Beijing Law Review, 2011, 2, 88-96
doi:10.4236/blr.2011.22009 Published Online June 2011 (http://www.SciRP.org/journal/blr)
New Law-Making and Regulatory Welfare
Trade-offs
—The European Union and Scandinavia Cases
Noralv Veggeland
Lillehammer University College, Lillehammer, Norway.
Received March 18th, 2011; revised April 22nd, 2011; accepted May 16th, 2011.
ABSTRACT
The contemporary regulatory state has developed as a result of both new legislation and political struggles that ac-
companied an increasi n g ly globalized world and the economic crisis in the 1970-1980s. The answer to this development
was the reforms collectively known as New Public Managemen t (NPM) which promoted the privatizatio n and marketi-
zation of the public sector, and thereby the creation of the new regulatory state. The regulatory-state formation in
Europe was affected extensively by the formation of the European Union and its administrative traditions and wel-
fare-state models. Path-dependent developments influenced the achievements which have been described as innovative,
that is, regulatory innovation. Socio-economic goals are linked to three distinct policy choices, which have been char-
acterized by trade-offs. The trade-offs occur because it is difficult to pursue successfully all three goals simultaneously.
In Scandinavia the trade-off and new law-making achieved as a regulatory innovation the much-lauded mechanism of
“flexicurity”, that is, the combination by law of the flexible market with social security.
Keywords: Regulatory State, Welfare State, Innovation, Trade-offs
1. The Emergence of the Regulatory State1
The development of Western welfare-states in the 1950s
and 1960s until the mid-1970s took place under highly
favorable circumstances, aided by continuous growth in
the economies, and governments were able to manage
national budgetary control [3]. Political economic analy-
ses, therefore, characteristically emphasized a national,
state-centered law perspective bound both to the techno-
economic paradigm rooted in Keynesian state interven-
tion and principles of effective demand and to the
socio-institutional parad igm of the Weberian bureaucracy
[4].
However, in the wake of the stagflation crisis of the
1970s, there was pressure to modernize regulatory laws
and to reduce government outlays through new structur-
ing [5], and the European Union (EU) initiated its im-
plementation. However, there has been the counter-
pressure of demographic changes, such as the growing
rate of elderly people; that has led to such fiscal changes
as the rising cost of health and elderly care, the liberali-
zation of national and international markets, and the
changing nature of the labor market [6]. The questions
have thus been how these countries acquire fiscal ability
vis-à-vis the challenges presented by welfare and work-
fare without overloading public budgets and creating
destructive inflation, and how can they harness the flexi-
bility of the market while maintain th eir systems of social
security.
Scandinavian political attitudes and legal approaches
changed when the fiscal ability were threatened in the
late 1970s to the 1980s with the onset of a sever e world-
wide economic recession. Suddenly, increasing unem-
ployment rates, overloaded public budgets and the glob-
alization of markets became pressing issues, which also
challenged the European welfare-state models, including
the Scandinavian one as well [1]. As we shall see, the
situation in the Scandinavian country of Norway was
exceptional because of a source of growing income from
oil and gas, and this provided a bulwark against the de-
velopment of high unemployment. Nevertheless, the
stagflation crisis of the 1970s was felt in Norway as well,
and the crisis turned out to be fertile ground for new
thinking and the transformation in the organizations of
1The topic of the regulatory state is more broadly dealt with in Vegge-
land 2009, 2010 [1,2].

New Law-Making and Regulatory Welfare Trade-offs89
economic production and the institutional functions of
the state [7].
Market solutions and related new laws, including the
downscaling of state financial involvement, arose and
were legitimized by the EU and the neo-liberal ideology
of the Anglo-Saxon New Public Management goals [8].
Paradoxically, this approach also created the conditions
for the emergence of the regulatory state [1]. As Gian-
domenico Majone perceptively notes in his article, “The
Emergence of the Regulatory State in Europe”:
Privatization and d eregulation ha ve crea ted the condi-
tions for the rise of the regulatory state to replace the
dirigiste state of the past … reliance on regulation
—rather than public ownership, planning or centralized
administration characterizes the methods of the regula-
tory state [9].
