Global social changes: risks for the welfare state

Dekhanova Natalia ORCID: 0009-0004-8784-4309 PhD in Sociology Docent, the department of Sociology of State Administration, M. V. Lomonosov Moscow State University 119234, Russia, g. Moscow, ul. Leninskie Gory, 1, str.33, of. 503 ndehanova@mail.ru Other publications by this author

Kholodenko Yurii PhD in Economics Docent, the department of Sociology of State Administration, M. V. Lomonosov Moscow State University 119234, Russia, g. Moscow, ul. Leninskie Gory, 1, str.33, of. 503 hol.u@mail.ru Other publications by this author

Introduction

At the end of the last century, an event occurred that radically changed the nature of global social development. The collapse of the USSR put an end to the long-term confrontation between two antagonistic world social systems. Socialism could not stand the competition with capitalism and lost, which allowed F. Fukuyama makes a conclusion about the "end of history". The processes of multilateral international cooperation between States, countries and peoples have intensified. It seemed that this trend had become irreversible. Globalization has become an important factor in social dynamics, under the influence of which tectonic shifts in the foundations of social reality have occurred in all spheres of public life. Legitimate institutions of global regulation of social processes have been actively launched, international standards of material and spiritual culture have begun to form, as a rule, focused on Western practices that have shown their effectiveness.

The formation of global markets for goods, services, capital and labor has allowed for significant growth in international trade and accelerated development of the global economy, as well as easier access for producers and households to modern technologies and high-quality benefits of foreign production.  Against the background of the active promotion of the principles of the "consumer society" and the mass use of Western experience and standards in the field of social management, the idea of "sunset sovereignty", the formation of a single global community and even a global government became increasingly popular.

Global social changes: contradictory consequences for modern States

However, not all scientists shared such ideas, emphasizing the contradictory nature of liberal globalization, its exploitative nature and ambiguous consequences, primarily in the socio–economic sphere. Thus, I. Wallerstein noted that the goal of liberal globalization is not to expand economic freedoms for all subjects of economic relations, but to create competitive advantages for Western transnational capital.  In his opinion, as a result of globalization, a system of international economic relations has emerged, "based on the concentration of certain types of production (relatively monopolized and therefore highly profitable production) in certain limited areas, which precisely because of this become centers of the highest capital accumulation"^{[1, c30]}. Indeed, from the point of view of economics, the current model of globalization is capitalist in nature, which means that it is focused on obtaining economic benefits for global producers, primarily American TNCs, which occupy a leading position in many international markets for goods and services.

Moreover, globalization often does not solve the problems facing society, but even generates new contradictions caused by economic inequality and deepening global competition. In practice, it turned out that the outwardly attractive universal values of democracy, equality of chances, human rights, and freedom of economic choice do not take into account the peculiarities of the traditional national culture of the majority of Earth's inhabitants. It is becoming increasingly obvious that Western values are losing their appeal to the global majority. The problem of global inequality, which exacerbates the contradictions between industrialized countries and the global South, is also ignored.

Global post-industrial modernization has led to a large-scale transfer of a significant part of mass industrial production from developed countries to developing countries, which has led to some “deindustrialization" of the economies of industrialized countries. V. Varnavsky focuses on this circumstance, emphasizing that the active introduction of information technologies into economic processes, the accelerated development of the service sector, automation and robotization of production "led, firstly, to the deindustrialization of developed countries and a significant (almost by ?) reduction in the share of manufacturing in the global economy from 20.1% in 1990 to 15.6% in 2015 (in terms of value added), and, secondly, to increase the role and importance of developing countries in industrial development"^{[2, p.28]}. 

Despite the changes taking place in the global economic space that are ambiguous for industrialized countries, the Western public consciousness and foreign policy of the states of the North are still dominated by Eurocentrism and colonial thinking, which have been formed over many centuries. Political colonialism has transformed into systemic economic neocolonialism, based on the relationship of economic dependence of former colonies on their metropolises, which has given rise to an effective mechanism for pumping out necessary resources from them, as well as instruments of pressure on the political elite of many formally sovereign developing states to maintain the established world order. All this inevitably led to the consolidation of the "rules of the game", which lead to problems in the development of human capital in developing countries, inequality of life chances, migration, conservation of poverty, etc.

