Has the Swedish welfare state reached its limit? The effects of globalisation on the Swedish welfare state

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Has the Swedish welfare state reached its limit?

The effects of globalisation on the Swedish welfare state

L.E.B. Koning

Studentnummer: 10013547

MA Europese Studies: Europees Beleid

December 2014

Eerste lezer: Dhr. Dr. L.K. Marácz

Tweede lezer: Dhr. Dr. P. Rodenburg

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LIST OF ABBREVIATIONS

C Centre Party (Centerpartiet or Centern)

CSA Central Association for Social Work (Centralförbundet för Socialt Arbete)

EU European Union

FDI Foreign Direct Investment

FP Liberal People’s Party (Folkpartiet liberalerna)

KD Christian democrats (Kristdemokraterna)

IMF International Monetary Fund

M Moderate Party (Moderaterna or Moderata samlingspartiet)

MNE Multinational enterprise

MP Green party (Miljöpartiet de gröna)

NYD New Democracy (Ny demokrati)

PES Public Employment Service (Arbetsförmedlingen)

Riksdag The Swedish national parliament

SAP Swedish Social Democratic Party (Sveriges socialdemokratiska arbetareparti or

Socialdemokraterna)

SD Swedish democrats (Sverigedemokraterna)

SEK Swedish krona

V Left party (Vänsterpartiet or Vänstern)

WWI First World War

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INTRODUCTION

The effects of globalisation on the Western welfare states increasingly become visible, especially after the global financial crisis that started in 2007/2008, of which the impact is still felt today. This recent financial crisis has shown just how interconnected nation states are in the economic, political, social, and cultural dimensions of life, and what the consequences are when one actor in this interconnected system fails.

In this thesis I will answer the following research question: “How does globalisation affect the Swedish welfare state?” In my answer I will focus on three plausible effects of globalisation on the welfare state: globalisation could lead to welfare state reduction, welfare state expansion, or has insignificant effects on welfare state reduction or expansion. The Swedish welfare state is considered to be unique because it is one of the most generous and most extensive welfare states in the world (Bergh 2006a, p. 7; Lundberg and Åmark 2001, p. 168). In addition, the Swedish welfare state is considered to be the model for the social democratic welfare state (Lundberg and Åmark 2001, p. 157; Mishra 1999, p. 74). However, most of the existing literature focuses on the effects of globalisation during the Swedish economic crisis of the 1990s, and is focused on specific welfare programmes. This thesis attempts to broaden and complement the existing literature by focusing on all major developments in the Swedish welfare state in the past and during recent decades.

In order to formulate an answer to the research question, the results of the literature and data study are divided into three chapters. The first chapter will develop the theoretical framework. This chapter will analyse the concepts of globalisation and the welfare state and will explain the three plausible effects of globalisation on the welfare state. The second chapter will discuss the historical development of the Swedish welfare state, starting at the seventeenth to nineteenth centuries, and ending with the 1990s welfare state crisis and reform. It will broadly examine all relevant developments that have made the Swedish welfare state into what it is today. The third chapter will provide a case study of the condition of the Swedish welfare state. This includes an overview of data on the Swedish welfare state, e.g. government finances, the labour market, demographics, and citizens’ support for the welfare state. In addition, it will analyse the globalisation of the Swedish economy, e.g. economic growth, trade, foreign direct investments, and the effects of the global financial crisis. Furthermore, this chapter will focus on the effects of globalisation on the Swedish welfare state, as discussed in the theoretical framework. These chapters will come together in the conclusion, in which I will formulate an answer to the research question.

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1. THE THEORETICAL FRAMEWORK

This chapter aims to set out the theoretical framework for this thesis, based on relevant literature. First, a definition of globalisation will be presented and a short history of globalisation will be provided. Secondly, the concept of the welfare state and its history will be discussed. In the last section of this chapter the effects of globalisation on the welfare state will be discussed, which will be applied to the Swedish welfare state in the case study.

1.1 What is globalisation?

Literature provides multiple definitions of globalisation. Below, some of these definitions will be discussed in order to develop a general idea of globalisation, which will be used throughout the remainder of this thesis.

Ramesh Mishra (1999) focuses on the economic aspect of globalisation by arguing that globalisation “refers to a process through which national economies are becoming more open and thus more subject to supranational economic influences and less amendable to national control.” (p. 34). Mishra also acknowledges the political and ideological components of globalisation by connecting it with neoliberalism (1999, pp. 7; 11). However, he argues that we currently experience a high level of internationalisation, meaning that economies and enterprises are still tied to the nation state, as opposed to globalisation, which includes the abolishment of national economies and the emergence of

stateless enterprises.1 The level of internationalisation, or globalisation, can vary over time (Mishra

1999, p. 4).

Robert J. Holton (2011) broadens the concept of globalisation by arguing that globalisation is the interconnection between regions and nations of not just the economic and political, but also of the social and cultural dimensions of life (pp. 3; 11; 41). One may therefore speak of “multiple globalisations” (Holton 2011, p. 11). Furthermore, Holton describes globalisation as not merely a Western phenomenon: the influence and input of other, non-Western nations and religions should be taken into account. Thus, there is no source or victim of globalisation, as both Western and non-Western actors are responsible for globalisation processes (Holton 2011, pp. 38-9; 40-5; 193). Like Mishra, Holton perceives globalisation as episodic, since multiple phases of globalisation can be identified throughout history. Moreover, globalisation is not the ultimatum and is, in fact, reversible (Holton 2011, pp. 61-2; 235-6). A new element in the current phase of globalisation is the intensification of interconnections and the rapid compression of the world due to new (communication) technologies (Holton 2011, pp. 24-5).

The definitions of globalisation by other authors, like David Brady, Jason Beckfield and Martin Seeleib-Kaiser (2005), Dreher (2006 in Koster 2009, p. 154), Martin Wolf (2001), and Rajneesh Narula and Antonello Zanfei (2004), are in line with the definitions of globalisation provided

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by Mishra and Holton: they point at the intensified cross-border economic connections and interactions as a result of new (communication) technologies and the abolishment of legal barriers.

The history of globalisation

The term globalisation was first used in 1986 (Ostry 1996, p. 58), however, globalisation is not a recent phenomenon. Globalisation has a long history which is characterised by cycles of expansion and contraction: thus, the degree of globalisation varies over time (Holton 2011, pp. 34-5; 235-6). Some scholars, like Philip Curtin (1984) trace the first signs of globalisation back to the long-distance trade of 2500-1500 BC, though this trade only encompassed the perceived world (in Holton 2011, p. 35). This section will explore the recent history of globalisation based on the main driving forces of globalisation: liberalisation of trade, liberalisation of capital flows, international institutions and multinational enterprises (MNEs), and advancements in information and communication technologies and transport.

Globalisation is driven by trade liberalisation: deregulation allows economic transactions to flow more freely (Wolf 2001, pp. 178; 183). The first round of trade liberalisation in Europe happened between 1846 and 1878. However, globalisation was hampered between 1878 and 1945 when protectionism returned to the European continent. After the Second World War (WWII) ended, most developed countries slowly started to liberalise their economies again. Other countries followed their lead from the 1970s onwards (Globalisation Council 2007, p. 28; Wolf 2001, p. 183). This demonstrates the above mentioned cycle of expansion and contraction: Wolf (2001) even argues that the share of production traded on the global market only just exceeds the share in the years before the First World War (WWI) (p. 179).

