Welfare in Nordic countries reduced amid economic blues, ideology shift

PUBLISHED : Wednesday, 22 January, 2014, 10:53pm
UPDATED : Thursday, 23 January, 2014, 3:24am


The Nordic model, known for high taxes and its cradle-to-grave welfare system, is getting a radical makeover as nations find themselves cash-strapped.

During the post-war period, the Scandinavian economies became famous for a "softer" version of capitalism that placed more importance on social equality than other western nations, such as Britain and the US.

Globalisation, economic necessity and an ideological shift to the right has led to a scaling back of the public sector.

In Sweden, visitors are sometimes surprised to learn about year-long waiting times for cancer patients, rioting in low-income suburbs and train derailments amid lagging infrastructure investment.

"The generosity of the system has declined," said Jonas Hinnfors, a professor of political science at the University of Gothenburg. "Much of this already started changing in the 1980s and especially in the 1990s."

In the wake of a banking crisis in the early 1990s, Stockholm scrapped housing subsidies, reformed the pension system and slashed the health care budget.

In 2006, conservative Prime Minister Fredrik Reinfeldt's government accelerated the pace of reform, tightening the criteria for unemployment benefits and sick pay while lowering taxes.

Income tax in Sweden is now lower than in France, Belgium and Denmark, and public spending as a share of gross domestic product has declined from a record 71.0 per cent in 1993 to 53.3 per cent last year. Once the darling of progressives, Sweden has become a model for free-market-leaning thinkers.

If Sweden is the Nordic country to have gone the furthest in shrinking its welfare state, Denmark has moved the fastest.

When her Social Democratic government took power in 2011, there was little to suggest Prime Minister Helle Thorning-Schmidt would make any dramatic changes to the country's cherished welfare state.

After a centre-right government had raised the retirement age and reduced the unemployment benefits period from four to two years, Helle went on to cut corporate taxes to 22 per cent from 25 per cent.

Only Norway looks unlikely to reform entitlements anytime soon, bolstered by its oil wealth. The country is home to the world's largest sovereign wealth fund. Worth 5,116 billion kroner (HK$6.4 trillion), each of the country's 5,096,000 inhabitants is, at least on paper, a millionaire.