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The Nordic welfare models towards 2030

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What characterises the Nordic model of society, and where are the key challenges in the model? In a recent project entitled Nordmod 2030, researchers from the five Nordic countries have studied the challenges facing the Nordic welfare states up to 2030. SFI's representative reports on the results.

Where is the welfare society going? Will the Nordic model last? These questions are often raised in the political debate. But what actually characterises our model of society, and where are the key challenges in the model?

These questions have also been raised in the other Nordic countries, and therefore over the last two years, a group of researchers from the five Nordic countries have studied the challenges facing the Nordic welfare states up to 2030. The project is entitled

Nordmod 2030, and on the basis of the project I will try to focus on the key characteristics of the Nordic welfare model and the challenges we are facing. Nordmod 2030 looks back on the welfare model's challenges and changes over the past three dec-ades. In this period, the model has been challenged by external as well as internal political, economic and structural changes. These changes include the expansion of the open market in the European Union with regard to labour, stronger monetary policy collaboration, the reunification of East and West Europe after the fall of the Berlin Wall, as well as economic growth and political change in Asia, the Middle East and Latin America.

All Nordic countries have experienced significant internal changes in their political structures and in their demographic development, including in particular the age and ethnicity distribution in their populations. One of the main conclusions in the project is that the Nordic welfare model has been able to adapt to these changes through regular welfare reforms.

This article outlines developments in reformist policy over the past 25 years. The first lesson from this period is that the Nordic model has shown its strength in the form of close political dialogue, in which significant model adjustments have been implemented with broad political agreement.

A second lesson is that the reforms have been, and will probably continue to be, an ongoing process adapted to long-term structural aims as well as to short-term cyclical fluctuations.

Finally, there is a special challenge in maintaining a balance in society, in which the desire to contribute to society through working and paying taxes balances with the ambition to maintain a social safety net of transfer incomes for citizens who are not able to provide for themselves.

The Nordic welfare mode

The first question raised is whether there is an actual Nordic model or in fact just a family of national models. The five Nordic countries are influenced by different external conditions (e.g. at-tachment to the EU), different industrial structures, different institutional solutions (e.g. in connection with unemployment insurance funds and pensions), as well as different social challenges and political solutions.

However, the Nordic countries obviously have many common features as well, such as values, institutions and societal players, which, compared to other European countries, have established a strong tradition of collaboration, joint problem-solving processes and welfare-society development.

The Nordmod project highlights that, in the past 30 years, traditional Nordic welfare policy has been characterised by close collaboration between economic policy and labour market and welfare regulation, and that the model for Nordic welfare states is based on three interdependent pillars: 

  • A solid macroeconomic policy based on free trade and high business activity, which has established the foundation for a large public sector, full employment, greater social equality and good salary and working conditions.
  • A regulated labour market in which the parties negotiate salary and working conditions in a collective bargaining system ensuring the population a good standard of living, corporate competitiveness, high employment, healthy working conditions and a qualified workforce. Welfare schemes that include universal welfare services ensuring equalisation of living conditions, education for all, a high participation rate and equal opportunities as well as a comprehensive system of transfer incomes providing security for citizens who do not have an income of their own.

The strength of the Nordic model is contingent on the ability to maintain a high level of employment. However, the combination of wealth and high employment together with good social security and low inequality achieved through reallocation of incomes and tax-financed public welfare services are characteristic for the model. Furthermore, the important collaboration between the social partners as well as between the partners and the political system is also a crucial feature.

The model was established during a long historical period that was characterised by increasing in-dustrialisation, new types of class struggle and industrial disputes, economic crises and war. Through the 1900s, a model emerged based on collaboration between the social partners, on involving the partners in political decisionmaking processes, and on political dialogue which enabled development of the Nordic welfare states as we know them today.

