Hertie School of Governance - Working Papers, No. 41, June 2009
The Nordic Model: Conditions, Origins, Outcomes, Lessons
Matti Alestalo (University of Tampere)
Sven E.O. Hort (Södertörn University College, Stockholm)
Stein Kuhnle (Hertie School of Governance and University of Bergen)
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The Nordic Model: Conditions, Origins, Outcomes, Lessons
Matti Alestalo, University of Tampere
Sven E. O. Hort, Södertörn University College, Stockholm
and Stein Kuhnle, Hertie School of Governance and University of Bergen
“It is widely thought that the Nordic countries have found some magic way of
combining high taxes and lavish welfare systems with fast growth and low
unemployment…Yet, the belief in a special Nordic model, or “third way”, will
crumble further in 2007.”
The Economist, The World in 2007, Edition, 2006, 44
1. MAJOR CHARACTERISTICS OF THE NORDIC MODEL
Since the 1980s, based on results from a number of comparative studies of welfare states the
concept of a ‘Nordic or Scandinavian model’ or ‘welfare regime type’ has successfully entered our
vocabulary, whether that of international organizations, that of scholars and that of mass media
covering the Nordic countries. For the most part the concept has a positive connotation, but not
always, this being dependent upon context and the eyes of the observer. Neo-liberals and old
Marxists seem to share a skeptical view, while social democrats more gladly than most bring out a
This paper will be published in Chinese translation in a book edited by Stein Kuhnle, Klaus Petersen, Pauli Kettunen,
and Chen Yinzhang on The Nordic Welfare States – A Basic Reader (forthcoming, Fudan University Press, Shanghai,
We thank Jenni Nurmenniemi for her assistance preparing the figures and tables. A draft version was first presented at
the Berlin symposium in honour of Peter Flora on the occasion of his 65
birthday (Berlin, March 6-7, 2009). We
would like to thank Valeria Fargion, Peter Flora, and other participants who made valuable comments and suggestions
regarding contents and form. The authors are solely responsible for the views presented and any remaining errors.
strongly positive view. In fact, many Nordic social democrats will claim that it is their model, but in
a historical perspective that is much too simplistic. Within the Nordic countries the notion is
generally positively laden to the extent that political parties have competed for the ‘ownership’ of
the kind of political system and welfare state that the concept is seen to denote. The concept is
broad, vague and ambiguous, but it is a helpful reference for observers of varieties of market-
oriented welfare democracies (cf. Leibfried & Mau 2008). But we can also observe that European
welfare states seem to be on a track of mutual learning, in particular in the areas of family and
labour market policies (Borrås & Jacobsson 2004). European welfare state models are becoming
more intermixed (Cox 2004; cf also Abrahamson 2002). However, there are also some academic
‘dissidents’ (Ringen 1991) who would say that there is no such thing as a ‘Nordic’ model, and that
political systems or welfare states simply do not come in types.
We use the concepts of ‘Scandinavian’ and ‘Nordic welfare states,’ or ‘Scandinavian’ and ‘Nordic
welfare model’ interchangeably. Both concepts are used in the literature. In geographic terms, the
Scandinavian proper would be the mountainous peninsula of Norway and Sweden while ‘Nordic’
includes Denmark, Finland, and Iceland as well. For historical, institutional, cultural, and political
reasons (Nordic regional political, institutionalized cooperation since 1950s, e.g., creation of a
passport union, a free Nordic labour market and a ‘social union’) we use the concepts
‘Scandinavian’ and ‘Nordic’ interchangeably (cf. also Hilson 2008). In terms of ‘welfare states’ or
‘welfare models’ the five countries, with some exceptions for Iceland, also share a number of
characteristics as will be accounted for in the text. If we accept the notion of a Nordic welfare
model, the analytical findings of a very comprehensive literature can be summarized in three master
Stateness. The Nordic welfare model is based on an extensive prevalence of the state in the welfare
arrangements. The stateness of the Scandinavian countries has long historical roots and the
relationship between the state and the people can be considered as a close and positive one. The
implication is not that the state sends “… rain and sunshine from above” (Marx (1852) 1979: 187-
188) but rather that the 20
century state has not been a coercive apparatus of oppression in the
hands of the ruling classes. It rather has developed as a peaceful battleground of different classes
assuming an important function “as an agency through which society can be reformed” (Korpi
1978: 48). The stateness implies weaker influence of intermediary structures (church, voluntary
organizations, etc.) but it includes “relatively strong elements of social citizenship and relatively
uniform and integrated institutions.” The class compromise was an important element in the making
of the Scandinavian type of welfare state (Flora 1986: xvii-xx). The role of the state is seen in
extensive public services and public employment and in many taxation-based cash benefit schemes.
It should be remembered, however, that social services are mostly organized at the local level by
numerous small municipalities that makes the interaction between the decision makers and the
people rather intimate and intensive. “The difference between public and private, so crucial in many
debates in the Anglo-American countries, was of minor importance in the Scandinavian countries.
For example, until recently it has been considered legitimate for the state to collect and publish
records of individual citizens. It is probably no accident that Sweden and Finland have the oldest
population statistics in the world.” (Allardt 1986: 111).
Universalism. In the Nordic countries the principle of universal social rights is extended to the
whole population. Services and cash benefits are not targeted towards the have-nots but also cover
the middle classes. In short: “All benefit: all are dependent; and all will presumably feel obliged to
pay” (Esping-Andersen 1990: 27-28). The universalistic character of the Scandinavian welfare state
has been traced to “both idealistic and pragmatic ideas promoted and partly implemented” in the
making of the early social legislation in the years before and after the turn of the twentieth century.
For the first, social security programmes were initiated at the time of the political and economic
modernization of the Scandinavian countries and “the idea of universalism was at least a latent
element of the “nation-building” project.” Secondly, the similar life chances of poor farmers and
poor workers contributed to the recognition of similar risks and social rights: “Every citizen is
potentially exposed to certain risks.” Thirdly, especially after the World War II there has been s
strong tendency to avoid the exclusion of people with poor means in Scandinavia. And finally, there
has been a very pragmatic tendency to minimize the administrative costs by favouring universal
schemes instead of extensive means-testing (Kildal and Kuhnle 2005; Kuhnle and Hort 2004: 9-12).
Equality. The historical inheritance of the Nordic countries is that of fairly small class, income, and
gender differences. The Scandinavian route towards the modern class structure was paved with the
strong position of the peasantry, the weakening position of the landlords, and with the peaceful and
rather easy access of the working class to the parliamentary system and to labour market
negotiations. This inheritance is seen in small income differences and in the non-existence of
poverty (Ringen and Uusitalo 1992: 69-91; Fritzell & Lundberg 2005: 164-185). Moreover,
Scandinavia is famous for her small gender differences. When the municipalities share a great part
of the responsibilities for childcare and care of the old and disabled and when the employment rates
of women are high, the gender differences play a lesser role in the Nordic countries than in other
parts of the advanced world (cf Sainsbury 1999; Lewis 1992). Keeping in mind the relatively high
welfare benefits, the extensive public services, and women’s good position in the labour market it
has been, somewhat ironically, pointed out that Scandinavian men are “emancipated from the
tyranny of labour market and Scandinavian women are emancipated from the tyranny of the family”
(Alestalo and Flora 1994: 54-55).
The argument about the existence of a special type of a welfare state in the Nordic countries
presupposes an analysis of its historical conditions. This is done in section two below. Our aim is to
show, from a comparative perspective, how the Nordic welfare state emerged and became
especially flourishing in the four decades following World War II (section three; for more detailed
analyses, see also the individual country histories in this volume). After that, during the 1990s and
the 2000s there have been extensive changes in the basic conditions of welfare arrangements almost
throughout the advanced world. In the sections four and five we try to analyze how the Nordic
countries have succeeded to maintain their welfare states in the high waves of globalization and
European integration and faced with the challenges of changing class structures and ideological
discourses. Finally, we shortly discuss the lessons and prospects of our story and situate the
contemporary “Nordic Model” within the boundaries of the geography of comparative welfare state
research and the current possibility of “de-globalization”.
2. CONDITIONS OF MAKING THE NORDIC MODEL
The Scandinavian Route
Three factors are of major importance in characterizing the Scandinavian route of a peaceful
process of general change from semi-feudal agrarian societies to affluent welfare state societies.
The Scandinavian route was not paved by bourgeois revolution as in Britain and France, or by
conservative reaction culminating in fascism as in Germany, or by peasant revolution leading to
communism as in Russia (Moore 1966). These three transformations are:
(1) The increasingly strong position of the peasantry during the preindustrial period which was
(2) The weakening position of the landlords and the power-holding aristocracy as a result of
domestic crises and international conflicts thorough which Scandinavia
(3) Became a peripheral area in economic and political terms (Alestalo 1986, 11-12; Alestalo
and Kuhnle 1987).
A unique feature in the Scandinavian class formation was the rise of the class of independent
peasants as a result of the individualization of agriculture (increased peasant proprietorship,
enclosure movements (see Osterud 1978: 113-151)) and very peaceful agrarian revolution
(transformation to commercial farming, to a market economy, and to the utilization of new
agricultural methods). The development with the family farm as the basic agricultural unit was
different from most of Western Europe (large scale commercial farming) and most of Eastern
Europe (large manors with quasi-feudal obligations for peasantry) (see also Rueschemeyer et al.
1992: 83-98). The individualization of agriculture was an intervention by the Crown and it implied
the weakening position of the nobility that gradually turned into an urban and bureaucratic elite.
The cleavage between urban upper class and peasantry was important in the formation of peasant
identity and the rise of social movements and agrarian parties (Olsson 1990). The weakening
position of the nobility was also connected with the collapse of the Swedish Empire and during the
first decades of the nineteenth century the Nordic countries became a peripheral area in the
expanding capitalist world economy (Wallerstein 1980: 203-226). The early industrialization in
Scandinavia was based on success of export industries. The spatial distribution of these industries
was considerable and no urban slums emerged. Therefore, the early working class movement
consisted of industrial workers and a rural proletariat. In the beginning of the period of mass parties
Scandinavia became dominated by the three polar class structure: the urban upper class, the
working class and the peasants. In the absence of ethnic and religious cleavages the Nordic party
structure was for a long dominated by these three poles (Rokkan et al. 1970: 120-126; cf also Flora
Economic Growth and Structural Transformation
While Finland with its fierce Civil War in 1918 and its more retarded, more unbalanced and more
sudden economic and structural development somewhat differs from Denmark, Norway and
Sweden the overall economic development in the Nordic countries was very fast and from the
1870s all four Scandinavian countries belonged to the fastest growing economies in Europe.
Denmark with its industrialized agriculture reached the average European GDP-level before World
War I. Norway with her shipping and Sweden with her versatile industries came to the same level
by the year 1950. Finnish developments were not so expansive. Due to high population growth,
one-sidedness of the economy and the serious effects of World War II, Finland’s economic
performance has not been very stable. But during the decades following the war Finland belonged
to the fastest growing economies in Europe and it reached the high Scandinavian level in the 1980s.
Since then, all the Scandinavian countries have been among the richest countries in the world.
In Denmark and in Sweden, the pattern of transformation from agriculture to industry and services
resembled that of the earlier industrialized Europe. During the interwar years the growth of the
industry was faster than that of services. When the services also expanded, after World War II, the
share of agricultural population was below one-third in Denmark, Norway and Sweden. Finland
was a latecomer with half of the economically active population working in agriculture in the late
1940s. After that Finland’s structural development was unusually extensive and robust. During the
1960s and 1970s Finland belonged to the countries where the expansion of the secondary and
tertiary sector was simultaneous and the social structure was one of the fastest changing in Europe
(Alestalo 1986: 14-39; Alestalo and Kuhnle 1987: 13-18).
Peaceful, Democratic Class Struggle – Consensus Politics
The rising working class was, as the peasantry, considered part of the popular movements and
therefore their ascendancy into Nordic politics became, in a European perspective, quite easy – even
if there was some resistance from above. There was also from the agricultural revolution onwards a
widespread positive attitude to state intervention and agricultural protection agreements partly
became prototypes ahead of more far-reaching political and labour market compromises (Castles
1978: 14-15; Allardt 1984: 172, Rothstein 1992). The Nordic model is normally identified by
reference to characteristics of welfare state institutions (stateness; universalism) and welfare policy
outcomes (equality). But it seems appropriate to add a third important component, namely forms of
democratic governance – which refers to the way in – or process through - which political
decisions are made. In this respect, the decade of the 1930s represented a political watershed in all
Nordic countries with national class compromises between industrial and agricultural/primary
sector interests, and between labour and capital through the major trade union federations and
employers’ associations. These compromises also came to be reflected at the parliamentary and
governmental level, with political compromises reached across parties representing various class or
economic interests. From the late 1920s Denmark was ahead acting as a policy role-model not least
for Swedish social reformers (Nyström 1989). Nevertheless, the title of the American journalist
Marquis Childs’ contemporary book on Sweden: The Middle Way (1936) captures the path-breaking
change of Nordic politics in the 1930s. The politics of the 1930s came to be formative for the kind
of Nordic model existing today, though these achievements at the time remained precarious and,
from a broader European perspective, peripheral.
A wide concept of the Nordic model must include aspects of the actual democratic form of
government – or governance is a better term - in the Nordic countries, the evolution of a specific
pattern for conflict resolution and creation of policy legitimacy as basis for political decision-
making. This pattern has developed over a long period of time and is characterized by active
involvement and participation in various, often institutionalized, ways of civil society organizations
in political processes before decisions are formally made by parliaments and governments, most
particularly pronounced through triangular relationships between government, trade unions,
employers’ associations or similar organizations in for instance agriculture. This system of
governance may be labeled ‘consensual governance’. The Nordic countries are small and unitary,
which make decision-making easier than in big and/or federal states. The case of Finland’s
development towards a consensual democracy has been more dramatic than in the other cases: it is a
long distance in politics and time from the Civil War of 1918 to the strongest example of
consensus-building in peacetime Nordic politics represented by the ‘Rainbow Coalition’
government – comprising the parties of the communists, social democrats, liberals, and
conservatives - of the early 1990s, which was established to set the Finnish economy and welfare
state right after the dramatic economic downturn partly caused by the break-down of the Soviet
Union and an abrupt loss of substantial foreign trade.
‘Consensual democracies’ is a term that generally fits developments since the mid-1930s, and
particularly since 1945. Consensus-making has become an important element of Nordic politics
partly for the simple fact that coalition governments are the rule – especially in Denmark and
Finland-, and - in particular for Denmark, Norway and Sweden – the prevalence of minority
coalition governments. A majority of governments have since 1945 been minority governments in
these countries. Denmark is a world champion when it comes to minority governments. The Nordic
tradition of what can be called ‘negative parliamentarism’ – that the government does not have to
be positively or constructively based on a majority in the parliament nor to be installed by a
parliamentary majority – has logically appealed to the art of making political compromises:
sustainable political decisions can hardly be made without parties in advance consulting each other,
creating mutual trust, and without government parties consulting opposition parties at any time. The
consensual style of Nordic politics and the experience of long-term multiparty parliamentary and/or
governmental responsibilities is one reason why it makes more sense to use the geographical
adjective ‘Nordic’ rather than – as many of our social science colleagues do – use the narrower,
political-ideological adjective ‘social democratic’ when naming the ‘model’. A partial exception to
this picture is Sweden, where the Social Democrats throughout the 20
century had a more
dominant position, and where debates on principles of social reforms at times appear to have been
more polarized (Lindbom & Rothstein 2004; cf also Loxbo 2007 and Lundberg 2003 regarding
pension policy in Sweden).
A note must also be made on the development of Nordic cooperation in the field of social policy –
and the consolidation of a Nordic identity - as factors being conducive to the development of the
Nordic (welfare) model. The development of formal inter-Scandinavian cooperation between
parliamentarians started already in 1907. In this field of policy, the first of many regular joint
Scandinavian top political-administrative meetings took place in Copenhagen in 1919. Finland and
Iceland joined these meetings in the 1920s, and according to an overview provided by Klaus
Petersen (Chapter 5 in this volume) there were over the years 14 such Nordic meetings of social
policy makers before the Nordic convention on social security was decided in 1955, after the
establishment of the Nordic Council in 1952, and which Finland was ‘allowed’ (by the Soviet
Union) to join in 1955. These developments inaugurated sustained Nordic cooperation to this day
across many public policy areas. A common, comparative and comparable, Nordic social statistics
was established in 1946. Not least the fact that the Nordic countries pioneered transnational regional
cooperation after World War II has been conducive to the maturing of a concept of a ‘Nordic
model.’ And this cooperation developed in spite of different foreign policy orientations - differences
mainly due to the war experience and geopolitical realities during the Cold War – ranging from
NATO-membership in the Western Nordic countries over Swedish neutrality to a friendship pact
between Finland and the Soviet Union in the Eastern part of the Far North. It says something about
the historical strength of Nordic identity and the strength of relation-building developed both at
governmental and non-governmental levels over a long period of time prior to the war that Nordic
political cooperation could be strongly institutionalized in the early developing years of divisive
Cold War mentality and international relations. After the end of the Soviet Empire, the countries
still relate differently to both NATO and the EU, but a common Nordic identity prevails and is
given outlet both in common Nordic and in other international fora. Nordic unity on issues of
human rights, welfare and politics is often expressed through UN and other international
organizations. The period ever since the early 1930s can in terms of welfare state development in
the Nordic countries be characterized as one of domestic consensus-building and common Nordic
identity-building. These two elements are crucial pillars of the conception of a Nordic model.
3. THE RISE OF THE WELFARE STATE
Early Social Policy Choices
The beginnings of the modern Nordic welfare states can most meaningfully be traced to the last
decades of the 19
century. As elsewhere in Europe, this development was at a general level
associated with growing industrialization and urbanization, but also with the political innovation of
large-scale social insurance schemes introduced in the German Reich during the 1880s (i.e. nation-
building and state-formation). The link between industrialization and social insurance development
is not clear-cut: Germany was not the most industrialized country at the time, but in countries with
no or little industrialization social insurance did not appear on political agendas.
Quite remarkably, the first major social insurance laws in the Nordic countries were passed at about
the same time, in the course of five years, 1890-1895, in Iceland, Denmark, Sweden, Norway and
Finland, and Denmark as the only Nordic country introduced more than one law, altogether three,
during the 1890s. Iceland introduced an old age pension (means-tested benefits) law, which was a
moderation of the poor law, in 1890 (Olafsson 2005); Denmark a law offering benefits to
‘respectable’ old people in 1891, and a law on subsidies to voluntary sickness funds in 1892, and an
employers’ liability act for cases of industrial accidents in 1898; Sweden introduced subsidies to
voluntary sickness funds in 1892; Norway passed an industrial accidents insurance law in 1894,
where employers were obliged to finance insurance for their workers; and Finland introduced its
first law on semi-compulsory industrial accident insurance in 1895. The striking simultaneousness
in terms of timing cannot be depicted as a historical coincidence, and can only to some extent be
explained by indicators of socio-economic development and political democratization. Denmark
was the most urbanized and industrialized country at the time, and in the Nordic context the simple
logic-of- industrialism argument appears to hold at a general level in terms of scope of social
legislation during the 1890s. But we may ask: what is the logic of being the most industrialized
(Nordic) country and introducing an old age pension law (Denmark) and being less industrialized
and introducing accident insurance for industrial workers (Norway). The industrialism argument
does not differentiate sufficiently the Nordic countries as to the timing of the first social insurance
laws, nor does it reasonably account for the actual type of the first laws. In general, various
indicators of democratic development do not perform much better for the explanation of the early
social legislation. The democratization factor is multi-dimensional, and it is not obvious which
dimension should logically be of greatest importance for social policy development. Norway was
the only Nordic country where the principle of parliamentarism had been carried through, while
Denmark had the widest enfranchisement, the highest levels of electoral participation and the most
developed party system (Kuhnle 1981).
The overall variations in levels of democratization among the Nordic countries and the similarity in
timing of the first social security laws reduce the explanatory power of the democratization
argument, and as we know, neither Germany nor Austria as pioneers in social insurance legislation
in the 1880s, were European frontrunners as to democratic development. But, as we also know,
social insurance legislation can be introduced for a number of reasons and motivations, a popular
democratic demand being only one of these. It may be that the combined effect of socio-economic
development and a relatively politically mobilized electorate to some extent account for the fact that
Denmark on the whole was more active in the field of social policy legislation throughout the 1890s
than her Nordic neighbours. But a wider European comparison of socio-economic structures and
political system characteristics should caution us against simple structural explanatory factors like
industrialization and democratization. Such an analysis can only take us a certain distance on the
way to an understanding of the when, how, and for what purposes social security legislation came
about. Neither can the similarity in timing of first social insurance laws in the Nordic countries be
explained by Nordic political and administrative cooperation and coordination, which hardly existed
at the time. It should, however, be mentioned that international cooperation between national central
statistical bureaus developed in Europe during the latter half of the 19
collection of various kind of more or less comparable statistics, and associations of national
economists – as the then social science knowledge communities – were created at the time and
communicated across borders (Kuhnle 1996).
The German ideas of social insurance of the 1880s quickly drifted northwards and had a
demonstrable impact upon Nordic legislative activities, and thus on the similarity of timing of the
first Nordic social insurance legislation. None of the Nordic political and administrative authorities
were alien to social concerns when the German ‘innovation’ materialized and triggered political
initiatives and debates in many European countries, but concerns about ‘the social question’ moved
higher on the political agenda than otherwise likely would have been the case . In Denmark a public
commission was set up in July 1885, after the passage of the first two social insurance laws in
Germany, and after a similar committee, with clear reference to the German legislation, was set up
in Sweden in 1884. The Swedish committee was specifically asked to study the German program
and propose legislation on that basis. But in both countries, social questions had been discussed and
to some extent publicly investigated for a number of years, especially in Denmark. The Danish
commission of 1885 resulted in plans for accident insurance clearly inspired by the German
precedent, but – as was the case in Sweden – the proposal submitted in 1888 failed in parliament. Its
proposal (of 1887) for state subsidies to recognized sickness funds based on voluntary insurance led
to legislation in (July) 1892, and had an impact upon the proposal by the Swedish commission,
where a similar law was passed, in fact before the Danish one, in (May) 1891. But these laws did
not carry the stamp of Bismarck’s compulsory insurance.
A ‘Workers’ commission’ was set up in Norway in 1885 with the aim of introducing social
insurance, and with direct references to the German legislation and the Swedish commission
established, and the law on accident insurance in 1894 is the only, modest legislative result of that
initiative. Referring to German developments, the Finnish Landtag petitioned government in 1888
to appoint a commission to draft proposals for worker insurance, and one was appointed the
following year with the instruction to outline proposals for accident and sickness insurance. A semi-
compulsory accident insurance law was introduced in 1895, while a statute on sickness insurance of
1897 stopped short of offering public subsidies – as in Denmark and Sweden – but only implied
governmental auditing of private sickness and pension funds. In Denmark, the first initiatives for
old age relief with a financial role for the state originated with a commission established in 1875
and proposals submitted in 1878, i.e. several years before the German Kaiser and his Chancellor
Bismarck launched their program in the German Reichstag (in 1881). To put it short: the Danish
law on “Old Age Pensions for Respectable People Outside the Poor Relief System” which was
passed in April 1891 bore no resemblance to the German law of 1889: its basic principles of
financing, organization, and benefit entitlements were totally different.
Early social insurance/security developments in the Nordic countries were inspired by German
developments, while the sequence and contents of early legislation hardly at all followed the
In fact, even if the law had been inspired by German examples, this would likely not have been publicly admitted:
this was an era of strong anti-German sentiments in Denmark thanks to the Danish loss of Sleswig to Germany in the
Second War of Sleswig in 1864 (cf Chapter 2 in this volume).
German example. To explain early Nordic developments a state capacity perspective may be
introduced, and has been attempted in a comparison of the growth and characteristics of the central
bureaus of statistics in the three Scandinavian countries of Denmark, Norway and Sweden (Kuhnle
1996, 2007). The development of official statistics is closely linked to the process of state-building
and the evolution of a specialized public bureaucracy. Government interest in statistical information
increased as a result of efforts to mobilize resources for the maintenance of a standing army and a
professional public administration. The development of official statistics in Scandinavia was part of
a general European development in the 19
century, and the great breakthrough came after the July
revolution in 1830: the period from 1830 to 1850 has been labeled “the era of enthusiasm” of the
history of statistics (Westergaard 1932). From the 1850s, national official statistics and publications
on various subjects stimulated international comparisons. In Scandinavia, the strengthening of
constitutional life encouraged the publication of statistics, and the development was clearly
interwoven with state-building processes. That the state could assist in solving social problems,
dealing with new needs for worker protection and income security, was generally recognized in
Scandinavia at the time of the German social insurance legislation. German legislation came at a
time when the Scandinavian countries were politically and intellectually ‘prepared’ or ‘ripe’ for
state social action.
The development of the statistical offices, their varying capacity, their orientations and actual
experience with collection of various kinds of statistics, historically can be hypothesized to have
been an important variable accounting for variations in the type of first social security law
introduced in various countries, i.e. for which social security purpose it was administratively - and
possibly politically – easiest to introduce legislation. It may be accidental that Denmark as its first
law introduced an old age pensions scheme; that Sweden first introduced sickness insurance, and
that Norway and Finland first introduced industrial accident insurance, but the proposition would be
that these variations can be explained to a large degree by different characteristics of state
administrative capacity. The statistical preparedness for social legislation differed as well as the
capacity to undertake large-scale data collection efforts on short-term basis at the time when
Bismarck’s conception of state social insurance was exported from Germany and ‘had to’ be taken
more seriously politically. An additional factor is the elite interconnections, or embryonic epistemic
communities, within the countries (statistical expertise; academic economists; government officials
and politicians). Milieus representing empirical social-scientific knowledge developed within and
outside relatively independent governmental statistical agencies. The conception of ‘social
statistics’ was formed. The variable availability of statistics affected policymaking alternatives in
the early era of social insurance discourse.
The Breakthrough of Universalism
Denmark and Sweden were the first Nordic countries to introduce universal coverage in the core
schemes of the welfare state, sickness insurance and pensions. During the 1890s these countries
conducted a reform where the state started providing subsidies to earlier voluntary funds. The same
procedure was followed in Denmark and in Sweden in the case of national pensions. Sweden
introduced national pensions in 1913 and Denmark with a series of reforms in 1891, 1922 and 1933.
Especially in the case of national pensions systems Finland and Norway were late-comers
introducing national pensions in the mid 1930s. As is presented in Table 1 all four Scandinavian
countries implemented general child allowances almost immediately after World War II. In Finland,
in Norway and in Sweden these allowances were cash benefits, in Denmark the allowances were
composed mainly of tax-deductions.
Table 1. Year of Introduction of the First Universal/Compulsory Social Security Schemes in the
Nordic Countries (see note under the table).
Denmark Finland Norway Sweden
Year of introduction of the universal/compulsory scheme
Source: Flora & Alber 1981; Kuhnle 1981, 140; Flora 1986 (4), 12, 23, 81, 88, 144, 210. NOTE: The table only lists
the laws that introduced compulsory insurance (and/or compulsory contribution to social security schemes. They all end
up as universal, but first laws were generally limited in worker or population coverage, except for the 1913 Swedish
pension law and the laws on child allowances which were universal from the start.
Among the growing Nordic welfare states rural and non-industrial Finland proved to be an
exception during the interwar years. Due to her position as an interface periphery independent
Finland belonged also to the new (East-) European states emerging from the ashes of the First
World War and of the Austro-Hungarian and Russian empires. As elsewhere in this area land
reforms were conducted with highly increased number of small farms. As an inheritance of
enclosure movements and the fierce Civil War in 1918 the land question became an important
political and social issue, more important than the social question that dominated the political
discourse in the other Nordic countries. The last land reform took place after Wold War II. As a
result, Finland became a late-comer among the Nordic and Western European welfare states.
Finland was the last Western European country to introduce sickness insurance in 1963 (Flora &
Alber 1981, 59). In the early 1960s, in terms of coverage of major welfare schemes Finland reached
the other Nordic countries but in terms of the compensation levels Finland stayed much behind the
other Scandinavian countries (Alestalo, Uusitalo & Flora 1985: 192-202).
In presentations of the ‘Scandinavian/Social democratic model’ there has been an emphasis that the
social democrats have been the main advocates of universalism in social policy (Esping-Andersen
and Korpi 1987: 49-55; Esping-Andersen 1990: 26-29). Kari Salminen’s detailed analysis on the
making of the pension policy in the Nordic countries demonstrates that the universalistic pension
policy was more on the agenda of the agrarian parties. Social democrats supported a combination of
universal and work performance model. They preferred “high pensions for all gainfully employed
but not necessarily for the community as a whole” (Salminen 1993: 360; see also Hatland 1992).
The Golden Age of the Nordic Welfare State
The three decades from the early 1960s to the end of the 1980s were the golden age of the Nordic
welfare state. During this period there was a catch-up process where Finland, Iceland and Norway,
which in the 1950s spent a smaller proportion of their GDP on social security than Denmark and
Sweden, bridged the gap to Denmark and Sweden. The real growth of social expenditure was very
fast especially in Iceland but also Finland and Norway had higher growth figures than Denmark and
Sweden. Despite the different growth figures Sweden remained as the leading Nordic welfare state
during these decades. Sweden used more resources on almost all major programs than the other
countries. Together with Sweden Denmark was a pioneer of the welfare state even in the 1960s but
after that it lost this position and stayed at the level of Finland and Norway in the 1980s. Her
economic growth was slower than in the other countries and unemployment and social assistance
expenditures increased from late 1970s faster than in the other countries (Alestalo & Uusitalo 1992:
Long term comparisons on the development of public employment are nowadays possible only on
the basis of the information coming from the OECD. The data is based on the System of National
Accounts which utilizes the concept “producers of government services.” The definition includes
central and local bodies in administration, defence, health, education, social services and promotion
of economic growth and it excludes most public enterprises. If the public enterprises are taken into
account the share of the public sector of the labour force comes almost or over ten percentage points
higher in all Nordic countries. With the exception of Sweden, the Nordic countries did not deviate
much in terms of the scope of government employment from the other countries in the OECD-area
in the 1960s. Between 1970 and 1985 most of employment growth in Scandinavia was a matter of
public expansion. Especially in Sweden and in Denmark the expansion was very fast. In 1985 the
government employment went beyond 30 per cent of total employment in Sweden, and Denmark
came quite close with 30 per cent. Finland and Norway stayed at a much lower level (see Table 8)..
The Nordic countries deviated from other advanced countries because the expansion of the service
sector was mainly a welfare state phenomenon. The increasing female labour force participation
was paved by the expansion of public employment. Also in this respect Sweden was the leader,
followed by Denmark, while. Finland and Norway stayed at somewhat lower level. In Sweden,
Denmark and Norway a great proportion of this change came through the increase of part-time
work but the fate of Finnish women was full-time work (Alestalo, Bislev & Furåker 1991: 36-56).
Despite some inter-country differences the general pattern of change was quite similar throughout
the Scandinavian area. Public sector employment expanded and the welfare state covered the whole
population and was able to offer services and cash benefits to people who confronted serious social
risks. As the editors of the book The Scandinavian Model (1987) a bit proudly state: “In social
policy, the cornerstone of the model is universalism. The Scandinavian countries have – at least on
paper – set out to develop a welfare state that includes the entire population. Global programs are
preferred to selective ones: free or cheap education for all in publicly owned educational institutions
with a standard sufficiently high to discourage the demand for private schooling; free or cheap
health care on the same basis; child allowance for all families with children rather than income-
tested aid for poor mothers, universal old-age pensions, including pension rights for housewives and
others who have not been in gainful employment; general housing policies rather than “public
housing”.” (Erikson, Hansen, Ringen & Uusitalo 1987: vii-viii).
4. CHANGING CONDITIONS FROM THE 1990s ONWARDS
The conditions surrounding the Scandinavian welfare states of the 1990s and early 2000s contrast
sharply to those of the immediate post-war period. This is not to say that all that was solid has
melted away. For instance, the Nordic countries are still a stronghold of Lutheran Protestantism, the
state-church relationship historically always made them different from predominantly Catholic
Continental Europe and continues to do so. However, secularization has made headway and the
state-church complex is gradually disintegrating. In Sweden, for instance, the Church of Sweden
became a ‘voluntary’- even a voluntary welfare - organization in 2000 and actually the largest of
this kind as its membership still comprises the great majority of the population. Moreover, in
Denmark and Sweden in particular international migration and the changing demographic
composition of these populations have made both the Catholic church and various Muslim
congregations important religious associations, also as significant welfare providers. Furthermore,
earlier mobilizing social movements such as the temperance movement have declined in importance
in Scandinavia while others have become much more institutionalized and less mobilizing, for
instance the trade unions, employers associations, and the agricultural co-operatives (Olsson 2001).
New social movements have seen the light of day and thrived in Scandinavia, feminism and
environmentalists in particular, though more as networks than earlier movements (Tranvik & Selle;
2007; Papakostas 2001; cf. Olofsson 1988). Below we discuss five parameters of such large-scale
social change more or less conducive to welfare state development: international migration and
demographic change; globalization and European integration; economic development;
transformation of the class structure; and finally a note on ideological changes and the rise – and
fall? – of a new mode of thinking, or “neo-liberalism”.
International Migration and Demographic Change: From Homogenous to Heterogeneous
Since Napoleonic times and the decline of monarchical rule, the four Nordic countries have been
extremely homogeneous, with the partial exception of Finland, where a Swedish-speaking minority
has been recognized ever since the Tsarist era. However, as the Saamis of Lappland has consistently
remained the majority populations, the distinction between various types of settlers is ambiguous.
Until the early 1930s the Nordic countries were also marked by emigration as large numbers of
people moved to North America in particular. After the Second World War this pattern was
reversed by two waves of migration. During the early post-war decades, labour migration turned
Denmark, Norway and Sweden into recipients, while Finland continued to send people abroad,
above all to Sweden. During the boom of the following decade labour migration from Southern
Europe was encouraged and, thus, the Mediterranean world also provided numerous immigrants.
From the 1970s, the main new settlers in Scandinavia have been refugees, asylum seekers and
family reunification migrants, now also coming from further south and east. Though no longer a
sender, Finland has continued to be a partial exception to this pattern of international migration. The
main pattern, though, is part of a global movement from South to North, and the trend was
accentuated in the 1990s with a large influx of people from war-torn Yugoslavia, later on also from
Iraq and Somalia. As we approach the second decade of the new Millenium, less than one million
foreign-born in Sweden and almost half a million each in Denmark and Norway (these figures do
not include these migrant´s children and grandchildren born and raised in Scandinavia) are
contributing to a dramatic demographic reconfiguration. Nordic societies, have ceased to be
ethnically homogeneous and are now fairly heterogeneous. This has had effects on class structures
(most newcomers were initially working class) as well as on the welfare state as strong attempts
have been made to culturally assimilate and socially integrate peoples from afar into the
Scandinavian nation(-state)s. In terms of system integration the guest worker approach was
abandoned early on – active labour market integration programs included language training as well
as social studies – in favour of participatory political-institutional solutions including the right to
vote in local elections after a few years of residence. There was a strong public concern about the
fate of the children of first-generation immigrants and their chances of social mobility (higher
education). Ambitious state-sponsored social inclusion programs - from pre-school facilities to
service homes for elderly – were started, particularly in the metropolitan areas. Performance has
fallen short of expectations. The ”failure of social integration policy” – outsider status or social
exclusion in particular in certain metropolitan suburbs (social segregation) – has been a bone of
contention between government and opposition (Hajighasemi et al 2006). In a globalized world
these welfare states are facing a threat of de-globalization.
Globalization and European Integration
The Scandinavian or Nordic welfare states have always been ‘global’, in the sense of both
participation in the international economy as well as in inter-state organizational cooperation from
the regional intra-Nordic to the truly global ILO, UN etc. besides being prepared to learn from
foreign examples, such as the locally adapted initially German-, later British, welfare state. Apart
from continuity in military security which here simply imply that in 1949 Denmark and Norway
joined NATO while Finland and Sweden stayed outside, post-war European integration meant for
the Nordic countries at first in particular cooperation within the European Free Trade Association
(‘the seven’), from the 1970s a move towards ‘the six’ with Denmark in 1972 as the first Nordic
member-state of the then European Economic Community. The same year a popular referendum in
Norway turned down this alternative. However, Denmark has been a rather reluctant member and
several times voted ‘No’ to deeper European harmonization and integration including a ‘No’-vote in
1992 to the Treaty of Maastricht. It should come as no surprise, that its welfare state has remained
distinctly Danish, and Nordic (Hilson 2008; cf also Goul Andersen 1999, Christiansen et al 2006;
With the end of the Cold war again Norway but also Finland and Sweden approached what was
now the Single Market, and soon also the European Union. Negotiations opened, and agreements
were signed. Thus, from the early 1990s the three countries became much more integrated with the
Union and its internal market as part of a larger European Economic Area. Nation-state member-
ship in the Union again reached the political agenda and in 1994 there were three separate popular
referenda whereby Finland and Sweden decided to join the Union as of 1995 while the Norwegians
once again ended up with a ‘No’ on the basis of an advisory referendum. With the start of the
monetary union in 1999, however, only Finland joined the Euro-zone (Euro came in everyday use
in 2002) while both Denmark and Sweden kept their local currencies. Simultaneously, all three
countries have within the European institutional structures been pushing the opening up of the
Union eastwards towards former Soviet allies, though. Moreover, they have been actively involved
in various practical initiatives in the Baltic Sea area, Estonia, Latvia and Lithuania in particular
though not primarily as a social policy model (cf. Aidukaite 2004). Nevertheless, as a consequence
of recent European integration the Nordic countries have become part and parcel of the European
social model but kept most of the distinctiveness of its own part of this model (Montanari et al.
Thus, the new world – including a new-old Europe – after the demise of the Soviet Union and the
subsequent collapse of the Soviet-Russian economy has made the Nordic welfare states even more
regional, and global as well. Of the structural changes perhaps most important has been the
increasingly free flow of capital. Western credit market deregulation made nation-states – including
the Nordic ones except Norway – as borrowers more vulnerable to foreign investors. It is not
surprising that the upcoming recession of the early 1990s severely strained the public finances
although Denmark managed to keep its spending below the budgetary target. The first half of the
1990s was in particular for Finland and Sweden a period of acute crisis, and the welfare state came
in for scrutiny with the rise of globalization as a new figure of thought not least by professional
economists. Denmark and Norway, however, were less affected by the general downturn at that
time. Growth rates went down across the board while both Finland and Sweden had negative
growth for several years during the first half of the 1990s. The Soviet Union was an important
trading partner with Finland, and the ties between the Finnish and Swedish economies close. In
Sweden, the market value of the private housing and banking sectors almost faded and had to be
saved by initially costly but retrospectively innovative policy initiatives. At that time, the financing
of the welfare state was in jeopardy. The fiscal surplus suddenly disappeared and public finance
balance deteriorated sharply. The resulting deficits created a lot of anxiety about the sustainability
of the welfare state and the possibility of financing universal welfare systems. Thus, the welfare
state was challenged from within as well as from the outside world. In Finland the economy spun
into a vicious circle of negative economic growth rates, a rapidly growing budget deficit, severe
bank crisis, increasing foreign dept, depressed domestic demand, tightening taxation, and sky-
rocketing unemployment. Nevertheless, no fundamental changes in the main welfare schemes were
made but there were a wide variety of minor adjustments and cuts in welfare benefits and services
(Alestalo 1994: 73-84).
From the mid 1990s, however, not only Denmark and Norway but also Finland and Sweden have
shown rather impressive figures of economic development (Figure 1). Modest, steady growth has
characterized the period up to the most recent crisis at the end of the first decade of the 2000s, (‘the
global financial meltdown’) and the outside world at first rather surprised started to look with envy
on the well-financed Nordic welfare states. This has reassured both global and national investors’
confidence in public borrowing and it is probably true to say that the welfare states of the Far North
of Europe have stood the test of globalization.
Figure 1. Gross Domestic Product Per Capita at Fixed Prices, (Constant PPP´s, US dollars) in the Nordic
Countries and Different Types of European Welfare States, 1970-2007.*
European Welfare States
Source: OECD. National Annual Accounts. Main Aggregates, Gross Domestic Product. OECD.Stat:
http://stats.oecd.org. (April 18, 2009).
* Classification of countries: see Table 3.
Moreover, during the last decade in survey after survey of the global business environment,
competitiveness and transparency the Scandinavian countries have consistently scored well, very
well to be exact. The world-wide ranking of nations according to indicators of competitiveness
made by the World Economic Forum – a list was compiled in co-operation with the Center for
International Development at Harvard University – Finland, most severely hit by the recession in
the Nordic area in the early 1990s, actually was ranked Number 1 already in 2000, replacing the US
which was on top of the ranking the previous two years. Moreover, the other three main countries of
the far North of Europe belonged to the ‘top 20’: Denmark, no. 6 (up from 7 in 1999 and 8 in 1998),
Sweden 7 (nos. 4 and 7 in previous years), and Norway no 20 (previously 18 and 14). This pattern
has continued throughout the first decade of the new Millennium though inter-Nordic ranking has
changed over years. According to the Global Competitiveness Index in 2006, the Scandinavian
states are among the first worldwide: Finland: 2, Sweden: 3, Denmark: 4, Norway: 12 (World
Economic Forum 2006).
Furthermore, the Scandinavian countries had higher labour productivity, defined as GDP per person
employed, in the 1990s than the average of EU countries and the USA and labour productivity was
rising in the last decade compared to the previous one (Kuhnle, Hatland and Hort 2003). European
countries vary a lot in terms of scope of government employment and size of public sector, but the
experience of the Scandinavian countries is that also growth in government employment has been
quite compatible with expanding welfare states and economic growth; that there is thus no clear-cut
relationship between scope of the welfare state and economic performance.
Changes in class structure
Although the making of the Scandinavian welfare state was filled with conflicts between workers’
and farmers’ parties and, on the other hand between these and the conservative, urban-based parties,
the absence of the feudalistic structures, the low concentration of landholdings, rural
industrialization, non-existing urban slums and non-existing religious or ethnic cleavages, make the
important socio-economic structures unitary in Scandinavia. In the period of the making the welfare
state Nordic societies were dominated by parties of poor workers, of poor farmers and of not much
affluent urban residents. And it is relatively easy to understand that this constituted a unique
foundation for universalistic, state-centred and equality-directed welfare structures. In Central
Europe, for example, the high level of economic organizations, guilds, mutual benefit organizations,
different kinds of trade unions and greater variations in affluence, a more fragmented system
emerged (Alestalo & Flora 1994: 60-61; see also Allardt 1984).
Table 2. Economically Active Population According to Present Socio-economic Position in the Nordic Countries, 2006.
Denmark Finland Norway Sweden
and managers of small
Farmers and other
100 100 100 100
(N) 1418 1806 1672 1783
Source: European Social Survey 2006. Note: Includes only civilian employees, population over 15 years of age.
http://www.europeansocialsurvey.org/ (February 18, 2009).
Classification (ISCO 88): Managers …(1000-1239, 2000-3000, 3142-3144); Lower …(3100-3141, 3145-5220);
Small …(1300, 1310, 1312, 1319); Blue-collar …(6000, 6100, 6140-9330); Farmers …(1311, 6110-6130).
The fast economic growth, rapid changes in the social division of labour and high increase of
educated people during the decades following World War II have transformed the structural base of
the Nordic welfare states. The number of farmers has almost diminished and there has been a strong
decline in the proportion of manual workers. Economically active people in present-day
Scandinavia are mostly various kinds of white-collar workers among which well-educated and well-
off middle class people have a high proportion (Table 2). Although the coding procedure used in
Table 2 may exaggerate the share of upper white-collars with some percentage points the class
structure in the Nordic countries do not deviate much from that in Continental Europe or in Great
Britain (Leiulfsrud et al. 2005, 28-37). Changes in class structure are among the most important
challenges arising from the changing preconditions of the Scandinavian welfare state.
Ideological and Political Changes – The Age of Neo-Liberalism?
Finally a note on epochal changes in mindset: in recent decades the new global set-up and its
cultural repercussions has entailed some changes affecting also the geopolitical status of
Scandinavia and its welfare state model. The earlier predominantly West-East Global Cleavage has
been replaced by a North-South divide: the North has absorbed the old West and the rest is South,
although the new East – East, South-East and in the most recent decade even South Asia (India) –
gradually have come to challenge that axiological division. Moreover, in the Northern camp, on the
fringes of the new-old world the Far North has set itself apart as a somewhat different world of
Welfare States. With the new wave of globalization, at least since the 1990s the Scandinavian
model has come under increasingly closer international scrutiny and seems to have had to ‘adapt’ or
adjust to the new secular mode of global social organization: neo-liberalism. To some extent this is
true. Rather ironically, also in Scandinavia Social Democrats came to sing neo-liberal songs. In the
social policy debate of the 1980s and 1990s, many commentators and researchers began to argue
that, if the welfare system grows too large, it risks perverting incentive structures in both working
life and society in general. Welfare breeds a dependant underclass. Pundits and professors alike
pointed to what they considered to be excessively generous sickness and unemployment benefits,
and to the manifold opportunities for drawing disability pensions, and they claimed that this
excessive generosity resulted in various forms of over-utilization and over-insurance. Such
spokesmen have maintained that the assumption by the state of far-reaching responsibilities for the
well-being of citizens leads to a moral weakening of the various networks of civil society - families,
neighbourhoods - and that the persons receiving assistance are relieved of responsibility for their
own actions. They claimed that social policy, if anything, worsens the problems it sets out to solve.
This critique is by no means new, of course; quite the contrary; the debate over the ‘spirit of welfare
dependency’ raged already at the dawn of social policy, both in Scandinavia and elsewhere but took
a new turn with the rise of the global neo-liberal agenda. The next step was to start the
“fundamental reassessment of the role of the public sector” (Saunders and Klau 1985: 12).
What was new was the renewed energy with which this critique was put, together with the fact that
those expressing it was also be found on the left of the political spectrum (Kuhnle and Hort
2004:13-17). Growing macro-economic imbalances in the aftermath of the so called oil crisis of the
mid-1970s, made the fiscal crisis of the state a recurrent theme in the discussion about the
relationship between state and economy. perhaps most widely articulated within the profession of
academic economists. All over the Western world, important segments of this profession turned
towards a critique of the earlier dominant paradigm of Keynesian macro-economic planning in
favour of monetarist laissez-faire neo-classical economic thinking. In such circles, the welfare state
was no longer looked upon as a solution to but rather as a source of the crisis. Perhaps less so in
Scandinavia than in other parts of the developed world, nevertheless this strand of thought became
an influential voice in the public debate. Domestic critics of the welfare state in Scandinavia argued
that the growth of the public sector had caused stagnation in the growth of the overall economy as
increased taxation crowded out private investments and private entrepreneurship (Dowrick 1996; cf
also Agell, Lindh and Ohlsson 1997). For a while this was mainly an academic critique of national
policy-making although a tax revolt in Denmark already in the early 1970s pointed out a weak spot
in the welfare state consensus (Norby Johansen 1986). However, with growing crisis symptoms all
over Scandinavia the impact of this kind of thinking widened. But it was not until the early 1990s,
when the economic crisis severely hit two of the national economies of the region, Finland and
Sweden, that the true possibility of the neo-liberal formula became visible also in the heartlands of
the welfare state, and the academic economists for a while came to dominate policy reorientation (cf
Lindbeck et al 1994).
However, a universal welfare state can be seen as an experiment in solidaristic behavior on a
massive scale (Kumlien and Rothstein 2005; Rothstein 2001; Baldwin 1990). If benefits are widely
and systematically abused, or perceived being done so, this solidarity comes under severe stress.
Thus, the solidarity necessary for the preservation of the system is not absolute but conditional. If
the profession of academic economists in large numbers left the post-war consensus behind the
welfare state, a different pattern is to be found in the Scandinavian population at large. While the
academic as well as part of the political elite has questioned the efficiency of the welfare state, in
contrast the attitudes among the great majority of the populations in Scandinavia has remained
solidly in support of most social programs and in particular universal social programs (Nordlund
2002; Svallfors 1996). Thus, with an impressive economic performance from the second half of the
1990s, gradual changes in the underlying social structure and a rather stable political system slowly
integrating into a larger Europe, it should come as no surprise that during the present decade the
Scandinavian model has regained something of its status as an alternative or supplement to the
dominant – global or American – societal model. In a fragmented Europe in recent years, it is the
performance of the universal welfare states of the Far North, not the continental or blairite Anglo-
Saxon types, that has injected new energy into the European Social Model.
Summarizing section four, the Scandinavian welfare model, while having been put on some severe
tests in the early nineties, particularly in Finland and Sweden, has been able to revitalize and
maintain its core elements of universality and societal and economic stratification. We refute
perceptions that see the end of the Scandinavian welfare state and attempt to explain why the
welfare state in the Nordic countries has not crumbled. We will look at institutions and outcomes
from a macro-perspective with the goal of showing broad policy developments. Using selected data,
we will illustrate where changes in the Scandinavian welfare model have occurred and will draw
some tentative conclusions as to the regional influence of globalization on the Scandinavian welfare
5. SCANDINAVIAN WELFARE STATES IN THE 1990s AND 2000s
Initially the 1990s was a period of crisis while the first decade of the new Millennium has witnessed
a renewed international interest in the Nordic Model. Gradually the welfare state has regained some
of its strength. Approaching a new global economic crisis the solutions to the financial crisis of the
early 1990s – in particular as regards the banking sector – have become another Scandinavian
model for the world to follow at the entrance into a new period of crisis or “financial meltdown”.
Focusing on welfare and organization between two crises - in which ways have these welfare states
changed: how and why? First we will focus on policy developments, then on social expenditures
and welfare cutbacks and reorganizations. What about outcomes: poverty and in-equality?
‘Work-, Woman and Family-Friendly’ Policies Including Increasing ‘Child-Friendliness’ but
less ‘Immigrant Friendliness’?
Economic growth is possible with a number of welfare state constructions, of different scope and
generosity including the type characteristic of the Far North. Growth and efficiency are not the sole
goals of Scandinavian national welfare politics but they have definitely been reinforced, even
reinterpreted, during and after the crisis of the 1990s. Still, they are not the only political and social
goals. Some goals may even partly be considered hidden such as pro-natalist ones (e.g.
demographic growth or policies that may promote increased fertility rates). Politics and welfare
state construction are also about equalization of life chances, social justice, social security, social
cohesion and stability. All of which are also in various ways related not only to economic growth
and dynamics of economic development, climate of investments, etc., but also to political
preferences, ideologies, interests and values. Thus, what kinds of welfare state policies are possible
is also at all times a question of what is considered desirable by parties, voters and governments,
and what is considered desirable – what the state can and ought to do (Rothstein 1994) – is a
question of political and cultural context (norms, expectations, value structures: fairness, justice,
cohesion, stability, material and physical security, well-being, etc.) as much as a question of level of
economic development and theories and knowledge of pre-requisites for economic growth and
Among the many characteristics which can be ascribed to the Scandinavian type of welfare state is
its ‘work-friendliness:’ the persistent efforts to develop social security and labour market policies
which promote ‘full employment’ and which have helped put the Scandinavian countries on top of
the list of employment ratios of OECD countries. Being among the most comprehensive welfare
states, providing income transfers and services on a more universal basis than elsewhere in Europe,
it is interesting to note that all of the Nordic countries showed increasing labour productivity in the
1990s compared to the previous decade, and that the level was everywhere higher than for the USA
and for the EU average (Kuhnle, Hatland & Hort 2003). Among European welfare states, the
Scandinavian countries were also the most ‘women-, family- and child-friendly’(Hernes 1978;
Esping-Anderson 1999; 2002; 2005 ), i.e. in terms of having developed policies conducive to
labour force participation of both women and men in families with children and/or other care
responsibilities – which may be another way of looking at the degree of ‘work-friendliness’ of
welfare states. In one way, such government schemes may be considered both ‘work-friendly’ and
‘family-friendly’. If families are relieved of some of their ‘burden’ (itself a contested concept) as
care-givers (for their young, old and sick family members) labour market activity and labour
mobility can increase, and thus also economic productivity and growth. Government social policies
can provide the basis for flexible solutions for families, for employees and for firms. Social policies
can make it possible, if desired, for both husband and wife to combine family obligations with full
(or part-time) gainful employment. The Scandinavian countries have for long had the most
extensive provision of (local) government welfare and care services for children and the elderly of
Western welfare states (Kohl 1981; Anttonen & Sipilä 1996: 87-100; Kautto et al. 1999). When
referring to policies oriented towards gender equality, Scandinavia usually comes to mind first.
Daycare for even the youngest children, generous parental leave for mother and father and
numerous further support programmes have created a mythical landscape of Scandinavian gender
equality for women worldwide. As the Table 3 below show, the Scandinavian states have been
forerunners in cash and social services for families. How much of this core feature of the
Scandinavian welfare model is part of reality? How have family and gender policies changed over
Table 3. Total Family Expenditure as a Percentage of Gross Domestic Product in Different Types of European Welfare
States, 1980–2005, (unweighted averages).
Year 1980 1985 1990 1995 2000 2005
Finland 1.8 2.5 3.2 4.1 3.0 3.0
Norway 1.8 1.9 2.7 3.5 3.0 2.8
Sweden 3.9 4.1 4.4 3.8 2.9 3.2
Classification of countries
Continental Europe: Austria, Belgium, France, Germany, the Netherlands
Nordic Countries: Denmark, Finland, Norway, Sweden
Southern Europe: Greece, Italy, Portugal, Spain
* Figure for Portugal for year 2005 is missing.
Source: OECD. Compiled using OECD StatExtracts and SourceOECD: Social and Welfare Statistics, Social
Expenditure, Aggregated Data. http://stats.oecd.org (February 11, 2009).
While many continental European countries have supported a traditional family model, the Nordic
countries have promoted the dual-earner family. Further support for gender equality emanates from
an individual based tax policy: instead of taxing families, the Nordic countries tax each family
member independently. The incentive for both partners to work is thus higher, especially compared
to the Continental welfare model (Kangas & Palme 2005: 36). It is also remarkable that the
employment rates of men and women in the Scandinavian countries show the lowest disparities in
Europe. This is especially important since employment rates of women in continental Europe
decrease significantly after marriage (and children). However, women in Scandinavia are largely
employed in the public welfare sector, thus leading to occupational segregation. Recent decades
have, however, indicated an increasing convergence in terms of female employment throughout the
Western and Continental Europe. Southern European countries imply the fastest growth figures, but
especially when compared with the figures from the 1970s Continental Europe and United
Kingdom are approaching the high Scandinavian figures (Table 4).
Table 4. Female Labour Force Participation Rate Among Total Female Population Aged 15–64 Years in Different
European Welfare States, 1960–2007 (unweighted averages).
Year 1960 1974 1980 1990 2000 2007
Finland 65.6 65.5 69.4 73.4 72.1 73.9
Norway 50.1 50.0 62.2 70.7 76.5 76.5
Sweden 36.3 64.9 75.3 82.5 76.4 78.2
Classification of countries
Continental Europe: Austria, Belgium, France, Germany, the Netherlands
Nordic Countries: Denmark, Finland, Norway, Sweden
Southern Europe: Greece, Italy, Portugal, Spain
* Figures for Denmark, Belgium and Greece are from year 1983; figure for United Kingdom is from year 1984.
Source: 1960–1974: OECD (1997) Historical Statistics 1960–1995 (p.41).1980–2007: OECD Annual Labour Force Statistics.
OECD.Stat. Statistics Database: Labour Force Statistics, LFS by Sex and Age - Indicators: http://stats.oecd.org (April 17, 2009).
In a comparative perspective, family schemes still stand out as most generous in terms of paid
maternity/paternal leave which indicate that they were an important welfare priority even during a
period of troublesome public finances and economic turbulence. Parental leave schemes, the most
generous paid parental leave schemes in the world, were consolidated during the 1980s and the
1990s. In Denmark and Norway in particular, such programs were even grossly extended (for
Norway, see Berven 2005). Family- and children-friendly policies have been a top priority and
more protected against cuts and retrenchments than other social policies in recent periods of
economic and public budget strain. Fertility rates have been fairly stable though not unaffected by
size of previous generations as well as by the crisis itself (Table 5). Excluding Denmark, the
Scandinavian child poverty rates still are the lowest in OECD countries (Ferrarini & Forssen 2005:
118-146). Nevertheless, low levels of income among single mothers remain as a policy challenge.
Perhaps most important is that family programs have become more generous in terms of
encouraging fathers/men to take a more active part in the upbringing of children. Thus, it seems
reasonable to argue that the strength of such policies correlates with the massive inclusion of
women in politics and public administration in Scandinavia. It is thus no coincidence that
’Scandinavian state feminism’ has become a familiar notion almost all over the world. Pragmatic
and operational lessons from the Scandinavian experience have recently been drawn by other
nations, e.g. Germany in terms of family policies (Schiller and Kuhnle 2007).
Table 5. Total Fertility Rate (Average Number of Children Born to Women Aged 15–49 Years) in Different Types of
European Welfare States,1960–2005 (unweighted averages).
Year 1960 1970 1980 1990 2000 2005
Denmark 2.6 2.0 1.6 1.7 1.8 1.8
Finland 2.7 1.8 1.6 1.8 1.7 1.8
Norway 2.9 2.5 1.7 1.9 1.9 1.8
Sweden 2.2 1.9 1.7 2.1 1.5 1.8
2.6 2.0 1.7 1.9 1.7 1.8
2.7 2.3 1.7 1.6 1.6 1.6
2.6 2.1 1.7 1.4 1.3 1.4
2.7 1.8 1.9 1.8 1.6 1.8
Classification of countries
Continental Europe: Austria, Belgium, France, Germany, the Netherlands
Nordic Countries: Denmark, Finland, Norway, Sweden
Southern Europe: Greece, Italy, Portugal, Spain
Source: 1960–1990: Castles (1998: p. 265); 2000–2005: Eurostat Statistics Database, Population and Social Conditions, Population,
Demography-National data, Fertility, Fertility Indicators: Total Fertility Rate 1960–2005.
http://epp.eurostat.ec.europa.eu/portal/page/portal/population/data/database (April 27, 2009).
