Colin Hay Whats Globalization Got to Do with It?

Economic Interdependence and the Future of European Welfare States1

A RECURRENT FEATURE OF THE POLITICS AND POLITICAL

economy of the advanced liberal democracies since the 1970s has been the management and, in particular, the suppression of political expectations. The recent history of the advanced liberal democracies is one characterized by successive bouts of expectation suppression. Arguably, this has much to do with declining levels of political identication, a worrying lack of political engagement (at least in formal politics) and, it seems, ever-diminishing levels of electoral turnout. Whilst this is not exclusively an Anglophone phenomenon, it is clear that political parties in the English-speaking world have demonstrated themselves particularly adept in the dark art of downsizing what we can legitimately expect from government. In the late 1970s it was through arguments about (political) overload and ungovernability that expectations were diminished. If, in the 1950s, we had never had it so good, by the late 1970s we had been having it too good for too long. We had indulged ourselves in an orgy of unconstrained democratic choice. In the (representatively) condescending tones of Anthony King at the time, the hungry sheep look up and reckon that they have at least a reasonable chance

1 An earlier version of this paper was presented as an inaugural lecture at the University of Birmingham and as the keynote address at the opening conference of the GENIE Network, University of Cyprus. The work presented here arises out of recently completed research on Globalization, European Integration and the European Social Model, which formed part of the ESRCs One Europe or Several Research Programme (project grant L213252043). The author is indebted to Government and Oppositions referees and editors for their generous and perceptive comments on an earlier iteration.

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of being fed2 so they bleat for more. A crisis point had been reached as parties sanctioned ever-spiralling demands which they sought to appease in a pathologically undisciplined form of electoral competition in which the price of the average vote grew from one election to the next. As Michel Crozier explained in his contribution to the Trilateral Commissions report on the crisis of democracy, the operation of the democratic process . . . appears to have generated a breakdown of traditional means of social control, a delegitimation of political and other forms of authority and an overload of demands on government, exceeding its capacity to respond.3 The message was clear. Democracy would have to be scaled back in the interests of governability. It was not so much a crisis of democracy, then, as a crisis produced by too much democracy. Twenty-ve years on, it is not the overload thesis which is being used to diminish our expectations but the globalization thesis; and it is with this latest process of expectation diminution that this paper is concerned. Though there are obvious differences overload was political and self-imposed, globalization (at least in this conception) is economic and externally generated there are also clear parallels. In both bouts of expectation suppression previously legitimate democratic demands are (to be) subordinated to economic imperatives. The governments task is not to do what we, the hungry sheep, want, but what the harsh realities of the economy dictate. The casualty in both cases is democratic choice. Yet, there is another parallel too. There was no evidence for the overload thesis (the key determinant of voting behaviour at the time being the perceived health of the economy not the extent to which governments were prepared to sacrice economic health for electoral self-interest); and, as will presently be argued, there is precious little evidence for globalization as a logic of economic discipline either.

Anthony King, Overload: Problems of Governing in the 1970s, Political Studies, 23: 2/3 (1975), pp. 28496, 286. 3 M. Crozier, Are European Democracies Becoming Ungovernable?, in M. Crozier, S. Huntington and J. Watanuki, The Crisis of Democracy, New York, New York University Press, 1975, p. 8.
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WHATS GLOBALIZATION GOT TO DO WITH IT?

