The Nordic Countries - The next supermodel

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Niccolo and Donkey
The Nordic Countries -The next supermodel

The Economist

February 2, 2013


SMALLISH countries are often in the vanguard when it comes to reforming government. In the 1980s Britain was out in the lead, thanks to Thatcherism and privatisation. Tiny Singapore has long been a role model for many reformers. Now the Nordic countries are likely to assume a similar role.

That is partly because 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”. Meanwhile a region that was once synonymous with do-it-yourself furniture and Abba has even become a cultural haven, home to “The Killing”, Noma and “Angry Birds”.

As our special report this week explains, some of this is down to lucky timing: the Nordics cleverly managed to have their debt crisis in the 1990s. But the second reason why the Nordic model is in vogue is more interesting. 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.

From Pippi Longstocking to private schools

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 They are out of date. In the 1970s and 1980s the Nordics were indeed tax-and-spend countries. Sweden’s public spending reached 67% of GDP in 1993. Astrid Lindgren, the inventor of Pippi Longstocking, was forced to pay more than 100% of her income in taxes. But tax-and-spend did not work: Sweden fell from being the fourth-richest country in the world in 1970 to the 14th in 1993.

Since then the Nordics have changed course—mainly to the right. Government’s share of GDP in Sweden, which has dropped by around 18 percentage points, is lower than France’s and could soon be lower than Britain’s. Taxes have been cut: the corporate rate is 22%, far lower than America’s. The Nordics have focused on balancing the books. While Mr Obama and Congress dither over entitlement reform, Sweden has reformed its pension system (see Free exchange ). Its budget deficit is 0.3% of GDP; America’s is 7%.

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 sour part of the smorgasbord

The new Nordic model is not perfect. Public spending as a proportion of GDP in these countries is still higher than this newspaper would like, or indeed than will be sustainable. Their levels of taxation still encourage entrepreneurs to move abroad: London is full of clever young Swedes. Too many people—especially immigrants—live off benefits. The pressures that have forced their governments to cut spending, such as growing global competition, will force more change. The Nordics are bloated compared with Singapore, and they have not focused enough on means-testing benefits.

All the same, ever 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.
Niccolo and Donkey
Bob Dylan Roof

The Nordic myth replacing the Jewish academic as the foundation for a new misguided managerial ideology.

The Nordic Supermodel is the latest obsession that will produce disastrous consequences when applied outside of the NORDOSPHERE. For example, Finland is the new education model for social engineers (also known as education policy makers or lawyers in the United States). The social engineers have convinced themselves that although Finland is racially, ethnically, and linguistically homogeneous, has the population of Minnesota, and lacks a history of crushing racial and ethno-religious conflict, the Finnish model of paying teachers more and not requiring standardized tests will work for the United States. And how do they know the Finnish model will work? Finland scores at the top of global standardized tests.

An economic copy will probably prove just as unworkable, though for different reasons. Broseph knows more about this, but I believe many of the Nordic countries spent themselves into oblivion between the end of WW2 and the 1990s. In response, they imposed austerity throughout the '90s and early 21st century. I don't know how austerity could work in the United States, given the nature of its government and the short-sighted political opportunism that plagues the electoral system.

Niccolo and Donkey
Roland SteamshipTime Broseph

SST would often tell the people at LF that social-democracy can work, but only in such countries with such demographics conditions as those in Scandinavia.
The austerity isn't mentioned by anyone outside of circles of economics nerds. They were able to cut costs, rebuild their private industries, and restructure their government institutions to become more modern and streamlined. That's another reason they can afford these systems: they went through the necessary pain to build a strong enough economy to support it. In the west, we just want to get to the spending. The Finns based their system on a stable economy and a government that turned surpluses. If the west does this, it'll be on a fragile and weak economy where no one is willing to pay any more in taxes and where we face huge deficits.
nuclear launch detected
It doesn't work regardless if the country is homogeneous or not.

Look at the Japanese, a very strict immigration and relativity healthy population and yet they are facing a labour and healthcare crisis in the next 20 years. Why is that? Because social democracy shifts the burden of cost to the next generation constantly. Think about what this means for second, it means that the younger generation need to be twice as productive as (or at least have a positive production value) in order to sustain the older generation. Mathematically (and historically) this is impossible because social democracies alway put a negative downward pressure on population growth while requiring that same population to be A LOT more productive than the previous generation.

The only reason why this problem hasn't manifest themselves today is because of the massive technological growth that fills the productivity gap today but remember there is always a limit to what technology can do and because of that we will doubt see the system crash soon enough.
Team Zissou

An aspect of Sweden I didn't know about, per a Swede on 200-yr mortgages. We shall see.

BTW, speaking w/ a member of the family tribe the other night, he prefers US health care to Canada. But then, he's a young, strong ambitious guy. He likes the freedom to get what you pay for. In Canada, "you get in line with everybody else."

Under Obamacare his premiums are set to double. That's the only way it can work in any social medical care system: the young and healthy pay for the old and sick. It works for as long as everybody pulls their weight.

I would say that almost all Canadians would prefer a situation where everyone receives almost no decent care as opposed to a situation where most receive good care and others receive better. The belief is that having equal care is more important than having good care.
Sam Spade
This is correct. Additionally, social democracies disincentivize childbearing and work, since persons who engage in those activities must pay an indirect tax to themselves in the future, which devalues over time, due to the damaging law of exponents, among other things (which, btw, is the reason why boom and bust cycles must occur, otherwise spectacular collapse does at some point - see Minsky instability hypothesis). Henceforth, less persons put themselves towards those endeavors, and their decline creates a feedback loop upon itself, as the less children one has, the less future workers one has to pay the indirect tax. Which is why mass immigration from other parts of the world with high birth rates started (and still continues in the Scandanavian states - Sweden especially).

I should also note that Norway is a poor example for any type of welfare state, as their oil profits are larger than any other country in the world, and those profits basically keep their system solvent. Japan is going to face a major economic blow-up before their labor crisis comes to fruition.
Niccolo and Donkey