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IT’S NOT THE ECONOMY STUPID – OR IS IT?

DAVID MARSH


Research School of Social Sciences

ANU College of Arts and Social Sciences

AUSTRALIAN NATIONAL UNIVERSITY

Published in in M. Boss (ed), The Nation State in Transformation: Economic Globalisation, International Mediation and Political Values (Aarhus; Aarhus University Press. 2010), 87-109



ABSTRACT
The term globalisation is overused; it is a default explanation of much contemporary policy making. In the economic sphere, we need to concentrate on particular economic processes, rather than subsume them under the term globalisation. In fact, it is better to refer regionalisation when considering trade and internationalisation when focussing on Foreign Direct Investment. At the same time, any notion that globalisation leads to political outcomes in an unmediated way is untenable. Rather, these economic processes are mediated by a series of economic and political factors. At the same time, we also need to recognise the independent role of discourses about ‘globalisation’. Nevertheless, while we must reject the economism inherent in much of the early literature on globalisation, we should not throw the baby out with the bathwater; we need to acknowledge that there are ‘real’ economic processes that need to be given an important role in any explanation of outcomes.

There have been a number of attempts to characterise the development of the globalisation literature. Perhaps the most common distinguishes between hyperglobalist, sceptical and transformational positions (for a review see Martell, 2007), sometimes also termed first, second and third wave approaches (Hay and Marsh, 2000). Here, I begin by outlining these positions, before turning to more recent arguments which stress the role of ideas about globalisation, rather than ‘real’ economic processes, as the motor of change. I shall argue that, while any approach which sees globalisation as a singular economic process with a simple direct effect on state’s actions and policy outcomes is misguided, it is equally problematic not to recognise that there are ‘real’ economic processes involved which constrain, while not determining, those actions and outcomes. Crucially then, this chapter offers a critique of the move towards what Hay terms ‘constructivist institutionalism’ evident in recent work in Comparative Politics and International Political Economy. While my main purpose here is to advance a conceptual/theoretical argument, I will use empirical material drawn from different states to support my argument, although I pay particular attention to Denmark, Ireland and the UK.


1) Hyperglobalism and its Opponents

The original hyperglobalist thesis associated with Robert Reich (1991) and Kenichi Ohmae (1996) argued that the increased movement of goods, capital, labour and information across national borders has ‘shrunk’ the world and substantially weakened the nation state. Of course, to a significant extent, their position involved an ideological justification of neo-liberalism,1 but the key point here is that it was an economist, determinist, structuralist and materialist position.2


Unsurprisingly, this simplistic view came under increasing question. Initially, there were two strands in this critique, the sceptical thesis and the complex globalization thesis, but, more recently, they have been joined by what is usually termed the new institutionalist approach. Sceptical theorists such as Hirst and Thompson (1999) and Wade (1996) deny that the globalization process is new, reject the idea that the world is borderless, suggest that most economic activity is not global, but rather regional, and emphasise that government has grown, rather than contracted, in the last 50 years. So, governments have autonomy, even within the constraints inevitable in modern capitalist economies.
In contrast, complex globalization theorists like Held et.al. (1999) and Dicken (1998) claim to be sceptical, offering a more nuanced view. Held et.al. (1998) contend that: the nature, if not the level, of globalisation/integration has changed, becoming much deeper, in both economic and cultural terms; globalisation is a highly complex (set of) process(es), rather than an end-state – so, the world is globalising; the role of the nation state has changed, rather than simply declined - to many it has been ‘hollowed out’ (see Rhodes, 1997). Again, this view involves a rejection of economism, determinism and structuralism, although there is probably more emphasis on how the economic constrains, while not determining, the political than in the sceptic’s position.
While the complex globalisation thesis has proved particularly influential in the literature, it has been increasingly challenged by the 'new institutionalists', such as Hall and Soskice (2002), Garrett (1998) and Weiss (1998), who focus almost exclusively on the role of institutions in mediating the effects of globalisation. They argue that, while nations may experience common pressures, such as globalisation, the existence of different institutional and cultural environments means that they respond in different ways and achieve different outcomes. In this sense, Hall and Soskice (2002: 27-8) argue: ‘domestic institutions, depending on their characteristics, can hinder or enable states to respond to new challenges and accomplish new tasks, thus softening, neutralising or exaggerating the potentially constraining effects of global markets.’
Thus, new institutionalists contend that globalisation may actually serve to enable nation-states, rather than simply constrain them. Indeed, Garrett (1998) argues that it is not despite, but in fact because of, globalisation that social democratic countries have continued to thrive, given that globalisation rewards 'coherent' strategies – whether market liberal or social democratic corporatist – but punishes ‘incoherent’ regimes. So, social democratic, corporatist regimes can offer significant benefits to business (such as co-operation between employers and employees and a highly skilled workforce) that provide greater returns on investment than would a low taxation environment (see Garrett, 1998, p. 5 and pp. 26-7). As such, the institutionalists agree with the sceptics that there is still considerable scope for government intervention in economic and social affairs. However, globalisation is not a myth, rather it is associated with continuing – and even growing – divergence between market liberal and social democratic regimes (see Garrett, 1998, p. 18). In this sense, globalisation is still seen as a crucial driving force for change. So, globalisation is an economic ‘reality’, but its effects are mediated by political, particularly institutional, structures and practices.
It is an open question to what extent these three positions which are critical of globalisation differ. Martell (2007) acknowledges that there are differences between the transformationalist and the sceptical position, for example on the definition and historical periodisation of, and normative response to, globalisation. However, he suggests, rightly in my view, that both positions agree that: a lot has changed, but that doesn’t mean we live in a globalised era; nation states are constrained by international organisations and international finance, but can, and do, shape the forms globalisation takes; the process of globalisation is contingent, multi-dimensional and often contradictory; and there is an unevenness of integration across the global system.
Martell doesn’t consider the new institutionalists, but their position doesn’t really contradict that of the sceptics, as they merely emphasise that the different institutional structures and cultural environments of different countries mediate the effect that globalisation, as a set of economic processes, have in them. As such, Martell’s argument that there are fewer differences between the sceptics, transformationalists, and I would add new institutionalists, than is often argued is well made. Indeed, in my view, all these positions would agree with Held et al’s (1999, xxx) conclusion that external economic pressures, whether ‘global’, ‘international’ or ‘regional’, are:
mediated significantly by state’s position in global political, military and economic hierarchies; its domestic economic and political structures; the institutional pattern of domestic politics; and specific government as well as societal strategies for contesting, managing or ameliorating globalising imperatives.
2) The Ideational Turn: The Role of Discourses of Globalisation

