DOI: 10.1111/j.1468-2397.2009.00627.

x Int J Soc Welfare 2009: 18: S62 S72

I N T E R NAT I O NA L J O U R NA L O F SOCIAL WELFARE

ISSN 1369-6866

Making social policy work for economic development: the Nordic experience
Blackwell Publishing Ltd

Kangas O, Palme J. Making social policy work for economic development: the Nordic experience Int J Soc Welfare 2009: 18: S62 S72 2009 The Author(s), Journal compilation 2009 Blackwell Publishing Ltd and the International Journal of Social Welfare. The Nordic welfare states offer some lessons in a development context. A main achievement has been sustainable poverty reduction. Another important lesson is that, while democratization often leads to greater pressures for social policy expansion, social policy can also contribute to democratization. The Nordic countries further demonstrate that is possible to unify social protection with a competitive and growth-oriented economy. In a number of policy areas, particularly in relation to social services and labor market policy, the Nordic countries have also become leading modernizers. The women-friendly dual-earner model not only combats poverty among families with children, but also enables women to participate in the labor market. The future sustainability of the Nordic model of social policy hinges on the number of taxpayers that can be mobilized. In order to be successful in this, governments need to take a combined, or holistic, approach, and consider both micro motives and macro considerations.

Olli Kangas1, Joakim Palme2

Social Insurance Institution of Finland, Helsinki, Finland 2 Institute for Futures Studies, Stockholm, Sweden
1

Key words: social policy, Nordic model, development context, poverty reduction, reforms Joakim Palme, Institute for Futures Studies, Box 591, SE-101 31 Stockholm, Sweden E-mail: joakim.palme@framtidsstudier.se; olli.kangas@kela. Accepted for publication September 2, 2008

Introduction
There are diverging views of the merits and drawbacks of the Nordic model. There are those who think that the Nordic welfare state is the best of all possible worlds. One of its notable achievements is in the eld of poverty reduction: poverty rates in the Nordic countries have consistently been among the lowest in the world. And it appears possible to combine equality, a big welfare state, and high levels of taxation with economic growth. Another view, however, is more critical. It

holds that, by equalizing incomes through lavish benets, the welfare state creates work disincentives and suppresses individual initiative, which in turn hampers economic growth; in the long term, this passion for equality is also detrimental for the poor. However, such views are often based on wishful thinking or prejudice, on myths rather than reality. To be able to take social policy making seriously as a learning process, the evaluation of different social policy strategies must be based on facts and systematic analysis, not on assumptions. Comparative

S62

2009 The Author(s) Journal compilation 2009 Blackwell Publishing Ltd and the International Journal of Social Welfare. Published by Blackwell Publishing, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA

Making social policy work

studies can make a contribution by contrasting different models and highlighting their advantages and problems. Following Mkandawire (2001), this article argues that, from a developmental perspective, there are at least three important things to be learned from the Nordic model. First, while democratization can lead to increased pressures for an expansion in social policy, social policy can also contribute to democratization. In this respect, the Nordic countries, with their universal and encompassing social policies, serve as good examples. Historically, the link between social policy and democratization has been very close in this region. Second, there are lessons to be learned from the success of the Nordic welfare states in poverty reduction programs. The third lesson relates to the role ascribed to the state. Some neoliberal thinkers suggest that the only way to safeguard economic growth is for the state to retreat from social provision and let nongovernmental organizations (NGOs) play a more active role. However, the Nordic countries display a high level of prosperity and rapid economic growth despite their high social spending, and demonstrate that it is possible to unify social protection with competitive and growth-oriented economies.

History of the model: coming late, catching up

A historical lesson that can be drawn here is that reforms of social policy programs are responses to changing economic and social structures as well as to political mobilization. The fact that structural changes have been important for social policy reform does not imply that value judgments have been unimportant for shaping the institutions, nor that decisions are made without political action. Furthermore, institutions, once established, create interests as well as values and expectations, and thus create their own path dependency and either enhance or inhibit reforms. (For a fuller analysis, see Kangas & Palme, 2005a.)