One important factor for the privatization and deregu-
latory measures, the arrival of the regulatory state, was
that politicians, the media and economists began to pay
attention to the actual and potentially increasing welfare
role of the market, driven by both public and private ac-
tors and agencies. This new focus was often linked to
sharp criticism of the allegedly inefficient public bu-
reaucracy and monopolies. The criticism of the costly
welfare-state emanated not from the heavily burdened
Organization for Economic Cooperation and Develop-
ment (OECD) welfare-states of the Contin ental and Nor-
dic welfare traditions [10], but rather from the “less ad-
vanced” or “less embracing” Western liberal welfare-
states such as the UK and the USA. The OECD legiti-
mized the criticism and skepticism through well received
reports on the welfare state in crisis. The reports strongly
promoted the strategy of deregulation, outsourcing in-
stead of in-house provision of welfare services, market-
driven solutions in the public sector, and contracting as a
new regulatory tool [11]. The modernizing of govern-
ment in this way and the enactment of the reforms along
the Anglo-Saxon path and NPM principles were the final
recommendation of the OECD. New laws and innov ative
re-regulating efforts involving the public sector were
now needed. Contextually, and to different extent, in the
OECD area private law came to replace public law.
Further, the related neo-liberal ideology stressed the
responsibility of individuals for themselves, the freedom
to choose services, security through personal and/or em-
ployer health and social insurance, and so on. From the
1980s on, the internation al winds of ideological criticism
and warnings against universal public welfare and so-
cial-security measures reached Scandinavia along with
the regulatory-state approach [2]. The OECD
neo-liberalism-biased strategy and recommendations still
linger on in the documents coming from the organization
[12].
The views of neo-liberalism, which were picked up
and have been partly followed with very little deviation
by the leading Scandinavian right-wing political parties
since the 1980s, influenced the social democratic parties.
A key word here is the belief in commercialization in
order to increase efficiency in the public sector and in the
welfare service sector [13]. Constituting an ideological
front here are both the presentation of individually dif-
ferentiated needs and rights with the liberating message
of freedom to go “shopping” for services of your own
and a message of inclusion by giving everyone the op-
portunity to be included in this system of freedom. The
ideology of neo-liberalism has generated its own lan-
guage that has promoted the biased attribution of good
govern ance views and values to the market an d bad gov-
ernance views to the state. Ideologically, the principle of
a necessary dominant regulatory state was left
unmentioned. This list of ideologically blended words,
which has been inspired by many scholarly sources and
is dominant in OECD reports of recommendations on
modernization issues, tries to clarify the contrasting
views in a context of supremacy and inferior absolutism:
Neo-liberal views on
Market qualities State qualities
Freedom Enforcement
Individualism Collectivism
Diversification Uniformity
Open effective economy Closed ineffective
economy
Modernism Entrapment in the past
Deregulation Too much public law
Cost efficiency Cost inefficiency
Elasticity Deficit of flexibility
Mobility Immobility
Progress Lack of progress
Innovation Standstill
The neo-liberal views are both partly right and partly
wrong, but are somewhat realized in the Nordic countries
in a transformed mode [14]. Throughout the last two
decades, a new Nordic welfare and social order has risen
to some degree. However, regulatory innovations in the
field are blended with administrative traditions, and
should be understood and interpreted as path-dependent
innovations arising from the historical Scandinavian
welfare-state model. We shall now compare the actual
and basic transformations and trade-offs that challenge
the welfare-state, and especially the universal welfare-
state of the contemporary Nordic countries.
2. Regulatory Welfare State Models in the
EU
The regulatory approaches of the European Union (EU),
which is characterized by a regulatory state governing

New Law-Making and Regulatory Welfare Trade-offs
90
almost exclusively by laws and regulations, have heavily
influenced the welfare-state performance of its member
states and subsidiaries like Norway. From the launching
of the European integration process and the adoption of
the Treaty of Rome in the 1950s, and with the inner six
Continental states, Germany, France, Italy and the three
Benelux countries, as founder states, the Continental
model naturally was dominant, and this administrative
tradition created a path-dependence of state- focused
con-federalism and interventionism as a reflection of the
Keynesian state [15]. From the Continental tradition
came the inspiration to introduce the policy to embrace
into the governing mode of the EU the European social
partners, the European umbrella trade union (ETUC) and
the private and public employers’ interest organizations,
UNICE (now Businesseurope) and CEEP, respectively,
to the negotiation table [16]. The goal was to tame and
correct the integration process by putting regulatory so-
cial concerns on the agenda. A sort of a Continental cor-
poratist style was the result. The Maastricht Treaty from
1992 introduced the “Social dimension” of the Commu-
nity, with the expressed goal of creating arenas for delib-
erative talks, and thereby to reach consensus instead of
conflict on social and labor-market issues. The An-
glo-Saxon state, the UK, was exempted from the EU so-
cial dimension, and in 2008 the UK still remains outside
this facet of EU policy.
