Unformatted text preview: Professor Kelemen
Lessons from Europe
Globalization and the European Model Part VI: Challenges to the European Part VI: Challenges to the European Model Now that I’ve shown you many strengths of the European model…
We’ll look at the challenges to it and its flaws.
Many EU countries have built up impressive public services, social protections etc…
But can all this last? To the finish line….
To the finish line…. Today – Globalization
Wednesday April 20 – Immigration, multiculturalism and the integration of immigrants
Monday April 25 – Pensions – Orenstein
Wednesday April 27 – Immigration –Schain
Monday May 2 – Conclusions (Kelemen and Parsons) NYT Video on antiglobalization protests:
http://video.nytimes.com/video/2009/02/04/business/ Displaced Finnish Workers: http://www.youtube.com/user/eutube#p/search/0/N Lecture Outline
Lecture Outline What is globalization?
Is Globalization new?
How can it be measured?
What impact is it having on European Welfare States?
If globalization isn’t a threat, what is? What is Globalization? What is Globalization? Increase in rates of exchange (of goods, services, money, people) between countries
Buzzword for increasing integration of world economy Two tales of globalization: Is it good or bad? The critique of globalization
The critique of globalization Off shoring of jobs –> unemployment
Declining wages for workers in rich countries / Unfair competition
Gives too much power to mobile capital
Exploitive of workers in developing world
Banks and big corporations are real winners
Lowest common denominator The Defense of globalization
The Defense of globalization Comparative Advantage: Trade enhances efficiency and overall prosperity – it is winwin
Global trade creates econ opportunity for poor around the world More on the economic arguments for More on the economic arguments for globalization Comparative Advantage: Countries should specialize in areas where they have ‘comparative’ advantage, and then engage in trade. This makes both sides better off
“the Washington consensus”: Economic Liberalization leads to growth. So, policy advice is: deregulate financial markets, eliminate tariffs and other trade restrictions, allow in investment… and you will grow. Who is right?
Who is right? Vs. Do Europeans favor globalization? Is Globalization new?
Is Globalization new? Globalization preWWI
Investment in colonies Labor movements Gold Standard Bretton Woods and its collapse Bretton Woods and its collapse The Great Depression SmootHawley Tariff, Capital Controls
PostWWII Bretton Woods system (1944)
Collapse of Bretton Woods (1971)
Free movement of capital. Floating exchange rates Pegged exchange rates Devaluation v. revaluation. Measures of Globalization
Measures of Globalization Geoffrey Garrett, The Causes of Globalization Currency Markets
Global foreign exchange transactions increased 50 times between 19801998 to reach 2 trillion dollars per day. This exceeds the foreign exchange reserves of all OECD countries combined. Foreign Direct Investment
Foreign Direct Investment FDI flows from $45 billion in 1980s to $1.5 trillion in 2010
40 fold increase in 40 years.
Global total inward FDI stock: $19 trillion
80,000 Multinationals with 800,000 foreign affiliates world wide Globalization is intensifying
Globalization is intensifying Increasing trade and investment flows and rise of new economic powers create new challenges
But are they threat to European Social Model?
Critics say: look at debt crisis in Europe! European countries can’t compete. Run up big debts.
But look closer: Germany, Denmark Sweden and others with biggest welfare states are doing well.
Ireland had American style welfare state and low debt.
Only Greece and to a degree Portugal fit the story Countries that trade more have bigger public sector:
Countries that trade more have bigger public sector: Outlays and Trade for 20 OECD Countries
outav tradeoav2 80 60 40 20
1960 1970 1980
counter 1990 2000 Scruggs, Lyle. 2004. Research on Globalization and the Welfare State: Do We Know What We Think We Know?, MS, University of Connecticut Trade Openness and Government Trade Openness and Government Spending, 1970s
totout802 Fitted values
Sweden 62.161 Netherla
United K Norway Italy
Portugal United S Spain Greece
.151197 tradeopwt709 1.07643 Trade Openness and Government Trade Openness and Government Spending, 1980s
totout902 Fitted values
Sweden 62.2787 Netherla
New Zeal Norway
United K Portugal
Ireland United S
Switzerl 30.6014 Japan .187658 tradeopwt809 1.33151 Trade Openness and Government Trade Openness and Government Spending, 1990s
totout002 Fitted values Greece 53.0371 Sweden Denmark
Italy Germany Finland
Norway Netherla Portugal
Japan Australi Switzerl United S Ireland 30.5782
.181514 tradeopwt909 1.36611 Countries trim welfare state, but don’t dismantle it:
Countries trim welfare state, but don’t dismantle it: Average Net Unemployment Replacement Rates for OECD
Avg. Single UE Replacement Rate Avg. Family UE Replacement Rate .710371 .521673
1971 year 2002 No correlation between social No correlation between social spending and growth in OECD WEF
competitiveness rankings back in 2005
(top 25) So why are countries like Greece and So why are countries like Greece and Portugal having problems? So why are countries like Greece and So why are countries like Greece and Portugal having problems? Too many low skilled workers.
