sou · GOB383 · 2001-01-01 00:00:00 — To the Minister and Head of the Affairs In February 4th 1999 the Swedish Government authorised , the Minister of Health and Social Affairs, to set up a com- mission of researchers to review welfare development in during the 1990s (dir 1999:07). The commission later took the name A Balance Sheet for Welfare of the 1990s (Kommittén Välfärdsbokslut). The Chairman of the commission is Associate Professor and the members of the commission are Associate Professor , Associate Professor , Associate Professor , Acting Professor , Associate Professor and Associate Professor . The secretaries are and . In its references (dir 1999: 7) to the commission A Balance Sheet for Welfare of the 1990s the Swedish Government stated that in drawing its conclusions about Swedish welfare development, the commission should make comparisons with other countries, and in particular with countries in which we can trace a similar development, and in which there is a sufficient availability of comparative material. This makes a natural first candidate for such comparisons. and do indeed share a number of attributes both with regard to general characteristics and recent developments. As for recent changes one can in particular note that no other countries in Western Europe underwent such severe economic problems and rapid increases in unemployment in the early 1990s. Given this background a compre- hensive comparison between and was put at the top of our agenda. In order to make such a task feasible with short notice and during a short period of time, we needed a researcher with excellent knowledge on both cross-national comparisons in general and on the economic, social policy and welfare developments in in particular. We are very happy that we were able to recruit from STAKES to undertake this task. This report points to both similarities and differences between the two neighbouring countries and is definitely able to cast a new light on how we understand development in . It is our hope and belief that the report will provide its readers with new insights and perspectives on the welfare development in and over the recent decade. The members of the commission have not taken up a position on the content of the report. All analyses, interpretations, and conclusions are those of the author. 1.1 The Nordic model and and as two of a 1.2 Working hypothesis on welfare state development in Design of the report.................................................................... 2 The economic crisis of the 1990s ......................................................... Developments in unemployment and employment.................... Anatomy of the crisis ................................................................. Balance sheet for the 1990s crisis in and ........ 3 Balancing of public budgets ................................................................ Problems in public finances ....................................................... Public expenditures and revenues .............................................. Balance sheet on budget consolidation in and 44 4 Adaptation in social policy................................................................... Social protection expenditure..................................................... Premises for service provision ................................................... Case 1: Adjustments in income transfers ................................... Case 2: Adaptation in elderly care ............................................. Case 3: Adaptation in child day-care services ........................... Case 4: Adaptation in labour market policies.................. 5 Economic welfare ................................................................................. The distribution of unemployment............................................. Balance sheet on changes in economic welfare ....................... 6 Concluding remarks........................................................................... This report examines welfare state development during the 1990s in two Nordic countries, and . It has been prepared in connection with the work of a Swedish governmental commission A Balance Sheet for Welfare of the 1990s (Kommittén Välfärds- bokslut), that was allocated the task of assessing welfare development during the 1990s in . The commission interpreted its task to include a survey of changes in structural conditions and social policy. While such a broader view of national development was considered indispensable for understanding welfare development, the commission also recognised that its assessment would further benefit from a comparative perspective. Information on the similarities and differ- ences between countries which thereby emerges can be useful for assessing the relative significance of various trends. This report is a modest attempt at such a comparison. The choice to compare and can be justified on one hand by the fact that these countries – and especially their welfare states – are often grouped together in international comparisons and affiliated with the Nordic welfare model, and on the other hand because and were also most similar in terms of their experience in the early 1990s. No other countries in Europe underwent such severe economic problems and rapid increases in unemployment in the early 1 This report was written in connection with the work of the Swedish commission 'A Balance sheet for welfare of the 1990s' ('Kommittén Välfärds- bokslut' in Swedish, see SOU 2000:3). I thank , , , , , , , and for making my and my family's short stay in during fall/1999 possible, for the inspiring work atmosphere and for their valuable help and comments in all phases of the process of writing this report. I also thank , , and for reading and commenting on an earlier version of this report. Furthermore I thank for his language editing skills. Of course, responsibility for all inadequacies in