DEFINING GLOBALIZATION

Before turning to the reasons and the evidence for this bold claim, however, it is important to clarify the terms in which the debate is conducted. For, understandably perhaps, whether globalization has anything to do with it depends on what globalization is taken to mean. The conception of globalization employed in what follows is, to be fair, a relatively specic and exacting one; yet it is not, I would suggest, an unreasonable one if the term is to have any analytical precision and utility. It is, moreover, very similar to that advanced by David Held and his colleagues who, nonetheless, reach very different conclusions. For them, globalization is a process (or set of processes) that embodies a transformation in the spatial organisation of social relations and transactions, generating transcontinental or inter-regional ows and networks of activity, interaction and power.4 My reason for following Held and his colleagues in differentiating so clearly between globalization and regionalization is simple: in debates about the future of the European welfare state, globalization has all too frequently been confused or conated with Europeanization.5 European integration is not globalization, nor is it evidence of globalization. Similarly, the term globalization cannot simply be treated as a synonym for the openness of an economy. For this is to atten the geography of globalization. If an economy becomes more open by trading an ever-growing share of its GDP, but with only one or two countries, whilst its trade volume with other countries falls, then this is not globalization. To count as evidence of globalization, the process under consideration must be genuinely globalizing (increasingly inter-regional and/or inter-continental in character). Such a denition has a series of clear implications. First, globalization is a descriptive and not an explanatory term it is an outcome of causal processes rather than a causal process in its own right. Second, whether globalization can be said to be occurring is an
D. Held, A. McGrew, D. Goldblatt and J. Perraton, Global Transformations, Cambridge, Polity Press, 1999. 5 P. A. Hall, Organised Market Economies and Unemployment in Europe, in N. Bormeo, ed., Unemployment in the New Europe, Cambridge, Cambridge University Press, 2001, p. 68, n. 9.
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empirical question, not one that can be resolved theoretically. And, nally, globalization is not an entity or thing. It is not a self-contained process with its own causal powers. It is, at best, a tendency to which there are (or are likely to be) counter-tendencies. And, in so far as the tendencies win out, it is an outcome (something to be explained rather than something which might explain). The advantage of this denition over others is that it is relatively precise (certainly in comparison to the existing literature) and can be operationalized empirically (as I hope to demonstrate). Whether or not globalization is happening is now an empirical question; not a matter of judgement, faith or theory. This, I suggest, is particularly important, for, presented as it invariably is as a self-contained and self-sustaining process, the term globalization obscures more than it illuminates, hiding genuinely causal processes. Moreover, deployed in this way it may threaten to become something of a self-fullling prophecy. It is to this potentially causal role for the idea of globalization that I now turn.

THE CAUSAL SIGNIFICANCE OF IDEAS ABOUT GLOBALIZATION

Globalization has become a key lens through which policy makers view the context in which they nd themselves. If this is accepted, it suggests that the content of understandings of globalization is likely to affect political conduct signicantly, with consequent effects for political outcomes. Consider the issue of exibility in the labour market. There is now something of a policy makers consensus that exibility is a good thing and is most easily achieved through the removal of so-called labour-market rigidities. These rigidities include such things as employment rights the right to be consulted before being made redundant, the right to compensation on the premature termination of contract, the right to seek redress through an industrial tribunal, and so forth. Each of these rigidities, it is argued, makes it less likely that an employer will take on labour in the rst place and take on additional labour in response to excess demand. Moreover, labourmarket rigidities render employers less able to adapt to uctuating demand in the market by shedding excess productive capacity. Consequently, exible labour markets tend to be associated with short employment tenure.
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Yet, for present purposes, the key point is that globalization is seen to intensify the pressure for labour-market exibility. The mechanism is simple. In a globally integrated market in which capital is more mobile than ever before (employers can more easily relocate their activities elsewhere), vicious competition between states ensues. This drives governments at pain of disinvestment and rising unemployment to remove any remaining labour-market rigidities. A race to the bottom is thereby established as states compete against one another to offer a more attractive environment for investment. This has an all too familiar ring to it and it does have a certain intuitive plausibility. Yet this is despite, not because of, its correspondence to the empirical evidence there being no statistically signicant correlation between tight labour markets and capital ight, for instance.6 But, for now, this is not the key point. For the sad irony is that if governments believe the thesis to be true (or, indeed, nd it in their interests to present it as true) they will act in a manner consistent with its predictions. In so doing they will contribute further to labour-market deregulation whether they are right to do so or not. Note also that the argument is essentially the same if we substitute welfare retrenchment, corporate tax cuts or any other suggested outcome of globalization for labour-market exibility. In short, though the globalization thesis predicts labour-market exibility (amongst other things), the fact of labour-market exibilization tells us no more than that the thesis is inuential. This is all very well as far as it goes. It certainly encourages us to look rather more closely at the conduct of public ofcials and the ideas inuencing that conduct, but it does not go far enough. It tells us to be careful in assuming that globalization is an agent of labour-market exibilization, welfare-state retrenchment and so forth. It suggests, in other words, that our expectations may have been falsely diminished. But it does not in itself demonstrate that there is an alternative to labour-market exibilization, welfare retrenchment and the like.
6 W. N. Cooke and D. S. Noble, Industrial Relations Systems and US Foreign Direct Investment Abroad, British Journal of Industrial Relations, 36: 4 (1998), pp. 581609; D. Swank, Social Democratic Welfare States in a Global Economy: Scandinavia in Comparative Perspective, in R. Geyer, C. Ingrebristen and J. Moses, eds, Globalisation, Europeanisation and the End of Scandinavian Social Democracy?, Basingstoke, Palgrave, 2000, pp. 83138; D. Swank, Global Capital, Political Institutions and Policy Change in Developed Welfare States, Cambridge, Cambridge University Press, 2002.

