Pol - Scandy Welfare

What’s so special about the Nordic Welfare Model? Critically analyse the challenges facing it on the threshold of the new millennium.


Introduction:

In recent decades the international portrait that has been painted of the Nordic welfare state has been somewhat caricatured, with the prevailing notions that the state provides facilities of almost every nature, with near 100% income replacement levels for those who require it and free provision of all the essential social and healthcare services. This essay intends to first explore whether a ‘Scandinavian’ style of welfare does indeed exist, and if so, what the main features of such a system are. The main body of this paper will focus on the elements that confront the Nordic welfare states, and if there are any possible solutions to these threats. In the conclusion I intend to summarise the findings of my research and create a hypothesis for the future of welfare in the Nordic region.


A Nordic Model?

Before diving in at the deep end and assessing the current challenges facing the welfare models of the Nordic countries it first is necessary get our feet wet in with a succinct outline and understanding of the brief history and key features of the Nordic welfare state.

If one were to guess the nature of welfare using only stereotypes and reputation, the foremost assumption would be that the Nordic (Scandinavian) states have a very distinct and substantial welfare system when contrasted with other countries worldwide. This, in reality, is true; Francis Castles goes as far as to talk about “Intra-Scandinavian convergence tendencies” [i] when assessing change in welfare policies amongst ‘clusters’ of nations throughout the world. There are several reasons for the emergence of the Scandinavian (or indeed Anglo-Saxon or Mediterranean) welfare systems. These regional differences are the cause of many effects from a shared common history to the specific needs or politics of any given area. One other key aspect to the evolution of a specific cluster of welfare states is that the economies of these Nordic states are all very similar. The countries all have relatively small, but open, markets with large export sections which in turn bring high capital mobility.

The next step away from the shallow end of our Scandinavian swimming pool is to highlight the distinctive features of this established ‘Scandinavian Welfare’ model; however it would make more sense explain the current traits by using history and how the welfare model evolved into what it is today.

Firstly, and perhaps the single most important reason for Scandinavia having such a distinguishable welfare style is the dominance of Social Democracy. However, to give the Social Democratic political parties all of the glory would be slightly unfair because although they have governed as a single-party minority, they also used a variety of coalition types to enter the government. From as early as the 1930’s they have been able to find their way into approximately 90% of the Nordic governments and have slowly moulded an undivided opinion amongst Scandinavian citizens – especially in Sweden and Norway – that a high-tax, strong welfare state is the best way forward. The prevalence of strong, united Trade Unions[ii] and a general lack of credible political alternatives (except in Denmark where a sizeable Conservative party did emerge) meant that, as policy makers, the Social Democrats were for the most part of the last century in the ‘driving seat’.

With a common goal amongst most politicians in the Nordic countries the parties began piecing together the foundations of their welfare state with the introduction of pensions and benefits in the 1940s and 1950s to ensure there was a reasonable standard of living. These aspects were strengthened and expanded in subsequent decades whilst the dice of economic fortune rolled in favour of the Scandinavian markets and the countries saw a steady increase in employment with remarkably low levels of inflation. This period very much brought around the beginning of the distinct institutional nature of the Nordic model. However, the oil crises of the 1970’s were the first sings that the Nordic countries were in about to encounter some turbulence. Recession climaxed in the late 1980’s / early 1990’s with a dramatic effect on the direction of Scandinavian welfare.

Whilst the other Nordic countries began to suffer unemployment on a previously unthinkable scale, Norway - with its vast revenue from national oil - was the only country that managed to avoid this situation and also got by without announcing any welfare cutbacks. [iii] The other Scandinavian countries however were not as fortunate; the Swedes suffered a currency devaluation of 16% in a single year (on top of the previous years’ 10%); the Danes experienced a new unemployment high of 11.3% in 1992; and the Finns underwent an all-time unemployment high of 17% in 1991. [iv]

Several different methods were tried out by the countries in order to recover from such distressing fluctuations such as Sweden unveiling the comprehensive “tax reform of the century” with some extensive cutbacks in the public sector. Denmark on the other hand opted for a more active approach of new labour-market policies. [v] Another significant detail to note about the ‘bouncing back’ of the Scandinavian models is that even after some drastic changes to the fundamental organisation of the redistribution of welfare - and the taxation of capital to support it - none of the countries had broken away from the ‘Nordic model’ per-se.

