Social cohesion: The welfare state
- Paid employment
- Income transfers
- Public services
- Legal framework
- Dialogue between social partners
Paid employment, either as self-employed or as an employee, is the main key in the thinking behind the construction of the welfare state. Such employment gives, under the assumptions specified below, both material security and social participation. The assumptions are that the revenue level and the work environment are good, and that all those who seek employment find it. More equal conditions are to be achieved through a good process of revenue negotiation, in conjunction with a tax system that contributes to increased equality if the revenue determination does not ensure sufficient results in this respect.
These assumptions naturally contain great challenges. The Nordic countries are market economies. Not everybody is able at all times to find or create paid work for themselves. Furthermore, working conditions vary from sector to sector. The work environment depends on the persons you work with, and on those who organize the work at that place. The tax system is for several reasons incapable of compensating for all the inequalities that arise in the labor market.
Material security shall also be given to persons who for different reasons do not get sufficient revenue through work. Transfers from the public budgets to these persons take place by the way of unemployment benefits to temporary unemployed, sickness compensations for persons out of work due to temporary illnesses, disability pensions for persons who are deemed unable to take up employment, retirement pensions for those who have attained retirement age, paid maternity leave for parents of newborn children, child support for families with children under 16 years of age, scholarships for persons taking advanced education, housing support for those who need help to enter the housing market, and social support for those who do not achieve sufficient material conditions through any of those measures mentioned above. The latter measure is a final safety net aimed at making sure that nobody falls below a certain minimum level of material living conditions.
The transfer measures mentioned above are intended to make sure that no persons are forced to live in poverty. These measures exist in one form or another in all Nordic countries. Therefore, their existence cannot be “explained away” by referring to Norway’s oil economy. In spite of these numerous types of transfers, there is a debate about what is called the poverty problem. Why?
The crucial point of departure in that debate is the notion of poverty itself. Poverty is defined as a given percentage of average income in society. This rate is based on an assessment by the social policy expertise regarding what the necessary material standard is for a person to live a life which materially speaking does not lead to social exclusion. It is not an absolute notion of poverty linked to survival, and as such not comparable to poverty as you would see it in Congo or Zimbabwe.
For this reason we will always have a poverty debate, regardless of how the average real income would grow in relation to what it is today. The focus of the debate is on the impediments to and possibilities for social inclusion that are linked to the individual’s economic situation. This discussion will keep going as long as the transfers are insufficient to compensate for the shortcomings in income, as related to the defined “poverty line”.
Another cause of poverty may be that some people in need do not fulfill the conditions of support, because the criteria for support did not foresee the type of situation those persons have come into. A third cause may be linked to people who for some reason have lost control of their own daily lives, as in the case of drug abusers or people with serious mental illnesses. These people will face poverty on a permanent basis, either because the transfers they receive are stolen from them by smart parasites or because they do not manage to keep track of the relation between their expenditures and their revenues.
Public services are another of the pillars in the construction of the welfare state. These are focused on services that are needed to live a good life. Good health is a life quality which is regarded as so essential that everybody should have access to necessary medical treatment, regardless of their revenue. For this reason, health services have a central role among the public services. The same goes for education, which is a necessary platform for taking advantage of the opportunities that society has to offer. Access to transport is a necessity if people are to take part in the community’s activities. In advanced societies, hardly anything can be reached within walking distance. Public transport is therefore necessary for those who do not have private access to vehicles, and increasingly this will also be necessary for dealing with environmental challenges (although this is another discussion).
In addition to such fundamental services that are an integral part of the construction of a welfare state, there are numerous other services in Nordic countries that receive public funding – either because they have followed as a consequence of increased social ambitions on the part of politicians or for other motives.
During the build up of the welfare state after World War II public services were synonymous with services carried out by public employers (publicly owned institutions). The services were either given without charge or at prices substantially below the cost of producing them. The prices were set on the basis of social policy targets, not in relation to market pricing. Many of these services were such that if prices had been set to cover production costs, very few people would have afforded to pay for them. This would for instance have resulted in very large inequalities in access to health, education or transport – something that was seen as socially unacceptable.
The producers of these services, the employees in public services, were given secure employment. This security was combined with a lower wage level than they would have had in the private sector.
