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In Globalisation, Inequality and Social Democracy (published by IPPR, March 1998) I examine whether and how globalisation affects social-democratic politics.
Discussions on globalisation and social democracy often fail to distinguish between the values of social democracy, the constraints confronting social democracy, and social democracy as a pragmatic political practice. The interrelation between values, constraints and justified pragmatism is crucial for politics, and the three should be distinguished clearly. The failure to make that distinction and general assertions on globalisation without much empirical support together produce a thoroughly confused debate on the future of social democracy.
Influential voices on the Left and Centre-Left say that globalisation inhibits the use by governments of traditional institutions and practices to promote social goals, e.g. Keynesian demand management to promote employment, or tax-and-benefit policies to reduce inequality. In his book Beyond Left and Right. The Future of Radical Politics, Anthony Giddens’s argument for a new radicalism, abandoning the traditional notions of left and right, follows from three major premisses : globalisation, detraditionalisation, and social reflexivity. It is in terms of these changes that he explains the "troubles of socialism", i.e. the demise of both "Soviet Communism (in the East) and the Keynesian ‘welfare compromise’ (in the West)" (Giddens, 1994, p. 8).
John Gray argues in the same vein : "There is an insoluble contradiction within contemporary social democracy between economic globalisation and egalitarian community. (...) (T)he inheritance of neoliberal deregulation, together with ongoing globalisation (...) make the distributional goals of social democracy unachievable, at least by traditional social-democratic means." (Gray, 1996, p. 32). The last part of this quote ("at least by traditional social-democratic means") seems at odds with the "insoluble" character of the contradictions with which social democracy is confronted according to Gray. The riddle is not really solved by the rest of Gray’s essay on social democracy. Gray does not indicate "new" social-democratic instruments which would make egalitarian goals attainable. In fact, he rejects egalitarian conceptions of justice as misconceived ambitions of policy : it seems thus that both values and constraints are affected by globalisation.
Giddens has appeared profoundly sceptical about the nation state’s capacity to influence economic events and to pursue policies to promote social justice as it is traditionally understood (Giddens, 1995). There is some similarity between Giddens’s general statements and the more anecdotal analysis of another outspoken and influential globalist, Robert Reich. Reich, however, conceives of the core problem as a moral one, and presents conclusions which are more "voluntaristic" than Giddens or Gray would admit of. He strongly believes in the capacity of national governments to pursue social goals for its citizens, and appeals to our willingness to act, and, more precisely, our willingness to redistribute. Reich stresses the limits of education policies, the need for spending, and speaks out in favour of much more direct redistribution from rich to poor.
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In Globalisation, Inequality and Social Democracy I focus on globalisation as a constraint on the pursuit of a set of objectives, which I capture by the notion "egalitarian employment policies". Employment is the core issue for the future of the welfare state, both for fundamental reasons of social cohesion and individual self-esteem and for reasons of economic sustainability. However, "employment" is not sufficient to define the aims of social justice. High employment rates are a necessary but not a sufficient condition for fair equality of opportunity in society or social inclusion, as is shown by comparative figures on poverty (a good yardstick for social exclusion) in the working age population. The relative poverty rate for the working age population in the US is almost twice as high as in Germany or France, and almost four times as high as in Belgium, although a far greater proportion of the working age population has at least one job in the US. Likewise, poverty at working age appears to be more widespread in Australia, Canada and the UK, all of which are countries with much better employment records than most of the Continental European countries (Marx and Verbist, 1997, p. 5; Fig. 2 and Table 1). Restoring participation in society and self-esteem requires jobs which are sufficiently rewarding, as Edmund Phelps persuasively argues (Phelps, 1997). In Phelps’s view, sufficient reward is a relative concept : so it must appeal to an ideal of equality of status, or, conversely, to a notion of unacceptable inequality. This constitutes a first reason why the general objective of employment has to be qualified on the basis of some specific notion of equality in society.
There are three other reasons why an unqualified notion of "employment" is not sufficient to define the aims of social justice. First, the available jobs may be distributed very unevenly across households, sharply dividing them into work-rich and work-poor families, as is currently the case in the UK Second, employment policies should respond to the need for men and women alike to reconcile work and family life, and to be able to negotiate changes within both family and workplace over their lifetimes. And, last but not least, important groups in the population are not employable, such as pensioners, or some disabled people. Hence, welfare policy cannot be reduced to employment; and some trade-offs are to be excluded (e.g. funding employment policies by cutting benefits for those who need them).
