Scandinavian welfare regime in crisis

Sweden

Introduction

• Political dominance of Social Democrats• Institution full employment policy on Keynesian

principles: new industrial economy– Public investment in R+D & infrastructure– 1938 LO/SAF pact (central negotiation)– 1940 Labour Market Board – active labour market

policy (training and mobility)• Social Policy:

– compulsory sickness insurance– State pensions– Extensive .social services

Post-war growth (1950s and 1960s)

• 1940s: citizenship pension & sickness benefits raised

• TU voluntary unemployment benefits extended and reinforced (Labour Market Board).

• Basic rates topped up by earnings-related supplements (pensions and sickness and TU unemployment insurance)

• Sickness benefits cover child care for 4 years • Local state social services and social assistance

Swedish welfare state at zenith (1980s) I

• 90% income replacement ratios for sick, unemployed or absence through child care

• 70% replacement rate for pensioners

• Social security costs rise:– 1965 = 13.5% GNP– 1980 = 32% GNP

Swedish welfare state at zenith (1980) II

• Expansion of local social services– Comprehensive health care– Housing (owner occupation and publicly provided

rental)– Residential facilities for elderly, children and

handicapped– Compulsory care for children and alcoholics

(1982: institutionalisation made voluntary)

• Professional expertise, state management + high taxation

Early Crisis: 1980s

• 1976: welfare costs raised by economic downturn (SDP loses power)

• 1982: SDP re-elected:– Krona devalued– Wage restraint introduced (welfare protected)– New public investment in Swedish firms– New training programmes: – Collective bargaining strengthened

• 1980s: Swedish unemployment low and inflation steady– 80% women in workforce at 85% male wage rate

Crisis 1990s: collapse of Soviet block

• 10% inflation and rising unemployment– Government applies for EU membership– Krona devalued against DM– Welfare cuts: SDP loses 1991 election

• 1992 currency crisis (interest rates – 500% & unemployment = 11%): – welfare cuts– full employment policy abandoned– unemployment insurance made compulsory

• 1994 SDP re-elected (but welfare reforms stay)

Restructuring Nordic Model(s) 1990s

• Economic ‘modernisation’ policies aim at low inflation– Severe budget cuts, fiscal austerity (Euro links)– Tax cuts and reduced benefits

• Negotiated wage constraints: labour market regulation retained: flexible work sharing schemes negotiated.

• Social policy: reinvigoration of duty to work– LMA programmes / education – Multi-pillar pensions restructured: early retirement closed

down– Measures to reconcile work-family & raise female labour

market participation– Targeted policy for immigrant / posted workers

• Danish ‘flexicurity’: unemployment + high protection.

Welfare changes post 1990s

• Higher charges for child/ elderly care

• Health care competition: private provision, internal market, higher charges

• Labour Market Board: employment policy– Training: allowances cut– Employment protection amended– Employers promote flexibility

• Education: competition between ‘free’ and state schools

Influence of EU

• 1994: entry into EU reinforces constraints on public expenditure

• Amsterdam Treaty (1997).– Chapter on employment– Birth of active labour market policies reflect

Swedish experience

• Refusal to join the Euro. – Damaging to welfare state (opposite to UK)– Swedish standards of welfare are higher

Pension reform (1998-2005)

• 1998: Pension Reform introduced (implemented 2001)– 2.5% of contribution to earnings-related state pension

converted into personal ‘pot’.– Contributors may determine whether to invest

personally, or to allow state to do so

• 2001-2003: market downturn: all lose savings (but state investors lose less)– Result: more contributors return ‘pot’ to state for

investment– State responsibility re-enters by the back door.

Map of the 2006 Swedish parliamentary election results by county.

Nordic Models in Turbulent Times

‘The crux of the Nordic model has been the actors’ capacity for co-ordinated, concerted policy adjustment – facilitated by relatively balanced power relations and trust – which has enabled coherence and complementarity between policies in key areas’

Denmark, Sweden, Norway and Finland 1990-2008 (and after)

Conclusion

• Economic convergence with EU = social policy convergence with EU?– Will current crash push Sweden to joint the Eurozone

• Women anti-EU: this represents principle threat to their jobs

• ‘Liberalisation’– Watering down of alcohol policy– Higher unemployment

• But Swedish welfare still most generous in Europe – even after following similar path.