Finland and Sweden: Parallel Welfare States, Diverging Social Contracts

Elina Hakoniemi, Demos Helsinki

Annika Teppo, Uppsala University

Mats Hyvönen, Uppsala University

This blog post is based on yet unpublished research papers, T3.2 and T3.3, written for the CO3 project by researchers at Demos Helsinki, Uppsala University and the University of Helsinki.

Finland and Sweden are often seen as close institutional siblings. Since the 16th century, Finland’s institutions were shaped as part of the Kingdom of Sweden (until 1809). While following different historical trajectories in the 19th century and the first half of the 20th century, after the Second World War they both came to represent the Nordic model of welfare. Both countries developed strong welfare states, high levels of social trust, and political systems built on consensus and active citizenship. Differences in their rhythms and speed were always present, even during the post-war era, but in recent decades the trajectories of the two countries have begun to diverge not only in pace but also in direction.

Across Europe, social contracts, the implicit agreements concerning the relationship between (and among) citizens and the state, are under pressure from economic change, geopolitical tensions, and political polarization. The Nordic countries are frequently used as points of reference for welfare-state successes, but they are also experiencing significant transformations. A parallel examination of Finland and Sweden provides a valuable lens for understanding how welfare state societies adapt to new political and economic pressures. The two neighboring countries represent two variations of what scholars call the “post-welfare state transition,” where established welfare models are gradually being reshaped by globalization, neoliberal reforms, civil society tensions, and shifting political priorities.

Understanding how these transformations are unfolding requires looking back at the historical foundations of the Nordic welfare model.

From Welfare Expansion to Structural Transformation

The Finnish and Swedish welfare states emerged under different historical conditions, and partly also at different times and rhythms. Sweden’s welfare model developed earlier and more gradually, supported by stable institutions, peace, and long-standing cooperation between labor, capital, and the state. By the 1930s the idea of folkhemmet (“the people’s home”) became the guiding principle of Swedish social democracy, emphasizing equality, universal services, and social solidarity. While all its neighbors were drawn into conflicts during the first half of the 20th century, Sweden had enjoyed an unprecedented era of peace and prosperity.

Finland’s more turbulent path of political development was shaped by the legacy of Russian imperial rule, independence in 1917, and the trauma of a particularly violent civil war in 1918. The interwar era witnessed political turbulence, right-wing violent mobilization, but also left-center government cooperation, gradual healing from war and welfare reforms. The Second World War marked a major turning point in Finland’s political landscape. The rapid post-war expansion of the welfare state relied on negotiated compromises between political groups, especially the left-wing parties (social democrats and the communists) and the Agrarian League (a centrist party representing rural interests). While both countries eventually built comprehensive welfare systems, Finland’s model was more closely tied to national unity and the ideal of the productive worker-citizen (Kettunen 2001).

Despite these differences, by the late twentieth century both societies had consolidated strong welfare states based on universal services, relatively high equality, and high levels of trust between citizens and institutions.

Key Turning Points Since the End of the Cold War

Economic globalization and fiscal pressures of the late twentieth century marked a turning point, challenging the welfare-state institutions in both countries.

In Sweden, reforms emerged gradually. From the 1980s onward, political and economic elites increasingly adopted market-oriented policies, including privatization and New Public Management reforms. These changes did not dismantle the welfare state, but altered its structure and introduced stronger market mechanisms into public services.

Finland’s transition was more abrupt. The severe economic crisis of the early 1990s, combined with the collapse of trade with the Soviet Union and the country’s integration into the European Union, forced rapid institutional restructuring. Austerity policies and market reforms shifted the focus of the state from social expansion toward competitiveness and economic resilience.

In both cases, the welfare-state model transformed into a new system that still provided extensive public services but placed greater emphasis on economic competitiveness, individual responsibility, and adaptation to global markets.

Continuities and Diverging Paths

Despite these changes, important continuities remain. Democratic institutions in both countries have remained strong, and the welfare state has maintained a central role in social protection.

However, the two countries have begun to diverge in several key areas.

In Finland, political debates increasingly emphasize crisis management, resilience, and national preparedness. The social contract has gradually narrowed, shifting from collective progress visions toward crisis temporalities. At the same time, elements of ethno-nationalist rhetoric have become more visible in mainstream politics, reflected in the rise of the far-right populist Finns Party and recurring controversies around racist statements by political leaders.

In Sweden, transformations have been visible in politics as well as at the societal level. Market reforms, immigration debates, and rising inequality have contributed to growing political polarization and new lines of social division. The traditional “two-bloc politics” division between “left” and “right” was challenged with the rising popularity of the far-right Sweden Democrat party (SD). It was further complicated after the 2022 election when the SD gained 20.6% of the vote, thus becoming the largest right-wing party. Following the election victory, the SD was not allocated portfolios in the government but has been exerting remarkable political influence through the so-called Tidöavtal. While democratic institutions have remained stable, the broad political consensus that once supported the welfare model has weakened.

These developments illustrate how differently two countries with similar institutional foundations can respond to similar pressures.

Returning to the Present: Public Debate and Political Pressures

Today, public debates reflect the tensions produced by these transformations. Across both societies, concerns about economic security, migration, and geopolitical instability are increasingly prominent. These pressures interact with broader European trends, including rising populism, declining trust in institutions, and debates over national identity and social cohesion.

While these challenges are shared, the responses have differed. Finland’s political discourse is increasingly emphasizing security, resilience, and national preparedness, particularly in the context of Russia’s invasion of Ukraine and Finland’s NATO membership. In the meantime, Sweden is facing intensified debates around social inequality, integration, and crime, which have reshaped the country’s political landscape.

Future Trajectories: Convergence or Further Divergence?

Looking ahead, the trajectories of Finland and Sweden remain uncertain. On one hand, shared pressures from economic globalization to geopolitical instability may push these countries toward similar policy responses. Both must reconcile welfare-state institutions with demands for competitiveness, innovation, and fiscal sustainability. On the other hand, divergence may deepen. Finland’s social contract increasingly emphasizes national resilience and economic adaptation, while Swedish debates focus more on social fragmentation and integration.

The Nordic model is therefore not a fixed institutional blueprint but a set of evolving arrangements. The comparison between Finland and Sweden demonstrates how welfare states can transform in different directions while facing similar structural pressures. Understanding these trajectories is essential not only for Nordic societies themselves but also for the broader European debate on the future of welfare states and democratic social contracts.

Key literature

Hellström, J., & Lindahl, J. (2021). Sweden: The rise and fall of bloc politics. In T. Bergman, H. Bäck, & J. Hellström (Eds.), Coalition governance in Western Europe. Oxford University Press. https://doi.org/10.1093/oso/9780198868484.003.0017

Kuokkanen, K., Horsmanheimo, L., & Palonen, E. (2023). Conceptualising Finnish deradicalisation policies: Implicit or explicit, projectified or institutionalised? DPCE Online, 59(2).

Kettunen, P. (2001). Oliko hyvinvointivaltio projekti? Ennen & Nyt – Historian tietosanomat, 1(4).

Kettunen, P. (2019). The conceptual history of the welfare state in Finland. In N. Edling (Ed.), The changing meanings of the welfare state: Histories of a key concept in the Nordic countries (pp. 225–275). Berghahn Books.

Kettunen, P., Pellander, S., & Tervonen, M. (Eds.). (2022). Nationalism and democracy in the welfare state. Edward Elgar Publishing. https://doi.org/10.4337/9781788976589