IT’S NOT THE ECONOMY STUPID – OR IS
IT?
DAVID MARSH
Research School of Social Sciences
ANU College of Arts and Social Sciences
AUSTRALIAN NATIONAL UNIVERSITY
Published in in M. Boss (ed), The Nation State in Transformation: Economic
Globalisation, International Mediation and Political Values (Aarhus; Aarhus University
Press. 2010), 87-109
1
ABSTRACT
The term globalisation is overused; it is a default explanation of much contemporary
policy making. In the economic sphere, we need to concentrate on particular economic
processes, rather than subsume them under the term globalisation. In fact, it is better to
refer regionalisation when considering trade and internationalisation when focussing on
Foreign Direct Investment. At the same time, any notion that globalisation leads to
political outcomes in an unmediated way is untenable. Rather, these economic processes
are mediated by a series of economic and political factors. At the same time, we also need
to recognise the independent role of discourses about ‘globalisation’. Nevertheless, while
we must reject the economism inherent in much of the early literature on globalisation, we
should not throw the baby out with the bathwater; we need to acknowledge that there are
‘real’ economic processes that need to be given an important role in any explanation of
outcomes.
2
There have been a number of attempts to characterise the development of the globalisation
literature. Perhaps the most common distinguishes between hyperglobalist, sceptical and
transformational positions (for a review see Martell, 2007), sometimes also termed first,
second and third wave approaches (Hay and Marsh, 2000). Here, I begin by outlining these
positions, before turning to more recent arguments which stress the role of ideas about
globalisation, rather than ‘real’ economic processes, as the motor of change. I shall argue that,
while any approach which sees globalisation as a singular economic process with a simple
direct effect on state’s actions and policy outcomes is misguided, it is equally problematic not
to recognise that there are ‘real’ economic processes involved which constrain, while not
determining, those actions and outcomes. Crucially then, this chapter offers a critique of the
move towards what Hay terms ‘constructivist institutionalism’ evident in recent work in
Comparative Politics and International Political Economy. While my main purpose here is to
advance a conceptual/theoretical argument, I will use empirical material drawn from different
states to support my argument, although I pay particular attention to Denmark, Ireland and the
UK.
1) Hyperglobalism and its Opponents
The original hyperglobalist thesis associated with Robert Reich (1991) and Kenichi Ohmae
(1996) argued that the increased movement of goods, capital, labour and information across
national borders has ‘shrunk’ the world and substantially weakened the nation state. Of
course, to a significant extent, their position involved an ideological justification of neoliberalism,1 but the key point here is that it was an economist, determinist, structuralist and
materialist position.2
Unsurprisingly, this simplistic view came under increasing question. Initially, there were two
strands in this critique, the sceptical thesis and the complex globalization thesis, but, more
recently, they have been joined by what is usually termed the new institutionalist approach.
Sceptical theorists such as Hirst and Thompson (1999) and Wade (1996) deny that the
globalization process is new, reject the idea that the world is borderless, suggest that most
1
For a more sophisticated and more recent advocacy of the positive consequences of globalization, see Sharma
(2008).
2
Strangely, the hyperglobalist position shares these features with economistic or structuralist Marxism.
3
economic activity is not global, but rather regional, and emphasise that government has
grown, rather than contracted, in the last 50 years. So, governments have autonomy, even
within the constraints inevitable in modern capitalist economies.
In contrast, complex globalization theorists like Held et.al. (1999) and Dicken (1998) claim to
be sceptical, offering a more nuanced view. Held et.al. (1998) contend that: the nature, if not
the level, of globalisation/integration has changed, becoming much deeper, in both economic
and cultural terms; globalisation is a highly complex (set of) process(es), rather than an endstate – so, the world is globalising; the role of the nation state has changed, rather than simply
declined - to many it has been ‘hollowed out’ (see Rhodes, 1997). Again, this view involves a
rejection of economism, determinism and structuralism, although there is probably more
emphasis on how the economic constrains, while not determining, the political than in the
sceptic’s position.
While the complex globalisation thesis has proved particularly influential in the literature, it
has been increasingly challenged by the 'new institutionalists', such as Hall and Soskice
(2002), Garrett (1998) and Weiss (1998), who focus almost exclusively on the role of
institutions in mediating the effects of globalisation. They argue that, while nations may
experience common pressures, such as globalisation, the existence of different institutional
and cultural environments means that they respond in different ways and achieve different
outcomes.
In this sense, Hall and Soskice (2002: 27-8) argue: ‘domestic institutions,
depending on their characteristics, can hinder or enable states to respond to new challenges
and accomplish new tasks, thus softening, neutralising or exaggerating the potentially
constraining effects of global markets.’
Thus, new institutionalists contend that globalisation may actually serve to enable nationstates, rather than simply constrain them. Indeed, Garrett (1998) argues that it is not despite,
but in fact because of, globalisation that social democratic countries have continued to thrive,
given that globalisation rewards 'coherent' strategies – whether market liberal or social
democratic corporatist – but punishes ‘incoherent’ regimes. So, social democratic, corporatist
regimes can offer significant benefits to business (such as co-operation between employers
4
and employees and a highly skilled workforce) that provide greater returns on investment than
would a low taxation environment (see Garrett, 1998, p. 5 and pp. 26-7). As such, the
institutionalists agree with the sceptics that there is still considerable scope for government
intervention in economic and social affairs. However, globalisation is not a myth, rather it is
associated with continuing – and even growing – divergence between market liberal and
social democratic regimes (see Garrett, 1998, p. 18). In this sense, globalisation is still seen
as a crucial driving force for change. So, globalisation is an economic ‘reality’, but its effects
are mediated by political, particularly institutional, structures and practices.
