National Security & Defense

Europe’s Welfare States Try Welfare Reform

Copenhagen, Denmark (Dreamstime Photo/Androniques)
Scandinavian nations are abandoning what American progressives call ‘the Nordic model.’

Twenty years ago President Bill Clinton followed up on his promise to reduce welfare dependency. Clinton, who had pledged in a TV spot during his run for office that he had “a plan to end welfare as we know it,” introduced wide-ranging welfare reforms with the support of the Republicans. As the Washington Post recently reported, the number of Americans receiving welfare payments from the federal government has since fallen steeply, from 12.6 million at the law’s passage to 4.6 million today. This is quite astonishing in a time when the U.S. has received many immigrants from low-income countries in Latin America. Yet in recent years the Democrats have changed their attitude, again favoring generous welfare benefits. Changes made during the Obama administration, and likely to continue under a Hillary Clinton presidency, have made welfare more generous. The ideological case for shifting toward generous welfare policies is simple: Democratic socialism works in the Nordic countries, the reasoning goes, so why not adopt the same system in the U.S.? Unfortunately, few Americans seem to be aware that the Nordic countries themselves are rapidly moving in the opposite direction.

In my recently published book Debunking Utopia — Exposing the Myth of Nordic Socialism, I deal with the fact that Nordic countries have become the No. 1 argument to promote socialism in the U.S. and the rest of the world. Most of the arguments put forward by the Left regarding the benefits of large welfare states hinge on the Nordics. However, as I explain in my book, the social success of Nordic countries depends on a culture that puts uniquely strong emphasis on work and individual responsibility. Its social success predates the welfare state and is even stronger among Nordic Americans, who don’t live in a democratic-socialist welfare state, than in the Nordic countries themselves. Equally interesting is that even in the Nordic countries, overly generous welfare policies have caused serious issues. Detailed research shows that over time, people have adapted their norms to suit the system, becoming ever more likely to overuse its benefits. Those with immigrant backgrounds, in particular, are often trapped in welfare dependency (as was my family, growing up in Sweden).

U.S. fans of generous welfare policies often hold up Denmark as the prime model of a welfare state. They would be astonished to know what is actually happening in that country. The former government of Denmark was run by the Social Democrats, but even they realized that the culture of dependency on public handouts is eroding responsibility, draining tax money, and hampering economic development. Bjarne Corydon, Denmark’s Social Democratic finance minister at the time, made international headlines in 2013 by pointing to the need to reduce the generosity of transfer systems in Denmark. Corydon explained that it was no mere coincidence that the government was reforming taxes, welfare aid, and the system for early retirement: “The truth is that we are in full swing with a dramatically positive agenda, which is about strengthening and modernizing the welfare state, and the result of the change will be a much better society than the one we have today.” The leading Social Democrat went as far as to formulate a new vision for the future of the welfare state: “I believe in the competition state as the modern welfare state. If we are to ensure support for the welfare state, we must focus on the quality of public services rather than transfer payments.”

Since 2015 a center-right government has been in power in Denmark. They have, not surprisingly, continued on the path of welfare reform.

Since 2015 a center-right government has been in power in Denmark. They have, not surprisingly, continued on the path of welfare reform. After winning the 2015 general election, the government has, among other reforms, introduced new, considerably lower welfare benefits for immigrants. The lower payment is equivalent to about half the amount received by those on normal unemployment benefits. The new rules were expanded on July 1 of this year to retroactively include any refugee registered in Denmark within the last seven years. The government and its supporting parties recently announced that the savings on welfare payments would be used to reduce taxes.

In Sweden — the only Nordic country that currently is led by a Social Democratic government — the conservative opposition party declared in July that a benefit ceiling should be introduced. The idea was that the benefits given to a family should never exceed 75 percent of the effective minimum wage (Sweden doesn’t have actual minimum-wage laws, but a sort of minimum wage is set by union contracts) that a working family would receive after taxes and working-family benefits. In an August 23 press release, the party went even further, stating:

The poverty trap that particularly many foreign-born women are trapped in must be fought by seeing to it that more enter work and self-sufficiency. Foreign-born women have an employment rate 23 percentage points lower than that for native-born women. In total, one of ten foreign-born are given welfare support, while only one in a hundred native-born are given the same.

Besides the already suggested benefit ceiling, the conservatives are calling for reduction of the parents’ allowance given to non-working families. Instead, opportunities for the children of welfare families to participate in preschool will be expanded. The idea is to reduce welfare payments while giving the children of economically marginalized families a better chance to escape poverty through education.

The press conference was held by Ulf Kristersson, a spokesperson on economic issues, and Anna Kindberg Batra, the party leader of the conservatives. In an article the same day, Kristersson expanded on the reason for the suggested welfare reforms: “Although Sweden is experiencing a strong economic boom, dependency on public benefits is not being reduced. In 2020 a million people are expected to be in social exclusion, entirely supported by public benefits.” This, of course, is quite a high number for a country where around 5 million people are in work.

It is telling that the American Left is using Denmark, Sweden, and other Nordic countries as its prime support for introducing a generous welfare state without understanding the source of Nordic success. Nordic countries have been able to introduce large welfare states because they have historically had uniquely strong working and responsibility ethics, and because these societies already largely managed to eliminate poverty during the small-government era of the first half of the 20th century. Today, as the population has adapted their norms to generous welfare and as the share of immigrants has grown, the welfare model is being rolled back. In fact, for the last two or three decades, Nordic countries have focused on market reforms, tax cuts, and welfare reforms rather than on continuing along the path of democratic socialism. Today, the pace of reform is speeding up, as migration puts even more emphasis on the need for welfare reform. Isn’t it time for the U.S. to learn the true lesson from the Nordic welfare experience?

— Nima Sanandaji is the president of the European Centre for Entrepreneurship and Policy Reform.

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