Sweden and the Nordic countries were long reviled by American conservatives as places where “socialism” (government social programs) had gone out of control, taxes were confiscatory, and their economies languished. It was a model to be avoided. But no more.
Now the Nordics are held up as a model for Western countries to emulate, or at least to learn from. They lead the world in opportunity for advancement, prosperity, and global innovation. Personal taxes are still high by U.S. standards (but corporate taxes are lower), and they still fully embrace their social programs, but have reformed them to make them more effective, efficient and affordable as they balance their budgets. Maybe we could learn something from the Nordics.
The Economist presents us with an excellent review of this important unfolding phenomenon in a Leaders editorial and supporting special reports. They treat it like the key development on the world-wide stage of economic and social policy evolution that it is. This economic revival in the Nordic countries is so dramatic, in fact, that it is being called the new model for all the other economically challenged countries of the West—not the least of which is the United States and the European Union.
The Nordics were first to face the problems of high levels of debt and unaffordable social programs in the ‘80s and 90’s. And because they faced the challenge with courage, resolve and more success than anyone would have expected, they offer us intelligent strategies, policy innovations, and proven reforms that may prove as useful to us as they have to them. To do this, however, they had to throw the tired ideologies of the left and right out with the trash and let pragmatism rule. And that meant cooperation and compromise of government leadership, something the Nordics do much better than we.
From The Economist:
The four main Nordics—Sweden, Denmark, Norway and Finland—are doing rather well. If you had to be reborn anywhere in the world as a person with average talents and income, you would want to be a Viking. The Nordics cluster at the top of league tables of everything from economic competitiveness to social health to happiness. They have avoided both southern Europe’s economic sclerosis and America’s extreme inequality. Development theorists have taken to calling successful modernisation “getting to Denmark”.
[…] To politicians around the world—especially in the debt-ridden West—they offer a blueprint of how to reform the public sector, making the state far more efficient and responsive.
The idea of lean Nordic government will come as a shock both to French leftists who dream of socialist Scandinavia and to American conservatives who fear that Barack Obama is bent on “Swedenisation”. They are out of date.
---“The next supermodel: Politicians from right and left could learn from the Nordic countries,” Leaders section, The Economist (2.2.2013)
Okay, now that they have our attention, we need to know more of the particulars of what they have done, or, which of them has done what exactly.
On public services the Nordics have been similarly pragmatic. So long as public services work, they do not mind who provides them. Denmark and Norway allow private firms to run public hospitals. Sweden has a universal system of school vouchers, with private for-profit schools competing with public schools. Denmark also has vouchers—but ones that you can top up. When it comes to choice, Milton Friedman would be more at home in Stockholm than in Washington, DC.
All Western politicians claim to promote transparency and technology. The Nordics can do so with more justification than most. The performance of all schools and hospitals is measured. Governments are forced to operate in the harsh light of day: Sweden gives everyone access to official records. Politicians are vilified if they get off their bicycles and into official limousines. The home of Skype and Spotify is also a leader in e-government: you can pay your taxes with an SMS message.
This may sound like enhanced Thatcherism, but the Nordics also offer something for the progressive left by proving that it is possible to combine competitive capitalism with a large state: they employ 30% of their workforce in the public sector, compared with an OECD average of 15%. They are stout free-traders who resist the temptation to intervene even to protect iconic companies: Sweden let Saab go bankrupt and Volvo is now owned by China’s Geely. But they also focus on the long term—most obviously through Norway’s $600 billion sovereign-wealth fund—and they look for ways to temper capitalism’s harsher effects. Denmark, for instance, has a system of “flexicurity” that makes it easier for employers to sack people but provides support and training for the unemployed, and Finland organises venture-capital networks.
The Leader’s editorial concludes:
[…] [E]ver more countries should look to the Nordics. Western countries will hit the limits of big government, as Sweden did. When Angela Merkel worries that the European Union has 7% of the world’s population but half of its social spending, the Nordics are part of the answer. They also show that EU countries can be genuine economic successes. And as the Asians introduce welfare states they too will look to the Nordics: Norway is a particular focus of the Chinese.
The main lesson to learn from the Nordics is not ideological but practical. The state is popular not because it is big but because it works. A Swede pays tax more willingly than a Californian because he gets decent schools and free health care. The Nordics have pushed far-reaching reforms past unions and business lobbies.