It is an open question to what extent these three positions which are critical of globalisation
differ. Martell (2007) acknowledges that there are differences between the transformationalist
and the sceptical position, for example on the definition and historical periodisation of, and
normative response to, globalisation. However, he suggests, rightly in my view, that both
positions agree that: a lot has changed, but that doesn’t mean we live in a globalised era;
nation states are constrained by international organisations and international finance, but can,
and do, shape the forms globalisation takes; the process of globalisation is contingent, multidimensional and often contradictory; and there is an unevenness of integration across the
global system.
Martell doesn’t consider the new institutionalists, but their position doesn’t really contradict
that of the sceptics, as they merely emphasise that the different institutional structures and
cultural environments of different countries mediate the effect that globalisation, as a set of
economic processes, have in them. As such, Martell’s argument that there are fewer differences
between the sceptics, transformationalists, and I would add new institutionalists, than is often
argued is well made. Indeed, in my view, all these positions would agree with Held et al’s
(1999, xxx) conclusion that external economic pressures, whether ‘global’, ‘international’ or
‘regional’, are:
mediated significantly by state’s position in global political, military and economic
hierarchies; its domestic economic and political structures; the institutional pattern
5
of domestic politics; and specific government as well as societal strategies for
contesting, managing or ameliorating globalising imperatives.
2) The Ideational Turn: The Role of Discourses of Globalisation
Martell also discusses my earlier work with Hay (Hay and Marsh, 2000). He views us as
putative third wave theorists and, again, effectively points out that many of our arguments fit
happily with the sceptics’ position. However, it seems to me that he pays insufficient attention
to the most novel element in our argument; the increased emphasis that we give to the role of
ideas about globalisation in shaping policy outcomes. In part, this emphasis is one reflection
of the increased focus on the role of ideas in shaping social and political change in the recent
literature on international political economy and comparative politics (see, for example,
Blyth, 1997, 2002a, 2002b; Berman, 1998; Campbell, 1997, 2002; Hay, 2002, 2004); a focus
evident in the growth of what Hay (2006a and 2006b) terms constructivist institutionalism.
While Hay and I (2000) were the first to emphasise the independent causal role of ideas about
globalisation in explaining policy outcomes, this position has been developed much further by
Hay with a number of other collaborators (Hay, 2004, 2006c and 2006d, Hay and Rosamond,
2002, Hay and Smith 2004 and Smith and Hay 2006). In essence, our argument was that
ideas about globalisation can have affects which are independent of, if obviously related to,
the level and nature of globalisation, but Hay and others have increasingly seen ideas about
globalisation as the only motor of change.
Hay is a sceptic to the extent that he is very dubious of the view that globalisation actually
exists. In fact, there are three elements to this argument. First, Hay (2004) contends that
European countries have actually been de-globalised in recent years, with geographical
proximity, and thus regionalisation, becoming more, rather than less, important in terms of
both trade and investment; this position fits easily with the sceptics’ view. Second, Hay and
others (see, for example, Watson, 2003 and Smith, 2004) emphasise that, in Smith’s words
(2004, 505), globalisation is: ‘a vague and ambiguous concept’. In particular, Watson (2003,
cited in Smith, 2004, 505) makes the point in a way which fits particular well with the
argument that I develop below, when he argues that globalisation is: ‘merely a signifier used
6
to bracket together a number of actual material processes of change.’ Thirdly, and this is
Hay’s major contribution, he increasingly argues (2006a and 2006b) that material factors, like
economic processes, have no independent causal power; a position which, of course, is in
some tension with Watson’s version of the last point. So, Hay asserts that there has been a
discursive shift towards neo-liberalism, both within and outside Europe, and that it is the
associated discourse about globalisation that has played the key role in influencing
government policy, reflected, for example, in the move to active labour market policy. This
last point is very important and needs developing.
To Hay, policy-makers believe that globalisation is occurring and this shapes their approach,
whether or not globalisation actually exists. In other words, neo-liberal ideas are creating
neo-liberal policies. In turn, this process undermines the nation-state, with governments
adopting policies that, in turn, reduce their power and sovereignty. For example, in joining
the European and Monetary Union (EMU), states have signed up to the Stability and Growth
Pact, which affects how much they can spend. In this sense, globalisation may be a selffulfilling prophecy. By behaving as if it were a reality, policy-makers, and indeed business
leaders, may actually be making it a reality.
To put it another way, discourses about
globalisation have ‘real’, that is material, affects in two ways. First, they affect states’
behaviour, because governments introduce neo-liberal policies, for example, active labour
market policies, in response to the perceived constraints resulting from globalisation. Second,
politicians, civil servants, companies and individuals act as if markets were globalised and, in
acting, bring about more globalisation.
In my view, other approaches to globalisation are limited to the extent that they deny an
independent causal role to ideas, but equally, in my view, Hay is also wrong to deny that
material relations have independent causal power. This is a crucial argument here and, to
substantiate it, I need to say a little more about Hay’s move towards constructivist
institutionalism.
