A Social Investment Strategy for the Knowledge-Based Economy PDF

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> special issue: Education, welfare e modelli di società saggi A social investment strategy for the knowledge-based economy?1 di Nathalie Morel Abstract: Since the 1990s, new ideas concerning the role and shape of social policy have emerged, which stress the productive potential of social policy and provide a new economic rationale for social policy provision. These ideas underpin what is now commonly referred to as ‘social investment’. This article analyses the ideas behind this social investment perspective, outlines the policies that are associated to it, and discusses the extent to which these policies have actually been implemented in Europe, and with what success. It then discusses the critiques and possible pitfalls or shortcomings of the social investment perspective. Finally, the article underlines the relevance of a social investment strategy in Europe that focuses on human capital development and its preservation throughout the life-course, and suggests that there are lessons that could be drawn from the Nordic countries in the present context of economic crisis. keywords: Social investment, Human capital, Productive social policy, Equality and ef- ficiency, Skills Introduction Since the 1990s, new ideas concerning the role and shape of social policy, and its role in relation to the economy, have emerged, and these ideas have come both from international organizations such as the OECD, UNICEF, the World Bank and the European Commission, and from different scholars and poli- Nathalie Morel, Sciences Po, Centre d’études européennes, [email protected]. 1 This text draws extensively on the book edited by Nathalie Morel, Bruno Palier and Joakim Palme (2012), Towards a social investment welfare state? Ideas, policies and challenges, Bristol, Policy Press. Scuola democratica 3/2013 631  Nathalie Morel cy analysts (Giddens, 1998; Esping-Andersen et al., 2002; Rodrigues, 2003). special issue: Education, welfare e modelli di società While different terms and labels have been used (such as «social development», «the developmental welfare state», «the social investment State», «the enabling state», «inclusive liberalism»…), all these analyses point towards a similar policy logic based on what can be labelled «social investment», that is on policies that aim at ‘preparing’ rather than at ‘repairing’. While there is no unified theory and no single intellectual source behind these new ideas, these different analyses have in common the fact that they stress the productive potential of social policy and thus provide a new economic rationale for social policy provision. Indeed, the social investment perspective is intended to sustain a different economy than that after 1945 – the knowledge- based economy. In this new economy, knowledge is considered as the driver of productivity and economic growth. The knowledge-based economy thus rests on a skilled and flexible labour-force, which can easily adapt to the constantly changing needs of the economy but also be the motor of these changes. The so- cial investment perspective also aims at modernising the post-war welfare state so as to better address the new social risks and needs structure of contemporary societies, such as single parenthood, the need to reconcile work and family life, lack of continuous careers, more precarious forms of contracts and possessing low or obsolete skills (Bonoli, 2005). This notion of social investment has also underpinned the Lisbon Agenda, which the European Union adopted in 2000 with the aim of making Europe «the most dynamic and competitive knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion, and respect for the environment»2. As such it is interesting to take a closer look at the ideas behind this social investment perspective, at the policies that are associated to a social investment strategy, and at the actual implementation of these policies in Europe. To what extent have different countries sought to pursue a social investment strategy and with what success? What are the critiques, possible pitfalls and shortcomings of the social investment perspective? And is there any future for a social investment strategy in Europe in the present context of economic crisis? Here the paper 2 Lisbon European Council, 23-24 march 2000, Presidency Conclusions (http://www.europarl.euro- pa.eu/summits/lis1_en.htm). 632 Scuola democratica 3/2013 SAGGI – A social investment strategy for the knowledge-based economy? concludes with a discussion of some of the lessons that could be drawn from the special issue: Education, welfare e modelli di società experience of the Nordic countries, and especially from Finland and Sweden, in managing the 1990s crisis. 