The Nordic Welfare Models in Transition

Has the shift towards neoliberal policies benefited the Nordic countries or would it be more beneficial to go back to the ways of the welfare state?

Term Paper, 2015

21 Pages, Grade: 2,3


Table of contents


2. Historical constructivism: Ontogenesis of the Nordic welfare states

3. The golden era of the Nordic welfare state

4. The emerge of neoliberalist tendencies in the Nordic countries

6. Discussion

7. Restructuring the status quo: What is important to change?

8. Women and the labour market

9. Conclusion



In this essay I will deal with the transition Nordic welfare states have gone through since the mid-late 20th century and shed light on the question which development appears most adequate for the Nordic states in the near future. The main question to keep in mind is: “Should the Nordic countries go back to the ways of the welfare state?” Many aspects have to considered, but I can claim already that most of them speak in favour of answering the question with “yes”. The welfare state is favourable over neoliberalist policies from a humanitarian standpoint, from a perspective of social justice and even in terms of economic sustainability.

I will show the historical stringency of the development of the famous Nordic welfares state and describe the core principles.

Afterwards I will try to explain why this formerly highly appreciated system did not last until the present day. The welfare states were replaced by the emerging neoliberal tendencies, and I will explain what effect that has for the economy and individuals respectively subgroups in society. Now that there is basic knowledge about the Nordic countries, I will quickly examine some unique characteristics of Nordic welfare states and give a brief account on how the Nordic countries differ from each other.

The next chapter includes a discussion. Arguments are presented, and I come to a rather one-sided result: in the times of neoliberalism one has to re-think the role of the welfare state. I will show solutions and what kind of change is useful to achieve a better society. A focus in that matter lies on policy towards women and families as a fertile strategy for the future. Finally, I will wrap my thoughts up in a conclusion and give an outlook how the future could look like.

2. Historical constructivism: Ontogenesis of the Nordic welfare states

2.1. Definition of the ‘welfare state’

First, we have to clarify what we are talking about when we say ‘welfare state’. To approach the term I will use definitions of some scholars: Briggs (2000) defines a welfare state as “a state in which organised power is deliberately used [through policies and administration] in an effort to modify the play of market forces […] by guaranteeing individuals and families a minimum income irrespective of the market value of their work or their property.” (pp.18)

The emphasis lies on secure incomes for everybody, granted by state and not connected to demands. The Swedish Social Services Act (1980) reads:

“The individual shall through income support be granted a decent standard of living. […] [I]t enhances her/his capacities to live an autonomous life.” (Kananen (2014), p.105)

This definition adds the purpose of guaranteed income, which is to enable people to live a self-determined, autonomous life. Heckscher’s (1985) definition then implies that the state does not only act deliberately (Briggs) or has kind of a task (“shall”, Swedish Social Services Act) but a responsibility for its citizens:

“Thus the term welfare state can be taken to mean a state that accepts collective responsibility for its citizens and conceivably also for other residents within its territory. It strives to abolish poverty and give to all concerned reasonable security […]” (p.6)

2.2. Continuity of interventionism

Developments are often result of path dependency. The first clue why the collectivism developed lies in something that sounds plain. The executive branch in Europe is referred to as government. The term “government” is derived from Europe’s tradition of monarchy, which had kings and queens governing since the Middle Ages. So what? Heckscher (1985) shows something crucial here, namely that the Nordic countries (as most of Western Europe) have not been free from paternalism and interventionism in the last approximately thousand years of their history. This is important as it is the basis for societal acceptance of the interventionist welfare state. (The terminology is different across countries. In the United States, for example, the executive branch is referred to as administration: there has not been any comparable tradition of interventionism and today the USA probably have the most intervention-free and liberal system in the world.)

While Great Britain has a tradition in liberalism because the early industrial development had lead to Manchester liberalism, the Scandinavian industrialisation did not abolish interventionism. Instead, it prevailed (to a limited degree) as railways and waterpower remained partly state owned, and mining and other industries were strictly regulated, as Heckscher (1985) analysed. Moreover he found paternalism respectively interventionism was not ended by a revolution, like the French Revolution. Again, something like that did not happen in the Nordic countries, so that paternalistic patterns never really disappeared: Society and government in Nordic countries display strong continuity.

2.3. A history in general education and social assistance

Heckscher (1985) also provides us with an overview over historic developments. Denmark pioneered by passing a law in 1814 that made basic education free and attending school obligatory by fines. This remarkable move relied on the belief that educating children are the key to future economic success.

A rudimentary welfare system was first run as early as by the end of the 18th century by the church (which, however, was not unique to Scandinavia). Sweden and Norway followed with more generous state support for their inhabitants to fight the perceived national threat of emigration into the United States, as by the end of the 19th century, over 18% of both countries’ population had moved to the US. Policies had to appeal to citizens in order to make them stay and became thus generous ‘before their time’, that is, earlier than other countries.