Employment nevertheless is the key issue in welfare reform; it requires employment policies which provide real escape routes out of poverty, which allow both men and women to reconcile work and family life, in all households, and which have no detrimental effect on those who are unemployable for reasons beyond their control. Employment policies, so conceived, are motivated by "equal concern for all members of society". Hence, I define the core social-democratic ambition with regard to the future of the welfare state as "egalitarian employment policies".
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A discussion on globalisation implies a vast range of issues and questions linked to a rather elusive concept. To clarify the issues at hand, I introduce four conceptual distinctions with regard to globalisation in Section 1 of the paper. All too often distinct processes or situations are conflated under the heading of "globalisation". The collapse of central planning and the concomitant spreading of markets across the world is not the same thing as an increase in the international interdependence of the world economic system. In the same vein, the absence of a hegemonic economic power and economic globalisation are different phenomena, not to be confused with each other. Moreover, a useful ideal-type distinction can be drawn between a "global economy" and an "international economy". And finally, the level at which those processes appear has to be specified : are they "regional" or truly "global" ? Section 2 summarizes, very briefly, some of the important facts.
The developments described in Sections 1 and 2 of the paper raise many questions for social democrats. I believe social democrats should first of all examine (a) whether the factual trends add to pressures for inequality in our societies, by systematically producing "winners" and "losers", and (b) whether, as a consequence of those trends, governments in addition lose their capacity to use some of their traditional instruments, designed to remedy inequalities and bridge the gap between winners and losers.
Section 3 focuses on the "winners" and "losers" question. It draws upon the lively debate that has been going on for the last few years in the economics profession, between those who think trade with low-wage countries is responsible for the increasing inequality in some developed nations and those who think technological change explains the rising inequality. In addition, I then add a third dimension to this debate on causes of inequality, by reviewing research on the impact of diverging national institutions. Examining the role of national institutions, implies looking at the scope for national voluntarism.
Sections 1-3 provide primarily a survey of the literature. My main arguments are developed in Sections 4 and 5. Section 4 discusses whether the factual trends summarized in the previous sections create new constraints on egalitarian employment policies in the developed world. A cool look at the economic facts does not support the view that the constraints on social-democratic employments policies have, predominantly, an "external" character: "internal" constraints - the stuff of domestic politics - are more fundamental. Section 4 also questions the identification of social-democratic economic policies with Keynesian "demand expansion" and Giddens’s view on the demise of Keynesianism. Section 5 challenges the idea that globalisation implies the end of equality, as a fundamentally misconceived value. In Section 6 I draw some conclusions, which I repeat in the next section of this summary.
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1. Conclusions on the concept of "globalisation"
1.1. The idea that "a global economy" has now emerged is largely a myth, if this concept has to be understood as referring to hard economic facts, applying all over the place in today’s world, and signifying something new and distinct from the "international economy".
Although modern world trade is different from trade in the previous golden age of the global economy, there are no obvious reasons to characterize the changes in patterns of trade and the growing interdependence as the emergence, today, of a "global economy", radically different from our standard notion of "the international economy". Certainly, national economies operate in changed contexts, and governments generally face tighter constraints. But it is not true that national governments have lost their capacity to pursue domestic strategies to promote economic and social goals (by means of demand management, redistribution, active labour market policies, education...) because of changes in their external environment.
1.2. Nevertheless, it would be wrong to deny important changes in the world economy that have occurred, and ongoing developments that will reinforce those changes. One of the significant developments is the "europeanisation" of the European economies. In a sense, within Europe we witness ongoing "regional globalisation", as European nation states lose their capacity to use certain traditional instruments of economic policy, whilst "worldwide globalisation" is, today, much less relevant with regard to Europe’s travails. If one wants to use the notion of globalisation to point to an increase in worldwide trade interdependence, it suits better the changes experienced by the US economy over the last 20 years. Applying American-based discussions to European realities without this caveat is ill-advised.
