Making Social

Investment

Work

SAIS Europe Bologna,

29 March 2018

1. The “half-return” of the master (Keynes)

2. An empirical puzzle to consider

3. Social Investment debate

4. Social investment as a policy paradigm

5. Some empirics – beyond trade-offs and trilemmas

6. An explanation for the ‘silent revolution’ of social investment (and political vulnerability)

7. E(M)U social schizophrenia

8. Leveraging social investment for the Eurozone in three steps (against the odds)

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Outline

• Keynes’ teachings on the volatility of (open) capital markets re-habilitated: financial re-regulation, ECB-lender of last resort, quantitative easing, Banking Union

• Not his ideas on fundamental social priorities (full employment and the need for social security ‘buffers’ for economic stabilization and poverty relief in times of need) –(post-war) welfare state (making capitalism compatible with democracy)

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1. The half-return of the master

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2. A puzzle

• Contours of social investment welfare apparent, but under-appreciated as one (or two) antecedent welfare paradigms shape post-crisis debate

• While the international policy community (OECD/WB – former cheerleaders of neoliberalism) hail social investment, academic reception more critical (Brian Nolan – What Use is Social Investment? Bea Cantillon – Shortcomings of Social Investment)

• The politics of the ’new’ welfare state: growing appreciation of gradual but transformative welfare state change, but understood as downwarddrift (dualization) rather than progressive recalibration. Focus on input-side side of political process (parties) away from institutional-supply side of the (welfare) state, structuring politics and policy reform

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3. Social Investment debate

• A common cognitive and normative frame of reference, shared by boundedly rational policy makers, informing their understanding of salient social problems and political priorities, guiding policy prescription

• Anchored in a policy theory of causal relations, explaining past experience, as well as guiding future interventions, subject to empirical validation.

• Caveat: tendency toward unreflective institutionalization (ideational lock-in) (Kuhn)

• Over time: punctuated paradigm displacement by cumulative anomalies weakening extant paradigm validation, triggering re-examination of cognitive (and normative) biases and political mobilization (policy actors unable to learn ahead of failure) behind untried solutions (Hall)

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4. Social investment as a policy

paradigm i

Definition‘Prevention is better than cure’: Welfare provision that helps ‘prepare’ individuals, families and societies to respond to the changing nature of social risks in advanced economies, by investing, up-keeping and protecting in human capabilities from early childhood through old age, rather (not instead) than pursuing policies that merely ‘repair’ social misfortune after moments of economic or personal crisis

Background causalitySocial risks of the life course and the labor market have become less predictable and therefore less insurable in a strict actuarial sense. Social insurance alone cannot guarantee economic security and opportunity in the knowledge economy and ageing societies

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Social investment as a policy

paradigm ii

• Lone parenthood (child poverty)

• School dropout

• Falling demand for low skill work

• More often ‘in between’ jobs (transitions)

• Accommodating work and family life (care for children and

fragile elders) difficult (especially for working mothers)

• Inadequate social protection due to ‘broken careers’ and

‘precarious’ employment

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Changing nature of social risks

• Political objective: raising family-friendly employment over life course to

sustain popular but aging welfare states and contribute to breaking the

inter-generational reproduction of social disadvantage

• Policy theory: Social investments “crowd in” private initiative through

higher employment and improved long-term human capital allocation

(productivity) in ageing knowledge-based economies

• Policy instruments: policy “mixes” that mitigate gender sensitive life

course contingencies ex ante

• Governance: integrated social service – income protection institutional

capabilities

• Political discourse: capacitating social justice and equity

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Social investmentas a policy paradigm iii

Dominant political focus on ‘numerator’ distributive side of equation in aging societies (them and us).

Long-term strength economy and welfare provision increasingly contingent on social policy contribution to the (dynamic) productive ‘denominator’ side of the welfare equation, requiring a wider and more multidimensional ambit of policy interventions across the entire life course, beginning with children (Esping-Andersen et al., 2002)

Core: ‘carrying capacity’of the welfare state

per worker produciton Average

client eper welfarn consumptio Average

worked)(hours workersofNumber

provision by welfare supportedNumber

1. Raising the quality of human capital ‘stock’ and capabilities over the life course from the young to the old (cumulative returns) (Heckman)

2. Easing and improving the ‘flow’ of contemporary labour market transitions in line with (gendered) life course dynamics (Schmid) to retain human capital

3. Upkeeping/upgrading strong (universal) minimum-income universal safety nets and (obligatory) social insurance as social (income) protection and macro-economic stabilization ‘buffers’ over risky transitions (Lesson of Great Recession) to protect human capital

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Key functions:Stock, Flow and Buffers