Martell also discusses my earlier work with Hay (Hay and Marsh, 2000). He views us as putative third wave theorists and, again, effectively points out that many of our arguments fit happily with the sceptics’ position. However, it seems to me that he pays insufficient attention to the most novel element in our argument; the increased emphasis that we give to the role of ideas about globalisation in shaping policy outcomes. In part, this emphasis is one reflection of the increased focus on the role of ideas in shaping social and political change in the recent literature on international political economy and comparative politics (see, for example, Blyth, 1997, 2002a, 2002b; Berman, 1998; Campbell, 1997, 2002; Hay, 2002, 2004); a focus evident in the growth of what Hay (2006a and 2006b) terms constructivist institutionalism.


While Hay and I (2000) were the first to emphasise the independent causal role of ideas about globalisation in explaining policy outcomes, this position has been developed much further by Hay with a number of other collaborators (Hay, 2004, 2006c and 2006d, Hay and Rosamond, 2002, Hay and Smith 2004 and Smith and Hay 2006). In essence, our argument was that ideas about globalisation can have affects which are independent of, if obviously related to, the level and nature of globalisation, but Hay and others have increasingly seen ideas about globalisation as the only motor of change.
Hay is a sceptic to the extent that he is very dubious of the view that globalisation actually exists. In fact, there are three elements to this argument. First, Hay (2004) contends that European countries have actually been de-globalised in recent years, with geographical proximity, and thus regionalisation, becoming more, rather than less, important in terms of both trade and investment; this position fits easily with the sceptics’ view. Second, Hay and others (see, for example, Watson, 2003 and Smith, 2004) emphasise that, in Smith’s words (2004, 505), globalisation is: ‘a vague and ambiguous concept’. In particular, Watson (2003, cited in Smith, 2004, 505) makes the point in a way which fits particular well with the argument that I develop below, when he argues that globalisation is: ‘merely a signifier used to bracket together a number of actual material processes of change.’ Thirdly, and this is Hay’s major contribution, he increasingly argues (2006a and 2006b) that material factors, like economic processes, have no independent causal power; a position which, of course, is in some tension with Watson’s version of the last point. So, Hay asserts that there has been a discursive shift towards neo-liberalism, both within and outside Europe, and that it is the associated discourse about globalisation that has played the key role in influencing government policy, reflected, for example, in the move to active labour market policy. This last point is very important and needs developing.
To Hay, policy-makers believe that globalisation is occurring and this shapes their approach, whether or not globalisation actually exists. In other words, neo-liberal ideas are creating neo-liberal policies. In turn, this process undermines the nation-state, with governments adopting policies that, in turn, reduce their power and sovereignty. For example, in joining the European and Monetary Union (EMU), states have signed up to the Stability and Growth Pact, which affects how much they can spend. In this sense, globalisation may be a self-fulfilling prophecy. By behaving as if it were a reality, policy-makers, and indeed business leaders, may actually be making it a reality. To put it another way, discourses about globalisation have ‘real’, that is material, affects in two ways. First, they affect states’ behaviour, because governments introduce neo-liberal policies, for example, active labour market policies, in response to the perceived constraints resulting from globalisation. Second, politicians, civil servants, companies and individuals act as if markets were globalised and, in acting, bring about more globalisation.
In my view, other approaches to globalisation are limited to the extent that they deny an independent causal role to ideas, but equally, in my view, Hay is also wrong to deny that material relations have independent causal power. This is a crucial argument here and, to substantiate it, I need to say a little more about Hay’s move towards constructivist institutionalism.
Hay sees constructivist institutionalism as a response to the limitations of historical institutionalism; which, in broad terms, is my position. As such, he shares with Blyth (2002a) the view that historical institutionalism has major problems with explaining change and that, in the hands of many historical institutionalists, the concept of path dependency becomes an almost determinist one3 (see Hay 2006a and 2006 b). I have argued elsewhere (Marsh, 2008a) that this is misleading characterisation, particularly if historical institutionalism is linked to critical realism, so I will not rehearse that argument here. Rather, my key point is that Hay contends that the distinction between the material and the ideational is analytical, not ‘real’; so the material has no independent causal powers. This is clear if we examine what Hay sees as the core features of constructivist institutionalism (Hay, 2006a, 6-8):


