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Education and Welfare:Recalibrating the EuropeanDebateGraham Room

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To cite this article: Graham Room (2002): Education and Welfare: Recalibratingthe European Debate, Policy Studies, 23:1, 37-50

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Education and Welfare: Recalibrating the European Debate

GRAHAM ROOM

ABSTRACT Much of the recent scholarly literature on globalization and social welfare focuses on thethreats that are allegedly posed to national social protection systems by footloose capital in search of low-cost labour. However, it is argued here that capital is less concerned about the costs imposed by generoussocial protection, more by the advantages offered by generous human capital investment. Thus, far frommobile capital driving national policies of social protection by the threat of exit, national policies onhuman investment may drive capital mobility by inducing entry. The paper investigates alternativenational policies of this sort, their institutional preconditions and their implications for the distributionof welfare. It concludes that the current drive for human investment must be placed at the centre of com-parative welfare analysis, not least in order to expose the fragility of the assumptions that policy makersare making, in seeing such investment as the road to welfare and opportunity for all.

Introduction: Challenges to Welfare

To analyse in comparative terms the ways in which the welfare systems of the advanced coun-tries are being restructured, in the face of internal and external challenges, is a task to whichscholars perennially return. They do so not only in order to re-assess the theoretical accountsof welfare that have hitherto proved useful, but also to illuminate the policy options thatpolitical leaders now confront.

During recent years, the internal challenges most frequently cited have been three-fold(see, for example, Ferrera et al., 2000). First, the population is ageing, placing a growing� nancial burden on pensions systems. Second, employment is becoming more precarious,and traditional systems of unemployment insurance are proving inadequate to support thoseat risk of labour market exclusion. Third, the family is less stable than formerly, and is there-fore less able to offer support to the young and the elderly. These challenges, it is argued,threaten the � nancial base of social protection systems, by requiring them to pay out morethan they can afford: on pensions and long-term care for elderly people who can no longerlook to family support; on the growing numbers of children dependent on lone mothers; onthose whose employment careers are too precarious to be protected by traditional unem-ployment insurance. However, the policy problem is not only � nancial. The scienti� c and thepolicy debate also focuses on the behavioural consequences of social protection systemsunder these new conditions and the rights and obligations by reference to which this behav-iour is to be judged: the obligation of the worker to save for his or her own retirement; theobligation of the unemployed person and the lone mother to seek retraining and work; therights of all three to income support provided through the state.

The external challenges are generally seen as clustering around the phenomenon of‘globalization’. Globalization exposes enterprises to low-cost competition from elsewhere: if

Policy Studies, Vol. 23, No 1, 2002

ISSN 0144-2872 print/1470-1006 online /02/010037–14 © 2002 Policy Studies InstituteDOI: 10.1080/0144287022000000073

Professor Graham Room, Department of Social and Policy Sciences, University of Bath, Bath BA2 7AY,UK. Tel: +44 (0)1225 826090; Fax: +44 (0)1225 826381; E-mail: G.J.Room@bath.ac.uk

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they are not to be priced out of their markets, the social contributions that they are asked tobear must be reduced. If governments refuse to yield to this downward pressure, capital isfootloose and will simply exit, with the social insurance contributions it yields disappearingentirely: indeed, not only the contributions but, more important, the employment itself.Thus, if the internal challenges cited above imperil the � nancial equilibrium of social pro-tection systems on the bene� ts side, by requiring them to pay out more than they can afford,the external challenges of globalization threaten them on the contributions side, by sug-gesting that the social costs on productive enterprises must be reduced if they are to surviveand offer continuing employment in the global marketplace.

It is by reference to these concerns – indeed, these fears – that the options that policymakers confront are being dissected in much of the recent scholarly literature on compara-tive social welfare. However, in revisiting these debates this paper questions some of theassumptions that are being made, and offers a very different account of the policy optionsthat these countries face. The starting point is the external challenges that have just beenpresented.

Globalization and its Consequences for Welfare: Review of the Literature

The prevailing approach is well illustrated by Scharpf ’s analysis of the contemporary welfaredilemmas that face the EU (Scharpf, 1997, Ch. 9, 2000). He argues that the mobility of capitaltends to produce an ‘erosion of welfare state protection’ and ‘ruinous competition amongnational regulatory regimes’ (1997, p. 208). This is partly the result of action by the EU itselfto promote ‘negative integration’ (the removal of barriers to capital mobility); it is also aresult of the increased ease of supplying different national markets throughout the EU, nomatter in which EU country an enterprise is located. To address and reverse this ruinouscompetition is, he argues, an urgent imperative for collective action by the EU: however, thepolitical preconditions are not available, and ‘normatively convincing, practically effectiveand politically feasible solutions are nowhere in sight’ (Scharpf, 1997, p. 213).