the following pages remains mine alone. In fact, the magnitude of the changes has no parallel among the industrialised countries during the entire post-war era. In contrast to these underlying similarities the adaptation strategies of the two coun- tries have often been very divergent, which poses an interesting starting point for a comparison. The scope of the comparison was planned in connection with the work of the Swedish commission (see SOU 2000:3), but as no matching report on the Finnish development exists and there were limits set by time and resources, only certain aspects of welfare state development could be incorporated. The style of the report is necessarily descriptive rather than explanatory. The fact that the report is written by a Finnish researcher undoubtedly brings some bias to the selection of issues and to the way they are handled. With these reservations it is the authors hope that by presenting an empirical description of developments in certain key areas the report will serve as a rough guide for comparing welfare state developments in and during the turbulent decade of the 1990s. There is certainly scope for more in-depth comparisons, and if the report provokes interest in learning more about the neighbour on the other side of the Baltic Sea, in deepening the analysis, and/or expanding the comparative perspective to other countries, then it has served its purpose. The remaining part of the Introduction reminds the reader of the existence of a specific Nordic model of welfare states and about some findings from earlier comparisons which have included these two countries. The design of the report is then outlined. 1.1The Nordic model and and as two of a kind While all countries are unique, in comparisons involving many countries some may display very similar characteristics and group together on various dimensions. In international settings we speak of the Nordic countries as a distinct unit of nations that have historical, social and economic similarities. In short, the Nordic welfare states are a family of nations (Castles 1993). With respect to social policy it is common to speak more precisely of a Nordic (or Scandinavian) welfare state model. The countries associated with the Nordic model are , , and (in some accounts is included in the list, in others not). The term model embraces a multitude of features of public policy, social policy arrangements, peoples welfare etc. that are regarded as common to these countries. Whether countries can in the first place be categorised into various models is an ongoing theme in comparative welfare state research. Depending on the criteria for classification, research evidence mainly reliant on data from the 1980s and early 1990s has been used to divide the Western industrial countries into three (1990, 1999), four (Castles and 1990, Leibfried 1992, 1996, Castles 1999), or five (Korpi and 1998, Anttonen and Sipilä 1996) broad groups. While there is no consensus on how many such models exist, nor on the relevant characteristics for classifying coun- tries (see e.g. 1999), it is fair to say the Nordic model has been the least contested of these groupings. The literature testifies to numerous attempts to encapsulate the Nordic model, but an undisputed list of traits of what constitutes the model remains elusive. There have been many studies over recent years, and the characteristics deemed relevant depend on the perspec- tive chosen. There are certainly marked differences in historical devel- opment (e.g. 1986), and furthermore, as (1994) has shown, inclusion in a model is contingent upon a specific point in time as well as upon the dimension of welfare state development one is comparing. Yet there is relatively unchallenged agreement on certain char- acteristics that in a wider comparison to other industrialised countries identify the Nordic countries as a group. To start with, the scope of public policy is large, it encompasses social security, social and health services, education, housing, employment etc., with the aim of meeting most basic needs via public measures. Consequently, the States involvement has been strong in all policy areas – not least in social policy – with efforts to co-ordinate policies. There are of course historical discrepancies and variations between the Nordic countries, but an emphasis on full employment, accompanied by labour market policies, have nevertheless been regarded as essentially Nordic traits. The Nordic welfare system is said to be based on a high degree of universalism, meaning that all residents are entitled to basic social security benefits and services, regardless of their position in the labour market. In addition to basic security, most social insurance schemes embody earnings-related components for those with a work history. There are also targeted measures (social assistance) to ensure no-one falls out of the safety net. Levels of benefits are fairly high, and compared to other industrialised nations, the Nordic countries (along with some others) have sometimes been characterised as transfer- heavy states. Social and health services are financed mainly through taxation without high user fees, and they aim to serve all residents in need. They are provided at the local level by local authorities and also mostly produced by them, resulting in a large share of public employ- ment. Therefore the Nordic countries have also been characterised as social service states (e.g. Sipilä 1997). The characteristics mentioned above refer to the scope of publicly- run policies and to the coverage and compensation they offer. The broad scope of public activity is reflected in public expenditure. Thus an additional distinguishing characteristic has arguably been the economic welfare states. Relatively generous transfers together with a broad scope of services result in a high share of social expenditure of GNP, although here, too, there have been marked differences