  • ‘actors are strategic, seeking to realise certain complex, contingent and constantly changing goals’.

  • they act within contexts that favour some strategies over others.

  • ideas are ‘irredeemably ideational’.

  • interests are social constructs, they are not rooted in material differences

  • the functionality/dysfunctionality of institutions/structures is an open question both in empirical and historical terms.

  • there is a focus on ideational, rather than institutional, path dependence.

  • the aim is to’ identify, detail and interrogate the extent to which – through processes of normalisation and institutional-embedding – established ideas become codified, serving as cognitive filters through which actors come to interpret environmental signals’.

Hay (2006a) also contends that, for constructive institutionalism, change occurs:


in the context which is structured (not least by institutions and ideas about institutions) in constantly changing ways which facilitate certain forms of intervention whilst militating against others. Moreover, access to strategic resources, and indeed to knowledge of the institutional environment, is unevenly distributed. This in turn affects the ability of actors to transform the contexts (institutional and otherwise) in which they find themselves. Finally, it is important to emphasise the crucial space granted to ideas within such a formulation.
In my view, these passages reveal clearly where Hay is positioned. First, he emphasises the role that ideas play in shaping the structural and discursive context within which agents act. Secondly, he recognises that the context is strategically selective, that it favours some strategies over others. I have no problems with either of these points. However, it seems to me that his approach ends up privileging agency and ideas, because Hay rejects the view that structure and the material are ontological separate from agents and ideas respectively. In his earlier work, Hay (2002) acknowledged that structures constrain, but don’t determine, the actions of agents and that the material constrains, but doesn’t determine, the ideational, but those positions are not sustainable unless we posit that structures and the material have independent causal powers. Hay’s current position is clear in his work on globalization, because, while he emphasizes that ideas about globalization have real effects, he doesn’t consider that material and institutional structures may influence the effectiveness of those ideas, let alone that material factors may have an effect which is not dependent on discourse. To put it another way, if ideas have no resonance with the material realities that individuals’ or groups’ experience, then their effect will be limited in extent, both in terms of the degree to which they are held and affect behavior and the time they remain hegemonic.
Overall, my contention is that the relationship between ideas, material relations, institutional structures and policy outcomes are insufficiently unpacked in the existing literature on globalisation. Hyperglobalists argue that globalisation leads to policy outcomes in a largely unmediated way and that is clearly an indefensible position. In contrast, sceptics, transformationalists and new institutionalists argue that external economic processes are mediated by institutional factors in a given country and that it is as mediated that they affect policy outcomes (see the Held et al quote above).
However, in my view, the sceptics, transformationalists and new institutionalists pay insufficient attention to the putative independent effect of the discourse(s) of globalisation. In contrast, Hay sees the discursive construction of globalisation as the crucial explanatory variable in explaining policy outcomes, but fails to sufficiently consider how those ideas relate to the broader economic and political context within which they are constituted.
3) Economic Constraints and the Role of Discourse

a) Measuring the Extent of Globalisation

This issue has attracted a great deal of attention and I don’t want to dwell on it too much here. In fact, there are two separate, if related, issues which need examining. The first concerns whether there has been an increase in internationalisation of the economy and, if so, whether that reflects greater globalisation or, rather, greater regionalisation. This question is not so easy to answer as some have claimed. The second issue is whether there are particular economic processes which have become internationalised, and which have an affect on policy outcomes, even if it is misguided to talk of globalisation. Here, I take the Irish and Danish economies as my examples.


