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STV004
Tutor: Ole Elgström
Department of Political Science
The Merchant and the Guardian
- Ideological Economism: A Challenge to the Welfare State?
Philip Thörn
Abstract
In this essay I try to sort out whether or not the welfare state is being challenged.
My theoretical approach is based on the assumption that there has been a shift in
the state-market relationship; the market has gained influence, while the state has
lost influence. I approach the issue by examining and comparing the international
and the Swedish academic debate on whether or not the welfare state is being
challenged. When examining the international debate I have tried to include as
many of the “big players” as possible. When studying the Swedish debate I have
mainly focused scholars associated with: SNS and SOFI. Quite surprisingly the
Swedish debate on the matter differs substantially from the international debate.
There is more or less a consensus in the international debate that the challenge to
the welfare state is ideological rather than economical. The Swedish debate,
however, primarily concerns whether or not an extensive public sector is
economically sustainable. I present a number of reasons why the Swedish debate
differs: economists increased influence in the political debate; a window of
opportunity; path-dependency; boundary ordering device and also the question of
responsibility for the 1991 crisis.
Key words: welfare state, State-Market relationship, European social models,
public sector, growth
Table of contents
1. Introduction
1.1
1.2
1.3
1.4
Aim of this study
Method and Material
Definitions
Theoretical Framework – A Change in the StateMarket Relationship?
4
5
5
7
8
2. The International Debate – A Challenge to the
Welfare State?
11
3. The Swedish Debate – Growth and the Public
Sector
17
4. Summary
23
5. Explaining the Discrepancy
24
6. Bibliography
30
1. Introduction
“The second principle is that organisation of social insurance should be treated as
one part only of a comprehensive policy of social progress. Social insurance fully
developed may provide income security; it is an attack upon Want. But Want is one
only of five giants on the road of reconstruction and in some ways the easiest to
attack. The others are Disease, Ignorance, Squalor and Idleness”
Sir William Beveridge
According to Susan Strange and Richard Rosecrance, the world has changed.
Independent states used to be the key actors in the world and national governments
used to be in control of domestic politics as well as the domestic economy. This is
no longer true. There has been a change in the State-Market relationship; the market
has gained influence, while the state has lost influence.
Some argue that this change in the State-Market relationship, what one might
call globalization, have had serious consequences for the European Social Models.
“There has been a ‘disembedding’ of the market from the institutions that had made
up post-war socio-economic order of the Keynesian welfare state” (Apeldoorn,
2000, p. 235). The re-launch of Europe, the Single European Market, can be seen as
an attempt to mitigate the effects of increased globalization, but it can also be seen
as an attempt by liberal forces to force change upon the welfare models of
Continental and Nordic Europe. However, the social models of Europe have proven
very resistant, despite the challenge from globalization, much due to the public
support of the national social models. The importance of path dependency has
shown to be very strong
However, the very notion that there is a challenge to the European Social Models
(welfare states) is disputable. Within the international political economical
academic research the debate on whether or not an extensive public sector, welfare
state, is growth inhibiting remains unresolved. Many would argue that the side
providing the most plausible arguments, is in fact the one arguing that there is no
correlation between the size of the public sector and growth (Palme, 2004, p.83)
In fact, most scholars would argue that the choice between this or that system
has more to do with ideological and political considerations rather than economic
concerns (Sapir, 2005, p.10). This is a fact, however, that I would argue is not
reflected in the academic debate in Sweden. The norm is rather to point out that
“economic determinism” – globalization – forces upon Sweden a dismantling of the
way too extensive welfare model. In, what most international scholars would argue
to be, an ideological debate economic science is being used as political arguments
for cutting back on the welfare system and public sector. Why is it that the Swedish
debate still revolves around the internationally already settled issue, whether or not
an extensive public sector is growth inhibiting?
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1.1 Aim of this study
The aim of this study is firstly to sort out whether or not, according to the
international and Swedish political economical research, there is a challenge to the
welfare state. Is there an endogenous, exogenous, economical, ideological or in fact
no challenge at all? Secondly, I investigate if the Swedish political economical
debate concerning the welfare state diverges from the international debate. By
comparing the two debates I hope to find an answer to this question. Thirdly, I try
to explain the possible differences between the international and Swedish debate on
the challenges to the welfare state. Are there differences due to academic traditions
or are the differences due to something else?
My questions are:
1. Is the welfare state being challenged? What does the international debate
say, and what does the Swedish debate say?
2. If there is a discrepancy between the international and Swedish debate on
the welfare states’ future, why is this?
3. Why does the Swedish debate still revolve around the internationally
already settled issue whether or not an extensive public sector is growth
inhibiting?
1.2 Method and Material
In his “Case study and theory in Political Science” Harry Eckstein identifies five
types of case studies: 1) configurative-idiographic, where the ambition is to
investigate a case without use of theory 2) disciplined-configurative, where theory
is being used 3) heuristic, the ambition is to try out new theoretical ideas on a
preliminary basis 4) plausibility probe, which is a form of “first test” before a more
thorough investigation and 5) crucial case analysis, where the case is chosen since
its been identified as ideal for testing the theory (Eckstein, 1975). My study
concerns mainly the heuristic type, due to the fact that my ambition is to try and sort
out the issue of whether or not globalization poses a threat to the welfare state or
not, but also why the Swedish debate differs so substantially from the international
debate.
I have chosen to conduct a qualitative comparative study. Since my ambition is
to try and sort out why the Swedish debate differs from the international debate I
believe a qualitative method is the most fruitful approach as “qualitative methods
…are most appropriately employed where the goal of research is to explore
people’s subjective experiences and the meanings they attach to those experiences”
(Marsh&Stoker, 2002, p.199). Scholars using qualitative methods often use
interviews as a mean to explore subjective perceptions “Finally, qualitative methods
draw particular attention to contextual issues, placing an interviewee’s attitudes and
behavior in the context of their individual biography and the wider social setting”
(Marsh&Stoker, 2002, p.199), but I have chosen not to. Due to the fact that the
Swedish debate has been quite dramatic and passionate, there has been no problem
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identifying the protagonists’ subjective perceptions of this matter. The relatively
extensive empirical material, exclusively consisting of research material, has given
me the opportunity of reaching a deeper insight and has allowed me to focus on the
academic arguments as well as other potential reasons of disagreement.
I believe a comparative qualitative study is the best approach for my study and
offers the best opportunity to reach an understanding “By making the researcher
aware of unexpected differences, or even surprising similarities, between cases,
comparison brings a sense of perspective to a familiar environment and discourages
parochial responses to political issues. Observations of the ways in which political
problems are addressed in different contexts provides valuable opportunities for
policy learning and exposure to new ideas and perspectives” (Marsh&Stoker, 2002,
p.249).
I have chosen to analyze the Swedish academic debate in contrast to the
international debate due to two reasons: 1.) The availability of access to primary
material 2.) Sweden offers an interesting case since it is has already been
intensively scrutinized by international scholars “Most Europeans welfare states
experienced some serious challenges of some kind or another in 1980’s or 1990’s. It
has not gone unnoticed in the academic and media world that the Nordic welfare
states were among these. Sweden, in particular, has come under closer international
scrutiny, with observations of problems often mixed a dose of schadenfreude,
perhaps to compensate for previous envy at, or disbelief of, the social and economic
success of her welfare model” (Kuhnle, 2001, p.103).
My selection of research material (my empirical evidence) is based on what I
consider to be the main actors in the international and Swedish debate. In the
international debate I have tried to include all the ‘big players’ such as Atkinson,
Dowrick, Esping-Andersen, Liebdfried, Piersson, Streeck and Scharpf. The
question of whom is to be included in this exclusive group is of course ultimately a
subjective matter. However, after having analyzed the debate for a longer period of
time I have found that there seem to be a general consensus that they are in fact to
be regarded as the ‘big players’.
In the Swedish debate I have found that the most active participants in the debate
are scholars associated with the to the two organizations: Swedish Center for
Business and Policy Studies (SNS) - a liberal think-tank and promoter of research –
and Swedish Institute for Social Research (SOFI) – a research institute linked to
Stockholm University. The Swedish debate has been on-going, with various levels
of intensity, for more than two decades but these two organization have in one way
or the other somehow constantly been involved. Simply put, SNS is the proponent
of a ‘dismantling’ of the Swedish welfare state, and is suggesting a move in the
direction of a more market pillar oriented welfare state, while SOFI is proposing a
preservation of the Swedish welfare state, and its current reliance on the state pillar.
