The Welfare State and Government Responses to Economic Openness
Economic openness is the phenomenon in which individual economies from all over the world become increasingly connected and interdependent through greater liberalization of trade and the vast movement of goods, services, and capital across borders. With the rise of globalization, positive effects have resulted from economic openness. The widespread benefits of globalization have resulted in global economic growth, prosperity, and have increased the overall standard of living in the world. However, globalization has also been blamed as being the principal culprit for numerous global problems including poverty, wealth disparity, and environmental degradation. The debate over globalization has resulted in a zero-sum game between the pursuit of economic openness and the maintenance of the welfare state. This paper will argue that a conflict does exists between globalization and the welfare state; however, governments still possess critical policy tools in which they are able to minimize the negative effects of economic openness. Through the examination of welfare state and the compromise of embedded liberalism, this paper will show the challenges a government must face in attempts to protect its citizens from globalization.
II. The Zero-Sum Game and the Challenges of Globalization
The relationship between the welfare state and globalization is a zero-sum game where gains in one will lead to concessions in another. This divide between the two began with the acceptance of neoliberal economic policies. At the end of the Cold War in 1989, liberal globalization took off in an unprecedented rate through the pursuit of open and free markets, deregulation, privatization, and the reduction of the welfare state. The weakening of the welfare state became especially apparent with the increased mobility of capital and its capacity to easily enter and exit a country without penalty. “The welfare state looked doomed, with no power to counter the economic horror of the global market.” Although the welfare state was perceived to be in decline, economic openness brought significant benefits to the both the domestic and global economies. The increase of free trade through the reduction of tariff and non-tariff barriers allowed consumers to purchase foreign goods and services at cheaper prices, and foreign investors provided considerable amount of capital to the country as well as job creation and technological innovation.
With its widespread of benefits, is globalization really a threat to social stability? Has it advanced so far “that national governments are essentially powerless to regulate their economies and use their policy tools to further social ends?” Although globalization and the welfare state often diverge from another, globalization has not eroded national sovereignty and capacity nearly as much as previously thought by skeptics of globalization. National...