The Globalization Reader, 5th Edition

31 Welfare Spending in an Era of GlobalizationThe North–South Divide

John Glenn

This paper examines the contention that economic globalization has led to the decline of welfare spending in recent decades. In so doing, it is argued that the experience of the industrialized and less industrialized states has been radically different. The OECD countries have experienced little, if any, downturn in either levels of state expenditure in general or in levels of welfare spending in particular. In contradistinction, many of the developing states have experienced significant declines in welfare spending, particularly during the period of structural adjustment implementation. In order to explain these two divergent outcomes, the paper examines the way in which the behaviour of international investors, multinational companies and the international financial institutions differs in relation to these two sets of countries.

It is argued that the current period of economic globalization, i.e., the intensification of economic relations between states, was actually initiated by the highly industrialized countries themselves following the economic stagnation of the 1970s. During this period, many OECD countries moved towards full liberalization of their capital accounts. Many have also encouraged the expansion of their domestic companies' overseas operations in order to take advantage of lower production costs and to lower their own trade imbalances. In addition to capital account liberalization, ...