A judgement of ‘work- and family-friendliness’ can also indicate the degree of ‘business-friendly
environment’. Our main thesis is that social security and business are not incompatible phenomena
like fire and water: whether they are in harmony or conflict depend upon the concrete construction
of the system of social security and its interplay with the society, and its cultural and political
characteristics, in which it works. The primacy of work has always been central to Scandinavian
welfare legislation, characteristic for these welfare states is the close relation between the
institutions of welfare and work; the Scandinavian countries stand out as both ’strong work
societies’ and ’strong welfare states,’ sometimes even labelled (Schumpeterian) ’workfare states’
(Benner 1999/2000). Thus, an ’active labour market policy’ and the ’work approach’ have been
cornerstones of welfare policy since World War II, especially in Norway and Sweden.
Notwithstanding the existence of an elaborated system of social security providing transfer
payments of different types, from child benefits via sick pay to old age pensions, the dominant norm
in Scandinavia – read the Lutheran work ethic – and other Western societies as well, has been that
young and middle-aged adults – in recent decades increasingly including women – should be active
on the labour markets to gain an income. Of course, severely disabled persons have been the
exception to this norm (i.e. ‘deserving poor’). Furthermore, the acceptance of this norm has been
sustained and reinforced by the fact that not only money income, but also such social characteristics
as power, prestige and status have been distributed in the community according to whether or not an
individual works and by the type of work he/she performs. Following the social control mechanisms
in fairly coherent communities such as the Scandinavian, where the distinction between state and
society to a great extent has been blurred, ‘disobedience’ may most likely lead to a loss of
reputation or even exclusion from the dominant social group, even if ‘disobedience’ is to the pure
pecuniary advantage of the individual. This is an important aspect of the moral logic of the modern
Nevertheless, an important arena for changes in the thinking and reforms of the Western and Nordic
welfare states has been employment policies. Unemployment and worklessness has been firmly on
the agenda, and even in Norway, with little experience of high unemployment rates, the issue of
non-work has been given much political attention during the last two decades. The active labour
market programs – since the early post-war decades the jewel of the crown in the Swedish and later
also Nordic welfare model – were severely tested during the 1990s recession, when unemployment
increased dramatically in particular in Sweden and Finland, where it even reached double-digit
levels (Table 6). Faced with the prospect of ‘growth without jobs,’ labour market training and
activation programs were scaled up as unemployment rose. The increasing volume of such
programs can only be interpreted as an expansion of previously established systems – ‘more of the
same’ – although these programs often had to be expanded without a corresponding input of
resources. During the 1990s, new ‘work-’ and ‘activity approaches’ emerged that tightened
eligibility criteria and reduced periods and levels of support (Kildal 2001). For instance, all four
countries have introduced stricter qualifying conditions for unemployment insurance. These central
state employment programs were expanded to their limits, it is probably fair to say, and had to be
supplemented by cash support from unemployment insurance as well as special programs for the
least employable set up by local government (sometimes with central state support, sometimes
without). Nevertheless, the activation measures survived although many observers consider that
their quality has declined, even seriously (Kosonen 1998; cf., also Lindvret 2006). In an attempt to
overcome such problems and simultaneously boost job creation in the private sector, in 2007 in
Sweden the new non-social democratic government anew introduced lower replacement rates in
unemployment insurance and simultaneously reduced state job creation measures. The most recent
boom made this goal easy to achieve.
Table 6. Unemployed People as a Percentage of Civilian Labour Force in Different Types of European Welfare States,
1980–2007 (unweighted averages).
Year 1980 1990 1995 2000 2007
Finland 4.7 3.2 15.4 9.8 6.9
Norway 1.7 5.3 4.9 3.4 2.5
Sweden 2.2 1.8 9.2 5.8 6.2
Classification of countries
Continental Europe: Austria, Belgium, France, Germany, the Netherlands
Nordic Countries: Denmark, Finland, Norway, Sweden
Southern Europe: Greece, Italy, Portugal, Spain
Source: OECD StatExtracts, Annual Labour Force Statistics, ALFS Summary Tables.
http://www.stats.oecd.org (January 23, 2009).
In Scandinavia, labour force participation rates in the ‘modern sectors’ of the economy (thus,
excluding agriculture and non-paid household work) have increased throughout the 20
with the exception of parts of the 1930s and parts of the 1990s. These were decades of economic
downswings or ‘crisis’ also in the far North of Europe, when the rate of unemployment grew and
labour force participation went down (with the exception of Norway). Otherwise, labour force
participation in paid work has gradually increased. In the post-World War II- period, with the
exception of Denmark, the participation rate of men increased until the late 1970s, while women
continued to enter the labour market until the early 1990s, and in Norway throughout the 1990s. In
Scandinavia, ‘housewives’ have more or less disappeared as a social category truly reflecting its
sheer numerical absence. Furthermore, the impact of the development of the system of education
and the increasing emphasis on higher competence and skills has meant that the definition of
working age adults had been adjusted upwards as most of those in the age group 16-24 have
become students during recent decades. Thus, the age and gender composition of the labour force
has been drastically transformed during the last siècle.
Parallel to the development of labour force participation throughout the last century, the systems of
social security have been greatly expanded. Obviously, more and more generous schemes for
maternity/paternity benefits and parental leave schemes during the 1980s and 1990s have been
conducive to high female labour force participation in Scandinavia, as well as gradual development
of child care services (but which is not special to Scandinavia). One factor explaining the
development of these generous schemes, making Scandinavian countries at once both more ‘work-
friendly’, ‘women-friendly’ and, in a sense, ‘family- and child-friendly’, is very likely the rapid
political mobilization of women into politics: political parties, trade unions, and decision-making
arenas like the parliament, government and public bureaucracy.
Finally a paragraph on the most recent, perhaps not so immigrant-friendly, developments in the
universal welfare states of the Far North. Universal, fairly generous welfare states provide non-
discriminatory social protection for all denizens except the paperless but are also vulnerable to
sudden changes in international migration, in particular large-scale immigration in times of
joblessness and falling tax revenue. After World War II, the Nordic countries, with the partial
exception of Finland have been fairly open to newcomers in terms of immigration rules and social
rights. Inter-Nordic cooperation and membership in the European Union have contributed to the
increasing demographic heterogeneity in the individual Scandinavian nation-states. The gradual
disappearance of the demographically homogeneous Far North has caused some concern among
policy makers as well as the population at large. The increasing numbers of newcomers from afar
has led to a growing awareness of ”otherness”. Labour market integration has tended to take longer
and is no longer in the hands of employers and unions; nowadays it is a government-regulated
special program at the point of entry and, thus, more of a ”burden on the public sector”. In recent
decades of globalization migration policy has definitely become a highly sensitive political issue. In
an attempt to come to terms with increasingly heterogeneous demographic developments, a
multicultural social inclusion policy was actively pursued. However, this gave rise on the one hand
to a critique of excessive assimilation by the dominant organizations of homogenous civil societies,
including local governments, as not being aware of their discriminatory discourses and practices,
and on the other to a fairly widespread popular reaction against officialdom´s too lenient approach
to the not yet gainfully employed newcomers. A key issue in this dispute has been language
training, with a growing insistence on formal knowledge of the local languages. New social
programs were tested in the aftermath of the great influx during the 1990s, followed by the
newcomers from the wars in Afghanistan and Iraq, but various forms of government intervention
have continued to be criticised from every section of the political spectrum. Some metropolitan
suburbs, mostly a product of gigantic housing programs in the heydays of welfare capitalism, have
become, or at least in the public discourse seen as, cosmopolitan centres of a hundred nationalities
where cultures and countercultures meet and compete, not to mention various manifestations of
global youth cultures and religious congregations, such as Roman Catholics and various brands of
Muslim belief, previously almost unknown in homogenous Scandinavia. New, fairly successful
right-wing populist political parties, openly critical of immigrants and associated financial burden
have emerged in particular in Denmark and Norway, and the traditional parties have not been slow
to react and adapt to the new situation. At least since the late 1990s they have become increasingly
involved in mainstream policy-making at the national as well as the local level. Here to, Finland has
been a partial exception as immigration there has always been restricted in the post-war decades. In
Sweden and, to a lesser extent, in Norway openness has largely been maintained to date. In sharp
contrast, the contemporary Danish welfare state has not only tried to impose heavy restrictions on
immigration, above all as a way of preserving Danish welfare universalism, but also introduced a
number of benefit measures that apply differently to native-born Danes and to more recent
immigrants from the world outside the European Union (Goul Andersen 2007). Thus, a certain type
of welfare state ”chauvinism” or exclusiveness is not entirely absent in otherwise universalist
Scandinavia, and will most likely haunt the model welfare state.
The Scandinavian experience during the last two decades shows that high and increasing labour
market participation can co-exist with the expansion and consolidation of social security systems.
‘High and sustainable’ full employment – expanded from male breadwinners to female ditto –
became the public policy norm of Keynesian demand management. Expansion in the latter case
meant upgrading in terms of pecuniary generosity and population coverage in all or most branches
of social insurance. At the macro-level, this holds true even for such a social security sub-system as
unemployment insurance, despite social science theories that emphasise the opposite effect at the
micro-level that the system offers incentives for individuals to withdraw from the labour market.
Unemployment was not allowed anymore to be a private matter, but became a public concern. Thus,
the labour market has developed into a key aspect of the monetised economy, while social security
systems have become core institutions of the modern welfare state. Macro-economic steering
became part of societal governance, but much more than that was at stake. In Scandinavia, systemic
integration has gone hand in hand with social integration. Thus, at the micro-level the implication
and risk for the individual of being out of work is marginalisation and social exclusion. At the
macro-level, the government responsibility to create conditions under which enterprises can flourish
has become linked to the general duty of every able-bodied person to work or achieve an education,
schooling or practise in order to enter into gainful employment. In sum, other values than those
implicit in the rationality of the pure economic man have for long been in force.
Social Expenditure: Growth to Limits and Beyond
Since the 1990s, many systemic changes have been made in the Nordic countries as part of more
general and wider reconsideration of the welfare state. Most well-known are perhaps changes in the
pension systems with the introduction of an element of private savings and speculation. Another
feature of the new approach is a closer link between contributions and payments. Moreover, the
pension systems have been thoroughly adapted to both demographic and economic developments
(Hort 2004). In Sweden, however, the major pension reforms were preceded in 1990 by an
internationally noted tax reform, involving a wider tax base and lower marginal tax rates. Still, the
tax level remained high and in a mid-term perspective, the financing of the welfare systems was put
on firmer ground (Hajighasemi 2004).
The increase in the number and share of the old people can, however, become a growing problem to
the welfare expenditure. As Table 7 points out the share of the old people in the Nordic countries
has reached the European level especially during the last two decades. Later on, we will see whether
the Nordic countries are able to answer the challenge arising from the exit of the post-war baby-
boomers from the labour force.
Table 7. Population Aged 65 and More as a Proportion of the Total Population in Different Types of European Welfare
States, 1961–2006 (unweighted averages).
Year 1961 1970 1980 1990 1997 2006
Finland 7.4 9.1 12.0 13.4 14.6 16.3
Norway 11.1 12.9 14.8 16.3 15.7 14.7
Sweden 11.9 13.7 16.3 17.8 17.4 17.3
Classification of countries
Continental Europe: Austria, Belgium, France, Germany, the Netherlands
Nordic Countries: Denmark, Finland, Norway, Sweden
Southern Europe: Greece, Italy, Portugal, Spain
* Figure for Greece is from year 1996.
Source: OECD (1974) StatExtracts, Labour Force Statistics 1961–1972 (pp. 128–369); OECD (1998) Labour Force Statistics 1977–
1997 (pp. 177–467); OECD (2008) OECD in Figures 2008, Demography: http://www.stats.oecd.org (February 16, 2009); OECD.Stat
Labour Statistics, Annual Labour Force Statistics, ALFS Summary Tables, Population and Labour Force: http://www.stats.oecd.org
(April 16, 2009).
