Social investment in the balance

Written by Anton Hemerijck on . Posted in Current opinions, Opinions

Professor Anton Hemerijck will chair a panel at The State of the Union 2018, entitled ‘Social Investment in the Balance’, featuring László Andor, Former European Commissioner for Employment, Social Affairs and Inclusion and now Senior Fellow at the Hertie School of Governance; Maurizio Ferrera, Professor of Political Science at the University of Milan; Silja Hausermann, Professor of Political Science at the University of Zurich; Maria João Rodrigues, MEP and former Minister for Employment in Portugal; and Frank Vandenbrouke, Professor at the University of Amsterdam. Ahead of the conference, Professor Hemerijck sat down with EUI Times to discuss social investment in the European Union.

Prof. Anton Hemerijck chairs a panel at The State of the Union 2018 addressing ‘Social Investment in the Balance?’

What is social investment?

Social investment is best understood as welfare provision devoted to preparing individuals, families, and societies to respond to the changing nature of social risks in advanced economies. This can be achieved by investing in, maintaining and protecting human capabilities from early childhood through old age, rather than pursuing policies that merely ‘repair’ the damage after moments of economic or personal crisis. The preventive and long-term outlook of social investment is key, because social risks are rapidly becoming less predictable and therefore less insurable. Social insurance alone cannot guarantee economic security and opportunity in modern-day societies, with increasingly knowledge-based economies and ageing populations. Furthermore, social investment helps break the cycle wherein social disadvantages are reproduced across the generations.

How has social investment changed over time?

The welfare state has been quite resilient, despite nearly thirty years of heavy critique from neoliberal hawks like Friedrich von Hayek and Milton Friedman, but we are talking about a different beast today. The biggest change is that modern welfare states are more sensitive to the dynamics of the life course, of how citizens’ social needs evolve time from early childhood to old age. For the most part, this newfound focus on the life course has been driven by the massive entry of women into the labour market. When women enter the labour market, everything changes. Postwar welfare states were based on the premise that husbands were at work in factories while non-working wives looked after the family. Today, the welfare state has to respond to the new challenge of reconciling work and family life, taking place against the background of the rise of knowledge economy at a time of accelerating demographic aging. If you want to save pensions you must maintain productivity levels. The way to do that is to invest in children and working parents more than ever before.

What do you mean when you ask whether social investment is ‘in the balance’?

There many faces to the question of social investment in the balance. First, the relationship between active policies and more traditional, passive social protection policies. The ideologues of the Third Way – the likes of Tony Blair and Gerhard Schröder – believed that a social investment trampoline could eventually replace the social protection safety net. In the neoliberal conception there is an inevitable trade-off between equity and efficiency, between high benefits and economic competitiveness. We have heard this message time and again, even today from Angela Merkel, Mario Draghi and others, but the reality is simply not true. The most competitive economies, according to the World Economic Forum, are the social investment countries, that are generous, high public-spending welfare states. The Great Recession proved that countries with quasi-universal safety nets bounced back much better, especially those able to layer good safety net buffers with more capacitating services in the areas of education, family policy, and labour market policy and regulation.

A second balance relates to the extent to which countries have adopted a social investment turn. Experts used to say that it only took root in the Nordic countries, because they are small and homogeneous, whereas bigger countries like France and Germany could not go down the same route. My sense is that Germany, the Netherlands, Austria, Belgium – less so France and Italy – have definitely moved in the social investment direction. As for whether the glass is half full or half empty in terms of outcomes, that is in the eye of the beholder Since the 2000s there has been a surge in employment participation, particularly for women and also for older men, thanks to pension reform, active ageing, family policies and capacitating employment services. But at the same time, there has been rising inequality. I would, however, say that those countries which are closest to the social investment frontier are those which have both high levels of employment and comparative lower levels of relative poverty.

What role has the EU had in the social investment debate?

The social investment agenda was set by experts and policymakers participating in EU debates – at a distance from the trials and tribulations of national welfare politics. At a national level there was little intellectual space to explore the contours of the new welfare state. The Lisbon agenda and some important presidencies in the early 2000s nurtured the ideas of social investment. Indeed without the EU, the social investment agenda would not have become so powerful policy-wise.

Does the EU also deserve some of the blame for stalling social investment in the aftermath of the Great Recession?

Absolutely. The austerity reflex after the Eurozone crisis brought social investment reform to a grinding halt, especially in countries that needed social investment the most. It should also not be forgotten that the single market and EMU were introduced when neoliberal tide was riding high, and the equity-equity trade-off was sacrosanct. It could even be argued that the infamous ‘no bailout clause’ in the Maastricht Treaty was meant as a warning to Member States to keep their wasteful welfare states in check! When the Eurozone economy grew, lip service to social investment was abundant. But when the crisis hit, the stability pact was reinforced and only the rich and competitive Eurozone members were allowed to continue with social investment reform. But countries in fiscal distress were told to put investment on ice, especially public spending on social infrastructure. This was predicated on the false belief that public investment is sheer wasteful consumption. In the age of the knowledge economy, this is nonsense.

With the worst of the crisis behind us, are we seeing the EU and its members pivot back to the social investment agenda?

We are at a crossroads. Economically, things are looking up and the worst of the crisis is behind us. There is therefore a temptation to argue that these were abnormal years which called for unorthodox policies – like quantitative easing – and now that there is less need for unorthodoxy, we should go back to the status quo ex ante. I have been particularly disappointed by the SPD in Germany, because I expected them to understand that the kind of social investment reform that Germany has pursued would, if replicated in countries like Italy, Greece, Spain and Portugal, stabilise the Eurozone. Yet German social democrats are clinging to the Wolfgang Schäuble line, which allows competitive countries like Germany and the Netherlands to reinforce social investment, making them more competitive, while obliging Italy, Greece and Spain to follow a neoliberal route of privatisation, deregulation and retrenchment – which we know reinforces low employment, high inequality, and causes a mass exodus of university graduates. I believe that the ensuing divergence between a rich north and poor south in Europe will eventually break up the Eurozone, making everybody worse off.

Anton Hemerijck is Professor of Political Science and Sociology and Director of Graduate Studies in the Department of Political and Social Sciences of the EUI. His panel at The State of the Union 2018 is entitled ‘Social Investment in the Balance’.

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