• Policy mixes performing stock-flow-buffer functions generating ‘life course synergies’ in interaction

• Two central institutional complementarities:

– Here and now: stock-flow-buffer policies work in conjunction to maximize current opportunities

– Over the life course: cumulative policy synergies addressing one phase of the life course enhance capabilities in the next life phase (e.g. Early investments in children -> future human capital [productivity] gains at lower inequality)

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Institutionalcomplementarity

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Social investment life-course

multiplier (ceteris paribus ’EIC’)

Early childhood education and care

Educational attainment

(Female) Employment and low child poverty

Dual earnership, worklifebalance (lower child gap)

Higher exit age and higher employment elderly

(active-ageing pension reform)

Poverty protection and prevention (extra

resources)

• Redistribution (between rich and poor) – Robin Hood

• Poverty reduction

• Fighting inequality and fair burden sharing

• Counter social exclusion

• Social insurance (over the life course) – Piggy Bank

• Risk sharing and risk insurance (saving)

• Income replacement

• Capacitation (services) – Stepping Stone/Second Chance

• Lifelong human capital development and maintenance

• Easing labour market transitions and reintegration

• Support working families over the life course14

Organized solidarity in three

Angela Merkel at WEF 2013:

”The European Union accounts for 7% of the world’s population and 25% of its GDP, but over 50% of its welfare spending…

…we are not competitive!”

EU’s global welfare spending is 40%, and on a par with the US and Japan (public + private)

Emerging economies rapidly catching up

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5. Some empirics: recognize a paradigm:

when inertia no longer reflects reality

• Okun (1975): Big Trade-off between Equity and Efficiency

• OECD (1994): Trade-off between Equity and Employment

• Iversen/Wren (1998): Trilemma of the Service Economy – only two out of three objectives (employment, equity, fiscal balance) within reach

• Policy lesson: Single Market/EMU designed to keep “wasteful welfare states” in check

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Theoretical foundations for pro-cylical austerity neoliberalism

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Some empirics: social protectionand competitiveness

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Unemployment and activelabour market policy effort

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ECEC effort and femaleemployment

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Female employment

Re-distributive performance

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Child poverty

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Fiscal performance

• High-spending, active, European welfare states best in achieving high employment, subdued poverty and healthy public finances (competitiveness) and political stability.

• Ex negativo, battered welfare states face stagnant employment (high unemployment) and troublesome public finances (Trump’s shift to trickle-down neoliberal protectionism)

• Quality (composition) rather than quantity (level) of social spending decisive in many respects

• Many more interacting factors are at play (Eurocrisis)24

Take-away anno 2018

• No product of (exogenous) economic crisis – took shape before 2007

• (As a consequence) no antagonistic failure-related frame of reference

• Example of ’learning ahead of failure’ of long-drawn out spillover reform-ripple sequences across a multitude of policy areas (with element of political intelligence and post-hoc codification)

• No obvious ’political carrier’ – children don’t vote!; but parents do!

• Political price: ambivalent support (push comes to shove, Merkel unreflectively opts for ordo-liberalism – undermining social investment full potential)

• Social investment reform is difficult, but it happens. Why? Partisan politics of new welfare state perspective under-explains progressive recalibration by conjecturing dualization (away from institutional supply)

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6. Explaining the silent social

investment (r)evolution?

• Nordic and Continental ’difficult-to-retrench’ universal (public) ’buffers’ acted as ’productive constraints’ pushing policy makers, facing the Scylla of popular welfare provision and the Charybdis of fiscal restraint, to re-focus and layer ’flow’ and ’stock’ policies to achieve higher (female and elder) employment and fight child poverty (future human capital), to secure the welfare state’s ’carrying capacity’, with positive macro-economic synergies.

• By contrast, US weak and fragmented (private and corporatized) safety net ’buffers’, without job-protection, necessitated aggressive fiscal and monetary reflation to pre-empt disruptive mass unemployment in time recession, which, in turn, relieved (public and private) policy actors from productive ‘flow’ and ’stock’innovation, reinforcing stagnant (female) employment

• Southern European (and French) insider-biased ’buffers’ at low real interests (EMU first decade) acted as ’reform-tranquilizers’ before the crisis. Thereafter ’no-escape-from-austerity’, deepening disequilibria, and an austerity reflex leaving no space to update ’stock’ and ’flow’

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Back to the puzzle: a (welfare) state-

centered perspective

• Organized solidarity key feature of EU (union of welfare states)

• Lip-service (from the Treaties to the Social Investment Package [2013] and the European Pillar of Social Rights [2017])

• Background expert chagrin about ”wasteful welfare states” (codified in the Treaties [no-bailout clause])

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7. E(M)U social schizophrenia

• EU integration (sold as) a ’fair weather’ (all MS equal) project of market integration (with lofty social commitments)

• Countries naively trick themselves into higher levels of integration (creating asymmetric inter-dependency) through regulation only, which they cannot resolve by themselves in case of asymmetric shocks

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Original sin: “interdependencewithout safety net”

• Social: Market integration free lunch for national welfare states, as intensified market competition is believed to create more growth to distribute (fairly and nationally). But market integration unleashes regime competition, with asymmetric effects on national welfare states. In case external shock, asymmetries and regime competition trap MS in a bad ’social’ equilibria, rising (youth) unemployment and deepening poverty (no social re-insurance mechanism).

