Welfare states, growth regimes, and the emergence of the knowledge economy: social policy in turbulent times

Karl Polanyi famously recognized the emergence market economies, connected with industrialization and the rise of nation states, as the “Great Transformation” of the 19th century. The “Great Transformation” of our time is the emergence of knowledge economies, centered around human skills. Just like its predecessor, this Great Transformation has far-reaching economic, social, and political consequences. This chapter sketches how welfare states are challenged by the emergence of the knowledge economy. First, using data covering 100+ economies worldwide over 150 years we identify two ‘knowledge economy mega-trends’: educational expansion and labor market change. Second, we explain how these co-trends challenge welfare states. We argue that these global trends challenge different welfare regimes differently, pointing at differences in countries’ growth and welfare regimes. We close with a brief sketch of four potential welfare reform scenarios to these challenges, including social investments, social protectionism, market liberalism, or basic income strategies.