Exploring Public Social Expenditure Trends in the Globalization Era

Abstract

1. Introduction In recent years growing body of literature has appeared on the nexus between globalisation and the welfare state. Behind this increasing interest in the role that globalisation is exerting on policy, there is the idea that it brings about a loss of power of the state, in general, and reduction in welfare activities, in (Dreher et.al., 2008, p. 264), which translates into process of State policy rationalisation in the social expenditure domain. This is an important aspect that reveals how countries are affected by increased international competition. Hence the debate about the present role and dimension of the welfare has intensified: due to competitive pressure worldwide triggered by the liberalisation of factor mobility, there is downward pressure on welfare programs that may result in higher homogeneity of social expenditure in the sense of clear harmonisation of their composition and amount. However, as Esping Andersen suggested (1990), the welfare domain is complex area and, clearly, the analysis of its evolution over time requires focus on socio-economic pressures, political parties, political institutions and welfare structures, and not only on the expenditure trends. Following on the heterogeneous literature on convergence, we suggest possible similarities that have occurred in the social expenditure models to date. The purpose of this paper is two-fold: 1) to apply traditional analysis of convergence (sigma and beta convergence) in public social expenditure and 2) to analyse public social expenditure allocation expressed as % of GDP and derive possible classification of the countries by means of multivariate approach. These methodologies can help to support or reject the hypothesis of harmonisation of national social expenditure policies in Europe. We considered sample of 16 European OECD countries plus the USA (often considered trend-setter country in the economic policy domain), and used data from the OECD Social Expenditure Database 1980-2001, keeping all variables that define Public Social Expenditure. The paper is structured as follows: in paragraph 2 we offer glance to the literature about globalization and welfare expenditures; in paragraph 3 we show data and methodology adopted; par. 4 is dedicated to some descriptive analyses; in par. 5 we analize the trends in social public expenditure by means of sigma and beta convergence; in paragraph 6 we adopt Principal Component and Cluster Analises to investigate on the existence of different expenditure models. Last paragraph is dedicated to few conclusions. 2. Globalization and Welfare Expenditures The revised role of intervention, in its form and magnitude, is commonly ascribed to the new frameworks triggered by globalisation. As written in Evans and Cerny: Globalisation has transformed relationships between the international economy, the and economic policy, creating new parameters--constraints and opportunities--for trade policy, regulating financial markets, corporate governance, industrial policy, macroeconomic policy and fiscal and monetary policy. (Evans and Cerny, 2003, p. 19): This transformation is supported by neoliberal consensus that tends to promote global competition: hence the idea of competition state that has replaced the concept of nation state: with the increasingly using new forms of economic intervention intended to marketize the itself as well as to promote the competitive advantage of national, industrial and financial activities within relatively open world economy (Cerny, 1992, p.241). Since the seminal paper by Pierson (1994), the scholarly debate about the politics of retrenchment has intensified and social scientists have tried to demonstrate whether the dismantling of the welfare is heading towards convergence or resilience, suggesting that the globalisation process may lead countries to implement similar structures of government spending over time, producing effects in particular on public social expenditures. …