This cycle of expansion and contraction is also demonstrated by the liberalisation of capital flows. During the nineteenth and early twentieth centuries capital markets were open to investments and capital. This changed between 1914 and 1945 as countries were increasingly regulating their capital markets. After the WWII a number of developed countries slowly started to liberalise capital flows again. Capital liberalisation only spread to other countries in the late 1970s (Globalisation Council 2007, p. 28; Wolf 2001, p. 183).

International institutions and MNEs are both a driving force and a result of globalisation. Since the WWII some influential international institutions have been established: the International Monetary Fund (1944), the World Bank (1944), the Organisation for Economic Co-operation and Development (1948), the European Union (1951), and the World Trade Organisation (1995). These institutions form the foundation for international and multilateral co-operation between nation states. Furthermore, they support and stimulate the liberalisation of economic policies (Holton 2011, pp. 11; 71; Mishra 1999, pp. 39-40; Wolf 2001, p. 184). The first MNEs originated in the 1870s to 1930s.

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From the 1950s onwards, the number of MNEs grew more rapidly (Holton 2011, p. 72). The role of MNEs will be discussed in more detail in the section on the effects of globalisation.

Lastly, advancements in information and communication technologies and transport throughout the nineteenth and early twentieth centuries have supported the expansion of globalisation (Globalisation Council 2009, p. 10; Wolf 2001, p. 181). These advancements have reduced the costs of transport and communications and have as a result ‘shrunk’ the world, making it easier and cheaper to travel, migrate, communicate, trade, and invest around the globe (Globalisation Council 2009, p. 10; Narula and Zanfei 2004, p. 1; Ostry 1996, p. 60; Wolf 2001, pp. 181-2).

1.2 What is a welfare state?

The welfare state can be described as a comprehensive system of benefits and services aimed to provide a basic level of welfare for all citizens, at every stage of their life. The welfare state protects its citizens against loss of income as a result of unemployment, bad health, old age, childcare, or a handicap (Abrahamson 2009, p. 2; Blomqvist 2004, p. 139; Edlund 2000, p. 49; Eduards 1991, p. 677; Giddens 1998 in Ryner 2002, p. 13; Ginsburg 1992, p. 1; Tsukada 2002, pp. 2; 38). It thereby has taken over functions formerly performed by relatives, because it is believed that these functions are the responsibility of the whole society (Thorslund 1991, p. 456).

The welfare state is considered to be a reaction to industrialism and capitalism, because these could not secure a minimum level of welfare to all citizens (Bonoli 2007 in Abrahamson 2009, p. 8; Merkel 2000 in Ryner 2002, pp. 9-10; Pierson 2000, p. 793). The market economy is based on profitability, efficiency, and competition: it does not equally divide income among citizens, and it does not consider those not in the labour force (Tsukada 2002, pp. 36-8; 40). The welfare state provides its citizens with a safety net and reorders the social patterns that have resulted of capitalism by redistributing income and helping those who do not participate in the labour force (Esping-Andersen 1990, 1999 in Klitgaard 2007, p. 446; Ginsburg 1992, p. 2; Pierson 2000, pp. 793; 800). The welfare state is therefore considered to be a middle way between laissez-faire capitalism and state socialism (Mishra 1999, p. 2).

In order to provide citizens with benefits and services, and to redistribute income, a welfare state is required to have the ability to collect and spend taxes (Lewis and Åström 1992, p. 78; Mishra 1999, p. 41; Rothstein 1998 in Ryner 2002, p. 24; Tsukada 2002, p. 62). In addition, there has to exist mutual solidarity between citizens, and citizens’ support for the welfare state. Essentially, it are the citizens that have to bear the burden of the welfare state through the taxes they pay. In return for paying their taxes, citizens expect the government to protect and provide for them (Mishra 1999, p. 57; Tsukada 2002, p. 29). Furthermore, welfare states have been able to develop and expand as a result of broad citizens’ support (Mishra 1999, p. 41).

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Esping-Andersen (1999) roughly identifies three types of welfare states: liberal welfare states in favour of the market and a limited state, social democratic welfare states based on universal coverage and solidarity, and conservative welfare states which focus on family and religious institutions, and which are committed to social rights for specific class and status groups (in Klitgaard 2007, pp. 446-7). These three different types of welfare states have led to different developments (Klitgaard 2007, p. 447; Pierson 2000, p. 810), and as a result, this has led to differences in e.g. income equality, poverty rates, labour force participation, and union density (Pierson 2000, pp. 791; 800). This thesis will solely focus on the Swedish welfare state, a social democratic welfare state, which will be described in more detail in the next chapters.

The history of the welfare state

In the nineteenth century, there existed some social welfare, mostly in the form of charity, to deal with extreme cases of poverty. However, poverty as a result of unemployment was not yet considered to be a social problem (Tsukada 2002, p. 63). This changed in the late nineteenth to twentieth century when the negative effects of industrialism and capitalism, such as increased insecurity and uncertainty, became more apparent (Bonoli 2007 in Abrahamson 2009, p. 8; Tsukada 2002, pp. 48-9). Social citizenship then became more important and social rights were developed in order to provide citizens with more security (Esping-Andersen 1996, p. 1; Tsukada 2002, pp. 48-9).

As a result of the WWI and the subsequent Great Depression of the 1930s, there was mass unemployment and little security (Abrahamson 2009, p. 2; Mishra 1999, pp. 2; 18-9). It was inevitable for governments to intervene. Correspondingly, the main objectives of the first welfare states were to guarantee full employment and to stimulate economic growth (Mishra 1999, pp. 2; 18-9; Tsukada 2002, p. 48). What started off as emergency relieve eventually resulted in full employment and social security policies (Tsukada 2002, p. 63).

The period after the WWII is considered the golden age for the welfare state. During this period there was overall prosperity, full employment, and income equality (Abrahamson 2009, p. 2; Esping-Andersen 1996, pp. 1; 4; Taylor-Gooby 2008 in Abrahamson 2009, p. 5). The prosperous economic conditions made it possible for welfare states to sustain their social welfare policies (Ginsburg 1992 in Tsukada 2002, p. 17): until the 1970s welfare provisions were improved and expanded to cover a larger share of the citizens, e.g. by introducing family allowance and child benefits. During this prosperous period governments could easily raise the level of taxes, social contributions and fees (Tsukada 2002, p. 48).

In the 1970s the effects of globalisation on the welfare state started to become visible. The 1973 OPEC oil crisis led to high inflation and unemployment in many Western welfare states. In an effort to avoid further rising inflation, governments abandoned their full employment goal, which

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resulted in deflation, high unemployment, and a growing budget deficit (Abrahamson 2009, p. 6; Mishra 1999, pp. 19-25; 37-41).

During the 1980s the trend of interrupted welfare state expansion continued (Taylor-Gooby 2008 in Abrahamson 2009, p. 2; Tsukada 2002, p. 48). The welfare states had been established when economies were relatively closed, capital flows were controlled, and exchange rates were fixed. The increased openness of their economies and the increased importance of foreign direct investments (FDIs) had led governments to prioritise attracting FDIs over employment, economic growth, and welfare provisions, because these objectives could not easily be combined. Governments raised interest rates to keep capital in the country, and cut back taxation, government expenditure, debt, and deficits in order to be creditworthy and attract foreign investors (Mishra 1999, pp. 3-11; 37-41; Tsukada 2002, p. 64). At the same time MNEs attempted to avoid taxation through intra-firm trade, which, together with the reduced taxes, eroded the welfare states’ tax base. As a result welfare programmes became more selective (Mishra 1999, pp. 44-6).

