Hostname: page-component-669899f699-tzmfd Total loading time: 0 Render date: 2025-04-26T00:10:16.228Z Has data issue: false hasContentIssue false
  • English
  • Français

Economic growth, welfare models and inequality in the context of globalisation

Published online by Cambridge University Press:  01 January 2023

Pasquale Tridico  and
Walter Paternesi Meloni
Pasquale Tridico*
Affiliation:
Roma Tre University, Italy
Walter Paternesi Meloni
Affiliation:
Roma Tre University, Italy
*
Pasquale Tridico, Department of Economics, Roma Tre University, Via Ostiense, 159, 00154 Rome, Italy. Email: pasquale.tridico@uniroma3.it
Get access Rights & Permissions [Opens in a new window]

Abstract

The recent economic crisis was a test case for many advanced countries to determine the capacity of their socio-economic model to cope with the challenges of globalisation and financial crash. From this perspective, the aim of this article is to explore whether the expansion of the welfare state should be seen as a barrier to economic growth and competitiveness, as ‘neoliberal’ economists often argue, or whether increasing public social provision might contribute to enhancing real income. After a comparative discussion of the evolution of different welfare models in developed countries, we advance our argument that public social spending is not a drain on competitiveness or an obstacle to economic efficiency. On the contrary, we explore the possibility that increasing welfare expenditure can stimulate economic growth along with lowering inequality, while the so-called ‘efficiency thesis’ (according to which globalisation needs to be accompanied by the retrenchment of welfare states in order to promote external competitiveness) produces worse economic performance and higher inequality. As a test of this hypothesis, we analyse empirical data on 34 Organisation for Economic Co-operation and Development countries from 1990 to 2013. We use econometric analysis to indicate that the so-called ‘compensation thesis’ (a process whereby globalisation is regulated through expansion of welfare states) may contribute to real income dynamics, while greater income inequality may inhibit per capita gross domestic product growth.

Keywords

I380P510F600G010Compensation thesiseconomic growthglobalisationinequalitywelfare state
Type
Symposium: Wage theft, labour standards, inequality - Part 1
Information
The Economic and Labour Relations Review , Volume 29 , Issue 1: Symposium on inequality in honour of AB Atkinson , March 2018 , pp. 118 - 139
Copyright
Copyright © The Author(s) 2018

