Session 8 

- Part 2: Globalization, governments and policy-making (prof: Claire

Dupuy)

What is globalization: An exogenous and/or a constructed constraint on governments?

1. A vignette: French socialist governments’ decision-making and pressures

from international political economy

A vignette to start with: French social democratic governments under the Mitterrand
(1981-1986) and the Hollande (2012-2017) presidencies (Karremans and Damhuis, 2020)

 A lot of pressure because he arrived just after the financial crisis of the 2008.
There was a lot of tension in the financial system, he has to consolidate the
budget, etc, ….

What happened under the Mitterrand presidency:

Both governments faced acute tensions between a socialist policy programme and the
pressures stemming from the international political economy

o During the 1980s and 1990s, France transformed from an industrial into a post-
industrial economy (Boix, 2015). It’s a big change because the role/ function of the
state changes -> SUPPORT the market.

o In the post-industrial world, national governments’ main function became to support

markets and to create the right conditions for enterprises to compete in the global
economy (Jessop, 2007)

o In France specifically, the establishment of the European exchange rate mechanism

in 1979 put considerable pressure on the executives to reduce the rate of inflation to
reduce trade deficits and restore competitiveness

o And the end of growth in the global economy of the 1970s rendered Keynesian policy
strategies much less viable and, thereby, made it difficult for the political left to
implement traditional socio-economic programmes (Hall, 1994)

Also, between the 1980s and 2010s, the level of institutionalisation of these pressures
has grown stronger in the course of France’s growing integration within the European
economy and monetary union

o EU integration relies on a concrete set of rules that really shape what politicians
consider to be appropriate action, both in practical and in legal terms (e.g., Growth and
Stability Pact: limits on government deficit - 3% of GDP - and debt - 60% of GDP) ->
national deficit, national dept. We know that the great financial crisis: the European
integration was so deepened from the socio-economic perspective, terms like: “two
pack”, “sixpack” -> set of rule that were implemented as a reaction to the great
financial crisis at the EU level. European commission just check budget.
 o Efforts undertaken to reduce public deficits have strengthened since 2010 in view
of national policy legacies and public money invested to save the banks after the 2008
financial crisis

Source:
(Karremans
and
Damhuis,
2020, p.
308)

European integration really needs constrain rules and France in particular. In both cases,
the presidency faced great economic pressure.

So, acute constraints on policymaking faced by both presidencies →How did they
impact on their policy-making? How did it actually shape what government do?

Karremans and Damhuis (2020) offer an innovative perspective: they study how
governments justify their yearly budget

o Coding of passages of yearly budget speeches directly linked to actual policies or

policy packages. So how they can justify what they did, why they plan?

o Codebook includes three main justifications:

o Responsive justifications: relate to who is served – partisan goals -> when a

specific policy echoes the party

o Responsible justifications: arguments about public deficits and institutional

rules -> need to reduce the deficit, being responsible…. Saying what must be done.

o General functioning of economy: refer to the economic developments and the

performance of the country in terms of growth or employment. Basically, about
their economy and how their decision will improve it.

What we notice is a change in the content of responsible justifications between the two
presidencies
Result #1: the ‘responsible justifications’ have almost doubled (even more important in
how government have to justify decisions) and the arguments about the economy are the
most dominant category.

Source:
(Karremans and
Damhuis, 2020, p.
310)

Result #2: A change in the content of ‘responsible justifications’ -> clear change!!

o Under Mitterrand: mainly general references to the state of public finances

o Under Hollande: (SEE GRAPH) more concrete references to the commitment of

reducing public deficits and to the international rules to which the French government
is expected to comply -> more emphasize on the concrete constrain that the
government faced.

Source: (Karremans
and Damhuis,
2020, p. 313)

From their qualitative comparison of budget speeches, Karremans and Damhuis conclude:

o While under Mitterrand and Hollande presidencies, governments face first-hand

constraints from international political economy
 o Under Mitterrand, governments claimed to have a relatively larger autonomy in
deciding its policy course -> they could decide more things, they had agency.

→ They had agency and could decide whether to act ‘irresponsibly’ or to adapt
their policies to the economic circumstances, so they said

o In contrast, under Hollande, governments presented themselves as having to act

responsibly due to institutional commitments

→ They had no other option than to adhere to institutional norms and

procedures, so they said -> They had to comply with institutional rules. So here as
you see, agency is missing.

It may be that globalization restrict the policy space (the score (OR scope ?) of
policy alternative) of government because governments must stay competitive in a
globalized economy.

2. Is the hyper-globalization thesis accurate?

What does this vignette suggest for our study of policy-making under globalization?

o Does globalization restrict the policy space of national governments because they
have to adapt their policies to be/stay internationally competitive in a globalized
economy?

o Policy space: the universe of policy alternatives political actors can feasibly debate,
adopt varying positions on, make decisions about and then implement

o Put bluntly: Does globalization limit what national governments can decide?
The hyper-globalization thesis suggests just that!

