Economic globalization, the macro economy, and reversals of welfare: Expansion in affluent democracies, 1978-94

A key question in debates over globalization is its effect on the welfare states in particular on welfare "retrenchments": programmatic retractions of the scope and coverage of social programs. We conceptualize such retrenchments as discrete policy events; and we offer a comprehensive model of their occurrence that integrates domestic economic, political, and institutional factors as well as those related to the global economy. Our analysis of all such retrenchments in Organization for Economic Cooperation and Development (OECD) nations between 1978 and 1994 indicates that the effects of globalization are complex, with trade openness and financial liberalization clearly operating against such retrenchments but outward foreign direct investment perhaps pressuring for them. In addition, we uncover support for a dynamic of "self-limiting immoderation": economic and demographic pressures for costly welfare expenditures provoke actions to roll back eligibility and benefit rates that link increasing numbers of unemployed and retired persons to increased social spending. In short, the same demographic pressures that gave often been noted to substantially drive welfare spending may trigger welfare cutbacks.