Nordic model

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This article is about the social and economic model in northern Europe. For the socioeconomic model in continental Europe and Germany in particular, see Rhenish model. For the political ideology often associated with the Nordic model, see Social democracy.

 

The Nordic model (also called Nordic capitalism or Nordic social democracy) refers to the economic and social policies common to the Nordic countries (Denmark, Finland, Norway, Iceland, the Faroe Islands and Sweden). This includes a comprehensive welfare state and collective bargaining at the national level with a high percentage of the workforce unionized, while being based on the economic foundations of free market capitalism. The Nordic model began to earn attention after World War II.

Although there are significant differences among the Nordic countries, they all share some common traits. These include support for a "universalist" welfare state aimed specifically at enhancing individual autonomy and promoting social mobility; a corporatist system involving a tripartite arrangement where representatives of labor and employers negotiate wages and labor market policy mediated by the government; and a commitment to widespread private ownership, free markets and free trade.

Each of the Nordic countries has its own economic and social models, sometimes with large differences from its neighbours. According to sociologist Lane Kenworthy, in the context of the Nordic model "social democracy" refers to a set of policies for promoting economic security and opportunity within the framework of capitalism rather than a replacement for capitalism.

Overview

"The Nordic Model – Embracing globalization and sharing risks" characterises the system as follows:

• An elaborate social safety net, in addition to public services such as free education and universal healthcare in a largely tax-funded system.
• Strong property rights, contract enforcement, and overall ease of doing business.
• Public pension plans.
• Free trade combined with collective risk sharing (social programs, labour market institutions) which has provided a form of protection against the risks associated with economic openness.
• Little product market regulation. Nordic countries rank very high in product market freedom according to OECD rankings.
• Low levels of corruption. In Transparency International's 2015 Corruption Perceptions Index, Denmark, Finland, Sweden, and Norway were ranked among the top 10 least corrupt of the 167 countries evaluated.
• High percentage of workers belonging to a labour union. In 2013, labour union density was 86% in Iceland, 69% in Finland, 68% in Sweden, 67% in Denmark and 52% in Norway. In comparison, labour union density was 14% in Mexico and 11% in the United States. The lower union density in Norway is mainly explained by the absence of a Ghent system since 1938. In contrast, Denmark, Finland and Sweden all have union-run unemployment funds.
  

Flags of the Nordic countries (l-r: Finland, Iceland, Norway, Sweden, and Denmark)

• A partnership between employers, trade unions and the government, whereby these social partners negotiate the terms to regulating the workplace among themselves, rather than the terms being imposed by law. Sweden has decentralised wage co-ordination while Finland is ranked the least flexible. The changing economic conditions have given rise to fear among workers as well as resistance by trade unions in regards to reforms. At the same time, reforms and favourable economic development seem to have reduced unemployment, which has traditionally been higher. Denmark's Social Democrats managed to push through reforms in 1994 and 1996 (see flexicurity).
• The United Nations World Happiness Reports show that the happiest nations are concentrated in Northern Europe. The Nordics ranked highest on the metrics of real GDP per capita, healthy life expectancy, having someone to count on, perceived freedom to make life choices, generosity and freedom from corruption. The Nordic countries place in the top 10 of the World Happiness Report 2018, with Finland and Norway taking the top spots.
• The Nordic countries received the highest ranking for protecting workers rights on the International Trade Union Confederation's 2014 Global Rights Index, with Denmark being the only nation to receive a perfect score.
• Sweden at 56.6% of GDP, Denmark at 51.7% and Finland at 48.6% reflect very high public spending. One key reason for public spending is the large number of public employees. These employees work in various fields including education, healthcare, and for the government itself. They often have greater job security and make up around a third of the workforce (more than 38% in Denmark). Public spending in social transfers such as unemployment benefits and early-retirement programmes is high. In 2001, the wage-based unemployment benefits were around 90% of wage in Denmark and 80% in Sweden, compared to 75% in the Netherlands and 60% in Germany. The unemployed were also able to receive benefits several years before reductions, compared to quick benefit reduction in other countries.
• Public expenditure for health and education is significantly higher in Denmark, Sweden, and Norway in comparison to the OECD average.
• Overall tax burdens (as a percentage of GDP) are high: Sweden (44.1%), Denmark (45.9%) and Finland (44.1%). The Nordic countries have relatively flat tax rates, meaning that even those with medium and low incomes are taxed at relatively high levels.

Aspects

Labor market policy

The Nordic countries share active labor market policies as part of a corporatist economic model intended to reduce conflict between labor and the interests of capital. The corporatist system is most extensive in Sweden and Norway, where employer federations and labor representatives bargain at the national level mediated by the government. Labor market interventions are aimed at providing job retraining and relocation.

The Nordic labor market is flexible, with laws making it easy for employers to hire and shed workers or introduce labor-saving technology. To mitigate the negative effect on workers, the government labor market policies are designed to provide generous social welfare, job retraining and relocation to limit any conflicts between capital and labor that might arise from this process.

Economic system

The Nordic model is underpinned by a free market capitalist economic system that features high degrees of private ownership with the exception of Norway, which includes a large number of state-owned enterprises and state ownership in publicly listed firms.

The Nordic model is described as a system of competitive capitalism combined with a large percentage of the population employed by the public sector (roughly 30% of the work force). In 2013, The Economist described its countries as "stout free-traders who resist the temptation to intervene even to protect iconic companies" while also looking for ways to temper capitalism's harsher effects, and declared that the Nordic countries "are probably the best-governed in the world". Some economists have referred to the Nordic economic model as a form of "cuddly" capitalism, with low levels of inequality, generous welfare states and reduced concentration of top incomes, and contrast it with the more "cut-throat" capitalism of the United States, which has high levels of inequality and a larger concentration of top incomes.

