Cccb Assignment Priyank
-
Upload
priyank1256 -
Category
Documents
-
view
22 -
download
0
Transcript of Cccb Assignment Priyank
Change & Continuity in Contemporary
Business
ASSIGNMENT SUBBMITTED BY
Priyank Mehta
Roll No: L0243KMKM1010
BA – 5
SUBMITTED TO
Dr.Rajendra Kumar
L0243KMKM1010 Page 1
Table of content
Title
1. Executive Summary
3
2. Introduction
4
3. Literature Review
5
4. Critical analysis
7
4.1 The Efficiency Theory of Welfare Spending
7
4.2 The Compensation Approach
8
4.3 Towards an Integrated Theory of the Welfare State
11
5. Conclusion
13
6. Referencing
14
L0243KMKM1010 Page 2
Executive Summary
Services and goods now move fort amongst the countries more freely as compared to in the
past. The continuous decline in the costs of long-distance transportation and communication
and in the nationwide limitations on international investment and trade have allowed the
economics all over the world to become gradually more incorporated, thus has enhanced the
growth of productivity and expanded the choices of the consumer. In some of the areas of the
developed world, especially East Asia, globalization is escorted by an enhancement in the
standards of living which was not even imagined a few generations before. Simultaneously, the
globalization has become the center point of a worldwide controversy. Particularly there have
been apprehensions regarding the unpleasant outcomes for the distribution of income. These
concerns have resulted in the initiatives of the polices that are a threat to turn back the clock.
However, in the centre of all this world wide recession, Denmark and their counterparts have
welcomed the advantages of the globalization in regards to the efficiency in productivity, low
process and an increase in the choices of the consumers.
L0243KMKM1010 Page 3
Introduction
Globalization refers to the changing nature of the world economy. The changes are associated
with the growth in economic interactions across state borders. The main changes are generally
thought to be increasing trade flows, greater mobility of finance capital, and the
internationalization of production chains. Many observers associate these changes with the
rapid development of information technology (Rosecrance, 2009).
Although globalization carries an aura of energy and excitement, critics argue that it has
negative consequences. From a sociological standpoint, globalization might imply greater
cultural conformity, perhaps even a type of cultural imperialism by the major western
economies. From a political standpoint, globalization is often seen as part of a neoliberal
program that forces governments to adopt a severely restricted and arguably unjust set of
public policies. Such criticisms illustrate how debates about globalization often relate economic
and technological issues to changing patterns of international and national governance
(Frieden, 2001).
The new governance is, indeed, often portrayed as a response to globalization. In this view,
globalization has eroded the importance of national barriers and even the state itself; it has
increased the economic interdependence of states, thereby undermining the ability of each
state to govern its own economy. However, despite the ubiquity of talk of globalization, notably
in the rhetoric of policy-makers, there remains a lack of general consensus on its extent and its
implications for governance. Globalization can refer, in narrow terms, to increased volumes of
transnational trade. Or it can refer to a broader pattern of global economic integration
(Burgoon, 2004). Or it can refer to the activities of those firms that have scattered their
production activities across a number of states, and those states that have promoted a liberal
world order (Spiro, 2004).
L0243KMKM1010 Page 4
Literature Review
The transnational flows associated with globalization appear to have risen in the 1970s. It was,
after all, in the 1970s, notably in the wake of the oil crisis, that some states, including the UK
and the USA, sought to liberalize their economies. A few social scientists even began to discuss
globalization at that time. Nonetheless, we can date the massive explosion of talk of
globalization, among both social scientists and policy actors, to the 1990s. This explosion
appears to have owed much to the end of the Cold War. Talk of globalization represented a way
of characterizing a new global order. It reflected the perception of a shift from superpowers
and their political conflicts to a broader range of actors concerned with economic exchanges.
Once we locate globalization in the wake of the Cold War, we are likely to become more
sensitive to the intellectual currents and political forces that have made it possible. Neoliberal
ideas became extremely prominent in the late 1970s, and they emphasized the supposed
benefits of rolling back the state and spreading free markets and free trade. The USA,
unchecked by a rival superpower, occupied an increasingly hegemonic role, which it used to
promote and guarantee globalizing initiatives. International economic institutions, such as the
International Monetary Fund, World Bank, and World Trade Organization, also promoted norms
and agreements that facilitated mercerization and free trade (Irwin, 2002).
