Globalisation and its impact on social protection in the Federal Republic of Germany

by Daniel Buhr

Introduction

The Federal Republic of Germany has a long tradition of social policy. The German welfare state was a positive locational factor because it promoted social peace and stability, especially as long as the general income level was low and capital and insurance markets were underdeveloped. Problems occured, when the wedge between gross and net wages widened. Such a development not only fosters excessive wage settlements, thus leading to unemployment, but also contributes to an increase in the share of a less productive and shadow economy, economies that don’t pay their tribute into social security funds.

Against this background social-political transformations in Germany, as in other western European societies as well, take place in the tension of economical globalisation and European regulations on the one hand, and the ongoing crisis of the labourmarket, as well as overburdened social security systems, on the other. Keeping this working basis in mind, the following paper will handle both: the impact of globalisation and the influence of universal structural change on the social system, as both phenomena are interdependent to each other and therefore can’t be treated separately in this context.

Maybe it should be mentioned at this point that the phenomenon ‘globalisation’ isn’t something new, but existed in terms of international trade as far back as during the years of Hanse, the Italian city-states and colonial times.

The Structural Change

However, in modern times a structural shift, a structural change takes place which strengthens international (technological) competition by capital- and knowledge-intensive technologies. Rigid patterns of economics of scale are getting detached by decentralised and flexible terms of organization of labour and production: the economies of flexibility. Along with that national systems of labour relationship - including social structure and class relationships - aren’t able to evade this pressure of flexibility- and deregulation-strategies. In addition to that a growing third sector (‘Tertiasierung’) with a change of economic and jobstructure is coming up, which reinforces this trend. Finally the circle of financial reproduction is more and more globalized; at this point not the widening of international trade and commerce is in the foreground but the transnationalisation of productive capital and the financial transactions. Furthermore world economy is divided into three dominant ‘Triade’-regions such as Northern America (USA), Southeast Asia (Japan) and Western Europe. Especially in Western Europe (EU) relatively closed macro-regional business-circles appeared.

‘Globalisation’ or ‘Regionalization’?

Consequently, speaking of regionalization, Europeanization or ‘Triadisierung’ makes much more sense than speaking of globalization, as tradestreams and the exchange of direct investments concentrate mainly on the triade USA, Japan and EU; and as a matter of fact within this region reciprocal entanglement increases. That special countries of cheap labour participate more and more in international trade probably does not lead to a net-loss of production and jobs within industrial nations. True, some traditional industrial sectors will loose their competetiveness while at the same time new markets will open for highly productive industries. The prize that Germany has to pay for this, is the loss of less productive jobs - the growing number of simple industrial occupations will diminish.

Within the triade USA, Japan and EU a rivalry over cutting costs has just begun, which cannot be explained by a growing competition through countries of cheap labour but rather has to be seen as a result of the industrial nation’s economic policy. International competition entailed in Germany and Europe a distribution of income and assets: within the group of employees highqualified workers earn more and more money, while the less productive and the growing number of jobless have to suffer from a loss of their incomes. Significantly is the distribution from those who have nothing but their capacity (of work) to those who are equipped with (money, capital and) assets, as free trade of capital makes it possible for investors to extort employees and their unions by threatening them with their exodus. By this means a changeover of power between capital and labour takes place which is (for Lafontaine/Müller) the true and main effect of globalization.

No doubt, there is a need for international arrangements in order to stop this permanent competition of lowering costs by wage-, ecological- and socialdumping and to help all countries and the international economy as a whole to a fair and prosperous development, that not only on a regional but also on an international level society is not getting more polarized.

The Crisis of the Keynesian Welfare State

Considering the crisis of regulations by the Keynesian welfare state - especially high inflation and national debt - the option of a demand driven growth was disturbed during the last years. These crisis cycles got synchronized worldwide and after the breakdown of the Bretton-Woods-System the international currency and triaderegime was deregulated step by step and therefore got closer to typical neoliberal ideas. Problematical hereby is, that of course those neoliberal terms of regulations promote technological innovations and rationalizations of economy, however, without working on social and ecological problems more than cosmetically, which will lead to a sociopolitical polarisation. Turning away from Keynesian welfare state regulations by turning to ‘triade-focused’ competitive orientation and restrictive economic and financial politics covers (also) the change of social relations of power: while structural power of the transnational capital politically passes over into the European integrational process, traditional terms of solidarity and negotiational power got more and more disintegrated within the group of dependent employees.

Thus, for instance, in the newly emerged medium sized corporations of the growing third sector (such as communication industries) neither membership in federations and unions nor corporatistic wage negotiations can be observed. The relatively encompassing model of a corporatistic ‘class deal’ is replaced by a more particularistic arrangement.

(Global) Competitiveness and its Impact on Social Security

On a regional level efforts are intensified to tune this infrastructural modernisation with specific locational necessities of profit seeking investors. Moreover, the national debates over what constitues perfect business conditions (location debate) clearly indicates that the nation-state slowly turns into a competitive entity.

Almost everywhere the traditional and rigid labor market regimes are being deregulized and made more flexible, which leads to a drifting apart of earned incomes and an increase in the overall extend of social inequality. In addition due to the intensified locational competition on local as well as regional level, spatial disparities are heightened. Under the conditions of a liberalized market for goods, assets and money all countries pursue strategies of an export oriented growth and a restrictive austerity policy. Since demand and job orienting conceptions were blocked for structural and political reasons little socially integrative measures are conceivable.