Less pessimistic, but no less concerned about the threats to traditional welfare systemsposed by mobile capital, is the analysis of national welfare systems in the EU by Ferrera et al.(2000). They argue that, under conditions of intensi� ed global competition, the continuingprosperity of the EU member states and the viability of their social welfare systems dependon these systems being fundamentally ‘recalibrated’. In their treatment of the able-bodiedunemployed, these welfare systems must shift towards ‘� exicurity’. This involves a closer linkbetween income maintenance and labour market reinsertion, with availability for the lattera precondition for receipt of the former. The design of appropriate ‘activation’ policies topromote this reinsertion, coupled with a rede� nition of entitlement to income maintenance,is the task that faces public policy makers. Ferrera and his colleagues assess how far countrieswith different welfare regimes are moving towards this � exicurity and how far, even amongcountries with similar regimes, some have been more successful than others.1

Alber and Standing (2000) put European experience into a larger context. They take stockof recent scholarly debates that portray welfare states as ‘competition states’, seeking toattract foreign capital investment. ‘Social dumping’ in the sense of less generous socialbene� ts is the result, albeit these reductions are modi� ed by the need to retain domesticpolitical support. The empirical evidence they � nd in support of these arguments is, however,rather inconclusive. Equally plausible is a quite different hypothesis: that as countries developeconomically, they adopt patterns of welfare spending akin to those of countries that arealready developed, in a process of ‘catching-up’ rather than a ‘race to the bottom’.2

To a greater or lesser extent, the analysis offered by these writers starts from three relatedassumptions. The � rst is that it is mobile capital that drives national welfare policy making;

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the second is that such welfare consists � rst and foremost of social protection and incomemaintenance; the third is that traditional social protection is a burden that countries will � ndit increasingly dif� cult to bear, under the pressures of international competition, and thatthey will be obliged to resort to social cost-cutting or, at least, to tighter targeting of socialbene� ts and more stringent conditions for receipt. All three assumptions must now be putin question, as the basis for a more substantial re-analysis of the challenges faced by Euro-pean welfare systems and the possible responses.

First, these writers assume that mobile capital – more strictly, the fear of capital scarcity –is the factor of production that drives national policy making, producing what Scharpfdescribes as ‘ruinous competition among national regulatory regimes’. The same fear ofcapital scarcity haunts the national policy makers who, in Ferrera et al.’s analysis, are strivingto recalibrate their social protection systems. However, it is arguable that it is fears of labourscarcity – more strictly, the scarcity of highly skilled labour – that are now at least as import-ant in driving national policy making. This is in part because the availability of such labourin a country, and the reliability of its supply, in conditions where labour is less mobile thancapital,3 is what determines the location of capital. It may be that capital is less concernedabout the costs imposed by generous social protection, and more by the advantages offeredby generous human capital investment. Thus, far from mobile capital driving nationalpolicies of social protection by the threat of exit, national policies on human investment maydrive capital mobility by discouraging exit and inducing entry.

Not that Scharpf ignores the importance of highly skilled labour as a key determinant ofthe continuing prosperity of the advanced economies. He insists that in the face of footloosecapital, production in high-cost countries can survive in internationally exposed sectors ofthe economy only if it concentrates on ‘upmarket’ industrial products and services, usingskilled workers able to deliver high productivity. The inference he draws from this, however,is that employment in such sectors will be rather limited: he does not consider nationalpolicies to develop, attract and hoard highly skilled labour, as a means of retaining andattracting capital (Scharpf, 2000, Section 3.1). Likewise, Ferrera and his colleagues recognizethe growing importance of human capital investment as part of activation policies. However,activation is seen principally as a means of reducing the costs of social protection and increas-ing labour � exibility, thereby slowing the exit of footloose capital, rather than as a positiveinstrument for attracting such capital.

The second assumption is that welfare policy consists, � rst and foremost, of social pro-tection and income maintenance. This is, arguably, a conceptual choice rather than anassumption about empirical developments in advanced societies. Nevertheless, conceptualchoices that do not re� ect empirical developments are less likely to result in analyses thatilluminate those developments. Scholars interested in the comparative analysis of Europeanwelfare have long focused their attention on social protection systems. In contrast, policymakers have, to an increasing extent, shifted their attention to human investment policies.4

It is, arguably, the public policy choices made in the realm of human investment that will, toan increasing extent, shape all others. Not least, human investment policies, by shaping theskills that people bring to the labour market, determine in considerable measure the prospec-tive income � ows that people can command and the security of these incomes: the veryincomes whose continuity and suf� ciency it is the traditional task of social protection schemesto defend.5 In this case it is time for scholars to make the same shift in the focus of their analy-sis: otherwise their work will become increasingly out of touch with the real world of policymaking.6

The third assumption is that welfare policy is a burden that countries will � nd it increas-ingly dif� cult to bear, under the pressures of international competition, and that they will beobliged to resort to social cost-cutting, even if the scope for doing so varies according to the

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institutional arrangements and social politics of welfare funding (Pierson, 1994). Thisassumption may have some validity in relation to social protection. Whatever the situation inrelation to social protection, however, it would be dangerous to draw inferences in relationto policies of human investment, where the social politics and the institutional arrangementsfor distributing the costs of such policies are very different.

