Globalization The Consequences for National Governance

An investigation of the extent to which globalization undermines the ability of national governments to provide the public goods that their citizenries have come to expect, including social insurance against economic risks.

The author declares that this thesis is original.  All ideas and citations that are not the authors are properly credited.


The author is grateful to (supervisormentor) for all of hisher input and guidance with formulating the thesis title and structure.  The author would also like to thank (supervisormentor) for all of hisher constructive criticism and encouragement.

Globalization has brought about changes in social, economic and demographic reality and has thereby influenced political ideologies over the last thirty years or so (Goodwin 2007, 425). In this regard, the political ideology supporting globalization emanates from political ambitions for economic integration and politicallegal harmonization.  Philosophers, social scientists, historians and theorists however, have different ideas on whether or not globalization can be achieved without compromising human security.  One of the greatest ideological areas of debate is whether or not national governments are increasingly compromising the welfare of their domestic citizenries in favor of globalization policies.  The underlying premise is that globalization weakens the nation state and by extension its ability or willingness to focus more profoundly on the public goods that its citizenry have a right to expect.  One of the greatest casualties of globalization is therefore socialization.  This thesis explores this hypothesis by investigating the history and development of globalization ideologies and what it means for nationalism.

Transformative globalization ideology contributes to the notion that globalization specifically compromises national governments ability to effectively provide services that their citizenry have come to expect, particularly social insurance.  Leichenko and OBrien (2006) specifically argue that transformative globalization is driven by the ideology that globalization is a system of processes that function at global, national, local and regional levels (24).  Globalization therefore has an impact on policies and decisions made at the local level.  As a result, globalization is built around complicated connections and power struggles between diverse social, political and economic actors (Leichenko and OBrien 2006, 24).  Neo-liberalism ideology contributes to the notion that globalization is good for economic advancement across the globe (Kalb, Pansters and Siebers 2004, 95).

It will be argued that globalization is not a new concept and it was accurately predicted by social and political philosophers during the 19th century.  The entirely optimistic view of globalization is therefore misleading and inconsistent with the reality of a changing world where equilibrium remains a problem as national markets are eroded and global markets continue to expand.  To this end, the influence of non-state actors have grown to such an extent that the welfare of the ordinary citizen is compromised in favor of these influential non-state actors.

In order to make these arguments this thesis will examine the political ideologies that have influence the history and development of globalization with reference to the predictions made by 19th century social observers such as Marx and Engels.  This thesis will also examine the globalizations ideologies advanced by current social scientists, philosophers and historians with respect to the consequences of globalization for national welfare with the emphasis on social insurance.

Chapter One

The international growth of commerce and communication has given way to a new forms of globalization and globalization ideology. Contemporary globalization had brought the world together in a system of interdependent nations that are tightly connected.  People, goods and capital are continuously crossing borders with accelerating frequency and numbers (Kegley 2007, 254).  Political ideology necessarily dictates that globalization means different things to different people. Political ideology is the rationale that people use to make sense of the political environment (Freeden 1996, 1).  For some, globalization is necessary for obtaining happiness and for others globalization is responsible for unhappiness (Bauman 2000, 1). The reality is however, globalization is inevitable and it impacts everyone in one way or another.

Those who support globalization generally adhere to the ideology behind liberalism and argue that it is a phenomenon that is beneficial to international commerce and it is an effective means for enriching and empowering the poor as well as poor countries (Brune and Garret 2005, 399).  Critics take the position that globalization is only beneficial to a select group of powerful countries to the detriment of labor, the earth and developing countries and national governments are powerless to alter these factors (Findlay and Hoy 2000, 207). Transformative ideology takes the position that globalization reduces the effectiveness and authority of the nation, increases inter-state dependence and creates new powers, completion and conflicts which invariable have consequences for social process (Beck 2000, 117).

Building on the transformative ideology, Charles Kindleberger (1969) argued that the liberal movement of goods, information, people and capital across borders means that the nation state is just about through as an economic unit particularly in the context of providing social insurance and facilities for the fair distribution of wealth (207).  Dani Rodrik (1997) goes further and argues that globalization has undermined domestic governments ability to control their own economies and to effectively implement policies for social goals.  Ultimately, Rodrik (1997) argues that globalization is exposing a deep fault line between groups who are skilled and have the means to prosper globally and those who do not have the resources or who see the expansion of unregulated markets as the catalyst for social chaos (2). The consequences are conflicts between markets and groups of citizens such as pensioners, environmentalists and workers to the extent that governments are stuck in the middle.

This research examines the various perceptions of globalization via political ideology and exposes the reality of the consequences of globalization for nationalism, particularly the erosion of social insurance.  It will be argued that while globalization has the potential to enrich and empower the poor and poor countries it also has the potential to heighten poverty by compromising national economies, priorities, decisions and policies. This paper will explain how these two opposing results are possible.

Statement of the Problem
Globalization has always been a part of world history and attempts to explain it via political ideology is relatively new.  Attempts to govern globalization that is a relatively new development.  Liberalism ideology is driven by claims that the success of globalization is manifested in the emergence of a number of small countries in East Asia and the growth and development of China and India.  With the latter two countries representing at least 40 percent of the international population and this fact alone gives the impression that poverty is declining worldwide as a direct result of these two countries participation in global markets.

The reality however, is that poverty remains a problem in both India and China despite its decline and this reality drives the basis of the transformative view.  The international economic statistics only mask the actual fact that billions in other developing and least developed nations continue to live in abject poverty.  In fact the worlds poor remain saturated in low income and this is even true of working classes and middle classes in America whose purchasing power has either stagnated or decreased over the last two decades.