Beginning in the 1990s, the Swedish economy pursued neoliberal reforms that reduced the role of the public sector, leading to the fastest growth in inequality of any OECD economy. However, Sweden's income inequality still remains lower than most other countries.

Norway's particularities

The state of Norway has ownership stakes in many of the country's largest publicly listed companies, owning 37% of the Oslo stockmarket and operating the country's largest non-listed companies including Statoil and Statkraft. The Economist reports that "after the second world war the government nationalised all German business interests in Norway and ended up owning 44% of Norsk Hydro's shares. The formula of controlling business through shares rather than regulation seemed to work well, so the government used it wherever possible. 'We invented the Chinese way of doing things before the Chinese', says Torger Reve of the Norwegian Business School".

The government also operates a sovereign wealth fund, the Government Pension Fund of Norway—whose partial objective is to prepare Norway for a post-oil future, but "unusually among oil-producing nations, it is also a big advocate of human rights—and a powerful one, thanks to its control of the Nobel peace prize".

Norway is the only major economy in the West where younger generations are getting richer, with a 13% increase in disposable income for 2018, bucking the trend seen in other Western nations of millennials becoming poorer than the generations which came before.

Nordic welfare model

The Nordic welfare model refers to the welfare policies of the Nordic countries, which also tie into their labor market policies. The Nordic model of welfare is distinguished from other types of welfare states by its emphasis on maximizing labor force participation, promoting gender equality, egalitarian and extensive benefit levels, the large magnitude of income redistribution and liberal use of expansionary fiscal policy.

While there are differences among different Nordic countries, they all share a broad commitment to social cohesion, a universal nature of welfare provision in order to safeguard individualism by providing protection for vulnerable individuals and groups in society and maximizing public participation in social decision-making. It is characterized by flexibility and openness to innovation in the provision of welfare. The Nordic welfare systems are mainly funded through taxation.

Despite the common values, the Nordic countries take different approaches to the practical administration of the welfare state. Denmark features a high degree of private sector provision of public services and welfare, alongside an assimilation immigration policy. Iceland's welfare model is based on a "welfare-to-work" (see: workfare) model while part of Finland's welfare state includes the voluntary sector playing a significant role in providing care for the elderly. Norway relies most extensively on public provision of welfare.

Poverty reduction

The Nordic model has been successful at significantly reducing poverty. In 2011, poverty rates before taking into account the effects of taxes and transfers stood at 24.7% in Denmark, 31.9% in Finland, 21.6% in Iceland, 25.6% in Norway and 26.5% in Sweden. After accounting for taxes and transfers the poverty rates for the same year became 6%, 7.5%, 5.7%, 7.7% and 9.7% respectively, for an average reduction of 18.7 p.p. Compared to the United States, which has a poverty level pre-tax of 28.3% and post-tax of 17.4% for a reduction of 10.9 p.p., the effects of tax and transfers on poverty in all the Nordic countries are substantially bigger. However, in comparison to France (27 p.p. reduction) and Germany (24.2 p.p. reduction) the taxes and transfers in the Nordic countries are smaller on average.

Religion as a factor

Scandinavian countries have Lutheranism as their main religion. Schroder argues that Lutheranism promotes the idea of a nationwide community of believers and it promotes state involvement in economic and social life. This allows nationwide welfare solidarity and economic coordination.

Currently, a large number of Scandinavians have been described as being irreligious.

Reception

The Nordic model has been positively received by some American politicians and political commentators. Jerry Mander has likened the Nordic model to a kind of "hybrid" system which features a blend of capitalist economics with socialist values, representing an alternative to American-style capitalism. United States Senator Bernie Sanders (I-VT) has pointed to Scandinavia and the Nordic model as something America can learn from, in particular with respect to the benefits and social protections the Nordic model affords workers and its provision of universal healthcare. According to Naomi Klein, former Soviet leader Mikhail Gorbachev sought to move the Soviet Union in a similar direction to the Nordic system, combining free markets with a social safety net but still retaining public ownership of key sectors of the economy - ingredients that he believed would transform the Soviet Union into "a socialist beacon for all mankind".

The Nordic model has also been positively received by various social scientists and economists. Lane Kenworthy advocates for the United States to make a gradual transition toward a social democracy similar to those of the Nordic countries, defining social democracy as "The idea behind social democracy was to make capitalism better. There is disagreement about how exactly to do that, and others might think the proposals in my book aren't true social democracy. But I think of it as a commitment to use government to make life better for people in a capitalist economy. To a large extent, that consists of using public insurance programs—government transfers and services". Nobel Prize-winning economist Joseph Stiglitz has noted that there is higher social mobility in the Scandinavian countries than in the United States and argues that Scandinavia is now the land of opportunity that the United States once was. American author Ann Jones, who lived in Norway for four years, contends "the Nordic countries give their populations freedom from the market by using capitalism as a tool to benefit everyone", whereas in the United States "neoliberal politics puts the foxes in charge of the henhouse, and capitalists have used the wealth generated by their enterprises (as well as financial and political manipulations) to capture the state and pluck the chickens".

Economist Jeffrey Sachs is a proponent of the Nordic model, having pointed out that the Nordic model is "the proof that modern capitalism can be combined with decency, fairness, trust, honesty, and environmental sustainability."

The Nordic combination of extensive public provision of welfare and a culture of individualism has been described by Lars Trägårdh, of Ersta Sköndal University College, as "statist individualism".
A 2016 survey by the think tank Israel Democracy Institute found that nearly 60 percent of Israeli Jews preferred a "Scandinavian model" economy, with high taxes and a robust welfare state.

Misconceptions

George Lakey, author of Viking Economics, asserts that Americans generally misunderstand the nature of the Nordic "welfare state":

Americans imagine that "welfare state" means the U.S. welfare system on steroids. Actually, the Nordics scrapped their American-style welfare system at least 60 years ago, and substituted universal services, which means everyone—rich and poor—gets free higher education, free medical services, free eldercare, etc. 