I have chosen to divide my disposition into four different sectors. The first part
addresses my methodological considerations, theoretical approach and the aim of
my study. The second part is a presentation and analysis of the international debate
concerning the welfare state. The third part is a presentation and analysis of the
Swedish debate concerning the welfare state. I have chosen to present the Swedish
debate in chronological order, since I am making a point out of this in my
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conclusion, and also to present only those parts that are of interest to my study due
to the immense amount of material and in order to get a good flow in language and
disposition. The fourth part is a brief summary. In the fifth part I give answer to my
questions (with a focus on my third point), explain why the debates diverge, present
my conclusions and discuss the theoretical implications of my study.
1.3 Definitions
-Welfare state: According to Esping-Andersen welfare states are always ‘politics
against markets’, and Liebdfried’s states that “In the social sciences, however, the
term ‘welfare state’ has now been commonly used for some time to connotate that
higher degree of legitimate state intervention aimed at increasing public welfare –
with the US liberal type of society as the implicit contrast, and the UK somewhere
in-between” (Leibfried, 2001, p1). However Esping-Andersen refines his argument
and argues that there are actually different types of welfare states with different
foundational pillars: the Scandinavian model (state pillar), the Continental model
(family pillar) and the Liberal model (market pillar), which suggests that a country
can have a welfare state system without a high degree of state intervention. I will be
using Esping-Andersen’s three model system as origin for my analysis (I will
develop Esping-Andersen’s typology further in section 2).
-Globalization: I will be using a definition of globalization corresponding to the
notion that there has been a shift in the state-market relationship; the market has
gained influence while the state has lost influence. This notion is based upon what
Susan Strange identifies as three major changes in the world economy: 1)
Technological change 2) Mobile capital 3) Transborder communications (Strange,
2000, p.60f). This argumentation is supported by Rosencrance “Today and for the
foreseeable future, the only international civilization worthy of the name is the
governing economic culture of the world market” (Rosencrance, 1996, p.45).
According to this definition of globalization the world is interdependent and is
inhabited by more actors than states. States have lost power, not to other states,
however, but to the global market – the world economy (an economic structure). I
will develop this matter further in the section Theoretical framework.
-Nordic/Scandinavian model: Some scholars choose to use the label Nordic model
while others prefer the Scandinavian model. Since my study focuses on Sweden,
which is included in either label – both definitions are essentially used for
describing countries that have welfare states with the state as the foundational pillar
– I have chosen to respect the authors’ choice of preference thus using both labels.
In a more technical analysis a more thorough investigation of why different labels
are being presented would have been needed, but since my study is conducted on a
rather high level of abstraction this is not needed.
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1.4 Theoretical Framework - A Change in the StateMarket Relationship?
Richard Stubbs and Geoffrey R. D Underhill have highlighted three interrelated
theoretical problems in IPE: 1). the relationship between the economical and
political domain 2). the levels of analysis must be addressed and 3). the role of the
state. In turn these problems lead us on to the structure-agent problem and the
question of actors: are structures more important than agents and are states the most
important actors or not? (Stubbs&Underhill, 2000, p. 16) The key disagreement
according to Frieden and Lake has to do with two relationships: a) international and
domestic political economies and b) state and social forces. When you combine
these two relationships, four different perspectives arise: international political,
international economical, domestic institutional and domestic societal
(Frieden&Lake, 2000, p. 8f). The domestic institutional and the domestic societal
look inside nation-states for explanations of the international political economy.
While the institutional perspective emphasizes the importance of national
policymakers and domestic institutions (North 2000, p.47ff), the societal
perspective stresses the importance of economic and socio-political actors
(Eichengreen 2000, p.37ff). International political focuses on the relationship
between states and the constraints imposed on these by the global structure (Krasner
2000, p.19ff), while international economic emphasizes the importance of
constraints external to individual nations and puts socio-economic factors ahead of
political (Strange 2000, p. 60).
It should here be noted that most scholars recognise that all theories are ideal
types and are incapable of fully understanding the complexity of reality. At the end
of the day the issue being analysed plays the most importance part for whether
choosing this or that dimension and/or perspective. Since my study is focused on
the sustainability of welfare states, on an international level, I find it more fruitful to
work with the theories emphasizing the international level rather than the more
domestic ones. A good illustration of the contending international perspectives is
offered by Krasner and Strange, in an interesting debate in the Review of
International Political Economy (RIPE), regarding whether the world has changed
or not.
Krasner argues that challenges to the state are not new. Transnational flows have
existed in all ages and our trend is not historically unique, no matter whether we are
talking about trade, finance or diseases. Globalization is nothing new but has been a
reoccurring phenomenon throughout history. According to Krasner there has been
no theoretical breakthrough and no paradigmatic shift, the debate is still revolving
around the classic ideas of Realism, Liberalism and Marxism (Krasner, RIPE
1994:1, p. 14). Marxism, although an interesting theory, lacks empirical evidence
and nothing implies that actors (states) are instantiated by some larger institutional
whole, structure. States continue to be the most important actors on the international
arena and therefore the “real” debate is between liberalism and realism. The current
trend is not globalism but rather regionalism: major states cooperate temporarily,
not in an attempt to make new friends, but out of fear of mutual destruction.
8
Strange’s response to this is a harsh “Wake up, Krasner! The world has
changed”(Strange, RIPE 1994:2, p.209ff). According to Strange many scholars
suffer from myopia and prefer to fit fact into theory, rather than re-examining the
theory’s when evidence shows that it is no longer valid. Although the changes we
are experiencing today - globalism, international trade, FDI etc - has had its
predecessors in history, it is the extent of these phenomena which is new (Strange,
RIPE 1994:2, p.210). Krasner has a point when saying not everything is new, but
his fallacy appears when he is proclaiming nothing is new. Susan Strange identifies
three major changes or trends in the world economy: 1.) Technological Change 2.)
Mobile Capital 3.) Transborder communications (Strange, Friden&Lake 2000, p.
60ff).
The advanced developed states in the world put aside political conflict and
instead concentrate on getting a greater share of the world output. “Today and for
the foreseeable future, the only international civilization worthy of the name is the
governing economic culture of the world market” (Rosencrance, 1996, p.45). The
modern state does not seek to “combine or excel in all economic functions, from
mining and agriculture to production and distribution” (Rosencrance, 1996, p.47),
but instead it chooses to specialise in its core activities and modern technology. The
world of Krasner is a zero sum game where one state’s loss is the other state’s gain.
The world of Strange is interdependent and is inhabited by more actors than states,
and states have lost power but not to other states but to the global market – the
world economy (an economic structure).
These changes in the world order constitute, according to some research, serious
threats to the welfare state. “Flexible labor and welfare laws will be more likely to
bring in foreign technology and investment than rigid welfare and employment
requirements. As governments seek to institute more labor flexibility – in hiring,
wages, and hours worked – some domestic workers may react unfavourably if
benefits are reduced: but all workers do not oppose flexibility. Skilled and office
workers have different interests from those who perform routine tasks on an
assembly line ... In any event, virtualization calls for a restructuring of state and
labor policies to meet international economic requirements.” (Rosecrance 1999, p.
91).