As public services were developed in scope, taxes for their financing were increasing. The increase in taxes encountered increased resistance from the population. This resistance led in turn to demands for more efficient use of resources and for curbing of the growth of the public sector. Privatization of public services were seen by many as a way of achieving public savings and increased efficiency. Why would it be cheaper that way?
Privatization of public services.
Why would a service cost less if the job was transferred from a person working in public service to a person working in private service? Could it be because of differences in the legal framework the two have to deal with? Is the public sector more cumbersome, for instance because of rules that impose equal treatment for all, close control over how money is spent, and regulations regarding working conditions for employees? Do these rules create extra work or less flexible organizations, which in turn explain the differences in cost? Are there differences in incentives for work, like bonuses, career prospects, or flexible teamwork conditions?
If differences in cost are explained by such factors, then privatization of a service would have to imply that the rights and regulations prescribed in the public sector would have to be removed from that service – if the reduction in cost is to be obtained. Would it mean longer work hours, less pay, reduced employment security, less control with how the money was spent, less time spent in communication between employers and employees, and less attention to equal treatment? If so, privatization of the service would take place at the expense of one or several of these factors
Differences in cost may also occur if the legal tender is insufficiently specified, or if it is consciously specified in such a way that it allows for reduced quality in the service. The way the legal tender is specified and published is a political act, and indicates the kind of solution wanted by the authority that publishes the legal tender.
Pricing of public services.
The pricing of public services is another of those issues that arose as the debate on the level of taxation got more heated. The reasoning behind pricing of public services was originally not aimed at producing profits or even covering costs. Prices were to be set either from a social policy point of view, where the financial situation of the users of the services was an important consideration. Or, prices were to be set on the basis of the desirability of the use of these services. Examples of the former are health services or educational services, where the point of departure was that everybody should have equal access to these services – regardless of their level of income. This meant that services were given free of charge, or at a very low charge (to avoid excessive use). Examples of the latter are public transport, where both equal access to transport and environmental considerations would lead to the setting of low prices.
If the purpose of a service is to make a profit, it should by this reasoning not be carried out by a public agency. This is a basic consideration in a mixed economy. An exception to this could occur if one is dealing with a sector where the government wishes to secure a certain amount of national control over the use of these resources.
Over the years, budgetary considerations have diluted the original principles under which prices for public services were fixed. We have now seen a development where cost coverage has increased its relative role in relation to the original reasoning. The prices to be paid by the service recipient have increased, and the reasons given for the setting of prices are more often linked to the need to increase budgetary revenue. This development has made it more difficult to judge the position of the welfare state in the mixed economy. The borderlines between market economy and public sector economy have become more blurred. There is no doubt that public expenditure as a share of the total economy has increased steadily in all the post war years, not only in the Nordic countries but in all countries where national accounting statistics are reliable. This means that the share of economic activity that is channeled through public budgets has increased. In the later years this share has been stabilized in many countries, because the tax burden it represents has become a very controversial issue. The relative role of the public and the private sector in the workings of the market economy is an integral part of this discussion.
The legal framework.
In conjunction with public services, the welfare state is built up around laws and regulations of different types. Legislation establishes rights for the population, of which the majority are to be ensured by the local governments (who get budgetary transfers from the central government to cover the expenses the laws entail). Budgetary expansion has gone hand in hand with expansion in legal rights. Many local governments complain that the central government does not sufficiently follow up with the funding necessary to comply with the Parliament’s lawmaking in this respect. Recruitment of employees to carry out the services implied in these laws is also lagging behind. These elements also cast doubt on how the welfare state is living up to its ambitious intentions.
In addition to laws implemented by local governments, many important laws are handled by central government agencies, like for instance the Labor Inspection Directorate and the Health Inspection Directorate. Space does not permit us to go further into the institutional build up of the welfare state in the Nordic countries, but the above should give an insight into how this type of state has been gradually built up over the last sixty years. It may seem like a paradox that such a patient, gradual construction also has produced some of the most efficient, flexible and innovative societies on the planet. This rests primarily on two factors. Firstly, there is a very good dialogue between employers and employees – both locally in most firms and nationally between the employer and employee organizations. The central government is often involved in this dialogue when matters reach into areas of government responsibility. Secondly, the social security net is such that employees and self-employed persons are not afraid to take risks or to take part in reorganizations of companies that need to redefine their activities.