Nordic Economic Model

[Armenum]

This threat is dedicated to the discussion of the Nordic Economic Model, which obviously from its name, is dominantly implemented in the Nordic countries. I tend to favour the model most out of the others as I like the balance it brings - though I would also like to get other people's opinions on the model and discuss both advantages and flaws that come with it. Every economic model has its flaws, and in my view what goes into favouring one model over the other is the sacrifices you are willing to make to achieve the benefits that come with that model. It comes down to a question of ideals, principle, and values but of course all that influence by the analysis and experience of such models.

I like this bullet point list from Wikipedia:

Economic publications, such as ''"The Nordic Model - Embracing globalization and sharing risks"'', characterize the system as follows:

• Strong property rights, contract enforcement, and overall ease of doing business.
• Public pension schemes.
• Low barriers to free trade. This is combined with collective risk sharing social programmes, labour market institutions) which has provided a form of protection against the risks associated with economic openness.
• Little product market regulation. Nordic countries rank very high in product market freedom according to OECD rankings.
• Low levels of corruption. In Transparency International's 2010 Corruption Perceptions Index all five Nordic countries were ranked among the 11 least corrupt of 178 evaluated countries.
• High degrees of labour union membership. In 2008, labour union density was 67.5% in Finland, 67.6% in Denmark, and 68.3% in Sweden. In comparison, union membership was 11.9% in the United States and 7.7% in France.
• Sweden has decentralised wage co-ordination, while Finland is ranked the least flexible. The changing economic conditions have given rise to fear among workers as well as resistance by trade unions in regards to reforms.At the same time, reforms and favourable economic development seem to have reduced unemployment, which has traditionally been higher. Denmark's Social Democrats managed to push through reforms in 1994 and 1996.
• Sweden at 56.6% of GDP, Denmark at 51.7%, and Finland at 48.6% reflects very high public spending. One key reason for public spending is the very large number of public employees. These employees work in various fields including education, healthcare, and for the government itself. They often have lifelong job security and make up around a third of the workforce (more than 38% in Denmark). The public sector's low productivity growth has been compensated by an increase in the private sector’s share of government financed services which has included outsourcing. Public spending in social transfers such as unemployment benefits and early-retired programmes is high. In 2001, the wage-based unemployment benefits were around 90% of wage in Denmark and 80% in Sweden, compared to 75% in Holland and 60% in Germany. The unemployed were also able to receive benefits several years before reductions, compared to quick benefit reduction in other countries.
• Public expenditure for health and education is significantly higher in Denmark, Sweden, and Norway in comparison to the OECD average.
• Overall tax burden are among the world's highest; 51.1% of GDP in Sweden, and 43.3% in Finland, compared to 34.7% in Germany, 33.5% in Canada, and 30.5% in Ireland.

Summary
Why has the successful ‘Nordic Model’ been so absent from the development discourse?

The Nordics achieved modern development later then several other western countries, but they adopted social policies relatively early and at much lower levels of per capita income than their predecessors. Poverty was eradicated not through ’pro-poor’ policies but through policies that focus on employment, productivity, social protection, and inclusion on the basis of citizenship and solidarity. In today’s neoliberal world the features of the strong state characterising the Nordic countries sits uneasily with the view that interventionism is distortionary and therefore harmful to efficiency and growth.

The Nordic Model shows that social pacts and similar arrangements in a democratic order can produce the political stability required for economic growth. The experience of the Nordic countries is that equity and social inclusion through a wide array of welfare measures can be achieved at very low levels of development. Indeed, many of the social measures that are associated with modern states were introduced at much lower levels of per income than many developing countries have today.

This model is now strained under the pressures of globalisation and some its important gains, e.g. equitable income distribution, are being reversed. Yet, it seems to have proved more resilient than many had thought. All the Nordic countries have ultimately forged distinct welfare states that reflect their own history, political landscape, levels and types of industrialisation and institutions. They have thus, even among themselves, eschewed a ‘one-size-fits-all’ model.

http://www.nai.uu.se/forum/entries/2...odel/index.xml

More Literature:
http://www.etla.fi/files/1892_the_no...l_complete.pdf
http://jotman.blogspot.com/2009/06/i...emulating.html
http://www.scientificamerican.com/ar...-welfare-state
http://www.ces.fas.harvard.edu/confe...s/Fitoussi.pdf
http://www.ces.fas.harvard.edu/confe...mithverner.pdf

[JP226]

If we all had about 20 people and a massive oil platform fully funding everyone, we could buy any economic system we wanted from the same guy that Jack bought his bean stalk beans from.