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To make that second step we have to establish what exactly is going on and to look more closely at the genuine constraints imposed by the external context. This entails an analysis that focuses on more than just ideas about globalization. We need to examine the material evidence. We need to assess whether globalization characterizes well what is going on and, if it does not, what does. It is to the evidence itself that we now turn. Through mechanisms like labour-market exibilization, welfare retrenchment and the intensication of tax competition between states, the conventional wisdom predicts a simple convergence between European social models on the most residual Anglo-US ideal type. Globalization exposes all economies to common pressures; common inputs produce common (i.e. convergent) outcomes, establishing the ascendancy of the Anglo-US liberal model. Yet, inuential though this view remains, it is not as unquestioned as once it was. An alternative and increasingly inuential account points to a rather more complex process of dual or co-convergence. This, it is suggested, reinforces the distinctiveness of liberal market economies (the archetype is usually the USA) and coordinated market economies (the archetype is usually Germany). Where there was a simple process of convergence on the liberal (or Anglo-US) model, there is now complex or dual convergence.7 In both accounts the driving force is globalization. Both suggest a simple causal logic in which the developmental trajectory of European social models is driven by globalization. Globalization, the independent variable, produces convergence or co-convergence, the dependent variable. In what follows, I reject both variants of the convergence thesis on empirical grounds. I argue, controversially perhaps, that there is little evidence of convergence amongst European social models and that, although common trajectories can be identied, these have tended

P. A. Hall and D. Soskice, eds, Varieties of Capitalism: The Institutional Foundations of Comparative Advantage, Oxford, Oxford University Press, 2001; G. Garrett, Partisan Politics in the Global Economy, Cambridge, Cambridge University Press, 1998; G. Garrett, Shrinking States? Globalization and National Autonomy in the OECD, Oxford Development Studies, 26: 1 (1998), pp. 7198; T. Iversen, J. Pontusson and D. Soskice, eds, Unions, Employers and Central Banks: Macroeconomic Coordination and Institutional Change in Social Market Economies, Cambridge, Cambridge University Press, 2000; H. Kitschelt, P. Lange, G. Marks and J. D. Stephens, Continuity and Change in Contemporary Capitalism, Cambridge, Cambridge University Press, 1999.
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to be implemented more or less enthusiastically and at different paces to produce, if anything, divergent outcomes. Second, and no less controversially, I suggest that it is difcult to see globalization as the principal agent determining the path on which European social models are embarked, since the empirical evidence points if anything to de-globalization rather than globalization. Preliminaries aside, we can now turn directly to the empirical evidence.

THE EMPIRICAL EVIDENCE: CONVERGENCE, DIVERSITY OR DIVERGENCE OF OUTCOMES?

Consider rst the dependent variable the question of convergence. Space prevents an exhaustive survey of the available empirical evidence. Nonetheless, a variety of more or less complex metrics can be used to examine trends in European social models since the 1960s (conventionally the starting point for discussions of globalization). Consider, rst, social transfer payments (see Figure 1). These are, in essence, a measure of basic welfare expenditure. For ease of comparison they are here standardized at 100 for 1960. Precisely because these are standardized measures, they are bound to show an initial divergence. Yet, the convergence thesis would lead us to expect that initial divergence to be checked considerably by the 1980s and 1990s. It would predict, in short, an oval-shaped distribution. The co-convergence thesis, by contrast, would predict the emergence of two clusters one grouped around Germany, the other grouped around the UK. Neither prediction bears any relationship to the evidence. What is observed, instead, is that consistent paths are mapped out from the 1960s, which social models continue to follow for the most part to the present day. The wide initial variance in growth rates is sustained over time. This is not a story of systematic welfare retrenchment, nor is it a story of the diminishing distinctiveness of regime types which seem, if anything, to be reinforced over time. Indeed, it is the Nordic welfare states that have grown the most. Under globalization, it would seem, the most generous welfare states have thrived. It might, at this point, be protested that these results are no more than a product of standardizing the data with 1960 as 100. Yet, precisely the same inferences can be drawn if we re-present the data with 1980 as 100 (see Figure 2).
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Figure 1 Social Transfers of EU Member States as a Percentage of GDP (1960 = 100)