However, times have changed. Tectonic shifts are taking place in the current system of international relations. K. Marx would look for the causes of the crisis of modern liberal globalization in the field of economic relations. And he would be right, since the balance of power in the global economy has changed markedly in recent decades. Despite the deepening socio–economic inequality between the global North and South, in general, the positions of developing countries in the global economy are gradually strengthening. The liberalization of international trade, the formation of the global financial market and the transfer of mass production from industrialized countries to developing countries have become a factor of dynamization and a driving force for the development of their economies. While Western elites were creating a financial post-industrial economy, solving problems of gender equality and protecting the rights of sexual minorities around the world, many states took advantage of a kind of "window of opportunity" provided to them by liberal globalization, multiplying their economic potential. As a result, already in 2008, the total GDP of developing countries calculated by PPP (purchasing power of national currencies) reached 42.7 trillion dollars and surpassed the total GDP of industrialized countries – 40.8 trillion dollars. In 2017, these figures amounted to about 75 and 52 trillion dollars, respectively^[3].

In 2021, the top ten economies in the world included five developing countries – China, India, Russia, Indonesia and Brazil. At the same time, the share of China in world GDP, calculated according to the purchasing power parity of national currencies (PPP), significantly exceeded the share of the United States – 18.62% versus 15.74% ^[4]. The share of developing countries in global trade has increased significantly (almost 50% of global international trade turnover). At the same time, China has become the undisputed world leader in terms of exports of goods and services. In 2020, the volume of Chinese exports reached 3.5 trillion dollars (the share of global exports is almost 13%). The United States, which occupies the second position, has this figure of 2.1 trillion, or 7.5% of world exports of goods and services ^[5]. The US dollar remains the main international unit of account, but its role as the main reserve currency is steadily declining, In this regard, the famous Chinese scientist Wang Wen notes that "the "independence" of political development and the "devesternization" of the regional economy are accompanied by the "de-dollarization" of world trade and the "de-Americanization" of technology. In the second quarter of 2022, the share of the US dollar in international reserve assets fell to the lowest level since the end of World War II, amounting to 59.53%, which is much less than 72.7%, which it was in 2001" ^{[6, p. 183]}. In 2023, the Chinese yuan displaced the euro, settling on the second position in the international settlement system. 

At the same time, against the background of the increasing role of developing countries in the global economic system, the scale of global socio–economic inequality is increasing. This is becoming one of the obvious factors of instability in global development.  Attempts to preserve and even breathe new life into the familiar system of the world order seem counterproductive and even destructive to us, because they only deepen the contradictions between the leading actors in international relations.   Sooner or later, a change in the balance of forces in the global economy in favor of the global South was bound to lead to a crisis in the world order "based on rules" established by the United States and its allies. Moreover, it was the policy of the American state and its closest partners that became the catalyst for disintegration in the modern world and the destruction of the institutional system of international regulation of global processes that had been developing for decades.

The intensification of global competition in global commodity markets, the desire of businesses to reduce costs, intensified the processes of capital export in the form of direct investments from home countries to countries with a more favorable investment climate and low costs. And this could not but affect the resource base and shake the foundations of the established practices of the "welfare state" in industrialized countries. Moreover, it is becoming increasingly obvious that the social well–being of the "golden billion" is the result of the socio-economic and political world order formed after the Second World War, based on the relationship of neocolonial dependence and capitalist exploitation.

Meanwhile, transnational capital, by and large, is alien to many of the problems faced by the world community. After all, the modern economy, despite deep structural and institutional transformations caused by the strengthening of the role of state regulation and the desire to solve social problems, is still focused on increasing production efficiency and maximizing benefits. The tightening of global competition conditions forces entrepreneurs to take care of optimizing business processes and reducing production costs. Meanwhile, labor costs are not the least important in their structure in industrialized countries. This explains the desire of manufacturers to actively introduce innovative labor-saving technologies in order to maintain the competitiveness of companies. But such labor practices exacerbate a number of social risks, primarily in the field of employment and social and labor relations. The contradiction between the desire of business to maximize profits and the desire of the state to maintain a high level of employment in a competitive market is antagonistic. Socio–economic globalization exacerbates the problem by encouraging large corporations to transfer business processes from industrialized countries to developing ones, thus destroying the principles of employment and undermining the resource foundations of the social order on which the modern "welfare state" is based. 

Are we witnessing the decline of the idea of a welfare state? Yes, if we evaluate the ongoing social changes from traditional neoliberal positions. Indeed, at the end of the last century, the famous French political scientist P. Rozanvallon formulated a provision on three crises of the "welfare state": economic, ideological and philosophical. He considered the philosophical crisis that escalated in the 1990s of the last century to be the most destructive, because the basic principles of the welfare state were called into question: social cohesion, social justice and social solidarity^[7].

