Sunday, February 1, 2015

The Real Success of the Nordic Welfare State - Part II


It may not have been true in the past, but today there is a real reason to admire the Nordic welfare states. Since the late 90s, after the banking crisis of 1991 in Sweden and Finland and the recession of the early 90s, these welfare states have been radically transformed. It is even possible to speak of a “reinvention” of the welfare state.[1] 

The Nordic countries, and in particular Sweden, have shown a remarkable amount of political will to carry out reforms whose aim has been to ultimately preserve - not destroy - the welfare state. Other welfare states (France and Italy, for example) are still struggling to undertake such reforms, almost twenty years after the beginning of the transformation of the Nordic welfare states. It is necessary to note, however, the lack of pluralism and public debate during these important social and economic changes. The public was rarely consulted and both main parties, the Conservatives and the Social-Democrats, were both in agreement.   

The reforms of the last 20 years were able to address the challenges that are common to many welfare states. These reforms, including a slight decrease in the tax burden for the first time, have also had the consequence of accelerating a convergence with other welfare states in some areas.[2] All the traditional and most sensitive areas of the welfare state were deeply concerned: health, education, and pension system.

As examples of such reforms, it is possible to mention school vouchers that were introduced in Sweden, allowing competition with public schools. Programs of privatization and liberalization have also been implemented for hospitals, the post office, care for the elderly, and services for young children, among others. The pension system has also been partially privatized, giving people some control over their mandatory retirement savings. Generally, private welfare companies now coexist with the traditional public services, who have been, to some extent at least, exposed for the first time to market competition.[3] This has obliged services that have remained public to improve their performance.

The recent financial crisis has demonstrated just how beneficial for the economy these reforms have been, since it put all Western economies to a similar test. The Nordic welfare states have been better at weathering that crisis. They have healthier economies and have rebounded from the downturn more quickly than other welfare states. The Nordic countries have shown that a modern welfare state with extensive and generous social protections can be maintained even during economically difficult times. It is precisely the reforms that the Nordic countries have carried out in the last two decades that have enabled them to be resistant to the financial crisis that elsewhere has created so many difficulties.

The social-democratic regime of the Nordic welfare state went perhaps furthest of all welfare states in terms of social spending and the universality of its services. It had ambitions to reform society not only economically but also socially.[4] While these welfare states cannot really be considered of the traditional “social-democratic” kind any longer, they are still ahead of many other welfare states in terms of the security and equality that they grant to citizens. This is still the case, even if the progress towards greater economic equality slowed slightly, and has even slightly reversed in some areas in recent years.[5]

The reforms of the Nordic welfare state model have not been perfect, of course. In some areas, like funding, the reforms have not gone far enough, and lessons are often learned from some mistakes that have been made. That being said, most of these reforms are still impossible, politically, in many other welfare states of Southern Europe. The Nordic countries once again have become a reference regarding the development of the welfare state; or rather, they have now really become role models, while initially this was not really the case. Only now has it really become possible to talk for the first time of the success of the Nordic welfare state.



Notes:  

[1] As for instance with Mauricio Rojas, in « Reinventar el Estado de Bienestar », (Gota a Gota, FAES, 2008).

[2] The main areas of convergence are: closer north/south alignment of the European welfare state (except during the crisis of 2007/2008 ) , the privatization (outsourcing ) of certain public services (and use of tender) , the introduction of quality measures and control and better management of resources in the public service, the reducing budget expenditures unrelated to social services (e.g. defense) , the progressive alignment of tax levels in different countries (% of GDP) , and the alignment with the EU and increased trade between nations. See statistics from OCDE for the convergence related to taxation:
www.oecd.org/tax/tax-policy/tax-database.htm.


[3] It mostly is only partial competition because funding still comes from the State, not from the end-user.

[4] Regarding in particular the social impact to the individual, the Nordic welfare states had « huge ambitions to transform the lives and the way of thinking of the population ». M. Rojas, Reinventar el Estado de Bienestar, p27. (Gota a Gota, FAES, 2008).

[5] But the Gini coefficients for the welfare states are still well below 30, even considering this situation, which shows a very high level of equality. « Les démocraties scandinaves », p215-216, Les Democraties scandinaves, Yohann Aucante (Armand Colin).


Thursday, January 1, 2015

The Real Success of the Nordic Welfare State - Part I


The Nordic welfare states were for decades considered role models; they were supposedly the proof that a highly developed welfare state could coexist successfully with an economically free society. Indeed, the Nordic countries, especially Sweden and to some extent Denmark, were recognized for pushing the welfare state further than other countries, for having developed social-democratic “universal” welfare states, and at the same time managing competitive economies with high rates of growth.[1] Though there is some truth to these perceptions, they require some important amendments that might somewhat tarnish this rosy view. 

It is important to remember that the Nordic countries benefit from a series of important advantages compared to other countries, both from a historical, cultural, geographic, and demographic point of view.[2] Historically, they hardly developed feudal systems, and there has been an almost complete absence of war on their territories for over two centuries.[3] Culturally, these countries are famous for their work ethic, combining a high level of trust and responsibility with a culture of consensus. Geographically, they are naturally protected and lie far from the frequent political turmoil of central and southern Europe. And finally, demographically they still have relatively homogeneous populations.