500 Denmark Finland 450 Finland Norway 400 Sweden UK 350 Germany France Ireland 300 Italy Netherlands 250 UK 200 Italy Germany Netherlands France 100 Denmark Ireland Norway Sweden

150

50 1960 1970 1980 1990 2000

Second, we might consider the raw unstandardized data itself i.e. social transfers expressed as a share of GDP. To aid the analysis, I here group welfare regimes in terms of the conventional three-fold classication. The Nordic (or social democratic) regime type here refers to Sweden, Denmark, Finland and Norway; the conservative or continental regime type refers to Germany, the Netherlands, Italy and France; and the liberal regime type to the UK and Ireland. What the raw data reveals (see Figure 3), interestingly, is that it is only relatively recently that the distinctiveness of the Nordic social
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WHATS GLOBALIZATION GOT TO DO WITH IT?

Figure 2 Social Transfers of EU Member States as a Percentage of GDP (1980 = 100)

Finland Denmark 200 Finland Norway Sweden France 160 Germany Italy Netherlands Ireland 120 UK Sweden Norway UK Italy Denmark France Ireland

Netherlands Germany 80

40 1960

1970

1980

1990

2000

democratic regime type (the most generous in terms of welfare provision and, one might expect, the most exposed by virtue of globalization as a consequence) has emerged. This, again, stands in some tension with the predictions of the existing literature. For, far from being associated with welfare retrenchment, it would seem, the period of (supposedly) most intensive globalization (the 1980s to the present day) has been associated with the emergence and consolidation not the retrenchment of the most generous welfare states the world has ever known. Turning more directly to the question of convergence, we might note that the standard deviation for social
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Figure 3 Social Transfers as a Percentage of GDP by Regime Type

25 Nordic Mean Conservative Mean Liberal Mean 20 Overall Mean

15

10

1970

1975

1980

1985

1990

1995

transfers (as a proportion of GDP) for these 10 cases rises over time, indicating divergence not convergence. This is all very well as far as it goes and is sufcient in its own terms to do considerable damage to the prevailing orthodoxy. But, arguably, it omits one crucial factor. Thus far it has effectively been assumed that demand for welfare has been consistent over the period since the 1960s. Yet this we know not to be the case. It may well be, then, that if we control for increased need we will nd that European welfare states have become less, not more, generous over time in real terms. Indeed, scaling for variations in demand in this way may even serve to rehabilitate the convergence thesis. In short, increases in welfare spending may have failed to keep pace with increases in welfare need. It is important, then, to re-evaluate the convergence and coconvergence theses in the light of this possibility. There are two ways of looking at the effective generosity of benets. The rst, and simplest, is to look at benets themselves as
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a proportion of average take-home pay in each country over time. The second, to which we turn presently, is to construct an aggregate index of welfare generosity. Consider rst the actual generosity of welfare benets over time. Given limitations of space, data is here presented solely for the value of unemployment benets expressed as income replacement rates (the share of average income replaced by unemployment and associated benets). Figure 4 displays trends in the OECD standardized index of replacement of earnings averaged over the rst ve years of benet. It shows, surprisingly, convergence between regime types until the late 1970s and subsequent divergence. Today, the Nordic regime type is the most generous; the conservative regime type the next-most generous; and the liberal regime type the least generous

Figure 4 Unemployment Income Replacement Rates (OECD Standardized Index for Replacement of Average Earnings)
0.5 Overall mean Liberal mean 0.4 Nordic mean Conservative mean 0.3

0.2

0.1

0 1960

1970

1980

1990

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Table 1 Index of Welfare Generosity in 1995 Compared to 1985 (= 100) Country (Rank Order) Denmark (1) Norway (2) Finland (3) UK (4) Sweden (5) Netherlands (6) Italy (7) Ireland (8) Germany (9) France (10) Index 131 124 116 115 113 102 94 94 92 90 Regime Type Nordic Nordic Nordic Anglo Nordic Conservative Conservative Anglo Conservative Conservative

Computed by comparing level of actual expenditure to predicted expenditure given consistent levels of generosity, scaling for share of population over 65 and numbers unemployed. Index of generosity = (actual expenditure/index of anticipated expenditure) 100.

