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Globalization Theory on Welfare Provision

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Published: Tue, 14 Aug 2018

Globalization theory implies that the nation has little autonomy in organizing its welfare provision. Evaluate this statement, referring to at least two welfare regimes.

At first glance this statement appears to be true when applied to the welfare states of both Germany and Sweden. For nearly a century the Swedish welfare system was the world’s pre-eminent example of the ‘social-democratic’ model of welfare provision; likewise Germany’s welfare regime was a classic instance of the ‘Conservative’ model. Yet in the late 1980’s and early 1990’s both models were aggressively assailed by serious economic difficulties. These difficulties have been attributed to the effects of globalization and they have been cited as evidence that idiosyncratic and distinctive national welfare schemes cannot resist world economic and social forces. Economic evidence appears to uphold this statement. Sweden’s unemployment figures rose for instance from less that 1% in the late 1980’s to over 12.5% in 1993. In Germany workers contributed 26% of their income to welfare in 1970 and over 40% by 1990. Faced with such figures Swedish and German governments have felt massive pressure to cut back on systems of benefits that their accustomed citizens have deemed essential for more than fifty years. Authors such as Esping Anderson argue however that – at least in the case of Sweden and other ‘social-democracies’ – the present economic difficulties of these systems are temporary phenomenon made more severe by a combination of unfortunate events in the world economy in the 1990’s. These pressures are ephemeral and when they pass away it will be possible to maintain the universal level of welfare guaranteed by the social-democratic model. Less optimism can be expressed for the German model which faces the enormous difficulties with its ageing population, rising tax-burdens and assimilation of East Germany.

The term ‘globalization’ has become something of a bloated monster with many different heads each meaning for the people who use them slightly or considerably different things from the others. Even a casual glance at the literature will show that the term is associated with the spread of each of the following: internationalization, liberalization, universalization, westernization, modernization or deterritorialization (Held, 1999). There is little space in this essay to discuss these terms in depth, and so it is best here to give a consensus definition that draws from each of them. When referred to welfare regimes globalization signifies an economic and social compression and condensing of the world whereby financial and social interaction between states is intensified. The World Bank for example defines globalization as the “Freedom and ability of individuals and firms to initiate voluntary economic transactions with residents of other countries[1]. Globalization means that there is a greater flow of commodities and influence across the borders of countries. Economically, this means that free trade, migration, capital and technology have a far greater power to influence individual states and nations than they had before. National economies and institutions (such as welfare systems) are more susceptible to international pressures and are often forced to conform or modify themselves so as to be competitive with these general trends. In social terms, globalization imposes upon individual nations the need to conform to international attitudes, for instance, towards the rights of women. Acceptance of such impositions often requires profound changes to the structure of traditional national institutions or ways of life. Authors on globalization have been equally vociferous in their support and condemnation of the movement. Noam Chomsky, for instance, is publicly critical of the tendency of globalization to remove freedom and choice from the individual and to transfer it to transnational corporations. Chomsky argues that global organizations such as the Bretton Wood institutions, the IMF and the World Bank, have promoted the ‘Washington Consensus’ whereby poor countries have to reduce welfare provisions to meet debt payments to richer nations (Chomsky, 1999). Accordingly, the WTO, GATT and NAFTA are agencies that seek to acquire privileges for elites rather than those of the third-world. In contrast, those who promote globalization, such as the leaders of the institutions listed above, argue that globalization means a golden opportunity to build a platform for worldwide and universal democracy, healthcare, pension provision and all of the other basic rights expected by citizens of Western welfare regimes.

Esping Anderson’s The Three Worlds of Welfare Capitalism (Esping-Anderson, 1990) is a seminal text in the literature of welfare states. As its title suggest, Esping’s book divides the various kinds of welfare regimes in developed nations into three types: Liberal, Conservative (Corporate), and Social Democratic. Examples of countries with Liberal welfare regimes are the United States, Canada and Australia. These systems support means-measured-assistance that issue benefits for mainly the poor or those incapable of self-assistance. Government intervention in the welfare system is limited since government institutions are seen as unsuited for the dispersal of benefits; private welfare initiatives are as such much encouraged. The liberal model is predominantly individualistic and market-orientated. Examples of the Conservative type include Germany, France and Italy. In this model welfare benefits are related to social position and employment status. This model depends heavily upon the work of the Church which is intimately linked to the distribution of welfare – particularly provision for the poor. So too the family is a vital source welfare. Sweden, Denmark and Norway are examples of countries that practice the Social Democratic model of welfare provision. Referred to also as the ‘Scandinavian Model’ or the ‘Swedish Model’, this type of provision demands the intimate public involvement of its citizens in the economy and society of the nation. In such models the welfare state is an umbrella that protects the whole nation. For instance, education is universally free (or very cheap) and of such a uniformly excellent level that it is unnecessary to maintain private schools. Healthcare, childcare allowances and old-age pensions are available to all citizens. The philosophy of the social democratic model is that its institutions should be egalitarian whereby the standard of living for the whole nation is leveled as much as possible. Esping’s model has been highly influential upon the thought of scholars writing about the welfare state and upon practitioners within it. Esping’s work is also significant because he suggests that the social-democratic model may be able to weather the difficulties it has undergone by globalization since the early 1990’s. These ideas are now discussed with reference to the particular welfare regimes of Sweden and Germany.

