THE SOCIAL WELFARE STATE and POPULISM How Does the Social Welfare State Affect Populism?
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THE SOCIAL WELFARE STATE AND POPULISM How does the social welfare state affect populism? Abstract This paper is focusing on the social welfare state and how their components influence the political backlash created by globalization. The political backlash, which is the rise in populism as a result of globalization, becomes a problem when the power of populistic parties becomes too big. This paper tries to explain this relation between globalization and populism and why the political backlash could be dangerous for developed countries. Furthermore, it tries to give a solution for these problems by investigating the influences of the social welfare state on this political backlash. The results of this paper show us that the unemployment tempers the effect of globalization on populism and that unemployment has a direct, negative relation with populism. This paper also shows that income inequality has an amplifying effect on the political backlash, provided that the income inequality grows in the middle segment of society. Sander Spijkers Supervisor: Albert de Vaal Table of content 1 Introduction ..................................................................................................................................... 2 2 Literature review and hypotheses ................................................................................................... 5 2.1 Problems of Globalization ....................................................................................................... 5 2.1.1 Economic problems of Globalization ............................................................................... 5 2.1.2 Social problems of Globalization ..................................................................................... 7 2.2 Globalization paradox ........................................................................................................... 10 2.3 Solutions to the paradox ....................................................................................................... 14 2.4 Populism and globalization ................................................................................................... 16 2.4.1 Relation Globalization and Populism............................................................................. 17 2.5 The social welfare state ......................................................................................................... 19 2.5.1 Components of the social welfare state ........................................................................ 20 2.6 Hypotheses ............................................................................................................................ 23 3 Method and Data .......................................................................................................................... 27 3.1 Regression and tests .............................................................................................................. 27 3.2 Variables ................................................................................................................................ 28 3.3 Regressions ............................................................................................................................ 34 3.4 Data and database discussion: .............................................................................................. 36 4 Results ........................................................................................................................................... 39 4.1 Tests and main result ............................................................................................................ 39 4.2 Robustness checks ................................................................................................................. 43 5 Discussion ...................................................................................................................................... 48 5.1 Validity of the variables ......................................................................................................... 48 5.2 Results and hypothesis .......................................................................................................... 50 5.3 The regression ....................................................................................................................... 54 6 Conclusion ..................................................................................................................................... 56 7 Bibliography ................................................................................................................................... 58 8 Appendix ........................................................................................................................................ 65 8.1 Appendix 1 ............................................................................................................................. 65 8.2 Appendix 2 ............................................................................................................................. 68 8.3 Appendix 3 ............................................................................................................................. 69 8.4 Appendix 4 ............................................................................................................................. 72 8.5 Appendix 5 ............................................................................................................................. 72 8.6 Appendix 6 ............................................................................................................................. 74 1 1 Introduction Globalization, “a situation in which available goods and services, or social and cultural influences, gradually become similar in all parts of the world” (Cambrigde , 2013). A quick search on the internet gives you this as the definition of Globalization. Globalization is going on for ages, but the last few decades, the rate in which globalization is happening is extraordinary (Osterhammel & Petersson, 2005). Main reasons for this are improved transport, technology, mobility of capital and the rise of global trade blocks (Osland, 2003). All contributing to a decline of costs and barriers, which stimulates not only the economic trade, but also social interactions between different cultures. Globalization also brings problems. After decades of prosperity and globalization, the financial crisis struck in 2008 which resulted in a crisis on global scale. Due to the worldwide intertwining and the deregulation of the (financial) markets (Crotty, 2009), markets all over the world were hit. Together with the downfall of many firms, the public opinion towards globalization turned a bit (Noury & Roland, 2020). Since the crisis of 2008, the call for less globalization and more economic and political independence is growing. This is also shown by the rise of populism in many European countries. In almost every Western European country, populistic parties grow in numbers, e.g. AFD in Germany, Lega in Italy and PVV in the Netherlands. That populism and the anti-globalization sentiment are growing, is not a coincidence, due to the complementarity of them. Populism, which can be defined as the political ideas and activities that are intended to get the support of ordinary people by giving them what they want (Cambrigde , 2013), focusses on national interest rather than international benefits (Rodrik, 2018). Although populism was not always against globalization, they turned to a more anti-globalization approach simply because it gains votes (Zaslove, 2008). Reasons for populism to adopt anti-globalization in their agenda are: globalization is elite driven, globalization limits state sovereignty, globalization is linked to the growing power of the EU and economic globalization destroys the organic nature of civil society (Zaslove, 2008, p. 174). Populism is therefore a good outcome for the anti- globalization movement. The growth in populism due to the growth in globalization is seen in the literature as the political backlash (Rodrik, 2018). The political backlash can be defined as the shift of the voters from traditional parties to more populistic parties, caused by globalization. There are two conditions in order to refer to the rise in populism as a political backlash (Rodrik, 2018). First, the political backlash is mostly present in the more developed democracies, as voters 2 have to have the ability to change the sitting government by fair elections. As mentioned before, countries like Italy, Germany and other European countries do have to deal with the political backlash, as they have a well-developed democracy. Second, the rise in populism has to be the result of growing globalization, but not at every level of globalization the political backlash occurs. In the early stages, in which a country opens up, this effect is not present at all (Milner, 2018). A more detailed explanation for the creation of the political backlash, is given by Rodrik with the globalization paradox. In his book “The Globalization Paradox” (Rodrik, 2012), he claims that globalization comes with a paradox. The three pillars of the paradox; (economic) globalization, national sovereignty, and democracy, are causing frictions between the institutions within and between the countries. Institutions play a central role in the paradox, as they are fundamentally different between countries due to the democratic process in each country. In