Globalization and the Welfare State, Essay Example

As globalisation becomes the defining, all-pervasive term to describe how international markets function, one of the significant concerns it raises is how it impacts the domestic policies of the nations involved in these international markets. As the intangible economic borders between and among nations have eroded, the manner in which governments shape domestic policies related to social welfare have often shifted. Among the leading theoretical constructs related to the globalisation/social welfare dichotomy is that the forces of globalisation inevitably undermine the capacity for nations to maintain the basic functions of the welfare state (Bowles &Wagman 1997). Viewed with this perspective in mind, the long-term survival of the national-level welfare state construct seems threatened. A closer examination of some of the fiscal, monetary, and political factors at work reveal, however, that the issue is not as simple as it first appears. The survival of the welfare state is not inherently threatened by globalisation, though it must evolve and adapt to the shifting forces of domestic and international political policies and changes in international markets.

Globalisation and the Welfare State: Background and Overview

In order to adequately address the impact of globalisation on the welfare state, it is first necessary to define both terms and consider them in their appropriate historical contexts. The term “globalisation” can be defined as the integration of international markets for goods, services, and capital (Genschel 2004). Seen in this light, globalisation is both a state of affairs and an ongoing process; as such, it tends to be considered as something of a modern construct. In historic terms, however, globalisation in the broadest sense is rooted in centuries of tradition, particularly with the advent of seafaring trade ships that helped to carve out the world as we know it. Even in the narrower sense in which it is framed today, the first rumblings of contemporary globalisation were heard in the early 20^th century in the years before the First World War (Genschel). With Great Britain serving as the Western world’s leader in finance and capital, international trade both among the nations of Europe and between the U.S. and the European markets established the template for modern-era globalisation.

This template was redrawn in the aftermath of World War II, leaving the U.S. as the leading economic force on an international scale (Shinar 2013). The massive destruction wrought by the war on Britain and Europe left a lasting impact on both the physical infrastructure and the economic stability of the individual nations. At the same time the residual effects of the war underpinned a movement towards political and economic solidarity in Europe, which would eventually lead to the formation of the European Union. Under the looming shadow of the Soviet Union, the Western nations of Europe and the U.S. increasingly directed the forces of their economic engines inward, spending money on domestic policies intended to ward off the worst effects of capitalism and economic uncertainty (Genschel 2004). This confluence of political and economic forces led to a period of unprecedented prosperity in the West that lasted several decades.

This economic growth and prosperity was predicated to a great degree on the imbalance between markets on an international scale. In the simplest sense, it allowed some markets –like the U.S.- to exploit the resources of other markets –such as in the developing world- to their clear advantage. Restrictive trade policies and regulations made it possible for this set of conditions to continue unabated well into the early 1970s (Genschel 2004). While a complete accounting of how these conditions were disrupted in the 1970s is beyond the scope of this discussion, what is clear is that the economic prosperity in the US, UK, and Europe between the end of World War II and the oil shocks of the 1970s made it possible to finance the creation and ongoing maintenance of the welfare state (Stryker 1998). The apparatus and functions of the welfare state differ from one nation to another, but generally tend to include proscriptions to care for the poor and the elderly either through direct payments or the provision of services for health care, food, and other support. As shifting economic forces began to reshape the way international markets interacted, however, the impact was felt almost immediately on the domestic level in the Western world, leading to cycles of inflation, recessions, unemployment, and other economic problems over the last several decades. It is within these same decades that globalisation has become the defining economic and political paradigm for much of the world, and it is in that context that its impact on the welfare state is being considered.

The Economic Effects of Globalisation

As noted earlier, the broadest definition of “globalisation” addresses the liberalisation of international markets. No market is entirely without friction, whether from regulatory pressures, tariffs, the impact of monetary exchange rates, or other factors. In the context of globalisation, however, these frictions have been reduced, sometimes significantly, making it possible for goods, services, and capital to be more easily moved and exchanged on an international scale. This evolution has had a significant impact on the domestic economies of nations around the world; some nations have benefited greatly, while others have suffered short- and long-term economic hardships as a result of globalisation (Guttal 2007). In the most general sense, the forces of globalisation have changed the way individuals nations can use domestic and political policies to control economic functions within their borders, as business and investors have much greater freedom to seek external labour markets or more favorable financial environments.

As with some of the other points raised in this discussion, a detailed accounting of how globalisation affects national economies is too great an area of inquiry to be adequately addressed here. It is possible, however, to paint a picture of these impacts (especially those that are potentially negative) with a few broad strokes. Labour markets can be affected in a nation or region where high wages or stringent worker protections prompt businesses to relocate production or otherwise exploit less-restrictive or costly labour markets. Such conditions can lead to rising unemployment, which almost paradoxically increases pressure on the welfare state (Meinhard&Potrafke 2012) . The free movement of capital has also had an impact on many domestic economies. Capital owners seeking the most lucrative investment opportunities have taken advantage of emerging markets with attractive tax policies and other favorable economic conditions. As capital flows from, for example, the U.S., critics of globalisation argue that it reduces the tax base on which the federal government raises revenue. This reduced revenue means that federal spending must be cut or money must be borrowed to cover the difference.