The past few years have seriously adjusted the trends of global political and economic processes.  The COVID 19 pandemic has led to an exacerbation of crisis phenomena in the global economic system, affecting all leading economies. The decline in GDP in 2020 in the EU countries exceeded 7%, the USA – 3.5%, the Russian Federation – 3.1%^[8].  A large-scale economic downturn in most industrialized countries, a decrease in employment, the level and quality of life of broad social strata, a significant drop in business activity in the service sector caused by restrictive government measures implemented to contain the pandemic - this is far from a complete list of disasters that have befallen the "welfare state". The post-pandemic revival of economic life, which began in 2021, received a blow in 2022, when a tough sanctions confrontation between Russia and the collective West, led by the United States, began. It has destroyed the hopes of the international community for overcoming the negative consequences of the pandemic and sustainable global economic growth. Currently, forecasting trends of ongoing social changes is a futile task due to the high degree of uncertainty, however, some negative phenomena for the socio–economic situation of industrialized countries are obvious. The anti–Russian sanctions imposed by the collective West against the Russian economy have somewhat complicated the external conditions of the socio-economic development of our country. However, they hurt their initiators, first of all, European business. The refusal to import Russian goods, primarily cheap energy carriers, led to an increase in European production costs and a significant increase in the inflation rate, which reached 11.6% in the European Union in 2022, and in a number of countries (Hungary, Lithuania, Latvia)  exceeded 20% ^[9].  In the USA, the price growth rate was lower than in European countries – 6.5%.^[10]. However, Americans have not faced such a level of inflation for more than forty years.

 The measures taken by the monetary authorities of industrialized countries were predictable: in 2023, Central banks increased refinancing rates: the US Federal Reserve – to 5.5%, the ECB – 4.5%, the Bank of England – to 5.5%. Meanwhile, in 2020 they were 0.25, 0 and 0.1%%, respectively ^[11]. Anti-inflationary measures have played a positive role in curbing price growth. However, they also led to a decrease in consumer and investment lending and became one of the factors of a drop in business activity and a reduction in household consumer spending, and ultimately a decrease in the quality of life of a significant part of the population.

Meanwhile, consumer inflation is only the tip of the iceberg, which can cause irreparable damage to the social practices that have developed in the EU countries. An increase in industrial inflation poses a medium- and long-term threat to the social well-being of European citizens. Thus, in 2022, the producer price index for all EU countries reached 36.4%, but in a number of European countries this figure exceeded 50%. In Denmark, it was 59.8%, in Romania – 59.2%, in Estonia and Belgium – 53.1% ^[12]. And this indicates a large-scale increase in the production costs of European companies and a weakening of the competitive position of their products in global markets. On the one hand, resource-poor Europe is under pressure from resource suppliers, effectively importing inflation. On the other hand, most of the major European manufacturers have left the very attractive large-scale Russian market. For individual companies  These are serious losses. As a result of the US-imposed sanctions decisions against the Russian Federation, first of all, European business turned out to be the loser. European companies have fallen into a kind of "sanctions trap". Against such a negative background, the prospects for the economies of many states can hardly be called optimistic. In particular, the largest European energy companies announced large-scale financial losses, and individual manufacturers announced the closure of industrial enterprises and the transfer of resource-intensive industries to countries with higher availability of relatively cheap resources, primarily energy. Thus, in the second quarter of 2022, the number of bankruptcy applications in the European Union increased by 2.9% compared to the first, and in the third – by 16.3% compared to the results of the second quarter. Hungary (+110.6%), Spain (+66.1%) and Lithuania accounted for the most bankruptcies (+4%). ^[13]. All of the above undermines the resource base of the "welfare state", its ability to fulfill social obligations to its own citizens.

Against the background of the deterioration of the global economic situation, the problem of the debt burden, which many states have faced, is becoming more urgent.  By the end of 2022, nine industrialized countries, including Japan, Italy, the USA, France, Canada, and the United Kingdom, entered the top ten "leaders" in terms of sovereign public debt, along with Venezuela. In these States, the debt burden exceeded reasonable limits and amounted to, respectively 261,3, 144,4, 121,4, 111,7, 106,6, 101,4% GDP ^[14]. Sooner or later, the debts will need to be repaid. At the expense of what sources? It is obvious that in the context of an aggravation of international confrontation, an increase in defense spending and an increase in negative external factors of economic development, the burden of debt servicing will primarily affect social expenditures of budgets and will fall on the least protected social strata in need of support from the "welfare state". Thus, by the end of 2022, Germany's public debt, which until recently was considered a model of financial stability and prudent attitude to budget expenditures, rose to 2.3 trillion. euro, and payments on it increased 10 times compared to 2021 – from 4 to 40 billion. euro ^[15]

The United States occupies a prominent, but not the highest position in the ranking of debtor states. However, experts emphasize the record growth rate of public debt and its total volume, which exceeded $ 32 trillion.  At the same time, the US trade deficit in 2022 amounted to 948.1billion dollars ^[16]. This means that the American economy still consumes significantly more goods and services than it produces, and the problem of trade deficit is solved with the help of a "printing press". Against such a negative background, the course chosen by the country's leadership towards confrontation with Russia and containment of China, the actual revision of the existing system of global economic relations, norms and principles of its regulation is of concern to the expert community, as it leads to the destruction of a unified global world economy and the formation of a block economic system.