Essentially there are four areas of debate among philosophers, social scientists and historians over the extent to which globalization impacts social order.  The first area of controversy is production.  From an economic perspective, it is argued that global competition, management and markets have modified the visions, organizations and behavior of firms.  Globalization is also linked to technological advancements in transportation, communication and the processing of data to the extent to what and how we produce have radically changed.  While liberalists theorists maintain that these changes have influenced the decline or even the elimination of capitalism, transformative theorists argue that it has secured its continuity and strengthened it.

The second area of debate is governance where theorists disagree on the states fate.  Liberalist theorists argue that the sovereign state is no more than a misnomer in the new era of globalization.  Transformative theorists argue that globalization has the potential to actually strengthen the nation state by empowering and enriching it.  Regardless, there is a new regime in the emergence of multilateralism to the extent that there are agencies that influence, if not commandeer global governance so that sovereignty has taken on a new dimension.  Therefore, there is no doubt that at the very least, globalization has changed the concept of sovereign state so that form and structure is unquestionably been modified.

The third controversial area over the consequences of globalization in relation to social issues is the impact on culture.  These debates center on whether or not globalization brings together diverse cultures or perpetuates them.  Some academics, influenced by liberalism ideology, argue that globalization is tantamount to liberalization andor westernization and catapults into a synchronized culture to the extent that everything and everyone is homogenized.  For these academics, tradition is replaced by a unified drive for consumerism, the mass media and all things Western in nature.  Transformative ideology influences others to take the position that globalization only highlights the worlds diverse cultures.  This is evidenced by the fact that communication, products, services and social organizations are tailored to take on different structures and to have different consequences in specific localities.  Some academics have gone further to attribute certain uprisings such as religious and national movements as a fight against universal harmonization (Tat and Popenici 2008, Ch. XI).

The final area of contention is concepts of modernity and post-modernity. While scholars generally agree that globalization is a product of modernization, they disagree on its consequences for modernization.  Some theorists argue that globalization is responsible for advancement in social circles.  These advancements are viewed as extending and strengthening modern constructs such as rationalism, bureaucratism, capitalism and industrialism.   For these critics, modernization had given way to a high risk culture which is prone to insecurities.  Other critics argue that globalization has emerged into a post-modernization culture in much the way as the post-industrial era emerged.  The global era therefore reflects a post-modern world which is characterized by information driven societies so that there is a tendency against stable sense of identity and knowledge.

Cumulatively, these controversial areas of globalization have given way to a larger and more profound debate.  They each indicate that globalization is complex and obviously impacts the social, economic and political structures that define the nation state.  Transformative and liberalism ideologies are political philosophies designed to make sense of globalization and its consequences. Regardless of what side of the debate is right, there is no question that globalization impacts national policies.  The larger debate centers around whether or not global economic integration increases the cost of economic programs within a national state that ensures the distribution of income among the poor and makes provision for the financial security of its citizenry.   This paper will argue that inevitably, the transformative ideology has realistic merit, while liberalism is not supported by reality. The wealthy typically owns the capital and the professional skills while national taxes usually focus on the nations output in terms of international production.  The result is a compromise on social insurance policies since the ability to cross borders facilitates those who wish to evade taxes, reducing national income.  Moreover, national governments are far more focused on increasing its standing in the international market at the expense of those who have no place or benefits accruing to them as a result of globalization.

Research Questions and Sub-questions
The main research question is
To what extent does globalization undermine the ability of national governments to provide the public goods that their citizenries have come to expect, including social insurance against economic risks

This question will be investigated by reference to a number of sub-questions namely-
What is globalization  This question engages inquiry into philosophical and theoretical debates on the origins and development of globalization and its constructs.  A necessary examination of what globalization means to different ideological constructs is necessary.  This will involve an examination of philosophical debates over the consequences and likely consequences of globalization on the nation state.

How does globalization challenge or change the concept of the nation state  In analyzing this question the researcher will look at how aspects of globalization have changed the definition and structures of national identity and national priorities.

What are the consequences for social insurance  In evaluating this question, social insurance will be defined.  It will then be necessary to examine how globalization has changed nationalism to the extent that it has affected the way that governments respond to social insurance. Some necessary sub-questions arise and will be investigated
Has globalization increased the need for social insurance
Has globalization compromised the ability of national governments to redistribute wealth  How and why

Significance of the Study
The debate over the costbenefit consequences of globalization intensified during the 1990s (Dinello and Squire 2005, 98).   The debate centers round whether or not poor people and countries have been advantaged by global economic integration.  One side of the debate maintains that growth in any form is beneficial to all, regardless of their respective stations within the socio-economic structure.  A study by Dollar and Kraay (2001) indicates that globalization increases the income of poor in a manner that corresponds with increases to those who are not poor.  Oxfam (2000) argues that globalization is widening the gap between the haves and the have-nots and is therefore a barrier to the reduction of poverty.

There is a growing consensus that neoliberal economic policies are a natural result of globalization (Magubane, 2004 657).   Claims that neoliberal economic policies have characterized globalization to the detriment of social welfare require further investigation.  These claims have merit, particularly since neoliberal economic policies can give rise to privatization, deregulation and propel national governments to adopt a non-interventionist stance in open market economies.  In this regard social insurance becomes a financial and budgetary burden to many national governments (Nelson 2006, 58).

Research Methodology and Design
This thesis is an exploratory and evaluative research design.  The research commences with the transformative ideology and hypothesis that globalization has the potential to undermine the ability of national governments to provide the public goods that their citizenries have come to expect, including social insurance against economic risks.  In this regard, this research looks at and evaluates the two main ideologies explaining globalization and its consequences for social-economic policies and nationalism. These two ideologies are transformative and liberalism.  These theories are examined objectively and then the research takes a more subjective approach by looking at the extent to which globalization has undermined the ability of national governments to provide the public goods that their citizenries have come to expect, with an emphasis on social insurance against economic risks.   Some attention will be directed to the history and development of globalization and the decline and rise of the welfare state.

