In this Social Investment Working Group session, Anne Wren (Trinity College Dublin) will discuss regional inequality and place-based social investment, while Pablo Cañete Pérez (EUI Researcher) will present his recent work on the narratives of austerity measures in Spain and Portugal.
Skills-Based Regional inequality, Place-based Social Investment, and the Social Contract.
Speaker: Anne Wren (Trinity College Dublin)
Since the 1990s, we, as political economists and students of the welfare state, have devoted considerable attention to the stark new set of distributional trade-offs created by manufacturing decline and the rise of the new knowledge based economy (Iversen and Wren (1998); Wren (2013)). Of particular significance has been the recognition that differences in the characteristics of production between services and manufacturing (Baumol, 1967), and between new hi-tech knowledge intensive industries and their older manufacturing counterparts (Autor, 2012), created new patterns of relative demand for skills, and hence new patterns of skills-based inequality (in particular between college educated workers and those without tertiary level skills). A rich literature has examined how welfare states and growth regimes have attempted to adapt to the challenges of the new economy; the distributional outcomes with which their efforts have been associated; the institutional constraints under which actors operate in attempting to develop policy responses (e.g. Wren (2013); Hassel and Palier (2024); Hemerijck and Matsaganis, (2024)); and the electoral underpinnings of welfare state regimes that are subject to new distributions of risk across workers at different skill levels, and new types of class-based cleavage (Hausmermann and Gingrich (2015); Iversen and Soskice (2019)). An important strand in this literature has emphasised the increased use of social investment to facilitate the transition on terms that ameliorate the tendencies towards increased inequality ((Hemerijck (2017); Garritzman, Hausermann, and Palier (2022); Hemerijck and Bokhorst (forthcoming)).
In recent years, however, political developments in particular (Brexit, the rise of Trump, and the growing strength of the new right in many European countries) have drawn increased attention to the starkness of inequities in the new economy that are defined in terms not of skills, or classes, but rather in regional terms. Increases in sub-national regional inequality on both sides of the Atlantic (or in some instances the simple persistence of relatively deep patterns of inequality of income, joblessness, and well-being, across regions, over time) run counter to neo-classical predictions that regional incomes should converge in the long run (Barro and Sala i Martin (1992)), indicating instead that market imperfections may lead some regions to become trapped in low welfare equilibria in which they are excluded from the gains of the transition to the new economy.
In this session I will present a short paper aimed to open a discussion on the role for social investment, and its political underpinnings, in a context in which inequality is regionally based. This exploratory essay begins with a literature review outlining the theoretical links between skills-based and regional inequality in the knowledge-based economy. It then considers the role for place based rather than people based social investment in the context of inequality that is regionally based. It concludes with some considerations of the political underpinnings of the welfare state in a situation in which the underlying social contract is between regions, rather than classes, skill groups, or generations.
Whispers aloud: How democratic values shape narrative during austerity
Speaker: Pablo Cañete Pérez (EUI)
What makes countries behave differently when they are forced to implement contested policies? I use the cases of Spain and Portugal in the aftermath of the Great Recession – the austerity era – to see how countries with similar economic hardship, political history and the same governments at the time followed opposing paths to austerity imposition. Although the Troika intervened in Portugal, evidence shows that Spain implemented more stringent austerity policies than Portugal. Why? I argue that the different types of transition to democracy - reform and continuity in Spain and radical change through a revolution in Portugal - explain their diverging implementation of austerity measures in the future. Building on Robert Fishman’s democratic practices concept, I expect that the effect of each transition creates a cultural legacy that intervenes in how Spain and Portugal understand the economic and policy changes of the moment, thus adapting different strategies to navigate hard economic times. I provide evidence from a Computational Text Analysis based on the mainstream media (El País and El Mundo in Spain and Público and Correio da Manhã in Portugal) to confirm that the national discourse around austerity is still related to the democratic framings set in the 1970s.
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