Future-proof resilient Welfare States in the European Union through social investments?

19/12/2022

As persuasively argued by Anton Hemerijck and Robin Huguenot-Noël in their book ‘Resilient Welfare States in the European Union’, the key feature of European welfare states is their resilience – that is, their adaptation to structural change throughout shifting political and ideological contexts and seminal economic crises. In addition to being a compelling academic analysis, this book stands out as a manifesto for social investment as a lifelong ‘stepping stone’ for citizens. The book also maps a path towards developing social investment at the European Union level while looking at the national-level intricacies and impacts this involves.

The Covid-19 pandemic incontrovertibly highlighted the importance of welfare states, not only in terms of reacting to unexpected shocks but also in terms of identifying solutions to overcome them. While this was no novelty per se, debates on the ‘return of the state’ sounded almost exotic after decades of neoliberal prescriptions positing – with varying intensity – the need for state intervention to be limited in order for free markets to flourish. In a context of fast-paced technological change coupled with ever-growing environmental challenges, high income inequality and relatively low trust in electoral politics, the question of what constitutes a desirable and future-proof way of organising social policies is quickly moving up political agendas.

Defining European welfare states as the ‘unsung hero’ of the Great Recession and the pandemic, the authors persuasively argue that social investment is a paradigm representing the best way to future-proof welfare states.Drawing on previous welfare state approaches and seeking to build a new welfare paradigm, social investment sets out to cope with so-called ‘new social risks’ via a portfolio of three complementary sets of policies, : a) ‘buffers’ – such as income protection safety nets (for example social assistance), b) ‘flows’ – that is, helping people to bridge critical transitions in the course of their lives (for example social insurance programmes), and c) ‘stock’ – that is, the building of human capital and capabilities into the core of social investment. 

The idea of social investment as a paradigm is convincingly constructed on seminal theories of social justice and human capabilities (John Rawls, Amartya Sen and Jonathan Wolff, and Avner de-Shalit). Social investment has a dynamic conception of institutions – including normative beliefs and value orientations which are essential features of the paradigm. The paradigm often sees institutions as cumbersome but not immovable.  Institutions are also seen as capacitating tools which can ensure that equity and efficiency go hand in hand. A central point made in the book is therefore that the social investment approach is dynamic and rooted in the changing nature of social risks, and that it implies that welfare reforms are difficult but indeed possible and in fact constantly happening. 

A salient merit of Hemerijck and Huguenot-Noël’s book is that it empirically documents the gradual transformation of European welfare states into a social investment model. Using social spending macro-data and macroeconomic indicators, the authors demonstrate that the long-postulated inverse relationship between equity and efficiency does not hold true. Quite the contrary, in fact. The highest-spending countries have achieved better outcomes in terms of poverty alleviation, competitiveness and employment creation. While the shift towards social investment has been context-specific, piecemeal and often truncated, the book provides valuable data that demonstrate the shift. 

Another great merit of the book is that it reviews the difficult road to a ‘Social Europe’, highlighting the EU’s important contribution to the development of a social investment agenda – starting in the late 1990s and intensifying with the adoption of the Social Investment Package in 2013, and the European Pillar of Social Rights in 2017. The authors’ core proposal regarding the EU level is that the European Commission’s commitment to social investment needs to be accompanied by modifications to the macroeconomic governance of the EU, especially in times of crisis. In November 2022, the Commission issued a communication setting out orientations for a reformed EU economic governance framework.  These orientations “aim to strengthen debt sustainability and enhance sustainable and inclusive growth through investment and reforms”. However, the idea of having a substantial demand-stabiliser at the EU level remains absent from the EC’s agenda. In the absence of such stabilisers, the authors propose that human capital-centred social investments should be exempt from debt and deficit rules. Such exemption is essential, especially because debates around social spending continue to be focused on its levels, and that evaluating social spending in terms of social outcomes and effectiveness is still underdeveloped in several member states

The authors respond elegantly and convincingly to previously addressed criticism of this approach – criticism which highlighted the underlying economic assumptions of the approach, and the fact that it benefits working middle-class families at the expense of poorer households. The authors defend the social investment paradigm approach by demonstrating that it takes the above-mentioned issues into consideration through the three functions of ‘buffer’, ‘flow’, and ‘stock’ and the combination of ‘social protection’ and ‘social promotion’.

Yet, beyond this type of criticism, the following issues arise: while the authors’ proposal to exempt human capital comes with a certain policy value, it presupposes that national governments will be willing to take advantage of such a discount and invest in human capital. A recent study, however, found that social investments have different functions (skills creation, preservation, mobilisation) and distributive implications. These findings spotlight a key point that is overlooked by Hemerijck and Huguenot-Noël – that the heterogeneous character of social investment politics poses a fundamental challenge to their proposal (and to any EU-wide proposal on social investment). Reasons for this are deeply rooted in the character of the EU, which leaves the bulk of social spending decisions in the hands of member states. Moreover, the social investment approach seems mostly to relate to wealthy Western European states. Several Central and Eastern EU member states have been holding the welfare state hostage to neoliberal and austerity policies for decades. Moreover, the authors rightly point to the fact that many of these states are having problems absorbing the funds, as may be the case under the Resilience and Recovery Facility, where many national plans have social investment components. 

A second question pertains to the central role of the family in the social investment approach. Although the authors recognise disruptive transformation in families, and although one of the primary focuses of social investment is on investing in children and childcare as a solution, there are other issues to be addressed. In a context of high divorce rates and single-parent families, beyond providing specific social assistance and investing in children, the fundamentals of the social protection systems should also be rethought, looking into possible impediments in insurance-based systems due to the persistence of the male-breadwinner model. This question has strong gender implications. Although the social investment paradigm definitely empowers women by stressing employment and the accessibility of childcare facilities, further consideration and operationalisation of these issues are needed, also in view of engaging in a cultural battle with conservative forces.

Third, the authors argue that European solidarity is more relevant than usually depicted and that it could be a trigger for ground-breaking EU-wide social initiatives. Not only is this argument not elaborated at length, but data to support it also refer solely to the Covid-19 period, during which it was reasonable to expect that citizens were in favour of more overall protection (which was also provided by the EU). For this reason, the role of European solidarity seems overrated.

Finally, the social investment paradigm is centred on continuous productivity increases to sustain the welfare state. In this respect, although it is seen as a solution to the problems raised by climate change and as a tool to ensure a ‘just transition’, there is no clear operationalisation, and no set of concrete proposals on how social investment should respond to these issues. Relatedly, the book does not elaborate on how social investment and its principal political supporter social democracy relate to paradigms such as degrowth or ‘irrational optimism’. Nonetheless, a serious consideration of alternative paradigms will be crucial for social democracy to be politically appealing in debates on the politics of climate change, and to be politically appealing especially to young people like those who have been going on strike for the climate all over the world. 
All in all, Resilient Welfare States not only does the work of developing ideas for sustainable and functioning social policies, it also provides tangible policy proposals that national and EU policymakers should take seriously.

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