J Econ Inequal (2006) 4: 251–252 DOI 10.1007/s10888-006-9027-7

BOOK REVIEW

Peter H. Lindert, Growing Public: Social Spending and Economic Growth since the Eighteenth Century. 2 Volumes. Cambridge University Press, Cambridge, 2004 Nicholas Crafts

Published online: 24 June 2006 © Springer Science+Business Media B.V. 2006

These volumes are the output of a remarkably ambitious project by a senior economic historian. First, Lindert undertakes the task of quantifying long term trends in social transfers in OECD countries. Second, he seeks to explain these trends in terms of political economy. Third, he gives an analysis of the implications of increased social transfers for output growth. Fourth, he makes predictions about future trends in social spending in the OECD and elsewhere based on his interpretation of the past. Volume 1 presents the material for a wide audience with technicalities kept to an absolute minimum and very regular summaries of the main arguments and conclusions while volume 2 contains detailed accounts of the data and the econometrics on which the argument is based. Lindert’s findings can be summarized as follows. Social transfers in the median OECD country were only 0.3% of GDP as late as 1880 and had risen to just 1.7% in 1930; 50 years later they were just over 20% of GDP but subsequently have plateaued. The basic reason for the slow start, not surprisingly, was the narrowness of the electoral franchise. In the more democratic era of the twentieth century, the major influences on the volume of social transfers in terms both of trends and of dispersion around the median are found to be population ageing, exposure to globalization, higher incomes and the affinities of middle-income voters. Lindert’s interpretation of the historical evidence is that social transfers have been more or less a free lunch with few adverse impacts on levels or growth rates of GDP. In particular, he stresses that the most re-distributive societies have been careful to minimize the disincentive effects; for example, while they have higher average tax rates they do not have higher marginal tax rates on wages and profits. Finally, a key result is that the impact of population ageing is argued to be non-linear such that when the elderly become more than 15% of the population state pensions become less generous per capita and ageing ceases to be a powerful impetus for rising social transfers; thus the elderly will bear the brunt of any pensions crisis in the OECD countries. N. Crafts (B) London School of Economics, Houghton Street, London WC2A 2AE, UK e-mail: [email protected]

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J Econ Inequal (2006) 4: 251–252

Some of these results seem more secure than others. The quantification of social spending over the long run is impressive and by itself is a substantial achievement. Broadly speaking, the account of factors which underpinned the rise of social transfers in the years between 1880 and 1980 is also convincing and probably is as much as can be inferred through regression analysis. When it comes to the equity-efficiency trade-off and the predictions of future trends in social transfers, then many readers may feel less persuaded by the confident generalizations that are made even when they are sympathetic to the general drift of the conclusions. For example, Lindert offers a lengthy discussion of the role of welfare benefits in European unemployment which does not compare well with the best work in the area. Similarly, there is a rich empirical literature on the implications of fiscal policy on economic growth which is given rather short shrift and whose results and methods deserve more respect. And, in arguing that equations estimated from historical experience can be used to predict future trends in social spending, Lindert is surely going beyond the limits of his data and econometric evidence. Nevertheless, these volumes deserve to be very widely read. They provide a tremendous historical context for present policy debates and are full of usefully provocative claims while also providing a wealth of detail on the evolution of social spending.