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Is it time for the rise of local currencies?

Prof. Murray Hunter



It’s an almost long forgotten historical fact that most trade was undertaken by local based currencies right upto the 20th Century. Australia had a number of colonial currencies before federation in 1901. The United States of America had a number of currencies issued by private banks before the Federal Reserve Bank was formed in 1913, and individual states of the European Union had their own national currencies before the mega-currency, the Euro was launched in 1999.

However given the trend to larger and “stronger” currencies, the hype of the Euro, the protection of the US Dollar as the major trading currency, a very quiet trend has been going the other way. In contrast, more than 2,000 local currencies, in some form or the other, have been launched in various communities around the world.

Literature on the phenomenon of the local currency almost doesn’t exist in contemporary economic literature. Therefore the purpose of this article is to have a look at local currencies, and try and answer the following questions; Why do communities launch them? Do local currencies have any benefit to these communities?, and What is the real potential of these currencies?

A local currency, sometimes referred to as a community currency, is a means of exchange used by members of a community that have some common bonds. Local currencies are usually not backed by a national government, nor is it officially a legal tender within the region it circulates within. A local currency is usually intended for trade within a limited geographical area.

Money is essentially an agreement to use something as a means of exchange. Any local currency can be denominated by the prevailing national currency, or measured in any commodity, or even labor units to determine comparative unit value, so people know how to use it as a medium of exchange. This redemption measure, if realizable, is usually a major factor giving users confidence in its present and future value.

A local currency is a potential tool of monetarism, where it can help to define an economic boundary where certain groups readily accepts it as a medium of exchange.

Local currencies are usually created on the value judgment, supported by E.F. Schumacher’s ideas that there should be a focus on the development of local economy. The proponents of local currencies would usually aspire towards developing a diverse local economy full of diverse micro-activities which would promote local production, local self sufficiency, and the maintenance of profits within the local area by local businesses. They would hope that the local currency and the corresponding changing spending habits (use of a local rather than national currency) would promote a preference and loyalty to local products and businesses, rather than goods and businesses from outside.

The proponents of local currencies would also probably aspire towards developing personal relationships in trade and desire to get away from the “McDonalds landscape” where the same restaurants, stores, and service businesses exist in everyplace with an emerging mono-culture. Thus the introduction of a local currency would be seen as a method of encouraging the de-standardization of their local community through promoting the development of vibrant diverse community activities.

The success of any local currency depends upon the assumption that a single country may not be an optimum currency area, where different regions within a country may be better off with different currencies. This would allow the development of local comparative advantage over national comparative advantage. This is very much against the spirit and purpose of macro-economic policy during the development phase of most economies, which has generally promoted centralization, the growth of SMEs into larger corporations so that economies of scale are developed to the point where firms can exercise competitive advantage in the international market.

Even though local currencies worked extremely well in the 19th Century (remember they were most often redeemable in gold then), the track record of the contemporary local currencies hasn’t been good. The successful ones like the Berkshare have been proxy currencies with an a generally agreed par value with the national currency. In fact, it is only the Berkshare used in the Berkshire region of Massachusetts, that has been touted as the success story of local currencies. The Berkshire has a large number of users, which manages to keep the currency circulating within the local community. However in the Berkshire case, the community was already pre-disposed to producing local products for the local community. Many others have failed or ceased to exist through low levels of support within communities. While others like the Kelantan Dinar launched in 2006 was effectively sabotaged by the Malaysian Federal Government through repeated statements that the Dinar was not legal tender.

One of the impediments of any successful local currency is developing a critical mass of community support that would keep the circulation velocity high enough to maintain its perceived value.

A more notoriously use of a local currency was in the Cocoas Islands, where the Malay workers once ruled by the Clunies-Ross family were paid in Cocos Rupees, a currency John Clunies-Ross created and which could only be redeemed at the Clunies-Ross owned company store. Large retail corporations have successfully used forms of complementary local currencies as coupons, gift certificates, and point systems, to enlist customer loyalty.

Although there is scant evidence that any local currency to date has actually promoted local economic wealth, the mediocre track record of local currencies does not mean they don’t have great potential in the future as a means of achieving specific economic objectives needed in many economies today. From a macro-economic point of view, a local currency is a perfect tool for local micro-economic management, where the objective is to develop micro and SME industry to serve the immediate community. This will more and more become an important objective both in developing and developed economies around the world due to poor local enterprise diversity in many places.