Due to their common political history and administrative practices, the Nordic countries shared similarities that played an important role when the rst forms of social policy programs were planned and developed. One such aspect was the states capacity to implement reforms, which was an interaction of various factors. The unitary state structure and a well-educated bureaucracy helped combine central government actions with local-level agencies in municipalities. Despite the tendency to centralize administration, the local agencies played a crucial role in the provision of public services. The local character of decision-making safeguarded the legitimacy of the public sector. The possibility of grassroots participation in municipal decisions created and fortied a general feeling of inclusion and belonging. It created a virtuous circle between democracy and social policy. For example, in Denmark, municipalities that took care of everyday issues important to common people became the implementers of the rst statutory pension scheme of 1891. When industrialization gave impetus to the emergence of an industrial working class, the peculiarly Nordic tripolar class structure (capitalists, workers, and farmers) began to take shape. The Nordic countries began to legislate national insurance that covered the whole population, in contrast to the Central European model of workers insurance. The early pension programs were designed to meet the needs of both the rural and urban parts of the population, and the Danish 1891 pension reform illustrates this. Swedens rst pension reform (1913) combined fully funded contributory pensions with means-tested supplements. The rst pension law introduced in Norway in 1936 also instituted universal coverage and universal nancial responsibilities; however, the benets were conditioned by means-testing. Finland followed Sweden after a couple of decades and in 1937 implemented a fully funded individual account-based scheme that covered all citizens with a means-tested transitory component.

2009 The Author(s) Journal compilation 2009 Blackwell Publishing Ltd and the International Journal of Social Welfare

S63

Kangas & Palme

The Second World War was a turning point in social policy thinking, and in the mid 1950s the other Nordic countries followed the path paved by the 1946 Swedish reform. They changed their national pension schemes to guarantee universal, at-rate, tax-nanced pensions. Thus, the breakthrough of universalism, nascent in the rst national pension laws, took place during the rst decade after the war. Hence, the Nordic countries began with the agrarian little but to everybody principle. The abolition of means-testing in the basic pensions system created the broadest possible political base for combating poverty among the elderly. Yet, in 1960, the levels of compensation offered by Nordic pensions in relation to an ordinary industrial workers wage were still low, or at best modest, by international standards. The golden age of post-war economic growth meant that Scandinavian countries rapidly industrialized. This also meant a growing need to compensate the working population for loss of earned income in case of incapacity to work due to advanced age or other social risks. Along with the growth in the number of salaried staff and other employees in the service sector, the percentage of agricultural employees declined correspondingly. Meanwhile, what Richard Titmuss (1955) referred to as the two nations of welfare was taking shape: part of the population had to make do with fairly small national pensions, whereas other groups could rely on more generous, occupational benets paid by the employer. This social division of welfare in society could, Titmuss argued, only be counteracted by means of universal earningsrelated pensions. The Nordic response was to propose earnings-related benets in the pension system and health insurance. Earnings-related benets were also implemented, with the exception of Denmark where the supplements to basic pensions were related to the length of service rather than the size of earnings. Another major site of welfare cooperation between states and social movements in the industrialized North has been constituted

by voluntary state-subsidized social insurance institutions, particularly for the sick and unemployed (Carroll, 2005). When they emerged in the late 19th and early 20th century, many such programs were as untried as those now facilitated by contemporary stateNGO cooperation ventures in Southern social development. The question of whether this Northern experience could also inform development strategy discussions in the South is linked to the larger questions of whether there are multiple socioeconomic development paths, and whether Southern countries can usefully follow or learn from Northern precedents. It is interesting to look at the voluntarist model to see how the state uses NGOs to develop institutions that the state lacks the capacity or will to develop itself. In current development debates, state disengagement from social provision is advocated to cut costs and enable states to concentrate on core activities. Given possible countervailing disadvantages, the diversity of policy considerations on third sector provision in European historical experience should be kept in mind when considering such policies elsewhere today. When discussing costs and benets of voluntarism, it could be argued that enacting state-subsidized voluntarism could be carried out if certain conditions were met. Statesubsidized health and unemployment insurance funds have historically constituted vital schools of democracy in the Nordic countries, i.e. by participating in fund activities, workingclass constituencies learned how democracy worked. Especially if embedded in a broader network of corporatist institutions, voluntary subsidized insurance institutions may constitute sites where bridging social capital is generated. The participation of union ofcials in administering state-sanctioned social welfare may bind civil society and the state more closely together in ways that not only facilitate union membership but also social development and the greater overlap of special and general interests. Such benets by no means automatically follow from voluntarism. Policy makers should be particularly warned against the idea