Even though today this model is a fairly permanent structure for welfare in Denmark and in the other Nordic countries, it still needs regular adjustment. The Nordmod project shows that the ability to adapt the model to current conditions through reforms is also a pervading characteristic in the Nordic countries. The reforms reflect key fault lines and challenges for the Nordic welfare states.

Looking at three narratives on the development of reforms over the last 30 years will give us an idea of what to focus on today in order to assess the strengths and challenges of the model. The Nordmod project examines reforms in all the Nordic countries, but this article focuses on welfare reforms in Denmark.

Three narratives on reforms

The 1980s were marked by fundamental economic and structural imbalances which required adjustments within all three pillars of the model in Denmark as well as in the other Nordic countries. The crisis in the 1980s was therefore the launch pad for the reformist policy in the following decades, in which social and employment policies played a central role. The following includes three narratives on the Danish reforms, focusing on the interplay between economic cycles, political dynamics and trends in reform development.

1. Reform development and cyclical trends

Development of welfare reforms has been controlled by political ideologies. However, macroeconomic developments and understanding the mechanisms behind these economic developments have also been important for the development of reforms.

In Denmark, reforms were developed over a period which in the late 1980s and in the early 1990s was characterised by increasing unemployment and a general perception that there were no jobs. The philosophy behind the early retirement scheme (from 1979) was to encourage the elderly to leave the labour market and make space for the younger generations. Similarly, the purpose of the education and sabbatical scheme from the early 1990s was to create greater rotation between unemployment and employment.

A period then followed with historically low unemployment and a new understanding of unemployment as a phenomenon which was due to lack of qualifications as well as lack of incentives. Throughout the 1990s and most of the 2000s, unemployment fell considerably, and employment policy was adjusted almost continuously in order to increase the supply of labour for a labour market which continued to demand a better qualified and more flexible workforce. In the years up to the economic crisis in 2008, the economy saw significant bottlenecks, and several sectors were desper-ate in efforts to procure the right labour and in adequate numbers. This left its mark on social and employment policies which began to focus on sending everyone without a job directly into the labour market as quickly as possible.

Following the new economic crisis in 2008 and the change of government in autumn 2011, the perception of the possibilities and role of unemployment policy was once again modified. Again discussions concentrated on whether there were any jobs at all, but unlike the 1980s, when discussions were primarily about the broad group of unemployed people, today they focus more on the jobs for the more disadvantaged unemployed.

Therefore, it is clear (and perhaps not surprising) that the focus of the reforms has changed in line with economic trends, and is very much controlled by a varying need to ensure an adequate supply of labour.

2. Political consensus and conflict

In addition to adjustments on the basis of economic trends, it is also noteworthy that there is relatively broad political support for the reforms. Although the subtleties in the subelements of policy change according to the basic ideology of the political parties in office, many reforms, reform adjustments and policy packages in all the Nordic countries were implemented with relatively broad political agreement.

In Denmark, the content of the first labour market policy reforms implemented by the Poul Nyrup Rasmussen (social democratic) government in 1994 was in immediate continuation of the political drafts developed under the Poul Schlüter (conservative) government in the late 1980s and the early 1990s. The reform itself and the subsequent adjustments in the 1990s were implemented with broad political majority and often in connection with negotiations about the Danish Finance Act (state budget). This was also the case in the policy packages More people into employment, New chance for all and The welfare agreement, which were all implemented under the Liberal-Conservative coalition government in the early 2000s.

Another important element in the development of reforms in all the Nordic countries is that the social partners and other stakeholders have also been included in the process as well as the political parties. However, the influence of the various parties has been expressed in different ways, and we also see a trend that direct influences are becoming weaker over time. However, the indirect and less visible influences secured through councils, consultations and networks are still important and intact.

Overall, there has been broad consensus in Denmark and in the other Nordic countries about the main structure of welfare policy. The common policy aim was, and is, to ensure a high level of employment.