The dominance of the Continental tradition lasted un til
the end of the 1980s [17]. The adoption of the Single
European Act in 1987 and the introduction of the Single
European Market process one year later marked a fun-
damental contextual change [18,19]. The strategies of
minimizing the state and marketizing the public sector,
both of Anglo-Saxon origin, became dominant policies
[20]. Further, the member states decided to deregulate
—and re-regulate by law—to create a territorially wider,
borderless, single European market. The new regulatory
state order of the EU had taken over. Governance re-
placed the governing mode of the Union. We might say
that this caused the transformation of the social
-institutional paradigm, much in accordance with the
Anglo-Saxon social model and market-orientated admin-
istrative tradition, and expanded the need for innovative
re-regulation in this multilevel governance (MLG) sys-
tem.
How did such a transformation occur? When the
United Kingdom had joined the European Community
(EC) in 1972 as a major member state, the global reces-
sions, inflation, unemployment and stagflation had
reached all the member states’ shores. The crises biased
and pressed forward change, or at least modification, of
the techno-economic and socio-institutional paradigms.
The Anglo-Saxon model and the tradition of organizing
governance became dominant and turned the Commu-
nity’s method away from state-focused con-federalism
and interventionism and toward the direction of the
regulatory-state paradigm based on market-centered
policies, modes of New Public Management and sup-
ply-side economics. The concept of the social dimension
and the involvement of social partners in negotiations,
along with sensitive lega l issues like wo rk co nditio ns and
social and labor-market reforms, were temporary taken
off the agenda [21].
During the 1990s, both the failure of the EU to com-
pete in the global economy and the democratic and le-
gitimacy deficits became central issues, threatening the
core identity of the Union [22]. And when the Soviet
Union collapsed, the political situation in Europe chan-
ged radically. The poor Eastern Europe states wanted
membership status in the “rich men’s club”, and the Am-
sterdam Treaty of 1997 the opened the door to them [23].
Ten new states joined the Union in 2004, and two more
in 2007, bringing with them heavy social and economic
burdens that were expected and immediately felt. Re-
forms were necessary, and they were formulated, agreed
on and implemented as socio-institutional changes. In
our context of studying law-making for an alternative
social model, the Lisbon Process, launched in 2000, was
to be a crossroad [24]. The Lisbon Process targeted the
ambitious goal of making the EU the most competitive
region globally.
Hence, there were at least at two important events
during the spring of 2006. European political and admin-
istrative leaders discussed modes of competitiveness and
robust governance in relation to such models. Their ex-
plicit focal points were on the Nordic welfare-state
model and its regulatory approach to social security and
on whether such a successful model that offered low
socio-economic risk and vulnerability cou ld be applied to
other member states, especially those in distress2 [25].
This idea motivated scholars to revisit the Nordic
state-focused social model and participatory administra-
tive tradition in a comparative perspective in order to
find out the essential characteristics of the paths of de-
velopment coming from this model and to determine why
this dominantly public law-based welfare state model is
considered successful “in the global age” [26-28].
As mentioned, the EU search for an innovative regu-
latory social model began when the European Council
held its meeting 23-24 March 2000 in Lisbon and agreed
to set out a new ten-year strategic goal for the European
Union. The goal was to make the Union the most com-
petitive and dynamic knowledge-based economy in the
world and capable of sustainable economic growth with
2Eastern European member states.

New Law-Making and Regulatory Welfare Trade-offs91
more and better jobs and greater social cohesion. The
Lisbon Process was launched. But right from the start
critical voices made themselves heard, like “Lisbon’s
single size does not fit all” [29], meaning that the Lisbon
Process from the beginning was far too fixated on eco-
nomic conditions for competitiveness and taming exter-
nalities at the expense of consideration s of social security
and welfare.
In short, the Nordic model seems to offer more than a
“single-size” method in the pursuit of competitiveness
[30]. The model seems to offer everything that European
decision-makers are looking for: highly competitive eco-
nomies in conjunction with less social inequalities and
the institutionalized taming of risks and innovative regu-
lations for job pro tection [27,31]. In the 2000s, this rather
expensive welfare-state model appears to represent a
multi-dimensional method that has the potential to gen-
erate a successful road for the development of the future
EU and for (some of) its member states.
Of course, all these things are extremely complicated.
We need European-wide multi-disciplinary comparative
research to enhance the knowledge of what happens
when EU laws and social models travel across borders.
3. Welfare-State Models and Regulatory
Innovation
As elaborated above, we may view innovation in the
public sector not as accidental changes but as contextual
legal changes [32]. In the European context, it means that
path-dependence, owing to different territorial social
models, strongly influences such changes [26]. Another
closely related issue arises regarding innovation. New
ways of making such changes, and transcending them,
also occur when European social models and their basic
law pillars interact across borders and trigger interpreta-
tions of new ideas that bias policy and institutional
change. Interpretation theory makes explicit that there
are at least two basic perspectives involved [33]: the in-
terpretation may be either contextual or out of context. In
the former case, innovation is linked to already existing
social models and traditions, and path-dependence thus
determines the norms, principles and values [34]. In the
latter case, there is the simple copying and imitating of
first- or second-order changes without taking account of
domestic values, management ethics and steering tradi-
tions.
In general, regulatory innovation3, i.e. new law- mak-
ing, includes strategies for improving the management of
risk and the pursuit of state legitimacy in the “risk soci-
ety” [37]. Innovations in the way risk is moderated in-
clude threats to welfare, social security, labor market,
social and human capital, gender discrimination or oth-
erwise, environment, economy, national security, and so
on [38]. Re-regulation, a term for new law- making aim-
ing for the reduction of risk and taming purposes, is a
term often used to express regulatory innovation, for
example, providing social capital through market correc-
tion or the part n e r ship approach [39].
Some researchers have pointed out that the wel-
fare-state does not have its basis on “politics and regula-
tion by law against the markets”, as is commonly as-
sumed in the neo-liberal Anglo-Saxon tradition, but
rather on the social-democratic mixed-economy approach,
that is, “politics and regu lation by law with mark ets” [40 ].
We may add to this the postulation of “politics and regu-
lation by law by the market” if we take into consideration
how the principles of New Public Management and mar-
ket-type mechanisms have penetrated the traditional
Scandinavian welfare-state model and administrative
tradition [11,20] and constituted the current Nordic wel-
fare and social model [26]. This change has innovatively
formed and adapted a regulatory approach to a new stage
of welfare-state performance. The three postulations
seem reasonable, but we should qualify them with an
answer to this question: which law-making and regula-
tory changes to th e welfare state provide grea- ter output
to its citizens more than others?
Although it is popular to point out that the market, in-
cluding global markets, interferes with the welfare-state
and vice versa, it is obvious that this interference occurs
along different paths, depending on the actual social
regulatory model of the states [41]. We have at least
three general regulatory welfare-state models in Europe,
which link correspondingly to the three administrative
and political traditions [34]. Let us elaborate these so me-
what fur t her.
 The Continental welfare-state regulatory model,
which is dominated by strong trade unions, is said to
be of a corporatist type with a heavy regulated labor
market. As discussed earlier, high job security and
protection through industrial relations play a key role
[26]. For this and other reasons, the corporatist wel-
fare-states are, in many ways, based on politics and
regulation by law against markets more than other
European states. Administrative rigidity and a slow
process of renewing social apparatus hamper the cor-
poratist Continental welfare-state model. These fea-
tures are not accidental but due to traditions and de-
velopments of institutional path-dependence [34].
 The Anglo-Saxon welfare-state regulatory model,
which is dominated by the adoption of market-
centered policies, is said to be of a liberal type. The
liberal welfare-states use market-type-mechanisms
and independent agencies to provide welfare services.
3Regulatory innovation is a dynamic part of the “regulatory state”, see G
Majone’s 1996, 1997 [35,36] elaboration about the latter term.

New Law-Making and Regulatory Welfare Trade-offs
92
The labor market is sparsely regulated and has low
job security and protection [27]. This welfare-state
model more than others qualifies for the notion of
politics and regulation by law by markets. With re-
gard to innovation of social apparatus, the model is
restricted by ideological resistance to changes which
concern the basic values and principles of neo-
liberalism. Again, this occurs not accidentally but as a
result of biases historically rooted in the liberal model,
and we may best view it as an institutional path-
depende n t deve lopment.