1. The ideas behind the social investment perspective The ideas behind the social investment perspective developed partly as a critique of neoliberalism, but in some ways they also build on the neoliberal cri- tique of the traditional post-war welfare state. Above all, the ideas put forward are based on an understanding that social policies need to respond to a radically changed economic and social order. The critique of neoliberal social prescriptions has stemmed from the obser- vation of the increase in polarization and poverty rates, including of in-work poverty, and of the growing problem and cost of social exclusion, particularly in those countries that have gone furthest in implementing neoliberal policies. At the same time, the traditional post-war male-breadwinner welfare states built in the keynesian era has also come under criticism, not least from social policy analysts who have argued that the ‘old’ welfare state is ill-equipped to deal with the transition to post-industrialism, with the social and demographic transformations of families and society, and with the resulting emergence of new social risks. In this respect, the welfare regimes of Continental and South- ern Europe have been especially singled out, both for their failure in responding to changing social risks and needs, and for their seeming inability to create jobs. Likewise, the financial sustainability of these welfare states, and their capacity not to mortgage the wellbeing of future generations has been severely ques- tioned (Esping-Andersen, 1999; Scharpf and Schmidt, 2000; Esping-Andersen et al., 2002). Traditional forms of ‘passive’ social policy intervention of the post-war wel- fare state have moreover come to be presented as out of kilter with the needs of the new ‘knowledge-based economy’. It is argued that to succeed in this knowledge-based economy it is necessary to have a highly skilled and educated workforce, which can quickly adapt to the constantly changing needs of the economy, and which is also the motor of this change thanks to its creative and innovative potential. In this thinking, the problem of unemployment is un- Scuola democratica 3/2013 633  Nathalie Morel derstood as being linked to a lack of adequate skills to fill today’s jobs, and this special issue: Education, welfare e modelli di società lack of adequate skills and education is also expected to stymie future economic growth and employment creation, unless the necessary investments are made to foster human capital development. These different criticisms of the traditional welfare state and of neo-liberal- ism have led to calls for a modernisation of welfare systems in order to address the issue of growing poverty and social exclusion, to better respond to the new needs and new social risk structures of contemporary society, to make welfare systems sustainable, and to make them ‘productive’ in the sense that they should promote and support employment and economic growth. Central to this mod- ernisation of welfare systems is the idea that social policy should aim at ‘pre- paring’ the population to prevent certain social and economic risks associated with changing employment conditions and family patterns, and to minimise the intergenerational transfer of poverty, rather than at ‘repairing’ through pas- sive income maintenance schemes after the risk has occurred. As such, a central thrust of the social investment perspective is that social expenditure should be reoriented from passive to active social policies. In this sense, the social investment perspective shares with neoliberalism the notion that social spending should be directed towards activating people in order to allow individuals and families to maintain responsibility for their wellbeing via market incomes, rather than towards passive benefits (Jenson, 2012). However, while the social investment perspective retains the focus on activation that neo- liberalism instituted, there is a shift away from the idea that ‘any jobs’ are good and that social benefits should be scaled back so as to ‘make work pay’. Instead, the idea is that social policy should help to ‘make work pay’ through positive economic incentives (not least by improving net income for those who work, first of all at the bottom end of the wage distribution), and that it should assist in promoting the creation of ‘quality jobs’. Here, the contention of the social investment perspective is that the sustain- ability of the welfare state hinges on the number and productivity of future tax- payers (Esping-Andersen et al., 2002; Lindh and Palme, 2006; Hemerijck, 2012). This calls for policies that broaden the tax-base (by raising employment levels) and which also increase the productivity and quality of work (and therefore increase wages). A clear argument of the social investment perspective is that investing in human capital should enable the creation of more and better jobs. 634 Scuola democratica 3/2013 SAGGI – A social investment strategy for the knowledge-based economy? The social investment perspective maintains a belief in the efficacy of the special issue: Education, welfare e modelli di società market (Perkins et al., 2004: 2) but acknowledges the importance of market failures and the need for government intervention and direction of market forces in order to improve both economic and social outcomes. Thus, contrary to neoliberalism, the social investment perspective is based on a more positive theory of the State (Jenson, 2012). Furthermore, the State is assigned a key role in fostering the development of human capital and in providing the necessary services and benefits to help make efficient use of human capital and to avoid human capital depletion. While the social investment perspective displays some continuity with the social thinking of neoliberalism, it nonetheless breaks away from the neoliberal paradigm on a number of key points. Most importantly, social investment pro- ponents