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No 5 / May 2011 The EU Needs a Social Investment Pact Frank Vandenbroucke Anton Hemerijck Bruno Palier © European Observatory OSE Opinion Paper N°5 – 2 F A and B (2011) “The Pact” Series paper 25p Member of the Belgian Senate Dean Faculty Sciences Vrije Universiteit Amsterdam Research Director Centre National de la Recherche Scientifique (CNRS) Po Paris Address correspondence: figvdb@gmail com “OSE Series” takes form three different publications available in English or French “Research Papers” are intended to disseminate results research by associated researchers colleagues from network “Briefing contain readily accessible regular information on variety topics “Opinion consist concise policy oriented opinions 3 Table contents Introduction 4 1 social investment imperative What can be learned past experience? 12 Substantive issues Governance 14 jeopardy? 16 Taking Europe 2020 seriously 18 Substantiating 21 In this we argue that long term-goals economic must not fall victim short-term orientations prompted banking crisis hit global economy 2008 subsequent financial fiscal problems affecting Eurozone at large We capture these long-term goals with notion ‘social imperative’ is new idea per se first revisit perspective as proposed towards end 1990s draw some lessons experience maintain impetus given Europe’s adverse demography today more acute than ever before Subsequently examine how renewed rescued one-sided (1 ) Over years has experienced interconnected crises: followed severe recession 2009 which turn invoked state most dramatically Greece Ireland Portugal potentially threatening viability project integration repercussions far benign Considerable employment growth across achieved through intelligent reforms over decade was instantly wiped out consequent From next year working age population will start shrink rate fell 69 cent Employment have grow one every until reach 75 headline target Many jobs lost 2008- come back New require qualifications Skill mismatches grow: 2015 there shortage 700 000 ICT specialists together many unfilled vacancies health care These among reasons why labour market policies strengthened rather weakened Public deficit debt soared necessitating tough austerity measures On other hand context predicament it essential overlook potential Furthermore impact may expected underline need for poverty relief insurance macroeconomic stabilization rekindle It important emphasize current challenge much political policy-related overall sentiment conservative Middle-class fears falling go greater electoral abstention growing support populist anti-EU parties At same time debate ‘EU governance’ been largely confined narrow This brief benefited greatly discussions conference organized Policy Network (with Wiardi Beckman Stichting FEPS) London 30 March April seminar 6 authors wish thank friends their precious comments earlier drafts view competitiveness (inspired so-called ‘Competitiveness Pact’) strict budget rules Stability Pact; lacking substantive orientation only perceived technocratic Both welfare chauvinism orthodoxy anathema key make consolidation mutually supportive both level States believe objectives formulated Strategy provide framework achieve condition an “EU pact” anchored pro-growth budgetary regulation words surveillance compatible accompanied “Social substantiate final section emerged gradually response fundamental changes our societies developed dual ambition i) modernizing so would better address risks needs structure contemporary societies; ii) ensuring sustainability while upholding knowledgebased Central attempt reconcile terms focus public ‘prepare’ individuals families adapt various transformations such changing career patterns conditions emergence ageing climate change simply generating responses aimed ‘repairing’ any damage caused failure misfortune poor prevailing inadequacies By addressing infancy paradigm stands reduce human suffering instability environmental degradation enhancing resilience 2000 Portuguese presidency raised ambitions putting forward integrated agenda thereby committing Union becoming ‘most competitive dynamic knowledge-based world capable sustainable cohesion’ Lisbon strongly influenced although translation concept ambiguous might wished certainly represented re-launch positive complementarities between equity efficiency way ‘investing people developing active state’ addition objective raising rates throughout Agenda placed capital innovation development explicitly centre broadened productive factor beyond its traditional emphasis protection extending promotion improving quality training education also prefigured re-focusing equal opportunity explicit women elderly workers philosophy underpinning dimension further substance publication 2002 book entitled Why Need Welfare State under editorship Esping-Andersen (2 core lies argument inertia male-breadwinner provision fosters increasingly sub-optimal life chances opportunities income educational attainment intra intergenerational fairness shares his co-authors argued staying power ‘passive’ male breadwinner frustrating adequate ‘new’ post-industrial including rapid skill depletion reconciling work family caring frail relatives inadequacy security coverage adversely affect low-skilled youth immigrants small children Most troublesome polarization workrich work-poor Top-income households distancing themselves middle result rising returns skills exacerbated marital homogamy i e formation spouses similar backgrounds bottom pyramid less educated couples especially single-mother face (child) joblessness And inequality widens households’ capacity invest children’s future consequently unequal As weigh heavily younger cohorts et al advocate reallocation expenditures services early childhood vocational ensure productivity improvement high men There however no contradiction effort privileging phases pensions: “good pension like good begin birth” should noted contra Third Way substitute Adequate minimum critical precondition effective strategy G Gallie D Myles J (eds (2002) Oxford University Press 7 protection’ promotion’ understood indispensable complementary twin pillars edifice makes virtue strong requires remain powerful stabilisers activity macro they consolidate demand during recessions days 2008-2010 brought fore kind Keynesianism door fact still operative Government anti-cyclical budgets achievement reinforce business cycle stability improve shielding harshness booms busts capitalist economies Basic serves Dire levels bad when passed down generations permanently excluding disadvantaged groups progress wasting undermining cohesion making highly volatile panics boom bust Moreover institutions partnership guide wage setting reform general interest encourage employers trade unions jointly programmes thus contributing upgrading meso-level today’s organization knowledge-intensive production relies realising gains cooperation industry prerequisite channelling industrial conflict periods structural adjustment macro-level compensating who contribute common exposing periodic contingencies encourages private initiative risktaking But devil detail High unemployment benefits short duration coupled activation incentives obligations supported labor successful lowering (3 Effective mixes harbor moderating effect developments Extensive comparative empirical since century revealed trade-off performance size cases Nordic countries always considered amongst (notably Davos forum) demonstrate presence sector does necessarily Blanchard O unemployment: evolution facts ideas Economic Vol 45 pp 5-59 8 competitiveness; relationship fertility female participation Scandinavian well France; finally numeracy literacy abide principles OECD PISA studies show Finland particular investments generate dividends mid- Statistical analyses (such child policies) difference but allowing skilled (4 hinges number taxpayers reading actively mobilising citizens order mitigate atypical resulting obsolete spell ‘active’ enabling alongside When risk cyclical appeared sufficient administer collective funds consumption-smoothing spells Keynesian demand-deficient However becomes radical shifts supply intensified international competition skill-biased technological feminization force transformation preferences flexible relations then longer suffices guarantees therefore complemented capacitating customized life-course empowering adults create real equality opportunity(5 difficult privately and/or collectively insure self-evidently supplied markets step against movement away passive compensation servicing critically informed mounting evidence (collected decades) enormous cost (too) late intervention course Early school dropouts massively later individually Nelson S ’Do produce jobs?’ Morel N Palme Towards State? Sabel C Saxenian L Miettinen R Kristensen P H Hautamäki (2010) Individualized service State: Lessons special report prepared SITRA Helsinki 9 Increasing unskilled trend Commission’s “New jobs” underlines vary according qualification whole those 83 9% medium 70 6% low 48 1% 2007 2010 employing increased low-skill decreased (6 goes increasing sectors ‘green jobs’ advanced technologies digital lie unemployed predominantly vacant suggests times ‘aftershock’ complement demand-side supply-side instruments deregulation costs take poorly paid upskill providing them necessary learning capacities contentious unifying tenet economics bears theory Distancing neo-liberalism’s ‘negative’ advocates provider They do place basis sanguine understanding efficient Two rationales here relates asymmetries Because often lack requisite capabilities enlightened choices unmet because failures under-provision too areas stand perspective: bearing family’s relation widening inequalities quantity sustain generous states beginning One period one’s enough Commission (2009) Anticipating matching Luxembourg: Office Official Publications Communities; “New jobs: action now” Expert Group 10 case enhancement endogenous 1980s suggesting term determined decision external shocks demographic high-quality powerfully Nobel laureate James Heckman Since cognitive non-cognitive abilities influence success subsequently adult ‘strong start’ (i young children) (7 paramount parenting crucial shape makers want robust implies helping parents find balance reasoning Babies Bosses cannot realize aspiration aspire wellbeing impaired curtailed reduced lower ultimately undermine universal systems (8 To extent well-off depress underinvestment engender stunted tax revenue Overinvestment work-rich offspring offers little careers expectancy goal full differentiated aggregate maximizing fighting formal prime model whereby share enable keep catering Higher typically raises dependents consumer-oriented If part-time recognized normal job access basic allows independence parttime gender Accommodating transitions probability being trapped into inactivity dependency harbour individual (9 issue (2000) ‘Policies foster Economics 54 3-56; Lochner ‘Rethinking myths about training: Understanding sources modern economy’ Danziger Waldfogel Securing Future: Investing Children Birth College Russell Sage Foundation York 47-83 (2007) Organisation Co-operation Development Kok W Dell’Aringa Lopez Eckström Rodrigues M Roux Schmid (2003) Jobs Creating Europe: Report 11 maximum flexibility ‘making pay’ Instead ‘active securities’ ‘social bridges’ non-standardized become ‘stepping stones’ re-appraisal role investor questions spending monitored Growth While all childcare long-run pay existing finance practices consider pure consumption true modus operandi post-war indeed incometransfer biased Today process based clear distinguish regime allow ministers (a) identify estimated return (b) joint expenditure trends governments alike akin distinguishing accounts just companies societal necessitated conceived relevant were ten ago perhaps even With fewer persons supporting affordable now taking older combinations retirement continuing life-long incur effects great if get overstated Taskforce Brussels; (2006) Implementing delivery COM 816 Brussels Part I; (2008) Renewed Agenda: Opportunities solidarity 21st 412 Between instrumental promoting coordination Below concerning reflection aspects governance majority varying pushed taxation legislation pensions schemes financing administration Even consolidated practically reconfiguring upon built after 1945 fair say hindsight two decades singularly retrenchment recipes embraced notions pacts ageing/avoidance lifelong parental leave mainstreaming ‘flexicurity’ reconciliation innovations additions subtractions others novelty recent epoch simultaneous application investment-oriented subsidies individualized counselling negative retrenched shorter targeting sanctioning jury judgments put practice diverge display strongest profile observe Netherlands Germany France United Kingdom Spain leading up crisis(10) Southern (Italy Spain) East seem shied 13 regard think nevertheless agreement following points: 1) virtuous circles inclusion emancipation presupposes sufficiently ambitious consistent ‘package’ partial implementation best deliver life-chance/life-course chain maintained 2) Although ‘crowded out’ cheap option substantial savings run Simultaneously responding healthcare (and pensions) implementing transition fully-fledged strategies additional resources erosion base wake dangerous threat Budgetary discipline destroy revenues necessity overcoming without destroying reason convince opinion contained retain leeway youth: (combined reform) 3) Equality Quality part parcel driver function itself egalitarian: exacerbate background society genuinely Only successes help reaching token aims merely driving accept ‘any job’ producing Active seen elements instrument Poor-quality Education ought outcome know egalitarian urges us remember merits anti-poverty reducing Hence balanced approach ‘investment strategy’ ‘protection Half-baked impossible vicious disadvantage capacitation 4) Finally very importantly (necessary) side strategy; sound occasioned mismanagement embedded durable denying generates tensions trade-offs packaged par excellence rewards era where swiftly scarce resource specific methodology known Open Method Coordination (OMC) weaknesses subject vast literature discuss present moment (11) Very succinctly viewpoint summarized follows: open doubt weak ‘soft’ entertain rosy picture effectiveness reorienting albeit lesser embodied helped redefine managing toward fostering diffusion acceptance mental re- Zeitlin Pochet Magnusson (2005) Inclusion Strategies Peter Lang 15 direction (rather concrete recommendations) pro-active reorientation – priorities ‘flexicurity’ balancing security) significant decline failed adequately due fragmentary thinking characteristic policymaking primary integrity single inflation finances precluded rectify lopsided prominence comes steering see alternative ‘governance objectives’; leaving precise question presents objectives’ consistently latter sketched June Consistent below: lesson (12) First EMU inadequate: focusing ineffectively overlooked worrying divergences Second members vulnerable vis-à-vis apply counter-cyclical policies: monetary union forced ‘bad equilibrium’ characterized deflation deficits Paul De Grauwe argues (13) Apart deem said prospect For discussion topic refer Marlier E Natali Rudi Van Dam More EU? I fragile eurozone (http://www econ kuleuven be/ew/academic/intecon/Degrauwe/PDGpapers/Discussion_papers/Governance-fragile-eurozone_s pdf) Addressing (soft) (without abandoning soft proper) below solutions highlight confronted Will gained credit onslaught carry day revert marginality left orphaned austerity? remains grown somewhat immediate aftermath downturn politics Inevitably headwind drained bring contracts duress facing pressures dealt prior problem confidence free all-time skepticism ability manage let alone peak classes fearful affected downward mobility position rich improved behind gone stronger particularly right creates ‘double bind’: national belief internal contradictions double bind paralysing needed domestic Politically meltdown became scapegoat choice anti-immigrant Eurosceptic voices muster strength office pressure protect limit commitments Mario Monti aptly speaks ‘single fatigue’ populism surely fails offer credible future-proof alternatives pro-European mainstream democratic Christian green-left defend claim 17 recalibration pan-European Concurrently reigns supreme ‘economic selection perplexing quickly neo-liberal ‘blame-it-onthe-state’ narrative resurfaced Greek sovereign Within span policymakers forgotten crash originated behavioural excesses excessive faith excess Annual (AGS) published February marks reminiscent study mid-1990s once again identifies profligacy overregulated overgenerous excessively rigid bargaining main barriers AGS calls ‘a reduction reform’ aggressive package insisting actions ‘not investments’ fundamentally odds proficiency implemented temporary lay-off combined initiatives aim enhance adaptability hence enterprises tripartite agreements partners regional company preventive Some devoted outperformed liberal proved asset liability Great Recession Notwithstanding bind’ could easily nip bud fuelling nationalism macro-economic xenophobia coming grounds scepticism successor intrinsically reliance (or point intergovernmental management ‘Community’ approach) Like predecessor ‘headline targets’ underlining importance targets realistically five are: 75%; R&D amounting 3% GDP; greenhouse gas emissions 20%; secondary-school drop-out 10% 40% graduates higher fifth combination indicators: material deprivation living jobless total 20 million perfect translate taken whether Reform Programmes credibly pursue guidelines Council assessing monitoring promises indicators testing ground respect credibility depend link launch constrained considerations interact conundrum complex shortterm ranging immigration 19 strengthen launched establishing system Meanwhile momentum dominated ‘competitiveness pact’ Wrong-headed wage-cost (important though is) jeopardize ends frame broader Such pact moreover bite clout forthcoming Parliament’s Committee Monetary Affairs defined six legislative proposals Negotiations concerns express incorporated amendments instance made realistic account downturn); scoreboard used include indicators; included correct rights Parliament endorses issuing Eurobonds proposal briefly refers hard operational negotiations what tabled (14) deeply worried created “Competitiveness (notwithstanding turned nuanced “Euro-plus Pact”) EU’s last months See Estella Sola Strategy: prosperity Discussion Papers 10/2010 IDEAS; Delors Fernandes Mermet Semester: Brief 22 Notre set written definitely vanish weeks already suggest naïve situation experiencing dramatic Greece) simultaneously cut Therefore types systemic fragility remedied capitals controversial favour forceful: ‘good significantly decreasing burden whilst board regarding moral hazard Structural Funds Bank (EIB) Reconstruction (EBRD) earmarked bonds issued fund projects realm member benefit ‘deal’ pursued deal wherein therein tangible reform-oriented forward-looking creating sense ‘reciprocity’ Reciprocity assistance conditionality yet terminology ‘stick’ ‘carrot’ architecture fully raise disparities factors EU-wide worst performing struggling unable money performers fixed track achieving inclusive Low addressed matter urgency ‘Helping’ means constitute follow-up invested legitimate expectations few (15) Macroeconomic Rompuy’s Task Force reconnect imbalances bubbles oversized banks wider interpretation window articulate interdependent roles play combining room pave longer-term ‘caring Europe’ founding rightly dire ‘appropriate reconciliation’ seems old division former concentrating liberalization retaining near monopoly reached cul-de-sac politically economically redirecting broad design equip An ‘EU pact’ vision 21st-century helpful challenging restoring EU’s legitimacy That discredited quarters mere custodian Treaty (which Joint Protection Inclusion; assessment anchors normative commitment article ´horizontal clause´ 9) improvements challenges Additional overcome longterm supplement Using Child-centred over-determined happens comprehensive Access sine qua non workable equilibrium early-childhood mothers fathers ‘child-centred strategy’ learners contributors perform knowledge required going demands retiring baby generation underlined propose quantitative Barcelona (90 percent mandatory least 33 add figures Considering counted stimulate Human push wishes urgent looming 23 afford dropout parents’ futures high-skill assume ‘productive factor’ Increased preventing exit facilitating leavers streamlined professional called worlds leisure overlapping closely Lifelong components gainful Reconciling interaction mediated guarantee presupposes: assuring enduring disabled unemployed; attractive traps; activating recipients; subsidizing decent low-productive work; mature phenomenon segmentation ‘insiders’ ‘outsiders’ likely boundaries ‘in’ ‘out’ blurred low-wages subsidized low-income Post-industrial high-skilled Additionally continuous rise sizeable semi-skilled personal forms referred ‘preventive employability’ increases relaxing dismissal employees (un)paid (parental) Flexible family-friendly provisions ratio harmonize depends prospects 24 Later ‘new risks’ divorce old-age declining accelerating bear primarily signifying shift Late entry youngster confronts justify retirement: a) status each cohort b) gap rapidly narrowing retraining close baby-boomers area allocate inevitably accompany Delaying equitable impacts nominator denominator inter-generationally retirees sacrifice proportions People getting healthier introduction postpone alleviate employed household incomes increase substantially preserved calculation (the socalled parametric reforms) work-life two-job dignity age-cohorts talents recalibrated Migration priority migrants non-EU nationals whose average twice Integration occupy central something acknowledge ethnically culturally diversified faces major Specific 25 targeted gaps rest Minimum connected breakdown remedy deficiencies avoid unless willing unchecked worsen citizens’ Greater widespread low-wage scenario insecurity group tightly woven safety net truly needy ***** situations diverse Priorities mentioned Europeanwide despite difficulties Without diversity convinced positively induces unlikely wrongheaded bound unleash Let hope sooner creativity imagination tide inward-looking pessimism pragmatism’ actors shared willingness fight