Institutional competitiveness, social investment, and welfare regimes

Abstract 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.