1.3 Globalisation and the welfare state

Globalisation is a multifaceted phenomenon which can influence the welfare state in several ways. Scholars argue that globalisation can lead to welfare state reduction, welfare state expansion, or that the effects of globalisation on the welfare state are insignificant. The effects of globalisation on the welfare state can vary per welfare state type and individual welfare state (European Commission 2002 in Chen et al. 2014, p. 2; Kim and Zurlo 2009, pp. 138-9), depending on national institutions and structure, size and level of development of the welfare state, and level of economic openness (Brady, Beckfield and Seeleib-Kaiser 2005, pp. 9; 40; Esping-Andersen 1990 in Chen et al. 2014, pp. 4-5; Kim and Zurlo 2009, p. 130; Koster 2009, p. 6). In this thesis the focus will lay on the effects of globalisation connected to economic openness and integration.

The efficiency hypothesis: welfare state reduction

The efficiency hypothesis implies that the welfare state will be reduced in order to realise international competitiveness. This effect can be considered a result of the multi-level governance system. The multi-level governance system is the outcome of the emergence and interaction between governmental and non-governmental actors on multiple levels. These include international organisations and institutions, governments, MNEs, non-governmental organisations, trade unions, and labour unions (Holton 2011, p. 233). The actors in this system are not equal: globalisation has enabled MNEs, capital, and international organisations and institutions to strengthen their position in the global order and to exert power over governments (Ghertman and Allen 1984, pp. 30; 35; 39; Holton 2011, pp. 65; 127-8).

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Welfare states are more than ever dependent on FDIs for economic growth, employment, and technological advancement. The main source for FDIs are MNEs, which have been able to strengthen their position towards welfare states because globalisation has diminished barriers to trade and investment, which, in combination with advancements in transport and technology, has made MNEs more mobile (Ghertman and Allen 1984, pp. 30; 39; 97; Holton 2011, pp. 69; 72; Lindbom 2001, p. 172; Mishra 1999, pp. 6-7; 96; Ostry 1996, pp. 58; 60-1; Porter and Ketels 2007, p. 2; Ryner 1999, p. 42; Wolf 2001, p. 180). As a consequence, MNEs can pressure welfare states to reduce taxation and social contributions, which hinders their profitability, by threatening to invest elsewhere (Ghertman and Allen 1984, p. 70; Ha and Tsebelis 2010, pp. 5-7; Hirst 1998, p. 5; Holton 2011, p. 69; Koster 2009, p. 6; Mishra 1999, pp. 6-7; 96; Tsukada 2002, p. 99).

Other actors in the system are able to exert influence in a different way. International organisations and institutions, such as the EU, the IMF, or the World Bank, have gained a powerful status and are therefore able to pressure welfare states to remove labour market rigidities, and to push them to become more internationally competitive (Mishra 1999, pp. 7-9; Pierson 1998 in Tsukada 2002, p. 22). The position of capital was strengthen when capital flows were liberalised: in order to keep capital from leaving the country, and to attract it, governments have to raise the interest rate or lower taxation on capital. However, when the interest rate rises, it becomes more expensive for the government and enterprises to borrow money. In addition, in order to attract investors a government needs to be creditworthy. When governments, as a result of inflation or a large government deficit or debt, are not considered to be creditworthy, they are punished by bond-rating agencies, which could result in high interest rates on government bonds (Mishra 1999, pp. 37-40).

As a result of the strengthened position of these actors and globalisation, the welfare state is obliged to make a trade-off between economic growth and welfare. Initially welfare states were able to combine high economic growth with generous welfare provisions (Tsukada 2002, p. 13). However, since the 1980s welfare states have increasingly been criticised for having grown too big and hampering economic growth and international competitiveness by their high levels of taxation and social contributions, and high interest rates (Bergh 2006a, pp. 2; 4; Bjorvatn, Norman and Orvedal 2008, p. 16; Diamond and Lodge 2013, p. 4; Edlund 2000, p. 37; Koster 2009, p. 3; Lundberg and Åmark 2001, p. 174; Mishra 1999, pp. 100-1; Nygård 2006, p. 358; Tsukada 2002, p. 59). Because it was no longer possible to combine them, welfare states had to choose to locate their resources towards economic growth or welfare (Andersen 2004 in Nygård 2006, p. 358; Tsukada 2002, pp. 41-2).

Welfare states compete with other states for FDIs, and therefore need to be competitive and attractive to MNEs. To realise competitiveness and attractiveness, a welfare state can decide to lower wages, social contributions, or taxes (Brad, Beckfield, and Seeleib-Kaiser 2005, p. 7; Jessop 1996 in Lindbom 2001, p. 172; Mishra 1999, pp. 7-9; Ostry 1996, p. 61; Tsukada 2002, p. 16). This could lead to a race to the bottom, in which welfare states adjust their policies to become the most competitive, resulting in a negative spiral. Eventually this will leave all welfare states with lower levels of wages,

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social contributions, and taxes, and a declined government income (Brady, Beckfield and Seeleib-Kaiser 2005, p. 8; Koster 2009, p. 5; Mishra 1998 in Chen et al. 2014, p. 4). This, in turn, makes it impossible to maintain a generous welfare state because it will lead to larger government deficits and debt. As a consequence, and to attract capital, interest rates will rise for both the government and MNEs, which discourages investments and economic growth. Hence, the desire and importance to remain competitive can result in welfare state reduction (Ha and Tsebelis 2010, pp. 3-6; Koster 2009, p. 6; Mishra 1999, pp. 37-41).

Another result of the increased influence by other actors and globalisation is that the welfare state faces loss of policy autonomy. The welfare state is increasingly unable to autonomously adapt their economic, fiscal, and welfare policies as they are limited in their policy options. In order to remain competitive and realise economic growth and employment, the welfare state has to adapt its policies in a certain manner. In addition, regional economic associations, like the EU, further weaken the welfare state’s policy autonomy (Diamond and Lodge 2013, p. 4; Esping-Andersen 1996, p. 4; Evans 1997, Milner and Keohane 1996 in Brady, Beckfield and Seeleib-Kaiser 2005, p. 8; Ha and Tsebelis 2010, p. 4; Koster 2009, p. 5; Mishra 1999, pp. 13; 56; 97; Ostry 1996, p. 57; Pierson 2001, Taylor-Gooby 2004 in Nygård 2006, p. 356; Wolf 2001, p. 185).

The compensation hypothesis: welfare state expansion

The compensation thesis implies that the welfare state compensates its citizens for the increased inequality and insecurity as a result of globalisation, and therefore will expand. Social protection to citizens who are negatively affected by globalisation is necessary to make a globalised market economy viable (Garett and Lange 1995 in Steinmo 2002, p. 840; Ha and Tsebelis 2010, p. 2; Hirst 1998, p. 4; Kim 2007 in Kim and Zurlo 2009, p. 131; Mishra 1999, pp. 3-11; Rodrik 1997, 1998 in Chen et al. 2014, p. 4; Tsukada 2002, p. 45). In addition, the increased need for protection has strengthened citizens’ support and demand for welfare provisions, which pressures governments to counter the negative effects of globalisation for its citizens (Blomqvist 2004, p. 151; Brad, Beckfield, and Seeleib-Kaiser 2005, p. 6; Diamond and Lodge 2013, pp. 6-7; Esping-Andersen 1996, p. 6; Ha and Tsebelis 2010, pp. 3; 8-9; Kuhnle 2000, p. 226; Mishra 1999, pp. 3-11; Pierson 2000, p. 814).