across the Nordic countries, not least between and . As public financing of transfers and services has been considerable, the Nordic countries have also had high taxation. High spending and high taxation have another side of course. In comparisons of net taxation (see et al. 1996) the uniqueness of the Nordic countries pales somewhat as almost all benefits are taxable income2. Besides, high taxation is not an end in itself; a significant proportion of taxes is used for redistribution from the well-off to the less well-off. Criticism of high taxation is placed into perspective when one takes the achievements into account. Judging the performance of the Nordic model, there is evidence of the success of the investments: low poverty rates, equal income distribution and progress in gender equality have been mentioned among most notable achievements. The Nordic countries score high in comparative indexes, such as the UNDP Human Development Index (1998), and fare well in international comparisons in the areas of education, social welfare and health. Moreover, the Nordic welfare states enjoy broad public support, and it is the nature of policies that has arguably contributed to this. The traits italicised above certainly feature in standard presentations of the Swedish welfare state, and indeed, in many comparisons has exemplified the Nordic model. Although it is not always evident whether traits that have been found to characterise should be generalised to all Nordic countries, has nevertheless often been seen as a welfare state pioneer and a standard for other Nordic countries – for probably more so than for or . (1981) has shown how has been the example 2 Not all comparisons note that social security benefits may be taxed differently in different countries. In the Nordic countries benefits are taxed to a higher extent than elsewhere (et al. to follow and the main source of inspiration for Finnish policy reforms. In terms of policy implementation, however, it is an established fact that was a latecomer to the Nordic group (e.g. Alestalo and Uusitalo 1986; Kangas 1994; Kosonen 1993 and Salminen 1993). took a similar route towards the Nordic welfare state, but achieved its criteria later and more rapidly than the others (Esping- and Korpi 1987). Against many benchmarks (such as coverage and compensation rates of various benefits) became a Nordic welfare state only in the 1980s (Kangas 1993). Thus although the 1990s underscored the similarities between and , their differing paths towards such institutional similarity have certainly influenced and set boundaries for the developments of the 1990s. It is also worth pointing out that in 1990 there were still differences between the two countries, for instance with regard to institutional arrangements, generosity of benefits and services and availability of schemes. In other words, although the gap between and narrowed rapidly after the 1970s, most indicators reveal that in 1990 was still the leaner welfare state of the two. As a rule, the compensation rates of social insurance schemes did not reach Swedish levels, and in service provision was clearly providing fewer public services, and of more modest quality. In fact, judging by social expenditures was part of the Nordic model, as its social spending share of GDP in 1990 was close to the EU average, rather than at the high Nordic level. This short account of the Nordic model and the position of and probably makes clear that judgements about similarity and difference are ultimately influenced by the choice of characteristics compared, the reference countries and the time period. A key starting point for this report is that despite more or less obvious disparities in degree, and by 1990 were qualitatively very similar in relation to other industrialised countries. In a broad comparison they were considered two of a kind. Both and had been able to combine good overall economic performance and low unemployment with a broad public sector that aimed to guarantee high levels of social protection and social rights for their citizens. 1.2Working hypothesis on welfare state development in and Developments during the 1990s challenged the Nordic model on different fronts, and the uniformity of the Nordic countries may have been less intact than in the 1980s. Looking at the development during the early 1990s one can certainly see that and faced very different compared to and (see Kautto et al. The title of this report – two of a kind – also partly reflects this situation, while the question mark indicates that on closer examination the supposed similarity of and may dissolve. Indeed, some Finnish researchers highlight disparities between the two countries concerning overall developments during the first part of the decade. According to them, the main differences between and focus around the severity of the economic crisis, the policy reactions to it and their combined consequences. In a nutshell, this view may be expressed as follows: during the deepest crisis years there was some overall agreement in that the crisis in the economy had more of a structural than cyclical nature. For this reason policy adjustments needed to be harsh. In addition to measures that would help restore the competitiveness of the Finnish export industry, public sector reform was deemed necessary. Measures to balance the budget and correct the role of the public sector were taken fairly rapidly without much thought to their possible social consequences. The deep economic recession in itself harmed the economic welfare of the population, and it is argued that policy adjustments such as cutbacks in transfer and service systems also contributed to the poor employment development (Kiander 1997, 1999) and an overall decline in welfare among Finns. (see e.g. Koistinen 1994; Kosonen 1998; 1996). In contrast to this, the interpretation among the Finnish researchers cited above is that opted for softer