Today’s post is by Mi Ah Schoyen of NOVA Norwegian Social Research and Bjorn Hvinden Professor and Head of Research at NOVA and the University of Tromso, and director of the Nordic Centre of Excellence ‘Reassessing the Nordic Welfare Model’ (REASSESS). It is published in collaboration with Bertelsmann Stiftung’s Sustainable Governance Indicators (SGI) Network

When it comes to balancing the needs of current and future generations, the Nordic welfare states have done fairly well: reforms of the pension system, low child poverty levels and public debt, and work-friendly family policies. Yet, environmental considerations remain neglected – in the Nordic countries and elsewhere in the OECD.

Few would disagree that intergenerational justice is a goal that all governments and societies should adhere to. Beyond this general consensus, the issue undoubtedly raises a number of dilemmas, which are notoriously hard to solve. The Nordic societies are far from immune to these challenges. However, there are a number of indications that this region has developed public policies which are more balanced with respect to both age and generation than in most other OECD countries.

In advanced democracies, intergenerational justice is only one of the objectives public policies are expected to meet. There are also aims such as intra-generational solidarity and fairness, gender equity, and the creation of a competitive economy combined with macroeconomic soundness. For intergenerational justice to be achieved, a simple theory suggests that successive generations (birth cohorts) – also future ones – should be treated the same. “Makes good sense!” you may think. So why are issues of intergenerational justice so hard to resolve?

First, it is difficult to account for the unborn and consequently controversy surrounds the debates about what we need to do today to achieve justice for the future. Second, the concept of intergenerational justice is typically applied in an ambiguous manner. It sometimes refers to age groups; at other times, the point of reference is to the treatment and position of successive generations or cohorts. This blurs the important distinction between age groups and generations. While you pass from one age group to another as you move through the life course, you remain part of the same generation (or birth cohort) from the day you are born until you die. Therefore, differential treatment of age groups does not necessarily violate principles of intergenerational justice. Think, for instance, of a contributory old-age pension system which by design transfers money from the working age population to the elderly. As long as current workers receive a similar level of transfers when they reach retirement, this kind of redistribution will be neutral with respect to generations. In fact, this mechanism is sometimes referred to as an implicit intergenerational contract and has until now been the most common way of organising public old age pensions.

Finally, matters are further complicated if successive cohorts differ in size. Unfortunately, this represents the rule rather than the exception. The current situation in most of the OECD world is that larger generations are followed by smaller ones, creating problems especially for old age social protection systems, which were created under the assumption of steadily growing populations. With modest fertility rates and steadily increasing life expectancy, the tax base does not grow fast enough to continue to finance public pensions in the way that was done in the past. This is the basic reason why we have seen large pension reforms in a number of OECD countries.

Pension reform has been an important policy issue also for Nordic governments. Sweden (in 1999) and Norway (in 2011) implemented comprehensive reforms of their old age pension systems. However, setting public pensions on a financially sustainable path is only part of the story of how Nordic societies seem to balance the distribution between generations and across age in a sensible way.

As the findings of the SGI Study on Intergenerational Justice in Aging Societies show, from a comparative perspective, children in the Nordic countries are doing well. Child poverty levels are relatively low and government debt is well below the OECD average (which was equal to just over 50 per cent of GDP in 2010). Note also that in the peculiar case of Norway, government debt indicators – also as they are represented in the SGI Study – are less meaningful. The country has built up a massive public fund from petroleum revenues with a market value currently approaching €600 billion!

Moreover, work-friendly family policies (including an emphasis on providing affordable care services for dependent children and elderly) have long been a priority in the Nordic countries. As a result, even though they – with the exception of Iceland – do not quite reach the replacement fertility rate of 2.1, generally, more babies are born in the Nordic countries than further south on the European continent. At the same time, female employment is high, providing a broad tax base that helps in meeting the costs of population ageing.

The Intergenerational Justice Index (IJI) includes environmental, social, economic and fiscal dimensions, as well as a measure of pro-elderly bias. Estonia ranks highest of the 29 OECD countries included in the study, the US is bottom.

Overall, while not seeing it as a super model – like the Economist actually did earlier this year – it seems fair to say that the Nordic social and economic model has managed to strike a sound balance between intra-generational and inter-generational concerns. This has been achieved by combining policies which contribute to the equalisation of life chances (e.g., free access to education, active labour market measures for the whole adult population, and a comprehensive system of social protection) with policies to foster economic competitiveness and efficiency.

The most innovative feature of the SGI Study is the inclusion of an environmental impact indicator in the assessment of intergenerational justice across countries. While a common dimension in discussions of environmental policy and sustainable development, ecological concerns rarely enter assessments of the welfare state and social justice more broadly.

The environmental impact of human activities reported in the SGI Study on the basis of countries’ Ecological Footprint, gives a rather mixed result for the Nordic countries. We get an intergenerational picture which is less positive than when considering only the welfare state more narrowly. It is important to note that several kinds of indicators have been defined for measuring different aspects of environmental performance. Country rankings are sensitive to the choice of indicator. For instance, if we instead rank countries according to the Environmental Performance Index, the Nordic countries all appear in the top quintile. We are not in a position to judge which indicator is superior, since that probably depends on your specific purpose. However, we strongly encourage further debates and research on the linkages between social and environmental policy and their outcomes. In this regard the SGI Study offers a welcome contribution.

Useful links

Paying for the Past, Providing For the Future: Intergenerational Solidarity OECD Ministerial Meeting on Social Policy, May 2011