Ireland and Denmark feature strongly in the Kearney Globalisation index. As Table 1 shows, in 2007 Ireland placed 5th (down one since 2006), while Denmark was 6th (down one).4 This Index ranks the globalisation of nations in four areas (Economic, Personal, Technological and Personal). Focusing specifically on the economy, Ireland ranks 6th and Denmark 5th. The economic dimension has two indicators: Trade, where Ireland ranks 8th and Denmark 26th; and Foreign Direct Investment (FDI)5, where Ireland ranks 6th and Denmark 4th.
However, if we go further and unpack these figures, then the pattern is more complex. The majority of the trade of both Ireland and Denmark is with their neighbours. So, as far as Ireland’s trade is concerned, Lane and Ruane’s (2006, 10 and 14) excellent study,6 although now somewhat dated, shows (see Tables 2 and 3) that, between 2001 and 2003, 68% of Ireland’s goods trade and 69% of its service trade exports, and 63% of its goods trade and 54% of its service trade imports, were to/from Europe. As regards Irish FDI, Table 4, also sourced from Lane and Ruane’s study (2006, 19), indicates that the Euro Area is the single most important FDI destination, but the US is the most important source of inward FDI. If we turn to Denmark, 69% of exports and 74% of imports in 2007 were accounted for by the Euro Area (The Economist, Country Briefing Factsheet, Denmark, p.2, accessed 13/08/2008). In 2003, 61% of Danish outward FDI and 62% of inward FDI was to/from the old EU zone (see Table 5, adapted from Gjerdling, 2005). However, it is worth emphasising that Denmark, like Ireland, if to a lesser degree, had substantial inward FDI from the US.










Table 5 Foreign Direct Investment Denmark, 2003


Danish Kroner

(billions)



Outward Flow

Inward Flow

Total

374.2

355.8

Old EU Zone

61%

62%

New EU Countries

7%

<1%

USA

6%

28%

Japan

<1%

<1%

Source: Adapted from Gerdling, 2005, 4).
What do these figures tell us? In my view, they suggest that the sceptics and Hay are right; so, neither the trade or the FDI of Ireland or Ireland is really global. However, it also seems an oversimplification to say that FDI flows are regional, given the crucial role that the US plays in Denmark, and especially Ireland, in terms of the inward flow of FDI.
The crucial point here, as Watson (2003), quoted above, emphasises, is that it is misleading to talk of globalisation, not merely because much of the contemporary pattern of economic internationalisation is regional rather than global, but also because the different economic processes involved should not be subsumed under a single term. Crucially, different patterns of internationalisation are apparent when we focus on the different economic processes. Lane and Ruane (2006, 2) make the point well about Ireland:
The analysis shows that Ireland acts as a production and financial intermediary that has enormous liabilities to foreign investors and imports large volumes of goods and services but also holds very large foreign asset positions and has a spectacular export record. An important feature is that the pattern of Ireland’s international economic linkages is highly asymmetric – the United States is an important supplier of capital and intellectual services, Asia is growing as a source of manufacturing imports, while intra-European flows dominate in terms of trade in final products and migration flows. In addition, we affirm the export-platform nature of direct investment into Ireland, while highlighting the high degree of international integration of Irish-owned firms. An additional dimension in recent years is the role played by large-scale immigration in relieving labour shortages in the Irish economy, in both the traded and non-traded sectors.
However, the point is perhaps best made by Smith, who argues (2004, 505):
it would be more useful to refer to these specific processes of change rather than ‘lump’ them under the category of globalisation. Thus, if terms such as EMU, trade liberalization and financial liberalization better explain political outcomes than does globalization, we should use those terms instead.
b) Beyond the Measurement Issue

It is clear then that there is considerable controversy about the extent, nature and impact of globalisation, but, in my view, this debate often generates more heat than light. The sceptics were rightly highly critical of the hyperglobalists and there is clear evidence that the world is neither ‘globalised’ nor ‘borderless’. However, to me, we shouldn’t become obsessed with arguments about measuring globalisation to the extent that we ignore other important issues. Here, I emphasise three arguments: first, contra Hay, in my view economic processes affect policy outcomes; second, the effect of these real processes is mediated by a series of non-economic factors, both domestic and international; and, three, discourses about globalisation do have an affect on policy outcomes, even if all cannot be reduced to discourse.




  1. Economic Processes as a Constraint on Policy Outcomes

In my view, it is hard to argue at a time when the world economy is heading towards recession, to suggest that there aren’t real economic processes, albeit not best understood as globalisation, which affect policy outcomes. As Wade (2008, 26) emphasises the world economy, led by the US, is in a perilous state7:
Not only were trends in US house prices equities and the external deficit worse in the run-up to the crisis than in previous industrial economy banking crises, other indicators were also flashing red. Average household debt relative to income was at record levels, and over a quarter of households were in “net asset poverty” with insufficient assets (including houses) to sustain current expenditure for more than three months in the absence of employment.
The key point is that the world economy has transformed in the last twenty to thirty years; in particular it has become ‘financialised’ (Wade, 2008, 33):
In 1982, financial corporations generated 8 percentage of total US corporate value added and 5 percent of total corporate profits. By 2007, their share of corporate value almost doubled to 16 percent, while their share of corporate profits went up eight times to 41%. By 2006 the supercharged banking model was generating profits per employee in banking a staggering twenty-six times higher than the average of all other industries worldwide.
As Wade (2008, 27-30) again argues, such financialisation is the consequence of the changes in the nature and size of capital markets. There has been a: ‘vast increase in the global credit pool (…) and downward pressure on consumer price inflation’ (Wade, 2008, 29). At the same time, there has been little, and largely ineffective, regulation. Overall, financial markets have become increasingly internationalised and risky, although the financial institutions attempt to disguise the risk. As such, banks now make their profits by creating financial products which they sell to pension funds and local authorities etc. around the world. Often, perhaps usually, risky loans are packaged with less risky ones and, as Wade (2008, 31) argues, credit-rating agencies have tended to over-rate the credit-worthiness of such packages.
It is hard reflecting on such developments not to acknowledge both the rapid internationalisation of financial market and the way in which this has an influence on politics in all countries. Just to take one example, cited by Wade, if a Norwegian local authority invests in a financial product sold by a US, which turns out to be more risky than they thought resulting in their investment becoming much devalued, then, inevitably, that influences directly the lives of the citizens in that Norwegian municipality, because there is less money available for investment in infrastructure etc.