Such exceptional conditions would arguably have ensured the success of virtually any political system. They largely explain how these countries, which developed industrially relatively late, have, during the first half of the twentieth century, gone from being Europe's poorest countries to being among the richest in the world. The fundamental reasons for the success of the Nordic countries therefore has not much to do with the welfare state. Indeed, the economic success of these countries was a reality already before the establishment of welfare states, which did not happen fully until the early 1960s.[4] Although the concept of the welfare state was born relatively early in Scandinavia,[5] the advent of the modern welfare state of highly progressive taxation and widespread and often universal social benefits came rather late compared other European countries.[6]

Further, contrary to widespread views, studies show that the Nordic welfare state had a quite negative impact on entrepreneurship.[7] Most of the biggest industries and large Scandinavian companies were practically all founded and developed during the more liberal era before the advent of the welfare state. Conversely, very few significant new companies rose during the period of the social-democratic welfare state in these countries, that is to say, during the 60s, 70s and 80s.

Macroeconomic reforms always have a delayed effect; years and often decades can go by before their full impact is felt throughout society. For this reason, the Nordic welfare states initially benefited tremendously from the inertia of many previous decades of economic and social development, as well as from the investments and revenues of strong international corporations before the development of the welfare states. In the 1970s and above all in the 1980s, however, the effects of this growth started to wane, and both companies and the population began to feel significant pressure from the high taxes and the bureaucracy that had been increasing since the early 1960s. When the final crisis of the social democratic welfare state occurred in the early 90s, especially in Finland and Sweden, the welfare state had continued to grow in size until the tax burden that was needed to finance it clearly became unsustainable. At the time, the top marginal tax rate for individuals and businesses could actually exceed 100%,[8] and in 1993 the total government expenditure accounted for a record 70% of GDP.[9]

In order to get a qualitative idea of the economic freedom in the Nordic welfare state, it is possible to consider the Economic Freedom of the World Index.[10] This index is composed of five parameters that have a crucial impact on a nation's economic freedom: the size of its government; its expenditures, taxes, and enterprises; its legal structure and the security of property rights; the access to sound money; the freedom to trade internationally; and the regulation of credit, labour, and business. The Nordic welfare states were (and are) very strong in all these categories except the first one.[11] Strictly speaking, it should not really be possible to say that these countries were good examples of free economies, if the State had such a strong involvement in these societies. For instance, in the late 80s, the number of employees in the public sector in these countries was an astounding 40% of the working population.[12] The economic success of the Nordic welfare state can be explained by the fact that this negative impact of the size of the State and its intervention in the economy were counterbalanced by very high scores for the other four parameters of economic freedom mentioned above.

The admiration for the Nordic model, especially for the Swedish model, was partially based, therefore, on an erroneous historical and economic understanding of these countries. Despite what many people thought at the time, the Nordic welfare state cannot really be said to have been a success. Indeed, it is not surprising that in the ranking in GDP per capita over time, however flawed such a ranking in reality is, the Nordic countries lost many positions from the 1970s to the 2000s.[13] However, the Nordic welfare state can be called a success if the last two decades of reform are considered. This will be the topic of the second part of this essay.



Notes: 

[1] Of course, it is not possible to see the Nordic countries as identical. There are many differences, and they have different histories and have taken slightly different paths. Nevertheless, this country-by-country differentiation is not really possible to make in this relatively short essay. 

[2] For a good historic and cultural review of the basis for the l’État-providence in Scandinavie, see for instance, the Swedish case in « Sweden after the Swedish Model  : From Tutorial State to Enabling State » by Mauricio Rojas (Timbro, 2005). 

[3] The only times this happened was during the Finnish civil war of 1918 and the Norwegian resistance during WWII, from 1940 to 1945. 

[4] For instance, the OECD stats show that the Nordic countries had tax rates which were generally lower than most other European countries, including the UK. 

[5] The concept of society as “folkhem” (or literally « the home of the foyer people ») was invented by the Swedish social democrates towards the end of the 1920s. 

[6] « Les démocraties scandinaves », p99, Yohann Aucante (2012, Armand Colin). 

[7] Axelsson, S. (2006), « Entreprenören från sekelskifte till sekelskifte – kan företag växa i Sverige? » in Dan Johansson and Nils Karlsson (eds.) Svensk utvecklingskraft, Stockholm : Ratio. 

[8] Henrekson, M. (2007), « Välfärdsstaten och entreprenörskapet », IFN Policy Paper nr 16. 

[9] More than 70 % for Sweden and a bit less than 70 % for Finland. See « The Economic Crisis in Finland and Sweden in the 90s”, p37, Report to the Minister and Head of the Ministry of Health and Social Affairs (SOU 2000 :83). 

[10] The « Economic Freedom of the World Index » is an economic indicator that was created and is published by the Fraser Institute, du Canada. Voir : en.wikipedia.org/wiki/Economic_Freedom_of_the_World 

[11] This was the case between 1970 et 2004 for the Scandinavian countries, according to the study of Bergh, A. and M. Henrekson (2010), « Government size and implications for economic growth », Washington: AEI Press. 