 The Scandinavian/Nordic universal welfare-state
regulatory model, which is dominated by state-
centered policies and high welfare expenses, is of the
universal type. The universal welfare-states offer
universal social security and job-protection arrange-
ments. Further, it is a governmental responsibility to
prioritize such labor- market task s as lif e-long learn ing
and the development of skills. From another point of
view the Nordic post-war labor market has become
rather liberalized and the marketized, such as out-
sourcing which is often pu t to use for the provision of
welfare services [12,26]. This makes the universal
welfare-state model qualified for the notion of politics
and regulation by law with market4 in the framework
of the regulatory state. The public sector has selec-
tively learned lessons especially from the An-
glo-Saxon model, and in some parts of society the
third-level of changes is reached, that is, innovative
changes. This achievement concerns the concept of
social capital, which has been renewed in the con-
temporary Nordic model. One example is how wel-
fare politics has become connected to labor-market
politics in an innovative way. The outcome has been
the great law-based social regulatory innovation of
“flexicurity”, namely, the interactive co-play between
universal social security regulated by law, and active
labor-market policies, which brings flexibility to the
labor market and therewith competitive advantag es in
the global age [27]. As with the other models, the
contemporary universal Nordic model of the welfare
state has also taken its form owing to its historical
welfare-state roots and institutional path-dependence
[42].
One main reason why the Nordic regulatory model has
been receiving renewed EU attention under the auspices
of the Lisbon Process since 2000 is the belief in the so-
cial capital of flexicurity and other universal welfare-
state arrangements of the model [43]. In a time when
states and regions are more than ever competing globally
and are intensively engaged in political and economical
measures to maintain a high employment rate while try-
ing to keep inflation and public expenses low, it is un-
derstandable that they are looking for innovative solu-
tions [27,40]. Records of public budgets confirm over the
years, however, that the Nordic welfare and so-
cial-security costs consequently represent a high burden
on the public budget. Why, then, is this regulatory model
so attractive? The answer may be very simple: Social
capital in the Nordic welfare-state regulatory model cre-
ates a high level of labor productivity. The labor produc-
tivity is generated through high degree of national em-
ployment, which means more than just “full employ-
ment” in the Keynesian sense. It means work, training or
education for everybody irrespective of social groups,
gender, ages and individual differences. The pay-off of
this is ability to afford expensive social security, which
in turn results in the taming of social inequality that fa-
cilitates the renewal of the social capital of flexicurity in
an ascending innovative circle.
The empirically based thesis is that universal job pro-
tection and social security shape the incentives workers
have both for investing in particular market-attractive
skills and life-long learning and for changing work and
work-places without personal risk. Labor market flexibil-
ity is the innovative outcome of the Nordic active la-
bor-market policies: education, lifelong learning, kin-
dergartens that help women’s access to the labor market,
and so on. Firms benefit from such flexibility and access
to skills because these conditions are critical for com-
petitive advantage in knowledge-intensive economies:
“Firms do not develop competitive advantages in sp ite of
systems of social law protection but because of it” [40].
4. Regulatory Trade-offs
The welfare goals and regulations of a state need, of
course, to be paid for if they are to be realized; new
law-making and economic potentials are instruments for
reaching these goals. Analytically, a neo-liberal perspec-
tive may view the building of such potentials in modern
states as basically directed by three goals: low inequality,
low unemployment and low public expenses. These
socio-economic goals are linked to three distinct policy
choices that are characterized by a “trilemma”. This
trilemma occurs because it is difficult to pursue success-
fully all three goals simultaneously as long as there are
trade-offs between them [44]. At this point, and before
elaborating this statement further, there is a need to de-
fine and distinguish the notions of trilemma and
trade-offs. For these purposes, I shall follow the work of
Pollitt and Bouckaert [20]:
4Torben Iversen [40] discusses the notion of politics with markets, but
explicitly does not link it to the Scandinavian welfare-state. It is prob-
able that he also includes the Anglo-Saxon model or perhaps makes it a
general notion. If this is so, I disagree. Regulatory trade-offs: where there is more than one

New Law-Making and Regulatory Welfare Trade-offs93
desideratum or more than one problem to be alleviated,
there will inevitably be the failure to attain other desider-
ata or the worsening of different problems. This is a
situation, therefore, where decision-makers are obliged to
balance between different things that they very much
wish to achieve but cannot possibly have them all at the
same time—indeed, having more of one desirable thing
entails having less of another. In the political world, ap-
propriate choices often are those that essentially make
the best out these unavoidable, constrained conditions
with the guidance good governance grounded on a prag-
matic approach. Yet norms, values and traditions will
affect these choices by making one set of options more
preferable than the other. Governments thus tend to
compromise the goal that is least ideologically impor tant
to them [45] in order to maximize the others in their
struggle to retain their position of political superiority.
