This blog is based on an article in the Journal of Social Policy. Click here to access the full article.
Globalisation is a defining feature of today’s economies and a great deal of research has analysed how globalisation affects welfare states. Does it undermine social protection because countries enter a global tax competition that forces governments to save money by cutting social protection? Or does globalisation, in contrast, lead to welfare expansion, as citizens afraid of globalisation demand governments build better social buffers?
In a new article published in the Journal of Social Policy, Marius Busemeyer and I argue that education plays a major part in this story. We show that citizens in open markets demand more education spending to cope with the effects of globalisation. Rather than demanding higher compensatory social spending (for example unemployment benefits) or redistribution, workers try to avoid unemployment in the first place by updating their skills. We also, however, identify a democratic mismatch, because policy-makers do not respond to these new demands.
The world opening up
Across the globe, economies are increasingly opening up to foreign goods (trade), money (capital), and people (migration). The figure below shows this trend, focusing on trade openness (i.e. the sum of imports and exports as a share of GDP). We see that over the past five decades the volume of traded goods has increased in all countries, and in many countries tremendously so. In most countries, trade nowadays amounts to 70 percent of GDP, and in many countries even more than 150 percent.
Globalisation challenges welfare states
Globalisation opens up many opportunities for companies and citizens; yet, globalisation also creates economic and social problems. Significantly, it triggers insecurity amongst workers. One major fear – especially in the rich advanced economies – is that jobs might be moved offshore to other countries, leading to unemployment or worsening working conditions. Factories closing in Europe, the US, or North-East Asia and reopening in China or South-East Asia have been a prominent example.
This creates a key challenge for welfare states. Social policy scholars have discussed for a long time now how globalisation affects welfare states. Some, like Fritz Scharpf, argue that globalisation leads to a global tax competition, as firms and capital-holders can threaten to leave high-tax countries in favour of low-tax ones. According to this “race-to-the-bottom thesis”, globalisation would result in decreasing public budgets, so policy-makers would need to look for ways to save money and would probably cut social protection, as public expenditure on welfare constitutes the largest share of public budgets. In this view, globalisation would undermine welfare states.
Other scholars fundamentally disagree, arguing that globalisation would, instead, lead to welfare state expansion. The argument brought forward by Peter Katzenstein and others is that globalisation increases workers’ economic insecurity. Workers would thus vote more for parties that would protect them from the potential negative effects of globalisation, so that opening markets should also expand their welfare states. In the view of these “compensation theorists”, globalisation should lead to higher public demand for compensatory social policies (especially unemployment benefits) and redistribution.
Do people really want compensation only?
In our article published in the Journal of Social Policy, Marius Busemeyer and I argue that existing research focuses too much on compensatory social policies. The common assumption is that citizens respond to globalisation by demanding redistribution and unemployment benefits to cushion themselves against potential future job losses.
But is that really workers’ most plausible reaction? We argue it is more plausible that people in this situation would try to avoid losing their job in the first place. That is, rather than demanding more redistribution or higher unemployment benefits, people might rather look for opportunities to keep their job (or to find a new one).
Is education the solution?
We contend then that people might turn to education to bolster (anticipated) negative effects of globalisation. Workers fearing that globalisation might make their job redundant might want to upgrade their skills in order to remain competitive in today’s globalised knowledge economies. Education and skills might be a protection against occupational change. In a nutshell, globalisation might increase demand for education spending rather than for unemployment benefits and redistribution alone.
In order to test our hypothesis, we studied the effect of economic globalisation (in the form of trade openness, capital mobility, and foreign direct investment) on public opinion for different kinds of policies. Analysing representative survey data for a range of advanced democracies, we found that as globalisation intensifies, respondents demand higher educational investment. That is, as countries open up their market, people want governments to be more active in terms of education policy. In contrast, we do not detect any such effect for unemployment benefits.
These findings are in line with the current trend towards knowledge-based economies. Moreover, the findings fit the fact that social investments (like education, early childhood education and care, and active labour market policies) have become a new leading paradigm in welfare state research and social-policy making in countries around the globe.
Our results thus support an “updated version” of the compensation thesis: globalisation increases demand for additional welfare – but for social investment rather than for social compensation.
But do politicians respond?
But do politicians listen and respond to these new demands? To test this, we have studied in related work whether globalisation not only increases public demand for education but also translates into additional education spending.
Our time-series cross-section regressions for 21 democracies over 15 years however do not reveal any support for this thesis. Education expenditures are not increased more in more open economies. This finding is much more in line with arguments by “race-to-the-bottom theory”, arguing that globalisation decreases governments’ political leeway.
Higher demand but not supply of education?
In the end, then, both theories might be partly true. Compensation theory is right that globalisation leads to more welfare demand, yet this demand focuses on social investments much more than on social compensation.
But race-to-the-bottom theory is right that globalisation does not automatically lead to more spending, as politicians political leeway is limited by the same factor that triggers the increased demand.
The results thus point to an important and worrisome conclusion: globalisation increases public demand but not public supply of public education expenditure. The result is a democratic mismatch. In the paper we outline some implications of this mismatch for the future of welfare states and democratic representation.
About the author
Julian L. Garritzmann is Max Weber Fellow at the European University Institute, Florence, and Senior Researcher at the University of Zurich. He is a comparative political scientist studying welfare states, public opinion, and party politics.