Research Methods
In order to properly define globalization the research will look to historical developments and emerging concepts of contemporary globalization.  This will involve a look at the opinions, philosophies and analyses recorded by historians, philosophers, social scientist and other academic commentators.  This research will involve both secondary and primary resources.  The primary resources will be derived from international treaties such as the Vienna Convention and various multilateral treaties such as those promulgated by the Organization for Economic Cooperation and Development, the United Nations and the World Trade Organization.  These documents provide primary evidence of the growth and the extent of the growth of global economic integration and its historical development toward contemporary concepts of globalization.

Secondary resources will include text books such as Tat and Popencis Romanian Philosophical Culture, Globalization and Education, Jolly et ales UN Ideas that Changed the World, Dinello and Squires Globalization and Equity Perspective from the Developing World, Rodriks Has Globalization Gone Too Far among others text books that provide a historical and philosophical perspective on globalization and the consequences for nationalism and social welfare, particularly social insurance.  Articles and journals providing the same kinds of perspectives include Brune and Garretts The Globalization Rorschach Test International Economic Integration, Inequality, and the Role of Government, Findlay and Hoys Global Population Issues Towards a Geographical Research Agenda, Lies Globalization and Its Discontents, Nelsons Rethinking Development and Globalization Insights from Feminist

Economics and others.
The secondary and primary resources are used for evaluating both sides of the debate about the costbenefit consequences of globalization.  These arguments will be evaluated for the respective strengths and weaknesses and will be used to demonstrate that globalization has contributed to a realistic perception that it compromises the national governments ability to deliver public goods to its citizenry, particularly social insurance.

Organization of the Study
This thesis is organized and presented in the following manner
Chapter One  This chapter introduces the topic, formulates a hypothesis and describes the research methods and design.  It also provides a state of the problem, the significance of the study and provides a synopsis of how this study is organized and presented.

Chapter Two  This is the literature review chapter and it provides an analysis of the data collected in the course of this research with respect to the globalization and its impact on national governments ability to deliver public goods and services to its citizenry, particularly social insurance against economic risks.

Chapter ThreeDiscussion and Conclusion This chapter provides a discussion of the researchers findings with respect to the data gathered and discussed in chapter two.

Definition and Concepts of Globalization
A review of the literature reveals that globalization is characterized by the relaxation of national borders, and this semi-borderless world is both positive and negative (Park 2009, 1).  Information technology and the implementation of international and regional organizations such as the European Union have removed or at least narrowed the cultural gap by introducing the freer mobility of capital, goods, services of people.  It is this concept of globalization that gives rise to the popular perception that globalization is the primary socio-economic and political twentieth century development.

There are a number of important socio-economic and political factors functioning in and around globalization to the extent, that its consequences for national governments and the nation-state as a whole is the subject of fierce debate between transformative and liberalism adherents.  Unquestionably, the modern state is a creature of the triumphs associated with modernity.  Much of that triumph is attributed to the development of the centralized territorial state. The rise of the modern state was perceived as a phenomenal development in history as it eradicated the powers of the aristocracy, religion and other forms of inequitable rule. The idea of the modern state placed masses in territorial regions together in solidarity for the welfare of their specific states.

In other words, the modern state places a lot of stock in national identity, making all those within its territory stakeholders of the states interest.  From the transformative perspective, globalization, whether for good or for ill, chips away at national identity, a key component of the states claim to authority. Likewise, capitalism relies entirely on the societys connection to the market.  Globalization also works at those connections, restructuring and reprioritizing them.

A broader concept and definition of globalization is offered by Held, McGrew, Goldblatt and Perraton (1999) who define globalization in the following terms
Globalization may be thought of as the widening, deepening and speeding up of worldwide interconnectedness in all aspects of contemporary social life, from the cultural to the criminal, the financial to the spiritual (2).

It is difficult to disagree with this broad concept and definition of globalization. Similarly, it is easy to see why it provides a basis for the transformative ideology. As Weinstein (2005) explains, although pundits may put fourth definitions of globalization to correspond with their own perceptions, there is general agreement on the basics (1-2).  The generally agreed basics is that globalization is a process involving closer economic integration by way of increased trade, foreign investment and immigration (Weinstein 2005, 2). With the integration by virtue of each of these factors there is bound to be a crossover of virtually all social factors including crime, religion and culture.  It is this aspect of globalization that informs transformative ideologists.  Liberalism looks more closely to the cross-over of trade in terms of economics and culture rather than the broader consequences for social values on a national level.

Drawing on the various definitions of globalization, Steger (2010) was able to deduce some common factors.  To this end, Steger (2010) concludes that globalization is a set of social processes that seemingly change our current social condition and weakens nationality into one of globality (10).  There are three basic assumptions relative to globalization.  First, the notion of the modern state which emerged in the 18th century is being left behind.  Secondly, man continues to move toward the new condition of postmodern globality and thirdly, we have yet to reach this new condition (Steger 2010, 10).

How Globalization Impacts Social PoliciesInsurance
Social Insurance
Social insurance refers to a system of social security in which governments or government approved agenciesinstitutions make provision for increasing or injecting income in circumstances where income is lost or reduced or where income protection is warranted.  Some examples of these circumstances are illness, disability, widowhood, old age, dependency (as in children) and unemployment.  This kind of assistance can take the form of direct cash increments or exemptions from cash obligations to the government or its authorized agency.  The exemptions can be contributions to social security andor tax reductions (Titmuss 1976, 173).