have renewed with the Keynesian idea that it is possible to reconcile ef- ficiency with equity, or growth with social inclusion. The policies put forward for achieving this differ from the Keynesian approach in a number of ways, however, the focus being more on the life cycle and on the future, rather than on equality of outcomes in the present. Indeed, one of the main aims of the social investment approach is to minimise the intergenerational transfer of poverty (Jenson, 2012), but also to promote the intergenerational transmission of knowledge. While the policies put forward focus on promoting equal opportunity in the present (by facilitating access to education and training and to the labour market), this is expected to produce benefits in the future in terms of a reduction in the inter- generational transfer of poverty and inequalities, but also in terms of economic and employment growth. In the social investment perspective, social policy and economic growth are not only seen as mutually reinforcing, but social policy is in fact seen as a precondition for economic growth, and social policies are thus seen as a productive investment. As such, social investments could be defined as ‘public expenditure that combines the solution of social problems with enhancing economic performance’ (Lundvall and Lorenz, 2012). 2. The policies associated to the social investment perspective Three areas of public policy stand out as particularly central to the social investment perspective: 1) policies that invest in human capital development Scuola democratica 3/2013 635  Nathalie Morel and that help to preserve human capital throughout the life course; 2) policies special issue: Education, welfare e modelli di società that help to make efficient use of human capital; 3) policies that provide ‘ac- tive securities’ throughout the life-course. In all these areas, capacitating public services stand out as crucial components of a strategy that aims at preparing the population to the particular social risks caused by life course contingencies. The focus on investing in human capital is perhaps the policy domain which gathers the greatest consensus amongst social investment proponents, with the idea receiving support in particular from both neo-classical as well as hetero- dox economists (most notably through the works of Nobel Prize winners such as Gary Becker or James Heckman, as well as through the ideas put forward by Amartya Sen in his capabilities approach). Education and training policies constitute the most obvious method of improving human capital and skills. Here the focus has been very much on the need to invest in early childhood education and care. This is both because there has been a growing body of work showing that the social and cognitive skills necessary for life-long learning are best acquired at a very young age, and that the economic returns on investment are greatest for early childhood education than for higher education (Esping- Andersen, 2009), but also because this is seen as providing more equal oppor- tunities and capabilities to all children in order to fight the intergenerational transmission of inequalities. Here two elements appear crucial for economic outcomes such as employment growth, the capacity for workplace learning and innovation and the development of good quality jobs, and these are both the level of enrolment and the quality of instruction. Indeed, the data shows that broad-based egalitarian education systems provide better economic outcomes than systems where there are heavy investments in poles of excellence but where education levels are more unequal (such as the US or France for instance) (Nel- son and Stephens, 2012; Lundvall and Lorenz, 2012). Investments in early human capital formation need to be accompanied by policies that help to preserve the value of human capital throughout an in- dividual’s life-course. Life-long training opportunities of course, but also sick pay and generous unemployment benefits, along with adequate rehabilitation programmes and active labour market policies, can help protect the value of in- dividuals’ skills. Human capital policies that foster the expansion of high quality jobs therefore include those that aid in both the acquisition of skills and the protection of the value of the skills already acquired. Well-designed unemploy- 636 Scuola democratica 3/2013 SAGGI – A social investment strategy for the knowledge-based economy? ment insurance benefits carry the potential of also improving matching process special issue: Education, welfare e modelli di società on the labour market by working as search subsidies (Sjöberg et al., 2010), espe- cially if they are generous, but of relatively short duration and accompanied by good job search services and training opportunities. The second policy area relates to policies that help to make efficient use of human capital by insuring that as many people as possible are out on the labour market. Of specific importance here are policies that help parents com- bine work and family life in order to raise female employment rates. Here the aim is both to increase labour supply by supporting mothers’ employment in order to foster economic growth and ensure the long-term fiscal sustain- ability of welfare systems, but also to make families less exposed to the risk of poverty. An underlying aim is also to