glenn-2009-welfare-spending-in-an-era-of-globalization-the-north-south-divide

Welfare Spending in an Era of Globalization

1. Introduction

• This analysis examines the relationship between economic globalization and welfare spending in both industrialized and developing states.

• John Glenn argues that while globalization is often blamed for declining welfare spending, the reality is more complex.

2. The North–South Divide

• OECD Countries (North):

  • Little to no decline in general state expenditure or welfare spending in the last several decades.

  • High levels of social welfare provision resembling the compensatory state model.

• Developing States (South):

  • Experience of stagnation or decline in welfare spending, especially during structural adjustment periods.

  • More closely resemble the competitive state model due to pressures from globalization.

3. Economic Globalization and State Behavior

• Initiated by highly industrialized countries responding to the economic stagnation of the 1970s.

• Liberalization patterns:

  • Encouragement of capital account liberalization; expansion of domestic companies' operations overseas.

  • Promotion of trade liberalization through agreements post-1947 (GATT/WTO).

• Developing countries became more integrated into the global economy but often at the cost of welfare provisions.

4. Key International Financial Actors

• International investors and corporations influence welfare spending in different ways in the North and South.

• In developed countries, the ability of multinational companies to influence state policies is less severe compared to developing nations.

• Two opposing hypotheses regarding state behavior:

  • Competition State Hypothesis: States reconfigure to create favorable business environments.

  • Compensation Model: States enhance compensation for those negatively affected by globalization.

5. Patterns of Welfare Spending in Industrialized Countries

• Despite some concerns, welfare spending in OECD countries remains stable.

  • Examples: Sweden's state expenditure declined from 67.1% to 56.7% of GDP but overall trends indicate stability.

• Welfare expenditure is becoming a greater proportion of total government spending, implying a commitment to social welfare despite other cuts.

6. Qualitative Changes in Social Spending

• Increase in restrictive conditions and privatization in accessing welfare.

• Rise in targeting and qualifying conditions, including a focus on re-skilling for affected workers.

• States are likely to prioritize certain sectors over others, such as healthcare and pensions at the expense of education and infrastructure.

7. Welfare Spending in the South

• Social spending historically low in developing countries, with declines observed during the late 20th century.

  • Examples: Latin America's social spending lower than OECD averages; sub-Saharan Africa witnesses severe cuts in public spending.

• Structural adjustment policies and large debt burdens are key factors leading to reductions in welfare spending.

8. The Impact of External Influences

• Debt and Structural Adjustment:

  • Many developing countries have prioritized debt servicing over social expenditure.

• Trade liberalization and external economic pressures significantly impact welfare policies in South.

• Variability in welfare spending is observed:

  • Latin America shows some high-spending countries despite trends.

  • East Asian countries exhibit relatively high social spending levels tied to development models.

9. Conclusion

• Divergence exists in welfare spending patterns between developed and developing countries, influenced by varying responses to globalization.

• Industrialized states display flexibility in maintaining welfare expenditures while adapting to globalization pressures.

• Developing states face harsher effects, where external economic conditions dictate a reduction in welfare provisions.