Rudra: Globalization and the Decline of the Welfare State in Less-Developed Countries

Rudra, N. 2003. Globalization and the Decline of the Welfare State in Less-Developed Countries. International Organization 56, no. 02: 411-445.

This article begins by noting that there is quite a lot of literature that deals with the question of how the welfare state is being affected by increased global capital. Much of this literature focuses on more developed countries and concludes that there is not, in fact a problem. This article paints a different picture, and focuses more heavily on developing countries. Rudra attempts to show that developing and developed countries react to capital mobility differently, and that welfare states in developing countries may not be robust enough to fight off the pressures of international capital. "I show that in the face of globalization labor in LDCs has been unable to prevent the dismantling of the welfare state, quite unlike labor in the more developed countries" (411-2).

"In LDCs, low-skilled labor is highly abundant, yet persistent collective-action problems accompanying globalization undermine labor's political clout in LDCs. I assess these two opposing effects by introducing a new indicator of labor power (potential labor power, PLP). My results clearly indicate that the collective-action problems of labor in countries with large pools of low-skilled and surplus workers tend to offset labor's potential political gains from globalization" (413).

The current literature is explored.

The globalization experiences of developed and less developed countries are compared.

The theory is presented.

The data are analyzed. It is a large-n study.

"Does the conventional wisdom that globalization adversely affects welfare spending hold true in LDCs? This investigation of fifty-three LDCs from 1972 to 1995 shows that welfare spending in these countries does indeed respond to greater trade flows and capital mobility. These findings challenge others who do not show that globalization affects welfare spending in developed and developing nations differently. Growing numbers of low-skilled workers relative to skilled workers, coupled with large surplus-labor populations, exacerbate the collective-action problems of labor in LDCs and make it increasingly difficult for them to organize" (435).

UPDATE:

"...the demise of the welfare state is expected for two reasons. First, generous welfare benefits are not regarded as good market-disciplining devices on labor. Both the resulting upward pressures on labor costs and the dampening effects on work incentives are claimed to adversely affect export competitiveness. Second, globalization discourages governments from raising revenue. 'Footloose capital,' or the capacity to withdraw and shift both productive and financial capital with greater ease, has made it increasingly difficult for governments to generate revenues through taxation. This 'race to the neoliberal bottom' in tax rates is compounded by governments' lowering taxes to compete with other states for international investors and to prevent capital flight. By the same token, state borrowing, which leads to higher debt and interest rates, also deters investment...With increasing global competition, governments supposedly find it more difficult to protect citizens from market-generated risks and inequalities" (414).

UPDATE: This work is broadly supported by the following study:

Kaufman, RR, and A Segura-Ubiergo. 2001. Globalization, domestic politics, and social spending in Latin America. World Politics 53, no. 4: 553-588.