[Col. Tartleton]

If we all had about 20 people and a massive oil platform fully funding everyone, we could buy any economic system we wanted from the same guy that Jack bought his bean stalk beans from.

And what's worse is when the oil runs out they'll just invade and savagely rape France, Britain, and Canada like they did in the good ole' days.

But yes, Norway isn't really an example of the model.

[Ishoss]

Norway is not really following the Nordic model. Read his post once more. It's more relevant for Sweden, Denmark and Finland.

[Condottiere 40K]

I would say that the term Solidarity being the operative word.

[Armenum]

Obviously countries may change their policies over time, I doubt all the Nordic countries follow the Nordic Model in principle (esp Norway) but don't let the name fool you, yes the model has been implemented in mainly Nordic countries, but the ideals of the model stay the same. It could be called the "Golden Model" at this point, for all we care.

[Col. Tartleton]

I'm just curious how the state can have legitimacy in claiming more than half of someones earnings.

[Mythos]

I'm just curious how the state can have legitimacy in claiming more than half of someones earnings.

By providing value equal to that amount? It's almost like the "free" market. Someone provides something at a price and you can decide whether to buy it or not. Since the people in nordic countries tend to be consistently among the happiest people on earth, I would say the deal is fair.

[Armenum]

I'm just curious how the state can have legitimacy in claiming more than half of someones earnings.

In the services that the government provides back to the citizens, in terms of public infrastructure, social programs, education - a society that is well maintained and well funded is in the interest of all citizens in the betterment of the country. A higher quality of life as a result will be seen.

It's a simple trade-off, though, if such tax rates are low it's much more difficult for the state to maintain such a society, but if you are okay with the fact that such public programs will be either non-existent or under-funded then you can accept it. The question here is more what role one thinks the government should take in propping up the public sphere, how much tax payers should have to give to better society. It's a matter of ideals and values really, not about which is "right or wrong". Both ways can work technically. Though I think in a modern society, the former is the better approach. This tradeoff has not been a major issue in the Nordic countries that implemented it. The quality of life is very high and in general the societies as whole are doing well.

[Ishoss]

I'm just curious how the state can have legitimacy in claiming more than half of someones earnings.

The state gives us the chance to earn a lot of money in the first place. In Norway (and it's true for Sweden and Denmark too afaik) the government loans you money to get a good education. Basically up till you're 28 and fully educated, have a good job and make a lot of money the state does everything so that a man from lower class will have the same chance of fulfilling his educational dreams as a rich mans son.

The state levels the playing field so kids can live better lives than their parents or if they're not strong enough they will be living worse lives. We have the opportunity to "climb on the class-ladder" so to say .

This is of course only some of what they do. And they could have done more (Better roads, better railroads, better this, better that) but that would hurt our economy. Most of us understand this and accept that we will not have infrastructure on par with the rest of the world (our geography doesn't really allow it).

[Tiberios]

I'm just curious how the state can have legitimacy in claiming more than half of someones earnings.

In the sense that public services are then made available. Health care, education all the way to and including university, a universal grant for students and so on.

That said, a lot of things need reform in my country and spending should be reigned in, but overall it's working fine.

[Basil II the B.S]

I'm gonna come back to this thread in 30 years and then reply again. First I want to see how they are going to pay future pensions with the current low birth rates, since the immigration solution backfired and now they have to pay future pensions and present immigrants.

[Armfelt]

I'm gonna come back to this thread in 30 years and then reply again. First I want to see how they are going to pay future pensions with the current low birth rates, since the immigration solution backfired and now they have to pay future pensions and present immigrants.

The baby-boomers are already largely retired, and the "collapse" that everyone was talking about 5-10 years ago has not happened.

[Ishoss]

The baby-boomers are already largely retired, and the "collapse" that everyone was talking about 5-10 years ago has not happened.

It's definetly not over yet. Norway is yet to see the worst of it.

I've gotten used to the idea that I will not have the same rights as my parents do. I will most likely have less money when I retire and have to work longer.

