How sustainable is the Swedish model? Joakim Palme Uppsala University

What is it? Why interesting? Why worry? What could be done? What can we learn?

The Nordic Model History of exceptionalism: Interchangeably defined in terms of: - the design of social policy institutions: big state - how people’s living conditions appear: equality - the decision making process: rational

Shaping the Nordic Model The emergence of a universal approach 1930s: depression and population crisis Postwar social citizenship Earnings-related social insurance Modern family policy - dual-earner model What about ageing societies?

Regimes Welfare regime: encompassing Family policy regime: dual-earner Production regime: collective bargaining Education regime: universal, life-long Migration regime: open

Nordic Schumpeterian approach During great transformations there are always winners and losers. Old forms of security are replaced by new ones. We can speak about a constructive destruction (Schumpeter). Swedish experience of making winners of the potential losers in structural transformation Support to glabalization contingent on the social and policy fabric of society

Achievements of the Nordic model Low life-cycle poverty High employment Strong support for social security Good incentives and cost control! High social trust Economic growth and investment climate But no miracle: straightforward policy design remaining pockets of poverty and (at risk of )poverty increases

Economic sustainablity

The challenge of global financial crisis Well-rehersed to handle a financial crisis Positive public sentiments to trade and globalization remain Public finances in balance, nominal cost limits give budget control Policy drift rather than retrechment in social protection Free to choose!

Life-cycle deficit in four EU countries Selected countries

Goals/functions of social policy Redistribution Insurance Services Investment Institutional, functional complementarities Economic and social sustainability

Social investments Are about investing in an equal distribution of human capital in order to promote a good economic life-cycle for all and reduce the pre-redistribution inequality

Capability formation: A life course perspective Publicly funded child-care invests in cognitive and social skills essential for life chances of children Quality of compulsory education – PISA studies of core competencies: reading, mathematics, science Skill needs in advanced industrial societies have changed – polarization among youth is a reality and a threat The ”learning economy” requires a constant renewing of capabilities in firms and competences of workers

Political sustainability Post-neoliberalism

Retrenchment, neoliberalism and beyond Pierson, path dependency and continuity Recalibration and recasting: different view on both the driving forces behind the changes and their consequences Reforms to promote the underlying goals but also avoid producing unintended consequences Hall in contrast to a ‘punctuated equilibrium’, regime changing processes could be much more stepwise and complex ‘Beyond continuity’ with ‘liberalisation’ as the leitmotif: small changes may trigger transformations of exiting regimes.

Pension reform, with layering element Social insurance at drift Social services: layering and drift ALMP: drift and layering

End of universalism? Inclusion Financing Provision Benefits Open to all or for some groups only? Public or private? By state, corporatist (or non-profit) organizations or markets? Existence of complementary markets? Adequacy, equal quality?

Income ceilings for benefit purposes in unemployment and sickness insurance 1985 och 2010 A S

‘The Enlightened Path’ or ’The Third Way’ for ALMP

Policy instruments and trajectories Education of children and youth Active Labour Market Policy Adult education Labour market regulation Macroeconomic policy

Earned Income Tax Credit Jobbskatteavdrag: Five rounds since 2007 lowered income taxes for employees across the wage distribution For 2014, the total costs of the EITC amounts to approximately 95 billion SEK (€ 10.7 billion) = 3.5 times the size of the ALMP budget Simulations have estimated that the EITC has increased the number of working hours by between 1.5 and 2.5 percent. Estimations could not be confirmed in an empirical evaluation by the Institute for Labour Market Policy Evaluation (IFAU)

Policy outcomes Employment and work intensity Wage development Poverty reduction Poverty rates

Social sustainability Comparisons and trends

Policy dilemmas? Targeting vs. univeralism? Transfers vs. benefits in kind? Social insurance vs. safety nets? Social protection vs. social investment vs. social innovation? Investment vs. consumption?

Social policy opportunities Education and human capital formation as social policy Labour market policy and regulation as social policy Migration policy as social policy Fiscal policy as social policy Searching for the institutional complementarities

What can we learn? No blue-print Institutional complementarites Mobilization and coalition building Modernization – politics of enlightenment Social cohesion built on social capital and social inclusion, in turn enhanced by social investment and dependent on social rights No such thing as a free lunch…

Conclusions Difficult to make predictions, especially about the future Free to choose! But model at crossroads