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The Mittal/Arcelor case in the interpretation of the School of Economic Warfare

Gagliano Giuseppe

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Among the examples of economic warfare provided by the School of Economic Warfare in Paris, it is worth mentioning the case of Mittal’s takeover of Arcelor and the situation of European iron and steel industry vis-à-vis financial globalization.

Over the years, the increasing number of takeovers, unions and joint ventures became an for market competitiveness. In this context, some of the takeovers stand out as hostile financial actions aimed neutralizing the opponent. Such strategic maneuvers are a significant source of concern for economic operators, as they observe the reaction of both private and public sector, which is likely to intervene in order to protect the sectors of national interests.

The acquisition of Arcelor operated by Mittal is a case in point because it involves steel, which is both one of the symbols of the European industry and the main material for other productive and strategic sectors. Both Mittal and Arcelor were two titans of the steel sector: while Mittal’s primacy consisted in the largest number of employees and produced materials, Arcelor could count on the most robust trade volume. In fact, when Mittal took it over, Arcelor was a very healthy company that had just incorporated the Canadian company Dofasco. Through this surprising trial of strength that no political or economic operator could have foreseen, Mittal secured a significant advantage on its competitors. In order to understand the strategic interests of this acquisition, it is necessary to examine Mittal’s communication campaign and the lobbying role of all the players, from the steel market to public opinion.

Looking at the steel market trends between 1980 and 2005, it is possible to notice that since the minerals coming from the Soviet Union entered the global market in 1992, both prices and demand of iron ore and steel increased significantly. If it is true that over a hundred countries produce steel, there is only a small group of states that influence its market trend:  Brazil and Australia, for example, control 42% of the steel market.

Due to the impressive growth of recent years, China alone accounts for 40% of global steel production (349 million tons in 2005), of which only 3% is exported. One of the first crisis occurred when China decided to limit the export of carbon coke – the main fuel for blast furnaces. This resulted in a spike in prices of 600% and showed how a given economic choice (driven by the desire of full independence) had remarkable strategic repercussions.

In order to discuss the conflict emerged with the Mittal/Arcelor case, the School of Economic Warfare provides a deep analysis of the actors involved.

Mittal

The Mittal family was the majority shareholder of this company and its funds were located in tax havens. If on the one hand the choice of acquiring Arcelor was motivated by economic and fiscal reasons, on the other hand it also hides some interests that the economic warfare should explore. The Mittal family remained the majority shareholder (51%), whereas the remaining part was divided between investment funds and institutions. In designing such a stake distribution, Mittal showed its strategic intelligence: with such a property assets arrangement, it was impossible for Arcelor to regain its business through another takeover.

Arcelor

Since it is more difficult to convince more shareholders to sell their quotas rather than a single one, it is more difficult to take over a business when there are multiple owners. Therefore, from the strategic point of view, Arcelor’s large pool of stakeholders discouraged competitors from acquiring it. Besides, Arcelor benefited from a strong political support on the international level thanks to its strong ties with governments and to its strategic appeal, since it was the symbol of a united Europe. The main shareholders of Arcelor –involved in the evolution of the company – were:

–              The Luxemburg government: traditional stakeholder, represented at that time by Prime Minister Jean-Claude Junker, who had been very active on the European level and who initially opposed the acquisition of Arcelor by Mittal.

–              The Belgian government, namely the Wallonia region, which also opposed Mittal acquisition after consulting Banque Lazard.

–              Colette Neuville, who held 2.5% of the stocks and represented the small shareholders, abstained from voting on Mittal acquisition. Even though she had such a small quota, Neuville could have played an important role due to the fragmentation of Arcelor ownership.

–              Romani Zaleski, French-Polish major shareholder and key man of Arcelor.

In order to secure its interests Mittal influenced decision makers and public opinion thanks to a network of associates:

–              John Ashcroft, representative of the U.S. Republican right-wing party, Attorney General between 2001 and 2005. At the end of his political career he founded a lobbying agency and was hired by Mittal because of his moral integrity and relations with several members of European governments.

