Globalisation and the End of Social Democracy

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It has become increasingly commonplace to argue that processes of globalisation mean that the "old" ways of doing social democratic politics, above all through a politics of redistribution managed by a centralised state, are no longer viable (and, indeed, upon several accounts, no longer desirable). (2) "Traditional" social democracy is seen to have been based upon the forging of national settlements in which governments used the strength of organised numbers (essentially the powers of trades unions or unions allied to social democratic parties) and state power to tie capital in to arrangements (and costs) which it would otherwise seek to avoid. It is said to have relied upon the existence of partially autonomous national economies (located within a supportive international environment) subject, within limits, to effective government control and the capacity to resource and deliver an extensive system of social protection. Understood in this way, social democracy is seen to be fundamentally challenged by the rise of globalisation. At its simplest, globalisation is seen to increase the porosity of international borders, to heighten the mobility of capital, to disorganise the internal homogeneity of the "labour interest" and thus to disempower the social democratic form of the interventionist state. In this paper, I subject this account to rigorous scrutiny in three key areas -- trade, capital mobility and a changing division of labour.

Trade

World trade in goods has grown almost twice as fast as GDP since 1950. The trade in services also appears to have doubled in the period since figures were first reported in 1980, so that total world trade may now amount to as much as 45% of world GDP. Although much of this trade takes place within the developed world or, even more narrowly, within its three key regional economies, there is some evidence of rising trade between developed and developing economies (although much of this growth has been focussed upon south east Asia). There are also signs of growth in trade in manufactured goods and of increasing intra-industry trading within the developed economies. At the same time, the technologies of transportation and, above all, communication have been transformed and the associated costs have fallen substantially. The costs of computing technology have similarly continued to fall and, within a decade, the internet has emerged as a form of "mass" communication (if still for comparatively few) throughout the developed world. (3) A crucial part in the trade story is taken by the growth in the numbers and influence of Multinational Corporations (MNCs) and rising foreign direct investment (FDI). In 1998, 53,000 MNCs had global sales of $9.5 trillion, accounting for about a quarter of world output and up to 70 per cent of world trade. The hundred largest MNCs had six million employees worldwide and accounted for about 20 per cent of global foreign assets. Alongside this growth in MNCs has gone a rapid rise in Foreign Direct Investment which grew fivefold between 1980 and 1994 to stand at around $250 billion. In the 1980s and 1990s, most developed states have seen an increase in both inward and outward FDI and this has contributed to a growing engagement of national economies with the global order. (4)

This rapid growth in worldwide trade is seen to be crucial in undermining the autonomy of what are no longer truly domestic economies. Although the major developed economies were clearly never autarchic (though some were much more exposed to international trends than others), they are now more than ever involved in trade. Firms must compete in international marketplaces and that means with those rivals who are best able to contain costs in producing goods and services of similar quality. This introduces the favourite political mantra of the 1990s: "competitiveness". In order to survive in a world of increasing trade, nations, their enterprises and their workers (frequently and rather carelessly conflated) must be able to compete.

Corporations may seek to compete in terms of either quality or cost and they may seek to control costs either through heightening productivity or reducing the price of inputs. Overall, they are bound to be concerned with processes of cost containment. In developed social democratic states, so it is argued, costs tend to be high: salaries and employment are protected by corporatist institutions, legal minima and an extensive social wage. To fund this, taxes and non-wage labour costs also need to be high. But firms in these states have now to compete in international markets with producers with lower wages, a much more rudimentary social security infrastructure and more primitive labour legislation. Some have argued that this is enough to draw social democratic states into a nightmarish "race to the bottom" in terms of social provision and wages. More commonly, and a little more soberly, it is argued that developed states, with comparatively high wages and extensive social infrastructure can only avoid being drawn into such a struggle by evolving quite new countervailing strategies. In the new and open trading order, they can (only) compete and sustain standards of living by moving from a "passive" (or rights-based) to a more "active" (and employment-oriented) welfare state, by "flexibilising" labour markets and allowing for greater wage dispersal (whilst seeking to foster a skills economy), by reforming their tax systems (to make them less progressive and to redistribute costs away from capital and the employment of labour), and "rationalising" public sector services (to increase their "efficiency"). Societies must become "active" and economies "competitive". Governments may reform by being "clever" rather than scything through their systems of social protection, but in the process they are bound to establish regimes which are quite different from those classically identified with social democracy.

Capital Mobility

Still more dramatic than rising levels of trade is the transformation in patterns of financial activity around the globe. In a context of twenty-four hour trading and more or less instantaneous electronic transmission of data, turnover in foreign exchange markets has risen from $17.5 trillion in 1979 to over $300 trillion in the late 1990s. Only a small part of this increase is devoted to servicing the rapid growth in world trade (with the ratio of foreign exchange turnover to trade standing at around 60:1). A good deal of it represents speculative activity, and with the combined reserves of all the world's central banks representing no more than a single day's trading volume, sustained movements against particular currencies have triggered a succession of spectacular devaluation crises through the 1990s. Governments now find that an increasing proportion of their debt is held by foreign investors and domestic stock exchanges have seen a near-tripling in the foreign ownership of equities. Of course, capital flows in themselves may not give a clear measure of capital mobility. It is suggested that this enhanced mobility of capital -- and the super-enhanced mobility of financial capital -- has disempowered national governments or, at the very least, that they have transformed the parameters within which such governments work, so that the interests of financial asset-holders will always trump those of anyone else (including the political community as a whole). Governments will compete with each other, it is suggested, to offer the most favourable terms for inward investment and those with resources to invest and plants to build will find themselves in a position to extract favourable terms from a series of competing suitors. (5)

The Changing Division of Labour

Finally, critics detect a major change in the international division of labour. In its classical form, this argument holds that there has (at least since the 1960s) been a tendency for manufacturing production to relocate away from "the North" or the most advanced industrial states towards a succession of newly-industrialised economies (NIEs) or "the South". (6) A number of changes have driven this move: 1) a flow of migrants into cities in less developed countries producing a large pool of cheap labour, in a context where either 2) production processes rely on unskilled labour or 3) existing levels of educational attainment are quite high and 4) collapsing transportation and communication costs make production at sites remote from the point of consumption economically viable. Typically starting with textiles and steel manufacture, a number of industries have migrated from …