Dani Rodrik argues in his “Sense and Non-Sense in Globalization Debate” that
many of the proposed risks of fundamental change are in fact exaggerated. His main
argument is that “social welfare programs and openness to trade have grown handin- hand, each reinforcing the other. The social insurance programs carried out by
government have helped mitigate the disruptions caused by international trade and
solidified coalitions in favour of economic openness” (Rodrik, 2000 p.461). Rodrik
furthermore highlights the fact that there is a strong correlation between the degree
of exposure to international trade and the importance of the government in the
economy: At the one end you have countries like the US and Japan, which have the
lowest trade shares in GDP and at the same time the lowest shares of spending on
social protection. At the other end you have countries like Denmark, Netherlands
and Sweden, which have large governments in part as a result of their attempt to
minimize the social impact of openness to the international economy (Rodrik, 2000,
p.465). A key challenge, though, is “… the ideological onslaught against the
9
welfare state has paralyzed many governments and made them unable to respond to
the domestic needs of a more integrated economy” (Rodrik, 2000, p.464)
Strange agues that the state in fact most willingly gave the market a more
prominent position “What the Retreat of the state was saying was not just that the
powers and responsibilities of state governments were being eroded, but why this
was so. It was due, I argued, to the structural forces in a predominately market
economy set free, not by blind chance, but by the conscious decisions of
governments, more especially of the government of the United States” (Strange
2000, p.85). Why? Because the state, especially the Anglo-Saxon states that in
many important aspects are market-oriented, realized they had a lot to gain by doing
it (Strange 1996, p.1ff)
Also according to Wofgang Streeck this major change in the State-Market
relationship was initiated by the US:
The changes in the international position of the United States that has exhausted its
capacity to act as a benevolent hegemon has gradually given rise to in the 1970’s to a
domestic move away from the New Deal compromise to a political economy that
sought competitiveness through deregulation and de-unization and abandoned the
social democratic principle that wages and social conditions were to be taken out of
competition. After the final defeat of the Labor Law Reform Act in 1978, the Federal
Reserve could feel free to respond to the second oil crisis with a dramatic increase in
interest rates, ending inflation at the price of de-industrialization and causing a
further, probably irreversible decline in union organization. In the early 1980’s, with
effectively deregulated, worldwide integrated capital markets, the destruction of
American trade unions paid off handsomely in that it gave the United States, the
‘flexible’ markets and the ‘confidence’ of financial investors required to underwrite
an expansionist fiscal policy that has been ironically characterized as ‘Keynesianism
in one country’. From the perspective of other capitalist countries, that term would
appear to have carried a particularly ominous connotation. As the French socialist
government after 1981 was soon to find out under the watchful eyes of other political
elites, the dynamics of the international political economy after the second oil shock
were governed by the old Roman imperial maxim, quod licet Jovi non licet bovi.
Keynesianism had ceased to be universally available; it had become limited to just
one, but to only one, country (Streeck 1992, p.210-211).
Andew Martin addresses the issue in his “What Does Globalization Have to do
With the Erosion of Welfare States? Sorting Out the Issues”, and his conclusions in
many aspects join forces with Streeck’s ideas. Martin argues that when the US
chose to abandon Bretton-Woods and the Keynesian objective of full employment
and replaced it with the monetarian principle, whose main objective is low inflation
(essentially the preservation of the value of capital), the rest of the capitalist
countries could do nothing but follow (Martin, 1996, p.31). Simply put: one
economic regime, Keynesianism, has been replaced by another, monetarianism.
My conclusion is that there has been a change in the State-Market relationship:
the market has gained influence, while the state has lost influence. But the question
of whether or not this really poses a threat to the WS or not remains.
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2. The International Debate - A Challenge
to the Welfare State?
“Capitalism is the astounding belief that the most wickedest of men will do the most
wickedest of things for the greatest good of everyone”
John Maynard Keynes
Bastiaan van Apeldoorn argues in his “The Political Economy of European
Integration” that there has been a major transformation of Western European
capitalism the past two decades. “There has been a ‘disembedding’ of the market
from the institutions that had made up post-war socio-economic order of the
Keynesian welfare state” (Apeldoorn, 2000, p. 235). There has been a primacy of
negative integration (market liberalization) over positive integration (providing
public goods at a European level) (Apeldoorn, 2000, p.235). He furthermore argues
that the “re-launch” of Europe, the Single European Act (SEA) and the Maastrich
Treaty, was more due to the influence of the European Round Table of Industrialist
(ERT), a very powerful capitalist lobby group, and not so much due to the political
will of the member states. One of his main points is that there was actually three
rival projects for the re-launch of Europe: 1) the Neo-liberal project; according to
which the stagflation of the Europeam economy ‘Eurosclerosis’ was the result of
institutional rigidities – excessive government intervention, too powerful trade
unions, overburdened welfare state, etc. Their (global financial capital, TNCs with
global reach) motive for a re-launch of Europe, was the dream of a free market with
less state intervention. 2) the Neo-Mercantilist Project; according to which the
economical problems of Europe was due to excessive fragmentation (especially in
comparison with US or Japan), and subsequently insufficient economies of scale.
Their (former national champions e.g. Volvo, ‘would-be European champions’)
motive for a re-launch of Europe, was the dream of a strong regional economy with
a sufficient internal market, with industrial policies aimed at promoting the
European champions. 3) the Social-Democratic Project, according to which
unbridled globalization was a threat to the European model of society, with its
traditions of a mixed economy and high levels of social protection . The hope was
that the SEA would fill two functions “ … regaining some democratic control of the
global financial markets as well as paving the way to a federal political union that
could then further advance the cause of organizing European space” (Apeldoorn,
2000, p. 239f).
The result, however, was more a combination of all three projects rather than the
materialization of either one of them – what Apeldoorn refers to as the Embedded
Liberalism Synthesis. The neo-liberal project, although the primacy lies with
freedom of capital and markets, stopped short of “… disembedding the European
model.” Why is this? On the one hand, change does not happen over night, it takes
11
time. On the other hand “… a pure neo-liberal strategy would also undermine the
long-term accumulation prospects of industrial capital, which still needs the state to
educate the workforce, to provide the infrastructure, to pursue macroeconomic
policies that favour growth and investment, to maintain social and political stability
etc” (Apeldoorn 2000, p.240).
Another interesting result is that a transnational discourse has been established,
and that this discourse has come to focus on word ‘competitiveness’, appealing
equally to neo-liberals, neo-mercantilists and social democrats, but defined in neoliberal terms. The liberal definition of competitiveness influence is also
acknowledged by the EC “vital factor for the competitiveness of the European
Industry” calling for a “radical rethink of all relevant labour market systems –
employment protection, working time, social protection and health and safety – to
adapt them to a world which will be organized differently” (Apeldoorn, 2000, p.
241).
European welfare states espouse a number of different models of solidarity, but
in all there exists a fundamental dedication to basic social citizenship, to “pooling
social risks” collectively (Esping-Andersen, 2002, p. 7). The welfare state is in fact
a social contract with the citizens, and the impact of path dependency should not be
underestimated. Esping-Andersen in fact argues that there lies an obstacle to
possibly any reform to these institutions. Welfare systems are according to EspingAndersen built on three pillars: markets, families and government (state), and the
real world of welfare is the product of how these three pillars interact. If one pillar
fails, there is either the possibility that the responsibility is absorbed in the two
remaining pillars, or alternatively that unsolved welfare problems mount (EspingAndersen, 2002, p.13). Esping-Andersen identifies tree welfare models, based on
what is their pillar of foundation: 1) the Scandinavian Welfare Model, which puts
its emphasis on the government pillar. It has actively ‘de-familiarized’ welfare
responsibilities (hoping to unburden the family, at the same time increasing the
individual’s independence). It has also ‘de-commodified’ the citizens, thereby
trying to minimize the degree to which individuals’ welfare depends on their
fortunes in the market. “…the crowding out of markets in the pursuit of welfare is
attached to a ‘crowding in’ policy of maximizing citizens’ employability and
productivity” (Esping-Andersen, 2002, p.14) 2) the ‘Liberal’ Welfare Model
(Ireland, UK and US) ,which puts its emphasis on the market pillar. The basic idea
is that only the needy should be subject to benefits and state intervention, while the
middle-class is encouraged to opt into the private welfare market. There has been a
shift from needs-test towards a work-conditional benefit system in recent years.
One of the overriding goals is to reduce public taxation and expenditure, and in
Britain this have to some extent been successful, especially regarding long-term
pension expenditures. However, welfare services that the government is not paying
for is handed over to the private citizen “… and it is doubtful whether there are any
real total cost savings to be gained” (Esping-Andersen, 2002, p.15). “The total
welfare resource allocation (as a percentage o GDP) in Scandinavia is not greater
that in the United States. The difference is simply a matter of the public-private
expenditure mix” (Esping-Andersen, 1999). 3) the Continental European Welfare
Model, which puts its emphasis on the family pillar (to what extent, however, very
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much depending on the country – most powerfully in Southern Europe, and by far
the least in Belgium and France). The security of the chief (male) breadwinner is of
fundamental importance and this familialist bias is additionally reinforced by the
dominance of social insurance. Employment-linked social insurance protects well
those with stable, lifelong employment (men). The model is highly vulnerable to
employment stagnation and to high inactivity rate, at the same time as it is facing
costly pension commitments and serious fiscal constraints. Continental Europe is
stuck in a ‘welfare-without work’ trap, where jobs in the market economy growth is
made difficult by high wage floors and contribution burdens. “Expanding
employment among women and older workers becomes sine non qua for long term
sustainability” (Esping-Andersen, 2002, p.17). Esping-Andersen main conclusion is
that the welfare state, and the European social model is challenged - but not
threatened, and definitely not on the verge of extinction as some would argue. The
welfare is too traditionally rooted for ever being seriously threatened, but perhaps
challenged and in need of reform (Esping-Andersen, 2002 p. 7, Hemerijck, 2002,
p.175).
