Tuesday, June 9, 2009

Is the Nordic model worth emulating?

At the G20 summit in London I watched Gordon Brown announce that “the Washington Consensus is over.” Indeed, the financial crisis had left the so-called Anglo-Saxon model of economic growth completely discredited -- a fact that even a British Prime Minister could no longer deny.

So the old model was out. But what might serve as an alternative? Going into the summit France and Germany hardly inspired confidence. Neither did the safety-net deprived, export-driven model of growth adopted by Asian countries such as China, represented at the meeting seem to hold the answer.

Largely absent from the G20 summit of April 2 were a group of countries that have been wildly successful by almost any measure -- countries that may well offer a model worth emulating. Now, as never before, the example of Sweden, Finland, Norway, Denmark (and to this list might be added the Netherlands) deserve a careful look.

But is it possible for other countries to emulate the example of the Nordic democracies?

At the IPI Congress in Helsinki, Monday, a panel of experts on Scandinavia addressed the question.

I live-blogged their answers.

At the IPI Congress in Helsinki, Monday, a panel of experts on Scandinavia addressed the question.

The first panelist to speak, Andrew Brown, the author of Fishing in Utopia, was skeptical.

“Democracy not one thing, not a set of constitutional arrangements, but almost religious faith in the people, and social attitudes” Brown said. “If you take these away, you are merely left with the constitutional arrangements.”

Andrew saw much of what had made Nordic democracy viable absent in his native England. “Swedes will complain to radio call in shows about how the country is not doing enough to nurture badgers” Andrew observed. For Andrew, the essence of Nordic democracy is something cultural -- you simply can’t export an attitude of caring for badgers!

Andrew’s critique stood in marked contrast to the optimism of the two panel economists concerning the transferability of Nordic model. Here’s a list of the panel members as presented in the agenda:

“Nordic Democracy – A Lesson for the World?”

The so-called Nordic Model, with its emphasis on consensual political institutions, social welfare, and the universal provision of basic human rights, has long been admired by other countries. But critics point at the increased state interference in all areas of public life. Has the right balance been achieved? Is the Nordic model of democracy exportable? What challenges does globalisation present to the model?

  • Andrew Brown, Writer and Journalist, The Guardian, London
  • Sixten Korkman, Managing Director of ETLA (The Research Institute of the Finnish Economy) and EVA (Finnish Business and Policy Forum)
  • Pär Nuder, former Minister of Finance, Stockholm
  • Egill Helgason, Moderator, Presenter, "Silfur Egils", Icelandic National Broadcasting Service (RUV), Reykjavik

Drawing on a US political analogy, Sixten Korkman, Managing Director of ETLA, explained that that in the Nordic countries social welfare had not come at the expense of their ability to compete in the global marketplace. In other words, these countries showed that what’s good for society can be good for companies.

Taking the current US debate over health care reform, Korkman said, “You can have collective solutions that are also good for business -- argument for publicly funded health care (as opposed to employer financed as in the US).”

I thought this was a good example. One explanation for the bankruptcy of GM is that the company had been weighed down by having to foot the bill for employee healthcare -- money that could have been invested in making the cars of the future.

Korkman listed three points that seem to characterize Nordic Democracy.

  • Spending more on education
  • Social security
  • Keeping people working

He added, “You can typically find a Nordic ‘cluster’ (in statistical analysis). This suggests it’s real. You can talk about these countries as a distinct group.”

The main point? “The Nordic countries,” Korkman said, “represent a more liberal economic systems than everyone in Europe except Anglo-Saxon countries.”

“But is the model successful?” Korkman asked. “Yes, generally speaking, it is. Take one key variable: Social mobility. Inter-generational mobility higher than in France, UK, and the USA.”

Pär Nuder, former Minister of Finance, Stockholm, supported much of what Korkman had said.

“(Relative to most OECD countries) we have higher employment, lower inflation, stronger public finances.” And he asked “Why?”

Answering his own question, Nuder said, "is it that Nordic countries have lowest taxes? No, they don't. A small public sector? No, they have a large public sector." So what explains it?

Nuder told us he would explain it in several points:

  • Open economies. Free traders in his genes. Free trade key since “back when”. No other countries -- except perhaps Netherlands -- have so many well-known international brands. Part of Nordic culture to be free traders.
  • Social democratic system. I believe in strong public finances. Much fight deficits and high inflation.
  • Human capital investment. Invest in people through education and R&D. We know we have to compete with more R&D.
  • Inclusive workforce. Natural conclusion. If you want a sustainable society, must mobilize whole work force, including women. Highest female participation in the labor force. World’s most generous parental leave. One percent of GDP (spent on childcare) delivers highest female participation in labor.
  • Green ethic. Back in the early 90s we introduced a CO2 tax. We lowered tax on labor, raised it on emissions.
  • Cooperation. Eternal conflict between work and capital. We are too small, we concluded to have labor conflicts. Our countries are very vulnerable to lack of peace on labor market, so we need organized, responsible, labor unions. We have social bridges for people to walk on. These social bridges mean that more people willing to accept the often painful adjustments of global market capitalism. You can have world's highest taxes if they promote not only equality and safety, but high growth. These could be adopted by other countries.

I had not known about point number five. To think these guys had a CO2 tax back in the early 90s! Brilliant.

“Our model is to ‘Protect people not jobs.’ This way we can pursue free trade. The way of providing subsidies to companies is decidedly not part of the Nordic solution.”

The panel took questions from the audience.

Question: How Nordics got out of the financial crisis of the early 90s?

Egill Helgason replied: “The early 90s were bad for the world, but not as bad as now. You could export your way out. We all expected the market economy and welfare state. Even though we cut down everything, we didn’t cut education or R&D. We increased human capital investment.”

Question: Why did peasant societies transform? An ideology?
Andrew Brown said “It seems to me Scandinavia is small community surrounded by hostile wilderness. So you have to have cooperation and doing the best for yourself (culture hostile to freeloaders).”

Other speakers agree with Andrew, raising these additional points: Finland part of Swedish Kingdom. Lutheranism. Long roots of national democracy. But Finland took longer to realize that reforming capitalism, not overthrowing it, is the way to go.

Question: If it’s so great living up there, why the high suicide rate? Or is that a myth?

Panelists agreed that overall, it’s a myth that suicide rates are higher in Scandinavia. One noted that “in Finland, suicide rate high, but not linked to labor welfare.”

There was a back and forth about immigration. One panelist noted that it “isn’t fair to compare Canada’s success with Scandinavia’s failure. Canada’s immigrants are economic migrants -- highly educated, etc. But Scandinavia has mainly accepted refugees.”

Jotman live-blogged the following panel discussions at the IPI World Congress:

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