• EMU fueled boom and bust. Global credit crunch swiftly spilled over into Eurozone crisis. Northern banks (exposed to US debt) repatriate investments from the Southern periphery after Greek near-default, further deepening imbalances, and, politically, raising levels of distrust (no fiscal backstop)

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Endogenous asymmetries intensify external shocks

– EMU – creditors versus debtors narrative

– Social – excessive austerity versus wasteful welfare states narratives

– Migration – solidarity versus closure narrative

Breeding ground for populism

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Inter-governmental crisis

management deepening distrust

• Active, family- and child-friendly, and unsegemented welfare state do better on all counts – ‘positive’ policy lesson (consistent with Lisbon Treaty commitments, social market economy, and the European Social Pillar)

• Problematic legacy of Southern welfare provision (pension-bias, dual labour markets, familialism) exposed – ‘negative’ lesson

• Unconditional fiscal austeriy undermines budgetary consolidation in problem countries – crisis management lesson

• Asymmetric competition, dramatic youth unemployment, etc. undermine the viability of E(M)U – macroeconomic lesson

• Austerity reflex cum failure to resolve Euro crisis breeding ground for xenophobia and right-wing (and left) populism – political lesson

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What we know and where we are

• Europeanize welfare provision – a bridge to far?

• Careful what you wish for economically and (even more so) politically (Dani Rodrik) – re-nationalize macro policy?

• Build a protective zone – an E(M)U holding environment – for (active) welfare states to prosper?

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Ways out of the conundrum

• Leverage social investment in EU budget

• Expand social infrastructural investment in EFSI (with private sector buy-in)

• Introduce a “Golden Rule” for social investment in EMU economic governance (to protect productive social spending in times of economic downturn)

• To be sealed off by EMU social re-insurance facility (full return of the master)

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E(M)U social investment reformsequence (against the odds)

• Social investment can no longer be dismissed as “fair-weather” politics: Wise to pursue when the economy grows, but prohited when the chips are down.

• To save pensions (and the euro) is to invest in families and children!

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Morale

THANK YOU

• Inter-disciplinary collaboration (politics, sociology, public policy analysis, economics, political economy, political philosophy, law, public administration, etc.)

• Methodological pluralism

• Integration of problem-oriented policy research and interaction-oriented political analysis (Scharpf)

• Varieties of dispassionate empiricism and (normative) evidence-based knowledge-sharing with policy makers

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8. New Research (in comparative

welfare state analysis)

• Welfare state makes modern capitalism compatible with democracy (Polanyi; but Streeck)?

• No inevitable big trade-off between equity and efficiency

• Provided adequacy policy design and in flexibility given structural change

• But ameliorative, rather than resolving, in modus operandi

• Institutions matter greatly, not making change difficult per se

• Normatively charged (good life - distribution, work, gender, family deservedness) political interventions, making objective assessment difficult (not impossible, given data accessibility)

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Shared background orientations

• Theory: ’stocks’, ’flows’, and ’buffers’ in institutional complementarity to foster ’life course synergies’ for all (strong theoretical priors in literature –synergies and conflicts across different faces of social investment)

• Focus: (1) the multifaceted character of social investment policy mixes; (2) the multiplicity of effects and implications, understood as ‘returns’ social investment policies in terms of socioeconomic wellbeing for different groups; (3) the importance of policy complementarities and interactions; and (4) the challenge of assessing effects along different time dimensions (long-, medium- and short-term) across countries

• Indicators: employment (also unemployment), adequate household income (poverty), fertility (child gap), access to human capital development and protection

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Wellbeing Returns on Social

Investment (EUI funded 1 year)

• quantitative micro-level analysis of individual-country-years;

• quantitative macro-level correlation analysis of country-years;

• subjective wellbeing target groups;

• qualitative-institutional process-tracing analysis of national reform and sub-national governance of capacitating welfare provision (selected through preceding layers)

• Triangulated path-ways to social investment

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Multi-layered methodological

pluralism

THANK YOU