American Exceptionalism
The US income distribution is more variable and skewed to the right than the European income distribution. In a standard-medianvoter model, both of these factors predict that there should be more redistribution in the USA, not less. There is no evidence that the US tax system is more inefficient than European tax systems. Privately, Americans are much more generous than their European counterparts, so it is hard to believe that the lack of an American welfare system just reflects some lack of American generosity. Two factors appear to explain America’s low level of redistribution and greater level of inequality: ethnic heterogeneity and political institutions. As I discussed above, ethnic fractionalization appears to be strongly correlated with low levels of redistribution across countries, and America is far more ethnically heterogeneous than Europe. European countries are remarkably homogeneous, either because nations engaged in strong homogenizing policies or because current nations reflect ethnically homogeneous areas that broke away from former empires.
America is a nation of immigrants and kidnapped slaves, and there has never been a policy of homogenization comparable to that followed in France, for example, in the late nineteenth century. The importance of ethnic fractionalization is not only seen in cross-national regressions. As mentioned above, there is a significant correlation between the percentage of the population that is black in a state and less-generous welfare payments. Opinion polls within the USA also confirm the role of race in attitudes towards redistribution. Perhaps most convincingly, there are many examples where left-wing movements were stemmed because of racial divisions. For example, the New York City Draft riot, which was both America’s bloodiest riot and in a sense its biggest labor uprising, petered out in part because the German rioters turned on the Irish. Between 1870 and 1920, conflicts between natives, immigrants, and African-Americans bedeviled the labor movement. During this period, Friedrich Engels himself emphasized the divisions between natives, immigrants, and blacks as a reason why America didn’t have a socialist party. In the 1890s, Southern conservatives used racism to discredit their populist opponents whose policies would have enriched poor blacks in addition to poor whites. In 1928, anti-Catholicism was used against Democrat Al Smith in the election.
In the 1960s, the powerful Democratic political coalition fell apart over issues of race and civil rights in the South. Racial divisions do not automatically breed dislike, but they do make it possible for political entrepreneurs to build distrust and even hatred. Using the coefficient from an international regression where redistribution is regressed on ethnic heterogeneity and other controls, the differences in ethnic heterogeneity between the USA and Europe can explain one-half of the difference in redistribution between these two regions. But racial heterogeneity is not the only reason for American exceptionalism. A number of differences in political institutions between the USA and Europe also help explain the smaller US welfare state. As discussed earlier, there is a strong link across developed countries between proportional representation and the level of redistribution. This link shouldn’t surprise any student of European history—in the early twentieth century, workers’ parties regularly lobbied for the introduction of proportional representation because they thought that this would strengthen their electoral chances.
Using the coefficient on proportional representation from crosscountry regressions, the difference in this one institution between the USA and Europe can explain the smaller US social welfare state (holding majoritarianism constant; Alesina, Glaeser, and Sacerdote 2001). The strong relationship between proportional representation and redistribution across countries reflects more than just a causal effect of this one institution. Proportional representation tends to accompany a wide range of institutions, which together supported the rise of the welfare state in Europe, while American majoritarianism is accompanied by many other political institutions which have helped stem the growth of American redistribution. For example, the US tradition of federalism, which gave power of welfare to the states, seems to have checked the rise of welfare spending as states limit redistribution to keep rich people in and poor people out. Checks and balances within the USA, which are often weaker in many European countries, also appear to check the growth of redistribution. In the 1930s, the conservative bloc in the Senate (combining southern Democrats and northern Republicans) blocked the continuing expansion of the New Deal. Alston and Ferrie (1993) show that southern Democrats only allowed the New Deal policies to impact the South in the 1950s, when technological change made these policies less problematic for their core elite supporters.
In the 1990s, the interactions between Gingrich’s House of Representatives and Clinton’s presidency ended “welfare as we know it.” America also has institutions that are not particularly majoritarian and that represent past political views more than current popular enthusiasms. Both the Senate and the Supreme Court have at various times presented serious roadblocks to the growth of the American welfare state, particularly in the 1930s, but also in the nineteenth century when the Supreme Court repeatedly declared that the income tax was unconstitutional. In the late twentieth century, conservatives railed against a liberal activist court, but prior to 1950, the Supreme Court was a steady brake on the growth of government regulation, taxation, and redistribution. While there seems little doubt that American political institutions help us to understand why the USA has much less redistribution and more inequality, these institutions are themselves hardly the root causes of the differences across the Atlantic. Institutions are rarely the first causes of anything, but rather just reflect more exogenous differences between countries. A comparison of European and American political institutions in 1870would surely tell us that theUSAhad themost liberal, not the most conservative, institutions among wealthier countries. The United States had widespread suffrage and gave more power to democratically elected representatives than most European nations. France had an emperor, Prussia its king, and even England had a powerful, entrenched House of Lords.
In the nineteenth century, the USA had institutions that were particularly progressive, not particularly conservative. The big difference in political institutions between the USA and Europe is the result of radical change of political institutions in nineteenth-century Europe and the relative stability of the USA. Almost every major country in continental Europe had either a full-fledged revolution (as in Germany, Austria, Portugal, Russia), a general strike whose impact was quasi-revolutionary (as in Belgium, Sweden, Finland, Switzerland), a civil war (Spain), or a postwar constitutional revision that completely revamped pre-existing institutions (France, Italy). Some European countries had more than one of these events. In small, dense countries, these violent uprisings succeeded in forcing institutional change even without externally produced chaos. Belgium, Finland and Portugal all revamped their institutions (and established proportional representation) before the FirstWorldWar. In larger countries, big armies made up of soldiers who were socially isolated from strikers or revolutionaries served to repress domestic uprisings before 1914. The real watershed was the First World War, when ancient dynasties were first defeated in battle and then upended by domestic uprisings.
Demoralized armies that were made up of civilian draftees rather than professional soldiers were unwilling or unable to suppress revolution or strikers in Russia, Germany, Austria-Hungary, Turkey, and Italy. As left-wing groups gained control at the expense of defeated dynasties, they crafted political institutions that would entrench left-wing power for decades to come. The European welfare state is, in many cases, built on political institutions which are the legacy of the chaos and defeats of 1918. The USA then is exceptional, not because it lacked violent strikers or because it lacked a labor movement, but rather because these groups were unable to force change in the American Constitution through strikes or revolutions. In the late nineteenth century, in the New York City Draft riots, in the Homestead strike, and in the Haymarket riots, police and Pinkerton agents successfully stopped uprisings. Moreover, because of America’s vast size, these uprisings happened far from the corridors of power, so they did not really threaten America’s political leadership. In the twentieth century, when the Bonus marchers moved on Washington, the undefeated, professional America easily dispersed these straggling veterans with force. America kept its eighteenth-century Constitution, with its strong respect for property rights, because the country did not lose a war on its home soil and the forces of the government were always easily up to the task of repressing left-wing uprisings. In Europe, political institutions reflect the chaos of twentieth-century Europe and the power of socialist forces during that chaos..
