Race to the bottom or move to the middle? Globalization and welfare regime transformation in the developing world

How does economic integration affect social protection regimes differently across the developing world? The existing literature predicts a causal relationship between globalization and larger welfare states under the assumption that larger welfare state sustains the openness against a "globalization backlash" (Rodrik 1997, 1998). In developing countries where the evidence for this relationship is scant, the conventional explanation often attributes the weak welfare state to the lack of influence of labor unions that characterizes most developing countries (Garrett 1998). These explanations, I contend, mischaracterize the nature of social protection in the developing world, resulting in an incomplete understanding of the impact of globalization. I argue that globalization produces both constraints and opportunities for governments to adjust social welfare systems. Therefore, instead of a "race to the bottom," we have seen more of a "move to the middle.";My findings demonstrate that the variations of social welfare systems in the developing world are rooted in the conflicting dynamics of industrialization and globalization. Industrialization in the developing world has an expansionary effect on welfare expenditures as it entails risks that fuel the demand for protection. The impact of globalization, however, is multifaceted. Globalization induces a structural change of preferences among major social actors with regards to social protection, which, in turn, leads to the fundamental change of policymaking strategies of politicians. Specifically, globalization has an equalization effect on the preferences among social actors, as the risks associated with economic openness become increasingly similar to social groups from different sectors. The changing structure of social preferences at the demand side fundamentally alters the incentives of policymakers at the supply side whose ultimate concern is to maximize political support from contending social groups that have been affected unevenly by globalization. The result is a trend towards an equilibrium welfare policy outcome in which the marginal support from different groups is equally weighed and politicians compensate groups only partially. In this equilibrium welfare regime, globalization imposes downward pressures on inefficient welfare programs but also induces governments to establish and expand social safety nets that are critical for market competition and sustainable development. Arguments are tested through both quantitative cross-national analysis and comparative case studies of China, Brazil, and South Korea.