The key point to emphasise is that, while to talk of economic globalisation as a constraint on, or to some people a determinant of, public policy is misguided and what Smith (2004, 505) calls a ‘default explanation’, that doesn’t mean that international economic processes don’t constrain, or indeed facilitate, government policy. Smith’s discussion of ‘globalisation’ in Ireland is also relevant here.


Smith argues that globalisation has been used as an umbrella term in Ireland, as elsewhere, to refer such different, if related, processes as trade openness, FDI and European integration. However, she asserts (2004, 509) that: ‘To claim that Ireland is not being globalised is not to suggest that economic factors do not serve to shape policy change’ So, she emphasises the effect of the exposure to international trade, the impact of FDI and EU membership on public policy in the Republic, while stressing that the first of these has been an important factor in Ireland since the 1930s.


  1. Mediating the Effects of International Economic Processes

Of course, even to the extent that there has been a financialisation of the international economy over the last few decades and that this has affected policy outcomes, the affect of these changes on those outcomes is not automatic. In any given country the impact of external economic pressures is shaped partly by the economic and political institutional structures of that country and partly by policy makers’ perceptions of the extent of the country’s exposure to international forces and the economic and political structural constraints.
Smith, Holti and I (Marsh, Smith and Holti, 2006) have explored some of these issues at more length elsewhere, utilising empirical material drawn from a number of countries to examine the factors that Held et al identify as mediating between international economic processes and state actions: the country’s domestic economic structure; the relationship between capital and labour and, in particular, whether the country has corporatist structures; the country’s prior economic policies; the country’s political structure; the national social and political values and the changes in them; and the electoral constraints facing the government at particular times. Here, I rehearse and update that argument briefly.


