amkerner/Kerner_Ownership_Society... · Web viewThe ‘retrospective ownership society’ theory starts with a model of preference formation based on retrospective evaluations of

Kerner: Prospectus for “The Ownership Society”

Andrew KernerAssistant Professor of Political Science

University of Michigan, Ann Arbor

The Ownership Society? Pension Reform and the Financialization of Mass Politics

Question & Puzzle

Political economists have long argued that capital owners and non-

capital owners hold different political preferences. Many believe that those

distinctions include capital owners’ preference for free-market capitalism

and the political parties that support it.1 Among those believers are the pro-

market policymakers who, at various times in recent history, have tried to

create a more market-acceptant society by using tax and fiscal polices to

induce more citizens to own financial capital. George W. Bush’s “ownership

society” and, before it, Margaret Thatcher’s “enterprise society” are among

the most famous of many such examples. Despite this, we know very little

about how government-initiated expansions of capital ownership affect

subsequent politics, including their effect on voting patterns, partisan

identification or policy preferences. This book fills that gap. It asks: Is the

“ownership society” real? and, if so, How does it work?

In the conventional wisdom, the “ownership society” works by

creating a new class of capital owners that internalize their interest in the

returns to capital, believe those interests will be best served by policies that

1 In the academic literature see, for example, Biais and Perotti 2002 and Nadeau, Foucault et al 2010. In the popular press see, for example, Nadler 2000, Norquist 2004.

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are “pro-business and against state regulation” (Nadeau, Foucault et al

2010: 1264) and update their political preferences accordingly. That

updating should include a move towards acceptance of capital-friendly

policies and the right-of-center political parties that are generally

associated with them. Extant empirical findings suggest that this sort of

political dynamic occurred following capital expansions in the Czech

Republic and in the United Kingdom (Garrett 1992; Studlar and McAllister

1990, Earle and Gehlbach 2003).

The motivating puzzle in this book is that this conventional

articulation of “ownership society politics” gets wrong the most significant

example of capital ownership expansion over the past 25 years: Latin

American pension reform. Since Chile in 1981, and especially during the

1990s, many Latin American governments fully or partially converted their

defined benefit pension systems into defined contribution systems in which

workers’ tax contributions are invested in financial assets and their

retirement benefits linked to the return on those assets. As of June 2015,

roughly 90 million Latin Americans owned financial capital through a

defined contribution pension system. Despite this, and as the book

demonstrates, there is no evidence to suggest that Latin Americans who

become capital owners through their participation in a defined contribution

pension system have become more market-acceptant, or more oriented

towards right-of-center political parties. If anything, the opposite has

occurred, as Latin American politics moved sharply to the left following the

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pension reforms of the 1990s. The disconnect between prediction and

reality in Latin America is all the more notable for the fact that Jose Piñera,

one of the chief architects of the Chilean reform and among the most vocal

proponents of its diffusion, has cited pension reform’s social engineering

potential as a selling point. As Piñera described his reforms to George W.

Bush “… reform could be used both to provide a decent retirement and to

create a world of worker-capitalists, an ownership society” (Piñera 2001).

The central claim in this book is that Pinera’s “ownership society”

failed to arise in Latin America not because it failed to go far enough to

affect politics, or because of Latin American exceptionalism, but because

the conventional theoretical link between expanded capital ownership and

political behavior is wrong. This book proposes an alternative theoretical

account of that relationship. The ‘retrospective ownership society’ theory

that I propose provides empirical predictions that are at odds with

conventional wisdom, better describe the Latin American experience and

are consistent with similar experiences elsewhere in the world.

The ‘retrospective ownership society’ theory starts with a model of

preference formation based on retrospective evaluations of recent evidence.

In the conventional ownership society, peoples’ beliefs about which policies

and politicians benefit capital are pre-established and remain constant.

Expanding financial ownership simply prompts people to re-categorize

themselves as capital owners. In the ‘retrospective ownership society,’

peoples’ beliefs about which policies and politicians benefit capital are

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dynamic, and responsive to pension participants’ lived experiences as

capital owners. The more people come to own and rely on financial assets,

the more the recent returns to those assets should affect their beliefs about

the state of the economy and how well their interests are being served by it.

The information embedded in financial returns serves two roles. First,

broadening financial ownership broadens the relevance of financial returns

to popular beliefs about incumbent governments’ ability to manage the

economy in ways that serve citizens’ interests. Newly minted capital owners

should be more likely to support incumbent governments who have

demonstrated their ability to oversee high capital returns, and less likely to

support governments that have not. Writ large, broad patterns of economic

voting should become more sensitive to the returns to financial capital as

financial capital ownership becomes more diffused. Second, financial

returns provide a clear, easy-to-understand and frequently updated stream

of information about whether market-based reforms “work”. In contrast,

the performance metrics associated with market-based healthcare or

education, for example, are typically opaque and subject-to-interpretation.