In his role as economic adviser to Poland and Yugoslavia in their post-socialist transitional period, Jeffery Sachs noted that the specific forms of Western-style capitalism such as Swedish-style social democracy and Thatcherite liberalism are virtually identical:

The eastern countries must reject any lingering ideas about a “third way”, such as a chimerical “market socialism” based on public ownership or worker self-management, and go straight for a western-style market economy...The main debate in economic reform should therefore be about the means of transition, not the ends. Eastern Europe will still argue over the ends: for example, whether to aim for Swedish-style social democracy or Thatcherite liberalism. But that can wait. Sweden and Britain alike have nearly complete private ownership, private financial markets and active labour markets. Eastern Europe today [in 1990] has none of these institutions; for it, the alternative models of Western Europe are almost identical.

In a speech at Harvard's Kennedy School of Government, Danish Prime Minister Lars Løkke Rasmussen addressed the American misconception that the Nordic model is a form of socialism: "'I know that some people in the US associate the Nordic model with some sort of socialism,' he said. 'Therefore, I would like to make one thing clear. Denmark is far from a socialist planned economy. Denmark is a market economy.'"

Criticism

The socialist economists John Roemer and Pranab Bardhan criticize Nordic-style social democracy for its questionable effectiveness in promoting relative egalitarianism as well as its sustainability. They point out that Nordic social democracy requires a strong labor movement to sustain the heavy redistribution required, arguing that it is idealistic to think similar levels of redistribution can be accomplished in countries with weaker labor movements. They note that even in the Scandinavian countries social democracy has been in decline since the weakening of the labor movement in the early 1990s, arguing that the sustainability of social democracy is limited. Roemer and Bardham argue that establishing a market socialist economy by changing enterprise ownership would be more effective than social democratic redistribution at promoting egalitarian outcomes, particularly in countries with weak labor movements.

Historian Guðmundur Jónsson argues that it would be inaccurate to include Iceland in one aspect of the Nordic model, that of consensus democracy. He writes that "Icelandic democracy is better described as more adversarial than consensual in style and practice. The labour market was rife with conflict and strikes more frequent than in Europe, resulting in strained government–trade union relationship. Secondly, Iceland did not share the Nordic tradition of power-sharing or corporatism as regards labour market policies or macro-economic policy management, primarily because of the weakness of Social Democrats and the Left in general. Thirdly, the legislative process did not show a strong tendency towards consensus-building between government and opposition with regard to government seeking consultation or support for key legislation. Fourthly, the political style in legislative procedures and public debate in general tended to be adversarial rather than consensual in nature".

In their paper "The Scandinavian Fantasy: The Sources of Intergeneration Mobility in Denmark and the U.S.", Rasmus Landersøn and James J. Heckman compared American and Danish social mobility and found that social mobility is not as high as figures might suggest in the Nordic countries. When looking exclusively at wages (before taxes and transfers), Danish and American social mobility are very similar. It is only after taxes and transfers are taken into account that Danish social mobility improves, indicating that Danish economic redistribution policies simply give the impression of greater mobility. Additionally, Denmark's greater investment in public education did not improve educational mobility significantly, meaning children of non-college educated parents are still unlikely to receive college education, though this public investment did result in improved cognitive skills amongst poor Danish children compared to their American peers. The researchers also found evidence that generous welfare policies could discourage the pursuit of higher-level education due to decreasing the economic benefits that college education level jobs offer and increasing welfare for workers of a lower education level.

Nima Sanandaji, a libertarian, has also criticized the Nordic model, questioning the link between the model and socio-economic outcomes in works of his such as Scandinavian Unexceptionalism and Debunking Utopia: Exposing the Myth of Nordic Socialism.

Welfare state

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% of GDP in social expenditures in OECD states, 2013 

>30%

25–30%

20–25%

0–20%

The welfare state is a concept of government in which the state plays a key role in the protection and promotion of the economic and social well-being of its citizens. It is based on the principles of equality of opportunity, equitable distribution of wealth, and public responsibility for those unable to avail themselves of the minimal provisions for a good life. The general term may cover a variety of forms of economic and social organization. The sociologist T. H. Marshall described the modern welfare state as a distinctive combination of democracy, welfare, and capitalism.

Modern welfare states include Germany, France, Belgium and the Netherlands, as well as the Nordic countries, such as Iceland, Sweden, Norway, Denmark, and Finland which employ a system known as the Nordic model. Gøsta Esping-Andersen classified the most developed welfare state systems into three categories; social democratic, conservative, and liberal.

The welfare state involves a transfer of funds from the state to the services provided (i.e. healthcare, education, etc.) as well as directly to individuals ("benefits"), and is funded through taxation. It is often referred to as a type of mixed economy. Such taxation usually includes a larger income tax for people with higher incomes, called a progressive tax.

Etymology

The German term sozialstaat ("social state") has been used since 1870 to describe state support programs devised by German sozialpolitiker ("social politicians") and implemented as part of Bismarck's conservative reforms.^[7] In Germany, the term wohlfahrtsstaat, a direct translation of the English "welfare state", is used to describe Sweden's social insurance arrangements.

The literal English equivalent "social state" did not catch on in Anglophone countries. However, during the Second World War, Anglican Archbishop William Temple, author of the book Christianity and the Social Order (1942), popularized the concept using the phrase "welfare state." Bishop Temple's use of "welfare state" has been connected to Benjamin Disraeli's 1845 novel Sybil: or the Two Nations (in other words, the rich and the poor), where he writes "power has only one duty — to secure the social welfare of the PEOPLE". At the time he wrote Sybil, Disraeli (later a prime minister) belonged to Young England, a conservative group of youthful Tories who disagreed with how the Whig dealt with the conditions of the industrial poor. Members of Young England attempted to garner support among the privileged classes to assist the less fortunate and to recognize the dignity of labor that they imagined had characterized England during the Feudal Middle Ages.

