The Divergent Paths of Italy and Norway

[Seoul Sinmun · Open World · February 13, 2013]

Yun Suk-myung, Director of the Pension Research Center at the Korea Institute for Health and Social Affairs (KIHASA)

There is a heated debate over the implementation and conflicting interpretations of the Basic Pension and the coverage for severe diseases, which are representative welfare pledges. In this regard, two countries attract attention: Italy and Norway. Italy is the descendant of the once-brilliant Roman Empire. As a peninsular nation that loves music represented by opera and canzoni, as well as spaghetti, and is sensitive to emotion, it shares many similarities with us. Norway also has several things in common with us. It is similar in that it long suffered at the hands of its neighbors, and in that, with so much of its land mountainous, its people did not live in plenty, except in the region of Bergen, a port city where the cod trade flourished. Since the late 20th century, these two countries have drawn attention by showing divergent paths in welfare policy, particularly in pension and fiscal policies that significantly affect future generations.

As the state's finances, which had been operated loosely, became no longer sustainable, many Southern European countries, including Italy, are undergoing restructuring for survival by deploying top-tier crisis managers. In this situation, the "Fear of P" (Politics) is appearing, referring to political forces that exploit painful restructuring. The main culprit of the "Fear of P" in Italy is former Prime Minister Silvio Berlusconi. While he was known for all sorts of eccentricities during his tenure as Prime Minister, he drove a dagger into the Mario Monti government, which was struggling for recovery. He has set out to win votes by pledging to reverse the restructuring being pursued by the Monti government, which was created to overcome the economic crisis.

In terms of experience with pension system reform alone, Italy is a candidate for world champion. Despite tinkering with the pension system seven times over the past 20 years, it failed to achieve proper reform. Consequently, the future is entirely gray. It is ironic that the force leading the "Fear of P" is a former Prime Minister who worsened the situation. While it is understandable to miss the old days because restructuring is painful, concerns about Italy's future cannot help but grow.

Norway's path is in contrast to Italy's. Norway did not live affluently in the past, but it came to sit on a cushion of money after large-scale oil fields were discovered in abandoned land. When astronomical amounts of natural resources are suddenly discovered, they are more likely to become a curse than a blessing. African countries are representative examples. This is because the reality is that conflicts among the same ethnic group intensify as they try to seize resources, eventually leading to civil wars and the slaughter of countless lives.

However, the case of Norway is refreshing. Despite having massive annual oil revenues, it established a rule that the deficit in government budgeting not exceed 5%. By casting aside immediate greed and preparing for the increasing burden on future generations due to factors such as aging, it is preserving most of its oil resources. Additionally, it overhauled its pension system so that it can remain sustainable even in the coming society of aging and low growth. On the other hand, the welfare benefits they enjoy are funded by high taxes. Since the average income tax rate is around 45%, the national liabilities ratio is only slightly above 50% of gross domestic product (GDP), despite maintaining a high level of welfare. This point stands in contrast to Italy, which is suffering from a financial crisis, as well as Japan, whose national liabilities exceed 200% of GDP.

There is a reason why the contrasting paths of these two countries, which share many similarities with us, attract attention. It is because they remind us of the importance of the principles and direction of welfare policy. This seems even more so now, as it is time for all of us to pool our wisdom to minimize social conflict by clarifying the operating principles and goal directions of the welfare system. If we set the principles and goals of the welfare state we pursue as building a robust social safety net that minimizes the fear of failure, a welfare system where the vulnerable can receive more benefits, a pension system where those who have diligently paid contributions do not suffer losses, and a welfare system design that does not place a heavy burden on descendants, reaching a social consensus should not be that difficult.

Norway is a country where the political sphere joined forces to change to a sustainable system while refraining from political strife, under the recognition that many debates regarding welfare issues, especially pensions, ultimately stem from population aging. On the other hand, Italy is trembling in the "Fear of P," reminiscent of a "war of all against all." These two countries will serve as important lessons for us as we pursue the expansion of welfare.

Source: Seoul Sinmun (original article)