Globalisation has led to the integration of national economies in the world economy. As a result, national economies are more affected by fluctuations in trade and capital flows in other nation states and on the world market. When economic growth declines in one nation state, it could thus lead to declining economic growth in another, which could result in uncertainty and insecurity for citizens about employment. Hence, citizens demand more social protection from the welfare state. This is especially true for economies with a high level of trade openness (Brad, Beckfield and Seeleib-Kaiser 2005, p. 6; Ha and Tsebelis 2010, p. 9; Hirst 1998, p. 3; Kim and Zurlo 2009, p. 139; Koster 2009, p. 7).

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In addition, globalisation will lead to a more unequal distribution of pre-tax incomes. In advanced industrial countries globalisation will lead to a decreased demand for low- or semi-skilled labour, and to an increased demand for skilled labour. As a result, incomes for low- and semi-skilled workers will decline, while incomes for skilled workers will rise. Furthermore, employment shifts from the manufacturing to the service sector (Ha 2009 in Ha and Tsebelis 2010, p. 8; Learner 1993, McKeown 1999, Rodrik 1996, Wood 1994 in Ha and Tsebelis 2010, p. 6; Pierson 2000, p. 798). In addition, capital owners are expected to gain from globalisation at the expense of wage earners. These developments will lead to income gaps and inequality in society (Bjorvatn, Norman and Orvedal 2008, pp. 15-6; 60; Diamond 2009, pp. 31; 45; Globalisation Council 2009, p. 12; Ha and Tsebelis 2010, p. 8). Furthermore, the income of workers will be pressured by MNEs: MNEs will attempt to avoid taxation, which will increase taxation on labour (Hirst 1998, p. 6), and the power of labour unions has been weakened by MNEs. Labour unions have failed to organise themselves internationally and do not possess the same resources and experience as MNEs (Kurzer 1993, Mishra 1993, Moses 1994, 2000, Rodrik 1997 in Ha and Tsebelis 2010, p. 7). The welfare state is therefore needed to protect workers and to realise equality in society through redistribution.

The welfare state will not only expand as a result of the negative effects of globalisation, but also because globalisation provides opportunities to welfare states. First of all, globalisation generally leads to an increase in exports, production, and economic growth, which leads to increased prosperity and which enables increased spending on welfare provisions (Bjorvatn, Norman and Orvedal 2008, p. 7; Castles 1998 in Koster 2009, p. 7; Chen et al. 2014, p. 3). Secondly, the entrance of nation states such as China and India into the global market has led to a supply of cheaper products, which benefits consumers, and has led to risen living standards and income levels in these countries, providing (multinational) enterprises with larger export markets (Bjorvatn, Norman and Orvedal 2008, p. 6; Globalisation Council 2007, p. 4; 2009, p. 18; Holton 2011, p. 72). Thirdly, globalisation leads to the division of labour and production processes in the world. This provides the opportunity for welfare states to focus on and invest in knowledge and technology, which will allow them to keep wages and welfare provisions at a relatively high level (Bergh 2006a, p. 5; Ciccone and Matsuyama 1996 in Chen et al. 2014, p. 7; Ethier 1982, Krugman and Venables 1995, Matsuyama 1991 in Chen et al. 2014, p. 8; Globalisation Council 2009, p. 33). Lastly, globalisation leads to increased labour mobility, which results in international labour migration. The immigration of workers could solve national labour shortages and can help solve the problem of an ageing population (Bjorvatn, Norman and Orvedal 2008, p. 7; Holton 2011, pp. 65; 83).

The sceptical perspective: insignificant effects on the welfare state

The sceptical perspective implies that the effects of globalisation on the welfare state are real, but relatively small, and that domestic factors are decisive in whether the welfare state will retrench or

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expand (Atkinson, 2002; Kittel & Winner, 2005; Wade, 1996 in Kim and Zurlo 2009, p. 131; Brady, Beckfield and Seeleib-Kaiser 2005, pp. 40-1; Hirst 1998, p. 3; Koster 2009, pp. 8; 15). These domestic factors include societal and political institutions, historical legacy, and national politics (Berger 2000, Berger and Dore 1996, Boyer and Drache 1996, Pierson 2001 in Brady, Beckfield and Seeleib-Kaiser 2005, p. 10; Koster 2009, p. 8).

First of all, the effects described as reducing the welfare state might not affect it as much as claimed. For example, the locational preference of an MNE does not solely depend on labour costs and tax rates (Holton 2011, p. 74; Koster 2009, pp. 4-5; Mishra 1999, p. 27). Instead, it also depends on political and social stability, demographic structure, skill level of the labour force, infrastructure, proximity of the market, and local competition (Chen et al. 2014, p. 3; Görg, Molana and Montagna 2009 in Chen et al. 2014, p. 14; Mishra 1999, p. 27; Porter and Ketels 2007, p. 6). Additionally, MNEs that already have been established in a nation state are not as likely to move their enterprise because of high labour costs and tax rates (Görg, Molana and Montagna 2009 in Chen et al. 2014, p. 14; Hirst 1998, p. 6). Another example is that the loss of policy autonomy is only relevant: nation states have never fully enjoyed policy autonomy, this autonomy was always dependent on and influenced by other actors and transnational processes (Holton 2011, pp. 103; 122; Wolf 2001, pp. 188-9).

Secondly, welfare states are subjected to path dependency. As mentioned above, citizens’ support is crucial for the existence of the welfare state. However, because the welfare state is supported by a large share of the population, retrenchment is likely to be met with resistance (Diamond and Lodge 2013, p. 15; Edlund 2000, p. 60; Pierson 1994 in Lindbom 2001, p. 172; Rauch 2006, p. 285). Retrenchments are thus connected to high political costs, e.g. electoral punishment (Pierson 1996 in Clayton and Pontusson 1998, p. 68; Rauch 2006, pp. 285; 291). This is a form of path dependency: the welfare state was built on broad support for welfare provisions, which now makes it difficult to retrench because citizens will attempt to protect their interests, which is the status quo (Diamond and Lodge 2013, p. 5; Brady, Beckfield and Seeleib-Kaiser 2005, p. 11; Kim and Zurlo 2009, p. 134; Pierson 2004 in Bergh and Erlingsson 2009, p. 73; Rauch 2006, p. 291). As a result, retrenchments have only led to minimal reform in most welfare states (Chen et al. 2014, p. 2; Pierson 1994, 1996 in Brady, Beckfield and Seeleib-Kaiser 2005, p. 11). However, through techniques of blame avoidance or blame diffusion, e.g. by making retrenchment seem unavoidable in the light of future sustainability or international competitiveness, governments are able to make the necessary retrenchments (Clayton and Pontusson 1998, p. 69; Green-Pedersen 2002, p. 274; Nygård 2006, pp. 359-62; Pierson 1996, p. 145; Rauch 2006, p. 291; Slothuus 2007, p. 337). Additionally, citizens’ support for the welfare state is affected by globalisation: ethnic heterogeneity could negatively influence public support for welfare states, especially for universal welfare programmes. This decrease

in citizens’ support is based on in-group solidarity and out-group hostility (Larsen 2011, pp. 332-5).2

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The in-group consists of individuals that have similar physical or social traits, while the out-group consists of individuals who do not share these traits (Larsen 2011, pp. 332-5).

