Crowding out and in

In the 1990s I was interested in the social capital literature, as a way of empirically addressing some of the ‘communitarian’ criticisms of liberalism that I was writing about in my eventually abandoned PhD. Social democrats – such as Eva Cox in her Boyer lectures A Truly Civil Society – thought that there was a positive relationship between big government and social capital. I thought the opposite was more likely.

Over Easter I read this article by Isabelle Stadelman-Steffen using OECD social spending data and the results of European and World Values Survey questions on volunteering.

Overall for ‘social’ volunteering – for social welfare, health or community action on poverty, employment, housing or racial equality purposes – there was clearly a negative statistical relationship with public welfare spending. This is consistent with the ‘crowding out’ hypothesis, that to some extent the state displaces voluntary activity. In further support of this hypothesis, a large welfare state had no statistically significant crowding out effect for other voluntary activities.

This effect is driven by lower volunteering by high socioeconomic status individuals. More welfare spending is associated with greater volunteering by low socioeconomic status individuals. Possibly they are in a better financial or social position to contribute to their communities. So there may be some ‘crowding in’ as well.

These arguments aren’t particularly compelling on the big policy questions. Welfare states arose not because there was no volunteering and mutual help but because these were inadequate to the scale of the problem. And it isn’t worth spending billions of dollars on social welfare to get poor people to do a bit more for their communities. But I like to see empirical data on old contested questions.

5 Responses to “Crowding out and in

  • 1
    Oz
    April 27th, 2011 20:18

    “As crowding out and crowding in go hand in hand, public welfare services cannot be retrenched and civil society will just ‘take over’; a stronger role of civil society may be at the expense of an increase in unequal participation.”

    Quick, someone tell David Cameron!

  • 2
    Peter Whiteford
    April 27th, 2011 20:48

    Andrew

    I’ll read this paper more carefully in the next few days, but some quick comments. I’m not sure why the author would want to measure social spending in dollar terms rather than as a % of GDP. There is also the issue which doesn’t seem to be acknowledged of looking at differences in net social spending, which the OECD publish since 2000, rather than gross levels (i.e. taking account of tax clawbacks, tax expenditures and private social spending.)

    In the past, I have looked at a slightly different question, which is whether more generous welfare states have lower charitable giving. There is a study by the Pew Foundation as I recall which has some comparative data on private charity, and my interpretation of it was that the USA does indeed have higher charitable giving than most other rich countries, but the higher private charity is not sufficient to offset the higher social spending on the poor elsewhere. (Also it appears that rather a lot of US charitable giving is to universities and it is not clear that this is a way of helping the poor.)

    It is also unclear to me which way causation runs – one might expect that the introduction of more generous social spending will crowd out private charity, but one would also expect that limitations on public welfare will encourage more giving.

  • 3
    Rafe’s Roundup April 27 at Catallaxy Files
    April 27th, 2011 21:36

    […] Andrew Norton reports on public spending crowding out private spending on social capital. Overall for ‘social’ volunteering – for social welfare, health or community action on poverty, employment, housing or racial equality purposes – there was clearly a negative statistical relationship with public welfare spending. This is consistent with the ‘crowding out’ hypothesis, that to some extent the state displaces voluntary activity. In further support of this hypothesis, a large welfare state had no statistically significant crowding out effect for other voluntary activities. […]

  • 4
    Andrew Norton
    April 28th, 2011 05:00

    Peter – It is % of GDP, not gross – all public spending on old age, incapacity, family and unemployment as a % of GDP. To varying degrees in different countries this spending is not all on functions that would attract charitable assistance, but I think it is a good enough proxy for crowding out pressures. I’m not sure that including things like tax expenditures makes sense in this context – for example, deductions for charitable giving would I expect have a crowding in effect (though not necessarily on what is being measured here, personal labour).

    I think this is a relatively good study because it focuses on a distinct issue. If we are just concerned about charitable work then the raw US donations data is highly misleading, because as you suggest much of it is for purposes that are public-spirited but not charitable. It does not count volunteering for organisations that are not charitable.

    It also has appropriate statistical controls – for example, it controls for religion, as religious people are well-known to volunteer more than other people, and the US is much more religious than other Western countries, so this rather than government policy may explain their high volunteering rates. The statistical tests the author performed suggest that there is still a welfare state effect even after accounting for religion.

  • 5
    Francis Xavier Holden
    April 28th, 2011 12:05

    A lot of volunteering is not a simple substitute for some “paid” work.

    A surprising amount of volunteering benefits the volunteer more than the recipient.

    A lot of volunteering is diffuse and undirected and a lot of volunteering crowds out effective interventions.

    A lot of the new corporate sanctioned volunteering is feel good fluffing around.