enable families to realize their desired fertility. Policies put forward typically include childcare services and paren- tal leave schemes. Of crucial importance here is the quality of the childcare services and the design and generosity of the parental leave schemes, both for providing children with equal opportunities at the earliest age and for their cognitive development, and to promote gender equality (Morgan, 2012). But elderly-care services are also of importance for supporting the employment of women above 50. Finally, the third policy area regards the need to address the issue of the increasingly differentiated employment patterns over the life course in order to reduce the probability of being trapped into inactivity and welfare dependency. Here the issue is not maximum labour market flexibility or the neoliberal man- tra of ‘making work pay’. Instead, the policy imperative is for ‘making transi- tions pay’ over the life cycle through the provision of ‘active securities’ or ‘social bridges’, to ensure that non-standardized employment relations become step- ping stones to sustainable careers. Here, generous and well-designed flexicurity policies appear crucial. While a fairly broad consensus prevails concerning the policies needed to promote the development of human capital, this is less true with respect to policies to address work-family life balance, or policies to accompany life- course transitions. If there is general agreement across Europe that the state should provide publicly funded primary and secondary education, there is less advancement in terms of reaching consensus even amongst social investment proponents regarding the desirability, type and extent of public support to en- Scuola democratica 3/2013 637  Nathalie Morel able families to reconcile work and family-life. Likewise, while there is strong special issue: Education, welfare e modelli di società agreement on the necessity to raise employment levels, there is some ambiguity regarding the means for ‘activating’ people and for promoting more flexibility on the labour market. The ambiguity that characterizes the social investment perspective comes out clearly when one assesses the policies that have actually been implemented across Europe. Indeed, both the analysis of spending profiles and qualitative analyses of policy reforms show that not only has there been a very limited turn towards social investment, but also that there have been dif- ferent understandings – and thus different modes of implementation – across European welfare states. 3. A limited social investment turn in Europe Despite the widespread discourse on the necessity to reorient welfare state spending toward more proactive forms of expenditures, the analysis of the spending profiles of welfare states shows that while there has been an increase in public social expenditure as a percentage of GDP across countries since the 1990s, this increase has not translated into an increase in expenditure on social investment-type policies. On the contrary, compensatory forms of expenditure, particularly on old age, have increased everywhere, while the typical social in- vestment expenditure – education – has decreased in most countries. This de- crease is partly explainable by the diminishing size of student cohorts due to demographic changes, but it does also show that there has not been an emphasis on increasing investments in education. It’s only in the field of family policy that investment-oriented social expenditure has increased in many countries, not least in the UK (Nikolai, 2012). When one looks at the expenditure data, it appears that only the English- speaking and the Nordic countries can be said to have developed more social investment types of policies, but these countries also represent remarkably dif- ferent examples of social investment in action. The Nordic version of the social investment approach spends much on both investment-related social policies as well as on old-age and on passive labour market policies, while the British case shows a clear reorientation of public social expenditure away from compensa- tory social policies toward more social investment-oriented policy domains (in 638 Scuola democratica 3/2013 SAGGI – A social investment strategy for the knowledge-based economy? particular towards education and family policy but not towards active labour special issue: Education, welfare e modelli di società market policy) (Nikolai, 2012). When looking at individual public-policy areas, the picture becomes more complex. In terms of investing in human capital through education, the Nordic countries, along with Belgium and France, top the charts. However, Belgium and France do poorly if one looks at participation rates in education and train- ing for those 18 to 64 years old. Here, Denmark, Sweden and Finland are clear leaders, followed by the Netherlands and the UK, while life-long learning re- mains very low in Continental European countries. Spending on family policy has increased virtually everywhere and policies that help parents to combine work and family life and thus contribute to sup- porting the employment of mothers and lone parents (while also helping par- ents reach their desired fertility) have been developed in all countries, but along very different lines. Here, too, the Nordic countries stand out for the generosity of their parental