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Lastly, welfare states face internal challenges which have changed the needs of citizens and put pressure on the welfare state. These internal challenges could influence welfare state reduction or expansion more than globalisation. First of all, the population in most European welfare states is ageing as a result of low fertility rates and an increased life expectancy (Bergmark and Minas 2006, p. 5; Esping-Andersen 1996, pp. 2-7; Hirst 1998, p. 2). In addition, pension regulations are becoming more flexible, allowing citizens to retire early (Larsson and Paulson 2010, p. 1). The result of these two developments is that the share of the population relying on pensions and elderly care increases, while the share of the population in the labour force decreases (Bergmark and Minas 2006, p. 5; Thorslund 1991, p. 461): essentially, the number of citizens that receive benefits and use services is increasing, while the number of citizens that are expected to support them through taxes and contributions is decreasing (Pierson 2001 in Bergh and Erlingsson 2009, pp. 71; 73). Secondly, the welfare state is believed to reinforce unemployment and labour market rigidities because unemployment benefits decrease the incentives to work, making the unemployed less willing to find a job (Esping-Andersen 1996, p. 8; Giddens 1998 in Ryner 2002, pp. 12-3; Hirst 1998, p. 2). In addition, employee rights make it difficult for enterprises to hire and fire employees, and in turn make them less willing to hire new employees (Estevez- Abe, Iversen and Soskice 1999, Mares 1997, Soskice 1999, Swenson 1997 in Pierson 2000, p. 794). Thirdly, while welfare states were based on a male breadwinner model, the number of dual-earner households has increased, which has increased the need for family benefits (Diamond and Lodge 2013, p. 13; Eduards 1991, p. 686; Esping-Andersen 1996, p. 9). These three developments, in combination with low economic growth, could possibly create problems for the welfare state and government finances, forcing the welfare state to retrench. Lastly, the deindustrialisation of the welfare state could drive welfare state expansion (Iversen and Cusack 2000 in Brady, Beckfield and Seeleib-Kaiser 2005, p. 11): the importance of the manufacturing and agricultural sectors is declining, which leads to increased unemployment in these sectors. This unemployment requires more government services and welfare provisions (Brady, Beckfield and Seeleib-Kaiser 2005, p. 11).

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2. THE SWEDISH WELFARE STATE

This chapter will discuss the development of the Swedish welfare state from the seventeenth century,

via the establishment of the folkhemmet3 – the people’s home, the golden age of the welfare state, and

the welfare state crisis in the 1970s, to the welfare state reforms of the 1990s. This analysis will help to sketch an image of the developments that have led to the creation of a unique welfare state.

2.1 The early Swedish welfare state: the seventeenth to nineteenth centuries

While basic welfare provisions were established in the nineteenth century, some form of welfare provision already existed in the seventeenth century. In the seventeenth century local Swedish doctors and hospitals provided public services to the Swedish citizens (Gustafsson 1987, Immergut 1992 in Blomqvist 2004, p. 141). A century later, in 1763, villages and towns were obliged by law to provide poor relief, which was financed through local taxation (Markkola 2011, p. 109; Tsukada 2002, p. 52). In the nineteenth century the system of welfare provision started to change as the result of industrialisation. In the early nineteenth century welfare was provided in the form of the

jordbrukssamhället – the agrarian community. In this community the younger generations provided

for those generations that could no longer support themselves. In cities a same sort of welfare system was developed in the form of guilds (Johnson 2006, p. 3). These agrarian communities and guilds were no longer sufficient in providing welfare when Sweden became industrialised from the 1870s onwards. Industrialisation brought along a number of problems, namely increasing urbanisation, poverty, social and economic insecurity, inferior working conditions, emigration, and a growing number of citizens that relied on poor relief (Baldwin 1989, pp. 17-8; Johnson 2006, p. 3; Lundberg and Åmark 2001, p. 157; Tsukada 2002, p. 52). These problems sparked a public debate in the 1880s about modern social policy inspired by Otto von Bismarck (Lundberg and Åmark 2001, p. 157).

Both conservatives and liberals called for a solution to these problems, and because there were few private initiatives and no strong church to provide welfare, the Swedish government had to take matters into its own hands (Blomqvist 2004, pp. 142-3; Lundberg and Åmark 2001, p. 158). The Swedish state attempted to introduce a pension system, but the proposals were blocked by farmers. Furthermore, a government commission investigated and proposed to implement a worker’s insurance (Baldwin 1989, pp. 16-8). In addition, the state established more hospitals and poor houses (Blomqvist 2004, pp. 142-3), and began to support voluntary sickness funds (Lundberg and Åmark 2001, p. 158).

At the same time employers started to take more responsibility towards their employees. It started by providing housing for personnel to solve the housing issues in big cities. Some rural companies, especially in ironworks, even established whole villages with housing, laundry services, libraries, medical centres, and bath houses for their personnel (Bergman 2007, p. 83; Johnson 2006, pp. 4-5). Since 1908 some companies offered financial services through an intressekontor, which

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helped employees organise their finances which in turn helped the government collect taxes (Johnson 2006, pp. 5-6). Working conditions and workers’ rights were further improved with the development of the labour movement at the end of the nineteenth century (Tsukada 2002, p. 52). These local forms of welfare provision and mutual solidarity are believed to have been an inspiration for the development of the folkhemmet (Bergman 2007, p. 82; Blomqvist 2004, p. 143; Hobson and Lindholm 1997, p. 490).

2.2 From the early Swedish welfare state to the folkhemmet: the 1900s to 1920s

In the 1900s more attention was given to welfare provisions because industrial workers became the new dominant social group (Baldwin 1989, pp. 18-9). Especially after 1909, when universal male suffrage was introduced in Sweden, the industrial workers became politically more powerful, which led to more support for poor relief (Hentilä 1978 in Valocchi 1992, p. 194). In 1903 the

Centralförbundet för Socialt Arbete (CSA), an association for social work, was established. The CSA

investigated, discussed, and promoted social reforms aimed at improving the situation of the poor. Most members of this association were liberals, but social democrats and conservatives also participated (Johnson 2006, pp. 3-4). While the Social Democratic Party (SAP) continuously attempted to expand welfare provisions, the conservatives and farmers hindered their proposals (Rothstein 1990 in Valocchi 1992, p. 197).

In the 1910s the Swedish government was able to expand existing welfare provisions and introduce new ones. In 1913 a system of folk pensions was finally introduced in Sweden after prior blocking by the farmers. The system that was introduced provided pensions to all citizens, regardless of their class or income (Baldwin 1989, pp. 16; 22; Tsukada 2002, p. 53). The pension system consisted of a universal pension, a state-financed benefit which was protected by an income and needs test, and a supplementary pension for disabled citizens under the age of 67 (Lundberg and Åmark 2001, pp. 158-9). Not all political parties agreed with this universalist approach (Baldwin 1989, p. 20). While most welfare provisions remained the responsibility of towns, villages, and municipalities, the state took full responsibility for the pension system and supported accident, sickness and unemployment funds (Hoyde 1943 in Valocchi 1992, p. 192).

The 1920s were characterised by labour market questions: after the WWI, and as a result of the Great Depression, unemployment was high. Unemployment insurances were not sufficient to deal with this level of unemployment, and as a result many citizens relied on poor relief (Lundberg and

Åmark 2001, pp. 159; 170).4 In addition, while welfare provisions should complement the income of

workers, they proved not to be sufficient to support a family (Lundberg and Åmark 2001, p. 160).

4

In the 1920s around 10 percent of the Swedish population relied on poor relief while normally this would be around 5 percent (Lundberg and Åmark 2001, p. 170).