We may take the following as an example. According to
the perspective of histor ical institutionalism [46], if deci-
sion-makers were to engineer the use of social and eco-
nomic potentials as short-term instrumental capital, then
the long-term perspectives aiming for sustainability and
the supremacy of good governance values will often be
insufficiently communicated.
Torben Iversen [40] has highlighted this ideological
aspect of the trilemma arising from the challenges of the
global age of keeping unemployment, inequalities and
public expenses in check, in short, the ideological aspect
involved in social-capital tradeoffs. One strategy was to
deregulate labor markets to reduce the power of em-
ployee unions and to increase wage flexibility. The gov-
ernments of the Anglo-Saxon tradition, the US, the UK,
New Zealand and Austr alia during the 1980s exemplified
these neo-liberal policies. Another strategy was both to
accept the consequences for employment resulting from a
compressed wage structure and to seek to limit the dis-
ruptive effects by discouraging the entry of women into
and by facilitating the exiting from the labor market, the
latter being primarily affecting the elderly through early
retirement. This is the typical pattern of choice we find in
some Continental Europ ean countries.
The final option was to accept the slow growth of em-
ployment in private-service secto rs but simultaneously to
pursue an expansive employment strategy through ex-
pansion of public-sector services in order to balance the
effective demand in the framework of Keynes. This
strategy also strove to improve the educational resources
for younger peop le as a policy appro ach towa rds build ing
social capital. The social democratic governments in the
Nordic countries, where the ideological tenor favored the
financing of higher public expenses by full employment
and by high tax rates, often chose this option.
As we observe in this process of compromising goals
and policies, social law-making, regulatory models, ad-
ministrative traditions and path-dependency play essential
roles for what decision-makers consider to be designed
appropriate choices and how they implement their strate-
gic thinking on social capital [47]. We may argue that the
trade-offs involved in European social-capital policy
have this following inconsistency. On the one hand, cre-
ating jobs and employment in the private-service sector
is a positive strategy in that it does not disturb the budg-
etary balance; however, this strategy has certain
trade-offs: lower wages, higher non-wage costs and the
inducing of negative inequality in the sense of lowering
the degree of employment in the population and thereby
reducing work productivity. On the other hand, the strat-
egy of generating service jobs in the public sector also
has trade-offs; the strategy indeed pushes the limits of
already constrained and overloaded budgets [12].
Politicians in charge do have the obligation to make
decisions. Concerning social and economic potentials,
they look for a European model to minimize the
trade-offs, that is, to find a model for flexible job crea-
tion, for social equality and for welfare, but all within a
sustainable economy [24,48].
5. European Welfare-State Law and
Regulatory Trade-offs
In our context, and with the structure of European Union
law as the legal environment, we may briefly describe
the trade-offs of equality-employment and public ex-
penses of the European welfare-state models in the
framework of innovative versus non-innovative regula-
tory choices with regard to law-making as the following
[26]:
 The trade-offs in the liberal welfare-state regulatory
model: As pointed out before, the Anglo-Saxon regu-
latory tradition weighs market solutions and regula-
tory measures and has the lessening of state interven-
tion as an explicitly expressed objective for the ser-
vice sector. Universal welfare and health coverage are
not guaranteed. The employer provides the workers’
health and social insurance, while the government
covers the health expenses for the poor and the eld-
erly who fall outside this insurance system.
− In this tradition, the response to the equal-
ity-employment tradeoffs was to give job creation
and labor-market flexibility priority while it re-
duced job protection and social security. The use
of contracting workers reduced the power of un-
ions and increased wage inequality during the
1980s. The politicians and economists believed in
a flexible labor market that wou ld make full use of
economic capacity and promote job creation, in-
novation and growth through a flexible labor

New Law-Making and Regulatory Welfare Trade-offs
94
market without fixed tariffs and expensive welfare
services; the engineering of short-term social
capital was part of this belief. For neo-liberal
economists, market flexibility is the ultimate pre-
condition and solution for increasing productivity
and revitalizing the European economy in a glob-
ally competitive world.