S64

2009 The Author(s) Journal compilation 2009 Blackwell Publishing Ltd and the International Journal of Social Welfare

Making social policy work

that voluntarism constitutes an easy stepping stone to compulsory insurance later, and also against exaggerated visions of budgetary savings. Differences in costs may end up being minimal if state subsidies are to keep expanding in ways that seem to be required in order to reach broader inclusion. The general conclusion (Carroll, 2005) is that the complicated interplay of public, civil, and private organizations runs throughout the social landscapes of both the global North and the global South. There is considerable criticism of the one-size-ts-all recommendations to developing countries. If combined at all, state and voluntary provision should aim for complementarity with clear jurisdictions.

Universal welfare services

While anchored to its national and normative contexts, the provision of care to the young, old, and sick is exposed to many pressures in changing societies. This is because of ideological changes taking place in the economy and in politics, changes that generally arise from structural adaptations to economic competition (Anttonen, 2005). Some ideological shifts appear to be relatively isolated from changes in the economy and patterns of employment, such as moral debates about family responsibilities. Others are more clearly rooted in changes in everyday life, such as the discrepancies between social policy assumptions and the growing participation of women in paid employment. Although the forces of change are, to some extent, pushing in the same direction, they have not yet produced much cross-national uniformity in care policies. Unlike social security systems, care arrangements remain distinctly national, and local innovations are common. However, care is changing quite rapidly as both an informal and a formal activity. Most important, care is leaving the intimate sphere of family and kinship and is going public. A consequence of this change in the focus of care from family to other sectors is that care becomes monetized; it has to be paid for and

its costs are revealed. This form of going public may happen independently of social policy decisions, simply because more households need or choose to buy care services. Another side of the coin is that governments may formulate a public policy of care in a way that care becomes a social good and social right of citizens. Some governments have been much more active in this process than others. The Nordic democracies, especially, have actively favored women-friendly solutions in care and family policies. Social care provision, generous by international standards, has promoted gender equality in terms of womens labor market participation. The Nordic experience provides evidence that social solidarity and individual autonomy can be enhanced through legislation, and that it is possible to realize the idea of universal social citizenship. It has meant that marginalized and other oppressed groups, such as women, have become a part of the social policy contract. It has been extremely important for women that social rights have been extended to cover such things as the caring of young children and elderly, sick and disabled members of society. In the Nordic countries, women have been more successful than elsewhere in combining their dual role as mothers and workers, and social policy arrangements are an integral part of the gender equality policy. Womens changing roles as mothers, carers, and workers has brought into being a society in which care relations are constantly reorganized and renegotiated (Anttonen, 2005). Accordingly, public policy of care is becoming a more important part of the welfare state. Caring implies shifting boundaries between private and public responsibilities. Caring is also sharing in the sense that there are now more social actors producing care and care services.