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The SAP underwent an important change during the 1920s when it transformed into a reformist party that aimed to expand welfare provisions. It was Per Albin Hansson’s speech in 1928, which will be discussed below, that made the SAP into a folk party. The SAP was able to create broad support by utilising the similarities between agrarians and industrial workers (Valocchi 1992, pp. 190-1; 196). In spite of this change the 1928 election was disappointing for the SAP: they had been cooperating too closely with the communists which led to a disappointing election outcome. After the election the SAP tried to create more distance from the communists (Dahlqvist 2002, p. 462; Hobson and Lindholm 1997, p. 490; Johnson 2006, p. 1).

2.3 The ideology of the Swedish folkhemmet

The folkhemmet is closely connected with the SAP5 and the beginning of the modern Swedish welfare

state. The concept of the folkhemmet reflects the foundations of the Swedish welfare state: universalism, equality, and solidarity (Kuhnle 2000, p. 209; Uddhammar 1993 in Bergh and Erlingsson 2009, p. 84). It has, furthermore, become a symbol for Sweden and the Swedish mentality (Dahlqvist 2002, p. 446; Hobson and Lindholm 1997, p. 489). The use of the term folkhemmet in the sense of a welfare state was introduced by Rudolf Kjellén (1864-1922) and Per Albin Hansson (1885-1946) (Dahlqvist 2002, pp. 445-6).

Before Kjellén and Hansson used the term folkhemmet, it had a more concrete meaning. In 1896 the term folkhemmet was introduced in a petition to build a folkhem as part of the Adolf Fredriks parish in Stockholm, with the intention to create a meeting place for citizens of all classes. In 1898 a private initiative enabled the establishment of the first folkhem in Stockholm: a meeting place where citizens could enjoy intellectual and innocent amusement. More of these folkhem were established in Stockholm and in 1908 the term was included in the Nordisk familjebok, a Swedish encyclopaedia, in which the folkhem was defined as a place where the less affluent for a small fee received access to books, magazines and writing materials, and where they usually serve coffee and tea (Björck 2000 in Dahlqvist 2002, p. 447; Johnson 2006, p. 2). The model for this folkhem and the origin of the term is the German Volksheim: in every big industrial city in Germany a Volksheim had been established (Björck 2000 in Johnson 2006, p. 2). The German Volksheim was in turn inspired by the English settlement movement, which established settlements consisting of several institutions in workers’ districts in England in an attempt to break down hierarchical relations and to improve equality and working conditions (Johnson 2006, pp. 2-3).

Kjellén first, and only, used the term folkhemmet in an essay in 1912. Kjellén was a political scientist and nationalist, and envisioned the Swedish society as an organic unity. He argued that this unity had to be protected from the negative forces of the world market. Kjellén, therefore, urged

5

The folkhemmet is closely connected to the SAP because the SAP governed Sweden without interruption from 1932 to 1976 (Blomqvist 2004, p. 143; Jönson 2005, pp. 292; 305).

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solidarity with the nation and urged citizens to subordinate themselves to the national community (Dahlqvist 2002, pp. 449; 451-2). While some consider Kjellén to be a representative of the folkhemmet (Lagergren 1999 in Dahlqvist 2002, p. 446), Kjellén only used the term in an essay where he argued that Sweden should focus on itself in order to become prosperous (Kjellén 1915 in Dahlqvist 2002, p. 454). He did not explain what he meant by the folkhem and used the concept to strengthen his nationalistic argument against the forces of globalisation (Dahlqvist 2002, p. 456).

Hansson, the alleged founding father, had a clear vision of the folkhemmet. Hansson was a member of the Swedish Social Democratic Youth League and became a member of the Riksdag, the Swedish parliament, in 1917 (Dahlqvist 2002, pp. 445-6; 456-7). Hansson first used the concept of the folkhemmet in an election speech in 1925. However, his speech for the Riksdag on 18 January 1928 is

the one that became famous (Dahlqvist 2002, p. 459; Johnson 2006, p. 1).6 For Hansson the

folkhemmet was founded on solidarity and community spirit. The folkhem, also referred to as the good home, functions as a family of equals in which everyone contributes and profits. Hansson therefore argues that the separation of society in classes should be abolished (Hansson 1928 in Dahlqvist 2002, pp. 459-60; Jönson 2005, pp. 293-5; Lewis and Åström 1992, p. 65). Hansson’s speech described an ideal image of society, but did not discuss a detailed plan on the realisation of this folkhem (Dahlqvist 2002, p. 460; Kuhnle 2000, p. 209). This speech changed the image of the SAP from a class party to a folk party (Esaiasson 1990 in Dahlqvist 2002, p. 461; Hobson and Lindholm 1997, p. 490; Jönson 2005, p. 295; Stråth 2004, p. 7;) – a party for all citizens (Dahlqvist 2002, p. 465).

2.4 Building the folkhemmet: the 1930s to 1960s

In the interwar period the Swedish welfare state coped with several problems. First of all, unemployment was still high as a result of the economic crisis and the Great Depression (Lundberg and Åmark 2001, p. 160; Tsukada 2002, p. 53). Secondly, elderly and families increasingly had to deal with poverty and thirdly, birth rates were falling (Lundberg and Åmark 2001, p. 160). When the SAP came to power in 1932 they aimed to address these issues by realising their folkhemmet ideology (Hobson and Lindholm 1997, p. 490). The SAP focussed on providing high quality services, stimulating employment and return to the labour market, reducing dependence of elderly on poor relief, and stimulating birth rates: for example, the government offered support to trade unions unemployment funds in return for following state rules, and they introduced a family policy and family benefits. The SAP faced relatively few obstacles in creating new legislation because most other political parties supported these initiatives (Blomqvist 2004, p. 143; Lundberg and Åmark 2001, pp. 160-3).

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In the following three decades the Swedish welfare state experienced a period of welfare state growth. Because Sweden was not involved in WWII, it did not have to pay for repairs or make up for lost growth, which resulted in high economic growth (Lundberg and Åmark 2001, p. 164). In the 1940s the Swedish government started to legislate new welfare policies and created a public system for providing welfare services, thereby ending the private provision of welfare services because private

initiatives now lacked funding.7 As a result, there was an expansion and professionalization of the

welfare state and increased state control (Blomqvist 2004, pp. 141-2). This expansion of the welfare state was based on compromises and coalitions between several political parties (Lundberg and Åmark 2001, p. 162; Stephens 1979 in Valocchi 1992, p. 197). There never was a united opposition against the welfare state. If political parties did express anti-welfare ideas, they were punished by the electorate in the elections (Bergh and Erlingsson 2009, p. 85).

In the 1950s the Swedish welfare state had been transformed into a generous and costly system that protected almost every citizen against need. There were, however, two main issues: one concerning flat-rate benefits versus income-related benefits, and one concerning equality, the level of generosity, and distribution in the welfare state (Lundberg and Åmark 2001, pp. 164-5; 168). The Social Welfare Committee, which investigated all Swedish welfare proposals, argued for income security so that citizens could maintain their standard of living. However, because this would reproduce income inequalities, Social Democrat Gustav Möller (1884-1970) argued for flat-rate benefits. Eventually income-related benefits were introduced in most welfare provisions in the 1950s, based on a system with thirteen income classes. While at first income-related benefits were low, in the following decades they came to provide up to 100 percent of lost income (Lundberg and Åmark 2001, pp. 165-6; 168). The second struggle mainly concerned the pension system. The pension system, aimed at creating more equality, had led to the creation of a middle-class welfare state because supplementary pensions focused on blue-collar workers and was unable to tie white-collar workers to the welfare state. For that reason, the SAP desired to expand the supplementary pension system to include every citizen. Other parties, however, preferred other alternatives. In 1958 the SAP proved to be the victor in this issue and the income security principle was introduced for supplementary pensions (Lundberg and Åmark 2001, pp. 167-8).

