Globalisation

And the crisis of the welfare state

The end of the golden age

• From late 1970s, post-war settlements break down (series of severe crises)

• Three main factors– End of the post-war boom– Globalisation of world economies– Inflation provokes shift in economic policy

(from full employment to controlling inflation)

• Common result: welfare states thrown into question

Structure of lecture

• Whatever happened to full employment?

• What is ‘globalisation’?

• What major problems have recently emerged?

• How has EMU (European Monetary Union) affected this situation?

Introduction: End of 30 years economic growth in Europe

• Collapse of the post-war Bretton Woods settlement (Vietnam & oil crises)– Floating exchange rates– Recalibration of trade policy

• Rise of ‘little tiger’ economies• Keynesian economic management (‘stagflation’)

– Import penetration– Balance of payment & exchange rate crisis– Inflation

1990s: emergence of global economy

• IT revolution lowers costs of trade• International firms restructure (flexibility) =

competition to attract investment• 1980s: deregulation of capital markets. Growth

of speculation: eg– dot-com bubble [1990s]– [housing market and sub-prime mortgages [2000s]]

• 1989 collapse of Soviet Block• Transition from GATT to WTO: global regulation

of trade

Political consequences

• Globalisation of financial markets = constraints on public expenditure– Currency speculation– ‘Glocalisation’ strategies used by major firms (plant

and personnel in cheaper locations) + supply chains

• Downward pressure on wages and welfare– Centralisation of budgetary controls– Decentralisation of welfare obligations– ‘Social dumping’ (the risk)

• Rising youth and long-term unemployment (with ‘flexibilisation’ as the solution)

Demographic factors

• Rising life expectancy

• Strain on pension and health budgets

• Rising levels of female labour market activity (lower fertility)

• Lower replacement ratios (i.e. fewer active tax-payers/contributors and more social dependents) = more strain on social budgets

European Monetary Union I

• Creation of single European market (EEC transformed into EU in 1987)

• To facilitate trade, European currencies already linked (‘the snake’)

• 1989-91 Maastricht Treaty commits to EMU (realised 2001)

European Monetary Union II

• EMU: Growth and Stability Pact restrict public expenditure

• Convergence criteria– Public expenditure must not exceed 3% GDP– Size of National Debt subject to constraints

• Pressure of social expenditure• Shift from ‘passive’ to ‘active’ welfare

(‘bad’ passive versus ‘good’ active welfare spending)

Globalization: welfare futures?

• Economic imperatives v. social rights?• The fate of participatory democracy ?• The threat of the ‘drive to the bottom’?• Current welfare = visible shifts:

– away from social welfare as economic constraint – towards enabling market participation ( EES /

securing livelihoods)– Social protection as security against future risk (social

risk management)

New worlds of welfare?

Esping Andersen’s analysis (2002)

• Corrosion of traditional family = threat to children (‘homogamy’)

• Economic transformation: stress on learning ability

• Threat of social bifurcation (dual labour market)

Esping Andersen’s social investment strategy

• Bias to prevention, not cure• Incorporate Rawl’s concept of social justice• Recast welfare towards safeguarding child

development (pro-family)• Harmonise motherhood and employment• Social inclusion via employment• Shift pensions towards defined contribution• Reconfigure 3 welfare pillars (market, state,

family)

Conclusions I

• Neo-liberal responses: ‘you cannot buck the market’– External flexibilities (market imperatives)– Competition on price– Widening income disparities – Residual welfare

• A ‘drive to the bottom’ of competition between districts & EU member states

Conclusion II

• European Social Model– Negotiated flexibilities– More investment in training– Compete on product quality– Positive welfare (to enable participation)

Conclusion III: the need for new governance?

• Welfare states born of nation - building• Globalization corrodes national sovereignty,

national economies, national laws– Will political defence by electorate allow state welfare

to survive?– Or will shift to individual protection continue?

• The problem: no collective responsibility to define common rules and collective obligations