(a reversal from the period prior to 1980). Again the standard deviation (of all 10 country cases) increases, revealing divergence, not convergence. Clearly this does not resurrect the convergence thesis. The second, and rather more involved, way to control for variations in welfare need over time is to construct an (aggregate) index of welfare generosity (see Table 1). This compares actual expenditure with what we would expect were consistent levels of generosity to have been maintained, but given exhibited variations in need or demand. The index developed here is simple and captures only variations in demand relating to two factors: (1) the proportion of the population over 65; and (2) the proportion of the population registered unemployed. The index is standardized at 100 for 1985. It is crude, but nonetheless instructive its results suggesting further difculties for the convergence and co-convergence theses. Given the crudeness of the index in assessing variations in demand and the problems of using ofcial unemployment data, we should perhaps resist the temptation to conclude from this that welfare states with scores over 100 in 1995 have become more generous than they were in 1985, whilst those with scores below 100 have become less generous. The index almost certainly underestimates real increases in demand arising from an ageing population (in assuming
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an essentially linear function and in assuming no differentiation in the level of need amongst populations over 65). Nonetheless, the rank orderings are likely to be more robust and reliable. The evidence, such cautionary remarks notwithstanding, certainly suggests that it is the Nordic welfare states that have proved best able to sustain their (already high) levels of welfare generosity. This is the exact opposite of the convergence thesis prediction. Indeed, the data suggest that these welfare states have, if anything, enhanced their level of generosity. The conservative welfare states, by contrast, would seem to have had most difculty in defending welfare generosity. The liberal regimes fall somewhere in between. In so far as there has been retrenchment, then, it has been very unevenly distributed, reinforcing rather than diminishing existing diversity in welfare regime types. Once again, the convergence thesis is sadly exposed.

THE EMPIRICAL EVIDENCE: GLOBALIZATION OR REGIONALIZATION?

As this suggests, it is difcult to nd evidence of the convergence that the globalization thesis predicts, or even of the co-convergence anticipated by the dual convergence thesis. So much for the dependent variable; what about the independent variable? As suggested already, much depends on the denition of globalization. It is important from the outset that we distinguish between the openness of an economy (the volume of external economic transactions in which it is engaged) and the extent to which it can be said to be globalized (the extent to which such economic transactions are genuinely global in their reach). It is undoubtedly the case that European economies are, on average, more open than once they were the volume of external economic transactions in which they are involved has increased signicantly since the 1960s (and that is not in dispute). However, the geography of such economic relations has become ever more selective. In short, European economies have experienced not a globalization of their economic relations over the past 40 years, but a consistent and ongoing de-globalization. This parallels the process of Europeanization (or, perhaps more accurately, EUization). Again, a variety of rather different empirical indices can be pointed to.
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Figure 5 Ratio of Employment in Exposed Sectors to Employment in Non-Exposed Sectors (calculated from OECD labour force statistics, various years)
45 Fin 40 DK Fra 35 G Ire 30 Ita 25 Ntl Nor 20 Swe UK 15 1980 1985 1990 1995

