Economic integration, democracy and the welfare state

The present difficulties of democratic welfare states in Europe are often ascribed to economic "globalization", that is to the world-wide integration of markets for capital, goods and services which has eliminated national control over boundary-crossing economic transactions, and which therefore exposes national producers to world-wide competition. In fact, however, globalization in the strict sense of the word is, at the most, realized only for speculative capital transactions. It is true that in all other areas of economic activity the intensity of international competition has increased as well. Nevertheless, even under the liberal regimes of GATT and WTO, governments have not abdicated their capacity for boundary control, and the freedom of world trade is still constrained by a wide variety of tariffs, quotas, "voluntary" restrictions and non-tariff barriers. All this is different within the European Union, where national governments have delegated control over external trade relationships to the Union, and where they have in fact abdicated boundary control over economic transactions within the internal European market. As a consequence, the competitive pressure on European welfare states originates mainly from the "regulatory competition" within the Union, and the frustrations of democratic governance in Europe mainly result from the fact that the range of feasible policy choices has been reduced at the national level while policy making at the European level still lacks democratic legitimacy.