1.3. A conjecture : the most important developments with regard to "globalisation" are not economic, but linked with mass communication media and growing awareness of ecological interdependence. The idea of globalisation captures important cultural phenomena, and can usefully express the tensions between homogeneisation and difference in our world. Maybe a central confusion in arguments about globalisation lies herein : it is true that the "McDonaldisation" of the world is a crucial though contradictory phenomenon; but the presence of McDonalds in all nations of the world does not alter the traditional macro-economic leaverage of nation states on the development of and employment in what is, essentially, a non-traded economic activity (cheap restaurants). A common mistake - maybe typical for the Left - is that cultural and economic changes are presupposed to be closely linked.
2. Conclusions on the growing disadvantage of low-skilled people in the labour market
The growing disadvantage of low-skilled people is a fact. There are indications that trade and technology have contributed to a demand shift which is biased against the low-skilled. From this we can conclude that future developments may bring further pressure on the labour-market position of the low-skilled, thus increasingly dividing our societies between winners and losers.
Somewhat disturbingly for our received wisdom on the importance of skills and education, empirical research shows that the increased dispersion of earnings has a "fractal" quality : however narrowly one defines groups, one still finds an increase in dispersion. Inequality increases between skill and education groups, but also within skill and education groups, and within, even narrowly defined, occupational groups. This doesn’t mean that education and training are unimportant. But such findings suggest that the increasing financial returns on skills and education are but part of broader phenomenon of "marketisation" of rewards, driven by changes in norms, customs and institutions. Cross-national differences in inequality prove that institutional changes have been important in creating winners and losers, maybe more important than changes in demand and supply induced by trade or technology. Although norms and institutions can constitute hard constraints on government action, just as demand and supply do, this illustrates the scope for national action : institutions can constrain market pressures (whatever their sources) and/or modify market outcomes.
Rodrik’s analysis, discussed in Section 3, differs from the mainstream economic analysis, in that changes in domestic institutions and norms are at least partially explained by increased openness, constituting thus intertwined and complementary forces all eroding the postwar social bargain (Rodrik, 1997a, pp. 24 and 85). If true, this adds new qualifications and nuances to our analysis. Importantly, Rodrik’s argument applies as much to intra-European trade and investment integration as to trade between developed and developing countries. Hence, it reinforces my emphasis on europeanisation, as the most relevant challenge for European social democracy.
3. Conclusions on the capacity of governments to promote social goals
3.1. International economic cooperation and financial regulation are desirable for a number of reasons which are not immediately related to the social-democratic employment policies discussed in my paper. On an intra-European level economic cooperation and financial regulation are necessary in order to facilitate short-term macro-economic adjustment, which is essential for employment. But the crucial constraints for successful egalitarian employment policies have an "internal" character for the European economies. They hinge (a) upon willingness to redistribute resources from rich (often high-skilled) to poor (often low-skilled) to finance targeted employment policies by means of wage subsidies or public employment schemes, improved education and training, and to remedy unacceptable income inequalities which cannot be eliminated by such policies; (b) upon willingness to accept some discipline with regard to the increase of the average wage level in both slack and tight labour markets (and, consequently, the acceptance that the evolution of wage and overall income differentials is a legitimate concern for policy in the framework of that incomes discipline). Principles of reciprocity and efficiency in the implementation of employment programmes and social policies have to underpin the willingness to redistribute. (Section 4 of the paper also elaborates upon the expression "willingness to redistribute".)
3.2. There are no convincing arguments that "globalisation" has made it impossible to overcome those constraints. They are the stuff of domestic politics. Hence, I agree with Hirst and Thompson : "‘Globalisation’ is a myth suitable for a world without illusions, but it is also one that robs us of hope. (...) One can call the political impact of ‘globalisation’ the pathology of over-diminished expectations. Many over-enthusastic analysts and politicians have gone beyond the evidence in over-stating both the extent of the dominance of world markets and their ungovernability." (Hirst and Thompson, 1996, p. 6.). The Labour-related Nexus Theme Group on "Britain in the World" (1997) proposes a similar, sober conclusion on globalisation.