Consider rst the proportion of the workforce employed in competition-sensitive sectors of the economy and the ratio of competition-sensitive (or exposed) to competition-insensitive (or non-exposed) employment. The evidence is unequivocal and may, on the face of it, seem surprising (see Figure 5). For each of the 10 country cases considered, the ratio of employment in exposed (conventionally, globalized) to non-exposed (non-globalized) sectors has fallen consistently since the 1980s. This might seem like evidence of de-globalization, in the sense that the employment prospects of an ever-smaller proportion of the workforce are dependent upon competitive advantage in international/global markets. Yet we should be wary of jumping hastily to such a conclusion. For the exhibited trend would, in fact, be the prediction of neo-Ricardian variants of the globalization thesis, on the grounds that pressures for productivity gains (and hence labour-shedding) are likely to be most intense in the most integrated (i.e. the most open and/or global) markets. It is, nonetheless, an interesting observation albeit one that is not decisive either way in evaluating the globalization thesis.
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Altogether more discriminating, in differentiating between evidence of globalization and regionalization are so-called gravity models.8 Within a gravity model, trade is assumed to be associated positively with the size of the economies between which it is transacted (usually expressed in terms of their respective shares of global GDP) and to be associated negatively with the distance between them. Ceteris paribus, geographically proximate countries will trade more with one another than those separated by great distances, just as those economies which account for a substantial share of global GDP will tend to trade more with one another than smaller economies. The basic model can be written as an equation of the following form: log Tij = a + b log(GDPi Pi ) + c log(GDPj Pj ) - d log(Dij ) + . . . . Where Tij is the volume of trade between countries i and j GDPj/Pj is the GDP per capita of country j Dij is the distance between country i and j In an era of globalization, of course, we would expect the effect of geography to be weakened signicantly by enhanced transportation and communications technologies. Consequently, were we to plot trade ows between a specic (here, European) country and its trading partners (controlling for relative GDP per capita) against the distance between these economies, we would expect to see clear evidence of the diminishing signicance of geography over time. Take logarithms of both axes and the slope gives a value for d, the coefcient of sensitivity of trade to distance, in the above equation. If trade volumes show any sensitivity to distance, the coefcient will be negatively signed. A process of globalization should see the numerical value of this coefcient fall over time (plot 1-2-3), whilst any tendency for that coefcient to rise is evidence of de-globalization (plot 3-2-1) (see Figure 6). Table 2 presents a summary of the values of d, the coefcient of sensitivity of trade to distance for 1960, 1980 and 1998 for eleven
8 For a more extended analysis see C. Hay, Common Trajectories, Variable Paces, Divergent Outcomes? Models of European Capitalism Under Conditions of Complex Economic Interdependence, Review of International Political Economy, 11: 2 (2004), pp. 23162.

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Figure 6 Gravity Models and Globalization

Log trade volume

1 1-2-3 3-2-1

De-territorial trade Intermediate trade Territorial trade De-globalization Globalization

2 3

3 2 1
Distance between country and trading partner

Table 2 Coefcients of Sensitivity of Trade to Distance 1960 Denmark Finland France (West) Germany Hungary Ireland Italy Netherlands Norway Sweden UK -0.47 -0.70 +0.74 -0.30 -0.72 -0.45 -0.50 -0.28 -0.53 -0.65 -0.02 1980 -0.53 -0.63 -0.72 -0.60 -1.20 -0.53 -0.61 -0.48 -0.55 -0.70 -0.20 1998 -0.68 -0.60 -0.76 -0.68 -1.28 -0.55 -0.72 -0.60 -1.06 -0.75 -0.60 Trend De-globalization Globalization De-globalization De-globalization De-globalization De-globalization De-globalization De-globalization De-globalization De-globalization De-globalization

European economies. Of the 11 cases considered, only Finland shows any sign of globalization; all 10 of the others show a clear and consistent de-globalization. Moreover, in each case the t of the model to the data increases from 1960 to 1980 and from 1980 to 1998 (the gravity model accounts for a progressively greater share of the variance in the data). The implications of this are clear. In so far as
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openness might be seen to expose European economies to selective pressures, those pressures arise not from globalization per se (for the term is an ever more inaccurate description of the trading relations of such economies) but from the process of European economic integration. Yet, sceptics might suggest, it is one thing to point to the deglobalization of European trading relations; it is another thing altogether to demonstrate the de-globalization of European economies. Apart from anything else, we might well argue that, if European economies have not seen a globalization of their trading relations over the past four decades, this is because of the growth of inter-regional foreign direct investment (FDI). Firms from outside Europe build production sites within Europe rather than trading over thousands of kilometres. Nissan does not ship cars to the European market from South-East Asia (generating trade) but assembles them in Sunderland (sourced from FDI). FDI is, in essence, a substitute for trade over distance. As a proposition it certainly deserves to be explored. Again, however, the evidence is hardly comforting to proponents of the globalization thesis. First, by far the greatest proportion of EUbound FDI is sourced in Europe and that gure is growing (a factor reinforced by, but not reducible to, the Asian nancial crisis). The same is true of EU-sourced FDI a high and increasing proportion of which is invested within the European economy. The large amount of missing data, combined with the relatively short time frame over which good time series data is available, suggests the need for a slightly different mode of presentation to the gravity models used for trade. Here, a single log-log graph of the ratio of FDI volumes into Europe for 1998 and 1980 is plotted against distance (see Figure 7). If, as the globalization thesis would predict, economies are recipients of ever-larger ows of FDI from distant locations, we would expect a positive slope to the graph. What this shows, however, is that the relative volume of FDI coming from distance has fallen rather than risen since 1980. FDI, like trade, would appear to be more, not less, sensitive to distance. Yet, once again, that expectation is simply not borne out by the empirical evidence. Once again, the trend would seem to be one of de-globalization rather than globalization a product of the EUization of FDI.
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Figure 7 The De-globalization of European Inbound FDI, 198298

