Political economy of the welfare state

Social policy researchers have long emphasised that one can categorise welfare states in OECD context into different “models” or “worlds”, such as liberal, corporatist and Nordic ones. Finland is usually discussed as part of the Nordic model and as one of the Nordic countries. Despite the differences between the Nordic countries, there are still some typical characteristics of the Nordic model, such as modest inequality, high trust, relatively low corruption and the subjective happiness of Nordic denizens.

The classical Nordic model aims at equalising income and wealth inequalities and other social inequalities through progressive taxation and income transfers. It has also been generally thought in the Nordic countries that public day care, education, active labour market policy and health policy should be understood as social investments as they promote the employability of individuals and help to improve productivity.

UTAK highlights that Nordic welfare not only produces the prerequisite for equality and a good life, but it is also essential to economic openness and technological change. Without comprehensive social security, education opportunities and active labour market policies structural changes can create a breeding ground for short-sighted populism and far-right political forces. This could be clearly seen in the late 2010s.

It still seems to be the case that a broad welfare state that serves the needs of the working and middle classes is better suited for combating inequalities in wealth and incomes than a welfare state that merely focuses on the needs of the poorest. Yet, today, after the permanent austerity in welfare state development, Nordic countries are less generous and universal than before and have lost some of their specific characteristics.

Ensuring sustainable finance for the welfare state is a key challenge for the Finnish welfare state in the 2020s. Thus, UTAK will present its views on issues, such as public debt, public spending and tax policy. It is clear that rebalancing public finances will necessitate successful efforts to promote economic growth and employment. Continuous austerity will most likely turn out to be both economically and politically unsound.

UTAK asserts that the classical Nordic model is the most durable way to organise power relations in a capitalist system. On one hand, the Nordic economies have proved to be exceptionally efficient and equal. On the other hand, the Nordic model has enabled a more thorough democratisation of economic power relations than other welfare regimes. Broad social security systems, large public sectors and collective bargaining systems have improved the structural bargaining position of the labour and reduced workers’ dependence on market forces.

We hold it important to defend the Nordic welfare model also in the 2020s. One must understand that the Nordic way of regulating capitalism differs profoundly from other social systems. For instance, it requires very high tax rates and extensive workers’ rights. The currently common way of comparing the features of Nordic countries to the Western average (whether we are speaking of tax rates, public sector size or wage negotiation systems) does not take into account the fact that Nordic countries have never resigned themselves to the Western average. Instead, their aims have been significantly more ambitious and transformative.

Also, the increasingly more common way of judging public policy decisions mainly from the viewpoint of how cost-effectively they are directed to the poorest members of the society does not take into account the universalistic nature of the Nordic model. It is obviously of utmost importance to help the most vulnerable households but it is also an indispensable part of the Nordic system that all taxpayers – not only the poorest ones – receive good-quality public services and benefits.

Despite its strengths, the Nordic model is also in need of updating. It has to be, for instance, better able to prevent geographical disparities – both at the national level and within cities. Additionally, it must boldly aim for full employment and strengthen the cultural inclusion and participation of all citizens. The Nordic model also has to be transformed to take better into account the changing nature of work: its fragmentation, precarisation and it becoming digitally regulated.

UTAK considers that the supporters of the Nordic model have to seize the initiative again. The model cannot be a mere historical relic to be defended but new goals and utopias based on the principles of the Nordic model must be brought forward.

The most important of such goals is the aim to reduce working hours. For long, the increases in productivity led to reductions in the length of the working day which enabled more time for leisure and human development. However, the length of the work day has now stalled to eight hours after it was achieved decades ago. In the future, especially in the Global North, we do not primarily need major improvements in the general material living standards but more time for human flourishing.