Just as globalization arose in part because of changes in global politics, so it has inspired new
accounts of global governance. Globalization is said to have undermined the state-based
system established in 1648 by the Treaty of Westphalia. We no longer have the old image of
largely autonomous states possessing territorial sovereignty, and interacting in terms set by
law, diplomacy, and even war. Instead we have a new picture of diverse actors, including firms
and non-profits as well as states, engaged in all kinds of transnational activities. We have a new
world order consisting of networks based on the negotiations and exchanges of interdependent
actors. Coordination and order arise less from states and more from markets and networks
(James, 2001).
In addition to the literature’s theoretical limitations, the empirical research of the existing
literature has produced evidence that cannot be generalized across a large sample of countries.
Some studies have largely analyzed the relationship between economic globalization and
L0243KMKM1010 Page 5
welfare spending among OECD (Organization for Economic Cooperation and Development)
countries, while others have based their analyses on developing countries. Studies whose
samples rely on OECD countries suggest that increasing levels of global economic integration
increase government welfare expenditures, consistent with the compensation thesis (Cortell,
2006).
Meanwhile, studies with samples taken from countries in Denmark suggest that increasing
levels of economic globalization significantly reduce government welfare spending as predicted
by efficiency theories. Given these limitations this study contributes to the existing literature in
the following ways. First, it draws upon efficiency and compensation approaches and develops
an integrated theoretical framework that explains globalization’s effects on social spending.
(Strange, 1996)
Second, the study’s theory is systemically tested within the context of a large-N cross-national
pooled time-series analysis of 122 countries during the years 1970-2002. To reinforce the
statistical analysis, the study also tests the theory via comparative case study analyses of South
Korea, Chile and Spain.. Third, relative to existing studies, a comprehensive measure of
economic globalization is utilized that adequately captures the theoretical definition of the
concept .
After discussing the theoretical limitations of the existing literature an alternative theoretical
framework is advanced that draws upon and integrates efficiency and compensation
approaches to explain social policies under conditions of global economic integration in
Denmark. The outcome variable – welfare spending – and the various explanatory variables are
discussed and operationalized. The chapter concludes with a discussion of the estimation
procedures, which feature various time-series regressions that are used to analyze the cross-
national data as well as a discussion of the methodology that informed the selection of
countries used in the case study analysis (Hay & Marsh, 2001).
L0243KMKM1010 Page 6
Critical Analysis
The Efficiency Theory of Welfare Spending
The fundamental proposition of the efficiency theory is that high levels of government social
spending undermine economic efficiency and the competitiveness of domestic firms in
Denmark. It is argued that since social spending is largely funded from corporate taxes, any
increase in social expenditures will be accompanied by an equivalent increase in the level of
taxes. Increased taxes undermine investor confidence and the competitiveness of domestic
companies in both domestic and international markets. Increased social spending can also
result in increased government debt as the state increases its borrowing to finance its welfare
policies in Denmark (Meyer & Francisco, 1997).
High levels of taxes brought about by increases in government welfare policies will ultimately
facilitate capital flight, as transnational corporations will begin re-locating their investments to
countries that have lower taxes and limited social protections, hence producing a ‘race to the
bottom’ effect on the welfare state of Denmark. Since economic globalization increases the
mobility of transnational capital, it is this threat that forces governments to significantly reduce
social expenditures in order to restore investor confidence. In sum, the efficiency theoretical
model posits that economic globalization and the level of international competition that
emerges from it constrain and limit government welfare spending in order to attract and retain
mobile capital of Denmark (Scholte, 2005).
Recent empirical research seems to confirm the logic of the efficiency theory of welfare
spending. One study assessed the impact of economic globalization on the growth of
government spending in Denmark and showed that trade and international financial openness
had a negative effect on government spending. Consistent with this finding, recent research
using a sample of European countries examined the relationship between economic
globalization and welfare spending and found that trade openness had a consistently negative
effect on aggregate social spending and social security transfers (Burgoon, 2004).
L0243KMKM1010 Page 7
The Compensation Approach
While recognizing the budgetary constraints of the state under conditions of increased global
economic integration, compensation approaches to welfare spending emphasize the social
demands for welfare allocation and the political incentives of policy makers to respond to such
demands. The welfare system, according to this approach, is a necessary mechanism for
offsetting the costs of global economic integration. Scholars in this tradition argue that
efficiency theories overlook the political incentive to increase public programs in response to
international economic integration (Spiro, 2004).
Since policy makers in Denmark are primarily motivated by re-election, they are more likely to
increase welfare spending to offset negative economic externalities, such as job losses and
increased income inequality that emerge from the competitive nature of the global economy.
