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The Nordic Model. Embracing globalization and sharing risks
Is there a Nordic model? What are the main characteristics of the Nordics? What challenges are they facing? Is the Nordic welfare state viable in conditions of globalization and ageing populations? What reforms are needed?
The Nordic countries have attracted much international attention in recent years. The school system in Finland has repeatedly been ranked the best in the world. The Swedish pension reform is a benchmark in the international debate. Danish “flexicurity” figures prominently on the policy agenda in the EU and the OECD.
The economic performance of the Nordic countries has been impressive in comparative terms: rapid growth, high employment, price stability, healthy surpluses in government finances. The Nordics have embraced globalization and new technologies. Cross-country comparisons support the view that the Nordics have been successful in reconciling economic efficiency with social equality.
While successful in the past, the Nordic model is facing increasingly serious challenges in the future. Globalization and the demographic transformation have major consequences for labour markets and the public sector. The viability of the Nordic welfare state as it exists today is put into question.
This report offers an in-depth analysis of the Nordic model, explaining its key features and evaluating its performance as well as setting out its challenges. It examines many of the “quick fixes” put forward in public debate and explains why they are unrealistic or based on erroneous reasoning. The report also outlines the main elements of policy that reform of the Nordic model should focus on.
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Free PDF available here:
https://www.etla.fi/wp-content/upload...
The Nordic countries have attracted much international attention in recent years. The school system in Finland has repeatedly been ranked the best in the world. The Swedish pension reform is a benchmark in the international debate. Danish “flexicurity” figures prominently on the policy agenda in the EU and the OECD.
The economic performance of the Nordic countries has been impressive in comparative terms: rapid growth, high employment, price stability, healthy surpluses in government finances. The Nordics have embraced globalization and new technologies. Cross-country comparisons support the view that the Nordics have been successful in reconciling economic efficiency with social equality.
While successful in the past, the Nordic model is facing increasingly serious challenges in the future. Globalization and the demographic transformation have major consequences for labour markets and the public sector. The viability of the Nordic welfare state as it exists today is put into question.
This report offers an in-depth analysis of the Nordic model, explaining its key features and evaluating its performance as well as setting out its challenges. It examines many of the “quick fixes” put forward in public debate and explains why they are unrealistic or based on erroneous reasoning. The report also outlines the main elements of policy that reform of the Nordic model should focus on.
---
Free PDF available here:
https://www.etla.fi/wp-content/upload...
- GenresEconomics
167 pages, ebook
First published January 1, 2007
49 people want to read
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August 13, 2019
After a conversation with an economist friend who insisted the Nordic Model was not only the best economic model, but applicable to all societies in the world, I decided to look a little more into it. This resource is online for free at MIT press: https://economics.mit.edu/files/5726.
Overall, what I find fascinating about the study of economy and other "soft sciences", such as psychology, are how and when its practitioners choose to either remove or incorporate the human element into theory. What often cracked me up in Macroeconomy 101 was the professor introducing a model with a remark, "removing the human variable, this model is 100% reliable". It makes sense to distill certain constants in market forces, but on the other hand, if your aim is to create a system that jives well with humans, you should be factoring in that unreliable variable all the time.
This seems to be at the crux of where we are today: we've had two preeminent market models (capitalism and communism/socialism) entrench themselves into our collective identity, shaping cultural and geopolitical relations. As our global society has evolved, these systems need to evolve in tandem, and the resistance to this system change is rooted in identity. We need a new narrative about who we are and how we are can engage with one another - new goals for society - that are freed from outdated economic models.
There is resistance to account for human relations as the key driver of market forces, since qualitative data is more difficult to measure than quantitative data. As rapid advances in technology - namely artificial intelligence and automation - transform the labor market, we need to 100% focus on the human element in society. We either a) do not need the same labor market or b) need a new labor market. How do we redefine the human relationship to labor? What is the point of labor? Is it to provide taxes to the government? This MIT study argues that without labor, there are no taxes, and therefore society cannot function. Why not rethink the whole paradigm: the relationship of money to government?
