Structural funds to support social investment
The European Structural Funds, the European Investment Bank (EIB), and the European Bank for Reconstruction and Development (EBRD) could become more supportive of specific social investment policies. Eurobonds could also be issued to fund specific European projects in the realm of social investment, from which Member States that pursue credible social investment policies may benefit. In this way, the EU could substantiate a real 'deal' between countries that are in better budgetary shape and have pursued social investment strategies more consistently in the past, and countries that have been less consistent with regard to the social investment turn, and experience straitened finances.
Towards social investment public accounts
Consistent delivery of the social investment objectives requires, in the third place, that they be embedded in the reinforced Stability Pact macroeconomic and budgetary surveillance of the EU. Thus far the Stability Pact has declined to distinguish between public investments with estimates of real returns from consumption expenditures. All the available evidence suggests that investments in childcare and education will, in the long run, pay for themselves. Besides education and training, there are a number of social policies that are easy to identify as investments in individual productivity and collective wealth creation, such as family services, building life-long learning opportunities, and activation programmes. In addition, all spending on child welfare has a high potential pay-off in terms of financial security and preventing child poverty. The central idea behind social investments is that policies that serve to raise participation and productivity should not be seen as a drain on the public purse but as productive factors that can contribute to economic progress—in other words there is a real return for society and the economy from investing in people. Therefore, there is a strong case to be made to distinguish between current and capital accounts in welfare state spending, just as private companies do. As Esping-Andersen (2006) has advocated before, a new system of EU public finance surveillance is needed that would allow finance ministers to (a) identify real public investments, and (b) examine the joint expenditure trends in markets and governments alike. For this, the EU could establish a new social investment in national accounting to separate investments for future and current expenditure, including differentiation between both types of expenditures in macroeconomic surveillance. It could then be possible to exempt social investments from the constraints of fiscal austerity. Eurobonds, project bonds, Structural Funds, or a Tobin tax on financial transactions, should perhaps not be employed to bail out past debts but rather to finance social investment programmes for the future, thus enabling people to deal better with structural change in the future (Rodrigeus, 2009). Considering the long-term return on social investments for the European economy and society, there is ample reason to count social investment in early childhood care, training, and education and family services, not as consumptive expenditure but rather as public investment; from this point of view the EU could stimulate and allow all Member States to pursue ambitious social investment strategies, so as to accelerate productive reforms and dynamic social innovation. To the extent that economic returns from social investments will lead to higher participation and productivity, in turn reducing the need for corrective social insurance, this surely justifies raising social investment expenditures even when public finances are tight.
It is important to emphasize that all three proposals contribute to enforcing an institutional dynamic whereby all governments pursue budgetary discipline and social investment, and are supported therein in tangible ways by the EU. Such a reform-oriented, forward-looking deal may contribute to creating a real sense of 'reciprocity' in the EU. Reciprocity presupposes an intelligent balance between discipline and assistance, between strict conditionality and perspective on progress, or, to put it in the activation terminology, between 'stick' and 'carrot'. What we know to be true for individual activation policies in labour markets is also true for the overall architecture of EU governance. Investment in human capital, lifetime employment, and productivity are perhaps the most important factors to EU-wide macroeconomic stability and growth in the longer term. The worst performing countries are those struggling most in the current situation, and they are least able to invest additional money into training, education, and skills. The EU should consider how to help the worst performers as human capital is the single most important growth factor, which, if fixed, could put the EU on track for achieving the target of more sustainable, inclusive growth. Low labour market participation is therefore simply no longer affordable with the demographic changes taking place and it has to be addressed as a matter of urgency. 'Helping' means, in this context, putting in place a productive, combined macroeconomic and budgetary surveillance and social investment incentive structure. Delivering on the above priorities offers a far more convincing response to the question of how to stabilize financial markets than one-size-fits-all collective austerity, which only reinforces recessionary pressures.
The imperative of a more fiscal union cannot be separated from the need for, at the minimum, a shared vision on social Europe. When it comes to steering the overall orientation of social policy in the Member States, there is no real alternative to a 'governance by objectives' approach based on the broad contours of social investment in respect of diversity. Setting common social investment goals, while leaving the precise implementation of social and employment policy to the Member States, will be the way to go in the foreseeable future, facilitating policy learning through the toolkit of the open method of coordination. Although the fiscal room for manoeuvre is restricted, as I have argued also in Chapter 8, the objectives formulated in the Europe 2020 Strategy can provide a receptive—if by no means perfect—framework to anchor a more positive EU social investment policy strategy in closer progrowth budgetary and monetary macroeconomic surveillance and financial regulation. Europe 2020 and the Lisbon Treaty (which anchors the EU's normative commitment to a (highly competitive) 'social market economy' in Article 3 and the 'horizontal clause' in Article 9) enable real governance improvements, potentially leading to a more balanced approach to market integration. When competitiveness becomes a key indicator for multilateral surveillance, then countries would be submitting social and labour market policies to EU scrutiny, which would give the OMC in effect far more bite. An important related question in this respect is whether the National Reform Programmes of the Member States will credibly pursue all the integrated guidelines and headline targets of Europe 2020, and whether or not the European Council will be as strict in assessing the National Reform Programmes and in monitoring sustainability, education, and social targets as it promises to be strict on budgetary and competitiveness indicators. In this respect, the credibility of the Europe 2020 ambitions will depend on the credibility of the link and hierarchy between the reinforced macroeconomic and fiscal surveillance to which the EU is now committed. I strongly believe that the objectives formulated under the EU 2020 strategy can provide a framework for reconciling those short- and long-term considerations, if the social investment strategy is embedded in budgetary policy and financial regulation, that is, if short-term macroeconomic governance serves longterm social investment. Again, what is sorely required at the cognitive level is a wider understanding of macroeconomic stability that takes social investment equity and efficiency gains seriously.