Hence, knowing that those who are displaced will blame political incumbents for the negative
externalities of economic globalization, policy makers are more likely to increase welfare
spending to pacify displaced workers. In addition, policy makers will also provide welfare
benefits to insure that the negative externalities of global economic integration do not disrupt
national financial markets (Mandle, 2007).
David Cameron’s (1978) seminal research provides the first empirical and historical analysis of
the growth of the welfare state among Northern European countries. The research was the first
quantitative analysis of welfare policy that showed that openness to trade was strongly
correlated with what he referred to as the “scope of the public economy,” which was measured
in terms of the change in total taxes as a percentage of GDP. The research showed that
openness to trade was the best predictor of the growth of government revenues. Large nations
that were economically less open experienced moderate increases in the scope of the public
economy compared to smaller nations with more open economies. While the scope of the
public economy among small Western European countries varied with the dominance of left
parties in Scandinavian countries or the dominance of centrist or conservative parties in
countries like Denmark, Belgium and Ireland, the best explanation for the expansion of
government expenditures is the degree to which national economies had been integrated into
the global economy.
L0243KMKM1010 Page 8
In pursuing an effective industrial policy, the mix of international liberalism and domestic
compensation varies widely among small Western European states. Moreover, the
development of an industrial policy is not dependent on size but what Katzenstein refers to as
democratic corporatism, which is the way in which conflicting economic interests are mediated
domestically. Democratic corporatism is characterized by an “ideology of social partnership
expressed at the national level; a relatively centralized and concentrated system of interest
groups; and voluntary and informal co-ordination of conflicting objectives through continuous
political bargaining between interest groups, state bureaucracies, and political parties”. It is,
therefore, the democratic corporatist nature of small European states that makes it possible to
develop an industrial policy that is based on effectively integrating national economies into the
global economy, while at the same time developing a robust system of domestic compensation
(Rosecrance, 2009).
Other scholars within this research tradition consider the effects of other aspects of economic
globalization on government welfare spending. Quinn’s (1997) cross-national study of 38
nations estimated the effects of capital mobility on government spending and found that
greater capital mobility is associated with higher levels of spending. Other research on the
effect of capital mobility on welfare spending has shown that the integration of capital markets
has been associated with increases in welfare spending as well as higher corporate taxes. A
recent empirical treatment of Latin American countries provided additional support for the
compensation thesis. Using a measure of financial openness as well as measures of trade
openness, Avelinon, Brown and Hunter’s research suggests that trade openness has a positive
relationship with education and social expenditures, and financial openness does not reduce
government expenditures for social programs as predicted by the efficiency theory.
On this note, empirical studies in the existing literature have largely overlooked the importance
of how economic globalization’s effect on Denmark welfare spending is conditional on the
nature of domestic political institutions. It is only in the past few years where a handful of
scholars have attempted to address this deficit. In their research, Boix (1998) and Garrette
(1998) demonstrate that the impact of global economic integration on governments’ welfare
expenditures is conditional on the nature of partisan politics. Domestic political variables in
L0243KMKM1010 Page 9
Denmark also feature prominently in the research of Asera and Boix (2002). They argue that the
relationship between the openness of national economies and the size of the public sector’s
welfare spending is heavily conditional on the nature of the political regime. They contend that
government strategically provide welfare compensation to build domestic political coalitions
that support free trade, and democratic governments relative to authoritarian regimes are
more likely to use welfare spending to compensate the losers of economic globalization.
While recent studies have attempted to bring greater theoretical precision by identifying the
mechanisms through which globalization operates in determining social policies in Denmark,
the mechanisms that are tested in such studies are limited to partisan politics and political
regimes. These studies do not provide a comprehensive analysis of how the interactions of
economic globalization and other domestic political variables affect states’ welfare spending.
These studies demonstrates that government welfare spending in Denmark is a functional way
through which the economic pressures of the globalization has been trained through the means
of domestic politics. The domestic politics is made up of the political institutional and affiliation
features which indicate respectively to the capacity and willingness of the systems of politics to
begin the changes in the public policies. The factors of the political institution inclides the
characteristics of political levels and regimes of electoral competition and political
participations, determining the environment of the politics which forms the incentives and
preferences of the officials of the government who are responsible for making the welfare
policies. Political affiliation factors in Denmark, which include organized labor and political
parties, determine how government resources - specifically welfare expenditures - are
distributed. This study, therefore, builds on the existing literature by examining the ways in
which economic globalization’s effect on welfare policy is conditional on the domestic political
environment that shapes welfare policy and the political affiliations of domestic political actors
who distribute social benefits.