The political differences have mainly been expressed through the countries' approach to those who are on the fringes of, or outside, the labour market. For this more vulnerable group of individuals, the political debate concentrates on whether the best way to increase employment is through skills development or reduction of benefits. Today, we are still discussing whether unemployment among those with the lowest qualifications is because social benefits are too high or training/education options are too limited.

3. Contents of the reforms

That summarises the cyclical and political framework for reform development. The question now is what has actually been done and who have been affected by the welfare reforms?

To begin with, the first employability enhancement programmes were mostly a social policy initiative to protect unemployed individuals from losing their subsistence basis. However, in the early 1990s, when unemployment was historically high, policy was clearly redirected and aimed at (re)employment. In the first years, the target group was unemployed citizens, but from the mid-1990s this group also included other groups of recipients of transfer incomes with social problems as well as psychological and physical health issues and very little or no attachment to the labour market. Society needed all adults to be in employment, and at the same time there was a philosophy that recovery lay very much in stable labour market association. Policy was simultaneously given a social and employment purpose.

Looking at the content of the offers provided for unemployed individuals, they have included the same basic elements in all the Nordic countries over the last 30 years: job offers, guidance, education/training and incentives to enter, withdraw from or stay in the labour market. The toolbox has remained remarkably unchanged, but the individual elements have been dosed with varying weights and prominence over time.

In Denmark, the educational component has played an important role since the early 1990s. Education is considered an important employability enhancement offer as well as a leave (sabbatical) offer for people in employment who want to take a break from working life.

Throughout the 1990s, focus on education weakened, and in the 2000s education/training of the unemployed was often described as detrimental to society and a waste of money. This notion has been confronted following the change to a social democratic government in 2011, when training of unskilled workers and skill development of the most disadvantaged unemployed once again became an important element in reforms and agreements.

As a pervading characteristic in the Nordic countries, the reforms have been marked in particular by demands for work and training. Therefore, there has been a common belief that citizens' occupational prospects and incentives should be strengthened through the right and duty principle in particular. However, benefits, and thereby the possibility to receive public assistance, have not remained the same over time. In Sweden and Finland there has been a reduction in the level of unemployment benefits and sickness benefits, and the criteria to qualify for benefits have been tightened in several countries in addition to increased control of these criteria and reductions in the duration of benefits.

In Denmark the unemployment insurance period was reduced from seven years to two years from the 1990s to 2011, and the level of benefits was reduced for some groups. As in the 1990s, when receiving benefits was first linked to the requirement to take part in employability enhancement programmes, young people were first to be subject to a lower level of social benefits in the mid-1990s.

In the 2000s, the benefits were also reduced for other groups of recipients of cash benefits, including particularly immigrants. Following the change to a social democratic government in 2011, the so-called "poverty benefit" for special groups of recipients of cash benefits was abolished, but the lower level of benefits for young recipients of cash benefits was maintained and expanded to include a larger target group.

Strengths and challenges of the welfare model

The economic crisis in the late 1980s and in the early 1990s sparked in earnest reformist policy in the Nordic welfare states, and with not inconsiderable success: Balance in the economy, increased employment and decreasing unemployment were created relatively quickly due to joint political efforts in the individual countries.

Social and employment policies were rendered an important role in these reforms. Obviously this is due to the socioeconomic imbalance arising from keeping up a welfare state in which a large percentage of citizens depend on income compensation benefits and do not contribute to financing the common public services through taxes. This is one of the key challenges in the Nordic welfare state, and it will continue to be so in the future. As I mentioned in the introduction, the strength of the Nordic models is contingent on the ability to maintain a high level of employment.

As mentioned, development of reforms has, to some extent, been controlled by political ideologies, but to a greater extent by macroeconomic developments. A high level of unemployment strengthened focus on increasing the qualifications of the workforce, and a low level of unemployment strengthened focus on getting everyone without a job directly into the labour market as quickly as possible.