adjustment. In their view the Swedish economic recession was less severe than in , and there was more reluctance to interpret the crisis as being a straightfor- ward structural problem. At least partly for this reason, policy adjust- ment measures came later and to some extent also in a less drastic form than in . Besides, the different tradition in economic policy meant that counter-cyclical measures played a more important role than in . Thus resources allocated during the crisis years to educa- tion, vocational training and employment-related measures were con- siderably larger and helped to moderate the effects of unemployment. In addition, the social policy system served as more of a cushion, since cuts introduced in the welfare systems were milder than in . All in all, the more positive economic preconditions and the fact that policy reaction was designed to take social consequences more into account could create the impression that welfare among the Swedes developed more favourably than among the Finns. (Kosonen 1998; 1996; Koistinen 1994). This distinction of differences regarding the severity of the economic crisis, the policy reactions and their consequences for welfare will serve as a working hypothesis to guide the examination of the development patterns of and during the decade (Table 1). Summary of working hypothesis on developments in and during the 1990s 1.3Design of the report Starting from the established evidence of similarity, this report examines welfare state development in the two countries during and after the exceptionally deep and broad-sweeping economic crisis of the 1990s. Taking account of major development patterns in macro- economic conditions, policy adaptation and changes in the economic welfare of the population during the crisis decade, did and develop similarly or do their routes suggest divergence? Throughout this report the emphasis is on both similarities and differences between patterns and trends. The research strategy employed in the macrocausal analysis that follows could be labelled narrative analysis as Mahoney (1999) has suggested. Accordingly the research task is to unfold temporally ordered events that occur within cases. This approach entails disaggregation and a focus on historical sequences, process tracing and pattern matching (see Mahoney .) With a focus on only two countries the question of whether or to what extent and still meet the criteria of the Nordic model is not directly addressed, but the results may still be relevant for model discussions and further studies. In line with the starting points outlined above, the task of the report was to empirical evidence on different aspects of welfare state development and to present this in a comparable way. The main thrust of the report is therefore divided into four sections. The first section documents the modified preconditions for social policy. Data on macroeconomic development and changes in unemployment and employment in the two countries are presented as background information on the severity of the 1990s economic crisis. The second section provides information about the development of public finances and budget consolidation. The third section investigates adaptation in social policy, and includes comparisons in different policy areas: cash transfers, elderly care services, childcare services and activation measures. The fourth section of the report examines developments in the welfare of the populations in these two countries. This is done first by exploring the way unemployment was distributed within the workforce. Welfare outcomes are then examined by looking at developments in income distribution, and finally developments in social assistance are also addressed here. At the end of each section a short balance sheet is provided to summarise the results of the comparison. The report concludes with a summary of these balance sheets. Having now specified the focus of the report, three practical limitations need to be mentioned here. Firstly, the reader would obviously benefit from a detailed presentation of the institutional systems in these two countries, as well as the resultant differences in policy implementation, in order to fully digest the information presented. This would include the differences in political systems, administration, social policy programmes, the role of local authorities etc. Unfortunately it was not possible to include such a presentation in this report (for such comparisons see e.g. and 1996 for social insurance systems, Rostgaard and 1998 for child care and elderly care, Baldersheim and 1998, and 2000 for local authorities role and Oulasvirta 1990 for the state-municipalities -relations). Secondly, although the ambition was to present comparative information for each section and subject, the available evidence is not always comparable in a strict sense due to differences in data, time periods etc. This is not necessarily a major problem, however, when the main interest is in trends rather than levels (although admittedly level differences are important for interpreting trends). comparison national data are useful too, as long as the rules for presenting statistics have remained consistent.3 A final comment concerns the choice of time period. The directive for the commission (Dir 1999:7, see SOU 2000:3) asks for a balance sheet of developments during the 1990s, but the availability of data means that the report only covers the period between 1990 and 1998 (or the last available data if this is not possible). The choice of this period is chiefly motivated by the to examine these uniquely severe economic downturns and their consequences. It is appropriate to point out that social phenomena have complex roots originating prior to 1990, and that this institutional heritage places some limits on change. It should also be made clear that the economy alone certainly does not account for all the changes in policies and welfare.