–              Anne Méaux, press officer of Giscard d’Estaing, director of communication for Alain Madelin, who had entertained long term relations with prominent members of the French right-wing party.

–              Partner banks of Mittal Steels. There were five banks which acted simultaneously to support Mittal’s takeover of Arcelor: Goldman-Sachs, Crédit Suisse, HSBC, Citigroup and Société Générale. Goldman-Sachs, which had been previously involved together with Citigroup in Arcelor’s acquisition of Dofasco, played a prominent role in Mittal’s takeover of Arcelor; Société Générale opened up an eight-million-euro credit line for Mittal.

Arcelor’s network was quite complex. It mainly consisted in both personal and business relationships: the actors would pursue their own interests while immerged in a broader network of bigger interests that would tower over those of the single actors:

–              BNP Paribas and Calyon, Arcelor partner banks that had traditionally offered financial support.  Merrill Lynch and UBS drafted the strategy while other institutions were also involved: Michael Zaoui from Morgan Stanley (brother of Yoel Zaoui, main strategist of Mittal) was appointed by Arcelor Management Board to consider Mittal’s offer.

–                  DMG – Michel Calzaroni, international communication agency, embraced market battles on behalf of food titans and French energy companies.

–       Public Opinion. In order to influence public opinion, Arcelor chose Publicis Group, second best rated consultancy and media acquisition company.

–       Skadden Arps, international law firm whose team was made of twelve professionals from France, Belgium and United Kingdom.

Mittal’s acquisition of Arcelor was supported by a well-designed communication campaign. Communication capacities are an essential asset for big firms, especially for those with a large number of shareholders like in the case of Arcelor, where small investors represented 85% of shareholders. In fact, this was the main problem Mittal faced when acquiring Arcelor, even more than the legal and economic aspect or the anti-trust regulations. While competition authorities of the United States, Canada and European Union were in the process of approving this operation, Mittal was allocated huge economic resources in convincing thousands of investors to support its project.

Between the above mentioned personalities, Anne Méaux played a very special role in the deal: she chose a strategy using multiple communication tools (such as press conferences, advertising on business magazines, conference calls and travels to Mittal headquarters) in order to convince the investors of the opportunities of the project; in a context of economic warfare, these communication strategies are able to address competitors with hostile messages. Mittal’s strategy was very detailed and engaged trade unions as well. Since February 2006, Mittal Steel had committed to communicate to Arcelor’s trade unions representatives its intentions about the industrial plan supporting the acquisition. The main points were occupational advantages and better work conditions, together with promise of keeping in place the agreements they had previously made with Arcelor.

Mittal also conceived a special communication strategy targeting shareholders mainly using specialized press and popular weekly magazines. Communication agencies focused on conveying a very positive image of the leader Lakshimi Mittal, through describing him as a successful self-made-man able to gather consensus both between businessmen and public opinion. Their goal was portraying Mittal as a successful entrepreneur interested in the development of his country; this made him much different from foreign investors that delocalized investments and performed a “reverse colonization” both on the economic and cultural side.

Arcelor counter-campaign, instead, presented Mittal as an inferior competitor presenting an “Indian” offer, derogatorily referring to India as a poor country (quite inappropriate considering India’s fast paced economic development).  Supported by the belief to be able to rely on state aid, Arcelor tried every possible way to contrast Mittal’s attack and offered its small investors twice as much the dividends of 2005, hoping that they would have rejected Mittal’s offer. Since Arcelor’s strength consisted in the division of the ownership between small investors, in April 2006 this company offered another increase in the dividends. A month later, Arcelor announced to have received a very interesting takeover offer from a Russian company named Severstal: Mordachov, Severstal’s tycoon, would have acquired 32% of the company and the investors would have benefited from even more advantageous distributions of the dividends. Due to the initial lack of enthusiasm of Arcelor’s investors, Severstal decided to reduce its participation to 25% (that secured its position as majority shareholder), while discouraging Mittal from acquiring Arcelor and reassuring small investors on their pretty substantial profits.

