Elite structure and the provision of health-promoting public goods. Tommy Krieger* *Center for European Economic Research (ZEW), Mannheim Department of Cooperate Taxation and Public Finance [email protected] September 30, 2020 Abstract We compile biographical information on more than 5,000 Prussian politicians and exploit newly digitized administrative data to examine whether landowning and landless elites differ in the extent to which they provide health-promoting public goods. Using natural variation in soil texture, we present results from 2SLS regression, suggesting that the provision of health-promoting public goods improves in the political influence of the landless elite. We also provide evidence for two mechanisms: first, landless elites face a higher risk of strikes, and second, they have more economic benefits from improving the health of the poor. Finally, we show that the relevance of these channels differs for different types of health-promoting public goods. Key words: biographical data, distribution of power, health, land inequality, landowners, local elites, political power, Prussian history, public good provision, redistribution JEL classifications: H11, H41, H75, I15, N33, O43, P16 Acknowledgements: I greatly benefited from discussions with Enzo Brox, Sebastian Blesse, Raphael Franck, Quentin Gallea, Lena Gerling, Klaus Gr¨undler, Erik Hornung, Luigi Pascali, Joachen Streb, Heinrich Urspung, and Maria Waldinger. I also received very helpful comments when presenting this paper at the CESifo political economy workshop in Dresden, the ifo lunchtime seminar in Munich, the PEDD workshop in M¨unster, the University of Konstanz, and the University of Mannheim. 1 Introduction A growing number of studies suggests that health fuels long-run economic growth (Bloom et al., 2004, Cervellati and Sunde, 2011, Lorentzen et al., 2008, Weil, 2007) and that public good provision is crucial for improving public health (Alsan and Goldin, 2019, Beach et al., 2016, Cutler and Miller, 2005, Gamper-Rabindran et al., 2010, Watson, 2006). Yet, we know relatively little about the political economy factors that cause an underprovision of public health services. We address this issue by considering a historical case. In particular, we distinguish between a landless and a landowning elite and illustrate how the structure of the wealthy elite affects the provision of health-promoting public goods in a non-democratic industrializing regime.1 Economic theory suggests different reasons for why landed and landless elites differ in their policy preferences (Acemoglu and Robinson, 2005, Galor et al., 2009, Llavador and Oxoby, 2005, Lizzeri and Persico, 2004). The most common are differences in the perceived risk of social unrest as well as differences in the economic benefits that result from the provision of a public good. Both reasons might play a role in our case. On the one the hand, landless elites might have a greater incentive to provide health- promoting public goods because infectious diseases spread more quickly in sectors where the workspaces are relatively crowded. On the other hand, for worker movements, organizing a large-scale protest against poor health conditions might be more difficult in the agricultural sector since collective action problems are often harder to solve in relatively sparsely populated areas. Investigating whether landowning and landless elites decide differently about the provision of health-promoting public goods is challenging for several reasons. To meet these challenges, we consider late-19th/early-20th century Prussia. Prussia is an appropriate case since local elites decided about the provision of public goods and sufficient heterogeneity existed in the composition of the local elites (K¨uhne, 1994a, Wagner, 2005, Hofmann, 2007). In addition, data availability is sufficiently well to produce both measures for public good provision and indices that reflect how the local political power was distributed between the landowning and the landless elite. Finally, when considering Prussia, we can apply a two-stage least squares (2SLS) approach that allows us to interpret our results as effects rather than correlations. Our results suggest that the provision of health-promoting public goods improves if the political power of the landless elite increases. Consistent with standard political economy models, we observe that our key finding can be explained by two complementary factors: first, landless elites face a higher risk of strikes, and second, they enjoy greater economic benefits 1Our differentiation is consistent with most political economy models that distinguish between two types of elites (see e.g. Galor et al., 2009, Llavador and Oxoby, 2005). The term \landless" elite bundles together wealthy citizens that are not engaged in the agricultural sector (i.e. firm owners, lawyers, professors, merchants, master craftsmen, judges, teachers, etc.). 1 from providing public goods. We also show that the relevance of these two channels differs for public goods that prevent the outbreak of diseases and public goods that help to heal sick people. A key empirical challenge when examining whether landless and land- owning elites differ in their willingness to support the provision of health- promoting public goods is to produce a measure that indicates how the political power was distributed between these two groups. To address this issue, we propose a novel approach. Our approach exploits the fact that both the landowning and the landless elite in late-19th/early-20th century Prussia aimed to fill political posts with their representatives and assumes that the distribution of the political posts reflects the distribution of the political power. To implement our approach, we proceed in three steps. In the first step, we compile lists, including all county directors, all elected members of the Prussian parliament (Abgeordnetenhaus), and all directly elected members of the German parliament (Reichstag). In total, our lists include more than 5,000 Prussian politicians. In the next step, we hand- collect biographical information on all politicians in our data set. We use these information to identify which politicians have personal benefits from representing the interest of the landowning elite. A politician counts as a representative of the landowning elite if he owns an agricultural estate or has landowning relatives. In the final step, we calculate for all Prussian counties the share of posts occupied by representatives of the landowning elite. We use newly digitized administrative data to measure the provision of health-promoting public goods. Our main measure takes into account eight different public goods and varies at the county level.2 In complementary analyses, we distinguish between public goods that treat sick people and public goods that prevent the outbreak of infectious diseases. To address the concern that our basic measure neglects quality differences, we use the infant mortality rate as an alternative measure in some of our robustness checks.3 We begin our empirical analysis with a cross-sectional OLS regression. The results of this regression suggest a positive and statistically significant correlation between the local political power of the landless elite and the provision of health-promoting public goods. A series of robustness checks shows that this positive relationship holds if we control for district fixed effects and a comprehensive set of county characteristics. We also present various sub-sample analyses and rule out that our findings are driven by the procedure of how we measure the distribution of the political power. Finally, we run panel regressions to illustrate that our results cannot be explained by unobserved time-invariant county characteristics. To establish causality, we use an instrumental variable approach that 2Our list of health-promoting public goods includes: hospitals, sewage systems, water supply systems, waste collections, health funds, nursing facilities, baths, and slaughter houses. 3A second advantage of using the infant mortality rate is that we can run panel regressions. 2 exploits exogenous variation in soil quality (for similar approaches, see Cinnirella and Hornung, 2016, Easterly, 2007, Goni, 2018). Our second-stage estimates suggest that the landless elites provide more health-promoting public goods than the landowning elites. In particular, we find that a one standard deviation increase in the political power of the landless elite improves the provision of health-promoting public goods by approx. 0.3 standard deviations. Common first-stage diagnostics indicate that a weak- instrument bias is unlikely. We also provide evidence, suggesting that the exclusion restriction holds. We present two mechanism analyses to explain why the landless elite provides more health-promoting public goods than the landowning elite. In the first analysis, we present results, suggesting that landless elites face a higher risk of strikes and thus need to provide more public goods that improve the health of the poor. More specifically, we illustrate that the positive relationship between the political power of the landless elite and public good provision is more pronounced if workers' movements are well organized. Our second analysis examines whether landless elites are more concerned about the outbreak of infectious diseases. In particular, since the landless elites are often engaged in sectors in which workspaces are relatively crowded, more of their workers will simultaneously be affected if an infectious disease breaks out.