The Nordic Model - Embracing globalization and sharing risks

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Cap the welfare state and enhance efficiency Give priority to the young and investment in the future · there is a case for discarding arrangements that de facto subsidize leisure at the expense of work (such as the sabbatical leave in Finland); · there is a need to match better the demand and supply of labour regionally and occupationally; labor mobility can be supported by more stringent limits on unemployment benefits (duration, workfare elements) and financial incentives to relocate; · decentralized wage formation may improve matching and the functioning of the labour market in general as well as contribute to a better personnel policy (an area in which Finland could emulate “best practices” in Sweden and Denmark); and · immigration policy should take into account the needs of the economy with the aim to achieve a high rate of labour market attachment of immigrants. Second, the impending spending pressure calls for actions that define the core activities of the welfare state, set limits for what the government is responsible for and enhance the efficiency of public services: · a ceiling on overall pension contributions (moving decisively towards a defined contribution system) could usefully be specified and measures enacted to ensure that pension costs allow the ceiling to be respected; · the efficiency of public services can be enhanced by introducing competition via selective outsourcing of services and use of vouchers and customer fees. · one should clarify the scope and need for complementary private solutions, so that citizens have a clear understanding of what they can expect in the areas of publicly provided health and old-age care. Third, and this is an overarching principle, society should have high ambitions with regard to investment in human capital and skills of the young. Changing demographics will increasingly lead to conflicts of interest between the old and the young, for instance, when central and local budgets are decided. There is a risk that the many (the old) will outvote the few (the young), which could imply policies that do not cater for the future appropriately. Invest- Guidelines for reform · 159
ment has a higher return when spent on the young. A society can remain healthy and vital only if it ensures that the young generation is well-educated and prepared to take on future challenges. This broad principle should guide policy choices in a number of areas: · we should invest more in education, particularly at the university level (both education and research); · social protection should pay due attention to the needs of families with children (safeguarding good quality day care facilities and parental leaves); and · the relative tax burden of the young could be eased by shifting the tax structure from taxes on wage income towards consumption and real estate taxes (which is also in tune with the requirements of globalization). The bottom line Institutions should be reassessed, while some values underlying the Nordic model need to be reiterated. For instance, the rationale for legislative protection of employment is certainly much weaker in today’s era of comprehensive social security and unemployment benefits. Similarly, collective wage bargaining made sense when inflation rates were high and uncertain and macroeconomic policies lacked credibility, but we now live in a very different world. The Nordic model will in coming years be facing the most stringent political test of its lifetime. It was established in favourable demographic circumstances. When the first welfare services were introduced and the first pension systems established, the reforms created many more winners than losers. The political mobilisation for the welfare state, in particular within the powerful Nordic labour movement, has accordingly been articulated as a win-win struggle for the “rights” of workers and all citizens. Such a political discourse continues to permeate today’s electoral debates, in which it is far easier for candidates to promise further entitlements than to remind the electorate of the dynamic budget constraints or of the looming demographic challenge. Given the worrying demographic prospects, many of the reforms will create both winners and losers. Responsible politicians will have to understand and acknowledge that it is largely the same people who enjoy the benefits of entitlements and who finance A time for reassessment of institutions and reiteration of values We will have to work more 160 · The Nordic Model
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The Nordic Model Embracing globaliz
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ETLA B232 ISBN 978-951-628-468-5 IS
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THE AUTHORS Torben M. Andersen is P
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CONTENTS PREFACE THE AUTHORS 1 INTR
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8.5 The future of public services -
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Globalization is primarily an oppor
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ices financed by taxes, which are h
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14, respectively, out of a total of
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are the effects of technical change
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- and, particularly, their effect o
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not contesting economic growth as t
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1.6 AN EFFECTIVE WAGE BARGAINING PR
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etter be tried in individual cases
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The scheme of the social contract c
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is worthy and realistic. But the de
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supportive interaction of openness
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The financial deregulations in the
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horizontal axis). These indices are
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does can nowadays be seen, in a bro
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employment increases in the public
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are not at the top of the league, t
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ENDNOTES 1 Wikipedia refers to popu
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consider employment and productivit
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from the mid-1980s. Finland has gra
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% 7 6 5 4 3 2 1 0 IT expenditure, %
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As technological change is to a sig
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3.3 SOCIAL EQUALITY Economic effici
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0.9 0.8 0.7 Net Fin Den 0.9 Composi
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ANNEX: GROWTH ACCOUNTING The Nordic
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sources of GDP growth in the EU15,
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11 These decompositions have been c
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4.1 THE WELFARE STATE AS A SOCIAL C
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The extent, coverage and quality of
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% % 80 80 60 60 40 20 0 OECD max Fi
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% 80 Total Old age % 80 60 60 40 40
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tem is seriously affected. Today, t
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Historically, however, the share of
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More children. Since the problem is
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Actually higher growth may make the
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dependency ratio driven by the baby
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82 · The Nordic Model
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to handle much bigger fields today,
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Table 5.1 Projections of public hea
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5.4 AN EASY FIX - BRING SERVICES BA
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Box 5.1 Growth and the welfare stat
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it implies that the long-run defici
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The level of taxation is already hi
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One may ask why this problem arises
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globalization may contribute to bot
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able to pay to seek private solutio
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102 · The Nordic Model
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ily policies that Nordic demographi
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absolute and relative terms than hi
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Page 111 and 112: Table 6.2 The activity rate, aggreg
Page 113 and 114: Thus, responsible unions should res
Page 115 and 116: als take part in various unemployme
Page 117 and 118: Box 6.2 What is the Danish “flexi
Page 119 and 120: ENDNOTES 1 In his history of the ec
Page 121 and 122: particularly noteworthy in a euro a
Page 123 and 124: 7.2 COORDINATION AND DECENTRALIZATI
Page 125 and 126: also depends on the business cycle.
Page 127 and 128: ut not in any dramatic way (cf. fig
Page 129 and 130: displays higher nominal rigidity th
Page 131 and 132: model stem from an age in which the
Page 133 and 134: mostly in the years 1980-2000. For
Page 135 and 136: Table 8.1 Government expenditure by
Page 137 and 138: ure. This selection bias alone will
Page 139 and 140: that everyone gets their worth as m
Page 141 and 142: 8.3 THE CASE FOR GOVERNMENT PROVIDE
Page 143 and 144: maximizing firms tend to focus exce
Page 145 and 146: than zero based budgeting) are impe
Page 147 and 148: sectors, place at or above the medi
Page 149 and 150: The demands for objectivity limit w
Page 151 and 152: assessed case by case. The importan
Page 153 and 154: c. Vouchers Vouchers are issued by
Page 155 and 156: mechanically in the political debat
Page 157 and 158: ENDNOTES 1 The private sector inclu
Page 159: The biggest hurdle to overcome for
Page 163 and 164: REFERENCES Adema, W. and Ladaique,
Page 165 and 166: Jonung, L. and Hagberg, T. (2005):
Page 167: Is there a Nordic model? What are t
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