The end of the welfare state? How globalization is affecting state sovereignty

Globalization has had a dual effect on the sovereignty of the nation-state. Since 1945, the normative framework of human rights has embedded a sense of obligation on the part of the state toward its citizens. The social contract now has a strong welfare element to it. Yet, simultaneously, economic integration has limited the range of policy options available to states. This has diminished their capacity to meet these obligations. Sovereignty is the absolute authority over a certain territory. Many commentators would agree that this absolute authority has been challenged by a number of forces operating beyond the nation state; from the threat of global terrorism to the challenges of climate change, the powers of international organizations to influence of the global market. Given the impact of the global financial crisis on the national economic policy, I want to explore the ways in which capitalism has changed the nature of state sovereignty. This limitation of states‘ capacity must be understood as both an active and a reactive process. Active in terms of formulating policy in favor of market principles which the structure of globalisation encourages. Reactive in terms of responding to shocks, crises and booms in the global economy. In both cases, states are no longer entirely free, or entirely sovereign, to enact policy of their own determination.

‘Sovereignty is a contested phenomenon‘ (Held, 2002). The initial formulation of this concept, during the Enlightenment, entailed an absolute authority over a given community - the state. The borders of the state delimited the area over which the ‘sovereign‘ had political control, the area over which no other state could intervene. This was guaranteed through the monopoly the state had over the use of force. Over the centuries, the social contract took on a more complex meaning. In the works of Jean-Jacques Rousseau, the state has obligations to its citizens: the creation of equality. Modern authors have developed this notion of obligation within the concept of sovereignty. Kofi Annan, in his famous speech, ‘Two Concepts of Sovereignty‘ (1999), identified a shift from pure state sovereignty to human sovereignty, in which the well-being of the individual was paramount and the state’s duty to guarantee. Sovereignty should be understood as the autonomy of a territory within the international order. The sovereign state should be able to direct its political, economic and social life in accordance with its values and without external influence, pressure or coercion. Alongside this, the sovereign state now has a moral obligation to protect and extent the political, economic and social rights of its citizens.

The changing normative status of sovereignty has led to the understanding of nation-state as ‘welfare-state’. At the most basic level, the welfare state is taken to encompass a range of public policies undertaken by governments to provide social security, a safety net to the citizens of that state. However, over the last thirty years, the welfare state has been under attack in many developed democracies. A range of policy options which were previously available to state actors no longer are. I would argue this is due to the increasing scope and extent of economic globalization. Key examples include the devaluation of currencies, the high regulation of capital markets, the nationalization of domestic industries to protect them from going bust, extensive public spending leading to expensive public deficits. Yet as the markets have become more integrated and pressures from international competition encouraged states to take risks, opening up fiscal markets, and considering the implications of high labour costs on goods and services in the global economy.

More explicitly, economic globalization, in its most recent form, has been limiting the capacity of states to determine their own policy outcomes in three main ways: through trade and economic integration; financial markets; and the competition for employment. Due to the increasing pressure of international competition in trade markets as well as the increased mobility of capital and multi-national corporations, states are incentivized to cut labour costs, to reduce the price of goods and services, reduce taxation to make their domestic market more competitive, and to decrease the size and scope of the welfare state. In the UK alone, sever cut backs to the welfare state have been made steadily since the 1980s. The motivating force for these cutbacks, which have occurred under both Conservative and Labour governments, is a neo-liberal ideology shaped by the forces of economic globalization. This asserts the primacy of the market over everything else. With the 2008 global financial crisis, austerity measures have become the norm. Cuts in public sector employment, reductions in public sector workers’ pensions, and the removal of Sure Start Centers are just a few elements of the welfare state which have been rolled back since 2010 alone. All in the name of ‘competitiveness and economic efficiency’.

The human world is complex and there are likely to be a variety of causes of the retrenchment of welfare policies in developed states, like the UK. Ideological commitment to welfare provision, domestic institutional frameworks, and the local specificities of each economy, mediate the extent to which globalization impacts on the extent of policy making autonomy within nation-states. Nevertheless, the root cause of this shift has a global economic foundation. Without increased economic integration and dependency, without the opening of capital markets, without competition for employment and specialization it is unlikely that states would be forced to choose between economic growth and social welfare provision. In an era of new economic, social and political challenges, when welfare services and support needs to expand to meet need and demand, globalization is limiting the range of policy options available to states, limiting state sovereignty, entailing a retrenchment of the welfare state in developed nations. If the state no-longer has the capacity to provide the economic and social rights its citizens demand, the question is, what or who will?

Kat Wall is a former Global Policy staff member, trainer, facilitator and researcher working on themes of collective liberation, anti-oppression and power and privilege.

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