Even a supply-side Keynesianism sticks to the imperatives of a world market oriented modernisation and thereby creates internal as well as external instabilities. Internally, a sustained dualism between an efficient and competitive economy and far reaching welfare policies is difficult to accomplish. It can be concluded that the alternative mentioned above (supply side Keynesianism) is incapable of presenting feasible concepts which lessen instabilities, aggressiveness and pressure of global markets.

Global competition reinforces problems of social security tied to employment by cutting a greater number of low paying or entry level jobs in an already underdeveloped sector, while, at the same time not enough highly qualified jobs are created. Consequently, a growing number of people falls out of the system which leads to underfunding (the number of contributors decreases); the decline in revenues has to be compensated for by the remainders. This development culminates in a rise of wage costs. A possible vicious circle emerges when the high wage costs again foster an increase in rationalisations or prevent job creation. In this context Immenhofer/Franz point out that the issue of globalisation is pushed by employers and their federations in order to justify their demands for a substantial deregulation and more flexibility. As I see it the underlying objective of this strategy is to undermine the long traditions of union negotiated wage settlements; the societal consensus in Germany that has managed to reconcile social injustice and disparities is therefore threatened.

To come back to globalisation, the triadic world economy and Europeanisation: while the EU focuses (more and more) on economical competition, regulations of social issues are exclusively administered by the single nation-state. Surely, integrated European influences - i.e. integrated market or social balance of power, the Maastricht social protocol etc. - make the national boundaries appear more and more fuzzy in the realm of social policy. However, the extention of social policies on the EU-level remains somewhat formal for various exemptions exist such as wage settlements and the settlement of labor disputes. To sum things up it is a safe assesment that even after the signing of the treaty on European Union a substantial discrepancy between lofty rhetoric and the actual impact of the common policies is quite obvious. The same holds true for the direction of integration in the areas of a comprehensive Social Union or an European social- and welfare-state.

For the dynamics of social disintegration this is quite an important development. Some social scientists have argued that as long as the nation-state is the sole arbiter of social policies in the multi-level EU the interstate logic of competition can unfold without any restrictions. The referal to external compulsions provides the ideological legitimation for a growing socio-political abstinence.

Since no easy solution seems to suggest itself, the social crisis implodes noticably. In a sense it remains unpolitical and is disposed off by the state in an administrative and technocratic way. This is largely possible due to an internal fragmentation and heterogenity of socially marginalized (outsiders). This group is comprised of the long-term unemployed, the working-poor, precariously employed (such as women and immigrants) and young people entering the job market, parts of the older generation, homeless people and so on. Usually they are socially isolated and hardly ever politically organized. Without negotiation power or a strong lobby they are incapable of articulating publically their specific interests.

Conclusion

In sum one can say that the range of the so-called globalisation does often not reach beyond the European boundaries. The development of the disinhibited international capital market alone is the only clear indicator for a globalisation trend. Thus, in the last few years an extreme rise in global capital traffic can be witnessed which leads to money policy whose profits only create jobs indirectly, if at all. This means that companies find it more and more attractive to reinvest their profits in the capital market instead of boosting employment in their initial (production) sector. Consequently the internationalized money market moves away from the national labor market.

Nevertheless the higher location flexibility of companies, which was made possible by prior concessions by the nation-state (such as infrastructure, education, law security and enforcement and the transferability of goods, money and human capital) results in a shift of power from state to private business. The state can become subject of extortion by individual companies (by evasion of taxation, extortion of concessions and subsidies) and therefore looses its capacity of providing public goods in a sufficient quantity and quality. Immerfall/Franz conclude quite logically that - in regard to Germany - a one-sided business focused policy undermines the ability of the state to ensure its legitimacy, public order and the quality of the human capital.

Without any doubt in every country winners and loosers can be made out, groups that are interested in accelerating the process of globalisation and groups that try to halt this trend by the means of regulations. When dealing with such interdependencies of structural change, globalisation and the national welfare state this ambivalency should always be kept in mind.

Especially during the last few years a development in the northern European countries took place that tried to take this into account. A policy mix was established which is supposed to strengthen both, demand and supply side. Maybe the current power constellation in Europe (the majority of states is governed by Social Democrats) will lead to a common solution that tries to regulate not only competition but also safeguards social protection which is inherently interdependent with competitiveness. This can only be achieved in a regional and supranational context.

Selected Sources:

Bieling, Hans-Jürgen und Deppe, Frank (editor): Arbeitslosigkeit und Wohlfahrtsstaat in Westeuropa, Opladen 1997.

Fligstein, Neil: Markets, Politics and Globalization, Uppsala 1997.

Giersch, Herbert (editor): Reforming the Welfare State, Berlin et al. 1997.

Immerfall, Stefan and Franz, Peter: Standort Deutschland. Stärken und Schwächen im weltweiten Strukturwandel, Opladen 1998.

Koslowski, Peter and Follesdal, Andreas (editors): Restructuring the Welfare State. Theory and Reform of Social Policy, Berlin et al. 1997.

Lafontaine, Oskar and Müller, Christa: Keine Angst vor der Globalisierung. Wohlstand und Arbeit für alle, Bonn 1998.

Stierle, Michael H.: Volkswirtschaften in der Globalisierung, Speyerer Forschungsberichte, Band 182, Speyer 1998.

Swank, Duane: Funding the Welfare State: Globalization and the Taxation of Business in Advanced Market Economies, in: Political Studies, XLVI, S. 671-692, 1998.