Hay sees constructivist institutionalism as a response to the limitations of historical
institutionalism; which, in broad terms, is my position. As such, he shares with Blyth (2002a)
7
the view that historical institutionalism has major problems with explaining change and that,
in the hands of many historical institutionalists, the concept of path dependency becomes an
almost determinist one3 (see Hay 2006a and 2006 b). I have argued elsewhere (Marsh, 2008a)
that this is misleading characterisation, particularly if historical institutionalism is linked to
critical realism, so I will not rehearse that argument here. Rather, my key point is that Hay
contends that the distinction between the material and the ideational is analytical, not ‘real’;
so the material has no independent causal powers. This is clear if we examine what Hay sees
as the core features of constructivist institutionalism (Hay, 2006a, 6-8):

‘actors are strategic, seeking to realise certain complex, contingent and constantly
changing goals’.

they act within contexts that favour some strategies over others.

ideas are ‘irredeemably ideational’.

interests are social constructs, they are not rooted in material differences

the functionality/dysfunctionality of institutions/structures is an open question both in
empirical and historical terms.

there is a focus on ideational, rather than institutional, path dependence.

the aim is to’ identify, detail and interrogate the extent to which – through processes
of normalisation and institutional-embedding – established ideas become codified,
serving as cognitive filters through which actors come to interpret environmental
signals’.
Hay (2006a) also contends that, for constructive institutionalism, change occurs:
in the context which is structured (not least by institutions and ideas about
institutions) in constantly changing ways which facilitate certain forms of
intervention whilst militating against others.
Moreover, access to strategic
resources, and indeed to knowledge of the institutional environment, is unevenly
distributed. This in turn affects the ability of actors to transform the contexts
3
In essence, they argue that historical institutionalism is structuralist, materialist, determinist and prioritises
stability. For an exposition of, an response to this argument see Marsh, 2008a.
8
(institutional and otherwise) in which they find themselves. Finally, it is important
to emphasise the crucial space granted to ideas within such a formulation.
In my view, these passages reveal clearly where Hay is positioned.
First, he emphasises the
role that ideas play in shaping the structural and discursive context within which agents act.
Secondly, he recognises that the context is strategically selective, that it favours some
strategies over others. I have no problems with either of these points. However, it seems to
me that his approach ends up privileging agency and ideas, because Hay rejects the view that
structure and the material are ontological separate from agents and ideas respectively.
In his
earlier work, Hay (2002) acknowledged that structures constrain, but don’t determine, the
actions of agents and that the material constrains, but doesn’t determine, the ideational, but
those positions are not sustainable unless we posit that structures and the material have
independent causal powers. Hay’s current position is clear in his work on globalization,
because, while he emphasizes that ideas about globalization have real effects, he doesn’t
consider that material and institutional structures may influence the effectiveness of those
ideas, let alone that material factors may have an effect which is not dependent on discourse.
To put it another way, if ideas have no resonance with the material realities that individuals’
or groups’ experience, then their effect will be limited in extent, both in terms of the degree to
which they are held and affect behavior and the time they remain hegemonic.
Overall, my contention is that the relationship between ideas, material relations, institutional
structures and policy outcomes are insufficiently unpacked in the existing literature on
globalisation. Hyperglobalists argue that globalisation leads to policy outcomes in a largely
unmediated way and that is clearly an indefensible position.
In contrast, sceptics,
transformationalists and new institutionalists argue that external economic processes are
mediated by institutional factors in a given country and that it is as mediated that they affect
policy outcomes (see the Held et al quote above).
However, in my view, the sceptics, transformationalists and new institutionalists pay
insufficient attention to the putative independent effect of the discourse(s) of globalisation. In
contrast, Hay sees the discursive construction of globalisation as the crucial explanatory
9
variable in explaining policy outcomes, but fails to sufficiently consider how those ideas
relate to the broader economic and political context within which they are constituted.
3) Economic Constraints and the Role of Discourse
a) Measuring the Extent of Globalisation
This issue has attracted a great deal of attention and I don’t want to dwell on it too much
here. In fact, there are two separate, if related, issues which need examining. The first
concerns whether there has been an increase in internationalisation of the economy and, if so,
whether that reflects greater globalisation or, rather, greater regionalisation. This question is
not so easy to answer as some have claimed. The second issue is whether there are particular
economic processes which have become internationalised, and which have an affect on
policy outcomes, even if it is misguided to talk of globalisation. Here, I take the Irish and
Danish economies as my examples.
Ireland and Denmark feature strongly in the Kearney Globalisation index. As Table 1 shows,
in 2007 Ireland placed 5th (down one since 2006), while Denmark was 6th (down one).4 This
Index ranks the globalisation of nations in four areas (Economic, Personal, Technological
and Personal). Focusing specifically on the economy, Ireland ranks 6th and Denmark 5th.
The economic dimension has two indicators: Trade, where Ireland ranks 8th and Denmark
26th; and Foreign Direct Investment (FDI)5, where Ireland ranks 6th and Denmark 4th.
However, if we go further and unpack these figures, then the pattern is more complex. The
majority of the trade of both Ireland and Denmark is with their neighbours. So, as far as
Ireland’s trade is concerned, Lane and Ruane’s (2006, 10 and 14) excellent study,6 although
now somewhat dated, shows (see Tables 2 and 3) that, between 2001 and 2003, 68% of
Ireland’s goods trade and 69% of its service trade exports, and 63% of its goods trade and
4
For a critique of the indicator, although a fairly narrow one, see Lockwood (2004). However, using any of
Lockwood’s alternative ways of calculating a globalisation index, Ireland remains in the top 10 and Denmark
remains highly placed, although it does drop in some of the rankings.
5
FDI refers to net inflows of investment which involve the acquisition of a continuing management interest (10
percent or more of voting stock) in a company operating in an overseas economy. It is calculated by adding together
equity capital, the reinvestment of earnings and other forms of both long-term capital and short-term capital as
shown in the country’s balance of payments.
