will scandinavian economies afford the welfare model in
TRANSCRIPT
8/2/2019 Will Scandinavian Economies Afford the Welfare Model In
http://slidepdf.com/reader/full/will-scandinavian-economies-afford-the-welfare-model-in 1/15
Will Scandinavian economies afford
the welfare model in the next
decade
8/2/2019 Will Scandinavian Economies Afford the Welfare Model In
http://slidepdf.com/reader/full/will-scandinavian-economies-afford-the-welfare-model-in 2/15
Nordic countries
• The Nordic model is widely regarded as a benchmark. Anumber of comparative studies of economic and socialperformance have ranked the Nordics high.
• A common finding of cross-country comparisons isthat the Nordics succeed better than other countries incombining economic efficiency and growth with apeaceful labour market, a fair distribution of incomeand social cohesion.
• The model is pointed to as a source of inspiration forother people in their search for a better social andeconomic system.
8/2/2019 Will Scandinavian Economies Afford the Welfare Model In
http://slidepdf.com/reader/full/will-scandinavian-economies-afford-the-welfare-model-in 3/15
• Critics have been looking for inner contradictions
in the model and they have questioned its
sustainability. Some argue that the economic
performance of the Nordic countries is simply aresult of exceptional and temporary advantages,
bound to disappear over time.
•
The model will remain viable and successful onlyif the challenges and the need for reform are
understood – and if action is taken.
8/2/2019 Will Scandinavian Economies Afford the Welfare Model In
http://slidepdf.com/reader/full/will-scandinavian-economies-afford-the-welfare-model-in 4/15
• Globalization is primarily an opportunity and
not a threat. It has been the very basis of the
growth in productivity and living standards
that the Nordics have achieved.
• However, the continued trend of globalization
will put the model under pressure.
8/2/2019 Will Scandinavian Economies Afford the Welfare Model In
http://slidepdf.com/reader/full/will-scandinavian-economies-afford-the-welfare-model-in 5/15
• The emerging economic giants in Asia andLatin America will force us to restructure oureconomies at a rapid pace; relocation of
production and job losses need to becompensated for through innovations andgrowth in new activities. Simultaneously,globalization may undermine the financial
viability of the welfare state by increasinginternational factor mobility and taxcompetition between nations
8/2/2019 Will Scandinavian Economies Afford the Welfare Model In
http://slidepdf.com/reader/full/will-scandinavian-economies-afford-the-welfare-model-in 6/15
• Demographic change – in the form of an ageingpopulation – increases the size of the passivepopulation (retirees), while tending to decreasethe size of the active population (workers).
• The result is a dramatic rise in the dependencyratio and a strong pressure towards increasedsocial spending and higher tax rates.
• The combination of ageing populations and high
ambitions for welfare services will strain publicfinances, even more so if globalization increasesthe mobility of jobs and labour.
8/2/2019 Will Scandinavian Economies Afford the Welfare Model In
http://slidepdf.com/reader/full/will-scandinavian-economies-afford-the-welfare-model-in 7/15
• In addition, we emphasize that a high rate of labour forceparticipation is an indispensible ingredient of the model.There must be sufficient incentives – in the form of financial rewards and/or workfare elements – to participatein the labour force and to work.
• There is also a need to define the core tasks of the welfarestate and to clarify the scope of the services that citizensare entitled to and should be able to expect. Higherproductivity in the provision of welfare services isimperative and can be enhanced by, inter alia, privatization
and outsourcing of public services• investment in human capital should not be the victim of
increasingly tight budget constraints
8/2/2019 Will Scandinavian Economies Afford the Welfare Model In
http://slidepdf.com/reader/full/will-scandinavian-economies-afford-the-welfare-model-in 8/15
• We believe that the basis of the model is acombination of collective risk sharing andopenness to globalization.
•The Nordics are open to globalization, and stateintervention in the business sector iscomparatively limited, as is regulation of markets
• Many features of the Nordic model amount to
mechanisms designed to give somecompensation to those suffering from negativeeffects of structural change
8/2/2019 Will Scandinavian Economies Afford the Welfare Model In
http://slidepdf.com/reader/full/will-scandinavian-economies-afford-the-welfare-model-in 9/15
• The Nordic welfare state is vulnerable to changes inemployment and the age structure of the population
• First, demand for (some) welfare services tends toincreasefaster than income (a phenomenon known by
economists as“Wagner’s law”). Second, by their verynature, productivity in theproduction of welfareservices tends to increase at a lower rate,if at all, thanin the production of goods (or other services).Assuming equal wage developments across sectors,
unit costs must then increase faster in the productionof welfare services than in the economy as a whole (aphenomenon known by economists as “Baumol’s law”).
8/2/2019 Will Scandinavian Economies Afford the Welfare Model In
http://slidepdf.com/reader/full/will-scandinavian-economies-afford-the-welfare-model-in 10/15
• The two phenomena taken together imply atendency for total spending on welfareservices to rise faster than GDP over time. As
long as the production of these servicesremains in the public domain, or as long asthey are tax-financed, the tax burden mustalso exhibit a tendency to rise continuously
with GDP. This is a problem of the welfarestate that we have been living with fordecades now.
8/2/2019 Will Scandinavian Economies Afford the Welfare Model In
http://slidepdf.com/reader/full/will-scandinavian-economies-afford-the-welfare-model-in 11/15
• The welfare state –social security and
redistribution – has alleviated the fear of
market forces
• Both the welfare state and macroeconomic
stability have contributed to the acceptability
of local and individual wage negotiations
8/2/2019 Will Scandinavian Economies Afford the Welfare Model In
http://slidepdf.com/reader/full/will-scandinavian-economies-afford-the-welfare-model-in 12/15
FIG : 1 GROSS
NATIONAL EXPENDITURE
GROSS NATIONAL EXPENDITURE
= C + I + G
FIG:2 INFLATION RATE
8/2/2019 Will Scandinavian Economies Afford the Welfare Model In
http://slidepdf.com/reader/full/will-scandinavian-economies-afford-the-welfare-model-in 13/15
FIG:2 INFLATION RATE
PRICE CONST SO INFLATION RANGE IN BETWEEN -2 TO 4.25
8/2/2019 Will Scandinavian Economies Afford the Welfare Model In
http://slidepdf.com/reader/full/will-scandinavian-economies-afford-the-welfare-model-in 14/15
FIG: 3 GDP
8/2/2019 Will Scandinavian Economies Afford the Welfare Model In
http://slidepdf.com/reader/full/will-scandinavian-economies-afford-the-welfare-model-in 15/15
AD’
C+G+I+NX=AD
YY0 Y1
AD
DD
SS
SS’
P(e)
P(e0)
P(e1)
$$0 $1
MSMS’
Md (P,Y1)
Md (P,Y0)
MMs = Md Ms = Md
r d= r w
rd> r w
LM’ LM
IS
YY1Y0
e0
e1
e
0 0
0 0