Rudra, N, and S Haggard. 2005. Globalization, democracy, and effective welfare spending in the developing world. Comparative Political Studies 38, no. 9: 1015.
"The results show that social spending in 'hard' authoritarian regimes is more sensitive to the pressures of globalization than in democratic or intermediate regimes" (1015; from abstract).
"Our findings cast substantial doubt on the hypothesis that globalization necessarily has an adverse effect on welfare spending in developing countries. We find that political institutions and the rules governing political competition matter. In the face of increasing trade openness, in particular, authoritarian regimes are less generous than democracies with respect to social spending and do worse with respect to several key social performance indicators. Also of significance, we find that under conditions of globalization, 'intermediate' authoritarian regimes show different social spending patterns than 'hard' authoritarian regimes and in some cases, behave more similar to democracies" (1017).
Rudra, N. 2008. Welfare states in developing countries: unique or universal? The Journal of Politics 69, no. 02: 378-396.
Rudra further promotes a distinction between three types of welfare states in LDCs: productive welfare (promote market development), protective welfare (protect select interest groups) and combinations of the above.
Showing posts with label LDCs. Show all posts
Showing posts with label LDCs. Show all posts
Monday, March 23, 2009
Wibbels: Dependency Revisited
Wibbels, E. 2006. Dependency Revisited: International Markets, Business Cycles, and Social Spending in the Developing World. International Organization 60, no. 02: 433-468.
"While increased exposure to the global economy is associated with increased welfare effort in the OECD, the opposite holds in the developing world. These differences are typically explained with reference to domestic politics. Tradables, unions, and the like in the developing world are assumed to have less power or interests divergent to those in the OECD-interests that militate against social spending. I argue that such arguments can be complemented with a recognition that developed and developing nations have distinct patterns of integration into global markets. While income shocks associated with international markets are quite modest in OECD, they are profound in developing nations. In the OECD, governments can respond to those shocks by borrowing on capital markets and spending counter-cyclically on social programs. No such opportunity exists for most governments in the developing world...Thus, while internationally-inspired volatility and income shocks seem not to threaten the underpinnings of the welfare state in rich nations, it undercuts the capacity of governments in the developing world to smooth consumption (and particularly consumption by the poor) across the business cycle" (1; from abstract).
"More specifically, I argue that exposure to international markets affects social spending in developing nations through two steps: first, by increasing the volatility of domestic economies and exposing them to severe business cycles; second, by inspiring pro-cyclical fiscal responses to downturns that imply cuts in social spending" (3).
"While increased exposure to the global economy is associated with increased welfare effort in the OECD, the opposite holds in the developing world. These differences are typically explained with reference to domestic politics. Tradables, unions, and the like in the developing world are assumed to have less power or interests divergent to those in the OECD-interests that militate against social spending. I argue that such arguments can be complemented with a recognition that developed and developing nations have distinct patterns of integration into global markets. While income shocks associated with international markets are quite modest in OECD, they are profound in developing nations. In the OECD, governments can respond to those shocks by borrowing on capital markets and spending counter-cyclically on social programs. No such opportunity exists for most governments in the developing world...Thus, while internationally-inspired volatility and income shocks seem not to threaten the underpinnings of the welfare state in rich nations, it undercuts the capacity of governments in the developing world to smooth consumption (and particularly consumption by the poor) across the business cycle" (1; from abstract).
"More specifically, I argue that exposure to international markets affects social spending in developing nations through two steps: first, by increasing the volatility of domestic economies and exposing them to severe business cycles; second, by inspiring pro-cyclical fiscal responses to downturns that imply cuts in social spending" (3).
Haggard and Maxfield: The Political Economy of Financial Internationalization in the Developing World
Haggard, S, and S Maxfield. 1999. The political economy of financial internationalization in the developing world. Issues and Agents in International Political Economy 50, no. 1: 35-68.
What about the internationalization of financial markets in less developing countries? For a very long time, financial markets were constrained through capital controls especially in less developing countries. These authors point out that this is transitioning and explore its effects. Table 1 (36) offers a taxonomy of different types of liberalization.