Anton Hemerijck develops Esping-Andersens thesis that the welfare state is in
need of a reform in his “Self-Transformation of European Social Model(s)”. He
however shifts the focus from the problem oriented question “What sort of new
welfare architecture is required in the face of the strains of transformation?” to the
‘political-institutional’ “What kinds of policies are feasible and fair, given the
tremendous differences in welfare state design and in decision making structures
across Europe?” Hemerijck suggests that the major problem the welfare states are
facing is the ‘Service Sector Trilemma’ - “Since the mid -1970’s European
economies , with the notable exception of the Netherlands and Iceland, have
experienced substantial employment deceline in the exposed sectors, especially in
agriculture, mining, manufacturing, and transport. Sweden and Finland stand out in
terms of suffering a continous loss in industrial employment. The decline of jobs in
the exposed sectors is probably less related to competition from Third World
markets than to the removal of regional barriers concerning the free movement of
capital, firms, goods, and services by the completion of the European internal
market” (Hemericjk, 2002, p.183). De-industrialization, the rise of the service
sector, and the fiscal constraints that derive from EMU lead to a situation where the
welfare goals of high levels of employment, income equality, and fiscal restraint
can no longer be achieved simultaneously – this problematic situation is known as
the Service Sector Trilemma
Hemerijck identifies what problems the different models are facing due to the
Service Sector Trilemma. The main problem confronting the Scandinavian Model is
that financing the welfare state is made more difficult due to high capital mobility,
the fiscal and budgetary constraints that ageing and European monetary integration
impose, and increased political tax resistance. Falling tax revenues during the
1990’s has led to sharp fall in public employment, which needs to be compensated
by an increase in private sector jobs. “This is where the trilemma raises its head: the
Nordic countries face the hard choice between liberalizing private services, which
entails more wage inequality, or a continued adherence to equality which, under
conditions of budget constraint, implies more unemployment” (Hemerijck, 2002, p.
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185). The Anglo-Saxon Model is far less threatened by long-term problems of
financial sustainability, but is instead facing severe problems of income polarization
and ever increasing inequalities regarding access to social insurance. Radical labour
deregulation has also made it impossible to reach cooperative arrangements
between management and trade unions. The model is also suffering from an
inability to produce a well-trained labour force (Hemerijck, 2002, p.185). The
Continental European Problem consists mainly in its chronic inability to stimulate
employment growth. The obstacle to private jobs lies in high wage floors, due to
high fixed labour costs, while public employment is constrained by the fiscal
constraints of supporting a very large inactive population (Hemericjk, 2002, p.186).
Esping-Andersen argues that there is no convergence towards a European social
model and that the different member states are locked in their own pathdependencies “In the light of the diversity of national welfare system, it is
additionally fruitless to contemplate a single design for all nations even if they do
face rather similar problems. Just as no EU Member State is likely to privatize its
welfare state, neither is a radical welfare regime change likely to occur. The
institutional framework of national welfare systems are historically’locked in’ and
any realistic move towards common objectives must presume that such, if accepted,
will be adapted to national practice” (Esping-Andersen, 2002, p.25). With 25
models there cannot exist a single ‘European social model’ towards which Member
States of the European Union could possible converge in the next decade, however
with the OMC there seem to be at least an opening to the rigidity of the path
dependant welfare systems of Europe (Sapir, 2005, p.12) “More important is the
experience gained through peer review. OMC stimulates an understanding of
national contexts, whereby policy makers are able to assess why some solutions can
or cannot be transposed to their own national context” (Hemerijck, 2002. p.211).
Leibfried agrees with Esping-Andersen and Hemerijck in that the prospect of a
single European social model is not very plausible, and that the different national
models will prevail “The welfare state does not follow a unified logic, nor does its
reforms. The different reform paths pursued are, in turn, influenced and shaped by a
series of factors: the partisan complexion of government, the power resources and
aggregation capacity of trade unions and employers, the system of interest
mediation, the room for manoeuvre granted by a nation’s polity and, last but not
least, the institutional legacy of the welfare state regime – including the different
sets of problems associated with each regime” (Leibfried, 2001, p. 5). Leibfried
recognises that “the welfare state is having hard times” (Leibfried, 2001, p.5), but
when he recapitulates the development from the 1970’s and onwards he is not very
impressed by the arguments put forward by the welfare states antagonists. When
addressing the market liberal ideas that the welfare state is hampering economic
growth and is an inefficient economic institution, Leibfried refers to Atkinson’s
classic study “The Economic Consequences of Rolling Back the Welfare State”.
Atkinson’s conclusion is agnostic – he finds no empirical evidence of the size of
welfare state affecting growth or economic performance (Atkinson, 1999, p.184) (I
will elaborate further on this matter in the following section the Swedish Debate).
Leibfried concludes with “This is a story about reconfiguring the welfare state,
about it being ’locked in’ by past needs and deeds, not about its crisis and demise”
14
(Leibfried, 2001, p. 5).
Fritz Scharpf also finds the European social models to be far too differentiated,
why a standardized solution is impossible. “As a consequence, national welfare
states differ greatly in their vulnerability to international economical pressures, and
in the specific problems that they need most urgently to address. They differ also in
the policy options that they could reach under the path-dependent constraints of
existing policy legacies and under the institutional constraints of existing veto
positions” (Scharpf, 2001, p.145).
When Stein Kuhlnes assesses the Nordic welfare states in ”The Nordic welfare
state in a European context: dealing with new economic and ideological challenges
in the 1990’s” he reaches the following conclusions: 1) the Nordic and the
European welfare states are likely to stay 2) the Nordic welfare state model can be a
“vital shock absorber” and probably mitigated the economic crisis of the 1990’s
(Kuhlnes, 2001, p. 116). “The Finnish experience may teach other governments a
lesson: an advanced universalistic, welfare state is not a handicap when a sudden,
unexpected economic crisis occurs. On the contrary, the type and the format of the
welfare state amy have helped the Nordic countries, and Finland especially, more
rapidly through the ‘crisis than a welfare state of another, less comprehensive, type
might have done, and with less social damage” (Kuhlnes, 2001, p. 116). Kuhlnes
conclusion is that the Nordic welfare states are likely to reform in the direction of a
less generous welfare state, and a slightly different mix of welfare provision. He
even suggests that the World Bank, perhaps the very symbol of a world wide
capitalist market economy, exclaim “Look to Scandinavia”, especially Finland,
when providing policy advice to countries undergoing economic crisis (Kuhlne,
2001, p. 119).
André Sapir has tried to categorize the European social models in attempt to
better address the problems Europe are facing. By using an analytical box, with one
axis for equity and another axis for efficiency, he divides the different European
social models into four broad categories: ‘Continentals’ (Low efficiency, High
equity); ‘Mediterraneans’ (Low efficiency, Low equity); ‘Nordics’ (High
efficiency, High equity) and ‘Anglo-Saxons’ (High efficiency, Low equity). Sapirs
focus lie on Mediterraneans and Continental social models, due to the fact that “The
combined GDP of countries with inefficient models account for two-thirds of the
entire EU and 90 percent of the Eurozone” (Sapir, 2005, p.1), while the “Nordics
enjoy an envious position, with a social model that delivers both efficiency and
equity, whereas Mediterraneans live in a society that delivers neither efficiency nor
equity” (Sapir, 2005, p.9). Thus quite naturally much focus lies on the future of the
Continental and Mediterranenan models and in what future direction their models
will head. Once again it is being stressed that the choice between this or that system
has more to do with ideological preferences rather than economic necessities. “This
suggest that both Nordic and Anglo-Saxon models are sustainable, while
Continental and Mediterranean models are not and must be reformed in the
direction of greater efficiency by reducing disincentives to work and to grow. On
the other hand, there is no reason a priori to assume that such reform must go handin-hand with changes in terms of equity. It is perfectly possible for the Continental
model to become more like the Nordic one, and for the Mediterranean model to
15
become more like the Anglo-Saxon model” (Sapir, 2005, p.10).