The clarity, objectivity and availability of financial returns as a source of

information allow financial returns to act as an available heuristic for the

performance of neo-liberalism in general. High financial returns create an

evidentiary basis for new capital owners to believe that neo-liberal policies

are welfare enhancing and preferable to their statist alternative. Low

returns creates an evidentiary basis to believe the opposite: that neo-liberal

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and market oriented policies undermine public welfare and that statist

alternatives are preferable.

The empirical implications of this theory differ substantially from

those conventionally associated with ownership society politics. In the

retrospective ownership society, capital ownership expansions are only as

capable of generating a more market-acceptant population as they are

capable of generating high returns. An expanded capital owning class that

is suffering losses should act as a crucible for statism and market-

skepticism. The core of The Ownership Society evaluates the predictions of

the ‘retrospective ownership society’ in the context of Latin American

pension reform. I examine pension reform’s impact on partisan and

ideological identification, economic voting, and attitudes towards the proper

balance of state and market in the economy. I do so using a wide variety of

data sources, including election results and multiple sets of survey data

(Latinobarometer and the Latin American Public Opinion Project) analyzed

at both the individual level (comparing participants in a defined

contribution pension system to their non-participating countrymen) and at

the societal level (comparing country-years with high rates of participation

in a defined contribution pension system to country-years with low rates of

participation. The empirical findings speak to individual level effects, as

well as whether and how these individual effects aggregate into broader

societal trends.

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The results of my empirical analyses consistently support the

retrospective ownership society and consistently fail to support the

conventional understanding of ownership society politics. The combination

of participation in a defined contribution pension system and high pension

returns corresponds with more support for the market in general, more

support for specific forms of market-based social insurance programs and

more support for incumbent politicians, regardless of their partisan hue.

Conversely, the combination of participation in a defined contribution

pension system and low pension returns corresponds with more market

skepticism, preferences for state-provided social insurance programs and

support for challengers to the incumbent government, regardless of their

partisan hue. The lone exception is partisan and ideological identification,

which does not appear to be especially or consistently responsive to pension

reform or pension returns under any circumstances.

Taken as a whole, the empirical findings in the book paint a

consistent and vivid picture of an ownership society that is influential in its

reach, highly conditional of financial conditions, and remarkably devoid of

ideological or partisan content.

Empirical / Theoretical Significance

The Ownership Society is significant in several respects, of which I

note four here. First, it articulates a novel but intuitive theory about the

relationship between government-initiated expansions of capital ownership

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and politics that is at odds with important strands of conventional wisdom

and at the same time more consistent with empirical reality. The theory is

notable for its contribution to comparative politics, but also for its value as

a precautionary tale to the would-be social engineer intent on using an

expanded investor class to generate as, Piñera put it, a ‘world of worker

capitalists’.

Second, to the author’s knowledge The Ownership Society is the first

attempt to systematically document Latin American pension reform’s effects

on mass political behavior. This is significant in itself in light of these

reforms’ importance to the shifting relationship between citizen and state in

Latin America, and to the spread of defined contribution pension systems

worldwide. My findings that capital ownership not only fails to prevent anti-

market attitudes but can actually provoke and exacerbate those attitudes

when returns are low provides important insights into the Latin American

“left turn” during the 2000s and its relationship to the neo-liberal policy

making of the Latin American 1990s. Moreover, the historical and

theoretical portions of this book considers Latin American pension reform

within the longer arc of pension-reform-as-social-engineering initiatives that

stretches back to Caesar Augusts’ pensions for legionaries and Bismarck’s

pensions for urban industrial workers. While these and other episodes have

been studied individually, this book provides a uniquely comprehensive and

encompassing view of the more general phenomenon.

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Third, the theory and findings in this book invite a reinterpretation of

extant empirical findings about the relationship between politics and

expansions of capital ownership in other settings. For example, the capital

ownership expansions that defined Thatcher’s enterprise society are often

thought to have engendered a more market-oriented citizenry in the UK. My

theory can account for these findings and suggests that the enterprise

society’s effect on politics in the UK are better understood as the product of

the Thatcher government having distributed assets at below market prices.

