Fostering resilience in Europe: the role of social investment

Recent European history is one of crises and resilience. What has been made clear by all our endeavours to contain crises and overcome their ramifications is that the welfare state and social protection have a crucial role to play.

Changing geopolitical dynamics, the end of bipolarity in the global environment, the constant movement of people, enhanced economic coercion, as well as the crises we have experienced over the past years, are bringing about severe challenges to the competitiveness of Europe’s products and services.

With or without crises, our century’s megatrends would continue to render welfare state reform as the indispensable pillar of a resilient European economy. The functioning of our economy is influenced by the commanding presence of digitalisation, shrinking demographics, the climate crisis and the changing future of work.

Digitalisation and AI strengthen citizens’ links to state social protection. At the same time, the very nature and forms of firms, human interaction, labour markets and even democracy itself are changing.

The digitalisation of the state and corporations demands a social investment in citizens of all ages so that nobody lags behind.

The climate crisis and natural disasters especially affect the health and properties of European middle and lower classes, which in turn demands the quick green transition of companies and ‘green skilling’ of our labour force.

The demographic crisis changes traditional family structures, boosts intra-EU mobility and migration, disrupts labour markets and challenges the sustainability of social protection and insurance systems.

Changes in the world of work include a high share of non-standard forms of employment, which brings about wide insecurity and new risks that require new forms of social protection. Here, an upskilling and reskilling revolution is needed to ensure our human capital can cope with new realities.

New forms of employment have rapidly gained ground. While new forms of work enabled by digital technologies, especially platforms, have been expanding in more advanced economies, they are also spreading to emerging economies, where the effects on the labour markets are likely to be different. For instance, studies show that platform work has the potential to increase employment opportunities, promote formalisation and reduce gender gaps in emerging economies. Despite the lack of harmonised concepts and definitions, digitally-enabled forms of work are flourishing and the number of people engaged in this new form of work is increasing quickly. Governments and social partners should debate a new charter for social rights that is compatible with our era’s new needs.

The role of the state is crucial. We need welfare policies that reach beyond the income protection of the 20th century and emphasise service provision to enable participation in social and economic life, while also boosting employment.

Social protection policies should be approached from a life course perspective. This starts with supporting families and children, as well as youth, especially Gen Z and A. In this regard, a new approach to education and labour market entry is needed, in order to help prevent the occurrence of risks, reduce the demands on society to respond to them and enlarge the tax base.

A fundamental priority is investing in children. The risk of child poverty in Europe is 19.5%. Child poverty is a grave danger to our economic growth and social peace. Moreover, supporting children is crucial for their integration into the educational system and their entry into the labour market, leading to better pensions and more stable health. An important goal is to guarantee affordable or free access to education and healthcare services for children under the age of three and at risk of or currently living in poverty.

Policies for the working-age population are the next step. We need to focus on social investment measures during working life, namely active labour market policies, reskilling, short-time work schemes that are integrated into social protection systems and employee ownership.

New policies for self-employed and non-standard workers, as well as lifelong upskilling and reskilling methods, must serve as the main active labour market policies; they should take place horizontally and, most importantly, focus on green, digital and care skills.

Necessary active labour market policies include activation measures for the unemployed and other target groups, such as training, job rotation and job-sharing, employment incentives, supported employment and rehabilitation, direct job creation and start-up incentives. While investment in training tends to be initially more expensive than helping people find jobs, it has a significant long-term impact.

Last but not least, we must consider the elderly. We need longer careers, with flexible working time arrangements, adequate pensions and adjusted workplaces and training. We need new policies for their healthcare and empowerment, with the development of public long-term care systems as a prerequisite.

Alas, that is the case with social investment at large. Efforts to obtain the long-term benefits of social investment constantly come up against short-term pressure for fiscal consolidation. In hindsight, one of the lessons of the Great Recession is that fiscal consolidation driven by EU fiscal rules deepened recessions in Greece, Italy, Spain and Portugal, triggering downward spirals of low growth, higher unemployment, larger deficits and more public sector debt.

Given that a fully-fledged social investment strategy can bring long-term economic and social gains, EU fiscal support for social investment reform should be put on a more permanent basis and not confined to mitigating the socioeconomic aftershocks of the COVID-19 crisis.

Catering to the increasing needs of society requires adequate fair and sustainable financing for social protection. This means improving the progressivity and fairness of the overall tax and benefits system, as well as alternative sources of financing. Tackling tax evasion at the national and European levels is also of utmost importance.

The fundamental precondition for sustainably financed social protection is an increase in employment rates and consequently an increase in the tax base and a decrease in state subsidies and benefits.

The prospect is that these social investment measures will lead to a double dividend in the medium term. They should reduce public spending on income protection, thanks to increased employment in better jobs and more active, healthy lifestyles – while at the same time enlarging the tax base to fund social protection. At the EU level, a decision on a minimum corporate tax could eliminate the unfair competition between investment and the welfare state.

The 21st century has come with great challenges that demand great reforms. So, for the welfare state to prepare societies and tackle the new forms of inequalities, it should set concrete priorities and integrate digital capabilities. Most importantly, minimum consensus should be reached among stakeholders – the state, employers and trade unions – towards and for our society’s mutual long-term benefits.