How Have European Welfare States Responded To The Challenges Posed By Globalization?

Introduction

Although globalization has varied meanings and definitions, we can describe it as a process of closer transnational cooperation resulting in free capital movement, increased trade, and free movement of people. Academicians and policymakers more often use the concept to describe the substantial growth of international trade and financial markets (Mewes, J., &Mau, S. (2013). Accordingly, one could argue that among the major challenges posed by globalization to the welfare states lies in the very differing extent to which labor forces and capital can move across borders. Globalization has had a significant effect on most welfare states worldwide that some people have come to argue that it is the cause of the crisis of European welfare states (Glatzer, W., 2012). How these states have responded to the challenges of globalization forms the basis of this paper. More specifically, the paper seeks to answer the question “How have European countries responded to the challenges posed by globalization?”

The Challenges of Globalization to the European Welfare States

Examining the response of European welfare states to the challenges posed by globalization would, first of all, require an understanding of the impact of globalization on these states and the challenges that stem from this phenomenon. Globalization and its implications became the objects of concern in the final years of the last century. Journalists, academicians, and politicians shared this concern, every so often expressing it as a requirement for more market and less state in the new-fangled global world. However, most of them did not reinforce their arguments with evidence. More recently, though, social scientists have endeavoredto expose the phenomenon of globalization and the concern of its implications to an analysis that is more balanced and supported by empirical research (Palier, B., & Sykes, R., 2001). As such, challenges that globalization pose to welfare states, particularly those in Europe, have become more apparent.

The range of challenges that stem from globalization is wide. In the case of welfare states in Europe, globalization acts as a process impacting on the internationalization of Northern European companies within the international market and the incorporation of the financial markets of Northern European countries into the international system. In those welfare states to the South of Europe as well as Bismarckian states, globalization acts as process affecting labor markets, impacting on, in particular, the existing rigidities in occupational structures and competitiveness. Also, in Bismarckian welfare states, globalization creates problems for the existing patterns of employment and the gender balance in the labor force. The Eastern and Central European welfare states have liked globalization to the process by which the Bretton Woods Institutions have been able to enforce an entirely new ideology regarding welfare and fundamental streamlining of the provision of welfare along drasticlines of neo-liberalism (Palier, B., & Sykes, R., 2001).

For the past five decades, different dimensions of globalization have weakened both the political and economic bases of generous welfare states in Europe. The deregulation of the flow of international capital and of national capital markets, which are fundamental elements of globalization, have had a substantial impact on production regimes in Europe. More specifically, they have eroded some of the traditional policies and institutions that allowed European countries to keep interest rates below the rates of the global market. Additionally, they have tattered traditional policies that allowed countries in Europe to provide investment capital on preferential terms to business enterprises. Accordingly, globalization has contributed to lower investment rates in a majority of European welfare states (Meinhard, S., & Potrafke, N., 2012).

Given that high rates of investment were an essential component of the policy configurations of full employment-generous European welfare states, globalization has made the maintenance of this configuration more difficult. Another important dimension of globalization is the internationalization of production, which has altered the political power balances underpinning generous European welfare states. The growth in transnational production networks has made capital to exist easier in Europe (Smith, A., 2015). Accordingly, globalization has given capital more leverage compared with governments and labor.

Technological changes and economic integration are also dimensions of globalization that pose challenges to European welfare states. Through these dimensions, globalization has pushed the welfare states in the direction of greater conformity and adoption. Intrinsically, it has led to the collapse of the autonomy of European states, which could possibly lead to the death of state sovereignty. Globalization has also led to the challenge of immigration into European countries, with an increasing number welfare immigrants exploiting the welfare systems of generous European welfare states. The major challenge is that immigrants move into European countries with liberal welfare systems and get accessto social benefits without making adequate contributions to the systems (Mewes, J., & Mau, S., 2013). Due to globalization, welfare costs in Europe now account for almost half of all federal outlays – in Germany, for example, pensions alone increased from 13 percent in 1964 to 31 percent in 2004 owing to globalization (Dahl, E., & van der Wel, K., 2013).

The spectacle of globalization has opened the borders of most European countries, leading to immigration into those countries that have generous welfare. In most European welfare states, immigration is considered a burden to society, primarily because immigrants are suspected of exploiting welfare benefits. As a consequence, there exist the challenge of social exclusion for immigrants, possibly through various forms of discrimination (Kahanec, M., Myung-Hee-Kim, A., & Zimmermann, K., 2013).  Broadly defined, social exclusion relates to the inability of people to partake in the basic economic, social, and institutional functioning of the society in which they live. It also implies to the inability of a person to exercise basic social rights (Andreotti, A., Mingione, E., & Polizzi, E., 2012). Across Europe, new immigrants are being excluded from welfare state benefits because they are perceived as undeserving of the benefits.

The Response of European Welfare States to the Challenges Posed by Globalization

The response of welfare states in Europe to the challenges posed by globalization has been varied. As aforementioned, European welfare states have faced challenges in integrating immigrants and in dealing successfully with issues of poverty, social exclusion, and deprivation among members of this social group. In response to this challenge, the welfare states have developed immigration policies to restrict the movement of immigrants across borders. The policies are grounded on a general principle and international laws which dictate that there is no right of entry into a foreign state (Joppke, C., & Morawska, E., 2014). The welfare states have certainly tried to limit and control the accession of immigrants so as to avoid disadvantages stemming from immigration and the challenges arising from the phenomenon of globalization. Nonetheless, it can be argued that the closure of borders and the discretion of European welfare states to limit the accession of immigrants violates people’s rights to partake in the global process of development, especially given the fact that most of the resources of the worldare consumed by developed countries (Soysal, Y, 2012).