These are empirical questions. They are of at least three sorts, concerned with the behav-iour of capital, on the one hand, and national policy makers and other national stakeholders,on the other:

� How far does capital locate by reference to low social costs, and how far by reference tothe availability of skilled labour?

� In what policy choices do national policy makers engage, in order to in� uence theselocation decisions, and of what salience are instruments of human investment?

� Who bears the costs of these policy choices, within what institutional arrangements, andhow politically sustainable are these policy choices in consequence?

All three questions have a European as well as a national dimension. They will be consideredin turn.

Capital Location, Social Costs and Skilled Labour

How far does capital locate by reference to low social costs, and how far by reference to theavailability of skilled labour? The likely answer is that ‘capital’ is not homogeneous. Somelocates primarily by reference to low social costs and low wages, some by reference to reliablesupplies of highly skilled labour (Held et al., 1999, Sections 5.5.4, 5.8.3). (Of course, manyother factors also shape those location decisions, which are here treated as ‘ceteris paribus’:transport and communication infrastructures, � scal regimes, proximity to markets, quiescentlabour, etc.) The policy decisions that different national authorities make, affecting socialcosts and the availability of skilled labour, will then help to determine (ceteris paribus!) whatsorts of capital are attracted and what sorts are repelled. These decisions will also de� ne thecountries that will be competing with each other: is a particular EU country competing withthe low-cost countries of the developing world, or with the high-cost, high-productivity coun-tries of the advanced world?

What evidence is already to hand? More than three-quarters of foreign direct investmentgoes to the advanced economies: little evidence, therefore, of a haemorrhage of capital tothe low-cost countries (OECD, 1995, p. 55). However, such macro-level data hardly providesuf� cient evidence in support of the argument being developed here. At a more disaggre-gated level, Held and his colleagues survey several major manufacturing industries (Held etal., 1999, Section 5.5.2). Textiles are produced predominantly in low-cost countries, albeit inresponse to powerful purchasing organizations in developed countries, which can readilyswitch orders among producers as market conditions change.7 Pharmaceuticals are quitedifferent. The low-wage content has meant that there is little cost incentive to relocate to low-wage countries; the advanced countries, in contrast, offer the industry the R&D infrastruc-ture on which it depends, as well as its principal markets. The electronics industry is in anintermediate position, with routine labour-intensive aspects being shifted to low-cost coun-tries such as China, while R&D operations remain in the advanced world.8

In a complementary study, Crouch et al. (1999, Chs 2–3) focus on seven advanced indus-trial economies and consider in which industrial sectors, distinguished according to the skilllevel of their employees,9 export growth and employment growth have been concentrated inrecent decades. Their answer is fairly clear-cut. As far as export shares are concerned,Germany in particular has relied heavily on the production and export of motor vehicles,

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dominated by intermediate-level skills; other advanced countries have moved deliberately,but with varying degrees of success, towards exports by high-skill industries, as their sharesof trade in engineering goods have declined. As far as employment growth is concerned,however, the contribution of these high-skill export industries is as yet modest.

Even where capital is crucially dependent on the availability of skilled labour, this doesnot necessarily determine the location of the enterprise. Some information-processing func-tions can be handled by teleworkers linked by the internet: with subcontractors in India, forexample, administering UK student loans (for further examples see Brown & Lauder, 2001,p. 110; Ferner, 1998, pp. 187–188). More generally, the ICT revolution is facilitating world-wide production networks by means of which MNCs can tap into a wide range of local poolsof highly skilled expertise and other resources, without having to commit to location in oneor two major centres (Held et al., 1999, Section 5.5.1). India and China are, after all, of sucha size that they need educate only small minorities of their populations to a high skill levelin order then to be able to offer enterprises large absolute numbers of such graduates(Crouch et al., 1999, pp. 14–15).

On the other hand, in many industries, if skilled labour is to contribute effectively toproductivity, particular institutional settings are needed (Porter, 1990). For example, invest-ment in R&D is important, as a complement to the acquisition and retention of skilled labour.R&D expenditure is concentrated in the advanced world to a much greater extent than isproduction, and within the advanced world the major MNEs tend also to concentrate R&Din their home countries (Dunning, 1993a, pp. 301–311). This concentration derives in partfrom the search for the agglomerative economies that are associated with the clustering ofrelated industries (Dunning, 1993b, pp. 121–124; Porter, 1990, Ch. 4) and it gives these coun-tries a comparative advantage in attracting and maintaining skilled labour and technologi-cally advanced industries.

A variety of other institutional and cultural factors also in� uence how, and to what effect,human capital is deployed: factors that have been collectively analysed as forms of ‘socialcapital’ (Coleman, 1988; Putnam, 1993). These factors include tacit knowledge and exper-tise within the enterprise; the extent to which it has a high-trust culture; and infrastructuressupportive of innovation (Held et al., 1999, Section 5.5.4). They also include the sort of socialdialogue that prevails within enterprises, the institutional arrangements for securing con-sensus and commitment around human capital investment and its utilization (Kelleher &Cressey, 2000). The – fairly obvious – implication is that mobile capital is unlikely to beattracted by the availability of highly skilled workers alone: what is also needed is the socialcapital that can enable their productivity to be realized.

