Economic Globalization and the Welfare State in Affluent Democracies - Essay Example

Globalization has turned to be the most important economic manifestation of late-20th and 21st century. With an unprecedented liberalization of capital flows, trade or movement of workforce, one is deemed to ask oneself if in such a global society, where economically the chances of success rely almost exclusively on the capacity of being competitive, the welfare state may still have a chance. I plan to argue that despite theoretical evidence that may conclude the state will need to turn competitive as well in the 21st century economy, the Scandinavian experience, especially the Swedish model, most relevant when discussing the welfare state policies, has managed to undergo only slight modifications to its welfare model rather than significant structural changes, while at the same time adopting policies for an open and global economy. In this sense, the Scandinavian model may constitute the perfect exception from the theoretical rule. In order to address the proposed thesis, we need, first of all, to have a look at those theoreticians that point out towards the incompatibility between the welfare state model and the global economy. As such, neoliberal argumentations show that an open economy, as well as a global market where the forces of the market will make the rules, 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”1. In this sense, liberal economic principles, as are present in a global economic environment, will need to be adopted and adapted by the states as well in their programs. With strict reference to the Swedish model, some show that the model is in a significant crisis and that this crisis has started and continued during the 90s2. The explanation for this crisis would be concluding the need for a state to remain competitive in the 21st century, alongside the private actors. The reason for this bears the economic justification of competition: a foreign investor is much more likely to choose a state where the economic policies the state has implemented are more permissive, less aggressive, more flexible. Why choose a state where you would have to pay an additional salary in taxes for each of your employees, when you can choose a country with a permissive legislative system and a location where you could trim your human resource related costs as close to 0 as possible? Further more, globalization is often associated with a diminishment in state sovereignty as private actors, major players on the global market, tend to gain more influence3 and the state is forced to give up its partial sovereignty in order to (1) become more flexible and competitive and (2) be able to enter schemes of economic and political integration. As such, it will seem that the global economic market characteristic for the 21st century will bring about an end to full state sovereignty (because “sovereign statehood depends on territorialism”4 and typical instruments of a global economic market elude such territorial boundaries), and such an end will obviously mean an end to the welfare state as well. Nevertheless, the Swedish welfare model may point out differently and it also offers the reasonable explanations for maintaining in great part and in almost the same structure its welfare system. First of all, we need to point out that Sweden represents the best argument against the idea that globalization and the welfare state are contradictory notions. While developing the highest level of social welfare in a state, Sweden has also given way to some of the most powerful and most ‘global’ companies in the market, Ericsson and Electrolux, not to mention Ikea, being just a few examples. So, while on one hand Sweden is the best known examples of a social welfare state, on the other hand, Swedish companies are powerful global actors and, additionally, the Swedish government (as the government of any small country, actually) has developed over the last century a significant incentive to encourage free trade and exports. Certainly, many may argue towards the fiscal reform that the Swedish government was forced to adopt during the 90s. However, relevant theoreticians have shown that (1) this was a reform rather than a radical change and (2) the budget surplus that was a direct consequence of this reform went to public spend, to educational and social programs rather than to a reduction of taxes on capital or other forms of capital investing encouragements5. The explanation for this fact may come from the attitude of the Swedish individual towards taxation. According to the same studies, most of the Swedes are willing to pay such a high amount of taxes because they are confident that the model of welfare state will give them back at least the same amount in different forms of social protection. In this sense, the productivity of the Swedish individual will be in no way less than that of an American and the entire equation of the global economy can be resolved with regards to productivity. Indeed, it will always be preferable to pay a worker who produces a car in one day 100 euros than to pay a foreign worker, producing it in 30 days, 10 euros a day. The final cost equation will show it is more profitable to produce such a car in Sweden rather than in some African country. Further more, despite the high level of taxation, Swedish companies as the ones previously mentioned have managed to become solid and profitable global players by benefiting from a well-qualified, well-trained (again, one of the effects of the social welfare state), with higher education. It will practically turn to the Masslow’s pyramid of needs: a worker who is not preoccupied about the education of his children, the health scheme and whether he can afford the dentist or not, will have a higher productivity than someone that does. Further more, there are several other important statistical figures that justify, through the productivity of the workers, the existence of a welfare state and, indeed, even its