So, model adjustments have been - and will continue to be - an ongoing process which embraces long-term structural aims as well as short-term cyclical fluctuations. On the face of it, this may seem like a sensible prioritisation, although this was not brought about by a conscious overall political strategy. Nevertheless, it is worth noting that, although the subtleties in the sub-elements of the policy change with the ideology of the government in office, many reforms, reform adjustments and policy packages have been adopted with broad political agreement. This is characteristic for the Nordic model and necessary for rapid and efficient policy adjustment. One recommendation for future politicians could be that they should make it a conscious common political strategy to allow adjustments of the welfare reforms to follow structural as well as cyclical developments.

To some extent, and only to some extent, disagreement between the political blocks is based on their faith, or lack of faith, in the effects of economic incentives. A characteristic feature of the reform period is that adjustment through economic incentives will have a greater impact over time. The welfare state is permanently seeking a balance between ensuring a reasonable standard of living for individuals without incomes and ensuring that people are motivated to make an effort and, as tax-paying citizens, they are willing to pay.

The reforms have been aimed directly at recipients of transfer incomes, but they have also had a number of other significant indirect effects. One of these has been to encourage support from the general public to maintain a finemeshed economic safety net. New reform initiatives are likely to continue to focus on this balance. Furthermore, the level of transfer incomes is expected to be under constant pressure from budget restrictions in the public sector and from a population that expect high tax levels to be reflected in high-quality welfare services. The good and still unanswered question is how much can we reduce transfer incomes and still claim the Nordic welfare model to be intact?

Facts about Nordmod 2030

Nordmod 2030 was conducted in the period 2012-2014 in the five Nordic countries and headed by the Norwegian welfare research foundation FAFO. Two researchers from each of the five countries were linked to the project.

In Denmark, the project was conducted by Lisbeth Pedersen, Head of Research Department at SFI - The Danish National Centre for Social Research and Søren Kaj An-dersen, Director of FAOS, the University of Copenhagen.

A total of 18 reports have been published from the project, including the two reports which form the basis for this article: Reformernes tid. Regulering af arbejdsmarked og velfærd siden 1990 (The time of reforms. Adjusting labour market and welfare since 1990). Country report on Denmark by Lisbeth Pedersen and Søren Kaj Andersen and Den nordiske modellen mot 2030. Et nytt kapittel? (The Nordic model up to 2030. A new chapter?) by Jon Erik Dølvik, Tone Fløtten, Jon M. Hippe and Bård Jordfald.

The project was initiated and financed by SAMAK (the Joint Committee of the Nordic Social Democratic Labour Movement).

One of the more unfortunate experiences from the long reform period is that it is very difficult to make space for the most disadvantaged people in society. Even during an economic boom period, with considerable bottlenecks on the labour market, many individuals are still stuck in the transfer income system. This applies to Denmark as well as to the other Nordic countries. All Nordic welfare states are facing a challenge in ensuring that citizens have equal opportunities and a desire to take part in society. Moreover, they are also faced with the challenge of combining the desire for a highly productive society with the desire for an accommodating and inclusive society. Growth and high productivity are necessary to ensure all citizens social and financial stability. However, the requirement for high productivity also prevents citizens with limited educational qualifications from being included in the labour market.

In retrospect, the Nordic welfare states did relatively well through the crisis in the late 1980s and in the early 1990s. However, we are clearly still shaken by the crisis after 2008. The Nordmod project shows that, despite the shock caused by the crises, the Nordic welfare states are still doing well compared to many other European countries with regard to goals for wealth, employment, reducing long-term unemployment and youth unemployment, as well as preserving the quality of life. These are still well functioning economies with well functioning labour markets and public sectors, which unite society and ensure a relatively conflict-free, elitist society with a high standard of living for all citizens viewed from an international perspective.

However, if the Nordic countries are to do well in an ever more globalised world, the model will have to be adjusted. This raises two key questions: Will these adjustments be adequate to cope with the outside pressures? And how far can we go before we have given up on the Nordic welfare model.

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