A propos of Morning’s Minion’s post last week on unemployment, I thought I would link to this post from Scott Sumner’s blog Money Illusion. I found the post to be a fascinating read, though it is quite long and hard to excerpt or summarize. Sumner notes that “countries with a high level of civic trust (such as the Nordic countries), tended to have generous unemployment compensation and fewer restrictions on firing workers, and countries with less generous benefits tended to have more rigid labor laws.” Basically, the idea is that people are more willing to give generous welfare benefits if they trust that they won’t abuse them, and this same trust translates into a trust that employers won’t abuse their discretion when it comes to hiring and firing.
Sumner then goes on to note that countries with high levels of civic trust were also among those that moved most quickly and most decisively towards freer markets after 1980:
Between 1980 and 2005 only New Zealand moved toward free markets more rapidly than Denmark. My interpretation is as follows. Free market reforms threaten to erode rents earned by various special interest groups. Thus after 1980 these reforms were more likely to occur in countries where the civic culture is more oriented toward the common good. (In other words if you hear that culture is “tribal,” or that “family comes first,” it’s economy is likely to have statist economic policies.)
There’s a lot more there, but I suppose that the above should be sufficient to pique the reader’s interest or thoroughly enrage him, as the case may be.