Log (Share of inward FDI from country X in 1998 to that in 1982) 3

-1

-2

-3 2 3 2.5 3.5 4 4.5

Log Distance (Km)

NEITHER GLOBALIZATION NOR NEO-LIBERAL GLOBALIZATION, BUT NEO-LIBERALIZATION

The above evidence would certainly suggest strong empirical grounds for claiming that the convergence amongst European social models widely assumed to be underway is simply not occurring. Moreover, the globalization widely assumed to be responsible for that convergence is also not occurring: if anything, EU-European economies have experienced a de-globalization of their economic interdependence in recent years. If it is the globalization thesis that is responsible for our diminished political expectations, then there are some grounds for optimism. Yet we should be careful about the precise inferences we draw from this, for this is perhaps not quite as optimistic a story as it might at rst appear.
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First, the absence of convergence does not mean that European welfare states are not embarked upon common trajectories. This is an important point. Political regimes implementing common policies are just as likely to diverge as they are to converge. Indeed, given institutional and ideational path dependencies, they are rather more likely to diverge than they are to converge as, for instance, neo-liberalism may prove more difcult to embed in a regime previously characterized by the density of its social democratic institutions in comparison to one already characterized by its liberalism. We cannot then conclude from the absence of clear evidence of convergence the absence of common reform trajectories. Indeed, there is plenty of evidence of the latter. A pervasive process of neo-liberalization is underway in Europe reected, for instance, in greater welfare conditionalities, greater labour-market exibilization, a greater emphasis upon responsibilities rather than rights, internal marketization processes and the increasing use of private nance in public projects. This is, nonetheless, a process that is proceeding at different paces in different contexts leading, so far, to divergent rather than convergent outcomes. Second, we need to be equally careful in what we infer from the observation that neo-liberalization has been pursued to date with the greatest vigour in societies already characterized by the liberalism of their existing welfare regimes. For this should not blind us to the prospects of future convergence as the pace of neo-liberalization falls in liberal regimes (as the process is, in some sense, exhausted) and that in more traditionally inclusive and social democratic regimes quickens. The divergence precipitated by the differential implementation of common policy precepts is likely, in time, to yield to convergence. What we can say, however, is that if this does occur, as well it might, there is no evidence at least here to link it with globalization. The selective pressures that have been released by processes of economic integration are more correctly attributed to European economic integration on the one hand, and the specic institutional architecture of EMU on the other. That is the principal conclusion of this article. Yet, we should be wary of simply substituting EMU and European economic integration for globalization as the independent variables in generating a narrative about the inevitable imposition of (albeit
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initially divergent) neo-liberalisms almost identical to that with which we began. For there is certainly no compelling evidence that the process of European economic integration itself imposes a neoliberalizing dynamic. Indeed, if anything, the evidence would point in the opposite direction with reassuringly resolute and positive correlations for EU-European economies between such things as levels of inward FDI on the one hand, and state expenditure and welfare generosity as shares of GDP on the other.9 To what, then, might we attribute this neo-liberalization? Two potential causal factors follow from the above analysis. The rst of these is the deationary bias enshrined at the heart of EMU by the Maastricht convergence criteria and now reected in the letter (if not always in the implementation) of the Stability and Growth Pact.10 Though chosen, this driver of neo-liberalization has become institutionalized. Its character is not, however, as xed or immutable as that attributed to globalization. Indeed, were Britain to join EMU, the Stability and Growth Pact would almost certainly have to be renegotiated (and softened). The second factor, one introduced right at the start of this paper, is the very idea of globalization itself. As I have sought to demonstrate, the idea of globalization as a non-negotiable logic of economic discipline and compulsion may exert a powerful causal inuence irrespective of its empirical paucity as a thesis. In other words, the idea that globalization entails neo-liberalization has become something of a self-fullling prophecy and, as such, an independent driver of neo-liberalization in contemporary Europe. This suggests the importance of recasting the terms in which much of the critically inspired consensus on globalization is couched. For the above analysis, and the empirical evidence on which it is constructed, suggest that it is imperative that we differentiate very clearly between globalizing and neo-liberalizing dynamics. Globalization does not entail neo-liberalization and, as I have sought to demonstrate, neo-liberalization need not feed off globalizing dynamics. Consequently the neo-liberal globalization that many critics assume