Rodrik (2000) maintains that each society establishes some form of social insurance to forestall a decline in the standard of living of workers and families.  In both Europe and North America, the most prevalent form of social insurance is activated by income transfers by the government.  These transfers are usually unemployment benefits, insurance against disability and familial assistance systems.  Minimum wages are also established and the uncertainties attached to earning capacities are reduced for workers.  The US maintains a Trade Adjustment Assistance program which is aimed at offering assistance to workers when they lose their jobs.  Assistance also include financial aid for job training and relocating.  However, not many workers have benefitted from the Trade Adjustment Assistance program (Rodrik 2000, 231).

Social insurance in Japan and East Asia is not as generous as in other regions.  The fact is, a number of the social insurance programs provided in Western nations emanate from Asian enterprises operating in Western territories. This social insurance takes the form of secured lifetime employment and employer social service programs such as health care for the employees family and housing (Rodrik 2000, 231).

For many developing countries, social insurance is sorely lacking since these governments do not typically have the administrative ability to provide income-transfer programs (Rodrik 2000, 321).  In this regard, social insurance in developing countries will typically involve the provision of public employment where job security is far more promising than in private firms (Rodrik 2000, 321).

Globalization and the Consequences for Social Insurance
Social policies or rather, social insurance against economic risks involve the various ways in which welfare facilities are organized, funded, consumed and delivered within a specific territory.  Social insurance also involves the impact these services have on socio-economic constructs, inter-social relations and the citizenries quality of life.

Transformative ideology dictates that globalization necessarily draws attention to social policy in different ways.  It forces national policy-makers to look at welfare distribution in conjunction with non-government organizations not only in the context of domestic concerns but also at the situation in other nations, foreign government policies as well as international and financial institutions.  Essentially, there is no such thing as exclusive national problems.  For example, the opening up of borders have given way to an influx immigrants including the Norths difficulty with migrants which are also comprised of refugees and asylum seekers which are arguably co-existing in uneven development and geo-economic inequalities.

Moreover, transnational corporations typically study the levels of employment and unemployment in advance of ascertaining whether or not to invest abroad.  This is manifested by the Asian economic crisis of 1997.  This crisis illustrated the extent to which national economies are intricately tied to other national economies with what is described as internationalized social consequences of financial crises.  The consequences of the Asian crisis were not localized as its effects were felt internationally.  Some of the major casualties were vast unemployment escalation, a decline in income and salaries, an increase in poverty statistics and the mass repatriation of foreign workers in a number of Asian countries.  This crisis did not call attention to individual national reforms, but on the broader issue of global regulation with a view to perfecting international commerce.  In other words, social protectioninsurance systems were not the focus attention.

Complicating matters for national policy-makers is the fact that capital mobility now permits capital to cross national borders on the basis of the best returns.  It therefore follows that demands on national governments have increased, corresponding with the heightened risk of capital movements.  During the gold standard era, governments were not facing significant demands for social insurance.  Governments were not pressed to ensure stable employment statistics, nor were they pressed to implement and sustain social security, nor assistance to the poor nor were they pressed to provide health care.  After the Second World War, these demands increased however.  The postwar climate in industrial countries gave way to a culture of government provision of social insurance such as unemployment benefits and assistance with adjusting to unemployment.

With the new era of globalization, commitments to social insurance are fading.  Employers are increasingly unwilling to make provision for job security as a result of growing competition and the increased global mobility that renders reliance on the domestic workforce tenuous.  Governments in turn, are even less capable of providing social insurance because their revenue sources are moving with the free movement of capital.  In addition there has been a growing movement against the concept of the welfare state so that many governments are finding it increasingly difficult to perpetuate policies that fully respond to the needs of their citizenry.

Rodrik (2000) argues that social security is heightened by globalization (230).  For example, unemployment naturally goes up as a result of a firms ability to move one from destination to another.  Japans postwar social policy in which large firms provided employment for life, has began to fall apart.  In France and Germany, governments have been taking steps to reduce pensions.  In South Korea, the government has relaxed restrictions relative to termination of employment.  In Latin America, public services are becoming increasingly privatized.

Rodrik (2000) explains how the governments ability to facilitate social insurance against economic risks is constrained by globalization.  He maintains that an increase in international trade runs parallel to an increase in government spending.  For example, prior to World War II,  the average expenditure for national governments was approximately 20 percent of respective GDPs in the larger industrialized nations.   However, by the middle of the 1990s, that percentage increased to about 47 percent.  Specifically, in the US, the increase in government expenditure during this period went from 9 percent to 34 percent of the GDP.  In Sweden, government expenditure went from 10 percent during the period before the Second World War to 69 percent of the GDP during the mid 1990s.  In the Netherlands, government expenditure went from 19 percent of the GDP during the period prior to the Second World War to 54 percent in the 1990s.

This pattern corresponds with the embedded liberalism thesis that when governments become committed to open markets and freer trade, they are forced to make provision for social insurance protection as a means of compensating those who do not benefit from trade expansion.  The underlying objective is to ensure that the national population supports free trade systems.  It is generally accepted that trade itself results in economic distortion and workers are exposed to increased risks.  Government expenditure is a natural response to these external economic shocks that filter down into the domestic economy. This follows from acrimony within societies to make provision for social insurance against economic risks and the need for government to secure public support in international trade. It is therefore hardly surprising that Rodrik (2000) would conclude that

International economic integration thus poses a serious dilemma Globalization increases the demand for social insurance while simultaneously constraining the ability of governments to respond effectively to that demand.  Consequently, as globalization deepens, the social consensus required to keep domestic markets open to international trade erodes.

Ever since the 1980s, there has been a tendency in the larger industrial countries for the taxes against capital to decrease.  In the meantime, taxes against laborers have risen and social expenditures have been stable with respect to incomes on a national level.  These trends are a manifestation of the tradeoffs that governments face in open market economies.  In other words the need for social insurance is balanced against the need to reduce the tax burden on capital which in turn has become more globally mobile. Making matters worse, global economic integration is occurring in a realm where governments are diminishing as well as commitments to social insurance.  Even so, a majority of the worlds populace does not have the means to benefit from trans-border mobility is growing.