In order to solve the problem of public debt and at the same time ensure financing of social policy measures, industrialized countries need to ensure high rates of socio–economic dynamics. Meanwhile, in most of them there is a steady downward trend in economic growth. As noted by V. Varnavsky, "against the background of general global growth, the dynamics of production in developed countries showed a steady downward trend – the average annual growth rate of GDP per capita here decreased from 2.5% in 1981 – 1990 to 1.1% in 2011 – 2015" ^{[17, p.26]}. In recent years, the economic development conditions of most industrialized countries have become even more complicated. As we noted above, the trend towards global economic recovery, which began in 2021, was actually destroyed in 2022. And although its economic results can generally be considered positive (economic growth in industrialized countries amounted to 2.65%), forecasts for 2023 are rather pessimistic. According to IMEMO RAS experts, "a decline in economic activity ... will be observed in the largest European economies of Great Britain and Germany (-1.0% and -0.5%, respectively)…A possible scenario in 2023 may be stagflation in Europe and the United States, and unlike in the 1970s, stagflation will develop against the background of a significantly higher level of debt burden of governments, households, real sector corporations, banks and financial institutions, which will make it especially difficult to exit the stagflationary regime" ^{[18, p.15]}.

  The digital revolution has a contradictory impact on the social practices of the "welfare state". It contributes to the destruction of the socio–economic order and employment conditions of the population, toughens the conditions of the competitive environment, leads to the introduction of equipment and technologies that require new special knowledge and professional training. The introduction of modern digital technologies often acts as a driving force for ambiguous social changes in the labor market, which   It does not always have time to adapt to changes in the structure of demand for labor services.  Digitalization exacerbates employment problems in industrialized countries ^[19]. This is evidenced by the data on the unemployment rate in the EU countries.  So, in 2022, unemployment in Spain was 12.7%, in Greece - 12.6%, in Italy, France and Sweden – 8.3, 7.7 and 7.2%, respectively. These are not the highest figures in the history of the united Europe. However, against the background of the increasing complexity of the external and internal conditions of economic development, in the foreseeable future, we should expect an increase in unemployment and an increased burden on the social budgets of the EU countries. Thus, according to a number of forecasts, in 2023 unemployment in the EU–27 will rise from 6.2 to 6.5%, and in the euro area from 6.8 to 7.1%^{[20, p.66]}. Meanwhile, significant budgetary resources are needed for social support of the unemployed. However, a decrease in the pace of business activity against the background of the complication of external factors of economic growth is not able to ensure the filling of the state treasury and does not effectively solve this problem.

Conclusion

In our opinion, we are witnessing the destruction of the basic principles of the "welfare state". The problem of poverty and inequality is getting worse. Moreover, an increasing number of Europeans no longer consider themselves to be middle class, a factor in ensuring the social stability of modern Western society. This is evidenced by the results of a large-scale sociological study conducted in 2021 in the EU countries on problems related to the social vulnerability of EU citizens during the COVID 19 pandemic. These results are alarming and thought-provoking. Thus, the share of respondents who assessed their socio–economic situation below the middle class in Spain exceeded 60%, in Greece, Portugal and France – 40%, in Italy, Austria, Finland, Ireland – 30%, in Germany, Sweden, Denmark and Belgium – 20% ^{[21, p. 86],[22]}.

Until recently, most of these countries were considered a kind of benchmark of a "welfare state" with a high level and quality of life of the population, a developed social support system, and a large-scale middle class. The pandemic has caused significant damage to the social well-being of Europeans. Nevertheless, most of them hoped for a post-pandemic economic recovery. Gradually, the citizens of the united Europe, accustomed to a measured, stable, well-fed life, come to understand that their hopes are not destined to come true. The prospects are becoming more and more hazy. Trust in traditional elites is declining. The scale of protest actions is expanding, despite the declared measures to support businesses and households.

Against the background of ongoing global social changes, it is becoming increasingly obvious that the well-being and prosperity of the welfare state in Western countries is not least the result of the actual robbery of the peoples of the global South. And although crisis phenomena have been noted by experts for a long time, the destruction of the established model of liberal globalization exacerbates the risks for the "welfare state" and can undermine its basic principles. The negative trends of global social change are unlikely to be changed in the foreseeable future, despite the measures taken by national Governments and international institutions aimed at stabilizing the socio–economic situation. Meanwhile, the choice of specific measures for the ruling elite is very limited, because the resource base of the "welfare state" is shrinking, which is finding it increasingly difficult to fulfill social obligations to its own citizens.