In Defence of Affordable Social Investment

Social investment in jeopardy?

Three years since the bankruptcy of the Lehman Brothers investment bank, the aftermath of the global financial crisis continues to be fraught with wrongheaded policy temptations. This is especially true for the European Union, where short-sighted fiscal austerity is endangering the very objective— economic recovery—that it set out to achieve. Moreover, the manner and extent to which the burden of austerity is being distributed within and across Member States will have important implications both for the efficacy of EU- level macroeconomic agreements and the legitimacy of domestic social reform. Pro-cyclical fiscal restraint across Europe's most distressed economies is sure to generate domestic political upheaval if there is no hope of reward for painful sacrifices. As many governments are struggling to garner domestic support for new rounds of unpopular social reform, any new 'fiscal compact' must be balanced with growth and social cohesion enhancing measures, if the European economic project is to survive. To put together joint EU macroeconomic governance and domestic welfare reform packages that can stabilize public finance without hurting recovery, and that are the same time seen as sufficiently equitable is a tall order. For Europe to live to its full economic growth and social wellbeing potential, the hesitant and halfway reconversion to the economic teachings of John Maynard Keynes in the wake of global financial crash sorely needs to be complemented with a forceful updating of the welfare legacy of William Beveridge, to twenty-first century economic, social, and (geo)political conditions.

As I write the final pages of this book, there is a risk that crisis-induced austerity measures might destroy the social investment turn across the most prosperous EU welfare states, which proved so adequate in the first rounds of the cascading crisis aftershocks of 2009 and 2010. What is particularly uncomfortable is that many European governments and EU policymakers have relapsed into believing that social policies come with the price tag of hampering growth and competitiveness, a luxury we cannot afford in the face of, possibly, a double dip recession. This unfortunate 'false necessity', to use a term coined by Roberto Unger (1987), harbours a real risk of self-fulfilling economic stagnation, which in turn, could politically trigger nationalist protectionism across the Continent. Particularly, the mismanagement of the contagious eurozone sovereign debt and currency crises have brought both the national welfare state and European integration project, two of the most precious innovations of post-war institutional engineering, to a new political crossroads. The aftermath of the crisis forces us, before it is too late, to rethink changing welfare states, once more, under conditions of deeper European economic and institutional interdependencies than ever before.

It is perhaps too soon for an academic to draw policy conclusions from the momentous crisis of twenty-first century finance-driven global capitalism, but given the nature of the risks, it is imperative to at least try to explore some of the ramifications of what lies ahead for social policy provision and EU cooperation. The fact that the crisis is putting severe strains on welfare and European institutions can bring about positive consequences. Deep economic crises are often moments of political truth, so the history of the twentieth century teaches us. In the wake of the credit crunch of late 2008, both social policy concerns and EU economic governance have reappeared at the top of the political agenda in practically all Member States. Citizens and policymakers have once again realized how important social protection and promotion is for mitigating social hardship and how critical EU, and especially ECB, interventions are in fostering a minimal degree of financial stability.

As demonstrated extensively in this book, the past three decades have seen intense social reform. Some countries, most notably the Nordic countries, have in the process been able to establish new, virtuous mixes of equity and efficiency in their efforts at welfare recalibration. They have done so by enlarging the scope for markets in the sphere of production while complementing income protection with active and capacitating social services. Also elsewhere, notably in a number of Continental welfare regimes, such as the Netherlands (social activation), Germany (support for dual-earner families), and France (minimum income protection), but also in Britain (fighting child poverty), Ireland (improved education), and Spain (negotiated pension reform) welfare policy and labour markets have been reoriented towards social investment, with higher levels of employment for both men and women as a result. Social service innovation and expansion, it is true, have been accompanied by benefits of shorter duration, increased targeting and sanctioning in passive welfare benefits. Only a small minority of European countries, notably Greece and Italy, have continued to resemble the purported general caricature of change-resistant, passive welfare states. But, by the early 2000s, their antiquated social policy systems had become the exceptions to the more general rule of (self-)transformative welfare state change in most other regions on the European continent. Also in the aftermath of the credit crunch of late 2008, the more comprehensive European welfare systems, such as Germany and Sweden, proved most resilient and competitive. Near-universal social security benefits acting as robust automatic stabilizers, together with high-quality social services in childcare, training, and activation, consistent with social investment policy priorities effectively ensured that workers on short-term unemployment benefits could maintain their human capital. An ambitious, generous, and active welfare state, once again, proved to be an asset rather than liability.

The overriding purpose of this final chapter is to assess and contextualize the prospects for social investment in early twenty-first century European welfare capitalism (Vandenbroucke, Hemerijck, and Palier, 2011). Will the social investment paradigm that emerged in the 1990s from disenchantment with neoliberalism carry the day? Or, will the social investment edifice revert to marginality now that the calls for deficit and debt reduction, based on the mantras of balanced budgets and disinflation, have resumed taking pride of place? The years ahead will differ markedly from the past two decades when the social investment paradigm was launched after the mid 1990s (Morel, Palier, and Palme, 2012). To be sure, the tide of pre-emptive austerity, the resurgence of national populist old-style welfare chauvinism, and declining popular support for European Union institutions, are all anathema to a much- needed rethinking of comprehensive and productive welfare states. This final chapter, in its normative orientation, examines what is needed to rescue the social investment perspective from one-sided austerity politics, without, however, denying the importance of fiscal consolidation. Given Europe's adverse demography, moreover, it is my firm contention that the social investment imperative is more acute than in the 1990s. The key policy challenge is to make long-term social investment and short-term fiscal consolidation mutually supportive, both economically and politically.

The rest of the chapter is organized as follows. First, section 2 takes stock of the core empirical insights and theoretical lessons of this book. Section 3 summarizes how far social investment ideas and policy practices have taken root across different welfare regimes. Next, section 4 elaborates a number of concrete policy recommendations, largely following a life-course approach, so as to substantiate affordable social investment policy synergies in the postcrisis context. Section 5, in turn, addresses the critical role of the EU. As social investment is necessarily a supply-side strategy, it cannot be a substitute for macroeconomic governance and sound financial regulation. The eurozone sovereign debt and currency crisis critically exposed the shortcomings of the unbalanced coupling of (too) 'hard' EMU governance and the (too) 'soft' Lisbon Agenda. A deliberate strategy of affordable social investments, therefore, needs to be solidly embedded in a regime of macroeconomic governance and budgetary monitoring at the EU. The final section touches on the embattled politics of social progress in early twenty-first century Europe. Today, EU citizens have as little faith in the state as they have in the market, as Peter Hall sees it. A fundamental reimagining of the role of public authority in the economy is imperative. Elected national politicians and EU officials must re-establish the terms upon which welfare provision can be seen as normatively legitimate and economically efficient (Hall, 2009).

 
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