The Swedish welfare state is called folkhemmet ("the people's home") and goes back to the 1936 compromise, as well as another important contract made in 1938, between Swedish trade unions and large corporations. Even though the country is often rated comparably economically free, Sweden's mixed economy remains heavily influenced by the legal framework and continual renegotiations of union contracts, a government-directed and municipality-administered system of social security, and a system of universal health care that is run by the more specialized and in theory more politically isolated county councils of Sweden.

The Italian term stato sociale ("social state") and the Turkish term sosyal devlet reproduces the original German term. In French, the concept is expressed as l'État-providence. Spanish and many other languages employ an analogous term: estado del bienestar – literally, "state of well-being". In Portuguese, two similar phrases exist: estado de bem-estar social, which means "state of social well-being", and estado de providência – "providing state", denoting the state's mission to ensure the basic well-being of the citizenry. In Brazil, the concept is referred to as previdência social, or "social providence".

Modern forms

Modern welfare programs are chiefly distinguished from earlier forms of poverty relief by their universal, comprehensive character. The institution of social insurance in Germany under Bismarck was an influential example. Some schemes were based largely in the development of autonomous, mutualist provision of benefits. Others were founded on state provision. In an influential essay, "Citizenship and Social Class" (1949), British sociologist T. H. Marshall identified modern welfare states as a distinctive combination of democracy, welfare, and capitalism, arguing that citizenship must encompass access to social, as well as to political and civil rights. Examples of such states are Germany, all of the Nordic countries, the Netherlands, France, Uruguay and New Zealand and the United Kingdom in the 1930s. Since that time, the term welfare state applies only to states where social rights are accompanied by civil and political rights.

Changed attitudes in reaction to the worldwide Great Depression, which brought unemployment and misery to millions, were instrumental in the move to the welfare state in many countries. During the Great Depression, the welfare state was seen as a "middle way" between the extremes of communism on the left and unregulated laissez-faire capitalism on the right. In the period following World War II, many countries in Europe moved from partial or selective provision of social services to relatively comprehensive "cradle-to-grave" coverage of the population.

The activities of present-day welfare states extend to the provision of both cash welfare benefits (such as old-age pensions or unemployment benefits) and in-kind welfare services (such as health or childcare services). Through these provisions, welfare states can affect the distribution of wellbeing and personal autonomy among their citizens, as well as influencing how their citizens consume and how they spend their time.

History of welfare states

Emperor Ashoka of India put forward his idea of a welfare state in the 3rd century BCE. He envisioned his dharma (religion or path) as not just a collection of high-sounding phrases. He consciously tried to adopt it as a matter of state policy; he declared that "all men and my children" and "whatever exertion I make, I strive only to discharge debt that I owe to all living creatures." It was a totally new ideal of kingship. Ashoka renounced war and conquest by violence and forbade the killing of many animals. Since he wanted to conquer the world through love and faith, he sent many missions to propagate Dharma. Such missions were sent to places like Egypt, Greece, and Sri Lanka. The propagation of Dharma included many measures of people's welfare. Centers of the treatment of men and beasts founded inside and outside of empire. Shady groves, wells, orchards and rest houses were laid out. Ashoka also prohibited useless sacrifices and certain forms of gatherings which led to waste, indiscipline and superstition. To implement these policies he recruited a new cadre of officers called Dharmamahamattas. Part of this group's duties was to see that people of various sects were treated fairly. They were especially asked to look after the welfare of prisoners.

The concepts of welfare and pension were introduced in early Islamic law as forms of Zakat (charity), one of the Five Pillars of Islam, under the Rashidun Caliphate in the 7th century. This practice continued well into the Abbasid era of the Caliphate. The taxes (including Zakat and Jizya) collected in the treasury of an Islamic government were used to provide income for the needy, including the poor, elderly, orphans, widows, and the disabled. According to the Islamic jurist Al-Ghazali (Algazel, 1058–1111), the government was also expected to stockpile food supplies in every region in case a disaster or famine occurred. The Caliphate can thus be considered the world's first major welfare state.

Historian Robert Paxton observes that on the European continent the provisions of the welfare state were originally enacted by conservatives in the late nineteenth century and by fascists in the twentieth in order to distract workers from unions and socialism, and were opposed by leftists and radicals. He recalls that the German welfare state was set up in the 1880s by Chancellor Bismarck, who had just closed 45 newspapers and passed laws banning the German Socialist Party and other meetings by trade unionists and socialists. A similar version was set up by Count Eduard von Taaffe in the Austro-Hungarian Empire a few years later. Legislation to help the working class in Austria emerged from Catholic conservatives. They turned to social reform by using Swiss and German models and intervening in state economic matters. They studied the Swiss Factory Act of 1877 that limited working hours for everyone, and gave maternity benefits, and German laws that insured workers against industrial risks inherent in the workplace. These served as the basis for Austria's 1885 Trade Code Amendment.

"All the modern twentieth-century European dictatorships of the right, both fascist and authoritarian, were welfare states", Paxton writes. "They all provided medical care, pensions, affordable housing, and mass transport as a matter of course, in order to maintain productivity, national unity, and social peace."

Continental European Marxists opposed piecemeal welfare measures as likely to dilute worker militancy without changing anything fundamental about the distribution of wealth and power. It was only after World War II, when they abandoned Marxism (in 1959 in West Germany, for example), that continental European socialist parties and unions fully accepted the welfare state as their ultimate goal.

Great Britain

In Britain, the foundations for the welfare state originated with the Liberal Party under prime minister H. H. Asquith and Chancellor of the Exchequer David Lloyd George. British liberals supported a capitalist economy and in the nineteenth-century had principally been concerned with issues of free trade (see classical liberalism), but by the turn of the twentieth century they shifted away from laissez faire economics and began to favor pro-active social legislation to assure equal opportunity for all citizens (and to counteract the appeal of the Labour Party). In this they were directly inspired by the signal success of the German economy under Bismarck's top-down social reforms.

