Nordic model

Outcomes

Nordics scored high in the Freedom in the World survey and Democracy Index. United Nations World Happiness Reports state that Northern Europe has the happiest populations. Nordics ranked highest on metrics of real GDP per capita, healthy life expectancy, having someone to count on, perceived freedom to make life choices, generosity and freedom from corruption.^[27] The Nordic countries placed in the top 10 of the World Happiness Report 2018, with Finland and Norway taking the top spots.^[28] The International Trade Union Confederation's 2014 Global Rights Index ranked Nordic countries the highest for workers' rights; Denmark was the only nation to receive a perfect score.^[29] Transparency International's 2022 Corruption Perceptions Index, ranked Denmark, Finland, Norway and Sweden among the 10 least corrupt of the 180 countries evaluated.^[30] Norway spends 48.3% of GDP, Sweden 49.4%, Iceland 49.8%, Denmark 50.8% and Finland 55.8%, all higher than the 46.3% OECD average.^[31] Post-transfer income inequality is among the world's lowest.^[26]

Economic system

The Nordic model combines capitalism with a large public sector that employs roughly 30% of the workforce, providing services in areas such as healthcare and higher education. In the early 21st century, in Norway, Finland, and Sweden, many companies and industries were state-run or state-owned,^{[32][33][34][35]} including utilities, mail, rail transport, airlines, electrical power industry, fossil fuels, the chemical industry, steel mills, electronics, machine, aerospace manufacturing, shipbuilding, and the arms industry.^[36]

In 2013, The Economist described these countries as "stout free-traders who resist the temptation to intervene even to protect iconic companies", while also looking for ways to temper capitalism's harsher effects. It declared that the Nordic countries "are probably the best-governed in the world".^[9][37] Some economists have referred to the Nordic economic model as "cuddly capitalism", with low levels of inequality, generous welfare states, and fewer top incomes, contrasting it with the US' more "cut-throat capitalism", which has high levels of inequality.^[16][38][39]

In the early 21st century, the Nordic model was a market economic system that featured private ownership,^[40] with the exception of Norway, which included many state-owned enterprises and state ownership in public firms.^[6]

As a result of the Swedish financial crisis of 1990–1994, Sweden ideregulated its economy and strengthened competition laws. Despite this, Sweden still has the highest government spending-to-GDP ratio among the Nordics. It retains national-level sectoral bargaining unlike Denmark and Iceland, with over 650 national-level bargaining agreements.^[41] It retains the Ghent system, unlike Norway and Iceland and consequently has the world's second-highest unionization rate.^[42][43][44] As one of the most equal OECD nations, from 1985 to the 2010s Sweden saw the largest growth in income inequality among OECD economies.^[45][46] Other effects of the 1990s reforms were the growth of mutual fund savings, which largely began with the Allemansfonder program in the 1980s in which the government subsidized savings;^[47] As of 2019 4 out of 5 Swedes aged 18–74 have fund savings.^[48]

Social democracy

Social democracy is a centre-left, social, economic, predominantly capitalist political ideology. Social democrat parties long governed in Sweden and Norway, while in the others social democrat parties and others at times formed coalition governments.^[51] Policies enacted by social democrats helped foster social cohesion.^{[50]: vi, 159}

While many countries have at times adopted social democracy, only the Nordic countries did so consistently.

Since the 1990s politicians, researchers and the media have increasingly explained the Nordic model in cultural rather than political terms. Earlier interpretations of the welfare state were attributed to political developments. However, in later years political factors increased in importance.^[12]

Lutheran influence

Lutheranism is the religious tradition of the Nordic countries. It promoted the idea of a nationwide community of believers and led to increased state involvement in economic and social life.^[52][53][54]

Lutheran revival movements increased support for the modern welfare state, leading important social responsibilities (health care, education, and social work) to be absorbed by the state.^[55][54][56] This was made easier by the church's centralized structure, which made the transition less disruptive.^[57]

Labour markets

The Nordic countries have similar labour market policies intended to reduce conflict between labour and business. This system is most extensive in Norway and Sweden, where employer federations and labour representatives bargain at the national level, mediated by the government. Labour market interventions emphasize job retraining and relocation.^[58]

The Nordic labour market is flexible, with laws making it easy for employers to hire and shed workers or introduce technology. Labour market policies rely on generous social welfare, job retraining and relocation services to mitigate potential conflicts.^{[citation needed]}

In Sweden trade unions and employer organisations negotiate working conditions and pay without government involvement.^[59] Workers agree not to strike while employers agree not to lock them out.^[60] While some laws regulate basic labour rights, Sweden has no statutory minimum wage. Instead, pay is regulated through agreements. Should workers strike, the employer can claim refusal to work.^[61]Under a collective agreement, neither the trade union nor the employer is allowed to take any labour action such as strikes or lockouts until the agreement expires.^[62] The two largest trade unions are Landsorganisationen (LO) and SACO. Both are umbrella organisations comprising 34 trade unions, representing occupations such as bus and train drivers, constructions workers, teachers, industrial workers, and engineers. The main employer organisations are Sveriges Kommuner och Regioner (SKR) and Svenskt Näringsliv, which represent companies in the public sector and the private and business sectors, respectively.

