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Social democracy, it is often said, is nice but pricey. Whatever its merits in the rich countries of Western Europe, social democracy is frequently dismissed as an infeasible model for developing countries. Based on generosity towards the poor and protection against market competition, the argument goes, social democracy is only possible in consensual, homogeneous and affluent societies with an extraordinary commitment to equality. In third world countries that are conflict-ridden, heterogeneous and poor, does the social democracy have any relevance? In this article we offer a more agnostic view of the feasibility of the social democratic model of development in the third world. First, we argue that consensus, homogeneity, and affluence are products of the social democratic model, not prerequisites. Second, we claim that the central social democratic policy as a development model was the policy of wage compression attained through highly centralized wage-setting institutions. Third, we argue that the economics benefits of wage compression would be as significant in South Africa, Brazil or India today as they were in the Nordic countries between 1935 and 1970. The political feasibility of a policy of wage compression, however, is open to doubt, hence our agnosticism regarding whether or not the social democratic road to affluence can be repeated. In this paper we consider social democracy to be model of development rather than an end state. In particular, we will not enter into the debate regarding the future prospects of social democracy in Western Europe within the context of European economic integration, a common currency, an aging population and the ever increasing cost of providing the best health care that money can buy. The achievements of social democracy as a development strategy in terms of combining the socialist virtues of equality and security without losing the capitalist virtues of economic efficiency and technological dynamism are not seriously in dispute. What are disputed are the answers to the following questions: What was the contribution of specifically social democratic policies to the high level of affluence and equality in Northern Europe today. Would the policies that successfully promoted development in Northern Europe be equally effective and feasible in the third world in the context of an increasingly integrated global economy?

By incorporating positional dynamics into a conflict model relevant to battlefields and politics, we show that the conditions that induce regime stability can also induce hard conflicts. We show that in contests with incumbent-challenger turnover, i) asymmetric power across groups and positions may magnify conflicts; ii) more severe conflicts can occur with lower turnover of incumbents; iii) power can be self-defeating, as cost advantages can reduce payoffs; and iv) double inequality across positions and groups can maximize the graveness of conflicts and the social waste of resources. The propositions in our paper are contrary to the standard implications of static conict models.

The complementarity between wage setting and welfare spending can explain how almost equally rich countries differ in economic and social equality among their citizens. More wage equality increases the welfare generosity via political competition in elections. A more generous welfare state fuels wage equality via an empowerment of weak groups in the labor market. Together the two effects generate a cumulative process that adds up to a social multiplier explaining how equality multiplies. Using data on 18 OECD countries over the period 1976-2002 (determined by the availability of the generosity index of welfare spending) we test the main predictions of the model and identify a sizeable magnitude of the equality multiplier. We obtain additional support by using spending data to extend the panel up to 2007, and by applying another data set for the US over the period 1945-2001.

Mancur Olson's Logic of Collective Action has provided the dominant framework for understanding the impact of encompassing unions and employers confederations on wage-setting in Western Europe. In particular, scholars have drawn upon Olson's writing to describe corporatism as a means for attaining the collective goods of low unemployment and low inflation in highly unionized labor markets. The strongest impact of corporatist institutions in the labor market, however, was to generate greater wage equality rather than superior macroeconomic performance. To understand the most important impact of corporatist institutions, a new framework that emphasizes the effect of wage-setting institutions on the distribution of wages and salaries is needed. In this article, we present one component of such a framework with a model that illustrates how both employers and unions might gain by central agreements that reduce wage inequality relative to the equilibrium wage distribution with decentralized wage-setting.

The welfare state is generally viewed as either providing redistribution from rich to poor or as providing publicly financed insurance. Both views are incomplete. Welfare policies provide both insurance and redistribution in varying amounts, depending on the design of the policy. The authors explore the political consequences of the mix of redistribution and insurance in the context of studying the impact of income inequality on expenditures in different categories of welfare spending in advanced industrial societies from 1980 to 1995. They find that spending on pensions, health care, family benefits, poverty alleviation and housing subsidies is largely uncorre-lated with income inequality, but that spending on income replacement programs such as unemployment insurance, sickness pay, occupational illness and disability are significantly higher i n countries with more egalitarian income distributions. They show that this pattern is exactly what a theory of political support for redistributive social insurance programs would predict.

Mancur Olson's Logic of Collective Action has provided the dominant framework for understanding the impact of encompassing unions and employers confederations on wage-setting in Western Europe. In particular, scholars have drawn upon Olson's writing to descripe corporatism as a means for attaining the collective goods of low unemployment and low inflation in highly unionized labor markets. The strongest impact of corporatist institutions in the labor market, however, was to generate greater wage equality rather than superior macroeconomic performance. To understand the most important impact of corporatist institutions, a new framework that emphasizes the effect of wage-setting institutions on the distribution of wages and salaries is needed. In this paper, we present one component of such a framework with a model that illustrates how both employers and unions might gain by central agreements that reduce wage inequality relative to the equilibrium wage distribution with decentralized wage-setting.

The welfare state is generally viewed as either providing redistribution from rich to poor or as providing publicly-financed insurance. Both views are incomplete. Welfare policies provide both insurance and redistribution in varying amounts, depending on the design of the policy. We explore the political consequences of the mix of redistribution and insurance in the context of studying the impact of income inequality on expenditures in different categories of welfare spending in advanced industrial socieities from 1980-1995. We find that spending on pensions, health care, family benefits, poverty alleviation and housing subsidies is largely uncorrelated with income inequality, but that spending on income replacement programs such as unemployment insurance, sickness pay, occupational illness and disability are signinficantly higher in countries with more egalitarian income distributions. We show that this pattern is exactly what a theory of political support for redistributive social insurance programs would predict.

Divided societies in the developing world experience wasteful struggles for power. We study the relationship between political stability and resources wasted in the struggle within a model of competitive power contests. The model of power contests is similar in structure to models describing oligopolistic market competition. This analogy helps us in deriving results that are new to the conflict literature. We show, for example, that the Herfindahl-Hirschman index can be interpreted as a measure of power concentration and that a peace treaty between Þghting groups have a parallel in tacit collusion between firms in a market.