Towards a new European model of a reformed welfare state: An alternative to the United States model

The better performance of the United States relative to western Europe in terms of output and productivity growth since the 1990s is now an accepted fact. This chapter views this from a longer-term perspective, and suggests that a more comprehensive comparison between the United States and western Europe, that includes social and environmental indicators, income distribution, social welfare and health care, may present a different picture than if per capita gross domestic product (GDP) alone is considered. Many analysts, in seeking to explain the differences in economic performance since the early 1990s, blame high welfare costs, rigid labour market rules and higher environmental standards for western Europe's poor performance. This would imply that western Europe has been trading off faster economic growth against the objective to achieve ambitious social and environmental goals. Surprisingly, however, the best performing European countries over the past 10 to 15 years in terms of overall economic performance have been three Nordic states (Denmark, Finland, Sweden) that have comprehensive welfare systems and a high degree of environmental awareness. All three suffered severe structural and cyclical crises in the 1980s and 1990s, but over the past 10 to 15 years they have been
performing better than the larger European economies, and have been matching the United States in their dynamic performance. This chapter from the 'Economic Survey of Europe, No.1, 2005, analyses whether the post-crisis reforms undertaken in these three countries have followed the United States model or whether they provide a new European model of a reformed welfare state.