leave schemes, their attempts to promote gender equality and the wide coverage of quality child-care services they provide. But there are also some new countries in which such policies were traditionally underdeveloped which have recently invested quite substantially in this area. This is particularly true of Germany, which has reformed its parental leave scheme along lines simi- lar to the Nordic model and has started to invest in the development of child- care services, as well as of the UK, which has been investing in early childhood education and care according to an explicit social investment strategy. Finally, as far as employment policies are concerned, it is difficult to distin- guish a turn toward social investment-oriented labour market policies. Con- ditionality in unemployment insurance has been increased in most member states, replacement rates have been retrenched, and the duration of benefit pe- riods shortened. Activation schemes are far from comprehensive, ‘workfarist’ rather than individualized, and come in the form of counselling rather than comprehensive training. The quality of activation services does not live up to the social investment ideal that was supposed to be inherent in the European Employment Strategy. The reform of education, activation and training insti- tutions has in most member states not been deep enough to be labelled social investment (de la Porte and Jacobsson, 2012). In fact, in a historical perspective it appears that there was a greater social investment orientation in labour market policies during the 1950s and 1960s than there is today (Bonoli, 2012). Scuola democratica 3/2013 639  Nathalie Morel While the social investment strategy seems to have had only a partial impact special issue: Education, welfare e modelli di società on recent reform trends in most European welfare states, there are nonetheless good reasons for not discarding it as a strategy for the future. Indeed, one also sees some successes for the social investment approach. The experience of the Nordic countries, where a social investment strategy has been pursued for a long time, suggests that social investment policies can be used to successfully com- bine social and economic goals. These countries display high and broad-based education levels, which appear to translate into high levels of social capital and social cohesion, greater learning and innovation capacity at work (making these countries among the most competitive economies in the world), more flexibil- ity on the labour market linked to a system of flexicurity and generous unem- ployment benefits to ease transitions, and good economic growth that includes the creation of more and better jobs (Lundvall and Lorenz, 2012; Nelson and Stephens, 2012). These countries also display higher female employment rates, lower poverty rates, including lower transmission of intergenerational poverty. They have been dealing successfully with demographic issues, both in terms of providing care for the elderly and in maintaining fertility levels. The key to this success seems to be the fact that the Nordic countries have not pursued a simple reorientation strategy with their welfare systems toward more activation, but have instead combined strong protection with heavy social investment, with the aim to promote social equality as well as gender equal- ity. They also pursue a very comprehensive strategy that invests in capacitating quality services to support people throughout the life course, starting from early childhood education and care through primary to college education, to lifelong training and active labour market policies, and which seeks to promote equal- ity of access as well as equality of outcomes. A key finding here is that not only «more equal societies almost always do better» (Wilkinson and Pickett 2009), but egalitarian systems are also the ones that appear to be the most innovative and competitive in the world economy. 4. The critiques of the social investment perspective Notwithstanding the successes that can be associated with the social invest- ment approach in the Nordic countries, the social investment perspective has 640 Scuola democratica 3/2013 SAGGI – A social investment strategy for the knowledge-based economy? also met with some critiques from different academics and policy analysts. Some special issue: Education, welfare e modelli di società of these critiques relate to problems linked to the implementation of the social investment strategy but some of the critiques also hit more at the core of the social investment perspective itself. A first set of critiques relates to the socio-economic consequences of the social investment strategy’s focus on the future. Briefly stated, the argument is that the focus on investing for future returns by rechanneling ex- penditure from ‘passive’ social security benefits to activation and spending in the fields of family-oriented services and education has not only meant that today’s poor are being left aside, but more critically that such a rechanneling has increased poverty in many countries as social spending has become less adequate in relieving poverty and as its redistributive profile has become less «pro-poor», and is more oriented towards «work-rich» rather than «work-poor families» (Cantillon, 2010). A second, and related, critique has to do with the strong emphasis on