The German welfare regime is a classic example of the conservative model of welfare provision. Originating with Chancellor Otto von Bismarck during the 1880’s the German welfare regime gradually established compulsory insurance schemes for healthcare, accidents, disability and old-age. After Bismarck the German welfare state was further expanded during the years of the Weimar Republic and the Nazi dictatorship. In 1957 Chancellor Adenauer passed the Pension Reform Law which aimed to distribute on an egalitarian basis the wealth of the ‘economic miracle’ that Germany was experiencing at the time. This was a momentous and controversial decision that would lead to successive German chancellor’s competing to offer better and better – and more unrealistic and more unrealistic! – welfare provisions and retirement packages to German workers. Adenauer replaced Bismarck’s limited system of helping only the elderly or desperately poor with pension schemes linked to wages referred to as ‘pay-as-you-go’ (Beck, 1995). These schemes were highly successful during the boom times of the 1950’s and 1960’s and up until the 1970’s. The 1980’s and 1990’s however saw the beginning of a series of serious economic challenges to the German welfare model: the German economy began to slow, the re-unification of East Germany meant huge extra burdens for the system and the German population was ageing quickly. In these years pension contributions for German workers went up from 26% in 1970 to 40% in 1990 (Crew, 1998). German politicians failed to see and so prepare for these events. Chancellors Helmut Schmidt and Helmut Kohl sought to improve things by extravagant pensions promises that they knew they could not could not fulfill. Chancellor Kohl for instance famously claimed in his 1990 Unity Campaign that ‘When I say that we will not increase taxes, it means we will not increase taxes’ (Bleses, 2004). Within a year gasoline, tobacco and insurance taxes had been raised as well as the solidarity surcharge added. Globalization became a major problem for the German welfare system in the early 1990’s when the world-recession hit Germany’s economy hard and made it difficult for her to sustain her generous welfare provision. Germany initially responded to the pressures of globalization by raising taxes steeply. Chancellor Gerhard Schroeder’s has recently sought to introduce comprehensive reforms of the welfare system – Hartz 1V[2] for instance — to respond to globalization. German trade unions are intractably opposed to such reforms and have staged huge street protests against them.

The ‘Swedish model’ of welfare provision is a classic example of the social-democratic type. The history of the Swedish model is closely bound to the aims of the Swedish Social Democratic Party which was founded in 1889. The SDP was set up by industrial workers who aimed to guarantee every Swedish worker (and later every Swede) medical insurance, pensions in old-age, redundancy protection and various other benefits that guarded them against poverty and hunger. The SDP based the Swedish welfare system upon very high taxation (as it remains today) and Swedes pay up to 60% of their total income to the government. 90% of businesses in Sweden are privately owned and pay large corporate taxes to the government also. The SDP’s interpretation of the welfare state was based upon high taxation and was referred to as the ‘People’s Home’. The SDP became the dominant political force in Sweden in the 1930’s (lasting in power for sixty years) and in 1937 the Riksdag (Swedish parliament) passed a pensions scheme for the elderly that continues to the present. After World War II the SDP extensively enlarged the welfare regime. This extension included mandatory health insurance, dental insurance, child-care subsidies, five-week vacation periods and so on. Thus by the 1970’s the dream of the ‘People’s Home’ had been substantially realized.

Nearly sixty years of near blissful conditions in Sweden’s welfare system were seriously threatened in the 1990’s by a series of economic difficulties which were attributed to globalization and adduced as evidence that individual national monetary policies cannot survive the effects of globalization (Rydenfelt, 1981). Sweden is the classic example of the social-democratic model ‘third-way’ between conservatism and laissez-faire and so if Sweden fails to protect its distinctive system then all others of this type are likely to fail also. Globalization is seen to have forced Sweden to reduce full-employment provisions and to slash benefits in its welfare regime. The electoral defeat of the SDP for the first time in sixty years was seen as further evidence of the ability of globalization to affect well-rooted national institutions. Evidence for the crisis caused by globalization appears convincing. Between 1990-1995 national growth was viscous at 0.4% GDP, unemployment soared from 1.6% in 1990 to 12.5% in 1993. Government expenditure measured in GDP climbed from 60% in 1989 to 74.1% in 1993 (Crew, 1993). These events had three principal causes. Firstly, the volatility of Swedish currency internationally in expectation of the finalization of the European Single Market and also the act of Sweden’s joining the EU. Second, the far-stretched depression of the early 1990’s that reached globally. Thirdly, the difficulties of maintaining the level of the Krona next to the Deutschmark after competitive devaluations were ditched in the 1980’s. This evidence can be interpreted in two ways. Some argue that the Swedish crisis is an inevitable consequence of lavish public spending and impossibly high welfare provisions. The other school, represented by Esping-Anderson for instance, argues that the Swedish crisis is temporary and that its welfare state is capable of surviving present economic difficulties. Events for this school are conjunctural (Esping-Anderson, 1990). Sweden is not the victim of globalization, but of a particularly unlucky set of economic coincidences.

Finally it must be said that neither Sweden nor Germany has yet determined with certainty whether they will be able to resist the pressure of globalization to modify or replace their idiosyncratic national welfare models. Sweden and Germany face pressure from within and without. Globalization from the outside, and the absolute demand of their citizens for a continuation of the present generosity of their respective welfare systems. If Esping Anderson is right, Sweden may weather the storm and preserve its social-democratic model. For Germany the external pressures are greater and the rescue of its conservative model far less certain.


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  • Bleses, P. (2004) The Dual Transformation of the German Welfare State. Palgrave Macmillan, Basingstoke.
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[1] www.worldbank.org/globalization/definition

[2] Hartz IV, Federal Agency for Labour: a law that offers reduced unemployment benefits at different levels in East and West Germany.

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