Economic Globalization and its link to the. BSc. International Business and Politics

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1 Economic Globalization and its link to the EU integration process Political Science BSc. International Business and Politics Final Exam STU counts: 14032

2 1.1 Introduction After suffering two ruinous wars, six European states decided to enter into a common supra-national control for their coal and steel industries. This coalition would later emerge into a new political system, known as European Union (EU). This assignment will revolve around the idea of how the economic globalization affects the EU integration process but the opposite, how the EU process affects the economic globalization. Firstly, it will define four main concepts; economic globalization, EU as a political system, how it emerged and how it operates today, the welfare state and its benefits, the modern state and its national economy. Secondly, this paper will discuss and compare how the economic globalization affects the welfare state and comparing it to the EU, being defined as a regulatory state. At last, it will evolve around how the transformation from a modern state to a post- modern state occurred due to economic globalization, and examine how the strong national economy emerged into a single market economy. 2. Definitions 2.1 Economic Globalization In order to understand the term economic globalization it is important to define the term globalization. There are many different meanings to the word globalization, and its definition is complex and broad. In this assignment I have chosen to interpret the word globalization by using Albrow s definition all processes by which the people in the world are incorporated into a single world society, global society (as cited in Sörensen: 2011), and Holm and Sörensens definition the expansion and intensification of all kinds of social relations across borders: economic, political, cultural, and so on (as stated in Sörensen: 2011). 2

3 2.2 EU as a political system In half a century EU has evolved from being an organization governing coal and steel production into a continental political system, with extensive executive, legislative, and judicial powers. The EU is a unique case in how it has made sovereign nation-states integrate both politically and economical. The largest transformation in the world was the adoption of the single market, which was created in the 1990s by removing internal barriers to the cross-border flow of goods, services and labour, and a single European competition policy. The single market guarantees the economic prosperity of almost a half a billion people and most citizens take for granted the investment, consumption, educational and lifestyle opportunities that exist because of the EU. Furthermore it evolved in having common social and environmental policies, policies on moving people over borders, also beginning to coordinate national macroeconomies, foreign and security policies, and a single currency (Euro) (Hix, 2011). Today there are 20 member states, though not all of the states share the common currency. In order to explain what European integration is, there are two approaches 1) inter-governmental, where the main actors in the EU are the governments in the member states, and each government will bargain hard and only agree on outcomes that will benefit their preferences. 2) Supra-national approaches, whereas European integration described as a deterministic process driven by underlying political, economic, and social forces. 2.1 Welfare State The emergence of Welfare states that occurred after the Second World War, proved the fact that capitalism and democracy can be compatible, and even benefit each other. Sweden is one country demonstrating how a high social spending does not have to have negative effects on economic competitiveness, rather that the combination of welfare state and a competitive market economy. A broad definition of the welfare state, is that provides citizens with free education and protecting against extreme poverty in a broad (Kersbergen and Manow: 2011) Harald L. Wilensky described the welfare state as a government protected minimum standards of income, nutrition, health, housing and education, assured to every citizen as a political right, not charity (as stated by Kersbergen and Manow: 2011). 3

4 2.2 Modern state In order to be able to link the transformation of the modern state to economic globalization it is legit to know how the state looked in the past. The modern state emerged in the end of the Peace of Westphalia in The sovereign nation state is an entity within territorial borders that has it own national polity, national economy and a national community of citizens (Sörensen: 2011). A modern state is partial a nation state but is more based on the national economy. The state rulers helped created a national space for economic development by removing local barriers to exchange and support industry and infrastructure. Modern national economy is the combined presence within its territory of the major economic sectors, means of production and distribution and means of consumption (Sörensen: 2011). 3. Theoretical Analysis 3.1 Regulatory State versus Welfare State EUs policy goals are the creation and regulation of the single market. The environmental and social policies, single currency, budgetary policies of the EU are all subject to a more efficient continental-scale market. By this means, given the primacy of the single market and centrality of EU market regulations the EU is often described as a regulatory state. There are distinguished differences between a regulatory state and a welfare state. In a welfare state the main policies instrument of government is taxation and public spending rather than market regulation as it is in the regulatory state. The welfare state deliberately aims to redistribute resources from one group of citizens to another group, whereas regulatory state is to benefit all citizens more or less equally (Hix: 2011). When the single market was created it had both deregulatory and re-regulatory elements. Deregulatory elements refer to the removal of barriers to free movement between EU member states. The barrier removed includes fiscal barriers (value added tax and excise duties), physical barriers (movement on goods and people), and technical barriers (common standards on products, controls on free flow of capital). On the re-regulatory side, national regulations was replaced by European-wide regulations such as competition policies, environmental policies and social policies. The deregulatory side would enable the economy to function more efficiently, and the 4