The hyper-globalization thesis examines conditions for domestic policymaking in open

globalized economies

o A crucial feature: in open economies, capital can exit from national economic
environments at minimal costs

Firms play off the regulatory regimes of different economies against one another to
ensure the highest rate of return on their investment

o They will exit high-taxation regimes, comprehensive welfare states and highly
regulated labour markets, economies characterized by strict environmental regulations
and high union density -> to just choose national jurisdiction, less expensive
regulations, etc, …

This process pitts national economy against national economy in an intense competitive
struggle to be able to offer :
 o Each state must offer a more favourable investment environment for mobile
investment than its competitors

o This is expected to result in reforms of labour protection, environmental regulations,

welfare state coverage

o And, thereby, globalization means : a clear constriction of the policy space of

national governments and a race to the bottom in terms of taxation and regulation

Karremans and Damhuis’ results lend credence to the hyper-globalization thesis as French
socialist governments have expressed ever-growing pressures from the international
economy and a more limited capacity of autonomous policy-making over time

But, really, is the issue settled?

3. What economic globalization is

Let’s go back to what economic globalization is and related approaches Globalization is

about technics

o Modern communication technology provides the infrastructure of a real-time global

economy and facilitatives new forms of transnational and global economic
organization -> it’s about technical development!!

It is also about economic developments: globalization causes change

o Orthodox economics: globalization as a direct consequence of market competition

(e.g. comparative advantage). Globalization has to do with the competition that
market and national economy engage.

o Marxist political economy: the imperatives of capitalism which are driven by the
search among the corporate sector for new markets, cheaper labour, and new sources
of profitability

Economic globalization is also an inherently political process

o It is associated to the rise and dominance of neoliberal ideology, along with the
associated policies of liberalization, deregulation and privatization – the ‘Washington
consensus’ project -> in a specific ideology.

o Neoliberalism involves ‘(...) a commitment to certain core principles focused on

market competition and a limited state’ (Schmidt & Thatcher, 2013: 1)

!!Neoliberalism is not liberalism!!

Neoliberalism is not only an ideology, it’s actually very political.

Liberalism was the ideology of the upcoming bourgeoisies within nation- states in the
making (Le Galès, 2016)

The core of liberal thought: a principle of restraint on organized state power in favour of
creating a large sphere of individual autonomy and liberty to act (see in Mill’s writings).

→ Unless there is a specific and justifiable reason to limit it, there is a presumption in
favour of the freedom of the individual

The state should be quiet and benevolent and concentrate on policing and enforcing
property rights (core of liberalism)

→ It may intervene in case of market failures, but tax must be limited and there
must be rules to limit its interventionist role

Also, based on Max Weber, liberalism emphasizes utilitarian ideas, and relatedly, Michel
Foucault considers it at a specific type of government characterized by knowledge,
means and calculating devices

➔ Classically, liberalism is an attempt at reconciling the search for private interests

with the making of the collective good, and emphasizes the autonomy of the
individual in part guaranteed by the state and the rule of law

Neoliberalism and liberalism have commonalities

o Both are concerned with circumscribing the power of the state in order to promote a
society based on freedom from either the arbitrary power of state elites
(authoritarianism) and the possibility of majority tyrannies (collectivism)

o Property rights are (super important) the cornerstone of society, and both oppose
vividly the ‘tax state’

But there are also clear differences between the two ideologies

Difference #1: markets

In neoliberal thought, there is no such thing as market failures

o Solutions to crises or problems require more markets -> market never fail !

o Markets should govern every domain of social life

Liberals in contrast consider that while markets are efficient for a wide range of goods
and services, there are exceptions (so not always!): when high externalities, free riders
effects, high transaction costs, when economies of scale...
Difference #2: the state

Neoliberals do not see the market as natural: markets have to be created, constructed,
consolidated, imposed by the state.

o The state has to be mobilized to create the market society and discipline individuals
(see Friedman’s and Hayek’s thinking)

o A market society is grounded in a structure of rewards and incentives for specific

behaviours through which the social order seeks to ensure its maintenance and
reproduction

o This may include coercion and violence -> it’s okay to create market society.