In an H-O model, K and L are substitutes, so, when K constraints are lifted, the relative cost of K decreases domestically. In a labor-rich environment, this benefits labor. However, this becomes more complex in a multi-sector model, where benefits may be distributed relatively unevenly. "In sum, increases in international trade and investment ties and the opportunities opened by the deepening of international financial markets should increase interest group pressures for financial internationalization, including from foreign firms, while decreasing the effectiveness of government controls. Yet such broad changes are more useful in explaining general trends than they are in accounting for why specific countries liberalize when they do. Crises play an important role in this regard" (40). There is a positive feedback look when there is a crisis after liberalization, as those who want more liberalization may benefit from the crisis and become more powerful.
"As the integration of financial markets deepens, accelerated by the very policy changes that we have analyzed here, international constraints will play an increasingly role in future policy decisions, not only with regard to the capital account but also with reference to economic policy more generally" (62).
What about the internationalization of financial markets in less developing countries? For a very long time, financial markets were constrained through capital controls especially in less developing countries. These authors point out that this is transitioning and explore its effects. Table 1 (36) offers a taxonomy of different types of liberalization.
In an H-O model, K and L are substitutes, so, when K constraints are lifted, the relative cost of K decreases domestically. In a labor-rich environment, this benefits labor. However, this becomes more complex in a multi-sector model, where benefits may be distributed relatively unevenly. "In sum, increases in international trade and investment ties and the opportunities opened by the deepening of international financial markets should increase interest group pressures for financial internationalization, including from foreign firms, while decreasing the effectiveness of government controls. Yet such broad changes are more useful in explaining general trends than they are in accounting for why specific countries liberalize when they do. Crises play an important role in this regard" (40). There is a positive feedback look when there is a crisis after liberalization, as those who want more liberalization may benefit from the crisis and become more powerful.
"As the integration of financial markets deepens, accelerated by the very policy changes that we have analyzed here, international constraints will play an increasingly role in future policy decisions, not only with regard to the capital account but also with reference to economic policy more generally" (62).
Saturday, December 20, 2008
Hirst and Thompson: Globalization in Question
Hirst, PQ, and G Thompson. Globalization in question. Polity Press.
Ch. 5: The Developing Economies and Globalization:
In the early to mid 90s, around the first edition of this book, the authors claim that there was much hype surrounding the idea that developing countries would continue to grow rapidly, and that they would soon reach parity with more developed countries. It was argued that China would represent the world's largest economy by 2020. These proponents believed that this represented a wonderful trend that would also benefit rich countries, as previously poor countries would now have a demand for the more complicated service items that the developed world has specialized in for some time. However, others argued that this would mark a race to the bottom, where capital, being unrestricted in its movement, would search out the lowest cost for production. This would cause poor countries to have to fight to lower their wages to attract capital. This would also destroy low-skilled employment opportunities in developed countries.
Financial crises in Korea, Latin America and Thailand are explored. Each of these was caused by a different complex mixture of events and factors.
"It should now be obvious that the combination of thoroughgoing internal and external financial liberalization combined with a rigidly pegged exchange rate is a disaster for developing countries. Given the relative shallowness of their financial markets and the difficulty of constructing appropriate regimes of supervision by domestic authorities and practices of transparency by local firms, the tendencies toward exuberant over borrowing and the excessive growth of credit are difficult to prevent. When capital flight begins, attempts to contain it by defending the exchange rate by the use of foreign currency reserves are generally futile" (151).
"The excessive optimism of the early 1990s about the prospects for economic growth in the developing world has rapidly turned sour. It is quite clear that the economic liberal vision of a world transformed by the power of free markets has failed" (160).
Ch. 5: The Developing Economies and Globalization:
In the early to mid 90s, around the first edition of this book, the authors claim that there was much hype surrounding the idea that developing countries would continue to grow rapidly, and that they would soon reach parity with more developed countries. It was argued that China would represent the world's largest economy by 2020. These proponents believed that this represented a wonderful trend that would also benefit rich countries, as previously poor countries would now have a demand for the more complicated service items that the developed world has specialized in for some time. However, others argued that this would mark a race to the bottom, where capital, being unrestricted in its movement, would search out the lowest cost for production. This would cause poor countries to have to fight to lower their wages to attract capital. This would also destroy low-skilled employment opportunities in developed countries.
Financial crises in Korea, Latin America and Thailand are explored. Each of these was caused by a different complex mixture of events and factors.