In that sense The Ownership Society implies that Thatcher’s apparently

successful policies are due not to capital ownership alone, but to the

coincidence of expanded capital ownership and high returns to capital. The

Ownership Society speaks similarly to academic work on the political effects

of voucher privatization in Eastern Europe (e.g. Earle and Gelbach 2003,

Biais and Perotti 2002) and to the effect of the 401(k) system on American

politics (e.g. Davis and Cotton-Nessler 2012).

The Ownership Society’s ability to clarify these patterns is

attributable to its focus on Latin America. Differentiating the predictions of

the conventional ownership society and the retrospective ownership society

requires an empirical context in which participation in the capital expansion

varies across individuals, where the returns to capital are homogenous

across individuals in the same country, and where those returns oscillate

between periods of high returns and low returns. The Latin American

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experience is uniquely able to provide these features, and is thus uniquely

capable of answering the question that this book poses.

Fourth, The Ownership Society is an important addition to the “policy

feedback” literature. That literature explores how public policies that create

a valuable “goods” often have substantial, sustained, and not always

intended effects on the political behaviors of people with and interest in

maintaining access to those goods. The United States’ Social Security

system and its effect on the political mobilization of senior citizens is often

held as the paradigmatic example (e.g. Campbell 2003). This book describes

political dynamics that are nothing if not substantial instances of policy

feedback, and they are explicitly described as such in the text. The

Ownership Society shows that the replacement of state-administered

welfare systems with market-based forms of welfare provision does not

undo the policy feedback mechanism, so much as it recasts the group of

citizens whose behavior is affected and reshapes the sorts of behaviors that

are instrumentally rational for that group. In that sense The Ownership

Society shows the policy feedback is a much richer and multifaceted

phenomenon than what is typically demonstrated.

Intended Audience

The Ownership Society will be of interest to five audiences. First, it

will appeal to scholars interested in the relationship between capital/labor

divisions and politics, especially as they apply to support for the welfare

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state. This literature includes Torben Iversen’s Capitalism, Democracy, and

Welfare (Cambridge University Press 2005), Isabella Mares’ The Politics of

Social Risk: Business and Welfare State Development (Cambridge

University Press 2003), and recent articles in the American Political Science

Review by Philipp Rehm, Jacob Hacker and Mark Schlesinger (2012) and

Ben Ansell (2014).

Second, this book will appeal to scholars in the economic voting

literature. A significant strand of that literature emphasizes the way in

which citizens use economic performance as a heuristic for government

competence, and the context specific ways in which that information is

translated into political responses. Examples include Raymond Duch and

Randy Stevenson’s The Economic Vote (Cambridge University Press 2008)

and Mark Kayser and Michael Peress’ (2012) recent work in the American

Political Science Review. This book reifies the context-specific nature of

economic voting, and adds the dual insights that the distribution of capital

affects how governments are judged, and that governments can manipulate

that context by manipulating the distribution of capital.

Third, this book will be of interest to scholars who study pension

reform. Many books have been written about pension reform’s political

origins, including Raul Madrid’s Retiring the State (Stanford University

Press, 2003), Sarah Brook’s Social Protection and the Market in Latin

America: The Transformation of Social Security Institutions (Cambridge

University Press, 2009) and Mitchell Orenstein’s Privatizing Pensions: The

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Transnational Campaign for Social Security Reform (Princeton University

Press 2008). Very little has been written about its political effects, however.

This book will fill that gap and in doing so begin a “second chapter” to that

literature.

Fourth, The Ownership Society will appeal to scholars of policy

feedback, and particularly those who are familiar with Andrea Campbell’s

How Policies Make Citizens (Princeton University Press 2003) and Paul

Pierson’s Dismantling the welfare state? Reagan, Thatcher and the politics of retrenchment.

(Cambridge University Press 1995). The Ownership Society is framed

specifically in order to appeal to these readers, most of who work primarily

in the context of American politics. While the empirical work in set in Latin

America, the framing question is very much rooted in American politics and

our enduring – and unfounded and, as the book shows, dubious – belief in

the “ownership society” as it was framed during the Bush administration.

Fifth, this book will interest scholars of Latin American politics. While

the book is framed around universal themes in the political economy and

political behavior literatures, the empirical tests and concluding chapter are

anchored specifically in the Latin American context. This particular

marriage of theory to empirical context should appeal to a Latin

Americanist audience due to that literature’s focus on questions about the

drivers of popular support for capitalism, and the relationship between

macroeconomic performance and politics. Notable examples include Susan

Stokes Mandates and Democracy: Neoliberalism by Surprise in Latin

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America (Cambridge University Press 2001), and Andy Baker’s The Market

and the Masses in Latin America: Policy Reform and Consumption in

Liberalizing Economies (Cambridge University Press 2009).