6
For a justification that Lane and Ruane’s data is the most accurate see Lane and Ruane (2006, 5-6).
10
54% of its service trade imports, were to/from Europe. As regards Irish FDI, Table 4, also
sourced from Lane and Ruane’s study (2006, 19), indicates that the Euro Area is the single
most important FDI destination, but the US is the most important source of inward FDI. If we
turn to Denmark, 69% of exports and 74% of imports in 2007 were accounted for by the Euro
Area (The Economist, Country Briefing Factsheet, Denmark, p.2, accessed 13/08/2008). In
2003, 61% of Danish outward FDI and 62% of inward FDI was to/from the old EU zone (see
Table 5, adapted from Gjerdling, 2005). However, it is worth emphasising that Denmark, like
Ireland, if to a lesser degree, had substantial inward FDI from the US.
11
12
13
14
Table 5 Foreign Direct Investment Denmark, 2003
Danish Kroner
Outward Flow
Inward Flow
Total
374.2
355.8
Old EU Zone
61%
62%
New EU
7%
<1%
USA
6%
28%
Japan
<1%
<1%
(billions)
Countries
Source: Adapted from Gerdling, 2005, 4).
15
What do these figures tell us? In my view, they suggest that the sceptics and Hay are right;
so, neither the trade or the FDI of Ireland or Ireland is really global. However, it also seems
an oversimplification to say that FDI flows are regional, given the crucial role that the US
plays in Denmark, and especially Ireland, in terms of the inward flow of FDI.
The crucial point here, as Watson (2003), quoted above, emphasises, is that it is misleading
to talk of globalisation, not merely because much of the contemporary pattern of economic
internationalisation is regional rather than global, but also because the different economic
processes involved should not be subsumed under a single term. Crucially, different patterns
of internationalisation are apparent when we focus on the different economic processes. Lane
and Ruane (2006, 2) make the point well about Ireland:
The analysis shows that Ireland acts as a production and financial intermediary that
has enormous liabilities to foreign investors and imports large volumes of goods
and services but also holds very large foreign asset positions and has a spectacular
export record. An important feature is that the pattern of Ireland’s international
economic linkages is highly asymmetric – the United States is an important supplier
of capital and intellectual services, Asia is growing as a source of manufacturing
imports, while intra-European flows dominate in terms of trade in final products
and migration flows. In addition, we affirm the export-platform nature of direct
investment into Ireland, while highlighting the high degree of international
integration of Irish-owned firms. An additional dimension in recent years is the role
played by large-scale immigration in relieving labour shortages in the Irish
economy, in both the traded and non-traded sectors.
However, the point is perhaps best made by Smith, who argues (2004, 505):
it would be more useful to refer to these specific processes of change rather than
‘lump’ them under the category of globalisation. Thus, if terms such as EMU, trade
16
liberalization and financial liberalization better explain political outcomes than does
globalization, we should use those terms instead.
b) Beyond the Measurement Issue
It is clear then that there is considerable controversy about the extent, nature and impact of
globalisation, but, in my view, this debate often generates more heat than light. The sceptics
were rightly highly critical of the hyperglobalists and there is clear evidence that the world is
neither ‘globalised’ nor ‘borderless’. However, to me, we shouldn’t become obsessed with
arguments about measuring globalisation to the extent that we ignore other important issues.
Here, I emphasise three arguments: first, contra Hay, in my view economic processes affect
policy outcomes; second, the effect of these real processes is mediated by a series of noneconomic factors, both domestic and international; and, three, discourses about globalisation
do have an affect on policy outcomes, even if all cannot be reduced to discourse.
i) Economic Processes as a Constraint on Policy Outcomes
In my view, it is hard to argue at a time when the world economy is heading towards
recession, to suggest that there aren’t real economic processes, albeit not best understood as
globalisation, which affect policy outcomes. As Wade (2008, 26) emphasises the world
economy, led by the US, is in a perilous state7:
Not only were trends in US house prices equities and the external deficit worse in
the run-up to the crisis than in previous industrial economy banking crises, other
indicators were also flashing red. Average household debt relative to income was
at record levels, and over a quarter of households were in “net asset poverty” with
insufficient assets (including houses) to sustain current expenditure for more than
three months in the absence of employment.
The key point is that the world economy has transformed in the last twenty to thirty years; in
particular it has become ‘financialised’ (Wade, 2008, 33):
7
For an interesting attempt to compare the current crisis with previous ones see Reinhart and Rogoff (2008).
17
In 1982, financial corporations generated 8 percentage of total US corporate value
added and 5 percent of total corporate profits. By 2007, their share of corporate
value almost doubled to 16 percent, while their share of corporate profits went up
eight times to 41%. By 2006 the supercharged banking model was generating
profits per employee in banking a staggering twenty-six times higher than the
average of all other industries worldwide.
As Wade (2008, 27-30) again argues, such financialisation is the consequence of the changes
in the nature and size of capital markets. There has been a: ‘vast increase in the global credit
pool (…) and downward pressure on consumer price inflation’ (Wade, 2008, 29). At the
same time, there has been little, and largely ineffective, regulation. Overall, financial markets
have become increasingly internationalised and risky, although the financial institutions
attempt to disguise the risk. As such, banks now make their profits by creating financial
products which they sell to pension funds and local authorities etc. around the world. Often,
perhaps usually, risky loans are packaged with less risky ones and, as Wade (2008, 31)
argues, credit-rating agencies have tended to over-rate the credit-worthiness of such
packages.