The international market for trade in goods, services and capital creates a conflict for many national governments.  Governments are confronted by the prospect of producing goods, services or capital in one location and trading it in another location at a profitable price.  This can compromise norms and social systems at home with the result that the cost of responding to social needs increases.  In this regard, globalization often conflicts with firmly established social obligations.

As Rodrik (2000) argues, international trade emerges as a controversial force when it has negative influences on the social norms and values in a domestic setting.  For instance, it cannot be presumed that all of the citizens of large industrial nations are content with the abrogation of domestic systems as a result of global trade.  One example would be the replacement of workers in one state by child workers in another, or the reduction in pensions in one state in response to the need to accommodate a multilateral treaty.  These kinds of consequences give way to a logical discomfort in light of the social compromises that arise in the course of governments attempts to meet the needs of international trade policies.

Globalization ultimately propels a tradeoff in social insurance and international harmony in commerce and trade.  For example, labor laws in one country may be such that they provide for safety in the workplace, minimum wages, work hours, collateral bargaining and many other forms of social insurance.  The general idea is to cushion the inequality of bargaining power between the employer and the employee.  Globalization creates a countering effect by permitting employers to transfer their firm overseas while employees are not so free to move.  In a roundabout way, domestic workers are driven from their jobs.

When all is said and done, mobility of capital and firms in the new global era results in a redistribution of income in nations, regions, industries and people. Not only is there competition among low-salaried workers but there are labor practices from foreign firms that offend the labor laws, practices and policies in the host state.  The need for social insurance against economic risks will therefore increase and as governments are also impacted by the loss of revenue when these factors result in the relocation of firms and capital, their ability to respond to the increased need for social insurance also decreases.

Altman (2000) also addresses the economic risks associated with globalization and the manner in which globalization undermines governments ability to respond effectively.   Altman (2000) aligns the force of globalization with that of nuclear power in the sense that it has the power to overthrow governments and their policies almost overnight (240).  Making matters worse, there are no systems in place for controlling it.

The global financial market is particularly worrisome as it has gathered strength and momentum and is to a great extent the ruling international authority with more potency than any military or political power.  When nations and even international organizations such as the United Nations are confronted by global financial markets they can force any kind of unprecedented changes in policies and practices.  Although some of these changes can be positive, such as the introduction of democratic systems, they can also spur what Altman (2000) describes as a chain reaction (240).

The negative chain reaction is a characterized as a global market meltdown that has the potential to destroy security by putting the entire world into an economic recession (Altman 2000, 240).  By way of example, Altman provides a theory in which he supposes that Brazils currency declines to a point where its value is halved in the span of a week.  This would cause Brazils financial institutions to collapse as its capital would decline so that its investors would bail.  In other parts of Latin America, there would be anticipation that the crisis in Brazil could spread and investors would also pull out of the region causing the crisis to impact all of Latin America.  Complicating matters, these investors, having pulled their capital out of Latin America would put it on the foreign market triggering a stock market free fall in Asia and Europe and then on Wall Street.  In a very short period of time, the global market would suffer a vast loss with the result that consumers and firms would reduce spending in anticipation of economic insecurity.

Mexico suffered this backlash in 1994 when world markets perceived that the countrys government was becoming too heavily indebted to foreign creditors.  Foreign investors pulled out and the peso declined so that Mexicos government could not discharge its accumulating debts.  This economic crisis ensured that the Mexican government was unable to provide any form of social insurance to its citizenry and a loan from the US was the only method of relief.

South East Asia suffered a similar fate in 1999 despite the apparent economic gains in that region over the preceding years.  Foreign markets began to perceive that individual countries in the South East Asian region were operating shaky financial institutions as a result of bad loans (Altman 2000, 241).  In one country after another the individual currencies began to lose their value.  Treasuries became depleted and the economies began to fall apart.

In another approach to the social insurance compromise under neo-liberalism and globalization the Turac Amaru Revolutionary Movement (2000) argues that globalization erodes a basic social insurance in many developing and least developed nations.  The fact is, many of these countries provide social insurance by providing secure jobs in the public service. Neo-liberalism and globalization works in tandem to promote privatizations which as the Tupac Armaru Revolutionary Movement(2000) maintains

Have ended up as a recipe for unemployment, throwing thousands of workers out into the street to join what is already an army of the unemployed (282).

Liberalism and neo-liberalism were theories that were created by Adam Smith and David Ricardo.  In short, these theories promote a concept that global trade and foreign investment tools will create equity and fairness for nations with the result that everyone will prosper.  The general theory is that free markets function to improve the welfare of human being not only economically, but socially as it distributes and transfers knowledge and resources.  It functions to maximize political freedoms as well.

Neo-liberalism in the context of globalization undoubtedly draws attention to the predictions of theorists Karl Marx and Fredrick Engels in the 18th century.  Both predicted that in rising capitalism, the private sector would become irrelevant and that socialism would take over transferring capitalism to governments.  The recent and current global financial crisis is ominously reflective of Marx and Engels predictions.  The fact is, governments around the world have had to implement bail out programs to rescue private enterprises.  In a very real way, socialism has begun to transfer capitalism to governments.

In an article by John Plender (2008) published in the Financial Times it was reported that
In the space of just two momentous weeks, the landscape of global finance has been dramatically transformed.  President George W. Bushs administration has mounted a multi-billion-dollar rescue of the financial system at the cost of inflicting severe damage on the US model of free-market capitalism.