activa- tion that characterizes the social investment perspective and which has both of- fered a justification for cutting back on benefits that previously allowed certain groups to remain outside the labour market (such as lone parents or people on long-term sickness leave) and also meant that the issue of the quality of work has been side-lined in favour of a focus on ‘any jobs’. Active labour market poli- cies have represented more of a continuation of neoliberal ‘workfare’ policies than a shift towards upskilling and the development of ‘more and better jobs’ (Bonoli, 2012). A third critique concerns the way the social inclusion or social cohesion aspect seems to have been paid lip-service in the actual implementation of the strategy, not least at the EU level, despite the Lisbon strategy’s stated dual ob- jectives of enhancing both economic and social cohesion, between and within member countries. Indeed, the policy instruments appear to have been under- developed in strategic terms, as well as in terms of resource allocation (Kap and Palme, 2009; Lundvall and Lorenz, 2012b). A fourth critique has been put forward by feminists and gender theorists who have highlighted the kind of instrumentalisation of gender equality poli- cies, and especially policies for reconciling work and family life, that the social investment strategy has given rise to. Indeed, several commentators have noted how the focus on increasing women’s employment levels has been motivated by economic objectives (to raise the number of tax payers) rather than by a real concern with women’s aspirations (Stratigaki, 2004; Jenson, 2009). Scuola democratica 3/2013 641  Nathalie Morel Fifthly, this gender critique feeds into an even broader concern with the way special issue: Education, welfare e modelli di società social goals and the social citizenship rights perspective that underpins the social investment approach have been harnessed to an economic agenda. Not only has gender equality been instrumentalised in favour of economic objectives, but also children have become instrumentalised as ‘citizen-workers’ of the future rather than as ‘citizen-children’ of the present, i.e. they are treated as ‘becom- ings’ rather than as ‘beings’ with social rights in their own right, as (non-pro- ductive) children (Lister, 2003). The social or humanitarian rationale for social policy has been replaced by an economic rationale (Midgley and Tang, 2001). While some of these critiques can be said to be related to a lack of proper implementation of social investment policies, they also reflect the ambiguities and tensions that are inherent to the social investment perspective. These ten- sions and ambiguities stem, at least in part, from the differing intellectual and political sources and influences that have shaped this perspective. Indeed, while the social investment perspective rests on a number of common themes both at the ideational level and in terms of the policy instruments put forward, different aspects are given different emphasis by different thinkers and policy-makers. Indeed, at the ideational level, sources of inspiration for the social invest- ment perspective can be found in the works of economists as diverse as Gary Becker and James Heckman with their work on human capital, and Amartya Sen and his capability approach. Likewise, arguments for a recasting of the welfare state along the lines of a social investment strategy have been made by social-democratic academics and policy-makers such as Gøsta Esping-Andersen or Frank Vandenbroucke, as well as by Third Way intellectuals such as Anthony Giddens. While their respective analyses share common understandings of some of the shortcomings and inadequacies of the post-war welfare state with respect to the new social risks structure of contemporary societies and the requirements of the new knowledge-based economy, and while they do display some com- mon policy orientations, they also appear to diverge on a number of key issues. The source of this divergence seems to lie in a different understanding of the role and meanings of social citizenship in the knowledge-based economy. This different understanding revolves around five key points: Firstly, there is a different understanding of what constitutes productive and unproductive social expenditure. In the Third Way perspective, spending on unemployment benefits for instance is considered as an unproductive social 642 Scuola democratica 3/2013 SAGGI – A social investment strategy for the knowledge-based economy? expenditure, whereas in the social-democratic perspective, such benefits can be special issue: Education, welfare e modelli di società seen as a means of protecting the human capital of working adults and of pre- venting the unemployed from being caught up in a spiral of debt and poverty. Secondly, and linked to the first point, there is a different understanding of what constitutes positive and negative incentives – and perhaps beyond that a different understanding of human nature. Generous benefits, according to Gid- dens, increase the risks of ‘moral hazard’ and of fraud. This theory according to which a generous welfare state generates fraud and social dependency consti- tutes one of the most significant points of cleavage between Giddens and other European (social-democratic) social reformers (Jobert, 2002). Esping-Andersen et