[12] « The Economic Crisis in Finland and Sweden in the 90s”, p28, Report to the Minister and Head of the Ministry of Health and Social Affairs (SOU 2000 :83) 

[13] With the exception of Norway which has a specifically oil-fueled economy. See for instance GDP per capita in PPP, knoema.com/sijweyg/gdp-per-capita-ranking-2013-data-and-charts

Monday, December 1, 2014

A Revised Definition of the Political System

A political system is generally characterized by its laws and institutions, in the broadest sense of these terms. However, this definition does not directly address the individual, who ought to be at the centre of politics.[1] To remedy this, the concept of "political system" could be extended to include also the impact of these laws and institutions on the individual, and more generally, on the entire society.[2]

Seen in this way, different political systems are different from each other not only because they have different laws and institutions, but also because they have a different influence on the individual. This way of defining a political system seems justified if one assumes that society existed before the State, and that, in principle, the State exists to serve society. Furthermore, this notion of the impact of the laws and institutions on the individual is particularly important because it is difficult for the individual to change them, even in a so-called democracy.[3]

Obviously, the individual is not only influenced by the political system in which he lives; there are many other factors. Technological progress, for example, has a direct impact on the individual, through the appearance of innovations, but also an indirect impact, through its economic, political and social consequences. It is therefore necessary to see the political system of a society as only one factor, though arguably the most important, that influences the life of the individual in this society.

The definition proposed here is particularly suited to contemporary political systems. Before the advent of the modern world, the concept of the impact of the political system on the individual was less important; the existing laws and institutions had a relatively small impact on a largely poor and rural population. With the establishment of the modern nation-state, this impact has become much more important, largely because of the expansion of the role and responsibilities of the State. The study not only of laws and institutions, but also their influence on the individual, therefore allows not only the "qualitative" aspect of these laws and institutions to be taken into account, but also their "quantitative" aspect that has become so important.

The political system defined here thus contains the idea, already mentioned by J.S. Mill, that individual freedom not only depends on the type of political system but also on the size and scope of government in society.[4] It is Isaiah Berlin's question related to negative liberty that is posed here, namely: "How much shall I be governed?"[5], that is to say, to what extent should the State intervene in the life of the individual. Furthermore, the important role traditionally played by ideology (belonging to the "qualitative" part) is thus automatically reduced, which is desirable when analysing contemporary political systems.

This "qualitative" concept of laws and institutions is also important because it implies a particular distinction between different laws and institutions. Indeed, all laws and institutions obviously do not all have the same kind of impact on the individual, but some certainly have more impact than others. There is an important difference here regarding the laws and institutions that would impact the individual if they did not exist, and those that impact the individual when they do exist.[6] The first category consists of laws and institutions of a constitutional character, and the second category consists of laws and institutions of an administrative character. With this notion of the political system presented here, the administrative laws and institutions therefore receive more attention than they get in the conventional perception of the political system. The administrative aspect of the modern political system is arguably also far more important than the constitutional aspect of this system since the latter has already been fixed for a long time and hardly changes any longer, while the former is changing constantly.

The individual, subjected to the impact of the political system in which he lives, generally takes this impact of laws and institutions into account. Indeed, there is inevitably some adjustment on the part of the individual to the political system. This adaptation of the individual is obviously as complex as the impact itself, but it might be said that this adaptation may be intentional or unintentional, conscious or unconscious. In general, this adaptation to the political system is usually economic, but it can also be political and cultural.

The analysis of modern political systems can be made using the model briefly reviewed above. It is important to note, however, that it is not only the term "political system" that should be broadened to include the impact on the individual, but the entire political thought that should keep the individual as a reference. In politics, it is always advisable to follow the recommendation of Aristotle, according to which man is the measure of all things.




Notes:

[1] After all, etymologically, politics directly implies the relation with the citizens.

[2] The term "impact on the individual" is used here as a general term that includes, of course, not only the impact on a particular individual, but also, by extension, on a specific group of individuals, on a portion of the population, or even on the whole society.

[3] This is of course connected to electoral apathy and the widespread disappointment in politicians. As Theodor Adorno said: “The most compelling reason for apathy is the by no means unjustified feeling of the masses that political participation within the sphere society grants them, and this holds true for all political systems in the world today, can alter their existence only minimally.” Free Time, The Culture Industry, p192. (Routledge, 1991)

[4] J.S. Mill famously said in this respect: “there is an increasing inclination to stretch unduly the powers of society over the individual, both by the force of opinion and even by that of legislation: and as the tendency of all the changes taking place in the world is to strengthen society, and diminish the power of the individual, this encroachment is not one of the evils which tend spontaneously to disappear, but, on the contrary, to grow more and more formidable.” J.S. Mill, On Liberty, p16. (Everyman’s Library, 1992)

[5] See I. Berlin, Two Concepts of Liberty, Introduction, page xlvii. (Four Essays on Liberty, Oxford University Press, 1969).

[6] This nuance shows that the concept of “negative liberty” is important also in this context.