It is hard reflecting on such developments not to acknowledge both the rapid
internationalisation of financial market and the way in which this has an influence on politics
in all countries. Just to take one example, cited by Wade, if a Norwegian local authority
invests in a financial product sold by a US, which turns out to be more risky than they
thought resulting in their investment becoming much devalued, then, inevitably, that
influences directly the lives of the citizens in that Norwegian municipality, because there is
less money available for investment in infrastructure etc.
The key point to emphasise is that, while to talk of economic globalisation as a constraint on,
or to some people a determinant of, public policy is misguided and what Smith (2004, 505)
calls a ‘default explanation’, that doesn’t mean that international economic processes don’t
constrain, or indeed facilitate, government policy. Smith’s discussion of ‘globalisation’ in
Ireland is also relevant here.
18
Smith argues that globalisation has been used as an umbrella term in Ireland, as elsewhere, to
refer such different, if related, processes as trade openness, FDI and European integration.
However, she asserts (2004, 509) that: ‘To claim that Ireland is not being globalised is not to
suggest that economic factors do not serve to shape policy change’ So, she emphasises the
effect of the exposure to international trade, the impact of FDI and EU membership on public
policy in the Republic, while stressing that the first of these has been an important factor in
Ireland since the 1930s.
ii)
Mediating the Effects of International Economic Processes
Of course, even to the extent that there has been a financialisation of the international
economy over the last few decades and that this has affected policy outcomes, the affect of
these changes on those outcomes is not automatic. In any given country the impact of
external economic pressures is shaped partly by the economic and political institutional
structures of that country and partly by policy makers’ perceptions of the extent of the
country’s exposure to international forces and the economic and political structural
constraints.
Smith, Holti and I (Marsh, Smith and Holti, 2006) have explored some of these issues at
more length elsewhere, utilising empirical material drawn from a number of countries to
examine the factors that Held et al identify as mediating between international economic
processes and state actions: the country’s domestic economic structure; the relationship
between capital and labour and, in particular, whether the country has corporatist structures;
the country’s prior economic policies; the country’s political structure; the national social and
political values and the changes in them; and the electoral constraints facing the government
at particular times. Here, I rehearse and update that argument briefly.
a) The Domestic Economic Structure/Situation
Held et al. emphasise that a county’s economic structure clearly affects its government’s
response to international economic pressures. Here, Hirst and Thompson (1999, pp. 167175).offer an interesting comparison between Sweden and Denmark. They argue that the
19
particular structure of the Swedish economy clearly affected the crisis of the Swedish welfare
state. Sweden’s economy is strongly export-orientated and it is dominated by a few very
large transnational companies.
In addition, Sweden has very high levels of public
employment. The consensus about corporatist bargaining and governance agreements within
Swedish society collapsed in the 1980s and in the early 1990s; in 1990 the Swedish
Employers Federation abandoned central wage bargaining, while in 1991 they withdrew from
the tripartite institutions of economic governance. As Hirst and Thompson (1999, 169)
conclude:
Sweden’s problems are clearly due to a mixture of economic structure, policy
errors and conjunctural factors, but the heavy dependence of the economy on
large multinational manufacturing exporters, on the one hand, and public
employment on the other, severely limited the options available.
In the same period, Denmark’s experience was very different, which itself suggests that any
relationship between internationalisation and reduced welfare provision is very problematic
at best. Economic concentration is much lower in Denmark than in Sweden, with numerous
small and medium size firms playing a crucial role in the Danish economy. There is no
highly centralised corporatist structure, but unemployment benefits are generous and the
benefit system is characterised by a high degree of universalism.
A combination of this
benefit system and an active labour market policy means that the unemployed are not
marginalised. In Hirst and Thompson’s (1999, 175) view:
Danish citizens and organised interests seem to have been willing to adapt to
crises, making sacrifices in periods of economic difficulty. Undoubtedly, equality
and inclusion help to promote such solidaristic and public-minded behaviour:
citizens and organised interests have a high degree of influence in the political
process and a reasonable expectation that of fairness in the behaviour of
governments and other political actors.
20
As such, Hirst and Thompson argue that the structure of the Danish economy, together with
the structure of the welfare state, the political context and the political culture, have shaped
Denmark’s response to international economic pressures.
In this comparison between Sweden and Denmark, Hirst and Thompson raise the issue of the
role of corporatist, politico-economic structures. They argue (1999, 177) briefly examining
the Dutch case, that the existence of such structures can clearly mediate the affect of
internationalisation on policy outcomes. The Dutch economy is one of the most highly
internationalised in the world. However, it has a network of dense corporatist institutions,
and, since 1982, a policy of wage moderation which was negotiated, and renegotiated in
1993, with the employers and the unions. Indeed, Hirst and Thompson emphasise that many
observers argue that institutionalized wage restraint was Holland’s most important weapon in
responding to international competition. In Hirst and Thompson’s view, these corporatist
negotiations, together with the consociational nature of the Dutch political structure, were
crucial in allowing Holland to cope with increased international pressure while retaining high
welfare expenditure. Similar conclusions have been drawn about Germany and Austria
(Vitols and Casper, 1997); Schmitter and Grote, 1997); Ebbinhaus and Hassel, 1999)
However, Hirst and Thompson (1999, 180) also point out that one of the responses to
international competitive pressures in Europe in the 1980s and 1990s was a move towards,
rather than away from, social pacts/corporatist structures. It is true that these developments
were mainly confined to smaller states, for example, Finland, Ireland, Portugal, Norway and
Spain, but the Italian case is particularly interesting. Here, reform was initiated from the top,
but involved cooperation with unions and employers on wage policy, industrial relations and
welfare state reform. Much of the pressure for reform was exogenous, coming particularly
from the conditions attached to ERM membership.