The authors note that ethnoreligious homogeneity has been a key factor in the Nordic Model's success. What made a bunch of Vikings work together for the common good? Trust in institutions - which integrated "flexicurity", which was new to me as a concept. Flexicurity is fascinating, and seems to be an important remedy that could have broad utility for rapid changes in technology in society - a safety net for transitions. This safety net allows citizens in the labor force to have a cushion between extreme market fluctuations, so it allows them to remain open to new technology and innovation, rather than freak out and shut down.
In a similar vein, I would argue that government cannot provide the safety net of "unemployment insurance" (welfare) ad perpetuam. There needs to be a strict timeline for welfare in tandem with skills training to place workers into more utilitarian positions in society, if their jobs have been replaced. People are not incentivized to labor when you give them stuff for free. We are not looking at human "labor" any more - but human "occupation". There is no need to be afraid of technological transformation, but a need to create a new pursuit for society, based on investment in human capital.
The authors argue that the Nordic Model's success is built upon the services it provides for two distinct stages in human life: child care and elderly care. My question is: does government need to provide these services? Can we not reintegrate multigenerational family households as a remedy for a greying population with increasing demand for resources? The authors argue that this would not be a successful remedy, but I found they glossed over their argument. Why does the government need so much money, to be so big? To take care of us. Can't we take care of each other, and then focus on the public good?
Figure 1.1. in the book illustrates the authors' definition of "the social contract" - to provide child and elderly care. A professor of US government once defined the social contract as trust of the government to administer the public good, rather than payouts at the beginning and end of life. A society built more on the family unit - with government administration of basic services for the public good - would remain in equilibrium, because you are not outsourcing the family unit to the state.
I totally disagree with the statement: “First, work careers could usefully start earlier. There is clearly scope for better efficiency in education, notably in higher education. Also, we see no need for the state to subsidize the 'consumption element' in education.” Firstly, education is a time for exploration and maturity. With this logic, you would do away with school altogether and institute child labor after puberty. Secondly, education is perhaps the most important long-term investment in the public good that the state could subsidize: knowledge is power.
Several illuminating quotes:
Nordic countries extract "an amount of resources that is close to or exceeds 50 per cent of GDP (…) Much of this is social expenditure.”
“Economic efficiency is important in its own right and as a precondition for the realization of other ambitions, but it is not in itself the only or the most important goal of society. While it is unclear how the ultimate objective should be defined, there is no doubt that the Nordic political system attaches great importance to social considerations.”
“Average annual working times were 2005 hours in 1960 and 1624 hours in 2006 – people work fewer hours because they can afford it (...) The trend is a challenge for the public sector since it tends to reduce the tax base – labour income is taxed, leisure is not!” The authors said "leisure is not taxed!" with an exclamation point at least two times. Perhaps we should tax leisure?!
“Many characteristics of the Nordic labour market model stem from an age in which the political mobilization of the workers sought to generate a collective will of the working class to overcome powerful opponents and notably the owners of capital. Today, the main challenge arises from the need to control internal free riding. This calls for another kind of political discourse, much less adversarial in nature.”
I found chapter 8, on the appropriate scope of government in relation to the public vs. private sector, to be fascinating. We often criticize the bureaucracy of government - management of the public good - but that bureaucracy means it is actually working. Private sector cuts out bureaucracy for profit, whereas public good administration takes into consideration other values, slowing down the process but overall achieving its aim. A private model for public good would destroy the point of government, and the social contract. They argue this nicely here:
"Part of the output from the public sector concerns truly public goods that cannot be individually priced and subjected to market transactions. Obvious cases in point are defence, law enforcement and public administration. Attempts to increase productivity in such areas by way of market-like incentive systems carry with them risks of corruption and serious problems of quality, which may ultimately infringe upon the legal rights of individuals and the rule of law in general. What may look like excessive bureaucracy in these areas may be entirely rational and purposeful from this perspective."