The biggest and most controversial bailouts were the governments guarantee and sponsorship of mortgage lenders Fannie Mae and Freddie Mac and its bailout of AIG, an insurance company (Plender 2008).  These bailouts not only align itself to socialism, it also increases the national debt thereby lowering the GDP with the result that the government is unable to effectively provide social insurance against financial risks.  Instead the government is focused on stabilizing the current capitalist system with little resources left for those who have been displaced by the global financial system.  More importantly, these private institutions are returned to the public sector.   The table below illustrates this dilemma (see below).The US national debt prior to the rescue of Fannie Mae and Freddie Mac was relatively small compared to its national debt after the rescue.

According to Tupac Armaru Revolutionary Movement(2000) there is an unavoidable problem emanating from globalization.  Aside from the transfer of capitalism from private firms to the government, the fallout is one that disadvantages the working classes.  Annually profits are falling and the only way forward has been to reduce wages and to cut back on social insurance.  The result is a large number of redundancies in both the North and the South regions.  While the north is more equipped to provide social insurance against these economic risks, the south is not able to do so.

While bailouts can be viewed as aggressive government intervention, it undoubtedly calls attention to 18th century predictions by Marx and Engels of the transfer of capitalism from the private sector to the public sector.  While the current economic crisis gives Marx and Engels predictions some credibility it calls into doubt those assumptions made by Geoffrey Garret in 2003.  Garret (2003) maintained that the constraints on domestic policy choices perpetuated by globalization were not the norm (384).  However, the current economic crisis and the extent to which national governments issued bailout programs for private sector firms tell a far different story.

The current economic crisis may also provide evidence of the strength of Garrets argument that integrated market does not weaken government social policy making, but rather strengthens it (Garret 2003, 384).  According to Garrett, while economic integration facilitates the option for manufacturers and investors to take advantage of exit options, it also heightened feelings of economic insecurity among broader segments of society (Garret 2003, 384).  In doing so, governments have greater incentives to implement social policy programs that mitigate market dislocations by redistributing wealth and risk.

Even so, the incentive means little if governments who typically provide social insurance by virtue of public jobs have privatized those enterprises, these governments have ultimately surrendered social insurance programs to the private sector and are therefore ill equipped to make provision for social insurance.  Similarly, when governments respond to private sector bankruptcy as they have been doing in the current economic crisis, the national debt leaves little room for providing social insurance.

Globalization and Its Restraints on Democracy and Sovereignty The Consequences for Social Insurance

The significance of democracy andor sovereignty is that it provides the basis by which a national government can meet the demands and needs of its citizenry.  At the heart of the matter is the citizens participation in government via election and other methods of public participation in government conduct.  The legitimacy of democracy and sovereignty is challenged in globalization quite simply because national governments now have to rethink social policies by reference to international agreement and collaboration and as a result are no longer confined to solving the individual problems within a nation.

Axtmann (1996) theorizes that
The success of the nation-state in the last two hundred years or so as well as its universality and legitimacy were premised on its claim to be able to guarantee the economic well-being, the physical security and the cultural identity of the people who constitute its citizens.  But global forces such as global capitalism, global proliferation of nuclear weapons and global media and culture are not undermining this claim and challenge the effectiveness of the political organization from of the nation-state (134).

These global processes, including global markets and integrated economies are necessarily weakening the concept of sovereignty and democracy and by extension the link between the nation and its citizenry.  Citizens of any one state demand political representation which invariably include national security as well as economic security and national identity (Axtmann 1996, 134).  However, in an integrated global market which is comprised of a community of nations, there is no centralized rule since, regions. International organization and transnational corporations set the overall policies and practices.  This undermines national governments ability to reconcile the needs of the citizens and the influences of these international forces (Axtmann 1996, 134).  In this regard, the sovereignty of the nation state and the concept of democratic service is compromised to the extent that governments are finding it difficult to meet the needs of its own citizens and the rest of the world at the same time.

Fallis (2007) argues that sovereignty is the first casualty of globalization.  It necessarily declines as governments deregulate and conform to treaties and conventions and other organizations which are designed to harmonize policies, practices and laws among treaty andor convention members.  In this regard, national governments are less able to influence the economy and culture within their borders (Fallis 2007, 316).  As Fallis points out the decline in democracy and sovereignty is a nature consequence of globalization

This is because our increasing interconnectedness  political, economic, cultural and environmental  has made all societies more open to forces beyond their borders and so inevitably less able to control what happens inside their borders (316).

In a world where competition to gain entry to and participate in global markets is fierce, governments are forced to give up significant vehicles of control and revenue which is used for social insurance against financial risks.  This source of revenue and national control is tariffs and customs duties.  When national governments wish to become parties to a bilateral or multilateral free trade agreement they are typically compelled to remove trade tariffs.  Fallis (2007) goes further to state that bigger businesses have the support of international organizations that promulgate and implement international trade agreements such as the World Trade Organization, the International Monetary Fund and the World Bank who have by proxy, come to the conclusion that the best government for economic prosperity is constrained government (316).  Governments are effectively constrained by balanced budgets, lower taxes, freer trade, privatization and domestic market deregulation (Fallis 2007, 316).

The constraints on democracy and sovereignty and by extension, on the governments ability to provide public services, more especially social insurance follows from the competition to become a part of the global market.   When nations do not conform to the demands of trade agreements, they face the prospect of these transnational corporations relocating to or simply going to a state more willing to conform.

Fallis (2007) argues that nowhere is the decline of democracy and sovereignty more problematic than for the welfare state (316).  The welfare state has historically thrived off the exchange of bargains between democracy capitalism.  In a welfare state, the market required political influences to thrive.  Fluctuations were altered by government economic policies and its returns were modified by tax policies which redistributed the revenue and by programs for spending.  The result was that the citizens were able to expect and did receive social services and social insurance.  However, globalization appears to insist on the demise of democratic constructs.