"It should now be obvious that the combination of thoroughgoing internal and external financial liberalization combined with a rigidly pegged exchange rate is a disaster for developing countries. Given the relative shallowness of their financial markets and the difficulty of constructing appropriate regimes of supervision by domestic authorities and practices of transparency by local firms, the tendencies toward exuberant over borrowing and the excessive growth of credit are difficult to prevent. When capital flight begins, attempts to contain it by defending the exchange rate by the use of foreign currency reserves are generally futile" (151).
"The excessive optimism of the early 1990s about the prospects for economic growth in the developing world has rapidly turned sour. It is quite clear that the economic liberal vision of a world transformed by the power of free markets has failed" (160).
Friday, December 19, 2008
Wibbels: Dependency Revisited: International Markets, Business Cycles, and Social Spending in the Developing World
Wibbels, E. 2006. Dependency Revisited: International Markets, Business Cycles, and Social Spending in the Developing World. International Organization 60, no. 02: 433-468.
"While increased exposure to the global economy is associated with increased welfare effort in the OECD, the opposite holds in the developing world" (1). The author presents a case that this can be partially explained by the different patterns of engagement with the global economy that are taken by either developed or less developed countries. "Thus, while internationally-inspired volatility and income shocks seem not to threaten the underpinnings of the welfare state in rich nations, it undercuts the capacity of governments in the developing world to smooth consumption...across the business cycle" (1).
"In this paper, I complement the emphasis on domestic factors by placing them in international context. In discussing the incentives of governments and actors in tradable sectors, I emphasize the importance of fiscal constraints rooted in distinctly patterns of integration into global markets. While national income shocks associated with international markets are quite modest in the global north, they are profound in developing nations. In the global north, governments can respond to those shocks by borrowing on capital markets and spending counter-cyclically on social programs. No such opportunity exists for most governments in the developing world that have limited access to capital markets in tough times, more significant incentives to balance budgets, tradable sectors that are sensitive to currency fluctuations, and as a result cut social spending at exactly the times it is most needed. Thus, while internationally-inspired income shocks in no way threaten the underpinnings of the welfare state in rich nations, it undercuts the capacity of governments in the developing world to smooth consumption...across the business cycle" (3).
LDCs are in a tight bind because they are encouraged to cut spending when external financial shocks enter their borders. Also, these shocks are more pronounced as they have made themselves more vulnerable to business cycles and market dynamics through a deregulated capital market.
"I argue that he findings on the relationship between trade dependence and welfare effort result, in part, from a dependent position in the global economy and the ways in which that position shapes the interests of key domestic actors. More specifically, exposure to volatile international markets inspires sever internationally-inspired business cycles prevents governments from engaging in counter-cyclical spending to smooth consumption during recessions" (7).
"While increased exposure to the global economy is associated with increased welfare effort in the OECD, the opposite holds in the developing world" (1). The author presents a case that this can be partially explained by the different patterns of engagement with the global economy that are taken by either developed or less developed countries. "Thus, while internationally-inspired volatility and income shocks seem not to threaten the underpinnings of the welfare state in rich nations, it undercuts the capacity of governments in the developing world to smooth consumption...across the business cycle" (1).
"In this paper, I complement the emphasis on domestic factors by placing them in international context. In discussing the incentives of governments and actors in tradable sectors, I emphasize the importance of fiscal constraints rooted in distinctly patterns of integration into global markets. While national income shocks associated with international markets are quite modest in the global north, they are profound in developing nations. In the global north, governments can respond to those shocks by borrowing on capital markets and spending counter-cyclically on social programs. No such opportunity exists for most governments in the developing world that have limited access to capital markets in tough times, more significant incentives to balance budgets, tradable sectors that are sensitive to currency fluctuations, and as a result cut social spending at exactly the times it is most needed. Thus, while internationally-inspired income shocks in no way threaten the underpinnings of the welfare state in rich nations, it undercuts the capacity of governments in the developing world to smooth consumption...across the business cycle" (3).
LDCs are in a tight bind because they are encouraged to cut spending when external financial shocks enter their borders. Also, these shocks are more pronounced as they have made themselves more vulnerable to business cycles and market dynamics through a deregulated capital market.
"I argue that he findings on the relationship between trade dependence and welfare effort result, in part, from a dependent position in the global economy and the ways in which that position shapes the interests of key domestic actors. More specifically, exposure to volatile international markets inspires sever internationally-inspired business cycles prevents governments from engaging in counter-cyclical spending to smooth consumption during recessions" (7).
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.
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.
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