Child poverty and the dual-earner model

Historically, children have been the most vulnerable group and most likely to be exposed to poverty. Anti-poverty measures directed toward children and their families

2009 The Author(s) Journal compilation 2009 Blackwell Publishing Ltd and the International Journal of Social Welfare

S65

Kangas & Palme

have always been constrained by tensions between the interests of the state and the rights and responsibilities of the parent. Poverty the shortage of external resources is reected either directly or indirectly in childrens wellbeing, and may also have detrimental consequences for the childs future possibilities (Ferrarini & Forssn, 2005). There are three different family policy regimes. The rst two depend on whether the regime supports a traditional family (general family support) where the father is the main earner and the mother is responsible for the household and care work or whether it supports a dual earner family (dual-earner support). The third variant is the so-called market-oriented model. In recent decades, the main motive behind family policy programs in the Nordic countries has been to support the dual-earner family, while continental European countries have primarily supported traditional family patterns. Family policies in the AngloSaxon countries tend to be market-oriented, and support to both the traditional and the dual-earner family has consequently been less developed, leaving more room for meanstested benets with a more direct aim to alleviate poverty. Comparative analyses show that the dualearner family policy is most effective at reducing poverty among families with children (cf. Ferrarini & Forssn, 2005). Welfare states with the highest poverty levels have the lowest universal and earnings-related benets and low utilization rates of public childcare, and rely largely on means-tested benets in the provision of economic resources to poor families. It is the countries with the generous earnings-related parental leave benets and high utilization of public childcare that have the lowest poverty levels among families with children. Therefore, family policy is related to cross-national patterns of poverty for families with children. Comparative studies suggest a strong link between social policy institutions and distributive outcomes. Dual-earner models of family policy, such as those developed in the Nordic welfare states, seem successful in

reducing poverty. These welfare states are probably particularly effective at poverty reduction because family policy programs provide adequate benets often earningsrelated and universal to families with children, and transfers and services also provide incentives for female participation in the labor force as well as for male participation in care work. Furthermore, welfare states with family policy models that largely support traditional family patterns have, in general, medium to high levels of poverty among families with children. Countries with market-oriented family polices, which to a large extent rely on targeted benets and services to the poorest families, have the highest poverty levels in this group, contrary to what proponents of selective measures would have predicted.

Education, equality and equity

Two factors make the study of educational systems especially urgent in most postindustrialized countries (Esping-Andersen, 2005). First, knowledge-intensive economies push up skills premiums. Therefore, when returns from education rise, the less skilled are in danger of falling behind in earnings distribution. Youth with poor cognitive skills or inadequate schooling today will become tomorrows precarious workers, likely to face a lifetime of low wages, poor-quality jobs, and frequent spells of unemployment or assistance dependency. The second feature has to do with the relatively large share of low-skilled jobs that coexist with service economy growth. This would appear to negate the argument that low-skilled workers are at risk, except for the fact that there is a strong likelihood that such jobs become dead-end, low-paid career traps. Current policy fashion advocates activation, retraining, and life-long learning as a way to combat entrapment, but these programs are ineffective unless participants already have strong cognitive and motivational abilities. Mobility is only a realistic possibility for those who already possess skills from youth.

S66

2009 The Author(s) Journal compilation 2009 Blackwell Publishing Ltd and the International Journal of Social Welfare

Making social policy work

The advanced economies face a rising skill problem as far as individuals life chances and the collective good are concerned. For one, the advanced economies must rely almost exclusively on their human capital to gain a competitive edge in the world economy. For another, post-industrial societies are aging very rapidly, and future working age cohorts are bound to be very small. Sustaining the welfare of a large aged population necessitates a highly productive labor force. Furthermore, in the new economy, countries can no longer afford social inheritance, i.e. societies must be open and give equal possibilities to all children regardless of their social background. What is the solution? First, the design of school systems can make a difference. Few would doubt that early tracking or segmentation based on ethnicity, race, or social class helps to reinforce stratication. Nevertheless, the important conclusion is that equal opportunities will not come about solely by education policy and therefore which is our second thesis the link between education and social policies must be rethought. This is clear when the potentially negative effects of economic hardship on educational attainment and subsequent life chances are recognized. One lesson from the Nordic welfare states is that the eradication of child poverty yields very positive results indeed, not only in terms of alleviating material hardship in childhood, but also because economic security is a vital precondition for later achievement. Third, according to Esping-Andersen (2005), money is a necessary, but not the only, precondition for good life chances. Data show that cognitive inequalities are substantially lower in the Nordic countries, and the trend toward declining social inheritance coincides with the era of building up universal day care, indicating that life-long learning must begin right from the start. If the sole concern is to ll the care vacuum, the USA demonstrates that fairly broad access can be achieved through the market system. If the aim is to build part of the equal opportunities policy into childcare provision,

then the Nordic experience is a more appropriate model than the US one.