A local currency, coupled together with a hybrid of crowd funding organized by local cooperative banks, would be a powerful alternative for providing credit to local enterprises that the conventional ‘big’ banks have been hesitant to service.

There may be another philosophical reason for adopting this approach as well. The banking sector has become so centralized, that most governments across the world have deemed their local banks ‘too big to fail”, where these privately owned institutions are almost above the law, or worse still, become a law unto themselves. All lending, trade, interest rates, and other credit facilities are controlled by these banks. No government took any great effort to regulate these institutions post 2008, because the job was too difficult and very few had the political will to do it.

The nature of a national currency has given banks great power to create money through debt creation. Most money that makes up the currency system is actually electronic. There are no notes or coins or supporting wealth to back up this money. It’s just a figure on a computerized ledger system where, if any bank was asked to produce the physical currency, it would be impossible. Technology has allowed this system to evolve, which arguably has been one of the underlying causes of financial crises i.e., electronic selling mortgages and derivatives etc. This is upsetting the balance of wealth in every country, where GINI indexes are actually widening.

Centralization has generally meant higher interest rates over time since single currencies and centralised banking came into existence. This suited government which found it easier to deal with a more centralised banking industry and fund economic activity. This also caused a rural crisis which was partly solved through the formation of specialized and subsidized rural banks in some cases.

One could also argue that the housing crisis was also caused by central currencies where investments made in land as a ledge against inflation of a national currency was encouraged and promoted.

However a local currency may be able to challenge the dominance of these banks, which impose their credit policies upon communities from outside. The local currency may help to provide some economic freedom from the interest rates banks apply to communities, and the prevailing inflation rates on the national scene.

This can be done by using local currencies to provide new means of obtaining credit and capital funding for businesses that banks won’t fund. It is here local currencies can help most, where governments all over the world have failed to influence the banking sector to step into the area of micro-finance. In this period, nearing on deflation, i.e., real wages are relatively decreasing, a local currency may enable local trades people to exchange labor for local goods much more effectively.

The means of trade is typically changing today where the traditional means of exchange with state currencies are being discarded for electronic and cyber alternatives. One thing is for certain is that national currencies will be weakened by the number of alternatives to currencies and banking that are springing up on the internet and social media today.

The potential of local currencies has become a forgotten tool of development. New employment in the future is likely to be created through small business with limited capital. Very few large corporations will dramatically increase employment as they are looking for ways to reduce employment.

Many multinationals open and shut in the developing world, and move on to places where they can make larger profits, leaving vacuums in employment. Therefore micro enterprise and SME development, as well as seeking to diversify local economies should be a major economic objective.

A local currency should go hand in hand with a local community banking system. Any local banking system should have a simple system that is easily understood, be consistent with existing system, be redeemers of currency (i.e., current currencies are not redeemable in anything, if a local currency is redeemable against a national currency gives it intrinsic value), provide a universal measurement of value to provide a sense of security, eliminate interest and install discount rates on loan repayments – i.e., voucher, and be organized at a local and community level.

Credit unions have existed for a long time and this is not far away from the concept espoused here. However governments through their support for ‘big’ banks, and banks through acquisitions and aggressive commercial practices have done their best to destroy this type of institution, which has stood in the way of banks taking over control of the economy, through central lending policies.

One must not forget that money is a social instrument. Local currencies are a ‘bottom-up’ approach to development rather than usual policy initiatives which come from a central government. Local currencies seem to have one thing in common, which may be the primary reason that promoters create them in the first place. That is the enhancement of local identity and sense of community within a region. Advocates of local currencies would argue that a local currency helps to form a sense of community which may lead to localized entrepreneurial start-ups in ventures that serve these communities. This would primarily be in specialized food businesses, etc. Thus local currencies could be seen as a source of social justice in helping to promote local entrepreneurial activities. Opportunity is also a human right.

A local currency, imaginably used, may be able to promote a micro-business sector to cover the local economic void that now exists in many communities. Local businesses can be nurtured through using hybrids of local currencies for alternative financing linking into variations of local crowd funding, and thus reflect local economic value better.

Local currencies may be more protective of international exchange rate fluctuation, thus protecting local economic buoyancy, which appears to be on the rise of late. A local currency may even be able to assist in lowering the high cost levels many developed economies, which has destroyed the simple economic model of local production to serve local communities. It is all about going back to the future in macro-economic policy to recreate local comparative advantage once again.