One other element of ‘social capital’ may also be important. Easy access to high-qualityhealth, education and social services may be signi� cant in enabling enterprises to attract andretain scarce highly skilled labour. This may also place limits on the scope for capital to bemobile to low-cost countries. It is not only in the internationally traded sector itself thatmobile capital seeks highly skilled workers, but also in the human and cultural services thatthose workers demand (Crouch et al., 1999, p. 10).

National Policy and Skilled Labour

In what policy choices do national policy makers engage, in order to in� uence the locationdecisions of capital, and of what salience are instruments of human investment?

The foregoing discussion established a case for analysing national policies for human invest-ment and skill development, as proactive instruments for attracting and retaining mobilecapital, rather than focusing on policies of social protection and their rearguard defence againstthe competitive pressures of globalization. As the OECD argues in a recent report, ‘Enhancing

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the quality of the labour force is likely to be the main avenue for policy interventions orientedat attracting foreign investment activities’ (OECD, 1995, p. 70). Consistent with this, nationalpolicy makers within the advanced world frequently re-af� rm that an expansion of educationalopportunities and an upgrading of labour force skills are the sine qua non for national econ-omic survival. They also exhibit widespread con� dence that this can secure opportunity for all,in contrast to the growing polarization and social division that many of the writers reviewed inthe foregoing pages seem to fear. This is also the rhetoric, at least, of the EU, notably asexpressed at the Lisbon Summit of March 2000, where the EU set itself the goal of becoming‘the most competitive and dynamic knowledge-based economy in the world, capable of sus-tainable economic growth with more and better jobs and greater social cohesion’.

This in part expresses concern by EU policy makers that the EU as a whole has, over recentdecades, been making an inadequate investment in human capital compared with the US,with its longstanding high rates of participation in post-compulsory education, and the coun-tries of East Asia, with their strong commitment to education and skill development (Brown& Lauder, 2001, pp. 120–121; Gough, 2000a, b). More generally, it embodies a commitmentto active state involvement in the management of the human resource development on whichinnovation and growth increasingly depend. This is a commitment that is heavily in� uencedby the East Asian model and it appears to be widely endorsed, save by those wedded to a neo-liberal paradigm (Dunning, 1993a, pp. 317–327, 1993b, pp. 66–72, 344–350).

Insofar as capital locates by reference to the availability of skilled labour, countries may,in theory at least, pursue two quite different strategies. First, they may engage in a ‘race tothe top’ in their human investment policies, developing a highly skilled labour force to attractmobile capital. For the EU as a whole, this could mean a general upgrading of human skills,as countries compete with each other (or even, indeed, an over-investment in human skills,to the detriment of other types of investment, or resources going into current consump-tion10). Concerted action at EU level might then involve the promotion of best practice ineducation and training, perhaps through the sort of ‘benchmarking’ and peer review encour-aged by the Lisbon Summit, in order that those who lead in the ‘race to the top’ can makethe secret of their success available across the EU.11

Second, and very differently, however, countries may adopt a strategy of ‘poaching’trained and skilled workers from other countries, rather than undertaking their own humaninvestment.12 Many advanced countries are now competing to recruit IT specialists fromIndia, for example; the UK has been recruiting quali� ed nurses from South Africa andteachers from Australia and New Zealand.13 To facilitate this, restrictions on work permitsare being relaxed in relation to the specialist skills in question. In order to avoid a disorderlyscramble for skills, the European Commission has brought forward proposals for commonrules on such work permits (European Commission, 2001a).

However, poaching is also, of course, a potential problem between EU member states:indeed, the more that the EU makes free movement of people a reality, the more thisbecomes a feasible strategy for a country vis-à-vis its EU neighbours, in an educational versionof ‘social dumping’.14 The candidate countries of Central and Eastern Europe may be inparticular danger of being denuded of some types of skilled labour, as they enter the EU: ITspecialists in particular (European Commission, 2001b, para. 5.1). For the EU as a whole,however, the consequence of poaching could be substantial under-investment in humanskills: a European low-skills equilibrium.15 Concerted action at EU level might again involvebenchmarking, but now in the form of minimum standards and targets that all countries mustmeet, in relation to forecasts of their domestic needs for highly skilled workers.16

Policies for human investment and skill formation are chosen within speci� c institutionalcontexts. Individual countries tend to get locked into low- and high-skills equilibria, by virtueof self-reinforcing networks of societal and state institutions: distinct ‘regimes’, to use the

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language that has become commonplace in comparative welfare studies (Brown & Lauder,2001; Finegold & Soskice, 1988). Moreover, different sectors of a country’s economy may belocked into different skills equilibria. Brown and Lauder, in their comparative study of theUK, Germany, Singapore and Korea, explore national routes to different skills equilibria(Lauder, 1999: see also Green, 1999). In Singapore, the state has sought to attract MNCs byensuring that they will have available to them reliable supplies of highly skilled labour(Lauder, 1999). In Korea, the chaebol, with state support, have until recently dominated thelabour market and appropriated the forms of vocational training that lead to high skills: theresult is that SMEs lack access to highly skilled workers and are locked into a low-skills equi-librium. In his study of the UK, Keep (1999) takes stock of recent policy initiatives to promotea high-skills equilibrium. He argues that these may be hindered by the UK’s tradition of frag-mented and voluntaristic employer-led training schemes, with the state having a low involve-ment; a bifurcation of high skill and (large) low-skills sectors is, he concludes, likely to remaina long-term feature of UK society.

