Download the impact of globalization on welfare expenditures

Globalization, Veto Players and
Welfare Spending
Written by Eunyoung Ha
Comparative Politics
Pietro Besozzi
Research question:
This article examines the role of globalization and
its interaction with veto players in shaping welfare
spending in 18 advanced industrial countries from
1960 to 2000. It is divided into 2 main questions:
How globazation has influenced welfare
expenditures
How domestic political institutions mediate
the impact of
globalization on welfare
spending.
Analysis
Ha's analysis is distinctive in at least 3 ways:
First, in examining the impact of globalization on
welfare expenditures,
She uses six different globalization indicators
(trade volume, tariff rates, imports from LDCs,
capital mobility, foreign direct investments [FDIs],
and international portfolio investments).
Analysis II
Secondly, Ha operationalizes veto players
as both the number of veto players and the
ideological distance among them.
Compared to the number of veto players,
less attention has been paid to the impact of
ideological distance among veto players on
policy change.
Analysis III
Finally, Ha analyzes the interaction between
globalization and veto players to study how
veto players mediate the impact of
globalization on welfare expenditures. She
argues that veto player do not have policy
preferences but they can only delay changes
in welfare spending.
Globalization and Welfare Spending
Two different points of view:
NEO LIBERAL ECONOMIC THEORY:
Globalization has forced states to roll back social
insurance benefits and implement efficiencyoriented reforms for social services. If the
government does not interfere, the market will
select the most efficient institutional solutions. In
particular expansion in trade and capital mobility
in the globalized market limits the ability of
governments
to
mantain
generous
and
comprehensive social protection.
Globalization and Welfare Spending II
In contrast several scholars argue that
globalization has expanded welfare expenditure.
Greater liberalization →
increasing social
dislocation
and
economic
insecurity
→
governments tend to protect workers and firms
from the risk of openness.
An increasing inequality and economic insecurity
in integrated world markets are expected to
strengthen citizen support for the welfare state.
Globalization and Welfare Spending III
4 main problems:
Measurement of the welfare state (GDP vs
replacement rates)
Measurement of globalization (trade volume vs
capital mobility)
Empirical results may vary according to years,
countries, controls and methods used for data
analysis
Scholars have used different statistical methods
Globalization and Welfare Spending IV
To solve the first problem, Ha uses the most
popular measure for welfare effort:
social security transfers as a share of GDP.
For the second, she uses six globalization
indicators (tariff rate + capital mobility)
Thirdly, Ha includes important institutional
variables for 18 industrial countries between 19602000
Last, Ha uses pooled time-series regression
analysis
Globalization and Veto Players
Ha wants to give importance to how states change
their expenditure in the global era and here she
introduced the important role of the Veto Players.
States may have pressure to change their welfare
spending. States with one veto player will be able
to quickly react the pressure, whereas states with
many veto players and large ideological gap will
incrementally respond
Data and Models for Analysis I
Data:
Welfare spending: the dependent variable is
welfare expenditure measured by social transfers
as a share of GDP. Social security transfers
include social assistence grants, welfare benefits
and benefits for sickness, old age, family
allowances and so on.
Globalization: Ha uses two key components of
contemporary globalization: trade and capital
openness.
Data and Models for Analysis II
Veto Players: two aspects → the number (both
istitutional and partisan) and the ideological
distance (measured by standardized scores of 3
indices of the ideological position of parties in the
government:
“Left-right” (Castles and Mair, 1984)
“Increase services vs. cut taxes” (Laver and
Hunt, 1992)
“Expert judgements of Party Space and Party
Location in 42 Societies” (Huber and Inglehart,
1995)
Data and Models for Analysis III
Then, with this three measures of ideology, Ha
conctructed three new variables representing the
ideological distance of each government. First,
she took the absolute value of the ideological
distance among the most extreme parties of a
coalition in each government, then she
standardized each index and take the average of
the three standarized scores. As a result, she
successfully created a new veto players data set
that covers the period from 1960-2000 in 18
countries
Data and Models for Analysis IV
Controls: to isolate the effect of globalization and
domestic political institutions on welfare spending,
Ha includes eight control variables:
Leftist party is expected to increase welfare
spending
Number of union members is expected to
increase welfare spending
Number of elderly population (over 65) increase
social welfare spending
Unemployment rate is expected to increase
welfare spending
Data and Models for Analysis V
The inflation rate can either reduce or increase
welfare spending,
GDP per capita and economic growth can also
increase or decrease welfare spending,
Incumbents increase transfer payments before
elections to win votes
Ha controls for the effects of election years by an
election dummy, where election year is coded as 1
and 0 otherwise.
Last, EMU is expected to be negatively
associated with welfare expenditures
Models I
Results
Results
Results
Discussion and Conclusion I
Globalization, measured by capital mobility, has a
direct effect on expanding welfare expenditures →
suggests that governments feel more pressure to
enlarge social security when they remove
protection from domestic markets.
More veto players and increased ideological
distance among them reduce the upward pressure
of globalization on welfare spending. Even when a
government has a strong political incentive to
increase welfare benefits, expansion will be not so
easy.
Discussion and Conclusion II
The results show that globalization has pressured
states to expand welfare spending, but the extent
to which states have responded to pressure
critically depends on the number of and
ideological distance among veto players, whoose
agreement is required to change welfare policy.