As pointed out by the author of Sacred EconomiesCharles Eisenstein, it was Taiwan, Japan, and South Korea, which fostered local production through import replacement protectionist policies in the 1980s that have prospering middle classes today. Compare this with Mexico which opened up free trade and openly allowing in foreign investors, gained very little in knowhow, technology, and permanent capital. Further, countries like Brazil and Thailand are taking measures to protect their economies from the flood of cheap US dollars buying up domestic assets. In both these cases the currency acted as a protection mechanism from the outside world in a form of economic sovereignty. Compare this to the situation in Greece which does not have its own currency.

Perhaps the real reasons why local currencies are introduced are non-economic. Local currencies are more about building community pride and developing ‘cultural capital’ against national and international trends.

The objective of a local currency and the attached value system to it, is to create or recreate a local community, product and service economy that meets the needs of local society from the local society itself. It aspires to develop a self financing community.

This is a very powerful tool for community development, to create micro-economic activity back in the communities that have become economically barren, and then to capture the value of local trade and hold it within the community.

As Bernard Lietaer said, ‘civilization needs a new operating system and fast’. This is indeed very relevant for many parts of the world today.

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Is Your Neighborhood Store Safe? Amazon and Store Closings

Meena Miriam Yust



Amazon has reached the far corners of the earth… and the highest elevations.  Delivery men venture 11,562 feet up in the Himalayas to leave a package.  While the company may serve a useful purpose in remote regions, its phenomenal growth also reveals that no town is immune from its less desirable consequences.  The online retailer’s omnipresence has been all too apparent in Chicago, New York, and London in recent months, where stores have been closing in droves.

Treasure Island Foods of Chicago, a family-owned business started by Christ Kamberos in 1963, announced at the end of September that after 55 years it was closing all remaining stores in just two weeks.  Now, the lights are out and the shadows empty shelves are all that remain, with the scent of fresh sourdough and gyros cooking on the spit only in shoppers’ reminiscences as they walk by the darkened windows.

Julia Child once described Treasure Island as “America’s Most European Supermarket.”  In my memory, it was unforgettable.  The stores always had treasure troves for every season, from delicious green picholine olives from France, to liver pâté and English Blue Stilton at Christmas, and of course, Marmite.  Not to mention exotic cookies and chocolates from all over the world: marzipan and chocolate from Switzerland and Austria, shortbread from Scotland, and crisp butter wafers from the Netherlands are a few examples.  It was a haven for special gifts during the holidays.

Treasure Island was not alone in the struggle to survive amidst food delivery apps and Amazon.  Not only were customers buying goods online, but Amazon was also shifting into the grocery market by taking over Whole Foods.  Not surprisingly, Chicago’s other local grocery chain Dominick’s closed in 2014.  The city lost one of its most beloved bakeries too in 2017 when the Swedish Bakery closed after 88 years in business.  Gone were the days of mouth-watering rum balls, Princess Torte laden with green marzipan, and toska cake.  In its final days an estimated 500 customers per day flocked in to have one last tasty treat.

Purchasing items online might be convenient but the trend has serious costs for many industries, not only food.  Retail has been hit hard.  Sears recently filed for bankruptcy and is closing 142 stores.  So did Toys R Us, shuttering its outlets last summer.  Luxury goods retailer Henri Bendel announced in September that its stores will be closing too, after 123 years.

What’s more the change is not just in the United States.  In the UK, Marks & Spencer plans to close 100 stores by 2022.  Debenhams and House of Fraser in London are also in trouble.  In March of 2018, Sweden’s H & M reported the lowest first quarter profits in more than a decade, down 62%.  When large international stores are being squeezed, one can understand how local shops are struggling to keep afloat.  A recent Atlantic article observes that Manhattan is becoming a “rich ghost town.”  So many store fronts once filled with interesting items are now empty, a trend that the author predicts will move to other cities.  Will the choices for future shoppers be restricted to chain stores and dark unrented windows?  Local small retailers unable to afford high rents are gradually being nudged out of existence.  They need help.

Could Local Currencies Save Our Neighborhood Stores?

The answer may be introducing local currencies.  Studies have shown that municipal currencies stimulate the local economy.  They serve as shock absorbers and protect in times of recession.

