Diffusion of marketization

Diffusion is a process in which ideas, insights, cultural practices or policies are spread (Lee, Hwang &

Choi, 2012; Strang & Meyer, 1993). This can be among individuals (e.g. Haw et al., 2013), but also among countries or across time (e.g. Borzel & Risse, 2009; Strang & Meyer, 1993). The former policies of some countries influence the choices of other countries (Lee, Hwang & Choi, 2012;

Simmons, Dobbin and Garrett, 2006). The anthropological definition (Malinowski, 1944) is similar but focuses more on cultural practices: the process in which one culture adopts practices or beliefs from another culture.

To look at diffusion, the current analyses focuses therefore on the process rather than the static values.

Following the previous literature (Lee, Hwang & Choi, 2012; Simmons et al., 2007; Soderholm, 2007), this study looks at the impact of previous shifts in (adoption of) practices in other countries on the shifts in (adoption of) practices in a current country. Moreover, as Baccaro & Howell (2011) conceptualized, the ‘common neoliberal trajectory’ of countries is one of ‘institutional change’, and a

‘general process’. Therefore, the independent and dependent variable are framed as changes and not as levels.

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Marketization could diffuse from some countries to another country in a way that extend institutional path dependencies, for instance because countries are driven by global market forces (Chung & Van Oorschot, 2011). But who are these countries that a country looks at when seeking clues about how normatively valued (norms mechanism) or effective (learning mechanism) a set of practices is?

Studies of diffusion have largely focused on closely-located individuals (i.e. fellow students, fellow inpatients) (Askland et al., 2003; Haw, 1994) or elite members of societies (Lee et al., 2014; Stack, 1987; Wasserman, 1984; Yip et al., 2006), which could be extrapolated to the level of countries.

Countries could follow their closely-located neighbours since they share a common set of norms, or follow more distant but successful countries in their apparently ‘effective’ practices. Countries in the same region also more often share similar ties in international (non-)governmental organizations (IGOs and INGOs) (Beckfield, 2010), where cultural norms and policy practices are effectively diffused across countries (Borzel & Risse, 2009).

What does previous research suggest about the diffusion of marketization practices? What becomes apparent is that the extent of diffusion can still differ much between countries, even within the same international organization or ‘wider’ region such as the EU (Soderholm, 2007).

Worldwide, countries show an S-shaped curve often seen in diffusion research (Simmons, Dobbin &

Garrett, 2006). The figures in this article also suggest that the diffusion of marketization occurred relatively quickly. Within only a decade the degree of marketization in societies has sometimes doubled (Simmons et al., 2006). Overall, countries have become more alike (Baccaro & Howell, 2017;

Simmons et al., 2006) and convergence is suggested.Almost all OECD countries are leading countries just by being member of the OECD; the OECD countries were powerful trendsetters in the diffusion of neoliberal values (Garrett, 1998; Garrett, 2001; Garrett & Mitchell, 2001; Genschel, 2002). Still, previous figures also show some remarkable variation within the OECD with regard to the pace, timing and extent of diffusion of marketization practices (Simmons et al., 2006; Baccaro & Howell, 2011). For instance, Baccaro & Howell (2017) point at that while neoliberal transformation occurred in both CME’s and LME’s, the specific process differs. In LME’s, they argued, ‘liberalization of industrial relations institutions implies the transformation of the institutional form itself’ (Baccaro &

Howell, 2017: 3). As examples of this, they mention ‘deregulation of the labour market, decentralization and individualization of bargaining’, and the collapse of labour unions. In CME’s, by contrast, institutional change did ‘not take[...] place primarily through explicit deregulation’, but

‘through two alternative mechanisms of institutional change’ (Baccaro & Howell, 2017: 3). Phrased differently, institutions continued in their existence, but where ‘innovated’ to serve different purposes (Baccaro & Howell, 2017: 4). As a first mechanism, they mention changes in the institutions’

functions, providing employers with more liberty (‘discretion’) rather than contraining it. This process is also known in the industrial relations literature, as they point out, as ‘institutional conversion’

(Thelen, 2004: 36). As a second mechanism of marketizing institutional change, Baccaro & Howell

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(2017: 3) mention ‘derogation’. It refers to an increasing allowance for employers ‘to bypass or ignore formal institutions and institutional rules’. An interesting case study are Sweden and Germany, where marketization (or ‘liberalization’ or ‘employer discretion’) was achieved not through collapsing institutions, but through decentralized wage-setting, an increasing scope of opening clauses that enable employers to bypass central collective agreements, and increasing flexibility of employment relations next to a decreasing segment of core employees (Baccaro & Howell, 2017; Ibsen et al., 2011). Strict legislations or collective agreements have mobilized employers into such opening clauses, as Baccaro

& Howell (2017) showed especially for Germany during the 1980s. King & Rueda (2008) confirm this general pattern: flexible work has increased more in countries where the formal institutions of employment relations have remained strong (for instance: strong unions, coordinated bargaining, strict but semi-binding employment relation protection of core employees), while it has increased much less in LME’s such as the United Kingdom.

