Successful Social Investment or Workfare Turn?

Abstract Once dubbed the ‘sick man of Europe’, Germany transformed into Europe’s economic powerhouse by the late 2000s. Its current stagnation notwithstanding, commentators have credited much of Germany’s economic success from the early 2000s to the 2020s to its sweeping welfare state reforms. This chapter analyzes welfare state reforms and the politics behind them in Germany over the 2000s and 2010s from a social investment perspective. It makes several observations: (1) despite being traditionally categorised as a laggard in social investment reforms, Germany has undergone gradual, yet transformative change mainly aimed at lowering unemployment, increasing labour market participation, and limiting consumption-based social expenditure; (2) the impetus for the most meaningful reforms came from unexpected sources, with large-scale retrenchment of buffers initiated by a social democratic government and progressive family policy reforms implemented under a conservative minister; (3) the reform thrust has been sustained throughout several changing governing coalitions owing to an ‘unhappy consensus’ among actors from varying political camps faced with severe reform pressures; (4) welfare state reforms correlate with substantial increases in employment, although predominantly in low-wage, low-productivity sectors—the overall challenge for Germany today has become the quality, not quantity, of available jobs; (5) while transformative in their nature, the success of the reforms has been mixed at best, producing an increasingly dualized labour market with persisting inequalities. Although Germany has come a long way from the supposed frozen Continental welfare state, it remains far from being a genuine social investment state and leaves vast economic potential untapped.