Nevertheless, the move towards
concertation was also affected by the state of domestic public finances, the structure of the
Italian pension system and the collapse of the old political system in 1992. The result was
(Hirst and Thompson, 1999, 180-185): the abolition of the scala mobile (which involved
100% indexation of wages to inflation) and the institution of a wage freeze in 1992; the
establishment of a new framework of incomes policy and collective bargaining in 1993; and
21
a new accord on pensions, approved by a referendum in 1995. The point again is that the
relationship between globalisation, corporatist structures and policy outcomes is not a simple
one.
There are three separate, but related, points here; the first concerns the existence, or
otherwise, of corporatist structures; the second concerns their role; and the third concerns
their effect. Increased international competition may lead to the creation of, or continued
reliance on, corporatist structures as in the cases briefly examined above. On the other hand,
a government may respond to such pressures by withdrawing from involvement in
discussions over prices and incomes, as was the case in the UK after 1979. Which strategy a
particular government pursues is likely to be affected by the domestic economic and political
context.
Of course, even when a government has created, or continued to use existing, corporatist
structures, this does not mean that those structures performed the same function in the 1980s
and 1990s as they had in the 1960s and 1970s. So, Martin Rhodes (1997) argues that the
competitive corporatism of the 1980s and 1990s was designed to enhance international
competitiveness, rather than sharing the egalitarian and redistributive goals of old
corporatism.1 In his view, the exchange relationship involve in contemporary corporatism is
crucially different because what unions get is not rights and entitlements, but voice and the
chance to influence labour market and welfare policy.
In a sense, the crucial question is whether the existence of such corporatist structures affect
what governments do. Hirst and Thompson certainly suggest they do and, in particular, that
they help ensure continued higher welfare provision. In a similar vein, in the case of
Australia, some observers have argued (see especially, Goldfinch, 2000, Table 7.1, 152) that
the corporatism, associated with the eight Accords agreed between the Australian Council of
Trade Unions (ACTU) during its time in office between 1983 and 1996 had an important
influence on labour market and industrial policy during that period. Indeed, Capling and
Galligan (1992) contend that Australia liberalised its trade regime only after establishing a
number of corporatist-style industry plans that were designed to allow the industry to respond
22
more effectively to international competition.
The point is that the existence of these
Accords, particular in the 1980s, taken together with political/electoral considerations which
we discuss below, was an important factor in influencing the way in which pressures of
international competitiveness affected policy outcomes.
b) Political Structures
Political structures can clearly act as a constraint on radical change, and so mediate the effect
of global economic pressures. It is certainly easier to change policy direction in systems
characterised by strong executive government. So, Hirst and Thompson (1999, 174) argue:
Denmark … does not lack the elite voices that have been so successful in transforming
countries like the UK and then New Zealand in an anti-welfare direction. What has
been missing is political capacity. Most Danish governments have been coalitions
without large majorities. Confronted with strong public support for welfare, political
parties have hesitated to follow arguments for radical reform.
Of course, the New Zealand case is particularly interesting here. The Labour Government
elected in 1984 embarked on a far-reaching programme of economic liberalism. With a
secure parliamentary majority, the Government was able to push through these changes,
despite the fact that it had not campaigned on a programme of economic reform (see
Goldfinch, 2000). However, in 1996 New Zealand introduced a mixed member proportional
system (MMP), after 150 years of majoritarian electoral rules, in large part in order to
prevent any future government embarking on such radical new directions without a real
mandate or consultation with social interests. It is hard to think that there could be better
evidence of the role that political structures can play.
Federal structures can also affect a government’s capacity to respond to increased global
competition. In federal structures, particularly ones like Australia where strong second
chambers represent state interests, central government has to take account of those interests.
Indeed, Goldfinch (2000) suggests that Australia’s federal structure was an important factor
23
that helps explain the different development, and success, of economic rationalist policies in
Australia as compared to New Zealand.
c) Changes in Social and Political Values
The 1980s and 1990s may have been marked by an increased internationalisation of
economic competition. However, there was also a growth in the importance of environmental
and gender issues in political terms and of social movements that campaigned on these issues
both nationally and internationally. In addition, in countries like Australia, New Zealand and
Canada, there has been a rise in the importance of issues surrounding the treatment of
indigenous people. Two points are important here. First, these issues affected voters’ and
governments’ behaviour (on their influence in Australia and New Zealand see Goldfinch,
2000).
Second, the relationship between such issues and increased economic
competitiveness is a complicated, and often antagonistic, one.
In particular,
environmentalists and campaigners for indigenous rights often see TNCs as an important part
of the problem. As such, in responding to such issues, for ideological or electoral reasons,
governments may be going against the interest of TNCs of international financial markets.
In contrast, Keating (2000) presents a different picture of changing social and political values
in Australia in this period. He suggests that increased education and a more open society led
to increased prosperity for most. At same time, economic changes resulted in less security, a
greater scepticism about authority, political disaffection and, perhaps particularly, greater
individualism and less willingness to support higher taxes. He argues that Government policy
was affected by these changes and Australian Governments tried to respond by targeting
services, creating more efficient and effective delivery, but not by challenging the electorate
on taxes.8
Keating’s (2000) argument is that economic liberalism may have led to increased individualism among population
and to the view that we need less government and lower taxes, but it has also led to greater inequality and poverty
and the creation of an underclass, which isn’t popular. However, Governments can’t increase expenditure without
putting up taxes, which they regarded as an electoral no-go area. As such, governments try to finesse this tension
and square a circle. Such a strategy is difficult, if not impossible, and it leads to increased disillusionment with
politicians.
