1 DENMARK: THE NORDIC WELFARE MODEL – POSSIBILITIES AND CHALLENGES Peter Abrahamson University of Copenhagen Presentation to the conference ‘the Nordic welfare model: what’s in it for Latvia?, Stockholm School of Economics, Riga, Latvia, November 15 th

22 Introduction Crisis symptoms are the same in Scandinavia as elsewhere: Bank bankruptcies A ‘frozen’ housing market A slow down in economic activity => Rapidly increasing unemployment but unevenly severe among the countries and with Norway as an exception Yet, Well preparedness and Robustness

33 Well preparedness: Recent welfare reforms (the Danish example) 1994: Labor Market Reform 1997: Social Assistance Reform 2003: Start Allowance 2003: Welfare Reform Commission => 2006: Welfare Reform 2007: Structural Reform 2007: Labor Market Commission

44 Robustness Many years of experience of handling social integration through public intervention The so-called Scandinavian welfare regime (a strong cushioning effect)

55 The Scandinavian Welfare Regime universal and (therefore) expensive; tax financed; based on public provision of both transfers and services; emphasizing personal social services vis-à- vis transfers; provides high quality provision; has high compensation rates and is therefore egalitarian; and is based on a high degree of labor market participation for both sexes

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

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

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

Den Finl Iceland Norway Sweden OECD

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11 The recent development has been rather uneven in Scandinavia before the current crisis. While poverty increased by 75 percent in Finland and by 50 percent in Sweden from 1997 to 2008, very modest increases have occurred in Denmark, Iceland and Norway; and Norway stands out as the only country hardly affected by the current crisis which can be explained by its considerable oil revenue. However in all cases the initial levels were very low:

At-Risk-of-Poverty European Union Denmark16,516,716,318,3.. Finland17,217,117,416,917,9 Iceland13,712,511,813,7.. Norway15,816,915,914,9.. Sweden16,916,314,915,016,1 EU-2725,625,223,523,4..

Annual growth rate GDP Denmark1,7-0,8-5,81,31,10,5 Finland5,30,3-8,43,72,90,6 Iceland6,01,3-6,8-4,03,12,4 Norway2,70,0-1,70,71,71,8 Sweden3,3-0,8-4,85,84,00,9

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16 DenmarkFinlandIcelandNorwaySweden Families & Children Unemployment57223 Illness Old Age Disability Surviving Relatives03212 Housing32312 Social Assistance32332 Table 4. Functional Distribution of Social Expenditure in Scandinavia 2008 in Percent

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

18 AbsoluteFertility DenmarkFinlandIcelandNorwaySweden

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20 Denmark On April 21 st 2009 the newly appointed Prime Minister, Lars Løkke Rasmusen presented the government’s work program for the coming six months, and stated that ‘handling of the crisis is of course the totally dominating objective’ (Prime Minister’s Office 2009: 1; a uthor’s translation)

21 Spring Package 2.0: Growth, Climate, Lower Taxes It was expected that the tax reform would reduce income taxes by more than 28 billion DKK => 1½ per cent of GDP (long-term, permanent effect) 21

22 The tax reform will reduce marginal personal income tax and Increase environmental taxes 22

23 Part of the agreement was also to return to citizens the earlier collected compulsory pension saving Other elements concerned grants to renovation of own home Enabling the municipalities to build more public housing In short, the exercise was to increase private consumption substantially 23

24 Initiatives from the Ministry of Social Affairs Fighting ghettoization and building more units Reducing the number of people facing eviction from their apartment because of arrears Support to NGOs to establish debt counseling services DKK 850 million in funds to enable the municipalities to renovate and construct ‘citizen near’ institutions 24

Some of the changes can be summed up as: administrative reform: in 2011 “Payment Denmark” was established and is expected to take over a number of municipal case-administration areas (those with “objective” criteria) Free choice of technical aids for disabled has been inroduced Reimbursement was changed to increase incentives for activation (30 percent for passive periods, 50 percent for active periods) 25

Local authorities must no later than 1. August 2011 provide a healthy luncheon in all day care institutions (but parents have to pay) 26

27 Conclusion T he initiatives taken together will: Increase private consumption substantially It is, however, much more uncertain whether that will lead to an increase in domestic production/growth or to an increase in imports?

28 T he many initiatives to increase activity within construction renovation and building have reduced unemployment in the sectors that are the hardest hit

29 Tax reductions disproportionately will benefit the better off in Denmark and hence increase inequality while the opposite is expected in Sweden

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

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

32 They were, furthermore embedded in a culture characterized by a high degree of trust both in government and in each other, which again is a reflection of extremely low levels of corruption that prevail in Scandinavia. This poses limitations to the transferability of Scandinavian experiences to regions with different traditions and conditions

33 Thank you very much for your attention!