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Home Opinion National social investment strategies in the shadow of the economic crisis
EU • Social Investment • Economy

National social investment strategies in the shadow of the economic crisis

Hugh Frazer and Sebastiano Sabato - 29 May 2015

What is the current state of social investment in Europe?

On 24 April, the European commission issued a report on “Social Investment in Europe: A study of national policies”, which was produced by the newly established European Social Policy Network (ESPN). Marianne Thyssen, European commissioner for Employment, Social Affairs, Skills and Labour Mobility welcomed the report, while acknowledging “the room for further efforts by member states”. This article summarises the key messages of the report and provides a forward-looking perspective. On balance, the pressure on member states to cut expenditures often appears to have been stronger than that to invest.

Social investment in the UK and EU: a new kid on the block?

‘Social investment’ has, in Euro-speak, a very different meaning than the social investment strategy that has been adopted by the UK government and which aims at providing capital that enables social organisations to deliver both social and financial returns. While there are key definitional problems involved in the debate about what the term actually means in an EU context (ambiguous words are useful when there is no fundamental agreement), some kind of consensus is currently emerging. Social investment can be seen to encompass the set of policy measures and instruments that promote investments in human capital and enhancement of people’s capacity to participate in social and economic life as well as in the labour market.

‘Social investment’ is by no means a new topic: the Organisation for Economic Cooperation and Development (OECD) was among the first, back in 1997, to coin the term as a framework for social policy reforms, namely with a view to maximising the ‘return’ to social expenditures in the form of social cohesion and active participation in society and the labour market. The academic community followed suit, assessing the achievements and shortcomings of a social investment paradigm as well as its relevance in terms of expenditure. Social investment spending has been contrasted with ‘social consumption’ (or compensatory spending), consisting of old-age protection and passive labour market policies.

Since the turn of the century, the approach has attracted much interest in the academic community, including some critical readings. Some scholars have put forward strong arguments in favour of a ‘social investment pact’ for the EU. Others have questioned the conceptual and political usefulness of the social investment paradigm, or highlighted possible tensions between the principles of social investment and the principles of social protection. Doubts have also been raised whether the social investment approach has the capacity to support those most at risk of poverty or social exclusion.

A study of national policies

The European commission embraced the social investment approach in its 2013 ‘Social Investment Package’ (SIP) and the accompanying policy roadmap for its implementation. For the first time, the question of the extent to which member states have prioritised social investment strategies (including ‘active inclusion’ strategies in the sense of the 2008 European commission recommendation) has been systematically assessed by independent experts. The report on “Social Investment in Europe: A study of national policies” prepared for the EU-funded ESPN is thus an important step in providing flesh on the bones of this quasi-concept which may shape the directions of future policy interventions and is therefore important to policy communities. It covers 35 European countries and has therefore a coverage that goes well beyond the EU. It draws on the national contributions prepared by the 35 ESPN country teams, which can be downloaded from the commission website.

The report demonstrates that, whereas many countries have started to modernise their social protection systems towards greater social investment, the level of social investment and the dynamics at work vary a lot across countries. Three clusters of countries can be distinguished:

  • Thirteen countries (AT, BE, CH, DE, DK, FI, FR, IS, LI, NL, NO, SE, SI) are maintaining an (often historically) well-established social investment approach to many social policies.
  • Nine countries (CY, ES, HU, IE, LU, MT, PL, PT, UK), while still to develop an explicit or predominant social investment approach, show some increasing awareness of social investment and have begun to apply elements of a social investment approach in a few specific policy areas.
  • In the remaining 13 countries (BG, CZ, EE, EL, HR, IT, LT, LV, MK, RO, RS, SK, TR), a social investment approach has not so far made many significant inroads into the overall policy agenda. Some seem to have started moving slightly in a social investment direction in a few policy areas while developing their (in some cases relatively ‘immature’) welfare systems.

Fiscal consolidation looming large

A worrying aspect that is extensively documented in the report is that in a number of countries the impact of the economic crisis and a policy environment dominated by fiscal consolidation policies (whose primary aim is to reduce public budget deficits by decreasing inter-alia social expenditure) have limited, and in quite a few cases actually led to a decline in, the development of a social investment approach. Crucially, signs of ‘retrenchment’ can be detected not only in countries most hard hit by the crisis but also in countries considered as more successful and with rather well-developed social investment policies. This is particularly worrying when one realises that the countries who already had a well-established social investment approach (and who have maintained this during the economic crisis) are the countries whose economies have done best during the crisis and have been most successful in protecting people from poverty and social exclusion (as also recently emphasised by the EU’s Social Protection Committee).

The report identifies four main ways in which a focus on fiscal consolidation and a failure to apply social impact assessments of policy changes have often led to negative effects for the development of social investment policies:

  • First, fiscal consolidation has led to cuts in public and social expenditure, including some existing investments in building human and social capital resulting in reductions in availability and/or quality of programmes;
  • Second, it has led to a move away from successful universal social investment policies to more targeted and conditional policies towards those most in need that are often less effective in addressing social challenges and lead to increased stigmatisation and inequality;
  • Third, it has led to the postponement or cancelling of new policies which invest in human and social capital;
  • Fourth, it has resulted in prioritising passive short-term measures to protect people over the introduction of more enabling and active measures.

The key areas where recent negative outcomes in relation to social investment are frequently highlighted by ESPN experts are: social insurance and income support; active labour market policies; child and family policies; education; elderly and long-term care; and access to health care. The deterioration of unemployment and minimum income protection (both in terms of length and adequacy) is particularly worrisome, insofar as adequate income protection should represent the basis on which more ‘social investment-related’ policies should be built. Yet, the picture is not always clear cut: there can be cuts in some social investment policies and improvements in others. However, on balance the pressure to cut often appears to be stronger than that to invest.

Future prospects

One of the overarching trends that was found by the pan-European report and that begs for further analysis and policy action is the tendency not to spread the burden of austerity fairly across generations and social groups alike. In many countries, investment in policies supporting children and their families have been cut much more than those protecting older people.

EU funds already play an important role in supporting the weaker member states in building a stronger social investment approach. This is clearly positive and would need to be further developed, especially given the growing divergence in poverty and social exclusion trends across the EU. For this, it is vital that supporting social investment is made an integral part of the EU's €315bn investment plan.

Furthermore, if the commission’s intention is to ‘continue its support to member states' reforms, key to greater social cohesion and upward social convergence’, then all economic policies should be proofed for the investment they are making to achieve the EU’s social as well as economic goals. Also, it is important that the promotion of social investment is made a central part of the future implementation of the European 2020 Strategy.  The draft country-specific recommendations constitute the first proof of the pudding of the EU’s capacity (both European commission and member states) to uphold a clear pro-social investment discourse, which has the potential to signal its commitment to being a ‘caring Europe’ as called for by EU citizens. It is thus disappointing that with some one in four people in the EU at risk of poverty or social exclusion only six countries receive country-specific recommendations on tackling poverty.

Hugh Frazer is adjunct professor at Maynooth University and Sebastiano Sabato is a researcher at the
European Social Observatory

This article is based on the Social Investment in Europe: A study of national policies ESPN report prepared by D. Bouget, H. Frazer, E. Marlier, S. Sabato and B. Vanhercke (with important theoretical contributions by D. Natali)

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