 The trade-offs in the Corporatist welfare-state regu-
latory model: The Continental regulatory tradition
depends on corporative solutions and
state-interventionist measures. Health and social in-
surance are guaranteed, although the latter is a mix-
ture of public and private institutional arrangements.
Traditional welfare services are kept in the public
domain as “services of general interest”, that is, as a
public responsibility. Trade unions are strong, bu t the
problem is that there are too few jobs created. Reach-
ing Hall’s third-level institutional change does not,
then, come through quickly enough.
− In this tradition, the response to the equality- em-
ployment trade-offs was to accept the employment
consequences of a formal wage structure and hier-
archical and rigid system of professionals, the lat-
ter of which also dominated the bargaining area.
The labor market remained inflexible and the un-
employment rate relatively high. Policies for the
liberation of social and economic potentials did
not stand up to solutions that obstinately remain ed
“policies against the market”.
 The trade-offs in the Universal welfare-state regula-
tory tradition: The Nordic regulatory tradition relies
on laws and public institutional solutions with regard
to social equality, interventionist measures, universal
welfare services and public-health and social-insu-
rance arrangements as the goals and means for the
building of social capital. Institutional changes at
Hall’s three levels have created public innovations.
Owing to the use of the mechanism of marketize in
the public sector, like outsourcing and contracting out
arrangements and the selective reorganization of pub-
lic administration to Public-Law Agencies (PLAs)
and Private-Law Bodies (PLBs), indirect governance
by regulation has become common, and trade-union
power h a s d iminis h ed since the 1980s [ 11,17, 2 6 ].
− In this tradition, the response to the equality-
employment trade-offs was to accept sluggish em-
ployment growth in private services while ex-
panding the public-service sector and public ex-
penses, which resulted in high taxes. The influ-
ence of professionals in the main bargaining arena
was limited because Nordic unions, unlike unions
in countries such as Germany and France, were
sharply divided between blue- and white-collar
workers. In addition, the governments took an-
ticipatory measures for building knowledge capital,
such as life-long learning, adult education and
continuous training in order to adjust skills to the
changing needs in both the private and public sec-
tors. Close to 20 percent of all adults (those be-
tween the ages of 25 and 65) participate in some
kind of adult education every year, compared with
an average of around eight percent for the EU as a
whole. A rather flexible labor market has devel-
oped as a result of the implementation of this
concept. The pay-off from the universal welfare-
state facilitates the general acceptance of the rela-
tively high tax level.
The Nordic countries have a long shared history and
have experienced similar legal, social and economic de-
velopments. The most common feature of their systems
is a well developed welfare-state characterized by its
universalism, which means both that all citizens are enti-
tled to basic social benefits and job protection and that
there is high level of social spending, high taxes and a
large public sector. They have succeeded in achieving a
high degree of labor-market flexibility and are close to
fulfilling one of the goals of the Lisbon Process of an
overall employment rate of 70 percent.
Employment policies lie at the heart of the Nordic
countries’ labor-market regulatory policy, just as so-
cial-security policies lie at the heart of their welfare-state
policy [49]. The framework of the two policies is innov a-
tion and long-term social-capital building, and the inno-
vative achievement of flexicurity. Obviously, these poli-
cies pay off only when they are associated with low ine-
quality and high public-welfare expenses and employ-
ment.
Even if they did not initiate and end the Lisbon Strat-
egy, the Nordic EU member countries are very much
comfortable with it—particularly its initial tri ple focus on
the labor market, employment and social inclusion in a
knowledge-based economy and under regulatory gov-
ernance [43]. Actually, the similarity between the priori-
ties of the Lisbon Process and the past and current ac-
tions of social-capital building in the Nordic countries
have led some to ask whether or not the Lisbon reform
agenda was simply an ambitious attempt by these coun-
tries to put their welfare-state policy in line “with the
market,” and the flexicurity model has been firmly im-
printed onto Europe’s economic and social regulatory
model [24].
This interpretation is unlikely the case. The launching
of the process of comprehensive renewal by the partici-
pants in Lisbon in 2000 represen ted a collective recogni-
tion of the challenges the EU faces and the need for a
common response that would b e able to draw on the best

New Law-Making and Regulatory Welfare Trade-offs95
elements and paths of each member state’s social and
economic models and regulatory law traditions. The
challenge was the regu latory trade-offs of the Union . The
Nordic approach showed a possible regulatory welfare
state path based on universal social arrangements secured
by public law.
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