The Social Investment Approach to Social Welfare

James Midgley, Espen Dahl and Amy Conley Wright examine how social investment ideas have been adopted in different countries and the resulting outcomes.

These are perilous times for social welfare policies and services. Changing economic realities arising from deindustrialisation, globalisation, aging populations and other social changes have drastically impacted budgets and political will for social spending. Political rhetoric has labelled recipients of social services as scroungers, particularly in nations such as the United States, where the current federal administration threatens to make deep cuts in safety net programmes. The traditional ‘welfare state’ approach that arose after World War II, signified by resource transfers to fund social and income maintenance programmes is under pressure in many countries. These pressures are likely to increase with the rise of authoritarian ethno-populism in a number of countries, which is more concerned with promoting national identity than providing social services to needy people.

Political rhetoric has labelled recipients of social services as scroungers

Social investment is a new approach in social welfare thinking which holds promise for current economic and political realities by transcending traditional consumption-based social services and cash transfers to emphasise the need for policies and programmes that enhance people’s capabilities to participate fully in the productive economy and realize their potential. It is characterised by social spending that aims for a productive function, by enabling economic participation. This approach encourages employment, self-employment and asset accumulation, as well as long-term investments in human and social capital, to generate positive rates of return to the economy. Unlike the neoliberal critics of the traditional welfare state, its advocates do not seek to abrogate government responsibility for social welfare but argue instead for a reconfiguration of social spending that promotes social investments which produce positive economic returns and foster economic development.

The social investment approach has attracted increasing attention in academic and policy circles in recent years. Although social investment ideas are not new, they have been vigorously promoted by a number European scholars whose work has influenced policymakers in the European Union which has sought to promote investment focused social spending among its member states, particularly in the fields of early childhood education, skills training, employment and family policy. However, much of the current literature on social investment is narrowly Eurocentric and is of limited relevance to other countries where social investment ideas have also been adopted.

Social investment takes different forms around the world and it is often used to address the most pressing local issues. South Africa’s Child Support Grant has been demonstrated to reduce poverty among women and children, with improvements in human capital accumulation from improved health and educational outcomes. Pension reform in China has been used to help elders accumulate the assets they need for retirement, while promoting economic performance through restructuring the workforce and facilitating labour mobility and integration. Community development programmes operated by both governments and nonprofit organizations in many parts of the Global South are recognized as playing a major role in promoting social investment at the local level. Early childhood preschool programmes have also been established in many developing as well as Western countries because of their demonstrable investment impact. Nutritional programmes targeted at the children of low income families have similar effect. Social investment policies have encouraged integration of immigrants into the labour force in a number of Western countries, through access to training and job placement.

Resource constraints in the Global South have required a forward-looking approach to social spending, and resulted in innovations only recently noticed and adopted in the Global North. For example, the Bolsa Familia program in Brazil and the Prospera program in Mexico make conditional cash transfers to families who engage in behaviours that enable positive health and educational outcomes. New York City introduced its own poverty reduction scheme, in 2007, based on the Mexican programme. Innovations in preschool education operated by governments in close collaboration with local communities in India and other developing countries have inspired similar programmes elsewhere. Cross-national learning based on documenting and analysing how social investment policies function in different parts of the world, may lead to judicious adaptions elsewhere, serving to enhance international efforts to promote people’s well-being.

These and similar examples from around the world demonstrate that social spending can go beyond the consumption function of the traditional welfare state, to foster material improvements for individuals and society. Social investment thinking provides a counterpoint to neoliberalism, with its emphasis on individualism, consumerism and scepticism of state-sponsored welfare. Neoliberal policies have pushed personal responsibility and reliance on the market. An example is the American ‘welfare reform’ policy introduced under President Bill Clinton, which relied on a booming economy to absorb women into low-income jobs while eliminating entitlements to income support for them and their children. Social investment ideas would significantly modify this approach by ensuring that cash transfers and social services are used in a positive way to promote education, training and remunerative employment for those who have struggled to make ends meet by relying on meagre welfare benefits.

Critics argue that social investment continues to assume that individuals are ultimately responsible for themselves, without shared social responsibility

Social investment is not without its critics. Concerns have been raised about its alleged instrumentalism, the idea that social spending will be used to promote economic growth rather than meet human need. A related point is whether the application of economic terminology – investments, assets, capital, rate of return, and the like – contributes to the ascendance of economic development as the chief social good. Placing the economy over all other values can lend itself to a rapacious and acquisitive mindset that has negative consequences for the economy and the environment. Some critics claim that social investment is little more than a thinly disguised form of neoliberalism which fails to address the deeply rooted structural inequalities characterize many societies today. Also, not everyone may be perceived as equally deserving of social investment. Are those less likely to participate in the economy worthy of social funds? Policies that are simply the right thing to do many not make the cost-benefit analysis cut. This body of criticism raises the concern that social investment thinking abandons traditional humanitarian values and overlooks social rights to basic needs fulfilment. While it may ameliorate the worst of neoliberalism, critics argue that social investment continues to assume that individuals are ultimately responsible for themselves, without shared social responsibility.

Advocates of social investment approach are not indifferent to these and other criticisms, but they believe that there is an urgent need for new thinking in the social welfare field. There is no question that the twenty-first century realities introduce new opportunities and risks. Investing in individuals and families enables them to develop human capital, assets and access to employment. At the same time, there are growing arguments among international organisations such as the World Bank and International Labour Organisation for commensurate social protection policies that enable resilience and protect against economic shocks. These forms of social protection often come in the form of social assistance and cash transfers, which rather than being seen as a long-term entitlements, can enable families to endure difficult financial spells and continue to spend on health and education, which have long-term economic benefit.

Societies have long set policies to promote economic participation, whether through universal education or specialised training or apprenticeships. Similarly, policies designed to promote decent work and support working families have been adopted in many countries. Those societies that have invested in their people have reaped the rewards. Huge challenges now face governments, with rising inequality and looming threats of further economic destabilisation from automation and artificial intelligence. Citizens and workers of the future will need to be at their peak to participate in a changing world. It’s time to consider how social investment thinking can be used in the current period of global uncertainty, to build up productive social policies rather than simply tear the welfare state apart.

James Midgley is Harry and Riva Specht Professor Emeritus and Professor of the Graduate School in the School of Social Welfare at the University of California, Berkeley, US
Espen Dahl is Professor of Health and Social Policy at the Oslo and Akershus University College of Applied Sciences, Norway
Amy Conley Wright is Associate Professor of Social Work and Director of the Institute of Open Adoption Studies at the University of Sydney, Australia

Social Investment and Social Welfare: International and Critical Perspectives edited by James Midgley, Espen Dahl, Amy Conley Wright is available now.

Read Chapter 1, Social Investment: Concepts, Uses and Theoretical Perspectives free on Elgaronline