Does Globalisation Undermine The Welfare State? Pt 1

Sami Steinbock analyses at length discusses the tension between international economic interdependence and national-level welfare systems

Part 1 of 3

Globalisation is a contested concept. While some approach it empirically, others are normative: empirical scholars endeavour to report on the causes and effects of globalisation, while normative scholars view globalisation as something either positive and negative and seek either to promote or condemn it accordingly. Alternatively they might argue that it is a myth, and that the nation-state still matters. It should be noted that globalisation is not a new phenomenon: many times in history there has been increased integration between countries to such an extent that many would define it as what we define globalisation today, examples including the Persian Empire or Roman Empire at their greatest heights. However, the pace of global integration has increased considerably over the last 30 years.

There is no precise definition of the term ‘globalisation’ and it is used to refer to a variety of ways in which countries are becoming more and more closely integrated; economically, politically and culturally. Rugman goes as far as to argue that globalisation is a myth. This in itself conveys the vagueness and ambiguity surrounding the concept. Daniel Bell discusses its conflict with the modern nation-state and talks of globalisation before the fall of the Berlin Wall, yet concludes by accepting globalisation as reality. Hirst & Thompson take a sceptical view of globalisation, arguing that the degree of economic integration in world markets has been greatly exaggerated and overestimated. Yet, Ohmae takes the opposite view to this, stating that the advance of globalisation has been so strong that nation-states have lost much of their power to control their own affairs.

Perhaps the simplest and most memorable definition is that of Peter Jay, who described it as “the ability to produce anyMac_Japan good or service anywhere in the world, using raw materials, components, capital and technology from anywhere, sell the resulting output anywhere and place the resulting profits anywhere.” Conversely, political definitions of globalisation are far reaching, such as those by Moghadam describing a process of increasing multiculturalism towards “emerging transnational apparatus”. Globalisation is also sometimes interpreted as the increase and emergence of transnational and international non-government and government organisations, not only an increase in their activity or influence but also, to their assumption of the role of acting as watchdogs over Governments and States. Thus in short globalisation is essentially a complex web of interconnectedness and interdependence.

A variety of factors have contributed to the increased integration of countries. Perhaps most significantly was the dramatic decrease, in real terms, of transport costs, thus leading to cheaper imports and exports. There has also been a major decline in communication costs, in particular that of using the internet, therefore allowing rapid communication between all points of the globe. Currency markets worldwide have opened, with the ease of capital transfers. The liberalisation of trade since World War Two has been a major factor in the explosion of world trade, combined with the emergence of the World Trade Organisation, the opening up of China, and the collapse of communism.

One of the main economic benefits of globalisation is reduced production costs, thus leading to economies of scale, which in turn leads to better quality and a greater variety of products.  This benefit can be explained by the law of comparative advantage. Similarly though, there are many disadvantages including: exploitation of labour and the environment; external costs; increased inequalities; and global instability. These have been reflected in the recent global credit crunch. It has also been put forth, by Xu among others, that global imbalances such as those shown between the United States (USA) and China are unsustainable. Further, there has been considerable debate stating that globalisation is undermining the welfare state or that it has already undermined it. I shall submit in Parts 2 and 3 of this analysis that globalisation is a leading factor in the undermining of the welfare state, but, crucially, not the root cause. More importantly, it is individual countries, or to be precise, their economies being the key factor in undermining the welfare state.

(to be continued)


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