Commissioned Book Review: Torben Iversen and Philipp Rehm, Big Data and the Welfare State: How the Information Revolution Threatens Social Solidarity
| Author | Achim Kemmerling |
| DOI | http://doi.org/10.1177/14789299221126806 |
| Published date | 01 February 2023 |
| Date | 01 February 2023 |
| Subject Matter | Commissioned Book Review |
Political Studies Review
2023, Vol. 21(1) NP3 –NP4
journals.sagepub.com/home/psrev
Commissioned Book Review
1126806PSW0010.1177/14789299221126806Political Studies ReviewCommissioned Book Review
book-review2022
Commissioned Book Review
Big Data and the Welfare State: How the
Information Revolution Threatens Social
Solidarity by Torben Iversen and Philipp
Rehm. Cambridge: Cambridge University Press,
2022. 232 pp., $29.99 (Paperback); $89.99 $
(Hardback) or $24 (eBook), ISBN 97810091531399
New technologies and big data have often
been linked to inequality. Usually they feature
as external shocks to welfare systems. For
instance, many economists argue that platform
economies can give rise to winner-takes-it-all
economies. This, in turn, dramatically increases
market (income) inequality. Fewer scholarly
attempts address the question of how new tech-
nologies affect the ‘inner workings’ of a welfare
state and create an ‘internal’ source of higher
income inequality. Iversen and Rehm’s Big
Data and the Welfare State fills this gap in the
literature. They build a parsimonious frame-
work for a large suite of welfare state policies,
ranging from health and life insurance, to credit
markets and unemployment benefits. Both the
scope and analytic rigour of this book will make
it an essential reading for political scientists and
economists interested in the political effects of
new technologies.
The authors use George Akerlof’s (1970)
‘market for lemons’ as the analytic point of
departure. Famously, Akerlof showed that asym-
metric private information leads to problems of
adverse selection and, ultimately, market fail-
ure. The market for lemons is a major reason
why welfare states created public, compulsory
insurance schemes in health, pension s and
unemployment protection (p. 7). The central
claim of the book is that new technologies
have undermined this mechanism of public
solidarity.
In their introduction, the authors use the
example of health trackers offered by US private
health insurers (p. 3). Companies lure customers
who are willing to report their health data with
lower insurance premiums. It is obvious that
only healthy people want to do this and, hence,
the insurer pools only good health risks at rela-
tively low prices. People with poor health, who
often also happen to be economically poor, will
be left out. If private information loses its edge
over publicly available information, people and
companies will sort good and bad risks more
effectively, undermining solidaristic risk pool-
ing. Political consequences include the polariza-
tion of policy preferences and the middle class
shifting away from welfare state solutions.
The book combines fascinating case studies
and historical evidence with quantitative evi-
dence for specific hypotheses of the overall
framework. For instance, the authors illustrate
how the dearth of information at the origins of
the welfare state made public mandatory insur-
ance schemes outcompete the usually very
small and selective private mutual aid societies
(p. 48). The authors then proceed to the current
period and investigate how the information rev-
olution transformed three areas: private markets
for health and life, credit markets in their
relation to welfare systems and unemployment
protection.
For health and life insurance, Iversen and
Rehm find that new technologies make private
insurers thrive. The outcome also depends on
the type of political constellation, with left-
wing parties defending public insurance and the
regulation of new technologies, and right-wing
government pushing for deregulation (p. 39).
For credit markets, the authors link similar
trends towards more and better information
about default risks to higher financial inequal-
ity. More and better information not only leads
to more polarized risks and income directly, but
it also leads to governments pushing for reforms
that de-solidarize access to credit. Using a case
from Germany, Iversen and Rehm show that
tightening social minimum benefits has made
banks much more hesitant to give housing loans
to low-income employees (pp. 132–133). Even
unemployment benefit systems get sucked into
the information revolution. Using public opin-
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