Dare to choose the welfare state

The welfare state is a less stable basis than we often assume. Those middle-aged pay today for the care they will receive when they get old. This is a long-term commitment. If the quality is poor or the system is perceived as unstable, they may be forced to barter away welfare state as strategy. This is explained in LO economists’ new report.

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Publicly-financed consumption constitutes a large part of the Swedish economy. The value of individual publicly-financed consumption, such as education and health care, represents about 40 per cent of household disposable income.

The main purpose of publicly-financed consumption is to redistribute resources from periods in life when we work to periods when we are in great need for health care and education. Basically, this is a matter of redistribution of resources in everyone's life. But it is also about redistribution between individuals.

In the report Efficient Redistribution over the Life Cycle, LO economists show that the Swedish working population (20-64 years) accounts for 37 percent of the publicly-financed consumption, while they account for 81 percent of the taxes to finance it. The elderly use 31 percent of the welfare services and account for 19 percent of the taxes. Children and young people account for 31 percent of the publicly-financed consumption, but they hardly contribute to the funding. Thus the welfare state implies commitments extending over many decades.

Women benefit from public funding of welfare services and they lose if the resources are curtailed. Furthermore, they lose in twofold extent. Firstly – due to impaired access to the welfare services they need, and secondly – due to the fact that it is primarily women who provide for deficiencies in public care.

There are sound efficiency and distribution arguments in favour of public funding of welfare services. Despite this, it is not obvious that increased demand for welfare services is met by publicly-funded services. There are strong reasons to question whether all elderly people get the care they need to achieve a reasonable standard of living.

We are therefore faced with a choice: to take advantage of the existent willingness to pay and to continue developing a rational welfare system of satisfactory quality, approximately within the scope we are accustomed to, or to rapidly undermine support for the welfare state by quality deterioration.