How equipped are European Welfare States for the digital transformation?

Digitalisation leads to change – of capitalist production regimes and requirements for individuals. How equipoed European welfare States are for this change, was one of the questions my collegues and I adressed in a study for the Friedrich Ebert Foundation.

If production regimes change, this generates specific risks and problems to be compensated for by the state and society. However, whereas production systems change and adapt rapidly, redistribution systems of the welfare states are quite persistent. As a result welfare state structures come under pressure and have to adjust.

Here, digitalisation essentially has two different impacts on the welfare state.

  • Firstly, Industry 4.0. causes an external modernisation effect on welfare states. By altering production and disseminating information and communication technologies and automation, new demands arise for labour in general and for employees in particular. The processing of these changes and challenges need to be supported by the welfare state.
  • Secondly, the digitalisation of the welfare state redistribution regime is causing internal modernisation effects. This includes the digitalization of welfare administrations as well as the proliferation of internet connections and broadband expansion. It also includes the development of skills and abilities that digitalisation requires in the area of information processing.

But Countries Differ differ widely in the degree of digitalisation in the economy and society that they have already achieved, from setting up and expanding digital infrastructure to building digital human capital, integrating digital technologies into the economy and driving e-government.

digitalisation-radar

Source: Own graph based on data from DESI 2016

One key thus is to establish high speed networks and to promote human capital. And countries differ widely in terms of their welfare state architecture and the core values.  This also affects equality and equity fundamentally. Whereas social-democratic welfare states highlight equality as a core value, the other types are much more stratified and unequal by default, as they foster market forces, or status respectively. So, different challenges occur. For instance, the issue of employment protection in times of decentralised, flexible and digital work in liberal, conservative, and social democratic states will require different solutions.

Types of Welfare Regimes according to Esping-Andersen

welfare-regimes

Source: Own Compilation following Esping-Andersen 1990 / 1998

If we bring both dimensions together – digitalisation and inequality – then we can see the following:

inequality

Source: Own Compilation based on DESI 2016 and Eurostat

By and large, there is a covariation of Digitalisation and Inequality. At least we can see that the most equal states are the most digitalized: the Scandinavian ones. These are especially the social-democratic welfare states. But how come? Does digitalization lead to equality or does equality lead to digitalization? No. To make sense out of this, we should return to the two dimensions of Modernisation. What we can see there is that those countries running ahead, Sweden, Finland, Denmark, Norway are able to use digitalization to modernize internally, to push forward digital agendas (on local and state level). The higher external pressure, the more inequality.

Here, comparison reveals that Sweden has the lowest level of social inequality due to the high redistributive capacity of its social democratic welfare state. It is also proactively and consistently modernising its welfare state internally. Sweden can therefore be considered a pioneer of Welfare 4.0. Similarly, Estonia and the United Kingdom are taking the route of internal modernisation and benefiting very well from this in the areas of connectivity and e-government. However, stronger stratifying effects of post-socialist (Estonia) or liberal (United Kingdom) social security systems do not disappear. In fact, they are increasing if not accompanied by targeted welfare state measures. By contrast, the conservative welfare states of German and France are more strongly driven by external modernisation effects. The welfare state subsequently adjusts to the external challenges of Industry 4.0. Here, the question of recalibrating society’s internal redistribution of labour and welfare benefits becomes one of the key issues. The Mediterranean welfare states of Italy and Spain are facing the biggest challenges. external modernisation effects, especially on the labour market, lead to further stratification of these societies.

What can we learn out of this analysis? If we want to have social equity in the digital age, we need a welfare state that is able to proactively manage its responsibilities:

  • one that makes use of the opportunities of digitalisation for its internal modernisation,
  • offers coverage for the risks of digital external modernization,
  • and tries to better orchestrate its innovation policy with healthcare and labour market policies.

This includes the promotion of digital skills throughout the society, the connection to the internet as a basic human right and an active state that provides a (digital) infrastructure, digital strategy and administration and comprehensive investments in research and education as well as social and technical standards and data protection.

Readings:

  • Daniel Buhr, Claudia Christ, Rolf Frankenberger, Marie-Christine Fregin, Josef Schmid & Markus Trämer (2016): On the way to welfare 4.0? : Digitalisation of the welfare state in labour market, health care and innovation policy : a European comparison. Berlin: FES, ISBN 978-3-95861-712-4; DIGBIB-Permalink = http://www.fes.de/cgi-bin/gbv.cgi?id=13010&ty=pdf
  • Esping-Andersen, Gøsta (1990): The Three Worlds of Welfare Capitalism. Princeton: Princeton University Press.
  • Esping-Andersen, Gøsta (1998): Die drei Welten des Wohlfahrtskapitalismus. In: Lessenich, Stephan/Ostner, Ilona (ed.): Welten des Wohlfahrtskapitalismus: Der Sozialstaat in vergleichender Perspektive. Frankfurt a. M.: Campus Verlag, pp. 19–58.

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