5 re-regulatory side would bring equality because it would benefit all EU citizens rather than a particular group (Hix: 2011, 438). Before the single market and the reregulatory side, states had different policies on working conditions, health care, equality and would in the put downwards pressure on states with high labour market standards, and upwards pressure on those countries who had lower standards. When the regulations made to create the single market, which opened the economy market for member-states to more freely and easily trade, move and exchange, it significantly pushed the economic globalization. While the regulatory state s main focus is on market regulation rather than taxation and public spending as of the welfare state. The welfare state s focus on taxation and public spending refers to the demand of the people and the role of social protection. There are many types of welfare states, depending on the combination of regulations and institutions. Is the state tax financed or contribution financed? Who is protected? Esping-Andersen (1990) defined three different welfare states. One of them is the Scandinavian social democratic regime. This model is tax-financed and sees social protection as a citizen s right. It also provide welfare services in healthcare and education, and is has a high equality rate (Kersbergen and Manow: 2011). The regulatory state has its main focus on market regulation and for the citizens to be benefit from it equally. The social democratic approach has its focus on taxation and public spending, while still benefiting citizens equally buy having welfare services in education and healthcare that benefits all (Kersbergen and Manow: 2011). A model like this with high social securities will not be as affected by the EU re-regulations as a state with lower standards on welfare. Emerging from the regulations made by the EU, as the re-regulations, increased the globalization in Europe due to interpreting a few common policies. As said, it would affect states differently depending on their starting point. The EU integration process with its regulations in order to create a single market, contributed to the increase of economic globalization, to remove barriers and implementing common policies. 5

6 3.2 The Modern State and its National Economy The modern national economy is characterized by the combined presence within its territory of the major economic sectors, that in the means of production, distribution and consumption. Due to new technology and a more liberalized economy, the economical globalization accelerated and transformed the modern state into post modern state, where national economies were less self-sustained and brought more economic activity in cross-border networks. Globalization transformed the strong national economy of the modern states into a more globally, cross-border economy. Economic globalization tends to increase the demand for political cooperation across borders because states are increasingly dependent on activities outside their territory (Sörensen: 2011). When the European Union emerged, it created the so far only continental-scale single market. The single market removed the internal barriers for cross-border trading of goods, capital and labour, a common competition policy, and a single European currency (Hix: 2011). As defined earlier, there is a supra-national approach to the European integration, explained as a deterministic process driven by underlying political, economic, and social forces. Bela Belassa (1961) argued in his theory of economic integration, that with establishing a customs union it will turn into a single market by removing all barriers for trade, and later on lead into establishing a common currency, and fiscal transfers because of the economic shocks, which is to lead money from high growth regions to low growth ones. By this meaning Belassa argued for a development from customs union to a political union (as stated in Hix: 2011) such as the development of the EU. Belassa s theory implies that not only can the European integration process have an impact on the economic globalization but also the opposite. The effect of opening up barriers for an international trade, leads to a genuine political union. According to political incentives, like the upbringing of the single market, also works the other way around by significantly push the economic globalization. The most reaching form of cooperation across borders is supra-national governance, which refers, as told earlier, to the local, national, regional and global activities involving regulation and control. The EU, which can be defined with a supra-national approach, has the power to write rules for member-states in some areas are an example of supra-national governance (Sörensen: 2011). To sum up, the modern state s strong national economy transformed into a post-modern state with a more 6

7 open and global economy such as the single market that was created by EU, due to economic globalization. In its turn, the upcoming of the single market pushed the economic globalization even further. Globalization happens and shapes inter-state relations and everyday life, but no single entity has taken control over people and states (Sörensen: 2011). 4. Conclusion This assignment has firstly described the term economic globalization, by using Albrow s definition that all processes by which the people in the world are incorporated into a single world society, global society. Defining the concept of EU as a political system, and how it adopted the unique single market. It has also defined what a welfare state is and how it benefits its citizens. Furthermore it has defined what a modern nation state and its strong national economy. Secondly, it has compared the EU seen as a regulatory state to the welfare state. The regulatory state focusing on market regulation in contrary to the welfare state whose main focus is on taxation and public spending. The creation of the single market has both deregulatory and re-regulatory elements, which refers to abolishing barriers for trade and movement cross-border, also to replace national regulations with European- wide regulations. These elements, making it easier for international trading pushed economic globalization. By using Esping-Andersens definition of a Scandinavian social democratic regime to relate the impact on the welfare state and its public spending, which does not get affected by the regulations from the single market and the economic globalisation. Last but not least, it has discussed and revolved on how the economic globalization transformed modern states into post-modern states, and by that weakening the modern states national economy and making it more into a global, cross-border economy. Furthermore, the emergence of EU with removing barriers for the single market also opened for the economic globalization. On the contrary, Belassa s theory about custom union evolves in a political union emphasise that economic globalization can be a driver for political cooperation, as the EU evolved from. The sovereign modern state is still alive, but has been affected by the economic globalization, due to the fact that domestic and international has become more closely linked. To sum up, the EU integration process by opening up barriers and abolishing national policies has pushed the economic globalization to its extent and opened up for a global environment in Europe, as has the economic globalization 7

8 been a driving force behind the political and economical union of sovereign states of the EU. 8

9 5.Bibliography Van Kersberger, Kees and Manow Philip (2011): The Welfare State, in the book Comparative Politics, Oxford University Press (2 nd ed.), edited by Daniele Caramani: Sörensen, Georg (2011): Globalization and the Nation State, in the book Comparative Politics, Oxford University Press (2 nd ed.), edited by Daniele Caramani: Hix, Simon (2011): The EU as a New Political System, in the book Comparative Politics, Oxford University Press (2 nd ed.), edited by Daniele Caramani: