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 efficiency-oriented 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 1960- 2000Last, 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 IData:

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.