  1. The Domestic Economic Structure/Situation

Held et al. emphasise that a county’s economic structure clearly affects its government’s response to international economic pressures. Here, Hirst and Thompson (1999, pp. 167-175).offer an interesting comparison between Sweden and Denmark. They argue that the particular structure of the Swedish economy clearly affected the crisis of the Swedish welfare state. Sweden’s economy is strongly export-orientated and it is dominated by a few very large transnational companies. In addition, Sweden has very high levels of public employment. The consensus about corporatist bargaining and governance agreements within Swedish society collapsed in the 1980s and in the early 1990s; in 1990 the Swedish Employers Federation abandoned central wage bargaining, while in 1991 they withdrew from the tripartite institutions of economic governance. As Hirst and Thompson (1999, 169) conclude:
Sweden’s problems are clearly due to a mixture of economic structure, policy errors and conjunctural factors, but the heavy dependence of the economy on large multinational manufacturing exporters, on the one hand, and public employment on the other, severely limited the options available.
In the same period, Denmark’s experience was very different, which itself suggests that any relationship between internationalisation and reduced welfare provision is very problematic at best. Economic concentration is much lower in Denmark than in Sweden, with numerous small and medium size firms playing a crucial role in the Danish economy. There is no highly centralised corporatist structure, but unemployment benefits are generous and the benefit system is characterised by a high degree of universalism. A combination of this benefit system and an active labour market policy means that the unemployed are not marginalised. In Hirst and Thompson’s (1999, 175) view:
Danish citizens and organised interests seem to have been willing to adapt to crises, making sacrifices in periods of economic difficulty. Undoubtedly, equality and inclusion help to promote such solidaristic and public-minded behaviour: citizens and organised interests have a high degree of influence in the political process and a reasonable expectation that of fairness in the behaviour of governments and other political actors.
As such, Hirst and Thompson argue that the structure of the Danish economy, together with the structure of the welfare state, the political context and the political culture, have shaped Denmark’s response to international economic pressures.
In this comparison between Sweden and Denmark, Hirst and Thompson raise the issue of the role of corporatist, politico-economic structures. They argue (1999, 177) briefly examining the Dutch case, that the existence of such structures can clearly mediate the affect of internationalisation on policy outcomes. The Dutch economy is one of the most highly internationalised in the world. However, it has a network of dense corporatist institutions, and, since 1982, a policy of wage moderation which was negotiated, and renegotiated in 1993, with the employers and the unions. Indeed, Hirst and Thompson emphasise that many observers argue that institutionalized wage restraint was Holland’s most important weapon in responding to international competition. In Hirst and Thompson’s view, these corporatist negotiations, together with the consociational nature of the Dutch political structure, were crucial in allowing Holland to cope with increased international pressure while retaining high welfare expenditure. Similar conclusions have been drawn about Germany and Austria (Vitols and Casper, 1997); Schmitter and Grote, 1997); Ebbinhaus and Hassel, 1999)
However, Hirst and Thompson (1999, 180) also point out that one of the responses to international competitive pressures in Europe in the 1980s and 1990s was a move towards, rather than away from, social pacts/corporatist structures. It is true that these developments were mainly confined to smaller states, for example, Finland, Ireland, Portugal, Norway and Spain, but the Italian case is particularly interesting. Here, reform was initiated from the top, but involved cooperation with unions and employers on wage policy, industrial relations and welfare state reform. Much of the pressure for reform was exogenous, coming particularly from the conditions attached to ERM membership. Nevertheless, the move towards concertation was also affected by the state of domestic public finances, the structure of the Italian pension system and the collapse of the old political system in 1992. The result was (Hirst and Thompson, 1999, 180-185): the abolition of the scala mobile (which involved 100% indexation of wages to inflation) and the institution of a wage freeze in 1992; the establishment of a new framework of incomes policy and collective bargaining in 1993; and a new accord on pensions, approved by a referendum in 1995. The point again is that the relationship between globalisation, corporatist structures and policy outcomes is not a simple one.
There are three separate, but related, points here; the first concerns the existence, or otherwise, of corporatist structures; the second concerns their role; and the third concerns their effect. Increased international competition may lead to the creation of, or continued reliance on, corporatist structures as in the cases briefly examined above. On the other hand, a government may respond to such pressures by withdrawing from involvement in discussions over prices and incomes, as was the case in the UK after 1979. Which strategy a particular government pursues is likely to be affected by the domestic economic and political context.
Of course, even when a government has created, or continued to use existing, corporatist structures, this does not mean that those structures performed the same function in the 1980s and 1990s as they had in the 1960s and 1970s. So, Martin Rhodes (1997) argues that the competitive corporatism of the 1980s and 1990s was designed to enhance international competitiveness, rather than sharing the egalitarian and redistributive goals of old corporatism.1 In his view, the exchange relationship involve in contemporary corporatism is crucially different because what unions get is not rights and entitlements, but voice and the chance to influence labour market and welfare policy.
In a sense, the crucial question is whether the existence of such corporatist structures affect what governments do. Hirst and Thompson certainly suggest they do and, in particular, that they help ensure continued higher welfare provision. In a similar vein, in the case of Australia, some observers have argued (see especially, Goldfinch, 2000, Table 7.1, 152) that the corporatism, associated with the eight Accords agreed between the Australian Council of Trade Unions (ACTU) during its time in office between 1983 and 1996 had an important influence on labour market and industrial policy during that period. Indeed, Capling and Galligan (1992) contend that Australia liberalised its trade regime only after establishing a number of corporatist-style industry plans that were designed to allow the industry to respond more effectively to international competition. The point is that the existence of these Accords, particular in the 1980s, taken together with political/electoral considerations which we discuss below, was an important factor in influencing the way in which pressures of international competitiveness affected policy outcomes.
b) Political Structures

Political structures can clearly act as a constraint on radical change, and so mediate the effect of global economic pressures. It is certainly easier to change policy direction in systems characterised by strong executive government. So, Hirst and Thompson (1999, 174) argue:


Denmark … does not lack the elite voices that have been so successful in transforming countries like the UK and then New Zealand in an anti-welfare direction. What has been missing is political capacity. Most Danish governments have been coalitions without large majorities. Confronted with strong public support for welfare, political parties have hesitated to follow arguments for radical reform.
Of course, the New Zealand case is particularly interesting here. The Labour Government elected in 1984 embarked on a far-reaching programme of economic liberalism. With a secure parliamentary majority, the Government was able to push through these changes, despite the fact that it had not campaigned on a programme of economic reform (see Goldfinch, 2000). However, in 1996 New Zealand introduced a mixed member proportional system (MMP), after 150 years of majoritarian electoral rules, in large part in order to prevent any future government embarking on such radical new directions without a real mandate or consultation with social interests. It is hard to think that there could be better evidence of the role that political structures can play.
Federal structures can also affect a government’s capacity to respond to increased global competition. In federal structures, particularly ones like Australia where strong second chambers represent state interests, central government has to take account of those interests. Indeed, Goldfinch (2000) suggests that Australia’s federal structure was an important factor that helps explain the different development, and success, of economic rationalist policies in Australia as compared to New Zealand.
c) Changes in Social and Political Values

