Can we have both a welfare state and a habitable planet?

Our society requires economic growth, but the environment cannot take it.

Child health clinic, kindergarten, comprehensive school, university. Dental care, health care, pensions, and elderly care—from cradle to grave, we get to enjoy the services of the welfare state. It is unfortunate that their funding is based on economic growth, which in turn relies on fossil fuels and the overconsumption of natural resources, as does our easy and comfortable life in general.

Now we should get rid of our dependency on fossil fuels so that the planet does not overheat and become uninhabitable. It is not simple, especially if we want to keep the fruits of economic growth.

Economists are divided over the question whether the link between economic growth and ecocide can be broken. Until now, countries' gross domestic product and carbon footprint have just about gone hand in hand.

"It is difficult, but not impossible—and not free. It will cost if we want to ensure that we do not ruin the livelihoods of future generations," says visiting professor Martti Hetemäki.

Staying within the limits of the globe

If everyone used natural resources like Finns do, we would need 3.4 Earths. What if we were to stay within the limits of one globe?

A decrease in consumption affects the GDP, which measures the value of services and commodities produced during the year. Its growth requires that the wheels of the economy keep turning.

As for economic growth, it is what finances Finland's extensive public sector, from education and health care to social security. If the economy shrinks, tax revenues will decrease—and there may be a recession or even a depression.

In Finland, the population is ageing and the costs of care are increasing. Year after year, more public revenue is needed. Abandoning fossil fuels and overconsumption of natural resources might diminish this sum. Is it possible for us to have both a habitable planet and a welfare state? How do we solve this equation?

“This is the trickiest question of all. We must look at the big picture from many different angles. And we’re in a race against time. The aims are in direct conflict with each other, and we must make choices,” Hetemäki says.

Longing for a better life

The greatest change in the history of mankind was the Industrial Revolution, according to Jari Eloranta, a professor of economic history. From the introduction of fossil fuels, both the world economy and population have been growing.

Long-term economic growth is also the foundation of the Nordic welfare states. Until the recession of the 1990s, the Finnish economy had grown steadily ever since the Second World War.

“Economic growth is a vital part of both the development and maintenance of the welfare state. Without continuous growth, there isn’t enough money to fund the welfare state.”

Eloranta cannot recall a time in recorded history when people would have voluntarily lowered their standard of living and given up on the idea of growth. If economic growth stops, it usually leads to a crisis or conflict.

In times of war, for example, consumption was rationed, but then the idea was to tighten one’s belt for a short time until the war was won and living standards rose again. And even those restrictions have usually been circumvented with the help of the black market.

“It’s easy to change laws but harder to change the way people behave. People tend to want a better life,” Eloranta says.

Putting a price on carbon

Martti Hetemäki believes it is possible to combine a carbon neutral society and economic growth. But using natural resources sustainably is difficult. For example, transitioning away from fossil fuels requires a lot of renewable energy, which depends on certain minerals. Mining these accelerates biodiversity loss.

“Electrification and hydrogen technology will be needed to make Finland carbon neutral. The exploitation of peatlands must be stopped, and we have to allow the forests to mature so that the carbon sinks will be preserved," Hetemäki says.

"A comprehensive price must be set for carbon."

This is already the case in emissions trading, and the European Union has decided to impose a carbon tariff. On the other hand, subsidies are not yet paid for carbon sinks, although they should be, according to Hetemäki.

Furthermore, the use of minerals should be steered in a more sensible direction with financial incentives. It makes better sense to save rare metals for energy transition instead of wasting them on consumer electronics.

The minerals needed for renewable energy come from the earth's crust―and they are in limited supply. Prosperous countries cannot hog them for themselves. The green transition must take place throughout the world, because the atmosphere is shared, and it is of no consequence where the pollution comes from. That is why poorer countries must be helped.

"It would be good if developing countries could jump straight into cleaner technology," Hetemäki says.

State-led action

Tero Toivanen, a postdoctoral researcher from the Helsinki Collegium for Advanced Studies and the Bios research unit, reckons that the scale and the timetable for reducing emissions are not yet fully understood. The situation is even worse with respect to the overexploitation of natural resources.

The way Toivanen sees it is that Finland's ambition to become carbon neutral by 2035 is too modest, yet time is running out to achieve even that. He proposes establishing a planning unit in the Prime Minister's Office to speed up projects related to the green transition and provide information in support of the policy decisions.

“The state, working together with businesses and municipalities, can set major initiatives in motion. If the government invests in the right targets, they can steer the economy in a more environmentally-friendly direction, at the same time creating jobs and increasing production,” Toivanen explains.

In this regard, Toivanen praises the European Green Deal, but also criticizes it for emphasizing economic growth and supporting industries that are not environmentally sustainable. The Bios research unit has created its own plan for sustainability called “Ecological Reconstruction”, which aims to reduce the consumption of energy and natural resources in a swift but controlled manner.

Toivanen is not concerned that this would lead to the collapse of the welfare system, even though growth in some sectors of the economy would come to an end.

“We will go on working, getting paid, and paying taxes. We will continue to have production, industry, and economic activity. People’s skills and creativity aren’t going anywhere.”

Who is going to pay?

The public sector is the heart of the welfare state. Its services are compatible with a world living in harmony with the environment as they don’t require much in the way of energy or natural resources. These services are based on the work that people do to help others. The question remains who is going to pay for that work.

Does the welfare state depend on economic growth?

“It does, yes. All the good that the public sector does is funded through the taxes and fees collected on the gross domestic product,” says Hetemäki.