Globalization kills low skilled jobs in exposed sectors
Labor market inflexibility stifles low skilled jobs in sheltered sectors If globalization isn’t a huge crisis, is If globalization isn’t a huge crisis, is something else? Europe’s Demographic Crisis
Europe’s Demographic Crisis Too many of these… •Aging baby boomers
•Life expectancy has increased dramatically And not enough of these…
•Fertility rates have declined …or not enough immigrants Europe’s Demographic Crisis
Europe’s Demographic Crisis Low fertility rate (1.5 children per woman on average. 1.3 in Southern and Eastern Europe)
Ageing of baby boom (4565) generation
Increasing life expectancy (up 8 years since 1960 and could gain 5 more years by 2050)
Median age of Greeks, Italians and Spaniards: 50 by 2050.
Increasing immigration (but not enough to make up losses) Result: Ageing population Europe’s Demographic Crisis
Europe’s Demographic Crisis Fertility rate of 2.1 = Replacement rate
Fertility rate of 1.3 = “lowestlow fertility”(H.P. Kohler) – Population will drop by 50% in 45 years.
Current population nearly 460 million
Projected to decline slightly by 2050 (by 7 to 8
In 1960s, Europe represented 12.5 percent of the world’s population. Today it is 7.2 percent, and if current trends continue, by 2050 it will be only 5 percent. Comparing Birthrates across Comparing Birthrates across countries Low fertility Southern Europe – Italy, Spain, Greece (all around 1.3) (in cities such as Milan & Bologna rate = 1)
Former Communist Eastern Europe. Populations of Russia, Bulgaria and Romania will fall by 50% in coming decades)
Germany and Austria – in addition to factors found in other countries, much higher percentage of women prefer to have no children. (Germany loses 100,000 /year) Higher fertility Northern countries: France, UK, Netherlands, Scandinavia (and rates have been increasing) Why is this happening?
Why is this happening? People wait longer to start (Italy is #2 in the world in % of children born to parents after 40)
Economic difficulties for young people – low starting wages / high housing prices
Shifting gender roles & ‘lag’ in family policies and attitudes
Women are highly educated, encouraged to pursue careers But social traditional social attitudes and social policies make it hard to combine career and motherhood Puzzle: Why do Catholic southern European countries like Puzzle: Why do Catholic southern European countries like Italy and Spain have such low fertility rates? Given Church’s opposition to birth control & traditional images of big families, you might expect high fertility rates.
People don’t follow Church rules re: birth control
Women are well educated and enter work force
Welfare state oriented around traditional male bread
winner family model + male attitudes make it hard for women to balance children and work (Little state support for child care, maternity policies. Women do most house work.)
Housing very expensive relative to wages, many people live at home into 30s – not conducive to procreation.
Irony: Policies designed to preserve traditional family have helped to undermine it. Why is this a problem?
Why is this a problem?
Consequences of Demographic Crisis Working age population may decline by 48 million by 2050
Dependency Ratio: Today four working age people per retiree. By 2050, ratio will be 2 to 1.
Financing pensions, health, services will require 10% increase in public spending (increase of 2 to 3% of GDP)
Programs could become unsustainable without major reform
Lower growth rates (cut in half?) End of Europe?
End of Europe?
“Will Europe as we know it just peter out? Will ethnic Greeks and Spaniards become extinct, taking their baklava and paella to the grave with them, to be replaced by waves of Muslim immigrants who couldn’t care less about the Acropolis as a majestic representation of Western culture? Venice has lost more than half its population since 1950; its residents believe their city is destined to become a Venicethemed attraction. Is the same going to happen to Europe as a whole? Might the United States see its closest ally decay into a reallife Euro Disney?” Shorto – No Babies? New York Times article Potential Solutions
Potential Solutions Promote fertility in Europe Childcare subsidies. Family stipends. Flexitime Requires reorientation of welfare state Requires flexibility from employers But ultimately, this is easiest solution and much is happening in this direction
Examples: Italy, Belgium, France, Netherlands, Germany Potential solutions
Potential solutions Increase employment Greater female labour force participation Longer working lives (over 55s) Flexible working time Requires concessions from labour Social adjustments: increased female labor force participation, linked to changing social structures, greater gender equality (but this may reduce birthrate unless family policies are adjusted) Economic crisis is a blessing in disguise: Economic crisis has made change easier! Potential solutions
Potential solutions Immigration If you can’t/won’t make babies, bring in people Leads to social tensions in countries unaccustomed to immigration Strong political opposition to increasing immigration: rise of far right parties ...
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- Spring '11