Health and the distribution of human capital

The importance of studying the effects of income on health should not be underestimated, given the fact that health is perhaps the most important element of individuals welfare. The Nordic countries are well known for their low poverty rates and modest income differentials. Their overall performance in terms of general health objectives also appears to be good by international standards. Low infant mortality and long life expectancy are two examples of this. However, inequalities in health persist in the Nordic countries. Data on health differences by social status in different countries show the consequences of income inequality for health, but the mechanisms have been far from fully explored. Recent Swedish and comparative research draws out some of the links between health, inequality, and growth, and how policies and inequalities affect these relationships. Four principal ndings stand out (Fritzell & Lundberg, 2005). First, welfare is a multidimensional concept, and therefore welfare measurement should capture bad conditions rather than good conditions; use descriptive rather than subjective indicators; and study how welfare areas are interrelated. Health and income are two key components of the standard of living. Second, comparative analyses have shown that the Nordic countries have small income differentials and low poverty rates compared with other rich nations. These outcomes are related to a relatively high and universal social insurance system and high employment rates. Third, relative health inequalities are not consistently lower in the Nordic countries in comparison with other European countries. However, in the Swedish case, this is partly dependent on the good health status among the upper social strata of the population. In the Finnish case, evidence from research suggests that the relatively unfavorable statistics are due mostly to historical

2009 The Author(s) Journal compilation 2009 Blackwell Publishing Ltd and the International Journal of Social Welfare

S67

Kangas & Palme

conditions and consequently only seen among the elderly. When it comes to infant and child mortality rates, all Nordic countries perform extremely well. Finally, the association between income and health is curvilinear. In other words, there are diminishing marginal health returns of income both for individuals and for nations. This implies that reducing income inequalities lead to improvements in the health of the population. A problem is that health cannot be redistributed in the same way as income. Structural forces leading to class differentials in health are not easily wiped out. From a public policy point of view, it is interesting to focus on the health status of vulnerable groups when carrying out a comparative evaluation. Seen in that perspective, the Nordic countries also perform comparatively well. This in turn is likely to foster economic and social growth and development. What really matters is to improve living conditions and lessen inequalities.

Economics and social policy: the elusive trade-off between equality and efciency
Neoclassical economics typically predicts that taxes and other political measures associated with welfare states generate distortions in the functioning of markets. Sweden, as perhaps the most developed welfare state, has been constantly used to illustrate this argument: because of Swedosclerosis, the Swedish economy is lagging behind other comparable economies. In this context, Korpi (2005) has pointed to a number of often-overlooked problems of reliability in the empirical data used in analyses of comparative growth rates. Data reliability generates problems, especially in the middle range countries, where Sweden and the other Nordic countries are often clustered. Because of the clustering of countries, small and relatively unimportant differences among countries affect rankings. The fact that measures of the levels of gross domestic product (GDP) adjusted to purchasing power parity (PPP) are unreliable suggests that they should not be used in detailed country rankings.

Those responsible for producing these data recommend that they should be used only for broad groupings of countries. In such a grouping, Sweden comes in the same category as Australia, Belgium, Canada, Finland, France, Germany, Ireland, Italy, Japan, The Netherlands, and the UK. Therefore, Sweden is not doing as badly as argued in the economists discourse. Neoclassical economics predicts that with increasing taxation and welfare state expansion, labor supply and growth rates will suffer. Empirical studies on the sensitivity of labor supply to taxation have shown only rather limited negative effects, although somewhat more for women than for men. In analyses of comparative growth rates, it has also proved difcult to establish evidence for major negative growth effects, including in Sweden where such effects would be most likely to emerge. However, efforts to prove major negative effects of welfare states on labor supply and growth have not been very successful (Korpi, 2005). From a policy-related perspective, there is a need for studies of the different aspects where hypotheses on negative effects of taxes and welfare programs can be empirically analyzed. Such studies should focus both on micro and macro levels. For relevant policy advice, it is also necessary to analyze the positive consequences of welfare states, and to attempt to consider balancing the potentially positive and negative aspects.

