public schools
Location/geographic, network externalitiesSlide11
Opportunities
Huge societal costs of unequal opportunity
Efficiency—not drawing fully on most important factor—labor
Undermining Social Cohesion
Huge costs of exclusion
Manifested in anti-social behavior
But government can make a difference
Affirmative action programs
Directed expenditure programs
Promoting wider access to creditSlide12
Social Protection
Huge costs to insecurity
Widespread market failure
Especially associated with adverse selection
Market efforts directed at “cream skimming”
At enormous economic and societal costs
Helps explain huge transactions cost
Help explain problems in private health insurance marketSlide13
Public sector has to be worried about moral hazard (incentives)
But an integrated social insurance system (Singapore’s provident fund) can mitigate risk and minimize attenuation of incentive
Key question: how much inequality in, say, access to health/medicine should society accept?
Vexing question, especially in societies marked with high levels of inequality in other ways
Probably need to accept basic level of health care, publicly provided (financed)
With high income purchasing additional services
Good news—access to medicine only one of determinants of health
Government should work on other dimensions (nutrition, smoking, drinking) as wellSlide14
China’s Transition to a Market Economy
As China makes a transition to a market economy, it needs to be aware of the limitations of markets in providing basic levels of social protection
There is an important role of government
Which virtually every market economy has recognized
China should learn from the mistakes—the successes and failures of others in designing its social programs
But the strains imposed by China’s extremely rapid growth make it all the more important for its government to assume an important role Slide15
China’s Transition to a Market Economy
China’s decisions will affect not only the performance of the economy
Well designed social programs can even increase productivity
Making sure that all of the country’s talents are given the opportunity to reach their potential
Correcting, or mitigating, market failures
And with a well-designed safety net, individuals may be freer to take risks than they otherwise, encouraging innovation (the Scandinavian model)
But the nature of Chinese society itself