France

The French welfare state originated in the 1930s during a period of socialist political ascendency, with the Matignon Accords and the reforms of the Popular Front. Paxton points out these reforms were paralleled and even exceeded by measures taken by the Vichy regime in the 1940s.

By country or region

Australia

Prior to 1900 in Australia, charitable assistance from benevolent societies, sometimes with financial contributions from the authorities, was the primary means of relief for people not able to support themselves. The 1890s economic depression and the rise of the trade unions and the Labor parties during this period led to a movement for welfare reform.

In 1900, the states of New South Wales and Victoria enacted legislation introducing non-contributory pensions for those aged 65 and over. Queensland legislated a similar system in 1907 before the federal labor government led by Andrew Fisher introduced a national aged pension under the Invalid and Old-Aged Pensions Act 1908. A national invalid disability pension was started in 1910, and a national maternity allowance was introduced in 1912.

During the Second World War, Australia under a labor government created a welfare state by enacting national schemes for: child endowment in 1941; a widows' pension in 1942; a wife’s allowance in 1943; additional allowances for the children of pensioners in 1943; and unemployment, sickness, and special benefits in 1945.

Germany

Otto von Bismarck, the first Chancellor of Germany (in office 1871–90), developed the modern welfare state by building on a tradition of welfare programs in Prussia and Saxony that had begun as early as in the 1840s. The measures that Bismarck introduced – old-age pensions, accident insurance, and employee health insurance – formed the basis of the modern European welfare state. His paternalistic programs aimed to forestall social unrest (specifically to prevent an uprising like that of the Paris Commune in 1871), to undercut the appeal of the Social Democratic Party, and to secure the support of the working classes for the German Empire, as well as to reduce emigration to the United States, where wages were higher but welfare did not exist. Bismarck further won the support of both industry and skilled workers through his high-tariff policies, which protected profits and wages from American competition, although they alienated the liberal intellectuals who wanted free trade. During the 12 years of Hitler’s Third Reich, the National Socialists expanded and extended the welfare state to the point where over 17 million German citizens were receiving assistance under the auspices of the National Socialist People's Welfare (NSV) by 1939, an agency that had projected a powerful image of caring and support.

Latin America

Welfare states in Latin America have been considered as 'welfare states in transition' or 'emerging welfare states'. Mesa-Lago has classified the countries taking into account the historical experience of their welfare systems. The pioneers were Uruguay, Chile and Argentina, as they started to develop the first welfare programs in the 1920s following a bismarckian model. Other countries such as Costa Rica developed a more universal welfare system (1960s–1970s) with social security programs based on the Beveridge model. Researchers such as Martinez-Franzoni  and Barba-Solano  have examined and identified several welfare regime models based on the typology of Esping-Andersen. Other scholars such as Riesco and Cruz-Martinez  have examined the welfare state development in the region.

According to Alex Segura-Ubiergo:

Latin American countries can be unequivocally divided into two groups depending on their 'welfare effort' levels. The first group, which for convenience we may call welfare states, includes Uruguay, Argentina, Chile, Costa Rica, and Brazil. Within this group, average social spending per capita in the 1973–2000 period was around $532, while as a percentage of GDP and as a share of the budget, social spending reached 51.6 and 12.6 percent, respectively. In addition, between approximately 50 and 75 percent of the population is covered by the public health and pension social security system. In contrast, the second group of countries, which we call non-welfare states, has welfare-effort indices that range from 37 to 88. Within this second group, social spending per capita averaged $96.6, while social spending as a percentage of GDP and as a percentage of the budget averaged 5.2 and 34.7 percent, respectively. In terms of the percentage of the population actually covered, the percentage of the active population covered under some social security scheme does not even reach 10 percent.

Middle East

Saudi Arabia, Kuwait, and Qatar have become welfare states exclusively for their own citizens.

People's Republic Of China

China traditionally relied on the extended family to provide welfare services. The one-child policy introduced in 1978 has made that unrealistic, and new models have emerged since the 1980s as China has rapidly become richer and more urban. Much discussion is underway regarding China's proposed path toward a welfare state. Chinese policies have been incremental and fragmented in terms of social insurance, privatization, and targeting. In the cities, where the rapid economic development has centered, lines of cleavage, have developed between state-sector and non-state-sector employees and between labor-market insiders and outsiders.

United Kingdom

Historian Derek Fraser tells the British story in a nutshell:

It germinated in the social thought of late Victorian liberalism, reached its infancy in the collectivism of the pre-and post-Great War statism, matured in the universalism of the 1940s and flowered in full bloom in the consensus and affluence of the 1950s and 1960s. By the 1970s it was in decline, like the faded rose of autumn. Both UK and US governments are pursuing in the 1980s monetarist policies inimical to welfare.

The modern welfare state in Great Britain began operations with the Liberal welfare reforms of 1906–1914 under Liberal Prime Minister H. H. Asquith. These included the passing of the Old-Age Pensions Act in 1908, the introduction of free school meals in 1909, the 1909 Labour Exchanges Act, the Development Act 1909, which heralded greater Government intervention in economic development, and the enacting of the National Insurance Act 1911 setting up a national insurance contribution for unemployment and health benefits from work.

The minimum wage was introduced in Great Britain in 1909 for certain low-wage industries and expanded to numerous industries, including farm labour, by 1920. However, by the 1920s, a new perspective was offered by reformers to emphasize the usefulness of family allowance targeted at low-income families was the alternative to relieving poverty without distorting the labour market. The trade unions and the Labour Party adopted this view. In 1945, family allowances were introduced; minimum wages faded from view. Talk resumed in the 1970s, but in the 1980s the Thatcher administration made it clear it would not accept a national minimum wage. Finally, with the return of Labour, the National Minimum Wage Act 1998 set a minimum of ₤3.60 per hour, with lower rates for younger workers. It largely affected workers in high turnover service industries such as fast food restaurants, and members of ethnic minorities.