Mittal’s decision to approach directly the group of Arcelor’s investors resulted in a winning move: almost the entire management board of Mittal – included Lakshimi Mittal – met with 70% of Arcelors investors and established open communication. This helped convincing their counterpart of the advantages of their acquisition offer.

This way, Mittal Steel managed to buy 34% of the Arcelor’s stake in May 2006. As the takeover took place, Mittal created the new management board in order to meet reassure the investors’ concerns about Lakshimi Mittal’s management, such as transparency of decision-making and compliance to share ownership arrangements. At the end of May, another key step was taken: in relation to a speculative investment fund, Goldman Sachs together with almost 30% shareholders requested to modify the approval procedure of Severstal proposal. At this point, the intervention of Zaleski – Arcelor’s majority shareholder – helped reaching a final solution. Thanks to the alteration of the procedures that Goldman Sachs had requested, Zaleski managed to buy more than 7.8% stocks so that by June 25th, Arcelor was fused with Mittal Steel with a final agreement granting shareholders 10% profits.

This case study highlights the importance of economic warfare that aims at protecting strategic sectors of a given field, preserving the resources and ensuring the employment development of related fields and more specifically of the industrial sector.

Besides the economic aspect of this kind of warfare, the School of Economic Warfare in Paris insists on its geopolitical aspects. In this perspective, the case discussed above has a number of hidden implications. For example, Mittal’s takeover of Arcelor can be interestingly considered as an operation aimed at containing Chinese expansionism.

Looking at the role of the United States, it is possible to argue that since the end of the Cold War, this country has adopted quite a unilateral approach in foreign policy that supported its role of world’s first economic power. Whoever challenges the American power, automatically becomes a rival, especially on the economic level. In this regard, China is a dangerous competitor that is able to successfully join forces with some African countries: through investing in education without linking any conditionality of human rights respect or fight against crime, Beijing creates alliances in another continent and gains profits from its own investments.

Besides, the Chinese government even reached a number of agreements with South American countries that are not limited to the economic sphere but also involve cultural aspect like the spread of Chinese language and culture. In Asia, China and India sealed an important deal aimed at going beyond containing the historical rivalry between the two countries: promoting in the Asian continent an environment of cooperation that is able to challenge the dominance of the United States.

Since India is the only regional actor able to contain China, the USA repeatedly tried to engage India as a trade partner, as mentioned in the deal between the two countries sealed in 2000.

In order to ensure its own economic growth and independence from other actors, China and India increased significantly their steel production and manufacturing.

In 2005, China’s consumption of steel accounted for one third of the world steel market and the very same year, Beijing became a prodigious exporter of steel. In the same timeframe, India’s steel production exceeded the needs of the country and this compromised supply-demand balance. In such a delicate phase for the steel sector, the political world did not welcome Mittal’s acquisition of Arcelor because of its impact on the strategic balance of power. From the United States perspective, Mittal was quite interesting and profitable:

–              according to the authorities of the country, Mittal Steel group was not Indian;

–              the reason for Mittal’s economic expansion was China. In fact, in 2004 Mittal was the first foreign company that managed to acquire 37.17% of a Chinese steel company.

The US financial community welcomed the fusion between Arcelor and Mittal, but the Department of Justice opened an investigation in order to make sure that the US could continue import large amount of steel from Arcelor. Besides, even on the financial level, Mittal’s acquisition of Arcelor confirmed the general world trend of the strategic formation of a few stable economic hubs.

As a final consideration on this topic, the European Union’s behavior vis-à-vis Mittal’s operation was quite surprising. Even though the EU originated from European Coal and Steel Community, (the organization promoting free trade for coal and steel), it did not adopt any measure to protect such a strategic sector whose value was both economic and symbolic.

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Economy

Is Your Neighborhood Store Safe? Amazon and Store Closings

Meena Miriam Yust

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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 CounterPunch.org

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Economy

Azerbaijan: Just-in-time support for the economy

MD Staff

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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

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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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