When exploring increasingly popular public-private partnerships (PPPs), I disagreed with the authors' assessment that, “Because the public sector is charged to deal with diffuse and difficult tasks, it is expensive. Where possible, the public sector should exploit the allocational and productive efficiencies inherent in private organizations.” That makes sense from a micro-efficiency perspective, but not from a macro-efficiency perspective: why is the government becoming more expensive? It should be kept in check, so that PPPs are not necessary, or at the very least, rare.
My final comment in this total essay of a review is to say (resisting all caps here) that I am incredibly tired of the following argument in public policy:
“The money may contribute to expand incomes if it is spent on, say, education or day-care facilities, whereas this effect is smaller or absent if the money is spent on, say, cultural activities (even though there can be other good reasons to spend money on culture).”
This again refers back to the resistance of qualitative data vs quantitative. You spend money on culture, you make people more open minded, creative. Is this not a huge, huge benefit for your society's human capital, your most important resource? It is difficult to measure, but it has an irrefutable impact. It's why authoritarian societies crack down on it first, in order to restrict and restrain. Culture is arguably how the West won the "cultural cold war", and how we continue to dazzle and dominate in the world in spite of serious economic and militaristic threats from other countries. Culture is incredibly powerful, on all fronts. We should begin to look at it as the key to transforming our society.
Overall, what I find fascinating about the study of economy and other "soft sciences", such as psychology, are how and when its practitioners choose to either remove or incorporate the human element into theory. What often cracked me up in Macroeconomy 101 was the professor introducing a model with a remark, "removing the human variable, this model is 100% reliable". It makes sense to distill certain constants in market forces, but on the other hand, if your aim is to create a system that jives well with humans, you should be factoring in that unreliable variable all the time.
This seems to be at the crux of where we are today: we've had two preeminent market models (capitalism and communism/socialism) entrench themselves into our collective identity, shaping cultural and geopolitical relations. As our global society has evolved, these systems need to evolve in tandem, and the resistance to this system change is rooted in identity. We need a new narrative about who we are and how we are can engage with one another - new goals for society - that are freed from outdated economic models.
There is resistance to account for human relations as the key driver of market forces, since qualitative data is more difficult to measure than quantitative data. As rapid advances in technology - namely artificial intelligence and automation - transform the labor market, we need to 100% focus on the human element in society. We either a) do not need the same labor market or b) need a new labor market. How do we redefine the human relationship to labor? What is the point of labor? Is it to provide taxes to the government? This MIT study argues that without labor, there are no taxes, and therefore society cannot function. Why not rethink the whole paradigm: the relationship of money to government?
The authors note that ethnoreligious homogeneity has been a key factor in the Nordic Model's success. What made a bunch of Vikings work together for the common good? Trust in institutions - which integrated "flexicurity", which was new to me as a concept. Flexicurity is fascinating, and seems to be an important remedy that could have broad utility for rapid changes in technology in society - a safety net for transitions. This safety net allows citizens in the labor force to have a cushion between extreme market fluctuations, so it allows them to remain open to new technology and innovation, rather than freak out and shut down.
In a similar vein, I would argue that government cannot provide the safety net of "unemployment insurance" (welfare) ad perpetuam. There needs to be a strict timeline for welfare in tandem with skills training to place workers into more utilitarian positions in society, if their jobs have been replaced. People are not incentivized to labor when you give them stuff for free. We are not looking at human "labor" any more - but human "occupation". There is no need to be afraid of technological transformation, but a need to create a new pursuit for society, based on investment in human capital.
The authors argue that the Nordic Model's success is built upon the services it provides for two distinct stages in human life: child care and elderly care. My question is: does government need to provide these services? Can we not reintegrate multigenerational family households as a remedy for a greying population with increasing demand for resources? The authors argue that this would not be a successful remedy, but I found they glossed over their argument. Why does the government need so much money, to be so big? To take care of us. Can't we take care of each other, and then focus on the public good?
Figure 1.1. in the book illustrates the authors' definition of "the social contract" - to provide child and elderly care. A professor of US government once defined the social contract as trust of the government to administer the public good, rather than payouts at the beginning and end of life. A society built more on the family unit - with government administration of basic services for the public good - would remain in equilibrium, because you are not outsourcing the family unit to the state.