European welfare states have also responded to the challenges posed by globalization through the targeting of social benefits. This approach has been an integral part of most social welfare policies of European countries. In the welfare states, a majority – if not all – of social benefits in the past were in one way or another targeted to serve specifically defined social groups, whether those in actual need or those at risk of being in need. The European welfare states have never had programs that operated in an entirely indiscriminate manner in the distribution of their benefits. The states have always considered their resources to be scarce and the main task of policymakers within a majority of European countries has been how to make use of the limited resources available for social benefits (Van Kersbergen, K., & Hemerijck, A., 2012). Accordingly, the policy issues have not been whether targeting of social benefits is necessary, but rather what are the best ways of making it acceptable and using it to counter the challenges posed by globalization.

Almost all of the European welfare states have made efforts to achieve distributional objectives of their so-called universal benefit systems by methods other than the use of income- or means-testing at the point of access and utilization. The states have achieved the distributional objectives, and by the same token the targeting of the bulk of the benefits only to those in need, through some rather effective policy measures. The measures that the welfare states have most commonly used include focusing social benefits on clearly defined social status groups and a progressive division of the burden of financing. Also, the European welfare states have used structured benefits and benefit formulas that provide greater help to those less privileged without stigmatizing them. Nonetheless, the states have clawed back some of these benefits through the direct tax system (Van Kersbergen, K., & Hemerijck, A., 2012).

During the 1980s and the 1990s, most of the European welfare states, including the United Kingdom, retrenched various social benefits and welfare services as a response to the challenges of globalization. Remarkably, the social security systems of a majority of the welfare states came to be subjected to a means-tested payment system with only a trivial role of social insurance that were earnings-related. The exception was the basic government retirement benefits. The cash benefits value in relation to median wages in most European welfare states became eroded and the states tightened the eligibility rule of receiving social benefits as a way of countering the challenges posed by globalization (Meinhard, S., & Potrafke, N., 2012). Nevertheless, because of the existence of income inequality in the welfare states, the cost of benefits exacerbatedeven with efforts to tighten rules for eligibility. Accordingly, most of the European welfare states further reoriented the unemployment benefit system towards activation.

In the UK, particularly during the term of Prime Minister Tony Blair, an all-encompassing strategy termed the “Third Way” became the main approach to responding to the challenges of globalization. The fundamental aspect of theThird Way response strategy, which was driven by social investment, was a spiriteddependence on employment to deal with the challenges of social exclusion, poverty, discrimination. More precisely, this involved increased investment in education and healthcare (Mason, C., 2012). Another response strategy that the welfare states in Europe have used in the past is the development of ‘welfare-to-work’ scheme as a key policy initiative. The reform agenda of this response strategy has involved a far-reachingmodification of rights and privileges in such a manner that social benefits would no longer be handouts. For instance, the states attached stricter conditions to social benefits, requiring the jobless to actively seek employment and participate in training (Wright, S., 2012).

European welfare states have also responded to the challenges of globalization through allowing for flexibility in the labor markets. Flexible labor markets have enabled employers in Europe to obtain more autonomy and influence over European labor markets. The welfare states have been keen to aid this trend and develop a more business-friendly environment by relaxing legislation on employment, which they hope will attract more foreign investment. The move to make labor markets more flexible in the European welfare states has been driven by the policy of firms which demanded more flexibility in the manner they could employ labor. The foremost rationalization for this increased agility as a response to globalization has been to enable European economies and companies to compete in the international arena to meet the challenges posed by new technology and to overcome the financial difficulties created by the international monetary crisis (Blossfeld, H., Buchholz, S., Hofäcker, D., & Bertolini, S., 2012). This flexibility has come in various forms: functional, numerical, and cyclical flexibility, systems of labor contracts with short-term or fixed employment tenures, and mechanisms of adjusting wages.

Conclusion

Globalization and its challenges first became the objects of concern in welfare states in Europe in the last half of the previous century. The phenomenon of globalization poses a lot of challenges to the European welfare states, including problems with the existing patterns of employment and the gender balance in the labor force as well as other adverse effects on labor markets. Globalization has also led to the challenge of immigration into European countries, with an increasing number of immigrants exploiting the welfare systems of generous European welfare states (Palier, B., & Sykes, R., 2001; Meinhard, S., & Potrafke, N., 2012; Smith, A., 2015). The states have continued to survive the onslaught of globalization, albeit in some cases with battle scars, in the form of reduced welfare entitlements and increased targeting in the provision of welfare benefits. In all European welfare states, issues relating to expenditure, the curtailment of welfare benefits, selectivity, the closure of borders, and flexibility of labor markets have been on the agenda, although the states have responded to challenges posed by globalization in diverse ways (Joppke, C., & Morawska, E., 2014; Van Kersbergen, K., & Hemerijck, A., 2012; Wright, S., 2012). It should be noted, however, that a precise manner in which European welfare states have responded to globalization and its challenges is a question of empirical research in individual and comparative case studies.

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