Although the current welfare states are definitely less generous than they have been for previous generations, the stereotype of Scandinavian states taking care of their citizens from the womb-to-the-tomb is not an entirely false statement. Whilst there are minor differences in rates and income coverage between the nations the Nordic countries are generally recognised as having three main characteristics. [vi] The first trait is a broad scope of public and social policy with a commitment to full employment and an active labour market. The main reason for this is that with more people working, the government receives more funding for the welfare system though the high tax levels, which is redistributed directly back into society in several different ways.Another feature that links the Nordic welfare states is a universal flat-rate basic security, on an earnings related basis. This ‘insurance’ is only given to citizens who find themselves off for work a variety of reasons from unemployment to maternal or paternal leave. The percentage of a persons wage replacement differs from approximately 50% to 80% depending on the country and their occupation, however these rates are still amongst the most charitable in the world. The third attribute of the Nordic welfare state is the local, publicly funded provisions. The most common example of these are the childcare centres which are not just heavily used by parents but also responsible for the creation of thousands of jobs, especially amongst women, with the almost comical situation of a mother dropping her child off in one centre, then going to work in another. It is because of initiatives like this that region is also noted as having the world’s highest gender wage equality and gender employment levels.

To fund such high levels of public expenditure the Nordic countries have also become synonymous with some of the highest tax levels in the world. In 1998 Norwegians saw 48% of their total earnings go straight back to their government, Danes had a higher figure of 52% and the Swedes saw a staggering 55% of their income deducted through various taxes. [vii] As extreme as these figures may sound, especially when compared to more conservative tax levels in other welfare models, against the backdrop of such a substantial welfare state, Swedish citizens can still afford to live amongst some of the highest standards in the world with only 45% of their full wage.


Threats to the current Nordic welfare state.

And so we arrive at the deep end of the pool where, despite the relatively successful comeback of the Nordic welfare state with regards to unemployment and malfunctioning economies in previous decades, there are still several substantial challenges looming on the horizon that will push the limits of the already extensive coverage enjoyed by many Scandinavians.

Some of these new challenges will require changes to be made in the in the workings of the welfare system if it is to ensure it survives in tomorrow’s world. This is where the fundamental problem of the challenges starts because most Scandinavians grew up pleased, content and even proud of their unique system. The ramification of this is that public opinion hangs predominantly in favour of preserving the status quo. This attachment of the voters to the system has been written about by Paul Pierson[viii] who states that welfare supporters in Scandinavia are able to effectively fight to sustain their existing benefits, through the previously mentioned trade unions and high levels of democracy.This is a very logical argument, much in the same vein as the FPTP elected government changing the electoral system to a PR scenario, in that it would be irrational for a Scandinavian voter to shooting themselves in the foot. It would then make no sense for the electorate in any of the Nordic countries to support a party who would promote radical cut backs and reforms in the welfare sector. In 2002 Goeran Persson successfully demolished all opposition and saw himself re-elected as the Swedish Prime Minister with a campaign that primarily focused on protecting the country’s welfare system. [ix]. The magnitude of the victory (a gap of over 1 million - 20% - of the votes) is a good indicator not just at how successful Social Democracy still is, but also at how big an issue the survival of the welfare state is in an election. In line with the grain of history the Conservative parties in the region are currently the only electorally successful parties that openly propose anything more than incremental changes to the welfare state.

One of the most striking problems that stalks Nordic welfare system is ever-increasing number of aged people that are legible to collect their pensions. Whilst this is not a problem limited specifically to Scandinavia, the situation is amplified several times by the fact that the region not only has the highest life expectancy rates of any countries in the world but that they also sport some of the largest and most liberal pension payouts per head.

The World Bank have dubbed this upcoming global problem as the ‘Old Age Crisis’ and has published a detailed report on how best to handle the scenario. [x] The report showed that Sweden was already at a disadvantage with the world’s highest percentage of pensioners in the population in 1990 (23%, with the world average sitting at a significantly lower 10%). The CSIS published a similar, but updated, paper in 2002. [xi] Whilst this newer report does not suggest any solutions as such, it does highlight that Norway and Sweden have began taking active measures to slow the rate of pension-related stress on their GDP expenditure, with the later initiating tax incentives for people who rely on private employer pensions.