I totally disagree with the statement: “First, work careers could usefully start earlier. There is clearly scope for better efficiency in education, notably in higher education. Also, we see no need for the state to subsidize the 'consumption element' in education.” Firstly, education is a time for exploration and maturity. With this logic, you would do away with school altogether and institute child labor after puberty. Secondly, education is perhaps the most important long-term investment in the public good that the state could subsidize: knowledge is power.
Several illuminating quotes:
Nordic countries extract "an amount of resources that is close to or exceeds 50 per cent of GDP (…) Much of this is social expenditure.”
“Economic efficiency is important in its own right and as a precondition for the realization of other ambitions, but it is not in itself the only or the most important goal of society. While it is unclear how the ultimate objective should be defined, there is no doubt that the Nordic political system attaches great importance to social considerations.”
“Average annual working times were 2005 hours in 1960 and 1624 hours in 2006 – people work fewer hours because they can afford it (...) The trend is a challenge for the public sector since it tends to reduce the tax base – labour income is taxed, leisure is not!” The authors said "leisure is not taxed!" with an exclamation point at least two times. Perhaps we should tax leisure?!
“Many characteristics of the Nordic labour market model stem from an age in which the political mobilization of the workers sought to generate a collective will of the working class to overcome powerful opponents and notably the owners of capital. Today, the main challenge arises from the need to control internal free riding. This calls for another kind of political discourse, much less adversarial in nature.”
I found chapter 8, on the appropriate scope of government in relation to the public vs. private sector, to be fascinating. We often criticize the bureaucracy of government - management of the public good - but that bureaucracy means it is actually working. Private sector cuts out bureaucracy for profit, whereas public good administration takes into consideration other values, slowing down the process but overall achieving its aim. A private model for public good would destroy the point of government, and the social contract. They argue this nicely here:
"Part of the output from the public sector concerns truly public goods that cannot be individually priced and subjected to market transactions. Obvious cases in point are defence, law enforcement and public administration. Attempts to increase productivity in such areas by way of market-like incentive systems carry with them risks of corruption and serious problems of quality, which may ultimately infringe upon the legal rights of individuals and the rule of law in general. What may look like excessive bureaucracy in these areas may be entirely rational and purposeful from this perspective."
When exploring increasingly popular public-private partnerships (PPPs), I disagreed with the authors' assessment that, “Because the public sector is charged to deal with diffuse and difficult tasks, it is expensive. Where possible, the public sector should exploit the allocational and productive efficiencies inherent in private organizations.” That makes sense from a micro-efficiency perspective, but not from a macro-efficiency perspective: why is the government becoming more expensive? It should be kept in check, so that PPPs are not necessary, or at the very least, rare.
My final comment in this total essay of a review is to say (resisting all caps here) that I am incredibly tired of the following argument in public policy:
“The money may contribute to expand incomes if it is spent on, say, education or day-care facilities, whereas this effect is smaller or absent if the money is spent on, say, cultural activities (even though there can be other good reasons to spend money on culture).”
This again refers back to the resistance of qualitative data vs quantitative. You spend money on culture, you make people more open minded, creative. Is this not a huge, huge benefit for your society's human capital, your most important resource? It is difficult to measure, but it has an irrefutable impact. It's why authoritarian societies crack down on it first, in order to restrict and restrain. Culture is arguably how the West won the "cultural cold war", and how we continue to dazzle and dominate in the world in spite of serious economic and militaristic threats from other countries. Culture is incredibly powerful, on all fronts. We should begin to look at it as the key to transforming our society.
June 22, 2021
Very deep and thorough analysis of the Nordic model, its strengths and weaknesses, the challenges it faces and the possible directions of reforms. I can't say that I agree with the authors in everything, but it's more basic value-level disagreement, taking into account their values and preferences, the analysis if almost flawless.
5-
5-
Displaying 1 - 3 of 3 reviews