Human investment regimes, like social protection regimes, are political settlementsamong major stakeholders.17 The reorientation of the national welfare regimes of the EU –with a shift from passive social protection to active social investment – means that this cast ofactors has changed. Instead of focusing on the social partners and, perhaps, the municipal-ities and the social insurance funds, it is also necessary to bring into the frame the actors whoshape the national education and training regimes: employers again, but now seen in refer-ence to their training programmes; trade unions and professional associations, whose involve-ment in shaping these programmes will depend in part on the prevailing forms of socialdialogue (Kelleher & Cressey, 2000); tertiary education institutions, with their contrastingsystems of governance and funding in different countries; social strata concerned not, as inthe case of income maintenance, with preserving their incomes in times of adversity, butrather with preserving the status of their offspring in the struggle for positional goodsthrough educational quali� cations.

The institutions through which human investment is undertaken embody this settlement.They span four main activities: post-compulsory education, initial vocational training, con-tinuing professional development and in-service training, and training for the unemployed.How these are organized is itself the stuff of the policy settlement, and has substantial con-sequences for the ‘skills equilibrium’ of the country concerned and the labour market trajec-tories that are available to different groups of trainees. Within the EU there are a number ofdifferent national traditions or regimes, involving quite different socio-political settlements(Crouch, 1992, 1998; Crouch et al., 1999, pp. 22–30 and Chs 4–7). These are, however, nowbeing refashioned in face of the competitive challenges of globalization and the new EUagenda for a knowledge-based economy. Not least, the EU employment strategy of recentyears has as its third ‘pillar’ highlighted the ‘adaptability’ of work organization, with a com-mitment by government and the social partners to provide institutional supports and incen-tives to life-long learning (European Commission, 2001a, pp. 31–34).

The readiness of employers and of workers to invest in � rm-speci� c, industry-speci� c orgeneral and easily transferable skills depends in part on the degree of employment andincome security that skilled jobs enjoy (Estevez-Abe et al., 2001). These, in turn, are shapedby the systems of labour market regulation and social protection in the country concerned.High levels of security are more likely to sustain investment in � rm- and industry-speci� c skillson the German model; but where social protection is more modest, and labour markets evenfor skilled workers are more insecure, interests of both employers and workers may be intransferable skills achieved through general education. Even if the analytical focus shifts frompassive social protection to active human investment, the connections between these policyareas remain fundamental.

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Further work is needed on these different regimes and equilibria, if the alternative futuresfacing the various countries of the EU are to be clari� ed. This must consider the conse-quences of different equilibria for patterns of wage inequality between high-skilled and low-skilled workers (see, for example, the studies reviewed by McIntosh & Steedman, 2000, p.26). It must also include an investigation of the extent to which those countries that arelocked into low-skill equilibria are more likely to poach trained and skilled workers from theirneighbours. Finally, it must assess the solidity or vulnerability of the equilibria prevailing indifferent countries, the stakes and interests of the various actors involved, and the scope fortransforming them.

Bene� ts and Stakes, Costs and Consequences

This paper has argued that, far from mobile capital driving national policies of social pro-tection by the threat of exit, national policies on human investment may drive capital mobil-ity by discouraging exit and inducing entry. The third section of this paper surveyed theevidence on capital mobility, arguing that much of this mobility is driven by the availabilityof highly skilled labour and infrastructures supportive of innovation. The fourth section con-sidered the various national strategies on human investment, their relationship to differentnational human investment regimes, and the growing Europeanization of these regimes.

This analysis was, however, a means to two ends. First, it puts in question the focus onsocial protection and income maintenance policies by scholars of comparative social welfare.Their concern is commonly with the current living standards and income � ows that peopleenjoy, the threats posed by the insecurities of a market society and the security that socialprotection systems can offer. From this derives their interest in the consequences of capitalmobility for social protection systems and their fear that these systems will be put underincreasing pressure. Against this, we can argue that human investment policies are at least asimportant. By shaping the skills that people bring to the labour market, they determine inconsiderable measure the prospective income � ows that people can command and thesecurity of these incomes: the very incomes whose continuity and suf� ciency it is the tra-ditional task of social protection schemes to defend. When to this we add, on the basis of theforegoing analysis, that human investment policies shape capital mobility more than capitalmobility shapes social protection, the case for analysts focusing on human investment policiesis clear.