Switzerland has had the WIR since 1934 and Ithaca, New York introduced its own currency known as Ithaca Hours in 1991.  Ithaca Hours started out with 90 individuals who were willing to accept the currency as a payment for their work, and expanded to become one of the largest local currency systems in the U.S.  Ithaca’s example was an inspiration for municipal systems in Madison, Wisconsin, and Corvallis, Oregon.

The UK also has several local currencies including the Bristol Pound.  The former Mayor of Bristol accepted his entire salary in Bristol Pounds, and more than 800 businesses accept the local currency.

Once local currencies are in circulation, consumers can continue using their national currency to purchase from large retailers and from online giants like Amazon.  Their local currency, though, is typically used at local businesses.

As an example, were a Chicago currency implemented, consumers might use their U.S. dollars to purchase goods online but would use their Chicago currency to buy locally.  Legislators and communities could thus lend a helping hand to local gems that remain in our towns.  Lutz Cafe and Pastry Shop, for instance, established in 1948, is unique to Chicago, and creates some of the most delicious cakes in the world.

By 2003, there were over 1,000 local currencies in North America and Europe.  Yet this is a mere fraction of the total number of cities.  If local currencies expanded to a majority of towns, perhaps our beloved neighborhood stores would be able to survive the online onslaught.

The Benefits of Preserving Local Shops

Consumers lose a service every time a small shop shuts down.  A local paint store, for instance, can provide advice on what paint to use for a particular purpose, how to use it, etc.  Nowadays, in many towns, these stores have closed.  Consumers’ options are limited to buying online without input from an expert, or from a large national chain, where they will be lucky to find advice comparable to that from a specialized store.  The same holds true for many kinds of home repair.

Then there is the charm of familiar faces at the corner store.  Growing up near Treasure Island as a child, I could scarcely forget the cherry-cheeked cherub-like server at the deli counter.  After noticing this eight-year-old’s tendency to gorge on free olive samples once a week, he would always laugh heartily with those chubby cheeks and remark with a chuckle that I would end up eating all the olives before reaching the check out line.  Ordering specialty olives online is just not the same.  There may be no checkout line, but also no one to talk or joke with.  The same is true for the automated Amazon Go stores.  The nice deli server today is out of a job after decades of service.

Another hidden cost of online purchases is environmental.  Aside from fossil fuel emissions, delivery of a parcel requires packaging, and often bubble wrap, made of low-density polyethylene, a form of plastic that comprises 20% of global plastic pollution.  Reusable bags and a neighborhood store within walking distance are clearly better for the environment.

Amazon’s reach extends to places like Leh, India, high in the snow-covered Himalayas, where many of its goods may not be available in town.  And one can appreciate and understand the value of online purchases in such rural communities.  In fact that was exactly the original purpose of Sears with its iconic catalogue.

Yet in cities where one can readily buy the same items in stores nearby, we have to try to refrain from the convenience of one-click shopping.  The more we purchase online items, the more we pollute the environment and kill local stores.  Without small businesses, cities will eventually become homogenized with block after block of chain retailers, or dark empty windows, as has started to happen in Manhattan.  The character of a quaint town or a trendy metropolis becomes obsolete.

Gone will be the unique gift shops and the luxury tailor.  When the British high street becomes indistinguishable from U.S. ghost towns and when the only place to eat is a chain burger joint, the fun of traveling and the adventure of new places will be lost forever.  The vibrant world of new flavors and experiences will be no more.

So please think twice before clicking an online purchase.  You may be signing your local store’s death warrant.

Author’s note: this piece first appeared in

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Azerbaijan: Just-in-time support for the economy

MD Staff



Over the last two decades, oil has been the defining factor for Azerbaijan; not only for its economic growth but also for its development. During the first ten years of the millennium, Azerbaijan experienced an explosion in wealth. As oil GDP, comprising half of the sectoral share of the economy, grew by an average of 21 percent per year, fueled by global upsurge of oil prices and increased production. Total GDP grew more than tenfold: from US$6 bn to US$66 bn.  This was accompanied by rapid decline in poverty, from 49.6% to 7.6%, increase in real wages, and middle-class growth.

However, after the decline in global oil prices in 2014, nearly by half, the reduction of oil revenue caused a domino effect in the economy. The double devaluation of the Azerbaijani manat in 2015 erased half of the manat’s value against US dollar. and subsequent fiscal adjustment together with ongoing banking sector distress led to a 3.8% contraction in GDP (2016). This was accompanied with the rising of traditionally low levels of government debt (from 8.5% in 2014 to 22% in early 2018) primarily due to devaluation of manat.