Globalisation and the Welfare State

One of the principle arguments made about the nexus between globalisation and the welfare state is simply that the growth of the former undermines the maintenance of the latter (Rieger &Liebfried, 1998). This position is based, at least in part, on the aforementioned concerns about labour markets and government revenue; in short, goes the argument, globalisation leads to decreasing government revenue, which leads to a decrease in spending on the welfare state (Stryker, 1998). This is, however, not the only theory about how globalisation and the welfare state intersect. Some theorists argue that globalisation has a net positive effect on the welfare state, as those affected by globalisation support and vote for politicians who support social welfare programs and policies (Walter 2010). Still others assert that the two domains function as separate entities, and any notable circumstances that appear to support causation between the two are little more than coincidence (Navarro, Schmitt &Astudillo 2004). A fourth position on globalisation is the theory of convergence, in which states that spend greatly on welfare will reduce spending while states that spend little will increase spending as globalisation expands (Guttal 2007).

The disparity among these different theoretical positions highlights the difficulty of assigning any one explanation to how globalisation will (or does) affect the welfare state. For one thing, there is no standard definition or frame of reference for what constitutes the welfare state (Iversen & Cusack 2000). While virtually any amount of spending on social welfare policies and programs can be seen as exemplary of a welfare state, there is no question that different nations spend money in different ways and in different amounts on social welfare. This spending, and the policies it supports, is shaped by a variety of social, political, cultural, and economic factors; as such, what constitutes a “welfare state” in, for example, the U.S. may be quite different than the composition of the welfare state in, say, Sweden (Gizelis 2006). With this in mind, any attempt to make a broad, sweeping assertion about how or whether the welfare state will be shaped by the forces of globalisation is inherently fruitless. As Genschel (2004) writes:

The globalization debate is entering a new, post-heroic phase. Globalization as a phenomenological and causal whole is being deconstructed. The hope of finding in it a meta-variable that accounts in simple, law-like fashion for all the problems and changes of advanced welfare states over the past thirty years has been abandoned. Globalization is no longer conceived as a ‘single-exit situation’ that forces governments to react in a particular way but as a ‘multi-exit situation’ that offers a menu of choice. This is not to say that globalization is irrelevant. It just means that political reactions to globalization are not entirely preprogrammed by globalization itself but also dependent on domestic structures.

The preceding argument by Genschel could be seen as the descriptor of a new post-theoretical phase in the globalisation/welfare state debate. The process of globalisation –and its attendant effects on domestic policies of individual nations- has often been conceptualized (especially early on) as a straight line in which the upward forces of the former must inevitably place downward pressures on the latter. As globalisation has lifted developing economies, however, this has also supported the growth of nascent welfare states where there were none. These disparities underpinned the development of the convergence theory of globalisation, though this construct is also withering in the face of new evidence and information. What emerges from a review of the extant literature on globalisation is that there are few predictive theories that can be said to hold true across the spectrum of nations in the global market. Rather, it must be acknowledged that globalisation is itself an evolutionary set of processes, and as such it will respond in sometimes unpredictable ways to changing forces and conditions (Brady, Beckfield&Seelib-Kaiser 2005). Individual nations will likely have to respond to such changes and shifts as they arise in order to maintain a welfare state that functions effectively, but the notion that globalisation must inevitably trigger the destruction of the welfare state is no longer tenable.

Bibliography

Bowles, Paul. 1997. ‘Globalization And The Welfare State: Four Hypotheses And Some Empirical Evidence’.Eastern Economic Journal 23 (3).

Brady, D., J. Beckfield, and M. Seeleib-Kaiser. 2005. ‘Economic Globalization And The Welfare State In Affluent Democracies, 1975-2001’. American Sociological Review 70 (6): 921-948. doi:10.1177/000312240507000603.

Genschel, Philipp. 2004. ‘Globalization And The Welfare State: A Retrospective’. Journal Of European Public Policy 11 (4): 613-636. doi:10.1080/1350176042000248052.

Gizelis, Theodora-Ismene. 2005. ‘Globalization, Integration, And The European Welfare State’. International Interactions 31 (2): 139-162. doi:10.1080/03050620590950105.

Guttal, Shalmali. 2007. ‘Globalisation’. Development In Practice 17 (4/5).

Iversen, Torben, and Thomas R. Cusack. 2000. ‘The Causes Of Welfare State Expansion: Deindustrialization Or Globalization?’. World Politics 52 (03): 313-349. doi:10.1017/s0043887100016567.

Kim, Tae Kuen, and Karen Zurlo. 2008. ‘How Does Economic Globalisation Affect The Welfare State? Focusing On The Mediating Effect Of Welfare Regimes’. International Journal Of Social Welfare 18 (2): 130-141. doi:10.1111/j.1468-2397.2008.00575.x.

Meinhard, Stephanie, and NiklasPotrafke. 2012. ‘The Globalization-Welfare State Nexus Reconsidered’.Review Of International Economics 20 (2): 271-287. doi:10.1111/j.1467-9396.2012.01021.x.

Navarro, V., J. Schmitt, and J. Astudillo. 2004. ‘Is Globalisation Undermining The Welfare State?’.Cambridge Journal Of Economics 28 (1): 133-152. doi:10.1093/cje/28.1.133.

Rieger, E., and S. Leibfried. 1998. ‘Welfare State Limits To Globalization’. Politics & Society 26 (3): 363-390. doi:10.1177/0032329298026003004.

Shinar, Chaim. 2013. ‘The Challenges Posed To Welfare States By Globalization’. European Review 21 (03): 448-464. doi:10.1017/s1062798713000409.

Stryker, Robin. 1998. ‘Globalization And The Welfare State’. The International Journal Of Sociology And Social Policy 18 (2).

Walter, Stefanie. 2010. ‘Globalization And The Welfare State: Testing The Microfoundations Of The Compensation Hypothesis’. International Studies Quarterly 54 (2): 403-426. doi:10.1111/j.1468-2478.2010.00593.x.