Cronies against Capitalism

Senior Fellow Kevin A. Hassett
Senior Fellow
Kevin A. Hassett
For economists, the economic success of capitalism creates something of a puzzle. When combined with a relatively small government, capitalism is a well-established ticket to improved standards of living. Yet many countries resist. Why?

A flurry of research has shed new light on the question. The fascinating implication of the latest findings is that preexisting social attitudes toward luck may be the crucial determinant of the political path of a society.

The nearby chart is taken from a widely discussed paper by economists Alberto Alesina, Edward Glaeser, and Bruce Sacerdote. The investigators set out to discover why the U.S. does not have a large welfare state (at least compared with Europe) and uncovered a striking difference between Americans and Europeans. If you ask Americans whether the poor are lazy, 60 percent say yes. If you ask Europeans, only 26 percent say yes.

Consider now a striking pattern that is visible in the chart. The authors found that large welfare states emerge in countries where citizens generally believe that luck determines income. If bad behavior (or laziness) is viewed as a source of poverty, then the welfare state is small. America has avoided the fate of Europe because its citizens disproportionately believe that luck is not that important a determinant of one's circumstances, but hard work is.



This might come as a relief to conservative Americans, who are ever fearful that the Left will succeed in imposing its version of a European welfare state. If Americans are predisposed to believe that high incomes are generally merited, then they will be resistant to change, even if sold by a charismatic salesman like Barack Obama.

A related study by Rafael Di Tella and Robert MacCulloch has found that rampant corruption tends to precede big national swings to the left. This link is itself related to the picture that emerges from the chart. When capitalists succeed because of bribes and corruption, citizens become less convinced that the income distribution reflects merit, and more willing to redistribute.

Recent corporate scandals, and the shameful behavior of the Republican Congress, set the stage for a left-wing backlash that was fully consistent with the historical precedent. It takes more than luck to maintain a free society. If we are to avoid acquiring a welfare state the size of Europe's, we must be vigilant defenders of the rule of law and merciless punishers of the corrupt among us.

Kevin A. Hassett is a senior fellow and the director of economic policy studies at AEI.

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