On December sixth, 2016, Azerbaijani President Ilham Aliyev has signed a decree approving the “Strategic roadmaps for the national economy and main economic sectors.” The decree for reforms spanned across 11 sectors, from tourism to agriculture, and aimed to decrease the over-reliance to the oil and gas sector.

Azerbaijan – World Bank Partnership

Under very tight deadlines, Azerbaijani ministry of finance started working on a roadmap, that would reform the economy which had been impaired by a number of negative shocks such as lower oil prices, weak regional growth, currency devaluations in Azerbaijan’s main trading partners, and a contraction in hydrocarbon production. As a long-term partner of the World Bank Group (WBG), they reached out for support in developing a public finance strategy for the medium term at the beginning of 2016. To be able to broach such a broad project, different teams within WBG worked together closely to provide just-in-time support and to cover various facets of the macro-fiscal framework. Government Debt and Risk Management (GDRM) Program, a World Bank Treasury initiative targeting middle income countries funded by countries funded by the Swiss State Secretariat for Economic Affairs (SECO) worked on the debt management portion of the issue. The Macroeconomics, Trade and Investment Global Practice advised on macroeconomic and fiscal framework and debt sustainability analysis.

Providing a macro-fiscal outlook, analyzing debt sustainability and proposing debt management reforms

The ministry of finance and WBG joint teams had a thorough review of the macro-fiscal and borrowing conditions and honed in three interlinked issues:

  • The need for sustainable financing: While the level of direct debt was expected to remain modest, the sharp increase in the issuance of public guarantees would lead the public and publicly-guaranteed (PPG) debt trajectory to be higher in the next five years.
  • Fiscal Rules: Azerbaijan was exploring fiscal rules involving the use of the country’s oil assets, based on recommendations from the IMF.
  • The country was facing high exchange-rate and interest-rate risks, due to 98% of the central government debt being in foreign currency and two thirds in variable interest rates.

With that in mind, the teams tested different borrowing strategies to cover the 2017-2021 period under baseline and different shock scenarios, analyzing debt sustainability, and the composition of the public debt portfolio weighing it against the national risk tolerance. They also recommended several measures to better enable the debt management operations: revising and submitting the Debt Management Law to parliament; improving the reporting system; improving the coordination between the ministry of finance; the central bank and the Sovereign Oil Fund; developing a credit risk assessment capacity in the ministry and improving the IT system, and eventually looking at developing a domestic debt market.

Azerbaijan develops the public finance strategy

In December 2017 Azerbaijan ministry of finance shared the debt management strategy, with the President’s office. The proposed strategy comprised a macroeconomic policy framework, a borrowing plan, and associated institutional and legal reforms. In August 2018, President Aliyev enacted and published the “Medium to long term debt management strategy for Azerbaijan Republic’s public debt”. The strategy outlines the main directions of the government borrowing during 2018-2025 based on sound analysis. It puts a limit of 30% of GDP for the public debt in the medium term, with a moderation to 20% of GDP by 2025. The authorities also envisage gradual rise in domestic debt, to develop the local currency government bond market. To reflect the changing macroeconomic outlook and financial conditions, the strategy document will be updated every two years.

“As World Bank, our mission is ending extreme poverty and building shared prosperity,” said Elena Bondarenko, the Macroeconomics and Fiscal Management team member. “It is our privilege to provide just-in-time support to our member countries when they most need it. Especially if we can help build resilience to the economy before further shocks cause major damage.”. “The work doesn’t stop here,” said GDRM Program Task Team Leader Cigdem Aslan. “The GDRM Program will continue its support through the implementation phase of the recommendation and help build capacity for the development of the domestic market for government securities.”

World Bank

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Knowledge economy and Human Capital: What is the impact of social investment paradigm on employment?

Gunel Abdullayeva



Social policy advocates claim the development of the European welfare state model on three phases as follows: traditional welfare state until 1970s; neo-liberal welfare state until the mid-1990s and finally social investment state model afterwards of the mid-1990s.  At the first time, on the European Union level, to bring the social investment policy to the political agendas after the 1990s economic hardship, the European Council adopted the Lisbon Strategy in 2000. In fact, the Lisbon Strategy was successful with respect to the employment. In the latter, the social investment state paradigm has fostered once more in the Europe with the “Social Investment Package: Towards Social Investment for Growth and Cohesion” in 2013 by the European Commission that targeted to “prepare” individuals, families and societies for the competitive knowledge economy by investing in human capital from an early childhood together with increase female participation in the workforce.

