Mobilizing critical research for preventing and eradicating poverty Can gains in redistribution be sustainable without more at- tention to production? How can the production regime support a universal welfare regime, which simultaneously tackles poverty and inequality? Nordic countries succeeded in gradually building positive interrelations between welfare and production regimes. In sharp contrast, in the global South, even relatively suc- cessful countries have had a hard time securing stable funding sources for social policy and making an effective use of their human capital. Costa Rica is a case in point. It shows, irst, how challenging it is for developing countries to build and sustain productive regimes that enable truly redistributive welfare regimes. Second, it demonstrates that dysfunctional relations between the welfare and pro- duction regimes can remain for a long time. Third, it sug- gests that, over time, unless productive regimes undergo substantial transformations, this relationship copes with sig- niicant tensions. The experience of social-democratic North Europe Much of the political economy literature on the OECD assumes that most developed countries establish con- structive and stable relations between their economic in- stitutions and their social systems. Complementarities be- tween the production and welfare regimes are not only expected but are considered particularly desirable for simultaneously achieving economic growth and income distribution. The social-democratic model in the Nordic countries constitutes one of the best examples. Low inequality and high social spending went hand in hand with successful The productive bottlenecks of progressive social policies: lessons from Costa Rica and beyond // Juliana Martínez Franzoni & Diego Sánchez-Ancochea In developing countries, social policy is currently receiving renewed attention. In Latin America, the “turn to the left” has contributed to an expansion of cash transfers and some attempts to strengthen universal policies. Although some of these efforts are leading to re- ductions of poverty and inequality, most countries still fail to transform links between social and productive policies. As a result, the gains in poverty reduction may become unsustain- able in the long run. Key points: • In Latin America, production regimes have limited the chances to establish universal wel- fare regimes. Even Costa Rica, a showcase of universal social policy, shows how challeng- ing it is for many other developing countries to build and sustain productive regimes that enable truly redistributive welfare regimes. • A primary challenge has been the dificulty to simultaneously upgrade the leading sectors while modernizing the low productivity sector. • Many Latin American countries have re- cently witnessed poverty reduction and de- creased inequality due to a simultaneous expansion of social assistance and second- ary education. Nevertheless, a sustained reduction of poverty and inequality may re- quire the consolidation of universal social systems that are accompanied by success- ful production regimes that demands skills while providing funding and formal jobs. • In terms of policy implications, it is critical to promote both leading and low productiv- ity sectors as well as securing stable funding sources for welfare regimes. CROP Poverty Brief / February 2011