Andrew B. Atkinson’s extensive work “The Economic Consequences of Rolling
Back the Welfare State” offers also some interesting input. First of all he argues that
there is no evidence of public sector expenditure being growth inhibiting “The
studies of the aggregate relationship between economic performance and the size of
the welfare state reviewed here do not yield conclusive evidence. The results of
econometric studies of the relationship between social transfer spending and growth
rates are mixed: some finding that high spending on social transfers leads to lower
growth, other find the reverse. The largest of the estimated effects – in either
direction – do not, however, seem believable” (Atkinson, 1999, p.184). But he
furthermore argues that we should not expect economists to be without a political
agenda “The future of the welfare state is a highly political issue … Calls by
economists for rolling back the welfare state are themselves part of the political
process; we have not just endogenous politicians but also endogenous economists,
whose behaviour has to be explained” (Atkinson, 1999, p. 187).
My conclusion is that in the international academic research there seems to be a
consensus that the major threat to the welfare state is not economical but political.
The shift in the state-market power relationship does have implications for the
European social models and the different types of welfare state, but this challenge
must not be exaggerated. Rather than forcing them to rebuild from their very
foundation, the shift forces the social models to do some readjustments of the
already existing systems. Some models are also more challenged than others; while
the Anglo-Saxon and Scandinavian models seem to be in rather good shape (Sapir,
2005, p. 10), the Continental models are facing difficulties. Using EspingAndersens typology, it seems like the state and the market pillars are more
accustomed to cope with this state-market shift, than the family pillar. All models
are facing problems, however; the Continental models have an insufficient job
growth at the same time suffering from severe financial constrain; while the AngloSaxon models have problems with income equality and increasing poverty rate and
an insufficient numbers of educated people and the Scandinavian models suffers
from high rates of unemployed. Most scholars, however, seem to rule the AngloSaxon and Scandinavian models efficient, perhaps in need of some reformation but
this is nothing that can not be solved within the existing systems. The international
debate revolves around what course of direction the countries with Continental
models will take – an acute issue since these countries account for two-thirds of
EU’s GDP. Focus lies on whether they will move towards the Anglo-Saxon models
(market pillar) or will they move towards the Scandinavian models (state pillar).
This choice of direction, however, has more to do with ideological preferences
rather than economic necessities – due to the fact that both models are considered
efficient. There seem to be reasons no to forget Atkinson’s “warning” of
endogenous economists, with intentions of affecting the political agenda. In the
international debate there seems to be a consensus that the future of the welfare
state lies in the hands of domestic politics.
16
3. The Swedish Debate – Growth and the
Public Sector
”An economist is an expert who will know tomorrow why the things he predicted
yesterday didn't happen today.”
Laurence J. Peter
In 1985 Walter Korpi published an article in Ekonomisk Debatt called ”Welfare
politics and economic growth: a comparative study of 18 OECD-countries”. Korpi
investigates whether or not the market liberal hypothesis, that countries with an
extensive public sector are suffering from lower rates of growth than countries with
less extensive public sectors, have any empirical back-up. (Korpi, 1985, p. 192).
Korpi’s focus in his cross-country survey of GDP-growth per capita lies on the post
WWII time period (1950-60’s) and he tries to address the methodological
considerations by singling out a number of control variables for his study: 1) Ratio
of the population in the agricultural sector 2) potential for market intervention
(distribution of political power) 3) Size of the public sector 4) Tax leverage 5)
Income distribution. By including these control variables in his study Korpi hopes
to better isolate the impact of public sector interference in the market mechanisms.
Korpi’s conclusion is that market liberal hypothesis has no empirical back-up.
Instead he finds the empirical evidence to be pointing in quite the opposite direction
– countries with an extensive public sector and welfare state are performing slightly
better than more market oriented countries (Korpi, 1985, p. 201).
Assar Lindbeck does not agree with Korpi, and in a reply “Welfare, taxes and
and growth” also published in Ekonomisk Debatt, he offers an alternative
explanation. Lindbeck criticises Korpi for his lack of understanding of the profound
methodological problems associated with this kind of studies (Lindbeck, 1985, p.
204). First of all he does not find Korpi’s attempt to isolate the impact of the public
sector from other factors that might have influenced countries growth rate, very
convincing. Secondly, he finds Korpi’s choice of time period to be strongly biased –
this particular time period experienced exceptional growth rates, at the same time
that the public sectors expanded rapidly. According to Lindbeck these two
phenomena have no correlation. Finally, Lindbeck argues that Korpi’s study tries to
address too many variables at the same time, why it is hard to establish any
plausible causal relationship. By addressing a fewer number of variables, a higher
level of credibility would be achieved (Lindbeck, 1985, p.214).
Lindbeck’s point of view would soon reach a greater audience when the so
called Lindbeck commission (Per Molander, Torsten Persson, Olof Peterson, Agar
Sandmo, Birgitta Swedenborg and Niels Thygesen were also members of the
commission) was appointed by the liberal government in 1992. The commission’s
main objective was to investigate what reforms needed to be done in Sweden in
17
order to enhance Sweden’s economic performance “The report emphasizes that
good policy advice is not enough; it is also necessary to analyse and reform the
institutions which continually produce undesired outcomes with respect not only to
macroeconomic stability but also economic efficiency and growth. The proposed
institutional reforms are designed to restore a highly competitive market system and
to facilitate a responsible fiscal stabilisation programme” (Lindbeck et al., 1993,
p.1). The commission’s conclusion, which is concretised in 113 specific policy
advice, suggests that the Swedish model is not economically sustainable, is growth
inhibiting and is an important reason why Sweden is lagging behind other
developed countries (Lindbeck et al, 1993, p.34f).
Korpi published in 1995 ”Is Sweden lagging behind?”, an anthology where he
tries to summarize the debate concerning whether or not Sweden is economically
lagging behind other developed countries (the debate in the book originally took
place in Ekonomisk Debatt during the years 1990-91). Korpi’s main point is that the
notion that Sweden is lagging behind other developed countries lacks empirical
evidence and is based on sloppy analysis not addressing the methodological
considerations in a correct way. “Most unfortunately, this popular but academically
incorrect picture of Sweden as an underperforming country has established itself in
the academic world and proven to be very persistent” (Korpi, 1995, p.127).
Lars Bergman’s, Ulf Jakobsson’s, Mats Persson’s and Hans Tson Söderström’s
reply to Korpi in the anthology is that his argumentation and analysis is biased and
is suffering from lack of objectivity. When trying to make cross country
comparative studies four methodological issues needs to be addressed, according to
Bergman et al.: 1) unit of production (e.g. GDP per capita, GDP per worked hour
etc.) 2) preference of time period 3) preference of countries 4) weighing of
countries production (e.g. are all countries given the same weigh, or are countries
given various amount of weigh depending on their size) (Bergman et al., 1995, p.
149). Bergman et al. argue that Korpi consciously chooses to address these
methodological considerations in a way that strongly favours his notion that
Sweden is not lagging behind other developed countries growth wise. When
addressing the matter more objectively and methodologically correct the result is
quite the opposite – Sweden is lagging behind, and needs to make serious reforms
in order to catch-up with other developed countries (Bergman et al., 1995, p. 148ff).
What is interesting for my study is how well this debate corresponds with the one
taking place 1985 between Korpi and Lindbeck. In many aspects it is the same
debate, how to address the methodological considerations and how easily the results
are tilted in either direction depending on one’s preference of time variables, GDP
units, selection of countries and so forth. As we shall see, this ‘second round’ of
debate however, would not be the end of it. Agell et al. vs. Henrekson&Fölster soon
assured a continuance of this passionate debate.
Another economist I find important to include, before I move on to the Agell et
al. vs. Henrekson&Fölster debate, is Ulf Jakobsson. His contribution in “The
Economists in the Public Debate – are they doing any good?” addresses what he
considers to be massive changes in the Swedish economic policy during the late
1980’s and the 1990’s: 1) deregulation of financial markets (mobile capital) 2)
historically low inflation 3) a halt in the expansion of the public sector 4)
18
reformation on the tax-system 5) floating currency and a central bank with an
inflationary target (Jakobsson, 1996, p.167). These points are perhaps not very
controversial, but he furthermore argues that Sweden is suffering from a long term
decline in welfare and that Sweden is suffering from an economic
underperformance. He suggests that it would have been impossible for Sweden to
“keep on going along the same old track” (Jakobsson, 1996, p.168). According to
Jakobsson the Swedish model, the way we know it, is experiencing the last days of
its existence “Due to the fact that the structural change that took place during the
1980’s and the beginning of the 1990’s can be seen as the end for the postwar
Swedish model, it is of the uttermost importance that we broaden the discussion to
include the economists’ relationship to this very model” (Jakobsson, 1996, p. 169).