The 1980s and 1990s may have been marked by an increased internationalisation of economic competition. However, there was also a growth in the importance of environmental and gender issues in political terms and of social movements that campaigned on these issues both nationally and internationally. In addition, in countries like Australia, New Zealand and Canada, there has been a rise in the importance of issues surrounding the treatment of indigenous people. Two points are important here. First, these issues affected voters’ and governments’ behaviour (on their influence in Australia and New Zealand see Goldfinch, 2000). Second, the relationship between such issues and increased economic competitiveness is a complicated, and often antagonistic, one. In particular, environmentalists and campaigners for indigenous rights often see TNCs as an important part of the problem. As such, in responding to such issues, for ideological or electoral reasons, governments may be going against the interest of TNCs of international financial markets.


In contrast, Keating (2000) presents a different picture of changing social and political values in Australia in this period. He suggests that increased education and a more open society led to increased prosperity for most. At same time, economic changes resulted in less security, a greater scepticism about authority, political disaffection and, perhaps particularly, greater individualism and less willingness to support higher taxes. He argues that Government policy was affected by these changes and Australian Governments tried to respond by targeting services, creating more efficient and effective delivery, but not by challenging the electorate on taxes.8
It is not my concern here to adjudicate on this debate or to claim Australia as a typical case. Rather, I want to emphasise three points. First, it is crucial to put the economic changes in the context of other social changes and not, by definition, to privilege them. Second, and this follows, it is also important to examine how economic change, economic values, social change and social and political values relate. Third, and this returns us to the main theme of this piece, one certainly can’t read off policy consequences, or present and future policy trajectories merely from a knowledge of increasing international competition.9


  1. Electoral Constraints

Political parties exist, in large part, to try to win power. As such, the behaviour of governments is invariably influenced by their desire to be re-elected. Obviously, the economic performance of government has a crucial effect on their re-election chances; although, as I argue below, the discursive construction of that economic performance, and how it is perceived by the electorate, may also be particularly important. However, other factors, like those discussed in the last section also affect voting behaviour and government’s judgements of which policies will win or lose votes. In addition, governments may have particular links, structural, historical or ideological, with particular interests that affect their policy decisions. In this vein, the Australian example is again revealing. While the Hawke and Keating Government’s pursued economic rationalist policies (Goldfinch, 2000), driven in large part by international economic competitiveness pressures, they were also faced with other social developments that had electoral resonance and operated in a political context in which their historic links with the trade union movement were important.
iii) The Role of Ideas

I have no problem with Hay’s argument that discourses about ‘globalisation’ affect policy outcomes. Hay’s work with various collaborators cited above certainly goes some way to supporting that conclusion. Here, his work with Smith (Hay and Smith, 2005) comparing the role of discourse about ‘globalisation’ in Ireland and the UK is illustrative.


They argue:

Though similar to the UK case in terms of its dual commitment to economic competitiveness and social justice, and its contextualisation of such perceived imperatives in terms of ‘globalisation’, there are marked differences in the Irish government’s appeal to globalisation.