A second problem presented to the region, and in particular the metropolitan countries of Denmark, Norway and Sweden, is that of membership with The European Union. This problem is two fold in that the countries not only had to adapt to initially join the union, but that ensuing expansions of the European Union would also add to yet more financial burdens. To contextualise this problem, it is interesting to see that the Social Democrats – synonymous with the region and welfare – were the only mainstream political party that showed signs of Euro-scepticism. [xii] The main concern was that entrance to the E.U. with possibility of further deepening and broadening could endanger the principals of domestic welfare.

Throughout the 1970s and 1980s the Swedish Social Democrats also claimed that membership would disgrace the country’s lengthy reputation of international neutrality. However the government finally applied for membership in 1990. One must not rule out the decision of the Social Democrats to sustain this argument, for decades after Danish and Norwegian entrances to the E.U. and E.F.T.A. respectively, as a cunning way of ensuring electoral success by using the aforementioned electoral popularity of politicising the welfare state.

Having to support the needs of the further ten central and eastern European struggling states is an extensive task for the European Union as a whole. Immediately after the collapse of communism these nations stated their intentions of a ‘return to Europe’ with a specific emphasis on the economic aspects. Most of these ‘new European’ countries are still struggling in the aftermath of a gigantic increase in poverty related to the collapse of the USSR. Between 1987 and 1994 Estonia (a 2004 entrant) showed a poverty level jump from 1% to 34% and Romania (set for 2007 admission) displayed an 800% jump from 6% to 48% of their population living in poverty.[xiii] Whilst the differences were not quite as drastic by the time these countries entered the E.U. there was still a clearly divisible poverty gap.

A brand new report into the spending on displaced refugees throughout the capitalised world highlighted the European Union’s solution to the growing problem. [xiv] Whilst the E.U. strategy involves the burden sharing of three main pillars – policy, money and actual refugees – the report show’s the amongst the most successful economies in the world it is the smaller nations that are carrying the largest responsibilities. The only two countries in the world that pay a higher percentage of their GDP towards funding refugee protection are the Netherlands and Switzerland.

Another noteworthy set of statistics is Anders Widfeldt’s yearly review of the changes in Sweden.[xv] He comments on a gradual slowing down of the national economy, and an increase in the numbers of unemployed Swedes. Whilst these drops and rises are nowhere near as significant as the values at the time of Sweden’s ‘crisis’ they still demonstrate the fiscal burden being generated within the state. This paradox of a decreasing economy and increasing unemployment highlights the need for a change in the nature of Swedish welfare (and might echo changes across the region if the Swedish way is still to be believed to epitomise the Nordic model).

The above statistics highlight the growing concerns that the Scandinavian welfare states are facing high levels pressure from within their own domestic spheres through forms of increased levels of unemployment, higher pension demands and a fluctuating economy. On top of this there are also some International problems with the expansion of the European Union and the cost of refugee protection, which adds an even greater strain on national expenditure.


Proposed Solutions.

There are several suggested routes down which the Nordic welfare model can venture. One of the most and topical proposals at the moment is put forward by one of the main contributors of reading on the region, Gøsta Esping-Andersen. [xvi] His supposition suggests that in the light of the economies slowly grinding to a stand still, Nordic nations are at a crossroad between liberalising private services, thus creating wage inequalities or actually keeping a degree of wage equality in workplaces and risking higher levels of unemployment.

The nature of the Norwegian welfare state, heavily influenced by the presence of “business elites” [xvii] has led to a recent development. Although these important decision-makers are from privileged backgrounds, such as civil servants and judges, they still predominantly support the existing welfare system. With the support of interest groups and mass public opinion also in line with these business elites a new theory has developed that there will be problems within the governments of Scandinavia regarding the welfare state long before any gaps appear in the public opinion.

However, if one observes the track record of the Nordic welfare state since it has matured over the last sixty or so years it is clear to see that it is one of the more durable aspects of anything associated with the Nordic group of countries. Even though it had reached its absolute limits of expansion and was teetering on the verge of a total collapse it still managed to evolve and provide yet more solutions to new problems. This is also fascinating because all countries have so much belief in the system that they waited until the situation of recession hit a ‘crisis’ level before any changes are made.

Unlike the other notable aspects such as the party system, which experienced a radical alteration in the 1970’s, the Scandinavian welfare system has not seen any such drastic change, and even what little change there has been it has manifested itself in the form of cut backs, in a more incremental fashion.


Closing Assertion & Proposed Hypothesis.