According to Jakobsson’s ways of reasoning there is no way the Swedish model can
continue to exist without the Rehn-Meidner model – the Swedish version of
Keynesianism that was the norm until the 1990’s – and thus a radical rethinking of
the model is necessary (Jakobsson, 1996, p. 188). This argumentation does not
correlate with the international debate where the norm seems to be – a continuance
of the Swedish social model is very much possible, also without a continuance of
the Rehn-Meidner model (Keynesianism).
In their essay “Growth and the public sector: A critical review essay” Jonas
Agell, Tomas Lindh and Henry Ohlsson review the theoretical and empirical
evidence on the relation between growth and the public sector. The authors find that
there is no positive, negative or non-existent relation between the public sector and
growth – a cross-country regression is easily tilted from positive to negative by just
introducing control variables for initial GDP “many growth models, with the
neoclassical one as a prime example, imply the existence of a catching-up effect:
economies which initially have a relatively low level of GDP have a tendency to
grow faster than richer countries, which are closer to their steady-state (Agell et al.
1997, p.40)” and dependent population “According to the life cycle theory of
consumption countries with a large percentage of pensioners will have a relatively
low savings ratio (savings are essentially for investment, which in turn are essential
for growth). Moreover, micro-econometric studies of the pattern of wages over an
individual’s life cycle strongly suggests that demographic structure can also be
significant for a country’s aggregate stock of human capital (according to many
empirical studies, an inverse U is a good description of changes in human capital
over an individual’s life cycle)” (Agell et al. 1997, p.45). Their conclusion is that
“… it is no longer obvious that Sweden is lagging behind” and “One message is that
it is not possible to prove that there is a clear-cut causal connection from
observations of public sector size to economic growth. In saying so, we do not
claim that public sector growth does not pose growth problems: nor do we claim
that normal growth performance implies that the public sector is necessarily of the
right size. Both questions deserve a serious discussion, but preferably one which is
free from ideological overtones and preconceived ideas about the nature of the
world” (Agell et al. 1997, p.47). Their conclusion is that size of the public sector
has more to do with distributional issues, or ideological one could argue, rather than
economical growth issues.
Staffan Fölster and Magnus Henrekson do not agree. They argue that Agell et al.
19
base their conclusion on empirical studies, and on their own regressions, without
evaluating the econometric problems that arise (Fölster&Henrekson, 1999, p.337).
According to Fölster and Henrekson, Agell et al. focus their theoretical review on
the growth effects of taxes and certain growth-promoting public programs, largely
ignoring potentially negative growth effects of public programs. Furthermore Agell
et al.’s selection of countries is biased and problematic due to the fact that they mix
rich and poor countries in their survey. Finally, they argue that no attempt is made
to try and address the simultaneity problems that arise (Fölster&Henrekson, 1999,
p. 354). Fölster and Henrekson conduct an own empirical study, where they try to
address the methodological problems they have identified (I will not give an
detailed explanation of the econometric methodological discussion in this essay due
to lack of space) and find Agell et al.’s agnostic conclusion to be not plausible.
Agell et al’s approach does not take into consideration the econometric that arise,
and hence a bias towards agnostic conclusions is inescapable. Fölster and
Henrekson conclusion is that “While we do not claim that our analysis settles the
issue: we do find a tendency toward a more robust negative growth effect of large
public expenditures in rich countries, compared to studies where these econometric
problems were ignored or treated more cursorily” (Föslster&Henrekson, 1999, p.
354).
Agell et al.’s reply to Fölster and Henrekson criticism is harsh. By “re-estimating
their growth equation using theoretically valid instruments, we find that the growth
effect of the public sector is statistically insignificant, and much smaller than the
point-estimates that they report (Agell et al., 1999, p.359)”. Agell et al. once again
stress the fact that it is very difficult to find any empirical or theoretical solid
evidence for the notion that the size of the public sector affects growth. The
problem is that the size of the public sector affects growth via a standard supply
side relation, while growth affects the size of the public sector via the income
elasticity of the demand for public sector activities (Agell et al., 1999, p. 360). The
problem lies in identifying what is driving what - to identify exogenous variables
that affect the demand relation but not the supply relation. This identification is
something that Agell et al. deem to be a very hard, perhaps even impossible, task.
Agell et al. defend their (and Atkinson’s and Slemrod’s) agnostic position with the
convincing argument that there are no easy ways of addressing the econometrics
problem arising when trying to assess whether or not a large public sector is
promoting or inhibiting growth (Agell et al., 1999, p. 360).
An international academic brave enough to enter the lions den - the Swedish
debate concerning the size of the public sector and growth – is Steve Dowrick. In
his article “Swedish Economic Performance and Swedish Economic Debate: A
View from Outside” Dowrick wants to “…comment in particular on the
fundamental question of whether the international evidence allows us to judge that
Swedish growth has been below par”, but also to comment on the papers by Agell,
Henrekson and Korpi (Dowrick, 1996, p. 1772). Dowrick identifies six
methodological issues that need to be addressed: 1. What performance measure is
relevant? 2. What deflators do we use? 3. Which derivative of the performance
measure do we use? 4. Which time period is relevant? 5. What is the reference point
for assessing under- or overachievement? 6. Finally, what exogenous factors are to
20
be taken into account? After having addressed these questions he concludes that
“there is a stiff challenge for the proponents of the ‘lagging behind’ thesis. It is
incumbent on them to explain why Swedish GDP performance was consistently
reasonable over forty years and only shows a marked decline after 1990” (Dowrick,
1996, p.1778) and that there is little that suggests that high taxes and welfare
spending are to blame for low growth. To summarize - Dowrick joins side with
Agell et al in saying there is no correlation between the size of the public sector and
growth.
While much of the Swedish debate on social policy and the welfare state has
concerned growth and the public sector – focus has been upon economic
methodological considerations and growth theories – there has also been attempts to
put focus on the, according to the international debate, more relevant issue of the
political/ideological challenges the welfare state is facing .
Ingalill Montanari addresses the issue of convergence in her article
“Modernization, globalization and the welfare state: a comparative analysis of old
and new convergence of social insurance since 1930”. Montanari studies (by
examining four social insurance programmes: old age pensions; work accident
insurance; sickness insurance and unemployment insurance) the tendency towards
convergence of social insurance in 18 OECD countries between 1930 and 1990, a
time period where most OECD countries developed from an agricultural stage to an
industrial stage and finally a post-industrial stage. Her ambition is to “test the openeconomy hypothesis that smaller countries, being more exposed to international
pressures than larger ones, could be expected to show higher degrees of social
protection and also more convergence” (Montanari, 2001, p. 469). The convergence
hypothesis is strongly rooted in the economic disciple, in accordance with the
following argumentation “Behind this line of economic theorizing on market
conforming criteria is the notion that, if left undisturbed, the market itself will select
the most efficient institutional solutions among existing alternatives” (Montanari,
2001, p.471). Montanari analysis shows that, economics matter, but it does not
determine institutional structuring “Few would deny that economic development
forms a general base and sets the frame for socio-political change. At issue here is,
however, if economic changes strongly restrict the range of potential alternatives
for policy makers, as claimed by proponents of the industrialism … Our results
indicate that such statement may have underestimated the availability of
alternatives” (Montanari, 2001, p. 487).
Walter Korpi and Joakim Palme argue in their article “New Politics and Class
Politics in the Context of Austerity and Globalization: Welfare State Regress in 18
Countries, 1975-95” that in order to understand welfare state retrenchment, one
needs to take into account the remaking of the postwar social contract of full
employment, and also recognize the continued importance of partisan politics
(Korpi &Palme, 2003, p. 425). “In the perspective outlined here the present
retrenchment of the welfare state as well as its earlier expansion can be seen as
outcomes of distributive conflict under changing relations of power among major
interest groups” (Korpi&Palme, 2003, p. 441). Economics play their part but in a
greater perspective, it is domestic politics (they argue class politics) that determine
whether or not an expansion or retrenchment occurs “Among economic factors,
21
general government fiscal balances and levels of unemployment appear to be of
some relevance, but not to the extent that they overshadow the role of partisan
politics” (Korpi&Palme, 2003, p.441).