As such, in Ireland, like the UK, globalisation is presented by the Government as positive, but the emphasis is not on globalisation simply as a non-negotiable constraint, but rather as a process which has already helped transform Ireland into the ‘Celtic tiger’.
Nevertheless, Hay and Smith argue (2005. 137) that, in both countries: ‘the concept of globalisation has (…) come to play a central role in shaping the dominant policy paradigm.’ In Hay and Smith’s view, this broad policy consensus subordinates ‘considerations of social justice to those of economic performance and efficiency’; with economic performance and efficiency understood ‘largely in terms of competitiveness in economic markets’. Unfortunately, Hay and Smith don’t trace how that paradigm has shaped particular policies, but the move towards active labour market policies in both countries was clearly justified in those terms.
My argument with Hay then is not that discourse don’t affect outcomes, but rather that such discourses are, in turn, shaped by the context in which they are constituted. As such, I agree with Heffernan’s (2002) assertion that ideas: ‘have to work with, rather than against, the grain of social, political and economic interests, within and without the state, and in line with the demands of the economy’. This means exploring not only the dominant discourses used by political elites, but also the wider context in which these discourses are situated. As Blyth (1997, p. 238) notes, in one of his less constructivist moments: ‘The elite game may tell us how the ideas get from the blackboard to the party, but not how or why certain ideas come to be accepted over others.’ So, if ideas are to be treated seriously, then we also need to consider the reasons why particular discourses (in this case, of globalisation) have come to dominate.
The current ‘recession’ offers a revealing case of how discourse are interact with real economic processes. As Wade (2008) emphasises, many of the current problems result from ineffective regulation, which, in large part, reflects the dominance of the neo-liberal discourse over the past three decades; a discourse which suggests that market are self regulating and regulation introduces inefficiencies into the operation of those markets. The point here is that, more recently, economic realities have kicked in, which have led to increased questioning of this discourse and, in Wade’s view, the need for, and the inevitable introduction of, increased regulation.
The point that the relationship between the economic ‘reality’ and the discursive construction of it is not uni-dimensional, but rather complex, is easily made with a more extended consideration of the UK case. The New Labour Government elected in 1997 argued very strongly that globalisation meant that there was no alternative, but to pursue neo-liberal policies (Hay and Rosamond 2002; Watson and Hay 2003). So, as Hay suggests, it could be argued that the government is constrained not by the ‘reality’ of globalisation, but by the dominant discourse of/about globalisation.
However, this raises a rather obvious question: why does the Labour Government pursue neo-liberal policies if the economic pressures to do so are much less pressing than some argue? If we work the various implications of this question through, then we see that the relationship(s) between realit(ies) and discourse(s) is very complex and, as such, I would argue that an explanation that prioritises discourse is likely to be partial at best.
Of course, one might argue that New Labour simply do not know the truth, but rather thought that economic relations were globalised. There may be some validity to this argument. As Hay (2002) notes, actors do not possess perfect information about the context in which they find themselves but instead have to interpret that context – and their interpretations may be wrong. Yet, I would strongly argue that ideas must have some resonance with people’s experiences if they are to be adopted (Marsh, 2008b). The key point here is that New Labour’s discourse of globalisation has not simply emerged from thin air, but instead relates, at least in part, to ‘real’ economic processes.
One might also posit that New Labour has pursued neo-liberal policies because they think that they are the best, using the globalisation argument as a useful one to buttress their view. Here, of course, globalisation becomes an opportunity, rather than a constraint. In particular, it could be argued that New Labour used the globalisation argument to suggest they have no alternative but to pursue neo-liberal economic policies and, as such, are not to blame for any cuts in welfare or increases in inequality. This was certainly a useful tool for New Labour in reducing the extent and effectiveness of ‘Old Labour’ attacks on economic policy in their first years in office.
But, even if we take this line, it leads immediately to another question: why might New Labour think neo-liberal policies were the best? Here, we could refocus on the role of the international economic context. In contrast, one might suggest that New Labour’s policy preferences are driven by political, especially electoral, considerations. So, they may pursue these policies to create an image of governing economic competence within an electoral and party institutional setting. That argument opens up other interesting lines: if governments are largely driven by winning elections, and if elections are decided around the issue of governing economic competence, then the crucial concern is what shapes images of governing economic competence? This takes us back to ‘real’ economic performance and how that is, in turn, discursively constructed.
This relates to a further point, for discourses are not just mediated by material factors, but also by existing discourses. Ideas about globalisation may appeal, in part, because they are a means to re-articulate existing discourses, and particularly that of neo-liberalism. As Hirst and Thompson argue (1999, p. 262), the rhetoric of globalisation was a godsend for the Right, providing a new argument in favour of de-regulation, free trade and public sector cutbacks ‘after the disastrous failure of the monetarist and individualist policy experiments of the 1980s’.
In turn, ideas must also resonate with broader social and cultural discourses if they are to be successful. In Ireland, for example, as Smith (2003) shows, ideas about globalisation have fed into existing discourses of national identity. Since the 1960s, Irish nationalism has: ‘proceeded from an assumption that the primary objective was to reap the benefits from full economic participation in the world economy’ (Breen et.al, 1990, p.38). Globalisation has been presented as a means through which Ireland could become an equal on the international stage, both economically and politically. As the then Irish Minister for Foreign Affairs argued in 1997, globalisation means: ‘we are all great powers now’ (O’Donnell, 1997).
By this token, however, existing discourses do not necessarily facilitate particular ideas, but can also constrain them. In Australia, for example, the dominant discourse of globalisation was challenged by appeals to existing anti-immigration sentiment, articulated in terms of ‘One Nation’. This discursive struggle occurred within the context of broader social and political changes, such as the challenging of white settler culture and the championing of aboriginal rights. As Johnson (2000, p. 146) writes: ‘Issues of gender, sexuality, race and ethnicity are challenging older power relations and conceptions of liberal citizenship … Key economic issues include the changing relationships between state and economy in Australian discourse associated with the development of neo-liberal ideology’. This contestation may be a worldwide phenomenon – highlighted by the truly international nature of the anti-globalisation movement. Indeed, even in countries where globalisation discourse has come to dominate it is contested. In Ireland, for example, the electorate’s rejection of the Nice Treaty on EU enlargement was seen, in part, to reflect anti-globalisation sentiment and a growing sense of discontent with the dominant policy paradigm (Irish Times, 9 June, 2001).
Once again, this highlights the highly complex and contingent way in which globalisation discourses are used. In essence however, Hay’s view is that the ‘external economic processes involved in globalisation/regionalisation have no independent causal power, but, in my view, , while discourses have ‘real’ effects, structural/material factors constrain the resonance of discourses. So, the relationship between the material and the ideational is best viewed as dialectical, that is interactive and iterative.


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