Introduction and motivation

Policies about education and skill formation occupy a central place in the social investment paradigm (Morel et al, 2012: 2). Policymakers and scholars alike emphasise the potential of education to contribute to a more egalitarian society by supporting the labour market integration of young people as well as to boost the productive potential of the labour force in service-oriented knowledge economies (see, for example, Bonoli, 2013; Hemerijck, 2013; Morel et al, 2012; Vandenbroucke and Vleminckx, 2011). In many ways, the social investment model of the welfare state can be regarded as the renewal of the old social democratic promise of wedding the economic power of free market capitalism with some form of redistribution via the welfare state. However, as has been extensively described elsewhere (Hemerijck, 2012; Morel et al, 2012), the social investment model is also different from the traditional Keynesian paradigm in emphasising the productive contribution of social policies rather than their redistributive aspects. In other words, the primary goal of social investment policies is to expand the size of the (economic) pie rather than focusing on redistribution between different constituency groups.

The latter point is reinforced by arguments about the potential of different social policies to promote economic growth. Even though the often-assumed trade-off between equality and efficiency has, by and large, not materialised (Lindert, 2004), there are still lingering concerns about the economic implications of social policy in public and academic debates – with important political implications. A common concern is that a large (and redistributive) welfare state might blunt incentives to invest in economic activities and participate in the labour market. Furthermore, in times of economic globalisation, a generous welfare state might increasingly turn into a liability for governments keen on attracting mobile capital. Larger welfare states imply higher levels of taxation, which are hard to maintain in a competitive environment (Busemeyer, 2009).

The social investment literature cited above as well as the debate on Varieties of Capitalism (VoC; Hall and Soskice, 2001; Iversen and Soskice, 2001; Iversen, 2005; Hall and Gingerich, 2009) have developed a powerful counter argument to this line of reasoning by providing a rich and compelling explanation for the conditions under which social policies can become an asset rather than a liability both for economic growth as well as social inclusion.