This article shows that the services-oriented growth model in the Baltic countries—Estonia, Latvia and Lithuania—has been underpinned by a social investment welfare state. Some scholars have portrayed the region’s transition to capitalism as socially ‘disembedded’ and exposed to a more zealous form of ‘neoliberalism’ than the one found in Central and Eastern Europe. These accounts have called attention to the social costs of such a trajectory of capitalist development (Bohle & Greskovits, 2012). Others have praised the exceptional economic growth in the region, and contrasted its high educational performance and labour force participation to Central and Eastern Europe, all the while ascribing these successes to the sound implementation of the Washington consensus (Aslund, 2013). This article provides a more nuanced perspective on the Baltic countries’ approach to growth in order to reconcile these two seemingly contradictory perspectives. To that end, the article reveals higher state investment in human capital, higher generosity of labour market policy and greater expansion of public sector employment in the Baltic states than in Central and Eastern Europe. It argues that these social investment oriented policies have underpinned these countries’ efforts to transform into knowledge-intensive service economies. The article supplies a new type of growth model to the literature on capitalist diversity in Eastern Europe. It also shows that the expansion of a knowledge-intensive service economy can be associated with growth of public sector employment, rather than its reduction.