December 1942 saw the publication of the Report of the Inter-Departmental Committee on Social Insurance and Allied Services, commonly known as the Beveridge Report after its chairman, Sir William Beveridge. The Beveridge Report proposed a series of measures to aid those who were in need of help, or in poverty and recommended that the government find ways of tackling what the report called "the five giants": Want, Disease, Ignorance, Squalor, and Idleness. It urged the government to take steps to provide citizens with adequate income, adequate health care, adequate education, adequate housing, and adequate employment, proposing that "All people of working age should pay a weekly National Insurance contribution. In return, benefits would be paid to people who were sick, unemployed, retired, or widowed."
The Beveridge Report assumed that:

• the National Health Service would provide free health care to all citizens
• a Universal Child Benefit would give benefits to parents, encouraging people to have children by enabling them to feed and support a family

The report stressed the lower costs and efficiency of universal benefits. Beveridge cited miners' pension schemes as examples of some of the most efficient available and argued that a universal state scheme would be cheaper than a myriad of individual friendly societies and private insurance schemes and also less expensive to administer than a means-tested government-run welfare system for the poor.

The Liberal Party, the Conservative Party, and then the Labour Party all adopted the Beveridge Report's recommendations. Following the Labour election victory in the 1945 general election many of Beveridge's reforms were implemented through a series of Acts of Parliament. On 5 July 1948, the National Insurance Act, National Assistance Act and National Health Service Act came into force, forming the key planks of the modern UK welfare state. The universal system that was to be called National Insurance, in which the rich paid in and the state paid out to the rich just as to the poor, was justified on the grounds of both fairness and lower cost. Universal benefits, such as the Universal Child Benefit, were particularly beneficial after the Second World War when the birth rate was low, and may have helped drive the 1950s baby boom. In 1949, the Legal Aid and Advice Act was passed, providing the "fourth pillar" of the modern welfare state, access to advice for legal redress for all.

Before 1939, most health care had to be paid for through non-government organisations – through a vast network of friendly societies, trade unions, and other insurance companies, which counted the vast majority of the UK working population as members. These organizations provided insurance for sickness, unemployment, and disability, providing an income to people when they were unable to work. Following the implementation of Beveridge's recommendations, institutions run by local councils to provide health services for the uninsured poor, part of the poor-law tradition of workhouses,^{[citation needed]} were merged into the new national system. As part of the reforms, the Church of England also closed down its voluntary relief networks and passed the ownership of thousands of church schools, hospitals and other bodies to the state.

Welfare systems continued to develop over the following decades. By the end of the 20th century parts of the welfare system had been restructured, with some provision channelled through non-governmental organizations which became important providers of social services.

United States

The United States developed a limited welfare state in the 1930s. The earliest and most comprehensive philosophical justification for the welfare state was produced by an American, the sociologist Lester Frank Ward (1841–1913), whom the historian Henry Steele Commager called "the father of the modern welfare state".

Ward saw social phenomena as amenable to human control. "It is only through the artificial control of natural phenomena that science is made to minister to human needs" he wrote, "and if social laws are really analogous to physical laws, there is no reason why social science should not receive practical application such as have been given to physical science." Ward wrote:

The charge of paternalism is chiefly made by the class that enjoys the largest share of government protection. Those who denounce it are those who most frequently and successfully invoke it. Nothing is more obvious today than the single inability of capital and private enterprise to take care of themselves unaided by the state; and while they are incessantly denouncing "paternalism," by which they mean the claim of the defenseless laborer and artisan to a share in this lavish state protection, they are all the while besieging legislatures for relief from their own incompetency, and "pleading the baby act" through a trained body of lawyers and lobbyists. The dispensing of national pap to this class should rather be called "maternalism," to which a square, open, and dignified paternalism would be infinitely preferable. 

Ward's theories centred around his belief that a universal and comprehensive system of education was necessary if a democratic government was to function successfully. His writings profoundly influenced younger generations of progressive thinkers such as Theodore Roosevelt, Thomas Dewey, and Frances Perkins (1880–1965), among others.

The United States was the only industrialized country that went into the Great Depression of the 1930s with no social insurance policies in place. In 1935 Franklin D. Roosevelt's New Deal instituted significant social insurance policies. In 1938 Congress passed the Fair Labor Standards Act, limiting the work week to 40 hours and banning child labor for children under 16, over stiff congressional opposition from the low-wage South.

The Social Security law was very unpopular among many groups – especially farmers, who resented the additional taxes and feared they would never be made good. They lobbied hard for exclusion. Furthermore, the Treasury realized how difficult it would be to set up payroll deduction plans for farmers, for housekeepers who employed maids, and for non-profit groups; therefore they were excluded. State employees were excluded for constitutional reasons (the federal government in the United States cannot tax state governments). Federal employees were also excluded. Many textbooks, however, falsely indicate that the exclusions were the product of southern racial hostility toward blacks; there is no evidence of that in the record.

By 2013 the U.S. remained the only major industrial state without a uniform national sickness program. American spending on health care (as percent of GDP) is the highest in the world, but it is a complex mix of federal, state, philanthropic, employer and individual funding. The US spent 16% of its GDP on health care in 2008, compared to 11% in France in second place.

Some scholars, such as Gerard Friedman, argue that labor-union weakness in the Southern United States undermined unionization and social reform throughout the United States as a whole, and is largely responsible for the anaemic U.S. welfare state. Sociologists Loïc Wacquant and John L. Campbell contend that since the rise of neoliberal ideology in the late 1970s and early 1980s, an expanding carceral state, or government system of mass incarceration, has largely supplanted the increasingly retrenched social welfare state, which has been justified by its proponents with the argument that the citizenry must take on personal responsibility. Scholars assert that this transformation of the welfare state to a post-welfare punitive state, along with neoliberal structural adjustment policies and the globalization of the U.S. economy, have created more extreme forms of "destitute poverty" in the U.S. which must be contained and controlled by expanding the criminal justice system into every aspect of the lives of the poor.

