From Warfare to Welfare States: Fiscal Capacity and State Formation in the Nordic Countries in the Long Run

Jari Eloranta, University of Helsinki
Matti Hannikainen, Varma Insurance Company
Petri Karonen, University of Jyvaskyla

The Nordic countries today have the most extensive welfare states in the world. Most of the welfare state creation occurred from the late 19th century onwards. However, they had a long history of state capacity prior to that. In this paper we will provide, first, some estimates of Nordic state capacity (fiscal, military, institutional) in the long run. For example, in Sweden, the construction of an early modern state and the development of the military went in parallel during the 16th and 17th centuries. The military burden of the expansion was, in comparative European terms, manageable. Thus, one of the features of the Nordic paths (which had some commonalities as well as differences) was the creation of particularly efficient fiscal states and bureaucracies. Eventually, the Nordic states had severe limitations in the European competition for supremacy, especially in the age of Napoleon, and their relative military capacity had begun to decline in the 18th century. Our second emphasis will be to investigate the transition from more military-oriented state structures to early origins of the welfare states. Our argument is that the process was not a “guns vs. butter” tradeoff as often suggested in the economics literature, but rather contemporaneous growth in both into the 20th century. In the case of Sweden, the 19th century meant a slow transition toward a more modern type of fiscal state, and eventually welfare state, whereas for Finland (and to lesser extent Norway under Swedish rule) the 19th century still meant a rather minimal state capacity under the Russian rule. Denmark’s transition toward a welfare state began the earliest, providing perhaps the most clear case of transition from a military-fiscal to limited welfare state.

See extended abstract

 Presented in Session 11. State Capacity, Democracy and Revenue