efficiency. For example, Sweden, our example of a welfare state, spent $12,200 in 1997 on active labour market policy and programs per unemployed person. In a ranking of 15 OECD countries, Sweden ranked second only to Norway6. What this meant is that the Swedish state spent a consistent amount of money to retrain its unemployed citizens and reintegrate them into society. Following this ideas, we can state again that a welfare state in a competitive economic environment cannot afford to lose any of its employees, which are consistently reintegrated to work in other areas of the market. In the same area, we should also consider the impact and importance that a welfare state attributes to education. A large part of the national budget in Sweden is directed towards the coverage of educational programs and the development of this sector. In this sense, it is by no mere chance that some of the best university centres in Europe and the world are at Lund or Uppsala. This shows that a welfare state concentrates on its most important resource, its human resource, following the idea that a better prepared and educated workforce will be more efficient and productive, triggering other advantages for the rest of the society. Following all this argumentation sustaining the advantages of a modern welfare state through the increase of individual productivity, one of the last ones may seem out of place: social peace. However, social peace, as meant by a negotiable and amiable solution of any work conflicts between the employer and the employee, is also a factor that will increase individual productivity. Indeed, on one hand, in the case of a purely capitalistic approach, the employer will reduce the employee’s salary or will fire him in the case of decreasing efficiency etc. On the other hand, the employees can go on strike, these being the most extreme ways of conflict. In these situations, which often occur in Western Europe, both sides lose, as well as the company overall. In Sweden, work conflicts can be handled by the two parties in a negotiation, sometimes with the State’s mediation which will give way to a mutually beneficial solution. The curvilinear effect will probably provide the best explanation on the connection between globalization and the welfare state, as manifested in Sweden and the Scandinavian Peninsula. As such, according to this theory, “highly global nations with generous welfare states, even greater levels of globalization would entail welfare retrenchment”7. This statement will provide the theoretical background to support the argument that Sweden can deal, at its current globalization level (quite high, as previously discussed), with the challenges and may retain, more or less in the same form, the social welfare system. The welfare state develops, however, other serious impediments, one of these being the ageing population, with Sweden one of the best examples in this case. Obviously, for a welfare state to work, one needs to account for a solid workforce. But in Sweden’s case, the population has been ageing over the past decades, with a direct impact on public finance8. An ageing population is dangerous for a welfare state because the national budget needs to be supported by the taxes from workers. As soon as these people retire, they become a ballast for the welfare state’s finances. This paper has aimed to show that, despite the fact that many argue that globalization, with global capital market flows, correlated with free trade and free movement of people, will reduce levels of social welfare policies and will pertain to a lower social protection, Sweden has managed to retain much of the policies, increasing even governmental spending during the 90s. The reason we have identified for such an assertion resides on an explanation of productivity in Sweden, where the states provides all the premises needed for the worker to concentrate on the work at hand, increasing thus productivity. Bibliography 1. Brady, David, Beckfield, James, Seeleib-Kaiser, Martin. 2004. Economic Globalization and the Welfare State in Affluent Democracies, 1975-1998. ZeS – Arbeitpapier Nr. 12. Center for Social Studies Bremen 2. Steinmo, Sven. 2001. Bucking the Trend. The Welfare State and the Global Economy. The Swedish Case Up Close. On the Internet at http://stripe.colorado.edu/~steinmo/bucking.pdf Accessed, January 9, 2006 3. Ryner, Magnus. 1999. Neoliberal Globalization and the Crisis of Swedish Social Democracy. Economi and Industrial Democracy. Thousand Oaks and New Delhi. London. Vol. 20. Pages 39-79 4. Pergher, Roberta. Globalization and the Welfare State. GSIS University of Denver. On the Internet at http://tiss.zdv.uni-tuebingen.de/webroot/sp/spsba01_W98_1/denver12.htm Assessed on January 9, 2006 5. Scholte, Jan Aart. 1997. Global Capitalism and the State. International Affairs, v73 n3, July 1997 pp.427-52 6. Deacon, Bob. 1999. Socially responsible globalization: a challenge for the European Union. Finnish Ministry of Social Affairs and Health Publications. 7. Mosley, Layna. September 2005. Globalization and the State: Still Room to Move?. New Political Economy. Vol. 10, No. 3. 8. Akca, Ismet. 2001. GLOBALIZATION’, STATE AND LABOR: Towards a Social Movement Unionism. Paper prepared for the 2001 Annual Convention of the International Studies Association. On the Internet at http://www.isanet.org/archive/akca.html Accessed on January 9, 2006 9. Anderson, Christopher and Pontusson, Jonas. 2001. Workers, worries and welfare states: social protection and employment insecurity in 15 OECD countries. American Political Science Association Annual Meeting 10. Economic Survey - Sweden 2004: More sustainable public finances. The OECD website, on the Internet at http://www.oecd.org/document/24/0,2340,en_33873108_33873822_26332888_1_1_1_1,00.html. Accessed March 14, 2006 11. Hega, Gunther, Hokenmaier, Karl. 2002. The welfare state and education: a comparison of social and educational policy in advanced industrial societies. German Policy Studies, Vol. 2, No.1 Read More