Roberta Pergher, Paper #4, GSIS, University of Denver

Globalization and the Welfare State

The term "globalization" is generally used to refer to the increasing economic integration across national borders. The multiplying flows of goods and capital are grounded in the global extension of the free market and fostered by the neoliberal doctrine of economic liberalization and rationalization. Many argue that the increase in market-mediated exchanges on a global scale is accompanied by a decrease in the sovereignty and effectiveness of individual States. Global economic forces limit States in their ability to independently determine economic and social policies. However, globalization does not circumscribe solely an economic process. Besides affecting the functioning of the economy and the polity, global economic forces alter the organization of society at large. Global reliance on the market and functional integration of production engender concrete and ample transformations in social relations. Hence, economic integration produces and is the product of social, political, and cultural dynamics on a global scale. 

Global competitiveness and economic rationalization are generally blamed for the increasing pressure exerted on governments to relax their labor, tax, environmental, and social regulations. One of the major State institutions considered to be threatened by global economic forces is the modern Welfare State. The neoliberal argument holds that global economic integration will compel all States to converge towards a neoliberal political system which will involve significant cutbacks in States' market interventions as well as the renunciation of States' commitment to redistribution and equality. In this paper, I intend to investigate whether the claim of global convergence towards a system of interdependent neoliberal States is probable. I will point out external as well as internal pressures exerted on Welfare States in order to determine whether modern Welfare States will erode in light of globalization processes. I will also illustrate that the process of economic liberalization and integration rests on definite political decisions and builds on the institution of welfare programs.

The main objectives of modern Welfare States are to reduce poverty, to ensure a more equal distribution of wealth, to provide insurance against various risks that private insurance market do not cover adequately, and to grant social services that correct market inefficiencies (Snower, 207). The feasibility of welfare policies depends on the relationship between the magnitude of States' income streams and the magnitude of welfare expenditures. If expenditures largely exceed revenues, States tend to cut their social services. Full employment is an essential condition for the viability of Welfare States. Full employment grants jobs to virtually every citizen. Consequently, people can rely on their personal incomes and are thus less dependent on welfare services and programs provided by the State. Also, people who dispose of personal income subsidize Welfare States through their taxes and contributions.

Many argue that the New International Division of Labor undermines the viability of Welfare States in the North. Newly industrializing countries dispose of a vast reserve army of extremely cheap labor that threatens labor security in developed countries. Labor markets in many developed countries are relatively inflexible due to States' strong welfare commitment. If minimum wage legislation prevents the wage rate from dropping, global competition causes rising unemployment rates in the North. On the other hand, flexible work arrangements in other developed countries prevent an increase in unemployment; nevertheless, also in these countries global competition impacts workers' incomes negatively. In both flexible and inflexible labor markets, global competitiveness produces income uncertainty. An increasing proportion of the workforce faces falling employment opportunities and/or falling real wages and consequently becomes increasingly reliant on Welfare State support. Unemployment and low wages augment the expenditures of Welfare States; simultaneously, Welfare States dispose of a smaller population base to collect taxes and contributions for the financing of welfare programs. However, the argument of international competition in the labor market holds only for low-skill jobs. Countries in the North may experience an increase in unemployment and/or a drop in the wage of unskilled workers. However, it is unlikely that high-skill production processes are moved to the South due to developing countries' significantly lower levels of productivity. Furthermore, the fact that trade flows are still relatively small, dominated by intra-industry commerce, and mostly exchanged between developed countries undermines the assertion that global integration alone can be blamed for the erosion of Welfare States. 

