Social policy in open economies: Forces Inhibiting Governments from Supplying Social Policies
Many of the same forces that are increasing the demand for social policies are also reducing the ability of governments to finance social policies. Specifically, under globalization, freer trade, and falling transportation and communication costs, companies are more able to relocate their plants and investment to low-cost jurisdictions and export their goods and services back into higher-cost jurisdictions. Regulatory costs, including those arising from social policies, can be an element of those cost considerations. Such costs can arise from various regulations: labor standards (e.g., such areas asminimum wages, hours of work and overtime, vacations, holidays and leave, terminations, severance pay, and unjust dismissal protection); collective bargaining regulations; antidiscrimination; reasonable accommodation requirements; workers’ compensation; and health and safety regulations.
Because of the threat of the loss of business investment and the jobs associated with that investment, governments are under increasing pressure to compete in part by reducing their regulatory costs, including those arising from social policies. In essence, they are under more pressure to be ‘‘open for business.’’ This is the case for governments across different countries as well as for local governments within countries.
Phrases used to describe this phenomenon generally have negative connotations: social dumping, the rule of themarket over the rule of law, harmonization to the lowest common denominator, regulatorymeltdown, race to the bottom, and ruinous competition.