Welfare model

The Nordic model is distinguished from others by its emphasis on maximising labour force participation, promoting gender equality, egalitarianism, extensive benefits, income redistribution, and liberal use of expansionary fiscal policy.^[63]

The Nordic countries all share a broad commitment to social cohesion, universal welfare provision, and maximising public participation in social decision-making. It is characterized by flexibility and innovation. Nordic welfare systems are mainly funded through government spending.^[64]

Nordic countries take different approaches to the administration of the welfare state. Denmark adopted private sector provision of public services and welfare, alongside an assimilation immigration policy. Iceland's welfare model is based on a "welfare-to-work" (workfare) model, while Finland relies on non-profits to play a significant role in elder care. Norway relies most extensively on public provision of welfare.^[64]

Denmark

Social welfare reforms emerged from the Kanslergade Agreement of 1933 as part of a compromise package to save the Danish economy.^[4]

Finland

The early 1990s recession caused a deep crisis in Finland, and came amid the context of the collapse of the Soviet Union and trade with the Eastern Bloc. Worse than Sweden, Finland's welfare state was weakened and no longer took the social-democratic middle ground, as several social welfare policies were dismantled.^[12][75]

Iceland

Iceland in the late 2010s moved away from the Nordic model towards the liberal economic model of workfare. At the time, critics claimed that "70% of elderly people now live well below national subsistence criteria, while about 70% of those who live alone and in bad conditions are women."^[76] However, as of 2021, Iceland had the OECD's lowest poverty rate, 4.9%.^[77]

Norway

For a period in the 1980s and the 1990s, Norway underwent more neoliberal reforms and marketization than Sweden, while still holding to the traditional foundations of the Nordic model.^[78]

Norway earned billions from its portion of North Sea oil, which it used to fund the country's sovereign wealth fund.^[12] As of 2007, the Norwegian state maintained ownership positions in key industrial sectors, including petroleum, natural gas, minerals, lumber, seafood and fresh water. The petroleum industry accounts for around a quarter of the country's gross domestic product.^[79]

Sweden

In Sweden, the Nordic model started with the Saltsjöbaden Agreement signed by employer and trade union associations in 1938. It was advanced by the Swedish Social Democratic Party, which led the nation from 1932 until 1976. Initially differing little from other capitalist countries, the state's role in providing welfare and infrastructure expanded after WWII, reaching a broadly social democratic consensus in the 1950s which became known as social liberalism,^[4] followed by the neoliberal paradigm by the 1980s and 1990s.^[80]

In the 1950s, Olof Palme and prime minister Tage Erlander formulated the basis of Swedish social democracy, the "Swedish model". The party wanted to help workers, and adopted the Fabian argument that the country could move to socialism. This would come about through welfare funded by capitalism.^[81] It supported a strong labour movement as well as publicly funded and often publicly administered welfare institutions.^[4]

By the early 1980s, the Swedish model began to suffer from trade imbalances, declining competitiveness, and capital flight. Two solutions emerged. The country could transition to socialism, socializing (taking ownership of) industry or commit capitalism and markets by embracing neoliberalism. The Swedish model was first challenged in 1976 by the Meidner Plan promoted by the Swedish Trade Union Confederation that aimed at the socialization of Swedish companies through wage earner funds. The Meidner Plan aimed to collectivize capital formation over two generations by having wage earner funds buy dominant stakes in Swedish corporations.^[82] A different type of wage earner fund was implemented following the success of the Social Democrats in the 1982 election. They were disbanded after the 1991 election when conservatives came to power.^[83]

Upon returning to power in 1982, the Social Democratic party inherited a slowing economy following the post-war boom. The Social Democrats adopted monetarist and neoliberal policies, deregulated the banking industry, and liberalized currency in the 1980s. The 1990s economic crisis brought greater austerity measures, deregulation, and privatization of public services.^[4] In the 21st century, it affected Sweden's welfare state. Sweden remained more Eurosceptic than Finland, and its struggles affected other Nordics, as "the guiding star of the north". Other Nordic countries felt they were losing their political identities.^[12] The Nordic model was gradually rediscovered, and cultural explanations were sought for the Nordic model.^[12]