Domestic factors affect the viability of traditional Welfare States as well. Technological change forces low-skill people out of work, thus increasing their dependence on Welfare State services. However, this argument holds only if society cannot provide the necessary education and training to offset the detrimental consequences of technological advancement for low-skill workers. The abandonment of full employment policies in favor of restrictive macroeconomic policies to control inflation is also blamed for the erosion of Welfare States. Tightened monetary policies have fostered unemployment which threatens the Welfare State and curtails the bargaining power of labor with respect to capital. Historically, domestic policies have defined labor regimes as well as macroeconomic policies. However, many domestic policies may have been conditioned by international factors. As successive states shifted form anti-unemployment to anti-inflation policy regimes, they progressively changed the international economic environment for the remaining countries. In spite of external pressures, governments themselves nevertheless play a decisive role in the globalization process. Economic deregulation and liberalization are induced by government deliberations. State capacity is thus a precondition for successful internationalization. However, political leaders have often contributed to the image of government helplessness in the face of global trends. As Linda Weiss rightly points out, "governments sell their policies of retrenchment to the electorate as being somehow 'forced' on them by 'global economic trends' over which they have no control" (Weiss, 16). By asserting their impotence in light of globalization processes, governments are able to actively produce economic integration and to overlook the disruptive social consequences of globalization.

Contrary to the prediction that global economic forces erode Welfare States, European Welfare States exemplify that social policies have proven highly resistant to yield to the pressures of global markets (Rieger, 365). Rieger and Leibfried indeed argue that the institutions of Welfare States itself was instrumental in achieving and ensuring economic openness. Globalization does not accidentally follow the development of Welfare States. Instead, social policy has been able to increasingly replace projectionist measures. "The more the welfare state is able to guarantee security and a 'future' beyond the market, the more political space there is to relax closure vis--vis external markets"(Rieger, 368).

Both protectionism and welfare institutions secure income and employment. The institutionalization of social policies partly released national welfare from international economic developments and stabilized the national market economy. Thus, Welfare States represent the foundation for economic openness and permit a high level of global economic integration. Consequently, the fragmentation and downgrading of social safety nets decrease the chances for the expansion of an integrated free market. To avoid the harmful repercussions of free trade and unregulated capital flows, the erosion of Welfare States needs to be prevented. However, the Welfare State itself can turn into an arena aiming at defending the status quo. Welfare States create their own inequalities and rigidities. Internal challenges like demographic changes as well as changes in labor markets, gender relationships, and the organization of family life call for a reform of various Welfare States. However, social policies often represent barriers that hinder adaptive responses to structural economic changes. Snower argues that in order to respond to the rising need for Welfare State services at a time of severe budgetary constraints, governments must reduce the inefficiencies and inequities inherent in the current policies (Snower, 217). Since welfare institutions, programs, and services vary from State to State, the responses to internal and external pressures have not been uniform but varied according to political, social, economic, and institutional differences.

Every State responds differently to pressures demanding the dismantling of the Welfare State. However, Welfare States tailored to globalization need to have a higher capacity for institutional self-limitation and flexible reaction (Rieger, 385). Since States confront ever increasing social externalities due to the worldwide division of labor and global market integration, the interconnection between domestic and international processes needs to be studied.

Economic integration represents a hazard in so far as there is no corresponding political structure capable of regulating a single world economy. The current uncontrollability of the global economy calls for international policies and organizations that regulate world markets in order to increase the security of  international transactions. As a matter of fact, States are increasingly using collaborative power arrangements to gain more control over their economies. States to seek to adapt to the new challenges by forging or strengthening partnership agreements with other State and/or with non-State power actors (Weiss, 24).

Furthermore, global integration should not only focus on economic prosperity but ensure a certain living standard to all citizens, guarantee substantive equality, and advance income equalization and full employment on a global scale. The attainment of these goals calls for a normative evaluation of the globalization process and for a subsequent normative commitment to the well-being of all people. Ethical decisions are inevitably delicate, judicious, and debatable. However, debating the optimal direction of globalization in a political forum instead of just reacting to neoliberal imperatives can facilitate the detection of viable solutions to the hazards of global competition.
 

Bibliography

Martin, Andrew. "What Does Globalization have to Do With the Erosion of Welfare State? Sorting Out the Issues." Center for European Studies, Harvard University. Working Paper Series # 7.5.
Rieger, Elmar and Stephan Leigfried. "Welfare State Limits to Globalization." _Politics and Society._ Vol. 26 No. 3, September 1998: 363-390.
Snower, Dennis. "The Modern Welfare State: Problems and Suggested Reforms." _Empirica_ 23, 1996: 207-226.
Weiss, Linda. "Globalization and the Myth of the Powerless State." _New Left Review._ P. 3-27. S/O 1997.