9 Swank, Social Democratic Welfare States; Swank, Global Capital; see also L. Mosley, Global Capital and National Governments, Cambridge, Cambridge University Press, 2003. 10 Hay, Common Trajectories, Variable Paces.

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to be underway remains, at present, largely aspirational and rhetorical.11 As I have sought to demonstrate, neo-liberalism is associated at present, certainly in Europe, with a process of economic integration that is regionalizing rather than globalization; yet it is no less neo-liberal for this.

CONCLUSION: THE US MODEL?

In conclusion we turn to the economic and social costs of neoliberalism for contemporary European societies. Once these are considered, any optimism which might be prompted by the above analysis is quickly tempered. For, arguably, there are good reasons to suggest that it is neo-liberalism rather than social democracy that should be seen as the burden on competitiveness in an era of heightened competition amongst nations. A brief empirical anecdote may serve to underline the point. The US economy is, invariably, presented as the model to be emulated, combining good economic performance with near full employment. Yet, the seemingly impressive labour-market performance of the US economy arguably comes at a, rarely acknowledged, price. There is a signicant trade-off between social spending and structural inequality and, in turn, between equality and both crime and incarceration rate as the data makes very clear (see Table 3). But there is a nal and rather ugly twist to this. If the rapid expansion of the penal system in the 1980s and 1990s is regarded as an intervention in the labour market and the incarcerated are counted among the ranks of the unemployed, the US male jobless rate rises to a level above the European average for most of the period since 1975.12 It hardly needs to be pointed out that incarceration on a per capita basis is rather more expensive than

11 On neo-liberal globalization see, for instance, S. Gill, ed., Globalisation, Democratisation and Multilaterialism, Basingstoke, Palgrave, 1997; and, for an important critique from a rather different perspective, see S. Ashman, Resistance to Neoliberal Globalisation: A Case of Militant Particularism?, Politics, 24: 2 (2004), pp. 14353. 12 B. Western and K. Beckett, How Unregulated is the US Labour Market? The Penal System as a Labour Market Institution, American Journal of Sociology, 10: 4 (1999), pp. 103060; see also M. Blyth, Same As It Never Was: Temporality and Typology in the Varieties of Capitalism, Comparative European Politics, 1: 2 (2003), pp. 21526.

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Table 3 Incarceration Rates and Welfare Regime type Incarceration Rate (per 0.1 M) US UK Germany Italy Netherlands Ireland France Sweden Denmark Finland Norway 686 139 96 95 93 86 85 68 59 59 59 Regime Type liberal liberal conservative conservative conservative liberal conservative Nordic Nordic Nordic Nordic

unemployment benet. More importantly, since the job prospects of ex-convicts are so signicantly eroded that they invariably leave prison to join the ranks of the long-term unemployed, the impressive employment performance of the US economy in the 1980s and 1990s has, in fact, depended in large part on a high and increasing incarceration rate at an increasing cost to the US taxpayer. Arguably, then, this is a very expensive non-welfare state. It is precisely such a regime that we are in the process of emulating in contemporary Europe today. This would seem to have been the choice we have made; but, if there is any substance to the analysis presented in the preceding pages, then this is a choice we should strongly resist. In so doing, we may rst need to convince ourselves that globalization does indeed have nothing to do with it.

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