Furthermore, the role of local government in welfare financing and delivery has increased
significantly. In Scandinavia, almost all health and social care services are nowadays tax-financed
and in most cases also provided by public authorities. Overall public expenditure on health as a
percentage of GDP has remained fairly stable since 1990 in Denmark, Norway and Sweden, but has
been cut back marginally in Finland. The large public (health) sector is still a core feature of the
Scandinavian model. This decentralisation of welfare provision was a basic idea behind the
expansion of the welfare state in an attempt to transform local government from a provider of poor
relief to a multiple public service provider (Kuhnle 1980; Olsson 1990). In this process, the crucial
role of local government in the organization of the overall welfare state became institutionalised. In
the early postwar decades, the central state encouraged a tremendous expansion of social care
services through targeted grants to the municipalities on top of their constitutional right to
independently tax their inhabitants. Hence, the power of local government in state and society grew
gradually but steadily before the crisis of the 1990s. Nevertheless, the central state has continued to
intervene in the affairs of local authorities – for example with a budgetary or local taxation ceiling –
and, on and off, opened up for more private initiatives also in welfare delivery, including increased
choice on behalf of service consumers (‘privatisation’). In recent decades, moreover, non-profit
private providers – voluntary both secular and religious welfare organizations in civil or civic
society – have become more active and visible in the Nordic countries. Still, the financing of such
services has predominantly remained public.
Another systemic change in recent decades is, however, an increased use of national rights-
legislation – without central state funding – whereby the municipalities or county councils have to
take on the role as financiers without targeted grants, an increase in the general block grant, or new
financial instruments (taxation or borrowing). Instead, the central state has tried to put a cap on
municipal spending and thereby force local government to re-prioritise within existing welfare
provision. Local governments have not been slow to respond. Thus, in recent decades in the Nordic
countries this has opened up for increased negotiations and even formal contracts between central
and local public authorities (Hort 2005a). In a comparative perspective these ‘public-public
partnerships’ can be interpreted as a result of the growth of the Nordic welfare model. Central and
local governments are not equal partners in a constitutional sense but fairly equal in many
circumstances, in particular when local authorities join forces and set up their own joint agencies to
negotiate with central state authorities. These partnerships may be somewhat awkward for foreign
observers who are otherwise in favour of ‘PPPs’ when they extend into the private domain. In the
Nordic context, of course, private partners have also been more involved in the public-private
welfare mix but here it is the growths of ‘PPPPs’ – public-private-public partnerships – that stands
out as the Far North of Europe´s particular contemporary phenomenon.
Universal social insurance programs have been curtailed to some extent by cutting benefit and
tightening qualifications (Eitrheim & Kuhnle 2000; Kautto et al 1999). For instance, since the early
1990s the most frequently and extensively restructured program in the Swedish social security
system is the sickness cash benefit scheme. In Norway stricter medical criteria for disability pension
was introduced in 1993. Qualifying conditions for sickness insurance benefits were tightened in
Finland and Sweden. Social security and welfare ‘reforms’ – e.g. cuts in benefit levels as well as
organizational changes – were made during the 1990s in Scandinavian countries, mostly in such a
politically consensual way that new poverty and increased income inequality was avoided (Eitrheim
and Kuhnle 2000). Finland was the only OECD-country in which the recession of the 1980s or
1990s was deeper than the Great Depression in the 1930s (Uusitalo 2000). But a fundamental
difference from the 1930s is that an advanced welfare state was in place when the crisis hit. The
dramatic social and political repercussions of the 1930s were avoided (repercussions which were
moderate in Scandinavia compared to the rest of Europe anyway, thanks to other factors such as
crucial social-political pacts between agrarian and industrial interests, and labour and employers).
Of course, the existence of an advanced welfare state at the time of a sudden, unexpected, and
mostly exogenously-imposed economic shock is not a sufficient condition for neither subsequent
successful welfare reform efforts nor rapid economic recovery. But the Finnish example proves that
such a sequence of development is possible, and that a solid welfare state was by no means a
disadvantage for the process of recovery and promoting renewed economic growth. Recent
European/Scandinavian developments propose that characteristics of social policies and of links
between the state and major economic groups in society at critical junctures of economic, social or
political crisis appear to be of importance for the way out of the crisis. Another lesson of the
Swedish and Finnish experience of the last decade is that democratic systems and institutions can
adapt to new or unexpected challenges. It does matter what institutions are in place when a sudden,
unexpected crisis in society occurs.
By degrees, the Nordic governments reacted to the major imbalance between public revenue and
outlay by restricting the expenditure growth and cutting some benefits. After a peak time of social
expenditure in the early nineties, public social expenditure as a percentage of GDP had receded
back to l990-levels in the early 2000s (see, Figure 2). Finland and Sweden were the countries with
the highest increases in expenditure in the early nineties with expenditure increasing in Finland
from 25 to almost 35 % of GDP and in Sweden from about 31 to 37 % of GDP. Today, all of the
four Nordic countries maintain comparatively high levels of social expenditure, with Denmark and
Sweden at about 30 % and Norway and Finland at about 25 % of GDP.
Figure 2. Social Expenditure at Fixed Prices per Capita (US Dollars, Constant Prices) and Social Expenditure as a
Percentage of Gross Domestic Product in the Nordic Countries, 1980–2005.
Source: OECD. Social and Welfare Statistics, Social Protection, Social Expenditure: http://stats.oecd.org
(April 18, 2009).
Figure 2 teaches us not to rely on a single indicator in any analysis of social expenditure. On the
basis of the GDP proportions of social expenditure we might easily open a discussion on the Nordic
countries reaching the limits of growth. From the early 1990s onwards the development of social
expenditure has been far from a steady growth pattern. Instead, a non-growth and yearly fluctuating
patterns exist. But if we look at the figures describing the real growth of social expenditure, we
reach a picture of almost a steady growth.
The picture becomes more complicated if recent developments in the public employment are taken
into consideration. Above, the description of the golden age of the Nordic welfare state implied a
growing public sector (see page ). During the 1990s and 2000s the share of government
employment on the total employment has stayed at a high level but it has not grown any more. On
the other hand, especially in the comparison with the Continental and Southern European welfare
states data indicates a high trust on public services and authorities.
Table 8. Government Employment as a Percentage of Total Employment in Different Types of European Welfare
States, 1970–2005 (unweighted averages).
1970 1980 1995 2000 2005
Finland 11.8 17.8 21.0 21.0 21.3
Norway 16.4 21.9 - 28.5 28.8
Sweden 20.6 30.7 29.8 29.6 28.3
Source: 1970-1980: OECD 1983, 98; 1987a, 38; 1995-2005: OECD Statistics on Public Employment derived from CEPD (see
Pilichowski E. and E. Turkisch (2008), “Employment in Government in the Perspective of the Production Costs of Goods and
Services in the Public Domain”, OECD Working Papers on Public Governance, No. 8, OECD Publishing).
Classification of countries
Continental Europe: Austria, Belgium, France, Germany, the Netherlands
Nordic Countries: Denmark, Finland, Norway, Sweden
Southern Europe: Greece, Italy, Portugal, Spain
* Figures for Greece are missing for all years; Source for Denmark 1995: OECD National Accounts. 1984-1996. Volume II.; Figures for France
1995 and for Germany 1995, 2000 are missing; Figures for Italy 1995,2000, 2005 are missing; Source for UK 1995: OECD National Accounts.
1984-1996. Volume II, - missing values for UK 2000, 2005.
The struggle to regain control of public finances led to more radical policy changes in Finland than
in Sweden. Still, severe cutbacks in some Finnish schemes were followed by policy innovations to
secure basic livelihood. Programs were launched for long term unemployed and young people with
no or little job experience. In Sweden, in-fighting over the various parties´ separate welfare
programs rendered the 1991-94 non-socialist coalition cabinet incapable of tackling a growing
budget deficit without the support of social democrats. In late 1992, when Sweden faced a major
currency crisis, a major accord was settled between government and opposition. On its own, the
rather inexperienced government was unable to tackle fiscal imbalances. Meanwhile, the social
democrats, in contrast to previous post-war campaigns, promised comprehensive austerity
measures, such as decreased benefits, as part of their program for the successful 1994 election. The
program also included minor tax increases for the most wealthy, which attracted support from the
rural middle-of-the-road Centre party that rapidly went from supporting a right- to a left-leaning
government. Hence, the welfare state was slimmed down but not squeezed, though during the crisis
in the first half of the 1990s it was widely thought in some quarters that in order to eliminate the
large budget deficits, the welfare state would have to be abolished (Nordlund 2005). As it turned
out, the crisis was only temporary and to date the economic revival has generated a public financial
surplus and a considerable reduction of public social expenditure as a share of GDP (Figure 2).
With another crisis at the doorsteps, there is still considerable leeway for welfare state action in
Scandinavia. Among many assessments made of welfare political developments during the last
decade, the Scandinavian countries are still seen to be distinct and not to have moved towards
convergence with a ‘neo-liberal’ model of social protection. In Table 9 United Kingdom presents a
model of a neo-liberal state. The figures for the level of income inequality and for poverty clearly
show how big the difference between the Nordic and the neo-liberal model is. The difference
between the Nordic countries and the Continental Europe is much less.
Denmark and Sweden have the lowest income inequality figures among the OECD (30) countries.
Finland is at the 7
place and Norway at the 11
place. Table 9 also shows that in Finland and in
Norway there has at the end of the 1990s and in the early 2000s been a significant increase in
income inequality. In both countries this is connected with the fast economic growth period during
which especially the top quintile of income receivers were gainers (OECD 2008, 31, 51).
Information on the poverty rates strengthens the picture of high equality among the Nordic people.
Table 9. Level of Income Inequality in the Mid-2000’s, Trend of Income Inequality From Mid-1980’s to Mid-2000’s
and Poverty Rate in the Mid-2000’s in Different Types of European Welfare States (unweighted averages).
Level of income
Trend of income inequality
in the mid-2000’s
Trend in gini
Mid 1980’s to Mid 1990’s to
Percentage point change
in the mid-
Finland 0.27 2.1 4.1 7
Norway 0.28 2.2 2.0 6
Sweden 0.23 1.4 2.3 7
Source: OECD 2008: 51, 53, 154.
Classification of countries
Continental Europe: Austria, Belgium, France, Germany, the Netherlands
Nordic Countries: Denmark, Finland, Norway, Sweden
Southern Europe: Greece, Italy, Portugal, Spain
* OECD 30 members; ** OECD 24 members; - Missing value
One important lesson to be learnt from the Scandinavian (and also European experience) is the
simple one that the welfare state does and may serve many functions. Debates on what are proper
lessons to be learnt and what are proper welfare policy solutions in other, non-European, contexts
can thus be framed in many ways. Social protection and welfare are topics often discussed in terms
of poverty relief and meeting minimum needs for income and services. Poverty reduction was
historically one aim for many governments putting social legislation on the agenda. But the
establishment of European welfare states is about much more, especially in their Scandinavian and
Continental European variants. Originally, considerations of social harmony and regime support
were important. Over time, many programs were developed to insure against events and risks,
which cause income loss, to enable reallocation of income over the life-cycle and redistribution
across social groups, and to provide a sense of security for all citizens (Atkinson 1999: 5-6).
Although a controlled experiment is impossible, we dare claim that the welfare state in the
Scandinavian/ West European context appears to have been a societal ‘stabilizer’, which has
prevented serious social rebellion, strong revolutionary movements, and extensive poverty. The
combination of structures of democratic governance, regulated capitalist market economies, and
relatively comprehensive welfare institutions have rather successfully accommodated changing
social needs and political desires.
In summary, the Scandinavian welfare model during the last two decades, while having been put on
some severe tests in the early nineties, particularly in Finland and Sweden, has been able to
revitalize and maintain its core elements of universality and societal and economic stratification.
We refute perceptions that see the end of the Scandinavian welfare state having looked at
institutions and outcomes from a macro-perspective with the goal of showing broad policy
developments. Using selected data, we have illustrated where changes in the Scandinavian welfare
model have occurred and will at the end of this chapter draw some tentative conclusions as to the
regional influence on globalization and regional European integration by the Scandinavian welfare
6. CHALLENGES AND LESSONS
Our analysis in this article implies that the rise of the Scandinavian welfare state was made possible
by certain particular historical preconditions. It also indicates that the Scandinavian welfare state
has been able to survive even exposed to very strong pressures from outside. Whether this story is
too good to be true, only History can tell.
A summary of findings from a comparative Nordic effort has to acknowledge some of the most
obvious consequences of the changing conditions for the Nordic welfare state. International
migration and demographic change, globalization and European integration, more open economies,
changes in the class structure and some ideological and political currents have had a visible impact
on the master dimensions of the Nordic welfare state. Although the state is still the main financier
of welfare services, extensive stateness is giving way to more private endeavors and competition
within and outside the public sector. This holds especially true at the local level. Furthermore,
although universalism has continued to be the backbone of the Scandinavian welfare state in the last
two decades there has, for instance, been a very visible shift towards a more income-related benefit
system. Inequality has tended to increase and especially those at the top of the income scale have
succeeded in getting a greater share.
At the same time, what has come to be known as the ‘Scandinavian’ or ‘Nordic model (of welfare)’
has attracted growing attention in international mass media and, intergovernmental organizations –
although hardly with enthusiastic blessing from any of them, but more so in the social policy
literature. Important elements of this model are comprehensive governmental welfare provision; the
scale of welfare employment (broadly speaking); public employment relative to total employment;
redistribution; financing mainly from fiscal revenues; family policies and a gender perspective that
encourages women to participate in the labour market; an active labour market policy; high
legitimacy of state/public welfare provision; and universal, citizenship-based social rights.
While the Nordic welfare states differ in many respects, they can be said to be sufficiently similar
on a number of counts to make them a distinct category or ‘family’ of welfare states in the world.
Notwithstanding the assumed threat of globalization, however, there is a very visible present danger
of de-globalization. In particular, the global financial meltdown of 2008 has raised widespread
concern about increasing isolationism and protectionism throughout the world. New conditions may
impair the openness of the Nordic economies. International migration may become much more
controversial, and the European Union is actively restricting the entrance of people from outside its
member-states. Domestically, moreover, a growing reaction to the loss of demographic
homogeneity may partially undermine the welfare state´s broad-based political legitimacy.
However, despite some intermittent economic downturns,
the Nordic countries have managed to
combine high taxes, low social and economic inequality and comprehensive welfare systems with
‘satisfactory’ (even very satisfactory) economic growth viewed in a long-term perspective. Crucial
for this apparent success story have been the ability and capacity to reform and adjust the welfare
state to demographic and economic challenges and to retain dynamism and innovativeness in the
In particular Finland and Sweden in the early 1990s.
economy. Comprehensive public welfare commitment has demonstrably gone hand in hand with
satisfactory economic and social development, and stable political development, in times of
increased exposure to the global culture, economy and polity.
As such, the group of Nordic welfare states is or may be considered a political construction that
makes up a ‘Nordic model of welfare’ for other countries to look to and possibly learn from – as
successful open economies combined with comprehensive welfare states in the era of increased
globalization. From themselves historically drawing inspiration from an international model for
social insurance they have become an international model in their own right.
When summarizing results from Scandinavian studies that compare the Nordic countries to the rest
of Europe it has been pointed out that some of the analyses of the Scandinavian scholars
undoubtedly have a ‘Scandocentric’ bias. There seems to be a Nordic miracle where the chains
created by the market economy have been broken. Sometimes this is followed by a Protestant bias
especially in questions concerning families and family policies. Sometimes the ‘Nordic model’ is
seen as a terminal point of development and as a model for other European countries, the World´s
Scandinavia. The analysis above, however, implies that the Nordic way cannot be considered as a
common European model. Simply, other European countries cannot repeat its preconditions and
their subsequent outcomes. The systems based on much wider cultural heterogeneity and on
multinational and federal structures are not likely to produce universal and state-centered welfare
policies (Alestalo & Flora 1994: 60-62). That is not to deny the impact of diffusion and political
learning at the level of single programs and schemes. The recent (2007) radically extended German
policy on Elterngeld is openly inspired by the Swedish or Scandinavian ‘model’. The impact of
models is not a one-way street, from big to small nations. Also other European countries have in
recent years taken some lessons from the Nordic experience, in particular in the fields of active
labour market policies and family policies making it easier to reconcile family and work. These
lessons have, also, been disseminated through the OECD and the EU (Oinonen 2008: 174-185).
State capacity and ‘political preparedness’ are variables that are relevant also today when studying
the potential for and actual social policy development in other parts of the world and in middle- and
low income countries. But another variable, which perhaps was ‘under control’ historically in
Europe but not in a global context today is the ‘cultural preparedness’ or the normative basis for
importing ideas and models from outside. Copenhagen, Oslo, Helsinki and Stockholm were
culturally much closer to Prussian Berlin than Seoul, Beijing, Cairo and Pretoria are to the Nordic
capitals today. Even if the Nordic model has performed well economically and politically –
according to certain defined values, standards and measures, which can be discussed – one may ask
whether it rests on certain normative pillars that are not present beyond Europe. In what way or
sense is or can the Nordic model of welfare be a relevant example in areas culturally far from the
Nordic and European cultural and normative context?
To answer this question is a tall order (cf. Fargion 2008). When Harold Wilensky (1975) pioneered
comparative welfare state research some fifty years ago, his sample from 1966 consisted of 64
countries at a time when the United Nations had 119 member-states. However, his analysis focused
on the 22 most developed welfare states (see also Wilensky, 2002). And so it has been, until
recently. Wilensky´s sample included the core West European countries, Israel, Canada and the US
in North America, three East European countries (Czechoslovakia, Poland and Hungary), Australia
and New Zealand in the Pacific. Japan was number 23 on the list. Thus, this was the geography of
advanced welfare states on the globe – minus Japan. In analytical terms, Wilensky made a
distinction between four types of welfare states: liberal democratic, totalitarian, authoritarian
oligarchic, and authoritarian populist. In 1990, when Gösta Esping-Andersen published The Three
Worlds of Welfare Capitalism, a work that in many ways popularized and summarized the research
that had followed in the tracks of Wilensky, his sample had shrunk to 18 countries: Japan was
included, Israel was gone and, most important, East European countries had disappeared. The three
'worlds' made up the combined Northern world of advanced capitalism and liberal democracy.
Thus, democracy, or state- and nation-building more generally, had become a key indicator in the
selection of research objects although also the decline in social development should not be
forgotten. Nevertheless, it is probably too early to forget the various forms of authoritarian welfare
states that hitherto have existed. Even in Northern Europe, for instance contemporary Belarus
comes to mind.
Since the early 1990s, the geography of comparative welfare state research has changed
dramatically. Hence, globalization, and in particular global democratization, ‘democratic warming’,
has left its stamp on social research in this field of inquiry. Outside the old core, it is in particular
three zones that have come into the fore: the new Europe, East and Southeast Asia and (parts of)
With the enlargement of the European Union, already from the second half of the 1980s the old
dictatorships of Southern Europe were brought into the limelight: Greece, Portugal and Spain
became part of a ‘Southern model’ (Ferrera, 1996, cf also Guillén & Matsaganis 2000). However, it
was only with the demise of the Soviet empire and the transformation of the previously planned
economies that the welfare states of Central and Eastern Europe returned into focus (Deacon 2000;
cf., also Grigoryeva et al. 2002). Again, it was the countries that Wilensky once had singled out
which were taken into consideration by in particular continental welfare state research: the Visegrad
countries of the Czech Republic, Hungary, Poland and Slovakia – and Slovenia from the former
Yugoslavia, a country in socio-economic terms at the level of Greece (Hort 2005b). Later on, as the
EU enlargement process continued, also other parts of Eastern Europe including the new Baltic
states from the former Soviet Union and their systems of social protection became part and parcel of
the research agenda (Aidukaite, 2009). When ten new member-states entered the European Union
on 1 May 2004 (and two more were added in 2007), a new 'Social Europe' also was born.
Another case in point is East and Southeast Asia. From the early 1980s when Japan was ‘upgraded’
by the OECD (1981) as a ”welfare society” against the old-fashioned welfare states of the West, not
only this country but also the four small tigers of Hong Kong, Korea, Singapore and Taiwan
gradually became part of comparative social research. However, only with the coming of the ‘East
Asian Miracle’ did growth with or without welfare become a bone of contention (cf. Alber &
Standing 2000). Did the rapidly developing countries and territories of the new East follow the
glacial river of time or did they go against the neo-liberal wave? In an overview ten years back in
time, the answer given was that state involvement in the field of welfare was introduced at an earlier
stage in the process of modernization as compared to the old welfare states, and that the expansion
of welfare institutions closely followed rapid economic growth in the period up to the Asian
financial crisis of 1997-98. Furthermore, no decline of social policy efforts or a dismantling of the –
still relatively small – welfare state was particularly visible in the years following that crisis (Hort
and Kuhnle, 2000/2008).
A third area is Latin America. Apart from Scandinavia, according to a recent North American
overview of comparative welfare state research, what once was a backyard of the American empire
today perhaps figures more preeminently than any other part of the world including both Central
and Eastern Europe and East and Southeast Asia (Huber and Stephens, 2005; cf., also Gough et al
2005). There too, it is the dramatic impact of economic and political transformation on the system
of social protection system that comes to the fore (Godinho Delgado & Vasconcelos Porto 2007; cf
also Barrientos 2004; Borzutsky 2002; Kay 2000).
In all three parts of the old but new globe certain questions will be more prominent than others.
Pensions are cases in point that have frequently been on the agenda where the Swedish pension
reform of the 1990s has often been referred to as a ‘model’. These are gendered issues that so far
need to be further scrutinized. Furthermore, gender, child and family policy in a broad sense is of
course another issue of crucial importance in most parts of the world (Kravchenko 2008; cf. also
Therborn, 2004). In many aspects of equal importance but less researched is the emergence of
unemployment insurance, employment policy and labour protection in general. In particular in East
and Southeast Asia as well as in the new Central and Eastern Europe there were never any
unemployment insurance systems, and so far developments have been slow but as a source of
inspiration for present or future reform the ‘Scandinavian model’ has often been alluded to.
In toto, 27 new and old countries in Europe belong to the European Union and all of them will
sooner rather than later be counted as welfare states. Croatia, Turkey and the rest of South Eastern
Europe are other welfare state applicants (Hort 2008). Together with what remains of the old core
(being outside the EU - Iceland, Norway, Switzerland, Australia, New Zealand, Canada, and the
US), roughly a handful new welfare states in East and Southeast Asia and another five to ten Latin
American welfare states will altogether make up almost as many cases as were included in
Wilensky´s original full sample. This is the new 'social globe' where people live their lives and try
to influence the way their lives are arranged and re-arranged through pre-existing or emerging
organizations and institutions. Whether the inspiration will come from a ‘Nordic Model’ or ‘Social
Europe’ more generally remains to be seen but to excavate the normative issues of the future should
not be forgotten in empirical social research. These are areas in space and time were social
scientists will have to explore the intricate relationships between work and welfare, tax policy and
pension programs, the regulation of markets, political and social mobilization, welfare institution-
building, etc. Whether another 140 cases are in the pipeline, in a real world of 192 member-states of
the United Nations, is too early to tell. In any case, in the present decade there has been a great deal
of interest in the ‘Nordic Model’ from Seoul and Taipei to Pretoria and Buenos Aires, not to forget
the Economist´s “before financial meltdown crisis” denunciation of its current success.
To conclude: from being inspired from outside, in various ways affected by the historically first
international model of social insurance for their own beginning welfare state development,
characteristics of the ‘Nordic model of welfare’ may today be exportable to other parts of the world,
culturally close or distant. The historical and long-term perspective on the Nordic welfare states
may inform both our empirical and theoretical understanding of the role of international models for
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