The Costs of Risk: Examining the Missing Link between Globalization and Social Spending

Globalization is often credited with the expansion of the welfare state and increased spending on social insurance programs. However, empirical evidence on the relationship between globalization and social welfare spending is mixed. One possible explanation for these mixed results might be country-specific factors that mediate the effect of globalization on social spending, such as key characteristics of a country's labor market. Countries with fluid, flexible labor markets likely respond to globalization differently than countries with rigid, inflexible markets. At the micro level, workers who find it costly to adjust to market volatility will likely demand compensatory and insurance programs to offset the high costs of adjustment. Given this, the relationship between globalization and social insurance is likely to be more sharply positive among countries with relatively immobile labor. I test this argument using data on social expenditures in both developed and developing countries. The findings indicate that trade exposure increases social spending in countries where workers face high adjustment costs. When workers face low adjustment costs, trade exposure has a strong reductive effect on social spending. This reductive effect declines as adjustment costs increase.

This year Trade Adjustment Assistance has been a stumbling block rather than a stepping stone.

At the beginning of 2015 we asked Stephanie Rickard, Associate Professor in the LSE’s Department of Government, for her predictions for the year. Now, she reflects on her prognostications on US trade policy and on what 2016 may have in store

In the 2016 primary, Democrats are united on trade while Donald Trump’s protectionism means that the Republicans are unusually divided

Historically, Republicans – and Republican presidential candidates – have been in favor of trade liberalization. This positive view of free trade has been challenged by Donald Trump’s protectionist ideology, which is aimed at increasing his support among blue-collar workers. Stephanie Rickard writes that even as the GOP is unusually divided over trade, the Democratic camp is united with both Hillary Clinton and Bernie Sanders opposing the Trans-Pacific Partnership deal pushed by President Obama last year

The electoral consequences of compensation for globalization

As opposition to globalization grows, many governments seek policy responses. One response - the European Globalisation Adjustment Fund (EGF) - provides support to workers in EU member states who are made redundant as a result of globalization. Proponents argue that by offsetting some of the costs of globalization, the program may bolster public support for international economic integration and the political parties that support it. I investigate the impact of the EGF on voters’ support for protectionist political parties using a difference-in-differences research design and official election results at the district and commune level. I also examine individual-level voting data. I find that in regions exposed to rising imports, EGF assistance generates a small decrease in voters’ support for one of Europe’s most prominent anti-globalization parties, which ranges in magnitude from zero to 1.5 percentage points. While consistent with the logic of embedded liberalism, this finding suggests that the theorized connection between compensation and public support for globalization may be conditional rather than categorical

Government subsidies could boost British manufacturing - but only under the right conditions

Subsidies can be a vital boost for companies and industries. But they also carry a risk of creating distortions in the economy. Stephanie Rickard identifies three principles that should inform and underpin policy measures in this area to minimise these risks

COVID is likely to accelerate offshoring — and voters punish governing parties when that happens

As they rushed to adapt to the pandemic, many firms adopted remote working practices. Some of these practices may lead to offshoring — and, says Stephanie Rickard (LSE), voters punish incumbent political parties when jobs go abroad

Providing more government assistance does not reduce voters' opposition to globalisation

Both the EU and the United States have dedicated programmes for providing compensation to workers made unemployed by globalisation. But does this funding have any impact on voting behaviour? Drawing on new research, Stephanie Rickard finds that additional assistance for globalisation-displaced workers provided by the European Globalisation Adjustment Fund does not significantly reduce voters’ support for one of Europe’s most prominent anti-globalisation political parties

The Inflation Reduction Act is part of a looming international subsidy war driven by politicians' attempts to shore up voter support.

Last year the Congress passed the Inflation Reduction Act (IRA) which provides billions in subsidies and tax credits to US companies. Drawing on her book, Spending to Win, Stephanie Rickard writes that the IRA shows how many governments have turned to subsides or increased spending on them to not only bolster their own industries, but often more importantly, to win voters’ support

Compensation for displaced workers is unlikely to halt the rise of protectionism in Europe

The EU has created a special instrument – the European Globalisation Adjustment Fund – to compensate workers who have lost their jobs as a result of globalisation. Drawing on a new study, Stephanie Rickard illustrates that while such schemes might be beneficial, they are unlikely to turn the tide of protectionist sentiment growing in Europe

Biden’s plan to discourage companies from offshoring production may also help him politically.

Last week, alongside its $2.3 trillion infrastructure plan, the Biden administration announced a new tax plan to fund it. This plan includes provisions that would discourage the offshoring of jobs and profits by US companies. Stephanie Rickard finds that voters are more likely to vote against governments when offshoring occurs that moves jobs out of their local area. In light of these findings, Biden’s tax proposals and ‘Buy American’ executive order appear politically savvy