L0243KMKM1010 Page 10
Towards an Integrated Theory of the Welfare State
The theoretical limitations of the extant literature present an opportunity to construct a robust
theoretical framework that integrates efficiency and compensation approaches to Denmark.
While the existing literature treats these approaches as competing or mutually exclusive
‘theories’ of the welfare state, they are considered here to be mutually inclusive processes in
the development of social policy. Government welfare policy emerges from the tension of
globalization’s proclivity to retrench social spending and the proclivity of domestic political
actors and institutions to compensate. In essence, the construction of social policy, under
conditions of global economic integration, is a function of the dialectical pressures for greater
economic efficiency and domestic political preferences for greater compensation. It is
postulated that in a world absent of domestic political institutions and where transnational
corporations completely dominate countries’ political economy, by default, economic
globalization will exert a downward pressure on social spending. However, in the presence of
domestic politics, globalization’s natural proclivity for welfare retrenchment will be averted
since its effect on social spending is conditional on the nature of political institutions and the
political preferences of labor unions and political parties that set a floor against further
retrenchment. The dialectical tension between globalization’s tendency to retrench the welfare
state and the tendency of domestic political institutions to resist retrenchment is fully
developed and empirically tested.
However, since globalization’s effect on social policy in Denmark is conditional on the nature of
endogenous political forces,its proclivity to retrench welfare expendituresis avertedby the
preferences of domestic institutions, and political actors to compensate. In developing this
integrated theoretical explanation of welfare policy, we can ask the following questions: under
what structural conditions of corporate capitalism will economic globalization produce a ‘race
to the bottom’ effect on states’ social spending? And under what domestic political conditions
will institutions and political actors avert globalization’s ‘race to the bottom’ effect on social
spending? In answering these questions, the discussion that follows draws upon Marxist and
the welfare state’s political democratic theories.
L0243KMKM1010 Page 11
The authority characteristics of political regimes simultaneously influence both the pace at
which the economy of Denmark is integrated into the global economy and the scale of
government welfare spending. Comparatively to the authoritarian regimes, the democratic
governments that are faced by the pressures of the public have well-built incentives for
compensating economic dislocation which occur from the worldwide integrations. Numerous
scholars have scrutinized the reasons and factors through which the political regimes influence
the social spendings and state that the political regimes has a significant part in the decisions of
the governments regarding the policies regarding the social welfare under the condition of
growing economic globalization.
However, more researchers show concern about that the democracies have an equal impact on
every type of social spending. Segura-Ubiergo (2007) argue that the Latin Americans groups
belonging to the lower income are more likely to pressurize the government for increasing the
social spending merely to the degree in which they become the direct beneficiaries of those
spending. Results from his research have shown that democracies in Europe tend to be
negatively associated with social security expenditures but positively associated with health and
education expenditures. These results reflect the fact that social security beneficiaries in
Europe must be legally employed in the formal sector, and since lower incomes groups who are
mainly unemployed do no have admission to those benefits; they have no incentive to press
their governments to receive them. The expenditures of education and health reach a large
portion of the populations in Denmark as well as the individuals belonging to the lower income
sector are most probable to pressurize the government officials to amplify the expenditures.
L0243KMKM1010 Page 12
Conclusion
In conclusion, it can be said that the interactive effect of the globalization of economy and
institutional factors of domestic politics on Denmark’s welfare spending.Nevertheless, as the
system of domestic politics is more than the sum of its parts, it is vital as well to put into
consideration the communication amongst the globalization of economics and the aggregate
effects of the institutions of politics (which is an index that is comprised of indicators that
measure regime type, the level of electoral competition and political participation) on states’
welfare spending.
When regimes are democratic and the level of electoral competition and political participation
is high, then democratization defines the nature of political institutions. To fully account for the
cross-national variation in states’ welfare spending it is also necessary to estimate the
interactive effect of global economic integration and the aggregate and disaggregate political
environmental factors that shape states’ welfare spending. In estimating the aggregate effect of
institutions an index is constructed via principal components analysis.
L0243KMKM1010 Page 13
References
Aaronson, Susan Ariel. (2001) Taking Trade to the Streets: The Lost History of Public
Efforts to Shape Globalization (Univ. of Mich. Press).