Another instance of cross-country variation in the degree of marketization is in the degree of financial openness for trade. Highest are West Europe and North America, followed by the Middle East/ North Africa and Latin America. Lowest is South Asia and Sub-Saharan Africa. The steepest rises occurred in West Europe, North America and East/ Europe and Central Asia between 1988 and 1994. With regard to privatization, East Europe and Central Asia showed the most remarkable trends: first a steep rise between 1993 and 1998 and then a decline. Also the Middle East and North Africa see a steep rise in the mid-1990s and then a decline. Here West Europe and North America score relatively modest, but notice that this is rather a process or change variable (annual revenues from privatization) while trade openness is a rather static variable. In the post-communist world the changes were abrupt, while in other parts of the world the changes were more gradual (Simmons et al., 2006).

2.2.3 Mechanisms

A typical notion in the political science and sociological notion of transnational diffusion, is that diffusion can occur through learning, competition, coercion or emulation (Borzel & Risse, 2009;

Simmons et al., 2006). Diffusion of practices that appear to be effective occurs through learning (Palloni, 1998) or competition, while diffusion of practices that appear to be normative occurs through emulation. Finally, there can be practices that are neither perceived as effective or normative per se, but that are diffused through coercion. Thus, nations can decide to adopt the policies of other nations because (a) they appear to be effective (Rose, 1993), or they have a (b) normative appeal and help the government in being legitimized (see also DiMaggio & Powell, 1983).

Moreover, Mäkinen (1997) predicted that cultural shifts that took place in the ‘modern’ societies and that spurred a temporary increase in the suicide rate in these societies, would be observed after some

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time lag in the ‘less modern’ industrialized societies. Although this distinction between ‘modern’ and

‘less modern’ is highly debatable and not free from normative connotations, her distinction more or less overlaps with the level of wealth, which will be used here as one of the distinctive marks of

‘leading’ countries.

Below I will discuss the four mechanism of diffusion that the literature has outlined (Borzel & Risse, 2009; Simmons et al., 2006).

Learning – Individuals and nations may seek to enhance their well-being by choosing the most effective strategy, but have limited information and time to acquire this information. Looking at the perceived successful actors is an efficient way to find effective strategies or practices. Diffusion is therefore said to occur from the actors that are perceived to be the most successful towards the other actors (Borzel & Risse, 2009; Palloni, 1998; Thomas et al., 1987). Some countries’ practices are perceived to be more effective than others. Through communication, countries can learn about the practices of others. Seeking to improve their own goal attainment, countries are also willing to learn from others that they perceive to be successful.

The presence of this learning mechanism of diffusion could be suggested by countries adopting the earlier adopted practices of countries that had the highest economic growth. Because of the internationally shared focus on national economic growth and the wide coverage and publishing of GDP growth of countries, it is likely that countries will perceive the practices of the countries with the highest growth as effective. They then likely imitate the practices of these countries. Therefore one definition of ‘leading countries’ will be the top 5 countries regarding economic growth.

Besides global diffusion through learning, it is also likely that countries located in the same region are most likely to diffuse practices through learning. Nations that share the same region more frequently interact, are more frequently exposed to each other, and are often in a similar surrounding with similar contexts (Borzel & Risse, 2009; Simmons et al., 2006). Moreover, countries that are more closely located are more likely to enter into agreements with each other (Beckfield, 2010; Borzel & Risse, 2009). Also within regions leading countries could arise whose practices are imitated by the others.

For each region the country with the highest economic growth will be taken as a regional measure of leading countries.

Competition – Another mechanism of diffusion that is distinguished is competition. Especially increased mobility of capital across the studied time period, due to technological innovations and ideological shifts, has increased incentives for nations to mimic the marketization policies of the others (Elkins et al., 2006; Haveman, 1993; Simmons et al., 2006; Sinn et al., 2003). This is sometimes called competitive isomorphism (Elkins et al., 2006; Haveman, 1993). Indeed, there may be a race to the

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bottom where countries compete for investors by gradually reducing welfare arrangements and redistributing tax burdens from capital to labour (Garrett, 1998; Genschel, 2002).