al. (2002) for instance argue that generous unemployment benefits limit the risk of falling into poverty and are more favourable to a quick return into em- ployment as long as they are coupled to an adequate activation policy. Accordingly, this leads to a divergence in the weight that is placed on rights and duties respectively. For Giddens, the recasting of the welfare state is very much about reinforcing the duties side of social citizenship, whereas the social- democratic perspective emphasizes the productive effects of the rights side of social citizenship. Likewise, the notion of ‘equality’ is viewed very differently. While equality is seen as a central ingredient for the pursuit of economic efficiency and reduc- ing inequality is presented as an explicit aim of the social investment strategy in the thinking of Esping-Andersen et al. and of Vandenbroucke (Vandenb- roucke and Vleminckx, 2011), Giddens considers the quest for equality to be the historical mistake of the old Left (Jobert, 2002; Blair and Schröder, 2000). Giddens explicitly shares with neoliberal thinkers the notion that inequalities are a necessary ingredient for the dynamism of the economy. The emphasis for Giddens then is on promoting equality of opportunity, and on pursuing the goal of ‘social justice’. Finally, the role assigned to social policy differs. Conceived to act as a ‘spring- board’ for change in the Third Way approach (with the ‘spring’ coming from both investments in human capital and the strong (negative) incentives towards activation), in the social-democratic variant social policy is expected to provide people with both the necessary capabilities and incentives and with the neces- sary security to accompany the changing needs of the economy (cf. Andersson, 2007). Scuola democratica 3/2013 643  Nathalie Morel Thus for Giddens and the Third Way, welfare state restructuring is about special issue: Education, welfare e modelli di società going from ‘passive’ social policies to ‘active’ social policies, whereas in the so- cial-democratic approach put forward by Esping-Andersen et al. and Vanden- broucke, the new welfare state architecture must rest on both an «investment strategy» and a «protection strategy» (Vandenbroucke and Vleminckx, 2011). The social investment perspective thus covers under the same umbrella both a social democratic, Nordic, and a Third Way, anglo-liberal, approach, and the resulting ambiguity of this perspective is probably what has enabled its broad adoption at the EU level, as part of the Lisbon Strategy. It also helps to account for the fact that there doesn’t seem to be a clear break away from neoliberalism in the kind of social investment policies that have been pursued in various Eu- ropean countries. 5. The shortcomings of the social investment approach and the way ahead A clear conclusion here is that in order for the social investment strategy to become effective but also to emerge as a coherent policy alternative, it needs to be more clearly distinguished from neo-liberalism. Indeed, many social investment proponents, not least in the UK, share with neoliberals a very similar diagnosis of the failures of the traditional post-war welfare state but also a similar diagnosis of the causes of unemployment. This shared diagnosis makes it difficult to propose radically different tools for deal- ing with these issues. As a result, the focus on ‘activating’ people, at least in the way it has been pursued in the UK and across Europe over the past two decades, has not yet gone very far beyond the kind of activation strategy promoted by neoliberals. The reforms carried out in the name of activation have not created ‘more and better jobs’ but rather jobs that have given rise to the ‘working poor’ phenomenon, and which do not generate the tax revenues needed to sustain and improve the social protection model of ageing European societies. This neoliberal strategy also fails to recognise an increasingly important di- mension to be associated with unemployment, i.e. the lack of adequate qual- ifications. As the European Commission’s New skills for new jobs report un- derlines, employment rates vary greatly according to qualification levels. The 644 Scuola democratica 3/2013 SAGGI – A social investment strategy for the knowledge-based economy? employment rates across Europe as a whole in 2008 for those with high skills special issue: Education, welfare e modelli di società was 83,9%, that for medium skill levels was 70,6%, and that for low skill levels was only 48,1%. Not only this, but the wages of the low-skilled have also fallen relative to more skilled individuals despite falling numbers of low-skilled indi- viduals in the labour forces of most advanced economies (McIntosh, 2004). In fact, between 2007 and 2010, the number of jobs employing people with high skills has increased in Europe, while the number of low-skill jobs has decreased (European Commission, 2009, 2010). The effect of skills on unemployment risks is particularly pronounced in the UK and Ireland, where the unemployment rate for those with lower secondary or below education levels is about twice that for those with upper secondary education, and about four times that of those with tertiary education (McIn- tosh, 2004). This goes to show that in today’s economy, qualifications are more important than ever, especially in view of the