The preceding analysis was intended, second, to provide the basis for re-examining thewelfare options that are faced by policy makers. The latter have already begun to shift thefocus of social policy from social protection to human investment. Who bene� ts from thisshift; who bears the costs; what are the institutional consequences; and how politically sus-tainable are policies that look to human investment as the path not only to national econ-omic success, but also to welfare and opportunity for all? To address these questions is nowthe priority for comparative analysts of social welfare.

The conventional argument, that globalization and footloose capital force cut-backs insocial protection, applies most obviously to a Bismarckian system, where the level of socialcontributions that can be extracted from employers sets limits on the overall volume offunding that is available for social protection. It is not clear that footloose capital will simi-larly constrain social protection funding in non-Bismarckian systems, in particular those thatplace more reliance on general taxation. Footloose capital may create pressures to shift theburden of such � nancing onto employees, or onto general taxation, but the simple equationof capital mobility and the contraction of welfare funding is questionable. Scharpf, at least,recognizes this and provides a detailed analysis of the scope for shifting the burden of welfarefunding onto employee contributions and personal taxation, and the likely consequences for

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private sector employment growth, in different political and institutional conditions(Scharpf, 2000, Section 3.2). His conclusion, however, is that, in Bismarckian and non-Bismarckian systems alike, international and domestic institutional and political constraints havebecome far tighter, with no strategies available to relax these through actions that are feasible atthe national level. (For a more elaborated analysis, see Scharpf & Schmidt, 2000, Ch. 2.)

However, it is partly in the hope of relaxing these constraints through supply-sidestrategies that governments have been shifting their attention to policies of human invest-ment. Once the focus shifts from scarce capital to scarce highly skilled labour, and from thesocial costs imposed on employers to the reliable supplies of skilled labour that those employ-ers must � nd, the question of funding must be revisited. The costs of training and educationfall variously upon employers, general taxation and individuals, according to differentnational education and training regimes. Their readiness to bear the costs associated with anincreased national investment in education and training is unlikely to be uniform betweencountries.18

How are the costs and bene� ts of these human investment strategies distributed? There aregrounds for believing that the expansion of training and education, and of the skills that theyconfer, are likely to reinforce rather than to ameliorate inequalities. Thus, as far as continu-ing vocational and professional development within enterprises is concerned, OECD evidencesuggests that access to such vocational training during working life is strongly related toposition in the occupational structure and to formal educational quali� cations (O’Connell,1999; see also McIntosh & Steedman, 2000, p. 29). As far as post-compulsory education is con-cerned, the state is, in general, reducing its � nancial commitment to the costs of study, at leastas a proportion, leaving this to fall more on the individual, the family or indeed the dynasty,as inter-generational support for training and education becomes more important in secur-ing the long-term future of the young (Barnes et al., 2002; OECD, 2000, especially Ch. 3).

The readiness of dynasties to bear such costs is likely to depend on two factors. First, arethese costs offset by reductions in tax on other fronts: in particular, on solidaristic social pro-tection? The privatization of the costs of post-compulsory education may corrode the com-mitment of the middle classes to such social protection, as they focus their resources onensuring high-skills trajectories for their offspring. Second, does this education and trainingthen bring these offspring the expected bene� ts in terms of occupational security and marketreturns? The call for expansion of educational opportunity may eventually come to be seenas no more than a persuasive myth: unable to deliver what it promises because education is� rst and foremost a positional good (Crouch et al., 1999, pp. 6, 14–22; Hirsch, 1977), andthreatening to bankrupt middle-class families through the positional competition amongtheir offspring. For less advantaged families, even to enter this competition may seem toorisky, given their fewer resources of both � nancial and social capital (Goldthorpe, 2000, Chs8–9; Naylor et al., 2002).

In particular, the more restricted the number of high-skilled jobs, and the less the politicalappetite for redistributing the rewards accruing to such jobs across the population moregenerally, the more politically risky is a policy strategy that presents education and trainingas the golden road to opportunity and economic security for all. The mobile capital that theadvanced countries can expect to attract by offering adequate supplies of skilled labour maywell provide secure employment for some, while leaving those with few such skills largelyignored. This fear is well documented in the research literature, with some consensus thatthe advanced economies are moving towards a greater bifurcation not only in their employ-ment structures but also in the associated reward structures (Crouch et al., 1999, Ch. 2;Scharpf, 2000). Moreover, with the retreat from income redistribution, in part out of fearsthat progressive taxation will encourage the highly rewarded to exit, these market inequali-ties increasingly shape post-tax and post-transfer income distributions.

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If this strategy is accompanied by a retreat from social protection, ostensibly in the beliefthat education and training can reduce the need for it, the political risks could be evengreater. Such a retreat is evident in the efforts to address the ‘internal’ challenges that con-front the welfare systems of the EU, as presented in the opening section of this paper. Theproblems of paying for the pensions of an ageing population are being addressed by movingtowards funded schemes and by expecting individuals and their employers to meet a growingshare of the burden (European Commission, 1999, pp. 59–62, 2001d). Mothers without apartner are expected to look not to the state for income support but to training and employ-ment (see European Commission, 1999, pp. 37–41, for an overview of national efforts in thisdirection, in the more general context of facilitating family-friendly employment). Youngpeople and others who cannot obtain employment receive income support only as a part ofan activation strategy (European Commission, 1999, pp. 98–99).