In the course of this essay I have shown that there is definitely a distinctive Nordic model of welfare that goes hand in hand with the policies of social democracy. This model’s distinct features include a commitment to full employment, equal and high standards of living for all citizens, substantial pension rates and high wage replacement benefits. It is also true that although the current welfare state is not as munificent as it has been in recent decades, Nordic countries still have some of the highest levels of welfare.

I have also emphasised that the Nordic states are currently under a great deal of stress from both domestic and international pressures. The domestic tensions vary from an increase in the number of the unemployed claiming benefits and the rising number of citizens that have reached the pensionable age whereas international anxiety presents itself in the form of the European Union and the unequal distribution of refugee protection.

Hypothesis:

Change of the Scandinavian welfare state is indisputable because if the situation continues to cruise along its current course on autopilot the upcoming generation of middle-aged, post war ‘baby-boomers’ making the transition to pensionable citizens alone will be enough to make the entire system collapse under the domestic pressures within the next decade or so. However, much like the previous unemployment situations that confronted the region in the 1980’s and 1990’s, I believe that governments will wait until the conditions hit the ‘crisis’ level before adapting any new policies because they believe in the efficiency of their system.

Under these circumstances my conjecture is that the mechanics of the Nordic welfare state will have to undergo some changes in order to keep the public opinion, which is unquestionably in favour of the system, towards that of the government in any country at any time. Whether this means countries will have to unveil new “tax reforms of this century” or adapt a tiered approach with several moderate reforms will be down to the individual governments, but I do feel that governments might have to risk some unpopular decisions amongst the voters if they are to keep a recognisable version of the Scandinavian welfare system for future generations.

Word Count: 3,142

[i] Castles, Francis Geoffrey. “The future of the welfare state: crisis myths and crisis realities”
Oxford University Press, 2004. Page 171.

[ii] Esping-Andersen, Gøsta. “The three worlds of welfare capitalism”. Cambridge. Polity Press.
1990. Page 167.

[iii] Stephens, John D. “The Scandinavian Welfare States: Achievements, Crisis and Prospects”. In Book: “Welfare States In Transition”. Ed. Esping-Andersen, Gøsta. Sage Publications. 1996. Page 52.

[iv] Ibid. Pages 34, 54 & 53 respectively.

[v] Goul Andersen, Jørgen.. “Europe’s New State Of Welfare: Unemployment, Employment Policies
and Citizenship”. Policy Press. 2002. Page 54

[vi] Kautto, Mikko. “Nordic States in a European Context’. New York. Routledge. 2001. Page 6.

[vii] Boje, Thomas. “Scandinavia in a New Europe”. Oxford. Oxford University Press. 1993. Page47

[viii] Pierson, Paul. “New Politics of the Welfare State”. Oxford. Oxford University Press. 2001 Page 413.

[ix] News Story: “Swedish Left Wins Re-Election”. 16th September 2002. Accessed from site: http://news.bbc.co.uk/1/hi/world/europe/2255843.stm
Date: 9th May 2006.

[x] The World Bank. “Averting the Old Age Crisis”. Oxford University Press. 1994. Page 33. Accessed from: Click
Date: 5th May 2006.

[xi] Centre for Strategic and International Studies. “The Global Retirement Crisis”. Washington DC. April 2002. Page 38. Accessed from: http://www.csis.org/media/csis/pubs/global_retirement.pdf Date: 3rd May 2006.

[xii] Sitter, Nick. “The Politics of Opposition and European Integration”. West European Politics. Vol. 24. No. 4. Pages 22-39. October 2001.

[xiii] Wagner, Hans-Júrgen. “The Welfare State in Transition Economies and Acension to the E.U”.
West European Politics. Vol 25. No. 2. April 2002.

[xiv] Dewan, Torun. “The Myth of Free-Riding: Refugee Protection and Implicit Burden-Sharing”.
West European Politics. Vol. 29. No. 2. Pages 351-369. March 2006.

[xv] Widfeldt, Anders. “Sweden”. (A yearly review). European Journal of Political Research.
Vol. 43. No. 7-8. Pages 1144-1150. December 2004.

[xvi] Esping-Andersen, Gøsta. “Why we need a new welfare state”. Oxford. Oxford University Press.
Page 185.

[xvii] Gulbrandsen, Trygve. “Elite Consensus on the Norwegian Welfare Model”. West European
Politics. Vol. 28. No. 4. Pages 898-918. September 2005.