Social policy as social investment

1. The development of Western welfare states falls into three phases:

? The post-war settlement: stable and sustained expansion during the three post-war decades;

? Challenges from shifts in labour markets, economic globalisation, population ageing, family and household patterns and other factors. These have called the continued viability of the settlement into question from the later 1970s onwards; and

? Recent moves toward a new settlement.

2. The post-war settlement rested on confidence that state welfare, combined with neo-Keynesian economic management supported economic progress and enhanced social stability. New approaches from the 1970s onwards inspired by monetarism saw extensive welfare states as a damaging economic burden, implying that the welfare state should be seen as obsolete. The welfare settlement that is currently emerging argues that a welfare state centred on social investment can again contribute to economic and social objectives in a virtuous spiral of growth and justice.

3. Policy documents from EU and OECD set out a combined economic and social case for the social investment model. These arguments stress the importance of enhancing employment opportunities in a more flexible and dynamic labour market. The view that government should intervene through education and a benefit system that encourages entry into paid work and supports movement between jobs has tended to predominate over endorsement of de-regulation and benefit cut backs as the best route to greater labour market flexibility.

4. The new welfare state settlement has been successfully established, against the loose monetarist argument that welfare spending is simply a burden on economic progress. Different variants are pursued in national contexts that vary according to welfare state traditions and policy-making frameworks. In most cases there is more emphasis on activation through benefit reform and programmes for high-risk groups than on investment in human capital and research and development. The outcomes in terms of equality of outcome and opportunity vary, just as they did in traditional welfare states.

5. Nordic countries, exemplified by Sweden, are most successful in combining growth and social cohesion. The UK is much more successful in the former area than in the latter. The Nordic model is expensive and depends on high taxes. More generally, European welfare state settlements have developed in specific politico-economic contexts which are hard to replicate elsewhere.

6. East Asian societies have generally achieved high levels of investment in human capital and research and development leading to high growth; Europe may have much to learn from East Asia in stimulating such investment, while the European tradition of achieving social cohesion through welfare state spending may be relevant to East Asian futures.