Structure of the Book

The book consists of 8 chapters. Chapters 1, 2 and 3 provide the

book’s theoretical and historical background. Chapter 1 provides an

introductory overview, and frames the question in the American and Latin

American context. Chapter 1 characterizes the frequency with which

governments have attempted to manipulate mass politics by manipulating

the distribution of capital, establishes the motivating puzzle, and describes

the theory succinctly, but with enough detail that the reader can

understand the theory and its empirical implications on the basis of the

introduction alone. Chapter 2 discussed the theory in more detail, providing

more systematic exploration of the various assumptions, more discussion of

the theory’s relationship to conceptually adjacent theories in the literature,

and a formal recitation of the hypotheses to be tested. Chapter 3 provides a

general background on pension system design and pension reform, a brief

history of pension reform’s history of being used as vehicle for social

engineering, and more specific information on the politics and design

details of reformed Latin American pension systems.

Chapters 4 through Chapter 7 are empirical. Chapter 4 is a short

chapter that gives an overview of the data and the research designs.

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Subsequent empirical chapters ask a different question and answers is it

using multiple analyses of multiple sources of data. Chapter 5 asks whether

Latin American pension reform has changed the relationship between

economic performance and citizens’ desire to retain incumbent politicians

in office. Chapter 6 asks whether Latin American pension reform has

changed the way citizens view the appropriate balance of state and market

in the economy. Chapter 7 asks whether Latin American pension reform

has created an environment that is more conducive to right-of-center

parties. Chapters 4, 5 and 6 are all written to be assignable in an

undergraduate or graduate course on their own or in conjunction with

chapter 1. Each chapter contains its own restatement of the theory, its own

brief chapter-specific literature review and its own brief description of the

data sources and research designs used.

Chapter 8 concludes by summarizing the results and insights gained,

their implications for the motivating question as it relates to American

politics, and by looking ahead to other questions and research agendas that

are suggested by the book.

Completion Date

The manuscript is completed and ready to be reviewed.

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Table of Contents with word counts

Ch. 1 Introduction: Pensions Reform and the Ownership Society 7,007 words, 1 figure

Ch. 2 The Retrospective Ownership Society 7,130 words, 0 figures

Chapter 3: Pensions, Pension History and Latin American Pension Reform 16,163 words, 1 figure, 2 tables

Ch.4 Data and Research Design Overview

6,502 words, 2 tables

Ch. 5 Pension Reform and Retrospective Economic Voting 13,330 words, 3 tables, 5 figures

Ch. 6 Pension Reform and the Popularity of the Market 9,732 words, 5 tables, 4 figures

Ch. 7 Pension Reform and Partisan Politics 7,868 words, 6 tables, 6 figures

Ch. 8 Conclusion 3,238 words

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References

Brooks, S. (2009). Social Protection and the Market: The Transformation of Social Security Institutions in Latin America, Cambridge University Press.

Earle, J. S., & Gehlbach, S. (2003). A spoonful of sugar: privatization and popular support for reform in the Czech Republic. Economics & Politics, 15(1), 1-32.

Garrett, G. (1992). "The political consequences of Thatcherism." Political Behavior 14(4): 361-382.

Kayser, M. A., & Peress, M. (2012). Benchmarking across borders: electoral accountability and the necessity of comparison. American Political Science Review, 106(03), 661-684.

Nadeau, R., M. Foucault, et al. (2010). "Patrimonial Economic Voting: Legislative Elections in France." West European Politics 33(6): 1261-1277.

Nadler, R. (2000). "Portfolio politics: Nudging the investor class forward." National Review 52(23): 38-40.

Norquist, G. (2004). The Democratic Party is toast. Washington Monthly. 39: 30-32.

Perotti, E. and B. Biais (2002). "Machiavellian Privatization." The American Economic Review 92(1): 240-258.

Piñera, J. (2001). Toward a World of Worker-Capitalists. Cato Institute. http://www.cato.org/publications/commentary/toward-world-workercapitalists.

Studlar, D. T., I. McAllister, et al. (1990). "Privatization and the British electorate: microeconomic policies, macroeconomic evaluations, and party support." American Journal of Political Science: 1077-1101.

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Brief Author Bio: Andrew Kerner is an assistant professor in the political science department at the University of Michigan. He writes about the politics of finance, with particular focuses on foreign investment, pension reform and corporate governance. His work has appeared or is forthcoming in International Organization, Review of International Organizations, Comparative Political Studies, the British Journal of Political Science and International Studies Quarterly.

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amkerner/Kerner_Ownership_Society... · Web viewThe ‘retrospective ownership society’ theory starts with a model of preference formation based on retrospective evaluations of