Another challenge to democracy under the auspices of globalization is the nature of the closed door negotiations that go on at the international level (Viadya 2006, 838).   The ordinary citizen under democratic processes has come to expect participation in policy forming and policy decision making processes.  They have no input in these international negotiations which invariably trickles down to domestic structures.  One need only look to the number of multilateral and bilateral trade agreements that have been negotiated and bind these nations long after government leaders have left office.

In any event, when a country binds itself to an international treaty of any kind, it automatically surrenders some measure of sovereignty.  The surrender of sovereignty at any level will correspond with restrictions on the ability to effect national concerns satisfactorily.  It also constrains the ability to focus on and pursue national concerns and objectives.  As discussed above international trade agreements do not permit contracting parties to raise tariffs, a widely used method of generating social insurance against economic risks (Vaidya 2006, 838).

Vaidya (2006) explains that the international organizations behind these multilateral and bilateral trade agreements implement policies that bind contracting states (838).  Moreover, these international organizations place restraints on ongoing and future policy considerations especially in democratic nations.  Ultimately, states trade sovereignty for capacity and by doing so, they trade the ability to set policy independently for some policy capacity they lack, such as the ability to formulate or implement a policy to solve or the ability to pay for the solution (Vaidya 2006, 838).

When individual nations confront severe currency devaluations or severe budget deficits they are at liberty to seek redress from the International Monetary Fund in the form of loans.  However these loans come at a price.  When countries take loans from the International Monetary Fund they are generally required to agree to specific reforms that usually impact certain policies which are related to those areas that the International Monetary Fund has specified as the cause of the economic crisis requiring a loan.  Inevitably these reforms include reducing national subsidies for food, social insurance, child care and industries as well as reformation of banking, insurance and security systems.

Ultimately, the majority of International Monetary Fund bailouts take place after what is referred to as a boom-and-bust cycle in which inflation brings about a crisis in employment increasing internal demands for social insurance.  This places increased political pressure on the government who are confronted with the task of making economic reforms that correspond with the International Monetary Funds perspective.   These kinds of conditions undermine democratic governance since the populations demand for social insurance is quite often silenced when the government inevitably panders to the International Monetary Funds conditions for bailouts.

In general, globalization results in policies being made on a global rather than a domestic level.  In many ways this contradicts the principles of democracy which is a key political structure for meeting the demands of the population, especially the demand for social insurance against economic risks.  To start with, the legislature which is elected by the population to represent their interests are typically called upon in terms of international treaties to vote on policies that they had no role in forming.  Invariably, the interests and the demands of the national population are overlooked in favor of the gains that can be derived from an international treaty.  A further challenge to democracy also arises out of the fact that many of the negotiations for these treaties are conducted behind closed doors.  State leaders typically negotiate these treaties without input from the elected legislature and secure policies that would in all likelihood never be secured on a domestic level (Vaidya 2006, 840).

The European Union is an example of the challenge that globalization has for democratic constructs.  Policy making within the European Union is characterized as undemocratic in that it lacks population participation.  Elected members of the European Parliament have little, if any authority to prevent a policy that state leaders lobby for.  In fact the European Parliament does not have a role to play.  In this regard state level parliaments have no authority to agree to or refuse to agree to a policy put forth by leaders at the European level.

Essentially, global governance compromises the system of accountability which is the backbone of democratic systems.  Policies and regulatory frameworks implemented by international institutions are undemocratic in nature.  Although a number of the secretariats are selected by national governments, the parties that make policy decisions such as the European Union, the International Monetary Fund and the World Bank appoint unaffiliated staff members via the auspices of competition from among several countries.  The point is, those who are responsible for policy-making are appointed rather than elected officials and not accountable to any specific population but to those who have appointed them.

The policy makers from the international organizations typically make policy decisions without reference to any political, environmental, labor or any other interests relative to any specific nation.  It is therefore hardly surprising that critics of the World Trade Organization, the International Monetary Fund and the World Bank are persistently demanding representation by environmental, labor and other social groups on these policy making boards.  The idea behind these demands is to ensure that at least the persons who affected by these policy decisions will have some input by proxy.
Corporations within the globalization era provide a specific challenge to the concept of democracy.  These organizations often obtain some measure of immunity from political regulation by citizens and governments.  When commerce is deregulated, corporate globalization ultimately decides the constructs of the daily lives outside of democratic processes.  These decisions are relegated to the World Trade Organization, the International Monetary Fund, the World Bank, Wall Street and the corporation.  In a very real sense, corporation globalization infiltrates domestic economies as well as the security in jobs and livelihoods generated by national economies in their endeavors to maximize profits.  The inevitable result is economic insecurity.  This presents a unique challenge for democracy, because while citizens may change their government, they are powerless to change the economic policies that bind successive governments.  Therefore regardless of what government takes office, the corporations are governing the nation.

Corporations rule because the competition for capital under the auspices of globalization provides a strong incentive for national governments to implement economic policies that appeals to these corporations.  In other words, international corporations have a greater influence on political systems and policy making than the populations who elect their governments.  With the greater production of goods and the increases in trade, governments have difficulties implementing and sustaining high tax rates.  In fact corporation taxes have been falling all across Europe.  Moreover, state-owned firms are facing increasing pressures toward privatization because they are ill-equipped to partner with large international firms.  

On the other side of the argument, Bhagwati (2004) argues that globalization is not detrimental to democracy on all counts.  In fact globalization can be a positive democratic tool.  It can directly foster democratic values by permitting the small farmer in rural areas to get by the ruling classes and to put his product on the market directly.  This is made possible by the advent of modern technology and its transfer by virtue of globalization.  By doing so the small farmer is able to relax the control of these traditionally hegemonic groups.

Globalization makes democracy possible in two important ways.  Firstly, modern technology in which computers are an important tool is made available to all corners of the globe as a direct result of international trade and permits access to foreign markets.  Secondly, and in a more indirect way, globalization has the potential to provide economic opportunities for those who would otherwise be denied it.  This happens by virtue of education and the eventual decline of marginalization as suppressed groups are able to bypass the middleman such as in the case of the rural farmer.

