Social policy in open economies: Forces for Sustained Divergence

social policy in open economies

Social policy in open economies: Forces Increasing the Demand for Social Policy Initiatives

Social policy in open economies: Forces Inhibiting Governments from Supplying Social Policies

Social policy in open economies: Forces for Downward Harmonization to Occur

Social policy in open economies: Forces for Upward Harmonization

Social policy in open economies: Evidence: Harmonization or Sustained Divergence

Various forces are also at work to sustain a divergence in social policies. Lower-income countries, for example, may be caught in a ‘‘low equilibrium’’ trap rather than converging upward. A divergence of social policies may therefore be sustained for an extended period of time, just as divergent growth ratesmay be sustained.

The conditions under which social policies are first established may exert a persistent influence on future policies. This is especially the case when bureaucracies and interest groups have a vested selfinterest in sustaining the policies, and they become embedded in social structures and cultural norms within borders. SeymourMartin Lipset, for example, argued that theUnited Stateswas initially influenced by theAmericanRevolution,which fostered a path of individualism and distrust of government. Canada, in contrast, started off on a path of loyalty to Britain and less distrust of collective action through the state. Such different initial conditions and subsequent path dependence may help explain the more extensive social policies that prevail in Canada compared with the United States.

Sustained divergence can also be fostered by the heterogeneous demands of various groups with differences in their preferences or needs for social policies aswell as in theirwillingness and ability to pay for such policies. In such circumstances, a Tiebout-type equilibriummay prevail where individuals and firms sort themselves into jurisdictions that offer the social expenditure tax combination that meets their preferences. Just as openness and globalization can foster diversity in consumer options, they can foster diversity in choices of social policies.