However, while Palme, Korpi and Montanari’s opinions, seem to go rather hand
in hand with the international welfare state debate – that is, arguing for that the real
challenge to the welfare state is political/ideological, not economical – there are, as
we have seen, quite a few Swedish scholars who still argue that the Swedish welfare
state is unsustainable and need to be seriously reformed. I would argue that the
debate, considering whether or not the size of the public sector is growth inhibiting,
has been that prominent and intense, why I find it just to argue that the Swedish
debate diverge from the international debate on this matter.
My conclusion is that the Swedish debate continue to revolve around the
internationally already settled issue of whether or not an extensive public sector is
growth inhibiting or not. Substantially it is the same debate that has been on going
for more than two decades – what variables are to be included in a correct analysis
of growth and the public sector. On the one hand you have Lindbeck et al. who
continue to argue that the, according to them, much too extensive Swedish public
sector is growth inhibiting and as a result Sweden is economically lagging behind
other European countries. On the other hand you have Korpi et al. who continue to
argue that Swedish public sector is not too extensive and is not growth inhibiting,
and Sweden is not lagging behind other developed countries – other countries have
inevitably caught up, but this due to natural economic causes. I find it rather
puzzling that this debate has been on going for so many years in Sweden, when
most scholars outside Sweden, more or less unanimously side with Korpi et al.
saying that there is no correlation between size of the public sector and growth.
22
4. Summary
“Whenever you have an efficient government you have a dictatorship”
Harry S Truman
The international political economical research on the welfare state and the future
of the European social models is extensive. However, in the international academic
research there seem to be a consensus that the major threat to the welfare state is not
economical but political. The shift in the state-market power relationship does have
implications for the European social models and the different types of welfare state,
but this challenge must not be exaggerated. Rather than forcing them to rebuild
from their very foundation, the shift forces the social models to do some
readjustments of the already existing systems. Some models are also more
challenged than others; while the Anglo-Saxon and Scandinavian models seem to
be in rather good shape (Sapir, 2005, p.10) the Continental models are facing
difficulties.
The Swedish debate continue to revolve around the internationally already
settled issue of whether or not an extensive public sector is growth inhibiting.
Substantially it is the same debate that has been on going for more than two decades
– what variables are to be included in a correct analysis of growth and the public
sector. On the one hand you have Lindbeck et al. who continue to argue that the,
according to them, way too extensive Swedish public sector is growth inhibiting
and as a result Sweden is economically lagging behind other European countries.
On the other hand you have Korpi et al. who continue to argue that Swedish public
sector is not too extensive and is not growth inhibiting, and Sweden is not lagging
behind other developed countries. According to Korpi et al. other countries have
inevitably caught up, but this due to natural economic causes, not Swedish under
performance.
23
5. Explaining the Discrepancy
“Cynics regarded everybody as equally corrupt... Idealists regarded everybody as
equally corrupt, except themselves.”
Robert Anton Wilson
In this section I will primarily address the question why the international and
Swedish debate diverge. First of all, however, I will briefly present my other
conclusions.
The welfare state is being challenged. However, this challenge is not an
economic challenge but rather an ideological one. The importance of path
dependency, the strong public support of re-distributive systems and, not to forget,
the vagueness of the arguments suggesting that the welfare state is challenged,
speaks in favor of a continuance of the welfare state. The Anglo-Saxon and the
Nordic social models are considered efficient by most international scholars, while
the Continental suffers from inefficiency and needs to be reformed. Furthermore,
among international scholars, there also seem to be a consensus: whether the
Continental social models choose to reform in the direction of the Nordic countries
(more equity) or in the direction of Anglo-Saxon models (less equity) has more to
do with politics than economics. Thus, both the Scandinavian and Anglo-Saxon
models are sustainable, and their differences in design have more to do with
ideological, rather than economic preferences. Andrew Martin concludes “Thus, in
both the U.S. and Europe, my expectation is that what has been happening to
welfare state is to be explained largely by the distinctive dynamics of politics within
each country rather than the common pressures exerted by globalization” (Martin,
1996, p.56)
The first point in this essay is that globalization poses no economical threat to
the welfare state, but rather an ideological threat. In the international academic
world there is more or less a consensus that the major threat the welfare state is
facing is rather endogenous than exogenous – rather ideological than economical.
The second point is that in Sweden the liberal economist’s ideological onslaught
on the welfare state continues, and is being pursued under the banner “we must
reform our system or face the economic consequences” – an argument that has little
or no empirical back-up.
The third point, and the focus point in this section, is that the reasons why the
Swedish debate still primarily concerns the issue whether or not an extensive public
sector is growth inhibiting is due to a number of reasons: 1) economists increased
influence in the political debate – science policy interface 2) a window of
opportunity 3) path-dependency 4) boundary ordering device 5) whom to blame?
1. Science-Policy Interface: Is it possible for science to be neutral? When
scientists give policy advice, are they influenced by their own preferences or are
they capable of sticking to rational arguments? “How do discursive agents interpret,
24
synthesize, and translate existing pockets of scientific knowledge into policy
discourses? Which actors are privileged by the dominant discourses, and what kind
of power is exercised when certain discourses gain prominence?”(Bäckman, 2000,
p.23). A democratic problem might arise if important policy decisions are handed
over to “neutral” scientists, who in the name of science offer recommendations that
are highly influenced by that particular scientist political preferences rather than
scientific assessment. First of all, what do we mean by Science-Policy interface?
“The traditional interpretation of scientific advisory is to put science as an impartial
contrast to the interest oriented politics. By its impartiality and neutrality science is
granted status and authority as advisory body, while politicians can legitimize
policy decisions by referring to scientific expertise” (Bäckman, 2000, p.25,
Skodvin, 1999, p.4). The idea is that this will regulate itself: scientists loose their
noble status if they start interfering in something as trivial as everyday politics; at
the same time if political decisions become too technical and without ideological
foundation politicians loose legitimacy. The constructivist discursive interpretation
is instead that science-policy interplay is a hybrid activity, in which research and
policy agendas are mutually constructed. “The assumpition of a clear-cut boundary
between core science, regulatory science and policy implicit in the concept of transscience is questioned. In contrast, the science and policy spheres are conceived as
mutually constructed” (Bäckman, 2000, p.61). I will be using a hybrid science
approach in my analysis of the science-policy interface in the Swedish academic
debate on the welfare state.
The reason of introducing this Science-policy interface theory in my conclusion
is that I find it to be quite evident that the economists in the Swedish debate on the
welfare state are not discussing science, but rather policy – or more accurately,
ideology. Andrew Martin might have a point when he rhetorically contemplates the
possibility that “It may be that the changing international environment does not
necessarily impose all the imperatives invoked as reasons why the welfare state has
to be rolled back or changed in various ways to meet new economic imperatives,
typically summed up as competitiveness, and that such claims about globalization
and competitiveness are simply new ideological smokescreens behind which old
inegalitarian goals are being pursued” (Martin, 1996, p.2). Swedish economists
have traditionally had a strong influence on the policy area, dating back to the first
generation economists such as Knut Wikcksell, Gustav Cassel and Eli Heckscher.
In recent years, however, the neo-classical paradigm has been dominating the
economic field of research This neo-classical dominance has availed many
economists to make more or less coherent and congruent policy statements, due to
their common theoretical foundation, and they have not been the subject of much
criticism from colleagues (Agell, Korpi et al. being important exceptions) (Jonung,
1996, p.9). Taking into consideration that the neo-classical theory strongly favors
market-solution and disfavors centrally planned solutions, it is perhaps not very
surprising to find that many Swedish economists, are inclined to prefer social
models which have the market as foundational pillar and not the state. At the same
time it is quite evident that many Swedish economists, due to their theoretical
background – neo-classicism, have a distaste for centrally planned solutions and
social models which have the state as foundational pillar.
25
2. Window-of-opportunity: Another explanation I would like to present is the
idea of a window-of-opportunity. The economic crisis in Sweden in the early
1990’s had a major impact on the domestic politics and the public was seriously
questioning if there perhaps was something fundamentally wrong with the way the
Swedish society was being managed. Sweden had not experienced as high rates of
unemployment since before WWII, which was a massive blow to the existing
system and politics were in disarray. Liberals probably saw their chance to push in a
market-based direction, as it is generally recognized that major crisis offers
opportunity for radical change. By blaming abstract exogenous forces such as
“globalization”, liberals effectively diverged attention from ideology and domestic
politics, arguing in accordance with “change is being forced upon us by external
forces – there is nothing we can do but adapt”. A very effective way of taking
advantage of a crisis situation. Liberal economists could persuasively argue that the
Sweden was being misgoverned and needed to adjust to the new terms of world
capitalism. Not merely make some fine tunings of an essentially effective social
model (the international debate’s conclusion), but to radically restructure the social
model in a more market oriented direction. Rather than explaining that a shift from
Keynesianism to monetarism (which most probably was inevitable) would be
dramatic at an initial stage one found it far too tempting not to take advantage of
this opportunity to promote one’s political agenda.