[Kjertesvein]

The baby-boomers are already largely retired, and the "collapse" that everyone was talking about 5-10 years ago has not happened.

Think of it this way:

There is a little island called Norway. It consist of about 500 people as we speak. Today we have 70 people on pension, in 30 years, we will see 140 people on pension. Who are going to support this tsunami of old folks? The 1,9 child that is born from every 2 people (which I'll remind you is the highest of all of Europe. Germany and Italy at 1,2)?

People used to go to school til they were 15, and die as they dropped of from their last day at work at 75. Today, people go to school til they are 30, and retire at 60. 25% of the non-pension population doesn't work (they receive money from gov.). Who are left? The huge amount of people who work in the gov. to overshadow the unemployment numbers?

Pack up your longships men and make ready the leidangr, we are going to Scotland for some booty

~Wille

[Mythos]

People used to go to school til they were 15, and die as they dropped of from their last day at work at 75. Today, people go to school til they are 30, and retire at 60. 25% of the non-pension population doesn't work (they receive money from gov.). Who are left? The huge amount of people who work in the gov. to overshadow the unemployment numbers

On the other hand, productivity in the modern world is massively larger.

[Kjertesvein]

On the other hand, productivity in the modern world is massively larger.

According to demand.

~Wille

[Armenum]

Alas, reality is that baby boomers are not going to live till ripe age of 120 or so.
They are going to die, which solves much of the issue.

What needs to be done is avoid "we are going to run out of workers!"-hysteria with included "we need immigrants, ANY immigrants!"-hysteria. Because they ARE going to be out there for taxpayers to support for coming decades (any immigrants tends to contain whole lot of people without any education and no interest in integrating into society, and in turn reduce amount of useful immigrants who have ability to contribute to society positively).

Reaper man will fix the age issue, along with improving efficiency of workers via technology. Tough but true.

One of the flaws you could say of this model is that it's rather sensitive to heavy demographic changes such as immigration. Though I believe measures could be taken to counteract that trend. For example, the process of citizenship could be tied heavily to a having a consistent history of working and in turn paying taxes when due. With such a history proven, citizenship, which would entitle one to the welfare benefits of the state could be realised. Immigrants who fail to show a history of work or attempting to do so, could be rejected. The government has to make sure that there the tax support for the welfare is solid, even with the influx of immigrants.

[Tiwaz]

Think of it this way:

There is a little island called Norway. It consist of about 500 people as we speak. Today we have 70 people on pension, in 30 years, we will see 140 people on pension. Who are going to support this tsunami of old folks? The 1,9 child that is born from every 2 people (which I'll remind you is the highest of all of Europe. Germany and Italy at 1,2)?

People used to go to school til they were 15, and die as they dropped of from their last day at work at 75. Today, people go to school til they are 30, and retire at 60. 25% of the non-pension population doesn't work (they receive money from gov.). Who are left? The huge amount of people who work in the gov. to overshadow the unemployment numbers?

Pack up your longships men and make ready the leidangr, we are going to Scotland for some booty

~Wille

Alas, reality is that baby boomers are not going to live till ripe age of 120 or so.
They are going to die, which solves much of the issue.

What needs to be done is avoid "we are going to run out of workers!"-hysteria with included "we need immigrants, ANY immigrants!"-hysteria. Because they ARE going to be out there for taxpayers to support for coming decades (any immigrants tends to contain whole lot of people without any education and no interest in integrating into society, and in turn reduce amount of useful immigrants who have ability to contribute to society positively).

Reaper man will fix the age issue, along with improving efficiency of workers via technology. Tough but true.

[removeduser_4536284751384]

The government is there because we agree that some services are provided poorly or unethically by the private sector. Essentially the government is using tax money in a better way than a taxpayer would have used it. This should be done as efficiently as possible.

"Increasing public spending" is a suicidal goal however. You're not focusing on some need, you're just attempting to create jobs. Jobs that would be created anyway. For every increase in public spending, money has to be taxed from the private sector. Money that would have been spent and caused economic growth, and created jobs. For every job created in the public sector, more than one job would have been created in the private sector had that job not existed. The public sector does create wealth, it destroys wealth. It's a ridiculous economic strategy, and I'm glad Ireland has one of the lowest tax burdens in the EU.