The policy goal is a resilient and adaptable, highly skilled population, able to securereasonable living standards through employment in a dynamic economy. This is somethingthat seems an unlikely prospect for any country, if only because in any national populationmany people are, arguably, incapable of developing such high skills. The latter proposition,nevertheless, should not be left unchallenged. The rising level of educational quali� cationsbeing demanded across much of the labour market may attest less to the levels of skillrequired than to the use of such quali� cations to select the most able, in a form of positionalcompetition. The levels of skill that particular jobs require are not at all the same as the levelsof skill that those discharging such jobs have attained (Rose, 1994, 2002). It is at least arguablethat with vigorous educational policies, giving support in particular to those suffering socialand educational disadvantages, the majority of the population could be brought to a level ofbeing able to discharge highly skilled jobs. This would, however, presuppose a fundamentalchange in the political economy of human investment: moving away from dynastic strugglesto secure favourable outcomes in the positional competition, to publicly funded educationand training for all, as part of a common citizenship.

It is against this background that proposals for a quite different public policy strategy forfunding human investment must be judged: namely, a citizenship entitlement to post-compulsory education and training: not only in terms of a certain number of years, butmaybe even in terms of reaching a certain ‘minimum learning platform’. This might, indeed,be not only an entitlement, but also an obligation placed on the individual, to pursue ‘learn-ing and self-development throughout life’ (McIntosh & Steedman, 2000, pp. 13, 66). This isconsistent with the proposal by Ferrera and his colleagues, in their report to the EU Presi-dency, for a minimum human capital guarantee, to complement existing schemes ofminimum income (Ferrera et al., 2000, p. 91). This radically egalitarian strategy would con-trast sharply with existing approaches, based on meritocratic exclusion, and it would requiremajor transformation of the whole array of training and educational institutions as theycurrently operate.19

For the moment, however, such a strategy is heard only faintly. Meanwhile, politicalleaders are, albeit to differing extents, seeking to shift resources into education and training,with the corollary, an attempted reduction in the resources going into social protection. Thisreduction is in part to free up public resources for human investment; in addition, however,this human investment is intended to make people more able to secure through employmenta level of remuneration that will enable them to bear a fuller share of the costs of their ownsocial protection. This involves a fundamental renegotiation of the implicit contract betweenthe state and the citizen, and a shift in the institutional pacts that underpin social protection,employment, education and training. The analysis here puts in question the long-termpolitical sustainability of this strategy.

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Notes

1. In this respect at least, Ferrera et al.’s argument is consistent with that which is advanced byRieger and Leibfried (1998). The latter argue that, as far as domestic populations are con-cerned, national social protection systems provide ‘buffers’ against external shocks in theinternational economy: they are therefore more necessary, the more that trade barriers areremoved and a national economy is exposed to these shocks. Ferrera and Leibfried are thusin the ‘European’ tradition of seeing a positive role for social protection systems in enablingcountries to cope with economic globalization. Ferrera’s concern is to identify the modi� -cations that need now to be made in those systems, if they are to continue to make this positivecontribution.

2. Alber and Standing explain ‘catch-up’ in terms of the aspirations of countries, as they develop,to imitate the welfare standards of the most advanced nations, taken as reference models. Thispaper will propose a quite different explanation of the ‘race to the top’, not in terms ofpolitical legitimation through catch-up with standard-setters, but rather in terms of the pre-conditions of competitiveness among the advanced industrial nations.

3. Labour is not, after all, a pure commodity – see Polanyi (1944). Workers are embedded innetworks of social relationships and obligations and cannot be moved easily. This also givesthem an interest in the opportunities that a new location can offer their spouses and children,as part of the ‘social capital’ of a new location (Crouch et al., 1999, p. 10).

4. This shift is, for example, very evident in the EU employment strategy to which the memberstates have signed up, especially the employability ‘pillar’. This stresses, on the one hand, therole of education, training and lifelong learning in promoting a knowledge-based economy,on the other, the need to reform social protection systems in ways that will support this. Fora review of member states’ progress in regards to this pillar, see European Commission(2001a, pp. 19–26); for an overview of the EU employment strategy more generally, see Pochetand Degryse (2001).

5. This is not to say that from the point of view of welfare analysis, human investment is of inter-est only by reference to the income � ows – and hence the consumption – to which it maylead. Human investment can arguably also contribute to individual self-development, and thiscan itself be viewed as a constituent element of social welfare, irrespective of the income � owsto which it leads (Room, 2000).

6. Crouch et al. (1999) are among the few who make this shift to a focus on human investmentpolicies, but they do not work through the implications for comparative welfare analysis.