increasing needs in new sectors of employment, such as ‘green jobs’, advanced technologies, and the digital economy which lie at the core of the new economy. The fact that the unemployed are predominantly unskilled and that vacant jobs require high skills, suggests that, in these times of crisis, we need to comple- ment demand-oriented Keynesian measures with supply side-oriented instru- ments that go beyond the neo-liberal deregulation of labour markets, lowering of labour costs and provision of incentives for the unemployed to take poorly paid jobs, and instead upskill the unemployed by providing them with the nec- essary learning capacities. That also means that a successful social investment strategy requires that more rather than fewer resources be devoted to social policy. This may well ap- pear problematic in this period of financial crisis and in a time viewed as a pe- riod of financial austerity. Yet there are good reasons for changing the way such expenditure is considered, and to take seriously the idea that these social expen- ditures are in fact investments, from which productive and economic benefits can be derived. This therefore calls for a new economic thinking to underpin the social investment perspective. Much depends on our ability to rethink and reformulate the prevailing economic ‘doxa’. An important element to put for- ward in this respect is the notion of ‘productive social policy’, which recognizes the macro- and micro-dynamics of social policy that carries the potential of de- livering economic benefits to both individuals and society. This, in turn, urges Scuola democratica 3/2013 645  Nathalie Morel us to take seriously the idea that social outlays can yield long-run dividends special issue: Education, welfare e modelli di società for both individuals and society as a whole, meaning that there is a good case to be made for counting such outlays as productive investments rather than as consumption, and thus for rethinking the way national accounting systems are held (Esping-Andersen, 2005). This also requires us to rethink the usual time horizon for policymaking, as this is a precondition for sustainable development. 6. Learning from the Nordic countries? We can also learn from the experience of the Nordic countries, and especially from the crisis management in Finland and Sweden, both countries having un- dergone a very deep financial crisis in the early 1990s. Finland was hit first, partly because of the economic integration with the dissolving Soviet empire. Falling employment rates triggered a rapid deterioration of the public finances and the policy reaction was quick and harsh. However, the austerity measures were so drastic that they fuelled a downward employment spiral, resulting in unemployment levels approaching 20%. The crisis in Sweden came a little later and the governments tried to avoid repeating the Finnish history by, instead, phasing in gradually the benefit cuts and tax increases. Even so, in retrospect, the Ministry of Finance concluded that it had pursued monetary and financial policies that had been too tough, resulting in a prolonged employment crisis. Still, in the midst of the crisis, both countries gave priority to human capital investment, allowing the economy to rapidly pick up. In Sweden, for example, while the government introduced stringent auster- ity measures and cut social insurance benefits by an average of 10%, an explicit decision was made to maintain and even reinforce investments in care, health and education services in order not to sacrifice the young generation, and thus jeopardize economic growth in the future (SAP, 1994; Palme and Wennemo, 1998). The government invested in human capital development both by intro- ducing a law in 1994 offering universal child-care provision from the age of one, and by setting up a five-year Knowledge Lift program (Kunskapslyft) in 1996 in order to raise the education level of the population, and especially of the low- skilled, by giving unemployed persons the opportunity to complete a secondary education while receiving unemployment benefits. The aim was to raise overall 646 Scuola democratica 3/2013 SAGGI – A social investment strategy for the knowledge-based economy? education levels in order to give the whole population the necessary capacities special issue: Education, welfare e modelli di società to engage in life-long learning and thus to promote economic growth through a raise in productivity and in wages, and to turn Sweden into a knowledge-based economy (SOU 1996:27; Morel, 2013). This investment in human capital formation has been pursued at all levels: 76% of children between 1 and 3 years old and 95% of 4 and 5 years old at- tended formal, good quality, early childhood education and care services in 2011, which is well above the EU targets. Likewise, Sweden devoted 7,3% of GDP to education in 2009 (against an OECD average of 5,8%). Finally, and most spectacularly perhaps, lifelong learning is highly developed with 72% of 25 to 34 years old and 60% of 55 to 64 years old participating in formal and non-formal education (compared to 37% and 23% respectively for the OECD average) (OECD, 2012). Similarly high – or even higher – investments in hu- man capital from the cradle to pension age are to be found in Denmark, Finland and Norway also. 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