The recession of the 1990s and beyond

After the deep recessions of the early 1990s, all the Nordic countries experienced a strong recovery (Kiander, 2005). On average, the postrecession Nordic growth rates of output, employment, and productivity have been almost the same as in the USA in the same period, and much better than the European Union (EU) average. Within the Nordic group, the output growth has been fastest in Finland and Iceland, and employment growth has been about 2 percent per annum in Finland, Iceland, and Norway. Finland and Denmark have had the

S68

2009 The Author(s) Journal compilation 2009 Blackwell Publishing Ltd and the International Journal of Social Welfare

Making social policy work

highest productivity growth. The good economic record of the latter half of the 1990s may indicate that the Nordic economies are still functioning well, notwithstanding the earlier crises. What has been the effect of transnational economic integration on the recent economic performance of the Nordic countries? First, there are many commonalities in the Nordic economies. They are all subject to the single market regulations of the EU. The Nordic countries have also been ahead of European deregulation by being rst to liberalize telecommunications and electricity markets through deliberate state policies. Second, changing monetary regimes were a central part of the Nordic integration processes in the 1980s and 1990s. In the 1980s, all the Nordic countries xed exchange rate targets; they tried to imitate the exchange rate mechanism of the European Monetary System (EMS) although they were formally outside of it. After the currency crises of 1992, the paths of the Nordic countries started to diverge. Finlands goal was to join the European Monetary Union (EMU). Denmark decided, for political and clearly non-economic reasons, to stay formally outside the EMU but still have a xed exchange rate vis--vis the euro. The rest of the Nordic countries Iceland, Norway, and Sweden have remained in the regime of oating exchange rates with explicit ination targets. Despite different choices, the Nordic countries have all adopted the policy of low ination and central bank independence. The process of adjustment to this new regime of stable prices was initially painful for all of them, although the new regime has, subsequently, functioned well. The Nordic welfare model survived the test of the 1990s. It faced a real crisis when recession pushed public decits and unemployment to record levels in the mid 1990s. However, instead of being locked into an unemployment trap, the Nordic countries recovered quickly in the latter half of the 1990s. Following recovery from the crises of the early 1990s, the Nordic countries have enjoyed growth rates of output, productivity, and employment similar to

sometimes even better than the US economy. Within 5 years, all Nordic countries were successful in signicantly reducing open unemployment, turning the public nances from decit to surplus, and maintaining their welfare states. The adjustment was implemented not by changing the basic structure of the national welfare models, but by raising taxes and restricting the growth of public expenditures. Hence, the Nordic countries can still be regarded as advanced welfare states with high public employment, universal benet systems, extensive publicly provided welfare services, high taxes, low poverty, and corporatist labor-market structures. In the future, extensive welfare systems, although they seem to be functioning well, are likely to face further challenges caused by integration, globalization, and demographic change. Further integration of European economies may increase the pressure for tax competition, which can threaten the nancial basis of the welfare state. The Nordic countries have already responded to tax competition by lowering corporate tax rates and taxes on capital income. These changes have been compensated by other tax increases, and, as a result, labor incomes and private consumption are heavily taxed. It is not clear how sustainable such a regime of high taxes will be in the future, if the mobility of goods and employees increases. If there is further pressure to lower taxes, then nancing the increasing public pension and healthcare expenditures of aging populations may be difcult: possibly more difcult for the Nordic countries than other European countries because the initial level of taxation is high and there is less scope to increase labor supply due to already high rates of labor force participation. Some leeway for the Nordic governments may be provided by their exceptionally good scal positions.

