Globalisation, Competitiveness, and the Social Democratic Model

For a long time, the discussion about the impact of economic globalisation on the full employment/generous welfare state policies pursued by social democratic governments was characterised by doom and gloom. Glib neo-liberal arguments about the impossibility of maintaining social democratic policies, that were presumably hindering competitiveness through excessive wages and taxes in the new international environment were difficult to counter, because social democrats could not resort to an equally elaborate and internally consistent economic doctrine that could substitute for evidence, and the evidence was not yet in to counter these arguments on empirical grounds. Recently, careful and comprehensive comparative studies have provided evidence that, despite undeniable problems posed by economic internationalisation, social democratic welfare states and employment regimes have proven to be highly resilient (Scharpf and Schmidt, 2000; Huber and Stephens, 2001). Indeed, some kinds of traditional social democratic policy, such as an emphasis on labour mobilisation through active labour market policy and social services that make it possible to combine labour force participation with raising children, and an emphasis on human capital formation have facilitated adaptation to the new economic conditions. Moreover, newly available data on skill distribution (OECD/HRDC, 2000) and income distribution (LIS) suggest that the egalitarian thrust characteristic of social democratic policy has made an important contribution to raising literacy skills at the bottom, which in turn facilitates the integration of the entire labour force into productive activities that are competitive in high-quality markets.