8
24
It is not my concern here to adjudicate on this debate or to claim Australia as a typical case.
Rather, I want to emphasise three points. First, it is crucial to put the economic changes in
the context of other social changes and not, by definition, to privilege them. Second, and this
follows, it is also important to examine how economic change, economic values, social
change and social and political values relate. Third, and this returns us to the main theme of
this piece, one certainly can’t read off policy consequences, or present and future policy
trajectories merely from a knowledge of increasing international competition.9
d)
Electoral Constraints
Political parties exist, in large part, to try to win power.
As such, the behaviour of
governments is invariably influenced by their desire to be re-elected.
Obviously, the
economic performance of government has a crucial effect on their re-election chances;
although, as I argue below, the discursive construction of that economic performance, and
how it is perceived by the electorate, may also be particularly important. However, other
factors, like those discussed in the last section also affect voting behaviour and government’s
judgements of which policies will win or lose votes. In addition, governments may have
particular links, structural, historical or ideological, with particular interests that affect their
policy decisions. In this vein, the Australian example is again revealing. While the Hawke
and Keating Government’s pursued economic rationalist policies (Goldfinch, 2000), driven
in large part by international economic competitiveness pressures, they were also faced with
other social developments that had electoral resonance and operated in a political context in
which their historic links with the trade union movement were important.
iii) The Role of Ideas
I have no problem with Hay’s argument that discourses about ‘globalisation’ affect policy
outcomes. Hay’s work with various collaborators cited above certainly goes some way to
9
For example, Kelly (2000, pp. viii, ix) argues that in Australia the 1980s and 1990s saw the end of certainty resulting from:
‘the sheer pace of change in people’s lives – related to job security, income maintenance, the upheaval in the family, changing
moral values and sex roles, concern over ethnicity and apprehension about rising violence’. In his view, this means that: ‘The
message is that Australia’s direction in the 1990s will be shaped by the battle between two great forces; on the one hand the,
the ongoing and irresistible globalisation of the markets, and, on the other, a cry from the people to reduce, even to halt, the
pace of change and to regain control over their lives’.
25
supporting that conclusion. Here, his work with Smith (Hay and Smith, 2005) comparing the
role of discourse about ‘globalisation’ in Ireland and the UK is illustrative.
They argue:
Though similar to the UK case in terms of its dual commitment to economic
competitiveness and social justice, and its contextualisation of such perceived
imperatives in terms of ‘globalisation’, there are marked differences in the Irish
government’s appeal to globalisation.
As such, in Ireland, like the UK, globalisation is presented by the Government as positive,
but the emphasis is not on globalisation simply as a non-negotiable constraint, but rather as a
process which has already helped transform Ireland into the ‘Celtic tiger’.
Nevertheless, Hay and Smith argue (2005. 137) that, in both countries: ‘the concept of
globalisation has (…) come to play a central role in shaping the dominant policy paradigm.’
In Hay and Smith’s view, this broad policy consensus subordinates ‘considerations of social
justice to those of economic performance and efficiency’; with economic performance and
efficiency understood ‘largely in terms of competitiveness in economic markets’.
Unfortunately, Hay and Smith don’t trace how that paradigm has shaped particular policies,
but the move towards active labour market policies in both countries was clearly justified in
those terms.
My argument with Hay then is not that discourse don’t affect outcomes, but rather that such
discourses are, in turn, shaped by the context in which they are constituted. As such, I agree
with Heffernan’s (2002) assertion that ideas: ‘have to work with, rather than against, the
grain of social, political and economic interests, within and without the state, and in line with
the demands of the economy’. This means exploring not only the dominant discourses used
by political elites, but also the wider context in which these discourses are situated. As Blyth
(1997, p. 238) notes, in one of his less constructivist moments: ‘The elite game may tell us
how the ideas get from the blackboard to the party, but not how or why certain ideas come to
be accepted over others.’ So, if ideas are to be treated seriously, then we also need to
26
consider the reasons why particular discourses (in this case, of globalisation) have come to
dominate.
The current ‘recession’ offers a revealing case of how discourse are interact with real
economic processes. As Wade (2008) emphasises, many of the current problems result from
ineffective regulation, which, in large part, reflects the dominance of the neo-liberal
discourse over the past three decades; a discourse which suggests that market are self
regulating and regulation introduces inefficiencies into the operation of those markets. The
point here is that, more recently, economic realities have kicked in, which have led to
increased questioning of this discourse and, in Wade’s view, the need for, and the inevitable
introduction of, increased regulation.
The point that the relationship between the economic ‘reality’ and the discursive construction
of it is not uni-dimensional, but rather complex, is easily made with a more extended
consideration of the UK case. The New Labour Government elected in 1997 argued very
strongly that globalisation meant that there was no alternative, but to pursue neo-liberal
policies (Hay and Rosamond 2002; Watson and Hay 2003). So, as Hay suggests, it could be
argued that the government is constrained not by the ‘reality’ of globalisation, but by the
dominant discourse of/about globalisation.
However, this raises a rather obvious question: why does the Labour Government pursue
neo-liberal policies if the economic pressures to do so are much less pressing than some
argue? If we work the various implications of this question through, then we see that the
relationship(s) between realit(ies) and discourse(s) is very complex and, as such, I would
argue that an explanation that prioritises discourse is likely to be partial at best.