Three worlds of the welfare state

Broadly speaking, welfare states are either universal – with provisions that cover everybody, or selective – with provisions covering only those deemed most needy. In his 1990 book, The Three Worlds of Welfare Capitalism, Danish sociologist Gøsta Esping-Andersen further identified three subtypes of welfare state models. Though increasingly criticised, these classifications are still used as a starting point in analysis of modern welfare states and remain a fundamental heuristic tool for welfare state scholars. Even for those who claim that in-depth analysis of a single case is more suited to capture the complexity of different social policy arrangements, welfare typologies can provide a comparative lens that can help to place single cases in perspective.

Esping-Andersen's welfare classification acknowledges the historical role of three dominant twentieth-century Western European and American political movements: Social Democracy (socialism), Christian Democracy (conservatism); and Liberalism.

1. The Social-Democratic welfare state model is based on the principle of Universalism, granting access to benefits and services based on citizenship. Such a welfare state is said to provide a relatively high degree of citizen autonomy, limiting reliance on family and market. In this context, social policies are perceived as "politics against the market".
   
2. The Christian-Democratic welfare state model is based on the principle of subsidiarity (decentralization) and the dominance of social insurance schemes, offering a medium level of decommodification and permitting a high degree of social stratification.
   
3. The Liberal model is based on market dominance and private provision; ideally, in this model, the state only interferes to ameliorate poverty and provide for basic needs, largely on a means-tested basis. Hence, the decommodification potential of state benefits is assumed to be low and social stratification high.

Based on the decommodification index, Esping-Andersen divided 18 Organisation for Economic Co-operation and Development (OECD) countries into the following groups:

1. Social Democratic: Denmark, Finland, Netherlands, Norway and Sweden
2. Christian Democratic: Austria, Belgium, France, Germany, Italy and Spain
3. Liberal: Australia, Canada, Japan, New Zealand, Switzerland and US
4. Not clearly classified: Ireland and United Kingdom

Since the building of the decommodification index is limited and the typology is debatable, these 18 countries could be ranked from most purely social-democratic (Sweden) to the most liberal (the United States). Ireland represents a near-hybrid model whereby two streams of unemployment benefit exist: contributory and means-tested. However, payments can begin immediately and are theoretically available to all Irish citizens even if they have never worked, provided they are habitually resident.

Swedish professor of political science Bo Rothstein points out that in non-universal welfare states, the state is primarily concerned with directing resources to "the people most in need". This requires tight bureaucratic control in order to determine who is eligible for assistance and who is not. Under universal models such as Sweden, on the other hand, the state distributes welfare to all people who fulfill easily established criteria (e.g. having children, receiving medical treatment, etc.) with as little bureaucratic interference as possible. This, however, requires higher taxation due to the scale of services provided. This model was constructed by the Scandinavian ministers Karl Kristian Steincke and Gustav Möller in the 1930s and is dominant in Scandinavia.

Sociologist Lane Kenworthy argues that the Nordic experience demonstrates that the modern social democratic model can "promote economic security, expand opportunity, and ensure rising living standards for all ... while facilitating freedom, flexibility and market dynamism."

Finally, scholars have also proposed to classify welfare regimes using 'outcomes', such as inequalities, poverty rates, response to different social risks, rather than simply focusing on institutional configurations.

American political scientist Benjamin Radcliff has also argued that the universality and generosity of the welfare state (i.e. the extent of decommodification) is the single most important societal-level structural factor affecting the quality of human life, based on the analysis of time serial data across both the industrial democracies and the American States. He maintains that the welfare state improves life for everyone, regardless of social class (as do similar institutions, such as pro-worker labor market regulations and strong labor unions).

Effects of welfare on poverty

Empirical evidence suggests that taxes and transfers considerably reduce poverty in most countries whose welfare states constitute at least a fifth of GDP.

Country	Absolute poverty rate (1960–1991) (threshold set at 40% of U.S. median household income)		Relative poverty rate (1970–1997)
	Pre-welfare	Post-welfare	Pre-welfare	Post-welfare
Sweden	23.7	5.8	14.8	4.8
Norway	9.2	1.7	12.4	4.0
Netherlands	22.1	7.3	18.5	11.5
Finland	11.9	3.7	12.4	3.1
Denmark	26.4	5.9	17.4	4.8
Germany	15.2	4.3	9.7	5.1
Switzerland	12.5	3.8	10.9	9.1
Canada	22.5	6.5	17.1	11.9
France	36.1	9.8	21.8	6.1
Belgium	26.8	6.0	19.5	4.1
Australia	23.3	11.9	16.2	9.2
United Kingdom	16.8	8.7	16.4	8.2
United States	21.0	11.7	17.2	15.1
Italy	30.7	14.3	19.7	9.1

Effects of social expenditure on economic growth, public debt and education

Researchers have found very little correlation between economic performance and social expenditure. They also see little evidence that social expenditures contribute to losses in productivity; economist Peter Lindert of the University of California, Davis attributes this to policy innovations such as the implementation of "pro-growth" tax policies in real-world welfare states.

Nor have social expenses contributed significantly to public debt.

According to the OECD, social expenditures in its 34 member countries rose steadily between 1980 and 2007, but the increase in costs was almost completely offset by GDP growth. More money was spent on welfare because more money circulated in the economy and because government revenues increased. In 1980, the OECD averaged social expenditures equal to 16 percent of GDP. In 2007, just before the financial crisis kicked into full gear, they had risen to 19 percent – a manageable increase.

A Norwegian study covering the period 1980 to 2003 found welfare state spending correlated negatively with student achievement. However, many of the top-ranking OECD countries on the 2009 PISA tests are considered welfare states.