During the 1960s the Swedish welfare state expanded further, continued to disadvantage private services, and laid responsibilities with local governments (Blomqvist 2004, p. 142). Furthermore, equality between men and women was promoted which made it necessary to establish public childcare to encourage female labour market participation (Lundberg and Åmark 2001, pp. 170-1). From the late 1960s onwards there was an increase in the number of citizens relying on poor relief, which resulted in an increase in public protest against the welfare state. It were mainly the younger generations, that grew up in a time of welfare state expansion, that started to criticise the welfare

7

This happened for example to care facilities, primary and secondary schools, pre-schools and day cares, and elderly care (Blomqvist 2004, pp. 141-20).

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state’s non-democratic, bureaucratic, and hierarchical decision-making, and materialism. However, they did not disapprove of the social norms and principles that underlie the Swedish welfare state (Lundberg and Åmark 2001, pp. 170-2).

2.5 The welfare state crisis and reform: the 1970s to 1990s

During the 1970s the effects of globalisation on the Swedish welfare state became visible and led to three decades of economic and social change (Esping-Andersen 1996, p. 10). The intensified globalisation and liberalisation of the economy had three main consequences. Firstly, it was difficult for Sweden to maintain its full employment strategy as a result of liberalisation of the economy and capital. As a solution Sweden relied on neo-corporatism: tripartite or bipartite dialogue between the labour unions, employers’ unions, and the Swedish government (Mishra 1999, p. 20). Secondly, Sweden faced economic problems and low economic growth as a result of decreased international competitiveness in two important industries, namely mining and shipbuilding (Brenner and Bundgaard Vad 2000 in Blomqvist 2004, p. 144). Thirdly, Sweden was confronted with internal challenges: an ageing population, increased immigration, and changing household structures (Pierson 1991 in Bergh and Erlingsson 2009, p. 73). Along with an expanding welfare state, these three issues led to growing government expenditure, and decreasing economic growth and government income, resulting in growing budget deficits (Blomqvist 2004, p. 144; Lundberg and Åmark 2001, p. 168). Therefore, the Swedish welfare state was forced to cutback public spending and public sector jobs, and to stimulate efficiency and privatisation (Bauman 1998, Ohmae 1991, Reich 1991 in Bergh and Erlingsson 2009, p. 73; Lundberg and Åmark 2001, p. 172; Mishra 1999, p. 20).

During the early 1980s the Swedish government deficit further increased as a result of growing unemployment, high sickness absenteeism, an increase in pensions for disabled citizens, and the removal of capital controls which led Swedish enterprises to invest abroad (Kuhnle 2000, p. 214; Lundberg and Åmark 2001, p. 170; Mishra 1999, p. 6). Correspondingly, the welfare state stopped expanding in the mid-1980s, and by the late 1980s the government initiated welfare state reforms, to be continued during the 1990s (Bergh 2006b, pp. 210; 230-1; Esping-Andersen 1996, p. 11;). Most political actors in Sweden favoured a reform of the welfare state with the risk of losing votes from the electorate: the Conservative Party, the People’s Party, the Centre Party, the Swedish Employers Association, and eventually even the SAP agreed (Bergh and Erlingsson 2009, p. 72; Blomqvist 2004, pp. 144-5). These actors aimed to adapt the welfare system to resolve the welfare state issues and to ensure future sustainability of the system (Bergh 2006b, p. 230; Lundberg and Åmark 2001, p. 174). By the late 1980s, the SAP, while at first hesitant, was determined to play a key actor in the transformation process towards a new economic policy. Social Democratic Minister of Finance, Kjell-Olof Feldt, created the ‘third way’ economic policy: a market-oriented policy between neo-liberal and Keynesian economic policy (Lundberg and Åmark 2001, pp. 172-3; Nygård 2006, p. 373). This

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economic policy reformulated the social norms and principles of the Swedish welfare state: competitiveness in the global economy, individualism, flexibility, and multiculturalism became the leading norms. It became an important objective to attract FDIs while simultaneously protecting citizens against new forms of social exclusion and inequality, and to help them benefit from globalisation (Lundberg and Åmark 2001, pp. 173-4)

In the late 1980s dissatisfaction about taxes increased because marginal tax rates were high in order to be able to finance the welfare state (Edlund 2000, p. 40; Steinmo 2002, p. 846): around half of the workers had a marginal tax rate of more than 50 percent (SCB 1994 in Edlund 2000, p. 41). In 1989 a tax reform deal was signed which came into force in 1991 (Edlund 2000, pp. 41-2; Steinmo 2002, p. 850). This tax reform was based on simple and uniform rules, and aimed to promote incentives to work, save, and invest (Hansen 1969 in Steinmo 2002, p. 842; Södersten 1991, Finansdepartementet 1990 in Edlund 2000, p. 42). Furthermore, it abolished tax deduction for corporations and introduced a flat rate tax on capital and corporate income (Steinmo 2002, p. 850). This made citizens more content with the tax system (Edlund 2000, pp. 44; 55).

During the first half of the 1990s (1991-1993), a severe recession hit the Swedish economy. As a result, unemployment rose, and exports, FDIs, and economic growth declined, which led to increased government expenditure and an increased pressure on government finances (Anderson 2001, pp. 1065-6; Hort 1997 in Tsukada 2002, pp. 20-1; Kuhnle 2000, p. 212; Mishra 1999, p. 75). As a consequence of globalisation, government deficits can lead to high interest rates on domestic and foreign capital markets, which further pressures government finances. The high unemployment and government expenditure thus called for austerity measures and cutbacks in expenditure (Lindbom 2001, p. 172; Olsson and McMurphy 1993 in Mishra 1999, p. 75; Tsukada 2002, p. 52). In 1994 the economic situation in Sweden improved when exports rose and the economy started to grow (Kuhnle 2000, p. 212). However, the Swedish government decided to still adapt the welfare state to ensure healthy government finances and future sustainability (Albaek et al. in Anderson 2001, p. 1064).

Among the political parties and labour unions there was widespread consensus on the necessity to reform and reduce the government deficit and debt: the welfare state should not harm government finances and economic growth, and its future sustainability should be secured (Anderson 2001, pp. 1064-6; 1087; Bergh and Erlingsson 2009, p. 77; Pierson 1994 in Anderson 2001, pp. 1066-7; Swenson 1992 in Anderson 2001, p. 1072). The reforms were characterised by economic reasoning and broad compromises between government and opposition parties, because the political parties did not agree on the kind of measures that should be taken. (Kuhnle 2000, pp. 211; 219-22).

While the economic recession had made it possible to completely change social and welfare policy, the government choose not to fundamentally restructure the welfare system (Pierson 1996 in Clayton and Pontusson 1998, p. 69). There are two general trends to be identified in the reforms of the 1990s. First of all, the government aimed to reduce government expenditure by reducing benefit levels, introducing waiting days or prolonging them, shortening benefit periods, and by tightening

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eligibility rules (Clayton and Pontusson 1998, p. 87; Edlund 2000, p. 40; Kuhnle 2000, p. 225). Secondly, in line with the ‘third way’ economic policy, the focus lay on market-enhancing mechanisms: national and local governments aimed to reduce costs and improve citizens’ choice through respectively privatisation, and the introduction of quasi-markets. The public sector’s aim now was to satisfy citizens at the lowest possible costs, and to increase their choice (Blomqvist 2004, pp. 145-9; 151; Green-Pedersen 2002, p. 274; Kuhnle 2000, p. 225). Simultaneously, the government increased the tax on income with 5 percent in 1995 (Edlund 2000, p. 43; Steinmo 2002, p. 852). In combination with the reform of welfare programmes, this led to more dissatisfied citizens (Edlund 2000, pp. 47, 49; Svallfors 1999 in Edlund 2000, p. 60). However, after the crisis the Swedish government decided to use its budget surpluses to increase government spending and to pay off government debt, instead of cutting taxes (Steinmo 2002, pp. 854-5).