Of course, one might argue that New Labour simply do not know the truth, but rather thought
that economic relations were globalised. There may be some validity to this argument. As
Hay (2002) notes, actors do not possess perfect information about the context in which they
find themselves but instead have to interpret that context – and their interpretations may be
wrong. Yet, I would strongly argue that ideas must have some resonance with people’s
27
experiences if they are to be adopted (Marsh, 2008b). The key point here is that New
Labour’s discourse of globalisation has not simply emerged from thin air, but instead relates,
at least in part, to ‘real’ economic processes.
One might also posit that New Labour has pursued neo-liberal policies because they think
that they are the best, using the globalisation argument as a useful one to buttress their view.
Here, of course, globalisation becomes an opportunity, rather than a constraint. In particular,
it could be argued that New Labour used the globalisation argument to suggest they have no
alternative but to pursue neo-liberal economic policies and, as such, are not to blame for any
cuts in welfare or increases in inequality. This was certainly a useful tool for New Labour in
reducing the extent and effectiveness of ‘Old Labour’ attacks on economic policy in their
first years in office.
But, even if we take this line, it leads immediately to another question: why might New
Labour think neo-liberal policies were the best? Here, we could refocus on the role of the
international economic context. In contrast, one might suggest that New Labour’s policy
preferences are driven by political, especially electoral, considerations. So, they may pursue
these policies to create an image of governing economic competence within an electoral and
party institutional setting. That argument opens up other interesting lines: if governments are
largely driven by winning elections, and if elections are decided around the issue of
governing economic competence, then the crucial concern is what shapes images of
governing economic competence? This takes us back to ‘real’ economic performance and
how that is, in turn, discursively constructed.
This relates to a further point, for discourses are not just mediated by material factors, but
also by existing discourses. Ideas about globalisation may appeal, in part, because they are a
means to re-articulate existing discourses, and particularly that of neo-liberalism. As Hirst
and Thompson argue (1999, p. 262), the rhetoric of globalisation was a godsend for the
Right, providing a new argument in favour of de-regulation, free trade and public sector
cutbacks ‘after the disastrous failure of the monetarist and individualist policy experiments of
the 1980s’.
28
In turn, ideas must also resonate with broader social and cultural discourses if they are to be
successful. In Ireland, for example, as Smith (2003) shows, ideas about globalisation have
fed into existing discourses of national identity. Since the 1960s, Irish nationalism has:
‘proceeded from an assumption that the primary objective was to reap the benefits from full
economic participation in the world economy’ (Breen et.al, 1990, p.38). Globalisation has
been presented as a means through which Ireland could become an equal on the international
stage, both economically and politically. As the then Irish Minister for Foreign Affairs
argued in 1997, globalisation means: ‘we are all great powers now’ (O’Donnell, 1997).
By this token, however, existing discourses do not necessarily facilitate particular ideas, but
can also constrain them. In Australia, for example, the dominant discourse of globalisation
was challenged by appeals to existing anti-immigration sentiment, articulated in terms of ‘One
Nation’. This discursive struggle occurred within the context of broader social and political
changes, such as the challenging of white settler culture and the championing of aboriginal
rights. As Johnson (2000, p. 146) writes: ‘Issues of gender, sexuality, race and ethnicity are
challenging older power relations and conceptions of liberal citizenship … Key economic
issues include the changing relationships between state and economy in Australian discourse
associated with the development of neo-liberal ideology’.
This contestation may be a
worldwide phenomenon – highlighted by the truly international nature of the antiglobalisation movement. Indeed, even in countries where globalisation discourse has come to
dominate it is contested. In Ireland, for example, the electorate’s rejection of the Nice Treaty
on EU enlargement was seen, in part, to reflect anti-globalisation sentiment and a growing
sense of discontent with the dominant policy paradigm (Irish Times, 9 June, 2001).
Once again, this highlights the highly complex and contingent way in which globalisation
discourses are used. In essence however, Hay’s view is that the ‘external economic processes
involved in globalisation/regionalisation have no independent causal power, but, in my view, ,
while discourses have ‘real’ effects, structural/material factors constrain the resonance of
discourses. So, the relationship between the material and the ideational is best viewed as
dialectical, that is interactive and iterative.
29
In Conclusion
My argument is easily summarised:

The term globalisation is overused. In the economic sphere, we need to concentrate on
particular economic processes, rather than subsume them under the term globalisation.
In fact, it is better to refer regionalisation when considering trade and
internationalisation when focussing on FDI.

Any notion that globalisation leads to political outcomes in an unmediated way is
untenable. As Held et al (1999) argue these economic processes are mediated by a:
‘state’s position in global political, military and economic hierarchies; its domestic
economic and political structures; the institutional pattern of domestic politics; and
specific government as well as societal strategies for contesting, managing or
ameliorating globalising imperatives’.

However, we also need to recognise the independent role of discourses about
globalisation in affecting outcomes.

Unfortunately, Hay who, rightly, emphasises the importance of discourses of
globalisation, rejects the idea that the material ‘realities’ of globalisation have any
independent causal powers. In my view, that is a mistake, as the material world affects
the resonance of discourses.

So, while we need to reject the economism particularly inherent in much of the early
literature on globalisation, we should not throw the baby out with the bathwater; we
need to acknowledge that there are ‘real’ economic processes that need to be given an
important role in any explanation of outcomes.
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