Anton HEMERIJCK

Professor of Political Science and Sociology at the Department of Political and Social Sciences, joined the European Commission's newly formed High-Level Group on the Future of Social Protection and of the Welfare State in October 2021. Trained as an economist at Tilburg University in the Netherlands, he received his doctorate from University of Oxford. In his capacity as Dean of the Faculty of the Social Sciences at the Vrije Universiteit of Amsterdam, together with Jonathan Zeitlin, he founded the Amsterdam Centre for Contemporary European Studies. He also directed the Scientific Council for Government Policy (WRR), the principle think tank in the Netherlands. Between 2014 and 2017, he was Centennial Professor of Social Policy at the London School of Economics and Political Science (LSE).

For almost two decades EU institutions have paid lip-service to capacitating welfare provision. With the new legislature, it’s time to ratchet up domestic social investment. A ‘golden rule’ of exempting certain types of social spending from the Eurozone fiscal rule book for about a decade would allow to invest in human capital, skills and health.

From the idea of ‘social policy as a productive factor’ in the 1997 Amsterdam Treaty, to the ‘social investment package’, launched in 2013 by László Andor when he was EU Commissioner for Employment, Social Affairs and Inclusion, up to the principles laid down in the 2017 European Pillar of Social Rights, often EU policies in favour of welfare provision have proven insufficient. While EU institutions have been at the forefront of the social investment turn, it must also be said that with even minor economic setbacks, the social investment impetus was immediately put on ice. Such schizophrenia no longer suffices. 

Today, the evidence on social investment returns is stronger than before. Moreover, structurally low interest rates conjure up a post-crisis opportunity not to be wasted. The European public expect pro-EU political forces to put their money where their mouth is in terms of supporting lives worth living! It is about time for the European Commission and European Parliament to come out of the closet of austerity and commit to social investment beyond lip-service.

But let’s recount a few blessings. When the going gets really tough, as it did in the aftermath of the Greek near-default in 2010, EU Member States agree to intrusive measures to keep the single currency afloat, with fiscal support for Ireland, Portugal and Greece, backed up by “whatever it takes” ECB monetary policy interventions. Most important is the evidence that active – big spending – welfare states of north-western Europe have proved best able to absorb the global credit crunch and the Eurozone conundrum. There is a need to align the Eurozone’s adaptive capabilities and the welfare state’s capacitating prowess in a new overarching strategy for the European social model to prosper in the 21^st century. 

Citizens all over the EU are craving to support social investments now that the financial cost that would make such investments hugely profitable in economic and social returns are minimal.

Central to the long-term financial sustainability of the welfare state are the number (quantity) and productivity (quality) of current and future employees and taxpayers. To the extent that welfare policy in a knowledge economy is geared towards maximising employment, employability and productivity, this helps to sustain the ‘carrying capacity’ of the modern welfare state. Three complementary policy functions underpin the social investment edifice: (1) raising and maintaining the ‘stock’ (or human capital, skills, health of population); (2) facilitating ‘flows’ between various labour market and life-course transitions; and (3) using ‘buffers’ for social risks (unemployment, sickness) mitigation through income protection and economic stabilisation. For social investment to work, effective policy coordination is essential. Inclusive ‘buffers,’ gender-balanced ‘flows’ and lifelong human capital ‘stocks’ commitments produce mutually reinforcing synergetic effects over the life cycle in terms of a positive multiplier effect generating aggregate economic growth and social well-being at the individual and household level.

A good example was provided by the late Tony Atkinson: when surgery is needed, timely intervention allows an incapacitated worker to return to work sooner, thereby creating extra output and saving costs over the long term – even if surgery is covered by public funds. This, however, and here is the punch, presupposes that we account for such ‘public’ spending as an investment instead current spending. Foolishly, in the rule book of the Stability and Growth Pact (SGP), public investments in lifelong education and training in the knowledge economy are accounted for as wasteful consumptive expenditures.

My proposal is to ratchet up domestic social investment by exempting human capital ‘stock’ investments from the SGP. The time is now. The post-crisis collapse in interest rates should be put to use to establish, consolidate and expand social investments that benefit future generations and consolidate fiscal health in the face of adverse demography. Concretely, I propose a ‘golden rule’ of exempting human capital ‘stock’ spending from the Eurozone fiscal rule book for 1,5% of GDP for about a decade, as a flagship initiative of the new European Commission. 

Reasoning from the three policy functions of social investment, in terms of a viable division of responsibilities between the EU and the Member States, this can be done without trespassing on national welfare state jealousies. Surely, the function of social security ‘buffers,’ the core prerogative of the national welfare state, should remain in the remit of national welfare provision. The ‘flow’ function, concerning labour market regulation and collective bargaining in sync with work-life balance, gender equality and family-friendly employment relations, is best served by mutual learning and monitoring processes of open coordination, engaging national governments with relevant experts and social partners in sharing good practices.This leaves us with the overriding importance of the social investment lifelong human capital ‘stock’ option. The Eurozone austerity reflex since 2010 has resulted in a public investment strike, most unfortunately in the area of human capital stock capabilities, lifelong education, training and healthcare, with adverse consequences on economic growth, employment, productivity, wellbeing and equality across Europe. Citizens all over the EU are craving to support social investments now that the financial cost that would make such investments hugely profitable in economic and social returns are minimal. If not now, when?