Blinder, A. (2006). Offshoring: The Next Industrial Revolution? Foreign Affairs 85: 113–
128.
Boli, J. and George M. (1997). World Culture in the World Polity: A Century of
International Non-Governmental Organization. American Sociological Review vol. 62 no.
(2) pp. 171–90.
Burgoon, Brian. (2004). Globalization and Welfare Compensation: Disentangling the Ties
that Bind. International Organization 55 (3): 509-51. Examines the way domestic policies
offset some of the risks economic openness creates.
Cameron, A. and Palan, R. (2004) The Imagined Economies of Globalization. London:
Sage.
Christensen, A. and J. W. Vaupel, (2006). Why Danes Are Smug: Comparative Study of
Life Satisfaction in the European Union, British Medical Journal 333: 1289–1291.
Cohen, Edward S. (2001) The Politics of Globalization in the United States (Georgetown
Univ. Press).
Cortell, Andrew P. (2006) Mediating Globalization: Domestic Institutions and Industrial
Policies in the United States and Denmark (SUNY Press).
Dixon, William J. and Terry B. (1996). Dependency, Disarticulation, and Denominator
Effects: Another Look at Foreign Capital Penetration. American Journal of Sociology vol.
102 no. (2) pp. 534–62.
Frieden, Jeffry. (2001). Invested Interests: The Politics of National Economic Policies in a
World of Global Finance. International Organization 45 (4): 425-51. A clear (and often-
cited) examination of the domestic politics on international monetary policies
Garrett, Geoffrey. (2005). Capital Mobility, Trade, and the Domestic Politics of Economic
Policy. International Organization 49 (4): 627-55. Provides an overview of the arguments
L0243KMKM1010 Page 14
and evidence regarding the way economic globalization reorganizes domestic interests,
and the consequences that has on politics.
Hay, C. and Marsh, D. (eds) (2001) Demystifying Globalization. Basingstoke: Palgrave
Macmillan.
Hytrek, Gary and Kristine M. Zentgraf. (2007) America Transformed: Globalization,
Inequality, and Power (Oxford).
Irwin, Douglas A. (2002) Free Trade under Fire (Princeton Univ. Press).
James, Harold. (2001) The End of Globalization: Lessons from the Great Depression
(Harvard Univ. Press).
Jones, Ronald. (2000). Private Interests and Government Policy in a Global World.
Tinbergen Institute Discussion Paper TI 2000-051/2. Amsterdam, , the Netherlands:
Tinbergen Institute. An accessible economic analysis of economic openness.
Klein, Naomi. (1999) No Logo: Taking Aim at the Corporate Bullies (Picador).
Mandle, Jay R. (2007) Democracy, America, and the Age of Globalization (Cambridge).
Meyer, W. and Francisco O. (1997). World Society and the Nation-State. American
Journal of Sociology vol. 103 no. (1) pp. 144–81.
O'Rourke, Kevin H., and Jeffrey G. Williamson. (1999) Globalization and History: The
Evolution of a Nineteenth Century Atlantic Economy (MIT Press).
Rosecrance, Richard. (2009). The Rise of the Virtual State. New York: Basic Books.
Creatively explores the way technology is changing both the economic connections
between states and also the way states relate to each other politically.
Sadowski-Smith, Claudia. (2008) Border Fictions: Globalization, Empire, and Writing at
the Boundaries of the United States (Univ. of Va. Press).
Scholte, J. (2005) Globalization: A Critical Introduction. Basingstoke: Palgrave Macmillan.
Spiro, Peter J.(2004) Beyond Citizenship: American Identity After Globalization (Oxford).
Stocker, Herbert. (2008). Globalization and International Convergence in Incomes. In
Economic Effects of Globalization, edited by Chen, John-ren. Aldershot, , UK: Ashgate,
97-115. An interesting contribution to an edited volume, both for its discussion of the
L0243KMKM1010 Page 15
definition of globalization and for the way in which it measures the results of liberalizing
international economic policies.
Strange, S. (1996) The Retreat of the State: The Diffusion of Power in the World
Economy. Cambridge: Cambridge University Press
The Economist. (2001). Globalisation and Its Critics: A Survey of Globalisation.
September 29, pp. 1–30.
Wrench, J. (2004). Trade Union Responses to Immigrants and Ethnic Inequality in
Denmark and the U.K.: The Context of Consensus and Conflict, European Journal of
Industrial Relations 10: 7–30.
L0243KMKM1010 Page 16