THE NORDIC ALTERNATIVE
    
Conceptual Framework

The conceptual framework for the seminar was provided by a report of Gösta Esping-Andersen to the European Union in March 2000. A summary is presented below; the complete report is available in PDF format.
    

    

   
Summary
   
A Welfare State
For the 21st Century

  
Ageing societies, knowledge-based economies,
and the sustainability of European welfare states

   

 

 

 

 

   

Europe’s social insurance systems generally reflect a risk structure that belongs to the past. The great challenge of today is to redefine welfare priorities and reconstruct social programmes so that they more effectively address evolving risks and needs. However, the need for urgent reform clashes with severe dilemmas arising from two main factors: current financial constraints on European governments; and the threat posed by ageing populations to the long-term sustainability of social insurance systems.

Any overhaul of existing systems can be acceptable only if, in addition to resulting in greater efficiency, it also satisfies widely accepted norms of justice and equity. Furthermore, any reform of the status quo must consider both the probable life-cycle patterns of future generations and the future requirements of national economies. In this regard, the principles of John Rawles’ theory of justice are most consistent with prevailing social policy within the European Union. That policy places the highest priority on combining an internationally competitive, knowledge-based economy with efforts to combat social exclusion. Those are the principles which guide the following analysis and conclusions.

The general welfare of society always involves a combination of inputs from three primary institutions: the state, the labour market and the family. Today’s welfare state is overextended, due primarily to a weakening of the supports traditionally provided individuals by labour markets and families. Labour markets are increasingly characterized by inequality and insecurity. Family instability gives rise to severe risks of poverty among children, and female employment means a reduced capacity for traditional caring services.

The effects of this ‘failure’ on the part of the family and the labour market have fallen most heavily on young people and families with younger children. Compared with the past, the risk profile is shifting dramatically downward in the age structure. This leads in turn to new inequalities and, worse, to the possibility that many individuals in the affected subgroups may become trapped in lifelong financial insecurity and social exclusion.

The situation calls for a qualitative shift in social policy, based on a co-ordinated strategy that is consistent with the goals of efficiency and social justice, including the following five priorities:
    
1. Maximizing the ability of mothers to reconcile
    the demands of employment and child-rearing

Traditional welfare policy has placed a higher priority on social transfers than on services to families, and on the aged rather than young households. The new social risk-structure implies a much greater need for family services-- especially for the care of children and the aged-- than for conventional income maintenance, because: (a) the incomes of the elderly are relatively secure, while increased longevity poses needs for care which families alone are unable to meet; (b) the single most effective measure for preventing child poverty is the employment of mothers, implying the need for extensive child-care services; and (c) the single most effective strategy for ensuring the long-term sustainability of pensions is to increase labour-force participation. In many European nations, women comprise the largest unused reserve of labour. All of these factors lead to the conclusion that services to families must be given the highest priority. Furthermore, such a policy results in a win-win situation, since it improves the welfare of families, diminishes the financial costs of ageing, while at the same time increasing the productive capacity and tax base of society. In comparison, traditional ”family-oriented” policies are extremely counter-productive.
   
2. Encouraging older workers to delay retirement

Resolving the ageing-population crisis by drastically reducing pensions is a very risky strategy, especially considering projected trends in retirement cohorts. Existing pension levels and coverage can be sustained long into the future by increasing labour-market participation by women and older workers. By introducing greater flexibility in retirement plans and providing incentives to delay exit (to the age of, say, 65), it would be possible to greatly reduce financial pressures on the system. Two major trends favour a radically new approach to retirement: First, the health status of pensioners is steadily improving, so that a male aged 65 may now expect to remain free of disability for an additional ten years. Second, the education gap between age-groups is rapidly narrowing, so that older workers in the decades ahead will be far more capable of retraining and ”life-long learning” than is now the case.
     
3. Investing in children, and socializing
    the costs of rearing them


Europe’s current ”low-fertility equilibrium” is partly a consequence of youth unemployment, delayed family formation, and the problems of women in reconciling child-rearing with employment. But it also reflects a decline in the ability and/or willingness of families to shoulder the full financial burden of rearing children. If Europe is to be competitive in the new knowledge-based society, the single most urgent priority is to invest in the education of young people; but this is not enough. Poverty, insecurity and lack of resources in families with children is a serious impediment to children’s development and later productivity. Policy must ensure that children’s resource base is sufficient for maximizing also their learning and educational chances. It is vital that we re-think public expenditures and take into account that current consumption can also be capital investment with a recognizable individual and societal return.
    
4. Redefining work and leisure
    throughout the life cycle


European citizens have experienced an enormous increase in leisure time, much of it concentrated in the retirement years. Greater flexibility in retirement plans would mean greater individual choice regarding exit from the labour force; but delayed exit obviously implies a corresponding loss of ”leisure”. Given the increasing requirements for life long-learning, the mounting tensions associated with competing demands of family and work, and the growing risk of career interruption, a co-ordinated policy would have to include greater flexibility in the leisure-work mix. One solution might take the form of actuarially adjusted, lifetime ”sabbatical accounts” which give citizens the right to draw upon retirement savings during the working years. This would be consistent with the ideal of increasing individual freedom of choice, thus making the life cycle more flexible.
    
5. Reconceptualizing equality and
    the basic life-chance guarantee


The evolving social order will probably generate greater socio-economic inequality. In principle, this is problematic only if it implies long-term entrapment. If we reconceptualize equality as dynamic, as a question of the individual’s life chances, inequalities in the here-and-now are not necessarily incompatible with basic notions of equity. To the great majority of citizens, a guaranteed ”second chance”-- in the form of paid education, for example-- probably suffices. It is, however, vital to combat social exclusion for those who may be trapped in under-privileged situations when the ”second chance” proves to be ineffective. Accordingly, a guaranteed minimum living standard is both necessary and unavoidable.
  

-- Gosta Esping-Andersen