Globalization vs. Social Unrest: Political Foundations of Global Welfare

• In Event: Globalization and Social Unrest

Abstract

The last two decades have witnessed a rise in public social spending in emerging market economies (EMEs). During this same period, similar to OECD countries, EMEs have favored open economic policies. The coincidence of these two trends, globalism and welfarism, is somewhat puzzling, given the widely accepted proposition that EMEs mostly lack the domestic mediating factors of globalization that would allow for generous national welfare standards and counter “the race to the bottom”. We argue that a reason for this seeming paradox is that most contemporary welfare studies focus on ‘structural’ theories – at the expense of testing ‘political’ factors which translate these ‘structural’ effects into actual policies. We therefore hypothesize that social unrest is a key factor in whether policy-makers address the potentially detrimental social effects of economic openness through greater social expenditure. Where policy-makers are faced with greater social unrest, they choose to counter-act the negative effects of globalization by increasing social spending as a means of benevolent ‘social control’. We test this ‘social control’ hypothesis on a panel dataset of 51 EME and original OECD countries between the years 1989-2015. The results of the time-series analysis indicate that globalization has a strong negative effect on public social expenditure, whereas social unrest has a strong positive effect. Thus, these results indicate that social unrest plays a key role in whether policy-makers choose to expand public social expenditures, despite strong downward pressures which can result from greater economic openness.

Authors

• Rahmi Cemen, University of Florida

• Erdem Yoruk, Koc University