Proponents

The Nordic model was positively received by some American politicians and political commentators. Jerry Mander likened the Nordic model to a kind of "hybrid" system that blends capitalist economics with socialist values, an alternative to American-style capitalism.^[84] Vermont Senator Bernie Sanders claimed that the US could learn from the Nordic model, particularly worker benefits and social protections and its universal healthcare.^[85][86][87] Scandinavian political scientist Daniel Schatz argued that Sanders is wrong, saying that "the success of Nordic countries....has its roots in cultural rather than economic factors", particularly its "high levels of social trust, robust work ethic, and social cohesion".^[88]

According to Luciano Pellicani, Nordic social and political measures are the same that some other European left-wing politicians theorised to combine justice and freedom, referring to liberal socialism and movements like Giustizia e Libertà and Fabian Society.^[89] According to Naomi Klein, former Soviet leader Mikhail Gorbachev sought to move the Soviet Union in a similar direction to the Nordic system, combining free markets with a social safety net, but still retaining public ownership of key sectors of the economy – ingredients that he believed would transform the Soviet Union into "a socialist beacon for all mankind."^[90][91]

The Nordic model was positively received by left-wing social scientists and economists. American professor of sociology and political science Lane Kenworthy advocated for the US to follow the Nordic model.^[92]

American author Ann Jones, who lived in Norway for four years, posits that "the Nordic countries give their populations freedom from the market by using capitalism as a tool to benefit everyone" whereas in the United States "neoliberal politics puts the foxes in charge of the henhouse, and capitalists have used the wealth generated by their enterprises (as well as financial and political manipulations) to capture the state and pluck the chickens."^[93]

Nobel Prize-winning economist Joseph Stiglitz stated that social mobility is higher in Scandinavian countries than in the United States and that Scandinavia had become the land of opportunity that the United States once was.^[94]

Economist Jeffrey Sachs is a proponent, saying that the Nordic model is "the proof that modern capitalism can be combined with decency, fairness, trust, honesty, and environmental sustainability".^[95] A 2016 survey by Israel Democracy Institute reported that nearly 60 percent of Israeli Jews preferred a "Scandinavian model" economy, with high taxes and a robust welfare state.^[96]

Criticism

Socialist economists Pranab Bardhan and John Roemer stated that Nordic-style social democracy required a strong labour movement to sustain it and was not applicable to countries with weaker labour movements. They further questioned its sustainability given its decline in Scandinavia since the 1990s. They advocated that market-based govenment ownership would beat social democratic redistribution for promoting egalitarian outcomes.^[97]

In a 2017 study, economists James Heckman and Rasmus Landersøn compared American and Danish social mobility, and found that Denmark ranked higher in income mobility, although Danish social mobility was lower than typically reported. Before taxes and transfers, Danish and American social mobility were similar, although after taxes and transfers Danish social mobility relatively improved, indicating that Danish economic redistribution was beneficial. However, Denmark's investment in public education did not improve the likelihood that children of non-college educated parents would attend college, although cognitive skills improved among poor Danish children compared to their American peers. Instead, generous welfare policies appeared to discourage higher-level education due to the reduced relative economic benefits from college education.^[98]

Some welfare and gender researchers suggest that social issues associated with bodily integrity or bodily citizenship,^[99] such as some forms of male domination continue in the Nordic countries, in areas of business, violence to women, sexual violence to children, the military, academia, and religion.^{[100][101][102]}

While praising the Nordic model as a "clear and compelling contrast to the neoliberal ideology that has strafed the rest of the world with inequality, ill-health and needless poverty," economic anthropologist Jason Hickel sharply criticizes the "ecological disaster" that accompanies it, noting that data shows the Nordic countries "have some of the highest levels of resource use and CO2 emissions in the world, in consumption based terms, drastically overshooting safe planetary boundaries," and rank towards the bottom of the Sustainable Development Index. He argues that the model needs to be updated for the Anthropocene, and reduce overconsumption while retaining the positive elements of progressive social democracy including universal healthcare and education, paid vacations and reasonable working hours, which have resulted in much better health outcomes and poverty reduction compared to overtly neoliberal countries like the United States, in order to "stand as a beacon for the rest of the world in the 21st century."^[103][104]

Swedish economist John Gustavsson criticized the Nordic model for its high taxation rates, including on the middle and lower classes.^[105]

Misconceptions

George Lakey claimed that Americans misunderstand the Nordic model: "Americans imagine that 'welfare state' means the U.S. welfare system on steroids....Nordics provide...universal services, which means everyone – rich and poor – gets free higher education, free medical services, free eldercare, etc".^[106]

Lars Løkke Rasmussen, the Danish prime minister from the conservative-liberal Venstre party, stated: "I know that some people in the US associate the Nordic model with some sort of socialism. Therefore, I would like to make one thing clear. Denmark is far from a socialist planned economy. Denmark is a market economy."^[107]

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