The proof is there. You can inject market mechanisms into the welfare state to sharpen its performance. You can put entitlement programmes on sound foundations to avoid beggaring future generations. But you need to be willing to root out corruption and vested interests. And you must be ready to abandon tired orthodoxies of the left and right and forage for good ideas across the political spectrum. The world will be studying the Nordic model for years to come.
But there is much more in The Economist’s special report, including pieces on welfare, immigrants, business, entrepreneurs, creativity, Norway’s oil riches, and more on the one truely differentiating factor, the ultimate secret of their success.
From the Special Report:
[T]here are compelling reasons for paying attention to these small countries on the edge of Europe. The first is that they have reached the future first. They are grappling with problems that other countries too will have to deal with in due course, such as what to do when you reach the limits of big government and how to organise society when almost all women work. And the Nordics are coming up with highly innovative solutions that reject the tired orthodoxies of left and right.
The second reason to pay attention is that the new Nordic model is proving strikingly successful. The Nordics dominate indices of competitiveness as well as of well-being. Their high scores in both types of league table mark a big change since the 1980s when welfare took precedence over competitiveness.
The Nordics do particularly well in two areas where competitiveness and welfare can reinforce each other most powerfully: innovation and social inclusion. BCG, as the Boston Consulting Group calls itself, gives all of them high scores on its e-intensity index, which measures the internet’s impact on business and society. Booz & Company, another consultancy, points out that big companies often test-market new products on Nordic consumers because of their willingness to try new things. The Nordic countries led the world in introducing the mobile network in the 1980s and the GSM standard in the 1990s. Today they are ahead in the transition to both e-government and the cashless economy. Locals boast that they pay their taxes by SMS. This correspondent gave up changing sterling into local currencies because everything from taxi rides to cups of coffee can be paid for by card.
The Nordics also have a strong record of drawing on the talents of their entire populations, with the possible exception of their immigrants. They have the world’s highest rates of social mobility: in a comparison of social mobility in eight advanced countries by Jo Blanden, Paul Gregg and Stephen Machin, of the London School of Economics, they occupied the first four places. America and Britain came last. The Nordics also have exceptionally high rates of female labour-force participation: in Denmark not far off as many women go out to work (72%) as men (79%).
---“Northern lights: The Nordic countries are reinventing their model of capitalism,” Special Report, The Economist (2.2.2013)
Oh, and the ultimate secret of the Nordic success? Pragmatism, already mentioned, and tough-mindedness, both in the culture of government and society.
The Nordic countries pride themselves on the honesty and transparency of their governments. Nordic governments are subject to rigorous scrutiny: for example, in Sweden everyone has access to all official records. Politicians are vilified if they get off their bicycles and into official limousines.
The Nordics have added two other important qualities to transparency: pragmatism and tough-mindedness. On discovering that the old social democratic consensus was no longer working, they let it go with remarkably little fuss and introduced new ideas from across the political spectrum. They also proved utterly determined in pushing through reforms. It is a grave error to mistake Nordic niceness for softheadedness.
Pragmatism explains why the new consensus has quickly replaced the old one. Few Swedish Social Democratic politicians, for instance, want to dismantle the conservative reforms put in place in recent years. It also explains why Nordic countries can often seem to be amalgams of left- and right-wing policies.
Pragmatism also explains why the Nordics are continuing to upgrade their model. They still have plenty of problems. Their governments remain too big and their private sectors too small. Their taxes are still too high and some of their benefits too generous. The Danish system of flexicurity puts too much emphasis on security and not enough on flexibility. Norway’s oil boom is threatening to destroy the work ethic. It is a bad sign that over 6% of the workforce are on sick leave at any one time and around 9% of the working-age population live on disability pensions. But the Nordics are continuing to introduce structural reforms, perhaps a bit too slowly but stolidly and relentlessly. And they are doing all this without sacrificing what makes the Nordic model so valuable: the ability to invest in human capital and protect people from the disruptions that are part of the capitalist system.
This Nordic phenomenon appears to mark an important point in the evolution and inevitable merger of better thinking about both market capitalism and the investments in people, technology and society necessary to strengthen both and best sustain them. And it offers many innovative ideas and successes that will (or should) cause most of those on both the right and left to sit up, pay attention, and rethink the failed rigidities and value of many aspects of their 20th-century ideological orthodoxies. Obviously, I consider it very much in your interest to read all the articles in the report.