3.3. The foregoing doesn’t imply a denial that greater openness and factor mobility can create steeper trade-offs for policy makers. This is certainly true within Europe : Europe needs a system of "economic governance", and cannot prosper on the basis of "policy competition" only . Social democrats should, for instance, support Delors’ case for economic cooperation within EMU, and the need for guidelines with regard to capital and corporate taxation.
4. Conclusions on social policy : some guidelines for welfare reform
4.1. The paper does not elaborate upon policies. However, a number of policy ideas have been mentioned, and, by way of conclusion, I want not only to pull them together, but also to emphasize how they fit in with a broader picture of welfare reform on which many European social democrats might agree. In fact, reading a number of reports on welfare reform in the course of 1995 and 1996, I was struck by the positive degree of consensus among social democrats concerning the future of the welfare state, at least at the level of the general guidelines for a pragmatic welfare policy. The core ideas of a social-democratic strategy (excluding, here, policies with regard to pensions and ageing) can be stated as follows :
1) Welfare policy cannot be reduced to employment, but employment is the key issue : "egalitarian employment policies" should provide real escape routes out of poverty, allow both men and women to reconcile work and family life, in all households; and their design and funding must have no detrimental effect on those who are unemployable for reasons beyond their control. In this context, one has to recall that "full employment" as it was conceived in the past in most European countries, underlying our traditional concepts of the welfare state, was full employment for men. The social challenge today is full employment for men and women.
2) The welfare state should not only cover social risks as they were traditionally defined (unemployment, illness and disability, old age, child benefits). It should also cover new social risks (lone parenthood, long-term unemployment caused by lack of skills) and new social needs (namely, the need to reconcile work, family life, education, leisure..., and the need to be able to negotiate changes within both family and workplace, over one’s entire lifecycle).
3) The "intelligent welfare state" should respond to those old and new risks and needs in an active and preventive way. The welfare state should not only engage in "social spending", but also in "social investment" (e.g. in training and education). However, the relation between "social investment in training and education" and "social spending on benefits" is not "either-or"; it reflects a pragmatic trade-off between two tracks of redistribution which are both necessary, and we should avoid creating false dichotomies.
4) Active labour market policies have to be revalorized, both in quantity and in quality, by tailoring them more effectively to individual needs and situations. Active labour market policies presuppose a correct balance between incentives, opportunities and obligations for the people involved in them; this is one side of the morality of "reciprocity".
5) It is necessary to subsidize low-skilled labour, by topping up low-skilled workers’ pay, or by subsidizing employers, combined with decent minimum wages. Wage-subsidies for low-skilled workers - whatever the precise formula - are not costless, and may need to be implemented for a long time. Hence, the extent to which we can mobilize resources to subsidize low-skilled work and to invest in training and education is crucial. This depends on our willingness and capacity to redistribute resources in society, often from well-identifiable high-skilled, high-income people, to well-identifiable, low-skilled, low-income people. This constitutes, in a sense, the other side of the morality of "reciprocity".
6) Taxes and benefits must not lead to a situation in which individuals (or their families) face very high marginal tax rates when they take up a job. This problem is particularly acute with benefit systems which are too selective, as in the UK.
7) Such an "intelligent welfare state" needs an economic environment, based upon both a competitive exposed sector and the development of a private service sector, in which low-skilled people find new job-opportunities. Continental Europe typically lags behind in the development of the private service sector. Wage subsidies for low-skilled people can also be instrumental in that respect.
8) Neither selectivity of benefits, nor universalism are social-democratic dogmas : these are not foundational values, but methods which should be judged on the basis of social and political efficiency in the short term and in the longer term. One should find an appropriate "broadly based" balance. The foundational value in this endeavour is the idea of a just distribution of burdens and benefits, and the political challenge is to find majority support for a distribution which is accepted as fair.
9) The emphasis on employment for low-skilled workers must not lead to a one-sided approach. In order to be successful, targeted employment policies require a sufficient overall pressure of demand for labour. Hence the importance of macro-economic policy. One condition for successful macro-economic employment policies is the willingness to accept some discipline with regard to the growth of the average wage level in both slack and tight labour markets. Moreover, as the French and other governments have argued, Europe needs macro-economic policy coordination, a fortiori in the context of EMU.