2.4. The 1930s compromise

The in my eyes single most important development was the 1930s compromise. It is the compromise in which the labour movement accepted rationalism in order to create resources for social welfare and in which the employers accepted collective organisation of labour and that more workers’ rights bring positive economic results. It marks ambivalent legitimisation: it legitimises the employers morally and politically and the labour movement economically, which Kettunen (2011) found to be unique and the historical fundament for the ontogenesis of the welfare state in the collectivist era. Heckscher (1985) considered it to be a trade-off: no capitalist society and no social revolution, but immediate social improvement was favoured over a revolution two or three generations later.

3. The golden era of the Nordic welfare state

3.1. A story of success

Deacon, Hulse and Stubbs (1997) found that the Golden age of collectivism in the Nordic states and their welfare regimes took place in the 70s and 80s. From a pioneer perspective, the welfare state was impressively successful, as Heckscher (1985) formulates. Overall, the Nordic countries were praised for being socially just and economically high achieving.

The welfare state was built on compromise, hardly on controversy at all and, contrary to other countries, strike and lockouts basically did not happen. The historical reason behind that is the 1930s compromise. The strong position of trade unions also meant solidaristic wages for whole branches of the economy, Heckscher (1985) finds to be the effect.

3.2. Core principles

The welfare state emancipates individuals. Economic freedom, which Knananen (2014) understands as a minimum standard of living and basic services as social rights, and formal freedom complement each other, they built the opportunity to develop various lifestyles – independent of socio-economic background. Access to benefits is loosely regulated and based on the principles of universalism and citizenship.

The core values Kananen (2014) mentions for the welfare state are inclusiveness, solidarity and equality. For example, the existence of a solidaristic wage policy means similar wage for similar work across sectors. Consequently, this causes inefficient firms to rationalise or go bankrupt because wage dumping is impossible, benefiting employees.

Those values also mean free and mostly equal access to high quality education and full employment as the goal of labour market policy. Full employment, however, can according to Heckscher’s (1985) definition never exceed 97% per definition due to temporary unemployment between job changes etc. Having a job is important for inclusiveness, because it at least theoretically allows for participating in a community of workers, achieving self-respect, realising a dream and doing something of public utility – a whole bunch of positive connotations, whereas neoliberalism with its incentive structure values only strategic pursuit of interests. During the times of the welfare state in the Nordic countries there was also a high level of moral acceptance for doing a job, as paid work considered a source of autonomy and independence, not a duty, as Kettunen (2011) stresses.

3.3. Keynesian monetary policy

The monetary principle behind the welfare state was Keynesianism. In effect this means redistribution of economic resources through progressive income taxation and social security benefits. The rationalism behind is that cutting the saving part of high-earners to increase the consumption of low earners is economically beneficial, Kananen (2014) analyses. There would be fluctuation between bust and boom periods, so that state intervention is needed to achieve full employment. Pinder (2011) realises that the welfare state functions here as a protection mechanism against the vagaries of the market. The overall high income level (be it in jobs through strong tariff unions or generous income support from the state) usually causes ‘stagflation’, though. Heckscher (1985) identifies stagflation as a typical problem of welfare states. The economy is stagnating, because the high wage level typically found in welfare states reduces competitiveness for export goods. At the same time, the generous social aid results in imported inflation, which means an inflation caused by the growing prices of imports. Seen together, economic stagnation and imported inflation cause the phenomena of “stagflation”. The choice is between employment and inflation or no inflation but unemployment.

3.4. Criticism on the welfare state

Eisenstadt (1985) sums up some criticism for us. Despite the world-wide recognition and praise for the welfare state, there has also been criticism which should be mentioned here. There are conservative critics, who claim that central interference jeopardises individual liberties and economic initiative, too, so that the economy is underachieving. Moderate critics argue that the redistribution of resources is poor, because low-earners would carry an overly high proportion of the burden. This would be the case as better off groups engage in tax evasion. Marxist critics demand a change in the ways of production, but in general accept the welfare state.

A later criticism focuses on the reach of the welfare state. The idea of the welfare state was originally concerned with material conditions, but the expectations rose, lay then in the field of housing, for example, as well. As Heckscher (1985) puts it, “[t]he welfare state is an effective instrument for the equitable distribution of material benefits, but it provides no solution to the problem of what should be done when material goods are given secondary importance” (p.187). Although their might be a point in that, it should be mentioned that the welfare state as a strategy seems most suitable to grant everyone the securities, foremost economically, to lead a decent life and that without these securities people will not have the chance to be concerned with other goods of importance except economic well-being.

The welfare state is accused of favouring groups the accusers do not consider worth of support, like alcoholics, narcotic addicts, criminals and prostitutes. Opinions may differ on the worthiness of welfare recipients. Heckscher (1985) can say that the majority of welfare recipients are law-abiding citizens who encounter temporary struggles. I can say that this criticism runs danger of simply being populist.