7. On the other hand, the use of ICTs is in some cases prompting a relocation of previouslylabour-intensive subcontracting activities from low-cost countries to European sites (Dunning,1993a, p. 350).

8. These contrasting patterns of development are, as Dunning observes, consistent with the argu-ment, advanced by some trade economists, that the removal of trade barriers is likely to dis-perse away from high-income countries the production of ‘Ricardo and Heckscher-Ohlingoods’ (those that are respectively the output of natural resources, including unskilled labour,and those produced with standard technology and constant returns to scale) and to concen-trate within high-income countries the production of ‘Schumpeterian goods’ (those in high-technology sectors, whose competitiveness depends on innovatory advantages) (Dunning,1998, p. 65).

9. For lack of data, Crouch et al. are obliged to measure this skill level by the highest level offormal education attained by the majority of the workforce of the industrial sector in ques-tion.

10. On the prospects of ‘over-education’, see McIntosh and Steedman (2000, pp. 28–29) andKeep (1999, p. 340).

11. Benchmarking and peer review of this sort have become highly fashionable in EU policymaking, through the so-called ‘open method of coordination’. While this respects nationalresponsibility under the principle of subsidiarity, it introduces ‘soft’ coordination of nationalpolicies and encourages cross-national policy learning. How far this will be driven by thedemands of monetary and � scal probity, enforced through the Council of Economic andFinance Ministers, and how far it will open new opportunities for policy learning in thedifferent sectors concerned, is still too early to say. See EU Council (2000), De la Porte et al.

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(2001), Hodson and Maher (2001), Trubeck and Mosher (2001), and Lundvall and Tomlin-son (2001).

12. ‘Poaching’ is, however, in some respects a potentially unhelpful and prejudicial description,if it distracts attention from possible bene� ts to source countries of such migration: forexample, if the person concerned subsequently returns home, with more experience and ahigher level of skills (Glover et al., 2001, paras 6.45–6.51).

13. Thirty-one per cent of doctors and 13 per cent of nurses are non-UK born; for London, the� gures are 23 per cent and 47 per cent, respectively. Half the additional staff recruited intothe NHS during the 1990s had quali� ed abroad (Glover et al., 2001, para. 6.32).

14. In one sense this con� rms and strengthens Scharpf ’s argument that the negative integrationpolicies of the EU – in this case, removal of barriers to the free movement of people – are‘part of the problem, rather than the solution’. However, for Scharpf the problem is thealleged decline of national governance capacity in face of footloose capital. Here, in contrast,the problem is the inability of individual national governments to secure a return on theinvestments they have made in their footloose populations.

15. This therefore parallels the argument offered by Crouch et al. (1999) in relation to individual� rms within a particular national community: the policy dilemma is how to create a commoncommitment to skill enhancement, when for individual � rms self-interest would dictate amore limited ambition (see, for example, Ch. 1). For Crouch, the answer seems to be to buildsectoral training organizations that are, on the one hand, close enough to individual � rms totake account of their rapidly changing needs for skill updating and, on the other hand, suf-� ciently distant to be able to take a strategic long-term view. Crouch argues that state involve-ment can ensure the latter priority. Crouch’s proposal can then be taken as one point ofreference, when considering how the EU can respond to the dilemma of collective under-investment in skills. Scharpf (1997) provides a pessimistic prognosis for such collective actionin relation to social protection, but with the shift of focus from social protection to humaninvestment, this has to be re-examined.

16. Recent EU initiatives involve precisely this sort of benchmarking, setting standards of skilldevelopment that all member states should pursue (European Commission, 2001c, 2002). Atthe same time, however, these initiatives also involve the promotion of free movement ofskilled workers, by removing barriers to geographical mobility and improving informationabout job opportunities. How far it is possible for a common European labour market todevelop, especially in jobs requiring high skills, without some member states suffering a ‘braindrain’ to others, remains to be seen. For the moment at least overall levels of intra-EU long-term migration are still low (European Commission, 2002).

17. There can be no presumption that these regimes will bear any particular relationship to thewelfare regimes described by Esping-Andersen (1990), based as the latter were largely on ananalysis of social protection systems: see Room (2000).

18. Insofar as national policies involve ‘poaching’ from abroad, the analysis of costs and bene� tswill need to take account of more than just domestic arrangements for funding human invest-ment. See, for example, Glover et al. (2001, paras 6.45–6.51).

19. A minimum human capital guarantee, or a minimum learning platform, would entail positiveaction through public policy to support those from educationally disadvantaged backgrounds.This could then lead in two possible directions. The � rst would be a true meritocracy: onewhere people were able to compete for individualistic success in the labour market, but in theknowledge that only their own individual ability and effort had shaped the endowment ofskills that they brought to that market, because social and family background had been min-imized in their consequences for educational success. The second, more radical still, wouldbe to place stronger limits than at present on the disparity of rewards to which labour marketsuccess and failure can then lead. Public policy choices are needed not only with respect toequality of opportunity for education and training, but also with respect to the rewards thatdifferential educational achievements then command.

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