4.2. How does the approach of the British government compare to this ? It is too early to make any definitive judgements. There is a practical convergence with social-democratic thinking as it developed over the last decade on the continent, for instance with regard to the need for active labour market policy, based upon "tailor-made" individualized coaching, the need for social investment, low-wage subsidies, decent minimum wages, the creation or improvement of incentives for low-skilled workers... These ideas now constitute a common ground, encompassing not only social democrats in Europe but also christian-democratic and a number of centrist parties; this common ground is usefully reflected in the guidelines for employment policies drawn up by the European Commission for the November 1997 Summit in Luxemburg, and in the conclusions of that Summit. That potential for European cooperation is in itself an important asset and marks a clear break with Britain’s Thatcherist legacy.
On the other hand, a number of question marks still exist today with regard to the direction which British social and economic policy will take. I briefly mention three of them, in the form of potential dangers as I see them. First, there is a danger that a false dichotomy is created between "social spending" and "social investment" and that the factual importance of a sufficient level of social spending in order to sustain a decent welfare state in ageing societies is denied. Assertions with regard to the "inefficiency" of social spending also seem to mistake problems specific to the British welfare state for general defects in all contemporary welfare states. (Some of the reasons why increased social spending has not reduced poverty in Britain over the past 15 years are intrinsically linked to the structure of the British welfare state and of the labour market with which it interacts. The British experience cannot be explained by a general "inefficiency" of social spending, affecting all contemporary welfare states in the same way. Although welfare states are everywhere undergoing necessary reforms, such an assertion would simply be incorrect and conflate issues.) Second, there is a tendency to overestimate the role of supply side policies and flexibility of labour markets (cfr. Nickell, 1997; Corry, 1997), and to underestimate the role of sound and well-coordinated macro-economic demand management for European employment (cfr. the report commissioned by the Dutch EU Presidency, by Franzmeyer et al., 1996, and many other economic reports). The fact that Britain will remain outside EMU will moreover make it more difficult to play a role in this respect. Third, the government’s approach, as it emerges today, still lacks an explicit conception of distributive fairness, which would allow to set out well-argued criteria and targets with regard to the overall distribution of benefits and burdens in the British welfare state, or, in a more limited conception, with regard to "decency thresholds" and poverty.
5. On the relevance of modern egalitarian philosophy
Political action requires values and articulate thinking about values. One of the most surprising aspects of some of the political literature on the future of social democracy, which relies on the concept of globalisation, is the idea that a new context has emerged making egalitarian goals not only unattainable but also misconceived. Rather than signalling the end of egalitarian values, the empirical literature I reviewed signals their utmost relevance. If people’s fortunes are now changing in a skill-driven world, some of the abstract problems which have been discussed in the framework of academic egalitarian philosophy over the last 20 years are becoming even more relevant today than when these discussions started. (I refer to the philosophical domain developed by Rawls, Sen, Dworkin, Arneson, Cohen, Roemer, Barry, LeGrand, Kolm,...) Political discussions about the extent to which individuals are responsible for the skills they develop and the position they consequently have on the labour market, are an extension of the ethical discussion about "talent", "choice" and "just desert" which lies at the heart of egalitarian justice.
In Section 5 I summarily indicated a modern and coherent conception of equality, which can be derived from a deep-felt value such as "equal concern for all members of society". That conception is demanding : it calls for the prevention, correction or compensation of any and all "brute luck inequality" arising independently of people’s choices. A pragmatic strategy may aim at a threshold version of equality; it requires that everyone has an equal chance of leading a decent, minimally fulfilling life, and that bad luck should not push people below certain decency thresholds (cfr. Stuart White, 1997). Constraints justify pragmatism; but we should be clear about the nature of the constraints, lest confusion and lack of direction result. The survey of the literature in this paper suggests that shifts in social and cultural norms with regard to fairness and reward for work and with regard to the actual functioning of labour market institutions can be as "constraining" for social-democratic ambitions as economic shifts in demand for labour, induced by technology or trade. Political movements should not overestimate their capacity to influence social norms. But they should not underestimate the repercussions of their actions and their arguments on social norms in the longer-term. Social pragmatism has to be a conscious strategy, based upon hard, empirically validated facts and on coherent thinking about values and constraints.
Read Chapters 1-5