The role of competition can be indicated by shifts in social expenditures, employment protection and union density. Global investors are sensitive for labour costs and a predictable business climate. Strong unions can cause sudden strikes and keep the labour costs high, employment protection also contributes to higher labour costs and less capability to adjust to sudden market changes by quickly firing employees. Higher social expenditures can require higher taxes on business.

However, if competition would be the only mechanism, one would expect a faster diffusion process and more uniform trends than currently is seen. One would also expect diffusion among from the countries with the most economic growth towards other countries, because countries that strive to be competitive look at cues from countries that they perceive to be (economically) successful to imitate successful strategies. However, we also see diffusion between non-similar countries. Thus, competition is not likely the only diffusion mechanism at play.

Emulation – Emulation is another possible mechanism of diffusion. Diffusion in that case can occur through norm entrepreneurs (Payne, 2001). Marketization practices constitute several norms about what are valuable goals and the correct means to achieve those goals (Hövermann et al., 2015).

International organizations have a key role in the diffusion of such norms and practices. For instance, Borzel & Risse (2009) study how the European Union (EU) diffuses its ideas through explicit policies, to other countries and within the EU. European Union ideas have diffused already to Japan, South Korea, China and Latin America (Borzel & Risse, 2009). Another example is the OECD itself that sets statistics and monitors and publishes the performances of countries on these indicators, thereby signaling whose policies are to be emulated (Rose, 1991). It has also been said that neoliberal (i.e.

marketized) values have diffused towards the world partly through the OECD (Simmons et al., 2006).

Simmons et al. (2006) assume an increasingly global world polity in which there is a large, cultural consensus about the normatively superior goals and means. Mostly, this approach assume that the West is here at the moral forefront. However, recent work (Beckfield, 2010) challenges this notion, showing that the world polity is constituted in separate semi-autonomous regional associations of countries, rather than centred on a group of global leaders. Diffusion of cultural ideas about what are normative goals and means would rather diffuse regionally among similar nations. Still, the country that starts a new practice in a homogenous, narrow region, has likely to be a nation that can afford to take risks. Therefore I still expect some inequality between the early adopter and the later adopters with diffusion by emulation. Moreover, emulation may be at play as a more subconscious parallel process, where countries emulate those countries that have been positively reported in regional international reports and statistics. Thus, also with emulation I expect the economically most successful countries to take the lead. For example with regard to diffusion among individuals, many

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studies have shown that the suicide of a glorified celebrity incited an increase in subsequent suicides (Lee et al., 2014; Stack, 1987; Wasserman, 1984; Yip et al., 2006), whereas that of a famous criminal or dictator failed to do so (Stack, 1987). The adoption of certain behaviours by an endorsed elite actor can lend some acceptability to the behaviour (Stack, 1990). A similar principle may apply to nations.

Previous evidence suggests that competition, emulation and learning and not so much coercion is the main mechanism in the transnational diffusion of marketization practices (Borzel & Risse, 2009: 5;

Elkins, Guzman & Simmons, 2006; Swank, 1992). Here I expect that all diffusion processes have a potential role and none of them is the sole diffusion.

In all, I expect that:

H1, Countries will follow the trends in marketization that occurred recently in both global and region-specific economic leading countries.

In H1, learning is especially indicated by a diffusion of marketization policies, while emulation is especially indicated by a diffusion of marketized attitudes.

The impact of marketization tendencies in surrounding or leading countries may be mitigated by a high resistance of the population against marketization. Another pre-existing contextual factor in countries is the historical political institutions that are present, and who may cause path dependency in how countries respond to global marketization tendencies. These historical political institutions have implications for how strongly workers can resist marketization tendencies. Universal access to higher benefits and also unionized protection of employment conditions may make them more confident and able to speak out and protect non-market concerns from being overrun. Moreover, such strong institutions reflect certain historical cultural values that resist marketization.

Thus, I expect:

H2, moderation by resistance: the positive effect of recent marketization trends in leading or surrounding countries on marketization trends in countries hypothesized in H1-2, is smaller in countries when the population more strongly resists against marketization.

H3, moderation by welfare states: the positive effect of recent marketization trends in leading or surrounding countries on marketization trends in countries hypothesized in H1-2, is smaller in the social-democratic welfare state, followed by the conservative and meditarrenan welfare state, and largest in the transition and liberal welfare regime.

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