Navarro, Schmitt and Astudillo: Is Globalization Undermining the Welfare State?

Navarro, V, J Schmitt, and J Astudillo. 2004. Is globalisation undermining the welfare state? CPES.

"This paper analyses the evolution of the welfare states in the majority of OECD countries during the pre-globalization (1946-80) and globalization (1980-2000) periods. Our purpose is to find out whether globalization has produced a convergence towards a smaller welfare state, funded increasingly by non-mobile factors such as labor, property and consumption rather than by mobile factors such as capital. The data presented here challenge the claims about such a convergence, showing that social public expenditures and public employment have continued to expand during the globalization period in most OECD countries. We also show that the welfare states remain rooted in the political traditions that have governed them" (133).

There has been much debate as to whether or not increased capital mobility would lead to a decreased ability of wealthy countries to provide welfare for their citizens. As the argument goes, when capital mobility is increased, this will cause states to have to adopt policies that are geared towards doing more to attract capital. This means reducing constraints on capital investment and taxation and increasing taxation, etc., on less mobile factors, such as labor. This article examines these claims which it refers to as either the "convergence" claim or the "politics still matter" claim using the most recent data.

"According to the first, 'convergence' hypothesis, we should see during the period of globalization...a convergence of all welfare states towards a reduced level of welfare, funded increasingly by taxes on fixed factors such as labour rather than on mobile factors such as capital. According to the second hypothesis, that 'politics still matter', we should see no such convergence during this period, but rather a continuing divergence of welfare states, each keeping the characteristics of the pre-globalization era...rooted in the distinct political traditions governing those countries for most years in this period" (134).

The vast majority of the article analyses and presents data supporting the case being made. I skimmed this and do not wish to document it.

"The data presented in this paper show that, for the most part, the welfare states of most developed capitalist countries have not converged during the globalization period towards a reduced welfare state. On the contrary, over the globalization period, whether measured as a share of GDP or by public employment, welfare states have grown across the large majority of the worlds' richest economies...The data presented here also challenge another assumption of the 'convergence' theory, which assumes that the globalization process has forced a shift of welfare state funding towards a greater reliance on taxes on fixed factors of production such as labour or consumption and lesser reliance on taxes on mobile factors such as capital. In fact, taxes on capital have increased an taxes on labour, property and consumption have declined in the majority of OECD countries" (151).