Compensating the Losers

Abstract

This chapter develops the book's central argument about political institutions, compensation, and reform. It begins by analyzing the term “compensation,” as well as related terms such as “side payments” and “logrolling.” It then shows how compensation facilitates policy reforms in power-sharing systems, where side payments are often used to overcome the opposition of politically powerful losers from reform. Following the discussion of these conceptual and theoretical problems, the chapter demonstrates empirically that compensation has, in fact, been used to bring about important reforms: in the area of trade policy, social policy programs have been used to compensate losers from trade; in the area of labor market policy, governments in power-sharing systems have adopted reforms that combine cuts in benefit provision with positive steps to improve training for the unemployed.