Institutional Competitiveness, Social Investment, and Welfare Regimes

By Paul Bernard and Guillaume Boucher

Are the rather generous welfare regimes found in most European countries sustainable; that is, are they competitive in a globalizing economy?

Or will they, on the contrary, be crowded out by the more austere and less expensive regimes generally found in liberal Anglo-Saxon countries?

We first discuss this issue conceptually, focusing on the notions of institutional competitiveness, social investment, and short-term and long-term productivity. We then briefly present the results of an empirical study of 50 social indicators of policies and outcomes in 20 Organization for Economic Co-operation and Development (OECD) countries during the early 2000s. We conclude that welfare regimes have not been forced to converge through a ''race to the bottom.'' There remain three distinct ways to face the ''trilemma'' of job growth, income inequality, and fiscal restraint: Nordic countries achieve high labor market participation through high social investment; Anglo-Saxon countries attain the same objective through minimal public intervention; while Continental European countries experience fiscal pressures because their social protection schemes are not promoting participation to the same extent.

(Regulation & Governance. Volume 1 Issue 3: Special Issue on Globalization and Institutional Competitiveness Page 213-229, September 2007)