Liberalism is not always associated with democracy, but the emphasis on the rights and
autonomy of individuals suggests some distrust of the authoritarian tendency of the
state and a distrust of illiberal policies

Difference #3: Conception of individual freedom

Autonomy -> core conception of liberalism

In contrast -> In neoliberal thought, the individual is disconnected from the collective
dimension

o To have worth and gain value, individuals have to transform themselves by

performing and becoming entrepreneur of their self (see Foucault)

o Competition is paramount
o Neoliberals are not concerned with the concentration of private power and wealth
and their threats to individual freedom

o Inequality in income distribution or welath are considered to come from efficient

markets and to have benefits for economic growth and social mobility

➔ For neoliberals, the articulation between individual and general interest is

simple: the maximisation of individual interest more or less automatically
results in the maximisation of general interest

Liberals in contrast frame individual freedom as autonomy and tend to promote

harmonious, moral and natural views of societies controlled by hard-working bourgeois,
reconciling merit and hard work and the search for the common good, thereby neglecting
class relations and conflicts

‘Market-driven’ politics provides the ideological infrastructure of economic globalization

 Economic globalization is a political construction advocated and promoted by a powerful
configuration of domestic and transnational coalitions and lobbies

➔ Economic globalization combines both material and ideational features

Let’s take a further step: Ideas about globalization contribute to the explanation of
economic globalization irrespective of its material reality

To account for how economic globalization impacts on policymaking, what matters is how
political actors view globalization

Why? Because political actors act upon their understandings of the world which is
framed by discourses of globalization

➔ Discourse of economic globalization constitutes it rather than simply mirrors it

= A constructivist approach to economic globalization

From an analytical perspective,

the accuracy of the hyper-
globalization thesis does not
matter that much

Rather, what matters is whether

this thesis is deemed to be true
by political actors

Policy-makers acting on the

basis of assumptions consistent
with the hyperglobalization
thesis may serve to bring about
outcomes consistent with that
thesis irrespective of its veracity

Discourse of economic globalization constitutes economic globalization, makes it real. This is

part of a constructivist view of politics.

One of the core assumptions of this hyper-globalization thesis is that high taxation leads to
capital flight. The implication of that: governments will decrease their taxation rate to attract
firms.

However, if the government doesn’t believe that hypothesis: it does not change a thing, or
at least does not impose taxation cuts.
In the end, the policy that will be implemented depends on what political actors believe.
Regardless of the hyper-globalization thesis, political actors might act in a way that results
will be consistent with the thesis. If they all believe it to be true, then the results will be
consistent.

 What really matters: actors views on globalization -> they make policies etc…

Implication #1 of the constructivist approach: We need to study the politics of

globalization

o The political drivers of globalization

o The consequences of such a process for political conflict, policymaking, state capacity
and the distribution of political responsibility

Implication #2 of the constructivist approach : By considering economic globalization as

an inherently political process, we recognize that it is a contingent process which
policymakers shape

o Policymakers have agency and make choices

o In sharp contract with structural approaches to globalization which consider it to be

inevitable outcomes and determined by technological and market / capitalism
developments

political science approach to economy of globalization: that’s a political process where

we look at actor’s views because it’s not shittalk. It contributes to the explanation of
the shape that economic globalization takes. It contributes to the explanation of series
of outcome that are very important for political scientist.

4. Discussion of reading assignment

Gelepithis, Margarita and Hearson, Martin (2021), 'The Politics of Taxing

Multinational Firms in a Digital Age', Journal of European Public Policy,  early
view, https://doi.org/10.1080/13501763.2021.1992488

 About the capacity of state to deal with economic globalization, which is a

deterministic process, things will happen as they should happen, however ideas also
play an important role.

 The article goes over the shift of paradigm that has been noticed in company taxation
by state. Indeed, some state went from taxation based on physical presence of the
 firm in the country to taxation based on the consumption of the firm’s products in
the country.
 It is a change in what we think taxation should be based on.

This norm raises the issue of collective action  if one country applies it by itself, it
might not work and then investments will go elsewhere, it is either we are all doing it,
or we are not  because we are competitors.

What’s actually the puzzle? Starting point of this article -> in a scientific question: really is
the …. Between what exist and the facts. Is when the theory what we have at end unaccused
for the account for what we see (can document).

They key is about that we have international political economy, about international taxation,
and the norms of that -> have shown that those norms are not related to change so why?

 Existing theories that we have that an actor would like to change the taxation,
what is so difficult to build coalition to change that? Actors that are key
(thinking, making) international corporation taxation, believe ….. How come
to change that norm? Big issues … If you are the only one trying to tax
multinational…

Form a coalition to MAKE a change! Something else that she would like to discuss ->
structural power of business

 A variable that is the most common: business actors are the structural power
just because they have so strong intervenancy between state and market
actors. Business actors have structural power!

 Explanation of the article of this paradigmatic shift? At the beginning at the

process, there was an idea: how to tax multinational. It’s something that
continue to bring the change (globalization).

Note de fin de Manon D (parce que j’ai pas su entendre tous les mots de l’enregistrement)

Because of the way the economy is constructed, business actors have an important power
on states. The theory predicted this paradigmatic change would not happen, however it did.
So how can we explain this shift?
- Political contestation
- Results of bargaining power

Sometimes when looking at policy making, problem and solutions are completely
disconnected from each other. Indeed, the solution to capital flight