The table below shows: first – social expenditure as a percentage of GDP for selected OECD member states; second – GDP per capita (PPP US$) in 2013:

Nation	Social expenditure (% of GDP)	Year	GDP per capita (PPP US$)	Actual amount of social expenditure
France	31.9	2014	$36,907	$11,773
Finland	31.0	2014	$38,251	$11,858
Belgium	30.7	2014	$40,338	$12,384
Denmark	30.1	2014	$42,764	$12,872
Italy	28.6	2014	$34,303	$9,811
Austria	28.4	2014	$44,149	$12,538
Sweden	28.1	2014	$43,533	$12,233
Spain	26.8	2014	$34,527	$9,253
Germany	25.8	2014	$43,332	$11,180
Portugal	25.2	2014	$25,900	$6,527
Netherlands	24.7	2014	$43,404	$10,721
Greece	24.0	2014	$25,651	$6,156
Slovenia	23.7	2014	$28,298	$6,707
Luxembourg	23.5	2013	$90,790	$21,336
Japan	23.1	2011	$36,315	$8,389
Hungary	22.1	2014	$22,878	$5,056
Norway	22.0	2014	$65,461	$14,401
United Kingdom	21.7	2014	$35,760	$7,760
Ireland	21.0	2014	$43,304	$9,094
New Zealand	20.8	2013	$34,826	$7,244
Poland	20.6	2014	$23,275	$4,795
Czech Republic	20.6	2014	$27,344	$5,633
Switzerland	19.4	2014	$53,672	$10,412
United States	19.2	2014	$53,143	$10,203
Australia	19.0	2014	$43,550	$8,275
Slovakia	18.4	2014	$26,114	$4,805
Canada	17.0	2014	$43,247	$7,352
Iceland	16.5	2014	$39,996	$6,599
Estonia	16.3	2014	$25,049	$4,083
Israel	15.0	2013	$32,760	$4,914
Turkey	12.5	2013	$18,975	$2,372
South Korea	10.4	2014	$33,140	$3,447
Chile	10.0	2013	$21,911	$2,191
Mexico	7.9	2012	$16,463	$1,301

Criticism and response

Early conservatives, under the influence of Thomas Malthus, opposed every form of social insurance "root and branch". They argued, according to economist Brad DeLong, that it would "make the poor richer, and they would become more fertile. As a result, farm sizes would drop (as land was divided among ever more children), labor productivity would fall, and the poor would become even poorer. Social insurance was not just pointless; it was counterproductive." Malthus, a clergyman for whom birth control was anathema, believed that the poor needed to learn the hard way to practice frugality, self-control and chastity. Traditional conservatives also protested that the effect of social insurance would be to weaken private charity and loosen traditional social bonds of family, friends, religious and non-governmental welfare organisations.

Karl Marx, on the other hand, opposed piecemeal reforms advanced by middle-class reformers out of a sense of duty. In his Address of the Central Committee to the Communist League, written after the failed revolution of 1848, he warned that measures designed to increase wages, improve working conditions and provide social insurance were merely bribes that would temporarily make the situation of working classes tolerable to weaken the revolutionary consciousness that was needed to achieve a socialist economy. Nevertheless, Marx also proclaimed that the Communists had to support the bourgeoisie wherever it acted as a revolutionary progressive class because "bourgeois liberties had first to be conquered and then criticised".

In the 20th century, opponents of the welfare state have expressed apprehension about the creation of a large, possibly self-interested, bureaucracy required to administer it and the tax burden on the wealthier citizens that this entailed.

Political historian Alan Ryan points out that the modern welfare state stops short of being an "advance in the direction of socialism.... its egalitarian elements are more minimal than either its defenders or its critics think". It does not entail advocacy for social ownership of industry. The modern welfare state, Ryan writes, does not set out

to make the poor richer and the rich poorer, which is a central element in socialism, but to help people to provide for themselves in sickness while they enjoy good health, to put money aside to cover unemployment while they are in work, and to have adults provide for the education of their own and other people's children, expecting those children's future taxes to pay in due course for the pensions of their parents’ generation. These are devices for shifting income across different stages in life, not for shifting income across classes. Another distinct difference is that social insurance does not aim to transform work and working relations; employers and employees pay taxes at a level they would not have done in the nineteenth century, but owners are not expropriated, profits are not illegitimate, cooperativism does not replace hierarchical management.

Historian Walter Scheidel has commented that the establishment of welfare states in the West in the early 20th century could be partly a reaction by elites to the Bolshevik Revolution and its violence against the bourgeoisie, which feared violent revolution in its own backyard. They were diminished decades later as the perceived threat receded:

It's a little tricky because the US never really had any strong leftist movement. But if you look at Europe, after 1917 people were really scared about communism in all the Western European countries. You have all these poor people, they might rise up and kill us and take our stuff. That wasn't just a fantasy because it was happening next door. And that, we can show, did trigger steps in the direction of having more welfare programs and a rudimentary safety net in response to fear of communism. Not that they [the communists] would invade, but that there would be homegrown movements of this sort. American populism is a little different because it's more detached from that. But it happens roughly at the same time, and people in America are worried about communism, too – not necessarily very reasonably. But that was always in the background. And people have only begun to study systematically to what extent the threat, real or imagined, of this type of radical regime really influenced policy changes in Western democracies. You don't necessarily even have to go out and kill rich people – if there was some plausible alternative out there, it would arguably have an impact on policy making at home. That's certainly there in the 20s, 30s, 40s, 50s, and 60s. And there's a debate, right, because it becomes clear that the Soviet Union is really not in very good shape, and people don't really like to be there, and all these movements lost their appeal. That's a contributing factor, arguably, that the end of the Cold War coincides roughly with the time when inequality really starts going up again, because elites are much more relaxed about the possibility of credible alternatives or threats being out there.