Generally, social investment idea emerged as a link between social insurance and activation in employment policies and upgrading human capital. Hemerijck (2014) defined the concept of the social investment state to facilitate the “flow” of labour market transitions, raising the quality of human capital “stock” and upkeeping strong minimum income guarantee as social protection and economic stabilization “buffers”. The underlying idea of the social investment strategy has been argued to modernize the traditional welfare states and guarantee their sustainability in line with the response to the “new social risks” such as skill erosion, flexible market, insufficient social insurance and job insecurity.

Economic aim of social investment paradigm is divided into two types by Ahn& Kim (2014),in the following way:The social democratic approach based on the example of the Nordic countries and the liberal approach of the Anglo-American countries. To make the distinguish more clear, the social democratic approach aims to increase the employment for all working classes and strength human capital. On the other hand, liberal approach applies selective strategy which is more workfare policy oriented and covers vulnerable class. In this regard, cross country analyses show that the Scandinavian countries have been the forerunners of social investment and perform the childcare and vulnerable group targeted policies at their best.

Studies have viewed the social investment state approach as a new form of the welfare state and reshaped social policy objectives that addressed to promote labour market participation for a sustainable employment rather than simply to fight against unemployment. Since the beginning, the social investment strategy directs to protect individuals from social and economic threats by investing in human capital through labour market trainings, female (family – career) and child care policies, provision of universal access to education from the childhood. On doing so, the social investment as a long term strategy aims to reduce the risk of future neediness in contrast to the traditional benefit oriented welfare state that focuses on short term mitigation of risks. Or to put it differently, the social investment “prepares” children and families against to economic and social challenges rather than “repair” their positions in such problems later. In short, social investment policies are characterized as a predictor rather than a recoverer. Mainstream social investment argument is that redesigned welfare state model more focuses on work and care reconciliation policy as strengthening parental employment in the labour market is an important factor to exit poverty and support families especially mothers. On the other hand, human capital measures such as education and trainings improve life course employability, particularly for market outsiders as well as human investment guarantees better job security in today`s more flexible job market.

In reality, an economic development and employment is friendly to each other. Thus, income comes from the market through employment as a paid employment is foundation of household welfare. Likewise, a welfare is purchased in the markets. Arguably, unemployment leads to the poverty and social exclusion in the societies. Hereby, work based policy regarded as a sustainable anti-poverty strategy. The welfare states in order to guarantee households` net income and well-being in the post industrialized labour market have turned to invest in preventive measures such as human capital. The human capital (cognitive development and educational attainments) is a must for the dynamic and competitive knowledge economy. Educational expenditures yield on a dividend because they may/make citizens more productive but we need to push the logic much further (Andersen, 2002). In fact, social investment state by being more female and child care policy oriented predicts an importance of the education for a well-being of society and more developed economy in the future. Thus, employment policies need to link with family policies to be more effective in response to the unemployment, poverty and social exclusion. Social investment state as a new shape of the active employment policies invests in education particularly of women and children to prevent unemployment and poverty from the beginning. One hand, addresses to the ageing problem of European societies social investment strategies aim to mobilize motherhood with an employment. On the other hand, by promoting family polices, social investment strategy directs to reduce child poverty and safeguard child welfare in the line with better social and economic conditions of childhood.

What is certain that, social investment state implies human capital strategy. To increase an employment and long term productivity of individuals, social investment policies interchanged with the provision of social insurance. In other words, the social service policies took over the place of the cash benefit oriented policies. It is probably fair to say, the human capital strategies link social investment policies to employment outcomes. Simply, to see the correlation between the social investment paradigm and employment, human capital policy measures (education and trainings) are needed to be checked as a direct labour market value.  Since they are the most effective activation measures in skill investment to respond to the knowledge economy, more educated and skilled manpower boosts the labour supply in turn results income equality which is a traditional goal of the social democracy.  In this context, social investment state is addressed to reach high quality employment by its human investment orientation. As Andersen, (2002) argues, “We no longer live in a world in which low-skilled workers can support the entire family. The basic requisite for a good life is increasingly strong cognitive skills and professional qualifications”.

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