Financing big welfare states

Most countries are facing a number of important challenges to the nancing of their

2009 The Author(s) Journal compilation 2009 Blackwell Publishing Ltd and the International Journal of Social Welfare

S69

Kangas & Palme

systems of social protection. How will these challenges be met in the years to come? (Sjberg, 2005). Changing demographic structures involve a situation where a larger portion of the population will have to be supported by a shrinking one. Moreover, many predict that the globalization of the economy will put serious constraints on the nancing of social protection, both in terms of what overall level of taxation is sustainably feasible as well as the rate at which different tax bases can be taxed. Sweden can, in this context, be considered as something of a crucial test case regarding the nancial viability of large welfare states. Both social expenditures and the total tax burden in Sweden are among the highest in the world, and in the 1990s Sweden experienced a severe economic recession, which put heavy pressure on public nances. Given the importance of taxes on wages and income from work for the nancing of almost all areas and levels of the Swedish welfare state, the relationship between taxation and labor supply appears to be critical. First, Sweden (like most other industrialized countries) is, and will continue to be in the foreseeable future, highly dependent on taxation on labor for nancing the welfare state. This means that it is of vital importance to the nancing of social protection to have as many people employed as possible. It is crucial to recognize the complex relationship between nancing and other areas of the welfare state. Second, the way in which social protection is nanced is not only, and perhaps not even primarily, a question of economics. The question of how to divide the costs of social protection in society can have an important, and sometimes decisive, impact on how social policy reforms are viewed by the public and on the legitimacy of social policy institutions. Third, the way in which social security programs are nanced is, to an important extent, dependent on the institutional social policy model applied in a country. This implies that the present nancing structures may constitute an important foundation for future reform possibilities.

Information society and the challenges to social policy

Does the rise of the information age necessarily increase social inequality and exclusion, as the dominant trend in the world seems to indicate and as believed in certain political circles in the world? However, looking at the empirical data on the countries that have succeeded as information societies, the picture is different. For years, the Nordic welfare states have topped the Information Society Index which reects the adoption of new information technology in society. According to the United Nations Technology Achievement Index, Finland is the world leader, followed by the USA and Sweden. It makes a lot of sense to talk about a Nordic model of the information society (Himanen, 2005). The Finnish success can be traced back to some critical factors. The rst key element is the interaction between business and the state, and between the information society and the welfare state. Although the Finnish model is market-driven, there has been a conscious government policy to push Finnish business toward the information economy. For the formulation of this policy, the government formed a Science and Technology Policy Council in 1986. Second, the Finnish government has deliberately invested in research and development (R&D). Thus, by 2000, the national investment exceeded 3 percent of GDP. Currently, national R&D investment is close to 4 percent, which is the highest in the world, along with Sweden, and almost double the average rate of other advanced economies. Third, the public education system provides highly skilled people to innovate in the Finnish information technology sector. In addition, it has helped to create a special culture of innovation the open-source culture that has been the basis of key technological creations and which is supported by the Finnish welfare state. The free and public education system, in which university students receive a small student salary, allows students to play with

S70

2009 The Author(s) Journal compilation 2009 Blackwell Publishing Ltd and the International Journal of Social Welfare

Making social policy work

new ideas and explore things, as they do not have an immediate pressure to graduate. Global competition of talented and highly skilled workers may increase pressures toward higher income inequalities. As the population is aging, the pressure on the costs of the welfare state is growing, and productivity growth will be necessary to avoid further pressure on public nances, but this pressure towards productivity may also contribute to growing income inequalities. The central issue is how to balance equality issues with the need for a policy that would create more work and make employment more protable both for the companies and for employees.

better and more efcient systems. The underlying question of this article is how and to what extent it is possible to harness the destruction, in a socially justiable way, and create social and economic institutions that can effectively utilize the possibilities created by the new situation. The Nordic experience is an illustration of the problems and potentials.