Arguments that tend to present globalization as a promoter of democracy are loosely based on neo-liberalism rhetoric.  The popular opinion is that international integration which invariably involves the transfer of technology and capital is generally favorable to providing equal opportunities for all.  However, the recent financial crisis and the past crises, such as the economic crisis in Mexico and the Asian Pacific all demonstrate that globalization can have detrimental consequences in one chain in the international link is broken.  

Chapter Three

Theoretically globalization comports with the concept of neo-liberalism.  Globalization, like neo-liberalism takes the position that we all belong to a single construct, socially, political, economically and ecologically.  If we conduct ourselves according to this belief, equity would be accomplished in terms of the standard of living.   Unfortunately, multinational corporations, non-government organizations and the government of the worlds leading developed countries take the position that there is only one effective method for promoting and securing the ideals of neo-liberalism through globalization.  That method is for the societies to make reforms that conform with international markets and economies rather than for markets and economies to make adjustments to comport with the economies of various societies.

Certainly, it is true that international economic integration is desirable for promoting egalitarianism.  However, from the transformative perspective, it should not come at the behest of corporate giants.  Invariably they have a conflict of interest in that they are not predisposed to take into consideration the greater good of the societies in which they reside.  Their loyalties are first and foremost to a very narrow group of stakeholders their shareholders.  Ultimately, corporations are driven by a desire to maximize profits.

Since corporations are loyal to their profit maximization agendas, they present a unique challenge for social security.  The exit options accorded these organizations as a result of capital mobility makes it entirely possible that these corporations will invariably leave their host states if and when an option to pay smaller taxes or to employ workers at lower wages arises elsewhere.  In the current global economic environment, competition is fierce in that countries are attempting to implement economic policies that are more attractive to international corporations. Consequently, and according to transformative ideology, the economic risks for the citizenry in the host country are heightened.

Complicating matters, governments in their attempt to implement economic policies that are more appealing to corporate giants are predisposed to lower taxes and in some cases to eliminate taxes, if only for a short while.  With this reduction in revenue, national governments are deprived of the means to effectively provide social insurance for their citizenry against what is increasingly an economic risk.  In this regard, globalization under the auspices of neo-liberalism creates the economic risk and deprives governments of their ability to effectively respond to those economic risks.

Economic risks are not only created by the exit option associated with capital mobility. It is also created by the fact that foreign corporations have the opportunity to leave one jurisdiction if and when they find another jurisdictions labor laws more profitable to them.  For instance, cheaper labor would increase a corporations profits.  Similarly, the relaxation of restrictive work hours which impels a firm to pay overtime wages would also be more attractive to a corporation.  When opportunities arise for the corporation to achieve these benefits, the corporation would obviously take the opportunity. When this happens, workers are left without jobs in circumstances where government policies that were promulgated to attract foreign corporations have severely undermined the host governments ability to provide social insurance.

In countries, particularly developing nations and least developing nations where social insurance is provided by government owned corporations, the drive to privatize removes this form of social insurance and invariably there is no other form of social insurance in place.  In these countries, public works and utilities and in some cases, airlines and other forms of public service are owned by the government which employs the general population.  In privatization of these public services, the private takeover of these undertakings usually comes with large lay-offs and restructuring which creates severe economic risks for the population.

Globalization creates a compromise in the sense that national governments are exposed to a choice between implementing policies that are directed by non-government organizations over the implementation of policies that provide social insurance for their populations.  This occurs particularly in situations where governments sign on to bilateral andor multilateral trade treaties or conventions.  Ultimately, governments surrender their sovereignty and by extension democracy is compromised.  This surrender occurs because governments give up key components of their governance which is accorded them by their populations in exchange for freer and open trade.   Sovereignty is surrendered by the lowering of trade tariffs and deregulation.

When governments surrender some aspect of their sovereignty, they ultimately commit themselves to the will of their trade partners rather than the will of their populations.    The obvious consequence is a compromise of priorities and the citizenry for the most part suffers as a result.  Their need for social insurance against economic risks becomes a casualty of the globalization agenda.

The current economic crisis has taught us one thing.  Socialism has failed to provide social insurance against economic risk and so has capitalism in the guise of globalization through neo-liberalism theories of economic equanimity.  One effective answer appears to be in the form of regional trade policies and economic cooperation.  However, the previous crisis in the Asian Pacific demonstrates that there is a risk of a chain reaction in which one countrys currency failure could lead to a crisis throughout the region.

Ultimately, globalization is a reality that shows no sign of disappearing any time soon.  The best solution is therefore for all nations to insist that corporate giants and foreign investors comport with the economic and social realities in each society.  Governments should not agree to trade revenue policies, the key source of social insurance for foreign investments.  If the global community insist on implementing and sustaining comparable tax rates and tariffs, the exit options would for the most part be removed or at the very least minimized.  In this regard, governments would have the revenue to implement social insurance policies and programs for their citizenry, if and when the foreign investor pulls out, as it eventually will.

Privatization presents its own unique problems.  These problems cannot be eradicated by virtue of tax rates and the removal of exit options.  The problems arising out of privatization is the massive lay-offs that accompany them and the automatic restructuring.  Governments who put their public services on the market should ensure that the proceeds of sale be used at least in part to provide social assistance for those persons who become unemployed as a result of the sale.  Another option is for these governments to make the sale conditional upon the retention of the employees already in place or at least the retention of a minimum number of workers.

There are no easy solutions to the problems that governments confront in the face of globalization.  Economic integration is a reality and cooperation with non-government organizations is inevitable.  However, governments should remain focused on those that they were elected by.  This means ensuring that social insurance is not compromised in favor of transitory foreign capital.


Post a Comment