There are also of course more subtle ways of influencing politics: By arguing
that the Swedish model is not an option for the reforming countries in Continental
Europe, Swedish liberal economists (Lindbeck et al.) are in fact saying that the only
plausible solution for these countries is a market oriented solution – an AngloSaxon social model. Essentially this is a way for these economists to influence the
domestic Swedish politics by influencing the international economical debate. If
Continental European countries, which constitute 70% of EU’s total GDP, deem the
Swedish model inefficient and opt for an Anglo-Saxon model, chances are that a
fulfillment of the ‘Neo-liberal’ project is not far away. With an almost complete
dominance of the Anglo-Saxon model in Europe, with Scandinavia as the almost
only exception, one can expect a certain amount of influence to be exercised in
order to make the remaining non-market models converge into this new hegemonic
neo-liberal pan-European social model. “Convergence thinking has been and
remains and important strand of thought in the social sciences. Among economists,
hypotheses on converging trends of economic development between countries have
a long standing and are still alive” (Montanari, 2001, p.470)
3. Path-dependency: Why this debate now? According to Andrew Martin’s
argumentation, that when the US chose to abandon Bretton-Woods and the
Keynesian objective of full employment and replaced it with the monetarian
principle the rest of the capitalist countries could do nothing but follow, this shift
did not happen until 1991 in Sweden. Taking this into consideration it is perhaps
not that surprising that the debate is still ongoing in Sweden. Perhaps it is even
more understandable if one take into account, what was stated in the introduction,
that Sweden has been the subject of close scrutiny “mixed with a dose of
schadenfreude, perhaps to compensate for previous envy at, or disbelief of, the
social and economic success of her welfare model” (Kuhnle, 2001, p.103). Swedish
26
neo-classical economist’s are perhaps eager to show their international colleagues
that they in fact are not that “naive”, and that they in fact have been well aware of
the, from their point of view, chronic disease the Swedish model has been suffering
from. But while the international academic research has deemed the Swedish model
by and large efficient but in need of some minor reforms, the reformist liberal
economists in Sweden are more extreme and are suggesting a radical restructuring
of the Swedish model. The occurrence of a debate on how society shall be
structured following the transformation from Keynesianism to monetarism is what
one can expect and a healthy phenomenon in a modern democracy. But perhaps the
Swedish debate has tendencies of panic – the debate has grown out of proportion
due to Sweden’s special conditions. While this move from one economic regime to
another quite naturally initiates a debate of what reforms are needed to adjust to
new economic and political conditions, Swedish unique conditions - a long era of
successfully managing society, political stability and a national sense of pride over
a high living-standard - perhaps facilitated a more intense and heated debate than
what would have been the case elsewhere. Sweden’s relatively stable political and
economic system was not accustomed to these kinds of dramatic changes, why the
economic regime shift accentuated an inner need of contemplative debate on the
future of the Swedish welfare model.
4. Boundary ordering devices: A less conspiracy theory influenced explanation
would be one that focused on the primal interest of self-interest. One explanation
could be academic jealousy: “When academics give policy advice, it seems
reasonable that they provide a balanced assessment of the research literature. The
stunningly precise point prediction of Henrekson et al. – which was given much
attention in the media – was the motivation for our recent review in this Journal”
(Agell et al. 1999, p. 360). Another simple explanation to why the Swedish debate
continues to revolve around the internationally already settled issue of whether or
not a extensive public sector is growth inhibiting, would be because the Swedish
economics involved in this debate want it to continue. Katarina Bäckman presents
the idea of Boundary ordering devices, according to which it lies in academics
interest to keep a debate alive. “By representing uncertainty in specific manners,
both the cultural authority of science and the credibility of scientists among their
peers can be sustained. The rationalist view that a reduction of scientific
uncertainties is a precondition for successful policy is thereby questioned”
(Bäckman, 2000, p, 62). By keeping the debate alive, especially a debate that
attracts a lot of attention in media and elsewhere, one also guarantees a continued
prominence of one’s area of research. The debate on growth and the public sector
has been on-going for more than two decades, but essentially it is the same
methodological considerations that are being discussed – what variables should one
include in an analysis in order to attain a correct result – why one could suspect that
there are other reasons than academic why it is not settled. When taking a look
from the outside it appears a bit surprising that the debate is still stuck in it trenches,
and that no real advancement is being made. One could always argue that involved
parties recognize this as an essentially ideological debate, but due to their economic
profession they prefer to argue in an economic jargon. But an explanation closer at
hand would be that economists want it to be an economical and not political debate,
27
why the diagnosis would be myopia. However, even if this was the case, why not
try to broaden the discussion and rally more support to one’s side? Perhaps the
answer is that economists secretly dream of a scenario where they enter the political
stage - Deus ex machina – solving the eternal ideological conflict with an economic
formula, which proclaims one political side winner due to economic superiority.
Another explanation in the name of self-interest could be: By saying that there
is no correlation between the public sector and growth one disqualifies economists
from much of the debate on the future of Swedish welfare state. If one agrees with
Martins and Streeck’s argumentation that there has been an inevitable shift from
Keynesianism to monetarism, one also suggests that the space for independent
economic policy is very limited. In accordance with Martin’s and Streck’s
argumentation there was not much the European countries could do but adapt to the
new economic system that the US unilaterally had implemented. What is perhaps
even more devastating, from an economist’s point of view, is that US’s decision to
shift from Keynesianism (and abandon the Bretton-Woods system) to monetarism
was essentially a political decision, not an economical decision. The US was
essentially saying that they prefer low inflation rather than full employment. This is
an ideological preference, not the result of economic determinism. For economists
this notion, that politics influenced and provided the very foundation for economics
and not vice versa, must be provocative. Even more so, for Swedish reformist
economists it must be very hard to accept that the opportunity for independent
economic policy for a small open economy, such as Sweden, is very limited.
5. Whom to blame? : Finally I would argue that the issue of whom to blame for
the economic crisis in the beginning of the 1990’s is an important explanatory
factor. No economic prognosis predicted the coming crisis (perhaps a comparison
with political scientists inability to predict the demise of the Soviet Union is at
place?) and a serious blow was dealt to the disciplines credibility (Jakobsson, 1996,
p.168). Taking this into consideration one easily understands the liberal economists’
line of argumentation – do not blame economics, blame politics. By claiming that
there is something fundamentally wrong with the Swedish social model, one can
also claim freedom of responsibility. Offered the right kind of circumstances (the
right kind of market oriented model) they would have been able to make the right
prognosis that in turn would have enabled the right measures to be taken, and thus
perhaps the crisis would have been mitigated. However, in accordance with their
line of argumentation, due to these fundamental flaws in the Swedish model they
were unable to deliver the right kind of prognosis and hence the crisis took on more
dramatic proportions.
My conclusion is that the shift in the state-market relationship poses no
economic threat to the welfare state. In the international academic debate there is
more or less a consensus that the market’s increased influence may force the
different European social models to make some adjustments, but not any radical
restructuring. Some social models are also more threatened than others; the
Scandinavian and the Anglo-Saxon models are in good shape while the Continental
models are in need of more thorough reform. In the international debate there is also
more or less a consensus that the real challenge to the welfare state is the liberal
ideological onslaught in domestic politics. The Swedish academic debate, however,
28
continue to revolve around whether or not an extensive public sector is growth
inhibiting. My major point in this thesis is that the Swedish academic debate needs
to be understood in an ideological context, not an economical context. I present a
number of reasons why Swedish economists are inclined to engage in the political
debate: economists increased influence in the political debate; a window of
opportunity; path-dependency; boundary ordering device and also the question of
responsibility for the 1991 crisis. Swedish economists are not without a political
agenda and one shall take Atkinson’s warning seriously “The future of the welfare
state is a highly political issue … Calls by economists for rolling back the welfare
state are themselves part of the political process; we have not just endogenous
politicians but also endogenous economists, whose behaviour has to be explained”
(Atkinson, 1999, p. 187).
29
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