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Article purchase

Temporarily unavailable

References

Abrigo, MR, Love, I (2016) Estimation of panel vector autoregression in Stata. Stata Journal 16(3): 778–804.CrossRefGoogle Scholar
Acemoglu, S (2002) Technical change, inequality, and the labor market. Journal of Economic Literature 40(1): 7–72.CrossRefGoogle Scholar
Adema, W, Fron, P, Ladaique, M (2011) Is the European welfare state really more expensive? Indicators on social spending (1980–2012); and a manual to the OECD Social Expenditure Database (SOCX). OECD Social, Employment and Migration, Working Paper no. 124. Paris: OECD Publishing. Available at: http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.466.2217&rep=rep1&type=pdfGoogle Scholar
Alesina, A, Perotti, R (1994) The welfare state and competitiveness. American Economic Review 87(5): 921–939.Google Scholar
Alesina, A, Rodrik, D (1994) Distributive politics and economic growth. Quarterly Journal of Economics 109(2): 465–490.CrossRefGoogle Scholar
Allan, JP, Scruggs, L (2004) Political partisanship and welfare state reform in advanced industrial societies. American Journal of Political Science 48(3): 496–512.CrossRefGoogle Scholar
Amable, B (2004) The Diversity of Modern Capitalism. Oxford: Oxford University Press.Google Scholar
Amoroso, B (2003) Globalization: the economic and social sustainability of markets and production systems – the classic example of agriculture. Paper presented at the international conference, agricultural policy reform and the WTO: Where are we heading, Capri, 24–26 June, pp. 23–26. Roskilde: Roskilde University.Google Scholar
Arestis, P, Charles, A, Fontana, G (2013) Financialization, the great recession, and the stratification of the US labor market. Feminist Economics 19(3): 152–180.CrossRefGoogle Scholar
Atkinson, AB (1999) The Economic Consequences of Rolling Back the Welfare State. Cambridge, MA: MIT Press.Google Scholar
Autor, DH, Katz, LF, Krueger, AB (1998) Computing inequality: have computers changed the labor market? Quarterly Journal of Economics 113(4): 1169–1213.CrossRefGoogle Scholar
Baldacci, ME, Clements, MBJ, Gupta, MS, et al . (2004) Social spending, human capital, and growth in developing countries: implications for achieving the MDGs. IMF, Working Paper no. 4–217, November. International Monetary Fund. Available at: https://www.imf.org/external/pubs/ft/wp/2004/wp04217.pdf (accessed 20 January 2018).Google Scholar
Blackmon, P (2006) The state: back in the center of the globalization debate. International Studies Review 8(1): 116–119.CrossRefGoogle Scholar
Bonoli, G (1997) Classifying welfare states: a two-dimension approach. Journal of Social Policy 26(3): 351–372.CrossRefGoogle Scholar
Borjas, GJ, Ramey, VA (1995) Foreign competition, market power, and wage inequality. The Quarterly Journal of Economics 110(4): 1075–1110.CrossRefGoogle Scholar
Bourguignon, F (1981) Pareto superiority of unegalitarian equilibria in Stiglitz’ model of wealth distribution with convex saving function. Econometrica 49(6): 1469–1475.CrossRefGoogle Scholar
Brady, D, Beckfield, J, Seeleib-Kaiser, M (2005) Economic globalization and the welfare state in affluent democracies (1975–2001). American Sociological Review 70(6): 921–948.CrossRefGoogle Scholar
Castells, M (2004) Global informational capitalism. In: McGrew, AG, Held, D (eds) The Global Transformations Reader: An Introduction to the Globalization Debate. Cambridge: Polity Press.Google Scholar
Choi, CJ (2006) Communitarian capitalism and the social market economy: an application to China. In: Development Models, Globalization and Economies. London: Palgrave Macmillan, pp. 37–51.CrossRefGoogle Scholar
Chusseau, N, Dumont, M (2012) Growing income inequalities in advanced countries. ECINEQ WP 2012: 260. Available at: http://www.ecineq.org/milano/wp/ecineq2012-260.pdf (accessed 20 January 2018).Google Scholar
Cynamon, BZ, Fazzari, SM (2013) Inequality and household finance during the consumer age. Working Paper no. 752, February. Annandale-on-Hudson, NY: Levy Economics Institute. Available at: http://www.levyinstitute.org/pubs/wp_752.pdfCrossRefGoogle Scholar
Deininger, K, Squire, L (1998) New ways of looking at old issues: inequality and growth. Journal of Development Economics 57(2): 259–287.CrossRefGoogle Scholar
Engelen, E, Konings, M, Fernandez, R (2010) Geographies of financialization in disarray: the Dutch case in comparative perspective. Economic Geography 86(1): 53–73.CrossRefGoogle Scholar
Epstein, GA (ed.) (2005) Financialization and the World Economy. Cheltenham: Edward Elgar Publishing.Google Scholar
Esping-Andersen, G (1990) The three political economies of the welfare state. International Journal of Sociology 20(3): 92–123.CrossRefGoogle Scholar
Feenstra, RC (1998) Integration of trade and disintegration of production in the global economy. The Journal of Economic Perspectives 12(4): 31–50.CrossRefGoogle Scholar
Ferrera, M (1996) The ‘Southern model’ of welfare in social Europe. Journal of European Social Policy 6(1): 17–37.CrossRefGoogle Scholar
Furceri, D, Zdzienicka, A (2012) The effects of social spending on economic activity: empirical evidence from a panel of OECD countries. Fiscal Studies 33(1): 129–152.CrossRefGoogle Scholar
Galbraith, JK (2012) Inequality and Instability: A Study of the World Economy Just Before the Great Crisis. Oxford: Oxford University Press.CrossRefGoogle Scholar
Galor, O, Zeira, J (1993) Income distribution and macroeconomics. Review of Economic Studies 60(1): 35–52.CrossRefGoogle Scholar
Goda, T, Lysandrou, P (2014) The contribution of wealth concentration to the subprime crisis: a quantitative estimation. Cambridge Journal of Economics 38(2): 301–327.CrossRefGoogle Scholar
