The Political Consequences of Self-Insurance: Evidence from Central-Eastern Europe, the Caucasus and Central Asia

Katerina Tertytchnay and Catherine E. De Vries

In the past decades the cost of protecting against economic uncertainty and income risks has largely shifted from society as a whole to individuals. To insure against risk and compensate for income loss in the event of an economic downturn, poorer and richer households around the world increasingly engage in self-insuring behaviours. They accumulate precautionary savings, invest in risk-hedging assets (like a house for example), or rely on monetary and non-monetary help from friends and family at home or abroad.

Households’ ability to privately manage economic risk and uncertainty is what is generally called self-insurance. Existing research shows that self-insurance affects voters’ redistributive preferences and support for the welfare state. We argue that self-insurance matters not only for what voters want from their governments, but also for how they evaluate their governments to be performing in the first place. More specifically, we suggest that because self-insurance enables households to smooth consumption in times of need, people with access to it hold more positive evaluations of their household finances, as well about how the national economy, and by extension the incumbent, is performing. This also means that voters may be crediting incumbents for their own decisions to manage economic uncertainty rather than based on incumbent performance.

We provide empirical support for our expectations by relying on public opinion survey data from 28 countries in Central Eastern Europe, the Caucasus and Central Asia, and combining it with panel data from Russia and macro-data on economic performance. This data was collected in the context of the Great Recession, when many of the countries in our sample were still experiencing the aftershocks of the crisis. While countries in the region were greatly affected by the economic downturn, state provided insurance, such as unemployment benefits or last resort assistance programmes, were lacking.

Our study shows that among those affected by the downturn, households with access to private safety nets were by 70 per cent less likely to cut down on consumption, or utility payments compared to than households who lacked access. We also show that by enabling citizens to smooth consumption, self-insurance affects how they form economic perceptions. Respondents with access to private safety nets were more optimistic about their household finances and reported better evaluations of national economic performance than their counterparts. Moreover, we find that almost half of the total effect of self-insurance on evaluations of government operates through these improved assessments of national economic performance. We increase the confidence in the findings by providing additional empirical support from panel and cross-sectional surveys from Russia. The evidence from Russia shows that self-insurance generates economic optimism and ameliorates government approval for both government and opposition supporters alike.

These findings are important for three reasons. First, they demonstrate that self-insurance affects people’s economic evaluations and political attitudes. Second, our results extend existing work concerned with the effect of economic (in)security on social policy preferences, and show that in more and less liberal democracies, private safety nets have political ramifications beyond the realm of social policy. Finally, our findings speak to the economic voting literature showing that cross-nationally, statist economic policy regimes and generous social security systems condition the effect of macroeconomic deterioration on turnout, government approval and the vote. Our findings suggest that just like state provisions, private safety nets can also ameliorate support for the government. Shedding light on the mechanisms through which self-insurance influences political attitudes can also go a long way towards explaining why economic downturns may not always affect government approval, even in contexts where economic hardship is rife, and access to public safety nets is limited.

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