A certain level of growth is needed as expenses tend to increase. In Finland, where economic growth has been modest for the past decade, this has led to growing deficits and increased government debt.

The situation will become more difficult in the future as an increasing proportion of those in working life retire. This can be alleviated by extending working careers and postponing retirement.

“The public sector doesn’t fund itself. Without commercial production there is no tax base for funding public expenditure on the environment, health care, education and social security. Countries with low-income levels have little to invest in these,” says Hetemäki.

Monetary value

What if there was no need to worry about money? It has been proposed that the European Central Bank could fund the Eurozone countries’ green transition by taking on debt or practising quantitative easing, i.e. printing more money.

According to Hetemäki, we are approaching the limits to both indebtedness and quantitative easing. Any room for manoeuvre in these respects has already been exhausted in dealing with the financial crisis and the Covid pandemic:

“Monetary value is based on trust. If more money is released into circulation than the economy backing it can produce in terms of value, then the value of the money will begin to decrease.”

Previously there has been significant inflationary pressure, resulting in drastic falls in the value of the currency. In Hetemäki’s view, this could happen now as well. The risks are there and inflation in the Eurozone is already rampant.

It takes imagination

Tero Toivanen believes that there is a case to be made for taking on debt during the time it takes society to become more sustainable.

“Public debt is not presently our biggest problem: viewed internationally, Finland’s deficit is modest.”

According to Toivanen, the most important consideration is how to use limited resources wisely. And that takes imagination. The society that comes after the transition may well be very different to what we are used to. The energy crisis has already forced households, business and states to think about how to save energy. Industry will have to renew itself to remain competitive in the future as well.

“Finland uses up horrendous amounts of natural resources to achieve the per capita GDP that we currently have. In this respect, we are much worse than the EU average,” Toivanen states.

If, for example, the forest industry produced goods with greater added value, we could generate more income from less wood, the researcher says.

New habits

Is there a way of getting emissions down so as to cause as little harm as possible to both nature and GDP?

In Jari Eloranta’s opinion, the best way to address the environmental crisis would be to make massive investments in technology. He takes the example of the Manhattan Project in which the United States developed the atom bomb during the Second World War. It recruited the best physicists, and there was no lack of resources.

“What is needed is both large-scale inventions like fusion power, and smaller microlevel inventions so that the systems already in existence can work better. Economic growth is connected to increased productivity. You can get more with less,” Eloranta says.

“Not all growth is bad. We have work out how to maintain welfare in a way that doesn’t damage the atmosphere and deplete the soil. There’s consumption that is harmful for the environment, and then consumption which is less so,” says Hetemäki for his part.

Services and culture do not place great demands on energy or natural resources, but they do stimulate the economy. An example of this could be seen during the Covid pandemic when restaurants and the events industry more broadly were forced to close down and the economy plummeted. Rather than purchasing new products, it would be good for both nature and the national economy to opt for repair services. The same goes for eating local vegetable produce.

“We can learn new habits. It’s only a good thing if we use our time for more important things than consuming,” Tero Toivanen points out.


The article was published in Yliopisto magazine 9/2022 in Finnish. It was translated by Smilla Barkman, Fina Brick, Noora Eloranta, Heidi Nora el Tokhy, Nella Forssas, Sofia Hanttu, Alexandra Harjunkoski, Nanette Hartikainen, Heli Hokkanen, Kiia Huotari, Ida Hännikäinen, Monika Jauhiainen, Heidi Jämsä, Alina Kilpeläinen, Emma Koljonen, Ilona Korjus, Jenni Korpelainen, Aava Latokartano, Kaisla Lento, Niina Lämsä, Kimi Mikkonen, Susanna Mohamed, Laura Ojanen, Nora Parviainen, Hanne Pulkkinen, Emma Puumalainen, Minttu Rossander, Minea Ruotsalainen, Sara Simovaara, Rosanna Toro and John Calton, and revised under the supervision of John Calton and Neli Keinänen, university lecturers in English philology.



Living off the land

Capitalism can’t be made sustainable, according to Toni Ruuska, a researcher at the University of Helsinki. He is sceptical about technology coming to the rescue or whether the state is capable of changing direction:

“To date, basically all the EU has managed to do in breaking the link between economic growth and environmental degradation is to shift polluting production to Asia.”

Last year Ruuska and his colleague Pasi Heikkurinen published a book called Kestävän elämän manifesti (‘A manifesto for sustainable living’), in which they considered how people might live and not destroy other species.

Society has to change, and our current living standards are no longer possible, Ruuska states. The transition involved will not necessarily be pretty or peaceful.

“It would be Utopian to claim we could get out of this state of overconsumption without some kind of collapse. What happens next is the key question: the result could be either peaceful coexistence or totalitarianism.

Ruuska’s solution to the environmental crisis is to move to the country. Local, self-sufficient societies based on physical strength would lead to most people doing agricultural labour.

“There would easily be enough agricultural land in Finland to provide self-sufficient farming for all Finns if the diet was basically vegetarian.”

Ruuska lives in Nuuksio on the edge of the national park, northwest of Helsinki, and gets about a quarter of his food from his own yard or the nearby forest. He has also received funding to research and develop skills in self-sufficiency for personal consumption.

“Our grandparents knew how live in balance with nature. And many students are looking for alternative ways to live.”

For the time being, those migrating to the country, or the new ruralists, as Ruuska likes to call them, are enthusiastic pioneers of the approach. If our societal structure collapses and electricity, water and food distribution to cities ends, there may be more migrants,” according to the researcher.

“People are ready to make compromises if things get tough enough.”