Gordon, C (2012) Union decline and rising inequality in two charts. Economic Policy Institute, June. Available at: www.epi.org/blog/union-decline-rising-inequality-charts (accessed 20 January 2018).Google Scholar
Granger, CW (1969) Investigating causal relations by econometric models and cross-spectral methods. Econometrica: Journal of the Econometric Society 37(3): 424–438.CrossRefGoogle Scholar
Hay, C, Wincott, D (2012) The Political Economy of European Welfare Capitalism. London: Palgrave Macmillan.CrossRefGoogle Scholar
International Organization for Standardization (ISO) (2013) Codes for the representation of names of countries and their subdivisions – part 1: country codes. ISO 3166-1: 2013. Available at: https://www.iso.org/iso-3166-country-codes.htmlGoogle Scholar
Jessop, RD (2002) The Future of the Capitalist State. Cambridge: Polity Press.Google Scholar
Kaldor, N (1955) Alternative theories of distribution. Review of Economic Studies 23(2): 83–100.CrossRefGoogle Scholar
Kalecki, M (1954) Theory of Economic Dynamics: An Essay on Cyclical and Long-Run Changes in Capitalist Economy. London: George Allen & Unwin.Google Scholar
Katz, LF (1999) Changes in the wage structure and earnings inequality. In: Ashenfelter, O, Card, D (eds) Handbook of Labor Economics, vol. A3. Amsterdam: Elsevier, pp. 1463–1555.Google Scholar
Krippner, GR (2005) The financialization of the American economy. Socio-Economic Review 3(2): 173–208.CrossRefGoogle Scholar
Lavoie, M (2014) Post-Keynesian Economics: New Foundations. Cheltenham: Edward Elgar Publishing.CrossRefGoogle Scholar
Lavoie, M, Stockhammer, E (2013) Wage-led growth: concept, theories and policies. In: Wage-Led Growth: An Equitable Strategy for Economic Recovery. London: Palgrave Macmillan, pp. 13–39.CrossRefGoogle Scholar
Lindert, PH (2004) Growing Public: The Story: Social Spending and Economic Growth since the Eighteenth Century, vol. 1. Cambridge: Cambridge University Press.Google Scholar
Maziarz, M (2015) A review of the Granger-causality fallacy. Journal of Philosophical Economics 8(2): 86–105.Google Scholar
Milanovic, B (2002) True world income distribution, 1988 and 1993: first calculation based on household surveys alone. Economic Journal 112(476): 51–92.CrossRefGoogle Scholar
Mitchell, DJ (2005) The impact of government spending on economic growth. The Heritage Foundation, 15 March. Available at: https://www.heritage.org/budget-and-spending/report/the-impact-government-spending-economic-growth (accessed 20 January 2018).Google Scholar
Organisation for Economic Co-operation and Development (OECD) (2004) Employment Outlook: Employment Protection Regulation and Labour Market Performance (Chapter 2). Paris: OECD.Google Scholar
Organisation for Economic Co-operation and Development (OECD) (2017) OECD.Stat. Available at: http://stats.oecd.org/ (accessed 20 January 2018).Google Scholar
Palley, TI (2012) From Financial Crisis to Stagnation: The Destruction of Shared Prosperity and the Role of Economics. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
Paternesi Meloni, W (2017) Austerity and competitiveness in the Eurozone: a misleading linkage. Working Paper Series no. 0223, 4 January. Rome: Department of Economics, Roma Tre University.Google Scholar
Persson, T, Tabellini, G (1994) Is inequality harmful for growth? American Economic Review 84(3): 600–621.Google Scholar
Piketty, T (2014) Capital in the Twenty-First Century. Cambridge, MA: Belknap Press.CrossRefGoogle ScholarPubMed
Qian, Y (2003) How reform worked in China. In: Rodrik, F (ed.) In Search of Prosperity. Princeton, NJ: Princeton University Press, pp. 297–333.Google Scholar
Rodrik, D (1998) Why do more open economies have bigger governments? Journal of Political Economy 106(5): 997–1032.CrossRefGoogle Scholar
Rodrik, D (1999) The new global economy and developing countries: making openness work. Overseas Development Council Policy Essay no. 24. Washington, DC: Johns Hopkins University Press for the Overseas Development Council.Google Scholar
Rowthorn, B (1981) Demand, Real Wages and Economic Growth. London: North East London Polytechnic.Google Scholar
Rubery, J (2009) How gendering the varieties of capitalism requires a wider lens. Social Politics 16(2): 192–203.CrossRefGoogle Scholar
Soskice, DW, Hall, PA (2001) Varieties of Capitalism: The Institutional Foundations of Comparative Advantage. Oxford: Oxford University Press.Google Scholar
Stockhammer, E (2015) Rising inequality as a cause of the present crisis. Cambridge Journal of Economics 39(3): 935–958.CrossRefGoogle Scholar
Storm, S, Naastepad, CWM (2012) Macroeconomics Beyond the NAIRU. Cambridge, MA: Harvard University Press.CrossRefGoogle Scholar
Swank, D (2002) Global Capital, Political Institutions, and Policy Change in Developed Welfare States. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
Tridico, P (2012) Financial crisis and global imbalances: its labour market origins and the aftermath. Cambridge Journal of Economics 36(1): 17–42.CrossRefGoogle Scholar
Tridico, P (2013) The impact of the economic crisis on EU labour markets: a comparative perspective. International Labour Review 152(2): 175–190.CrossRefGoogle Scholar
Vis, B, Van Kersbergen, K, Hylands, T (2011) To what extent did the financial crisis intensify the pressure to reform the welfare state? Social Policy & Administration 45(4): 338–353.CrossRefGoogle Scholar
Williamson, OE (1985) The Economic Institutions of Capitalism: Firms, Markets, Relational Contracting. New York: Free Press.Google Scholar
Wooldridge, JM (2002) Econometric Analysis of Cross Section and Panel Data. Cambridge, MA: The MIT Press.Google Scholar
Yeager, T (1999) Institutions, Transition Economies, and Economic Development. Boulder, CO: Westview Press.Google Scholar