References
Anttonen A (2005). Empowering social policy: The role of social care services in modern welfare states. In: Kangas O, Palme J, eds., Social policy and economic development in the Nordic countries, pp. 88117. Basingstoke, Palgrave-Macmillan / UNRISD. Carroll E (2005). Voluntary state-subsidized social insurance in the advanced industrialized world since the 1890s. In: Kangas O, Palme J, eds., Social policy and economic development in the Nordic countries, pp. 6087. Basingstoke, Palgrave-Macmillan/ UNRISD. Esping-Andersen G (2005). Education and equal life chances: Investing in children. In: Kangas O, Palme J, eds., Social policy and economic development in the Nordic countries, pp. 147 163. Basingstoke, Palgrave-Macmillan/ UNRISD. Ferrarini T, Forssn K (2005). Family policy and cross-national patterns of poverty. In: Kangas O, Palme J, eds., Social policy and economic development in the Nordic countries, pp. 118 146. Basingstoke, Palgrave-Macmillan/ UNRISD. Fritzell J, Lundberg O (2005). Fighting health and income: one important road to welfare and development. In: Kangas O, Palme J, eds., Social policy and economic development in the Nordic countries, pp. 164209. Basingstoke, PalgraveMacmillan/UNRISD. Himanen P (2005). The Nordic model of the information society: the Finnish case. In: Kangas O, Palme J, eds., Social policy and economic development in the Nordic countries, pp. 265 279. Basingstoke, Palgrave-Macmillan/UNRISD. Kangas O, Palme J (2005a). Coming late catching up: the formation of a Nordic model. In: Kangas O, Palme J, eds., Social policy and economic development in the Nordic countries, pp. 116. Basingstoke, Palgrave-Macmillan/UNRISD. Kangas O, Palme J (2005b). Does the most brilliant future of the Nordic model have to be in the past? In: Kangas O, Palme J, eds., Social policy and economic development in the Nordic countries, pp. 281290. Basingstoke, Palgrave-Macmillan/ UNRISD. Korpi W (2005). Does the welfare state harm economic growth? Sweden as a strategic test case. In: Kangas O, Palme J, eds., Social policy

Conclusions
Does the most brilliant future of the Nordic model have to be in the past? In answer to this question, this article (cf. Kangas & Palme, 2005b) argues that it is necessary to reect on some fundamental principles that are also relevant to a developmental perspective on social policy. The basic argument is that the sustainability of the Nordic model of social policy hinges on the number of taxpayers that can be mobilized. To be successful in this, governments need to take a combined, or holistic, approach and consider micro motives and macro considerations. Incentive structures need to be improved. Investments in human capital and social services are critical for both labor supply and productivity improvements. However, unless such measures are combined with successful macroeconomic policies, they are unlikely to achieve anything close to their full potential results. The 19th and 20th centuries have witnessed major transformations of economic systems around the world. In such transformations, there are always winners and losers. In the wake of big changes, old forms of security vanish and new ones take shape. In a Schumpeterian sense, a constructive destruction is taking place (Schumpeter, 1950). This term refers to a situation where the old, inefcient forms of social activities are destroyed and replaced by

2009 The Author(s) Journal compilation 2009 Blackwell Publishing Ltd and the International Journal of Social Welfare

S71

Kangas & Palme

and economic development in the Nordic countries, pp. 186209. Basingstoke, PalgraveMacmillan/UNRISD. Kiander J (2005). Growth and employment in the Nordic welfare state in the 199s: Crisis and revival. In: Kangas O, Palme J, eds., Social policy and economic development in the Nordic countries, pp. 210240. Basingstoke, PalgraveMacmillan/UNRISD. Mkandawire T (2001). Social policy in a development context. Geneva: United Nations Research Institute for Social Development. Social Policy and Development, Paper No. 7, 2001. Schumpeter J (1950). Capitalism, socialism and democracy. New York: Harper. Sjberg O (2005). How to maintain a big tax welfare state? In: Kangas O, Palme J, eds., Social policy and economic development in the Nordic countries, pp. 241264. Basingstoke, PalgraveMacmillan/UNRISD. Titmuss RA (1955). Pension system and population change. Political Quarterly 26: 152166.

S72

2009 The Author(s) Journal compilation 2009 Blackwell Publishing Ltd and the International Journal of Social Welfare