From the folkhemmet to the välfärdsstaten

The Swedish welfare state is often associated with the folkhemmet, yet this term merely describes the ideology behind the early welfare state. The actual term for welfare state, that should be applied, is

välfärdsstaten. It is believed that in the 1970s, but especially in the 1980s, the folkhemmet model

expired as a result of the increased globalisation and the problems the Swedish welfare state faced. The folkhemmet is a metaphor of a home for the Swedish population, with definite boundaries dividing the ‘inside’ from the ‘outside’. The community spirit and solidarity present in this home was not accessible for those outside of it (Jönsson in Brink et al. 1999, p. 205). However, as a result of globalisation, the boundary between the inside and the outside is blurred. As a consequence, those previously on the outside are now accepted in the home, which has led to a heterogeneous Swedish population (Bergman 2007, p. 82; Giddens 1998 in Ryner 2002, p. 15; Lindbom 2001, p. 182). The Swedish welfare state is no longer limited to those with the same nationality (Bergman 2006, 2004 in Bergman 2007, p. 74).

Sweden has a history of accepting immigrants: in the past centuries many Belgian, British, Dutch, and German immigrants have immigrated to Sweden. However, prior to WWII the number of immigrants was relatively low (Globalisation Council 2009, p. 96). During the 1950s and 1960s Swedish companies established offices in European countries such as Finland, Greece, Italy, Turkey, and the former Yugoslavia, to recruit labour immigrants. Most of these immigrants returned home (Bergmark and Minas 2006, p. 35; Ginsburg 1992, pp. 45; 47; Graham 2002, pp. 205-6). In the 1970s Swedish immigration law limited immigration to Sweden from non-Nordic countries, which has resulted in a shift in immigration from labour workers to refugees (Bergmark and Minas 2006, p. 35; Globalisation Council 2009, p. 96; Graham 2002, p. 206; Knocke 2000, p. 363; Widgren 1982 in Ginsburg 1992, p. 46). These refugees originate from Africa, the Middle East, South America, and South Asia (Graham 2002, p. 206).

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The large number of immigrants in the late 1970s and 1980s has led to greater heterogeneity in Sweden (Graham 2002, p. 207). The percentage of foreign-born citizens as part of the Swedish population has increased from 4 percent in 1960 to almost 16 percent in 2013. There has especially been an increase in the number of immigrants born outside of Europe (Bergmark and Minas 2006, p. 35; Globalisation Council 2009, p. 96; Graham 2002, p. 203; SCB 2014c). This increase in heterogeneity has led to xenophobia (Graham 2002, p. 207). Though politicians have promoted multiculturalism, there exists a somewhat negative attitude towards non-Western, or non-European, immigrants: they are perceived as culturally distinct, lazy, and often unemployed (Larsen 2011, pp. 336-7; 339; 350). With this increase in heterogeneity and globalisation, the concept of the folkhemmet is no longer fully applicable.

2.6 The modern Swedish welfare state

All these developments have gradually led to a specific level of social welfare: a process that was rooted in compromise and coalition has created the Swedish welfare state as it is today (Ginsburg 1992, p. 30). This section will discuss the organisation, welfare provisions, and characteristics of the Swedish welfare state.

The organisation of the Swedish welfare state

The Swedish welfare state is governed by actors on the national, regional, and local level. These actors have different responsibilities: the national government is responsible for welfare provisions and creating overarching regulations, while regional and local governments are responsible for providing welfare state services (Kröger 1997 in Rauch 2006, p. 292; Rauch 2006, p. 289).

The main actors on the national level are the Riksdag and the government (Regeringskansliet). The Riksdag is the highest decision making body and is responsible for creating welfare policy (The Swedish Association of Local Authorities and Regions 2003 in Bergmark and Minas 2006, p. 13). The Ministry of Education and Research, the Ministry of Employment, and the Ministry of Health and Social Affairs are in charge of implementing new legislation, and are thereby assisted by a range of government agencies (Bergmark and Minas 2006, p. 13).

Sweden is divided into 21 counties (län), which consist of a county council (landsting) and an administrative board (länsstyrelse). These counties represent the Swedish government at the regional level and handle tasks that require coordination across a region (Bergmark and Minas 2006, p. 13; Green-Pedersen 2002, p. 276). The counties have relative autonomy in providing health care services and can levy income taxes in order to finance these services (Lindbom 2001, p. 184;The Swedish Association of Local Authorities and Regions 2003 in Bergmark and Minas 2006, p. 13).

The main actors on the local level are municipalities. Sweden is divided into 290 municipalities which are each governed by a council (Bergmark and Minas 2006, p. 13).

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Municipalities are responsible for providing primary and secondary education, childcare, and elderly care to their citizens (Bergmark and Minas 2006, p. 14; Lindbom 2001, p. 184). Municipalities are obliged to provide basic services. However, they are free to decide which additional services they offer, and they may contract out services to private actors to enhance consumer choice, as long as they can guarantee a high quality of services (Bergmark and Minas 2006, p. 14; Green-Pedersen 2002, p. 276; Socialstyrelsen 2014).

The Swedish welfare provisions

It is decided by law that any person that lives of works in Sweden is insured by the Swedish social security system: this means that they have access to benefits and allowances provided by the Swedish welfare state (Försäkringskassan 2014b). The welfare provisions aim to prevent poverty and social exclusion in the Swedish society, and offer financial protection for citizens by guaranteeing a certain standard of living (Eduards 1991, p. 699; Globalisation Council 2007, pp. 11-2; Kiander 2005 in Bergmark and Minas 2006, p. 3).

In general the welfare provisions can be divided in three types of welfare programmes: universalist programmes, programmes connected to employment, and selective programmes. The universal programmes, available to anyone living or working in Sweden, are health and dental care, family benefits, and the basic pension (Clayton and Pontusson 1998, p. 76). Welfare programmes that are tied to employment are employment benefits, such as work injury compensation, unemployment benefits, and the occupational pension. In order to be eligible to these benefits one must be a (former) employee or company owner (Försäkringskassan 2014b). The selective welfare programmes correspond to specific needs of citizens and can sometimes depend on income or age. The selective welfare provisions are disability benefits, housing support, elderly income support, financial

assistance, student support, and the survivor pension8 (Eduards 1991, p. 698; Kumlin and Rothstein

2005, p. 348).

The characteristics of the Swedish welfare state

This section will look at the characteristics of the Swedish welfare state: the main principles underlying it, the active labour market policy, and the unique policy making process (Clayton-Pontusson 1998, p. 70; Esping-Andersen 1996, p. 11; Lundberg and Åmark 2001, p. 171; Moses 1994, p. 138).

8

The survivor pension is financial support which will cover a portion of the supply of money the deceased contributed to the family (Pensionmyndigheten 2014a).

Has the Swedish welfare state reached its limit? The effects of globalisation on the Swedish welfare state