Heckscher (1985) points out something vital, that the position of mentally disabled in society “is a serious blur on the escutcheon of the Scandinavian welfare states” (p62). It seems that the interest group for the mentally disabled did not exercise enough influence. A society that wishes to be socially just cannot accept this disparity.

4. The emerge of neoliberalist tendencies in the Nordic countries

4.1. What changed?

The overall idea of the competition state paradigm is to emphasize personal responsibility. The taxation was heavily reduced to spur economic initiative. The lesser state income was compensated by reducing welfare and social support programs, which are again supposed to drive workers towards putting more energy into the job and thereby benefiting the economy as a whole. Now that welfare was lowered, wage levels declined as even low payment jobs would be favoured over the then lower welfare levels of support, thus companies could cut wages and still attract employees. Negative incentives or precisely: sanctions were introduced up to a point where refusing to take a low-paid job became a struggle for survive. This was meant to force people to participate in the state economy, or in other words, appeal to their sense of personal responsibility. The term “McJobs” could be used to describe the significantly growing low skilled and low waged service occupations. Esping-Andersen (2002) did not find empirical proof for a “race to the bottom” (p.191) in wages, but the danger is real. While ‘McJobs’ rise in number, Ruhs and Anderson (2010) find the “proportion of autonomous jobs comprising non-routine tasks [also] increases” (p.22). This accounts for the high-skill jobs, which as they are more demanding promise far higher wage levels, thereby widen the income gap and create inequality among citizens. Both types of jobs were growing on the cost of less polarized working spaces.

So economically the neoliberal state comes with tax reductions to inspire people to work harder, on the cost of generous welfare; workfare and activation policies. Moreover, there are decentralisation and a slimmer state, privatisations, weak trade unions and a growing share of part-time as well as temporary jobs, Kananen (2014) mentions. Labour mobility becomes more important than job security, and remaining in the same job for a long time less frequent, Ruhs and Anderson explain (2010).

4.2. How did things change?

More theoretically speaking, the ‘workfare’ reforms going on in the Nordic countries from the late 20th century mean a shift from universalism to selectivism in social assistance matters. Instead of redistribution the new steps towards workfare, Blomberg and Kildal (2011) say plastically that citizens would literally have to “work for [their] welfare” (p.5) by taking part in activation measures. Thereby, the state is steering citizens’ behaviour by appealing to their calculative self-interest and anchoring the self-focused way of thinking in society. Economic performance simultaneously became the highest goal of the state as well. Kildal (2011) sees a rise of “contractualism” marking a shift from protecting citizens from social risks to protecting the economy from lack of employment by ‘activating’ and thus forcing citizens to actively look for and accept jobs.

Consequently there was a progressive reduction of social security measures, as Kananen (2014) exemplifies: In Denmark the Act of 94 granted four years of unconditional unemployment support and three further years depending on participation in measures. In 2003 the unconditional support was reduced to one year plus three further years conditional upon participation in Active Labour Market Policy measures.

The concept of employability was freshly introduced and is the cornerstone to workfare strategies. Fallov (2011) describes employability as employees’ attractiveness for potential employers, based on an evaluation of skills, experiences etc. It can be gained through training, enhancing skills and preserved by avoiding low-skilled work or unemployment. This is a vicious circle for low-skilled workers as they will be stuck in inferior jobs. Since training opportunities are rare in these jobs, a person having in a low-skill job is likely to become permanently stuck in low-skill jobs. This has severe consequences for the quality of life, as I will explain later on. Activation measures here are falsely believed to be a substitute for income maintenance guarantees. This should worry neoliberal enthusiasts, because they withstand the according to Fallov (2011) newly introduced principle of “equality of opportunity”. Contrary, the welfare state’s maxim was “equality of outcome” by means of redistribution.

4.3. Rationalising

4.3.1. Rationalising jobs

In globalised times capital can according to Deacon, Hulse and Stubbs (1997) go “regime shopping”, which means enterprises can skip high taxation by producing goods in countries with lower labour costs. Restructuring of companies occurs, phenomena Esping-Andersen (2002) names outsourcing and networking. So as jobs in industrialised countries are endangered of rationalising to remain competitive, the need for people to accept low-skill and low-wage jobs is rising. State welfare as an alternative hardly allows for sufficient income for families on the long run. Since the employment protection legislation was relaxed, new models of employment emerged.


Excerpt out of 21 pages


The Nordic Welfare Models in Transition
Has the shift towards neoliberal policies benefited the Nordic countries or would it be more beneficial to go back to the ways of the welfare state?
Catalog Number
ISBN (Book)
Nordics, neoliberalism, nordic countries, welfare state, social politics
Quote paper
Tobias Vornholt (Author), 2015, The Nordic Welfare Models in Transition, Munich, GRIN Verlag,


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