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When Markets Fail

When Markets Fail: Social Policy and Economic Reform

Ethan B. Kapstein
Branko Milanovic
Copyright Date: 2002
Published by: Russell Sage Foundation
Pages: 248
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  • Book Info
    When Markets Fail
    Book Description:

    The sweeping political and economic changes of the past decade-including the spread of democracy, pro-market policies, and economic globalization-have dramatically increased the demand in developing countries for social programs such as unemployment compensation, pensions, and income supplements for the poor.When Markets Failexamines how emerging market economies in Eastern Europe, Latin America, North Africa, and the Middle East are shaping their social policies in response to these changes.

    The contributors-leading scholars of development and social policy-use detailed case studies to examine whether the emerging economies are likely to move toward European-style welfare systems, characterized by high unemployment benefits and large entitlements, or if they will opt for more austere, stripped-down welfare regimes. They find that much will depend on how well emerging economies perform economically, but that the political forces, ideological preferences, and historical backgrounds of each country will also play a decisive role. In his chapter on Central and Eastern Europe, Peter Lindert focuses on how aging populations and the fall of communism have fostered increased need for social assistance in the region. In contrast, Nancy Birdsall and Stephen Haggard highlight the positive role of democratization and Western-style social programs in promoting East Asian social policies. Zafiris Tzannatos and Iqbal Kaur argue that governments in North Africa and the Middle East must foster both human capital formation and competition in the market for social services if they are to meet the growing need for services.

    When Markets Failpresents some evidence that a global convergence in social policies may be taking place: as Europe slowly makes its welfare provisions less generous, the emerging market economies will be under increasing demographic and political pressure to make their social welfare systems more comprehensive. The book also examines the vital role that organizations such as the World Bank, the International Monetary Fund, and the Asian Development Bank can play in fostering effective social services in developing economies.

    Economic globalization and political liberalization have produced many economic winners around the world, but these forces have created losers as well.When Markets Failaddresses the problem of how governments in developing countries have responded to the plight of those losers through social policy. The success of these policies, however, remains sharply contested, as is their role in helping to achieve meaningful poverty reduction.When Markets Failis essential reading for anyone interested in economic liberalization and its consequences for the developing world.

    eISBN: 978-1-61044-327-2
    Subjects: Political Science, Sociology

Table of Contents

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  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-vi)
  3. Contributors
    (pp. vii-viii)
  4. Preface
    (pp. ix-x)
    Ethan B. Kapstein and Branko Milanovic
  5. Chapter 1 Introduction
    (pp. 1-24)
    Ethan B. Kapstein and Branko Milanovic

    At a time when most Western governments are seeking to reform their welfare states, developing nations around the world are confronting a growing demand for social policy. The challenges facing these countries run the gamut from establishing social insurance and assistance programs where none had previously existed (as in some Asian countries) to addressing the huge increase in poverty and unemployment that has accompanied economic reform (as has occurred in the post-communist transition states). In all cases, social policies must be shaped in the context of severe fiscal restraints and limited administrative capacity, on the one hand, and an increasing...


    • Chapter 2 Welfare States in Central and Eastern Europe
      (pp. 27-57)
      Nicholas Barr

      Welfare states in many countries face similar problems, including fiscal constraint and a need to reform the state sector. This paper sets these general issues to one side and focuses instead on what is distinctive about the transition from plan to market in Central and Eastern Europe (CEE). It argues that the communist welfare state was well adapted to the old economic order and—precisely for that reason—is systematically and predictably ill suited to a market economy.

      The old economic order can be characterized, very broadly, as having a fairly flat income distribution, generous universal benefits, including extensive subsidies,...

    • Chapter 3 After the Crisis: The Social Contract and the Middle Class in East Asia
      (pp. 58-101)
      Nancy Birdsall and Stephan Haggard

      The Asian financial crisis that began in Thailand in July 1997 put in bold relief two big differences between the Asian and the Western economies. One has been hotly contested; the second has been virtually ignored.

      The first is the difference signaled by the label “crony capitalism”—the notion that the Asian model of conservative state-managed capitalism was too reliant on close ties among government, business, and banks, lacking in transparency, and thus prone to moral hazard and vulnerable to crisis. Of course, this model cannot be held altogether culpable; it had produced high growth in the past, and the...

    • Chapter 4 Is There a Future for Social Policy in Latin America?
      (pp. 102-145)
      Miguel Székely and Ricardo Fuentes

      Latin America is a region with a tradition of investments in public health and education. The state has devoted considerable effort to providing labor protection and to implementing policies explicitly aimed at reducing poverty. Paradoxically, these traditions coexist with the well-known fact that Latin America has the highest level of income inequality in the world. How is this possible? Is the strategy followed so far simply wrong? Should the public sector do more, or should it do less?

      This chapter seeks to provide some answers to these three questions, with special emphasis on new approaches for social policy for the...

    • Chapter 5 Welfare State Policies in the Middle East and North Africa
      (pp. 146-182)
      Zafiris Tzannatos and Iqbal Kaur

      This paper reviews public social spending and programs in the Middle East and North Africa (MENA) region in light of the significant economic changes that have occurred since the early 1980s. At that time, economic growth rates, averaging 7 percent a year, were historically high, driven in large measure by booming oil revenues. Social policies benefited from the increase in state spending, as did employment opportunities. As a result, MENA had the lowest levels of poverty of all developing regions.

      A reversal of fortunes in the 1990s was accompanied by significant policy changes. Public sector reform, greater openness to the...


    • Chapter 6 What Drives Social Spending? 1780 to 2020
      (pp. 185-214)
      Peter H. Lindert

      Social spending is mainly a twentieth-century phenomenon. As shown in table 6.1 and figure 6.1, which present the share of social transfers in gross domestic product (GDP), hardly any taxes went into social spending in Western Europe or America in earlier times. Historically, the main kind of social spending was in the form of poor relief, which was stretched thin to cover the poor and disabled of all ages. There were no mass public school systems, no tax-based health insurance, and no unemployment compensation beyond seasonal poor relief. It is only in the nineteenth century that we begin to see...

    • Chapter 7 Conclusions
      (pp. 215-224)
      Ethan B. Kapstein

      Social policy now holds a prominent place in serious discussions of international economic policy. This reflects growing public economic reform, including liberalization, privatization, and globalization. It is the workers affected by these changes who have felt increasingly vulnerable in light of the loss of job security and the host of state-provided social benefits they once enjoyed. From Latin America to East Asia, questions are being raised about the costs and benefits of the neoliberal prescription.

      This chapter seeks to make policy recommendations for governments and international institutions based on the empirical findings presented in the regional studies and to provide...

  8. Index
    (pp. 225-235)