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DENMARK: THE NORDIC WELFARE MODEL – POSSIBILITIES AND CHALLENGES

Peter AbrahamsonUniversity of Copenhagen

pa@soc.ku.dk

Presentation to the conference ‘the Nordic welfare model: what’s in it for Latvia?,

Stockholm School of Economics,

Riga, Latvia, November 15th 2012

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Introduction

Crisis symptoms are the same in Scandinavia as elsewhere:

Bank bankruptcies A ‘frozen’ housing market A slow down in economic activity => Rapidly increasing unemployment

but unevenly severe among the countries and with Norway as an exception

Yet,

Well preparedness and

Robustness

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Well preparedness: Recent welfare reforms (the Danish example)

1994: Labor Market Reform1997: Social Assistance Reform2003: Start Allowance2003: Welfare Reform Commission =>2006: Welfare Reform2007: Structural Reform2007: Labor Market Commission

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Robustness

Many years of experience of handling social integration through public intervention

The so-called Scandinavian welfare regime (a strong cushioning effect)

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The Scandinavian Welfare Regime

universal and (therefore) expensive; tax financed; based on public provision of both transfers

and services; emphasizing personal social services vis-à-

vis transfers; provides high quality provision; has high compensation rates and is therefore

egalitarian; and is based on a high degree of labor market

participation for both sexes

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‘...the Nordic model is about... universalism, generous benefits, social citizenship rights, dual-earner model, active labor market policies, and extensive social services’ (Joakim Palme 1999: 15)

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The Nordic countries are generally characterized by publicly funded and administered programs that have comprehensive and universal coverage and relatively egalitarian benefit structures. Traditionally, they have been supported by redistributive general taxes and strong work orientations, in terms of both programmatic emphasis on work and economic policies that stress full employment (Duane Swank 2000: 85).

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Welfare States in Times of Crisis

The so-called golden age of welfare state development in Europe – the period of time from the end of the Second World War and to the first oil shock in 1973 was, generally speaking, a period of full employment. Most of the Scandinavian countries managed to maintain relatively low levels of unemployment into the early 1990s, but then the consequences of financial market liberalization were felt, particularly hard in Finland and Sweden, but also in Iceland and Norway; and in Denmark unemployment had been high since the mid 1970s.

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1970 1975 1980 1985 1990 1995 2000 2005 2008 2009

Den. .. .. 7.8 6.6 7.2 6.8 4.3 4.8 3.4 6.0

Finl. 2.6 2.9 5.3 6.0 3.2 15.1 9.6 8.3 6.4 8.2

Iceland .. .. .. .. 2.5 4.9 2.3 2.6 3.0 7.2

Norway 1.7 2.3 1.7 2.6 5.8 5.5 3.2 4.5 2.5 3.2

Sweden 1.5 1.6 2.1 2.9 1.8 8.8 5.6 7.7 6.2 8.3

OECD .. .. .. .. 6.1 7.3 6.2 6.8 6.1 8.3

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The recent development has been rather uneven in Scandinavia before the current crisis.

While poverty increased by 75 percent in Finland and by 50 percent in Sweden from 1997 to 2008, very modest increases have occurred in Denmark, Iceland and Norway;

and Norway stands out as the only country hardly affected by the current crisis which can be explained by its considerable oil revenue.

However in all cases the initial levels were very low:

At-Risk-of-Poverty European Union

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2004 2006 2008 2010 2011

Denmark 16,5 16,7 16,3 18,3 ..

Finland 17,2 17,1 17,4 16,9 17,9

Iceland 13,7 12,5 11,8 13,7 ..

Norway 15,8 16,9 15,9 14,9 ..

Sweden 16,9 16,3 14,9 15,0 16,1

EU-27 25,6 25,2 23,5 23,4 ..

Annual growth rate GDP

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2007 2008 2009 2010 2011 2012

Denmark 1,7 -0,8 -5,8 1,3 1,1 0,5

Finland 5,3 0,3 -8,4 3,7 2,9 0,6

Iceland 6,0 1,3 -6,8 -4,0 3,1 2,4

Norway 2,7 0,0 -1,7 0,7 1,7 1,8

Sweden 3,3 -0,8 -4,8 5,8 4,0 0,9

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  Denmark Finland Iceland Norway SwedenFamilies & Children 13 12 13 13 10

Unemployment 5 7 2 2 3

Illness 23 27 40 33 26Old Age 38 35 22 31 40Disability 15 13 14 13 15Surviving Relatives 0 3 2 1 2

Housing 3 2 3 1 2Social Assistance 3 2 3 3 2

Table 4. Functional Distribution of Social Expenditure in Scandinavia 2008 in Percent

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  Denmark Finland Iceland Norway Sweden

Men 78 69 80 78 75

Women 74 68 76 74 71

Table 5 Labor Market Participation Rates in Scandinavia 2009,men and women ages 16-64

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Absolute Fertility

Denmark Finland Iceland Norway Sweden1996 1747 1761 2120 1889 16071997 1752 1746 2040 1857 15321998 1724 1700 2048 1814 15111999 1735 1735 1994 1845 15032000 1771 1729 2076 1851 15472001 1746 1726 1948 1784 15702002 1725 1718 1932 1754 16532003 1760 1760 1990 1797 17172004 1778 1800 2033 1828 17522005 1802 1803 2052 1836 17692006 1850 1837 2074 1904 18542007 1909 1829 2094 1901 18802008 1892 1846 2140 1957 1907

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Denmark

On April 21st 2009 the newly appointed Prime Minister, Lars Løkke Rasmusen presented the government’s work program for the coming six months, and stated that

‘handling of the crisis is of course the totally dominating objective’ (Prime Minister’s Office 2009: 1; author’s translation)

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Spring Package 2.0: Growth, Climate, Lower Taxes

It was expected that the tax reform would reduce income taxes by more than 28 billion DKK =>

1½ per cent of GDP (long-term, permanent effect)

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The tax reform will reduce marginal personal income tax

and

Increase environmental taxes

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Part of the agreement was also to return to citizens the earlier collected compulsory pension saving

Other elements concerned grants to renovation of own home

Enabling the municipalities to build more public housing

In short, the exercise was to increase private consumption substantially

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Initiatives from the Ministry of Social Affairs

Fighting ghettoization and building more units Reducing the number of people facing eviction

from their apartment because of arrears Support to NGOs to establish debt counseling

services DKK 850 million in funds to enable the

municipalities to renovate and construct ‘citizen near’ institutions

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Some of the changes can be summed up as:administrative reform:

in 2011 “Payment Denmark” was established and is expected to take over a number of municipal case-administration areas (those with “objective” criteria)

Free choice of technical aids for disabled has been inroduced

Reimbursement was changed to increase incentives for activation (30 percent for passive periods, 50 percent for active periods) 25

Local authorities must no later than 1. August 2011 provide a healthy luncheon in all day care institutions (but parents have to pay)

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ConclusionThe initiatives taken together will:

Increase private consumption substantially

It is, however, much more uncertain whether that will lead to

an increase in domestic production/growth or to

an increase in imports?

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The many initiatives to increase activity within construction renovation and building

have reduced unemployment in the sectors that are the hardest hit

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Tax reductions disproportionately will benefit the better off in Denmark and hence increase inequality

while the opposite is expected in Sweden

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Income poverty/relative poverty and inequality have been on the increase in Scandinavia since the mid 1990s However, given the initial very low level of inequality and poverty, and especially the very small prevalence of long-term unemployment and long-term poverty the increases are not expected to spill over into less social cohesion

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The welfare reform and other public initiatives taken immediately prior to and during the current crisis in Scandinavia were all made within a particular Scandinavian political culture based on consensus and compromise and a tradition for taking inspiration and advise from ad hoc policy commissions

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They were, furthermore embedded in a culture characterized by a high degree of trust both in government and in each other, which again is a reflection of extremely low levels of corruption that prevail in Scandinavia.

This poses limitations to the transferability of Scandinavian experiences to regions with different traditions and conditions

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Thank you very much for your attention!