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Wednesday, December 5, 2007

The Nordic Model – an Example for Europe to Follow?

The Nordic Model – an Example for Europe to Follow?
by Christoph Mayerl

The Scandinavians have shown that economic success and an extensive welfare state are not mutually exclusive. What is the secret of the Scandinavian model? Is it suitable for the rest of Europe?

Are you just residing or have you really started living? The question the largest furniture company in the world addressed to its German customers is a very Scandinavian question.

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The implicit message is: we discovered the secret of good living a long time ago, so when will you arrive at it? Right now, if possible, an increasing number of European politicians are answering, as they look more and more towards the far north for solutions to their countries' problems. "We need to change course, as the Scandinavians did a long time ago," Kurt Beck, leader of the German Social Democrats, said in a television interview last summer.

Sweden, Denmark, Norway and Finland have achieved what some economists believe is impossible: despite high taxes and a welfare state with generous provisions, their economies are booming. "On average the Nordic countries outperform the Anglo-Saxon ones on most measures of economic performance," the US economist and Nobel Prize winner Jeffrey D. Sachs asserted in November 2006 in an article for the magazine Scientific American.

The Scandinavians Score Points in All Areas

The general enthusiasm for the Scandinavian model is understandable. In almost every study, whether it concerns poverty, press freedom or life expectancy, the Scandinavians come out top. According to the Pisa study [on educational achievement] Finland produces the smartest pupils year after year. In Denmark employees feel more secure than in Germany even though a quarter of them change their jobs every year. Swedish women bear an average of 1.8 children. And if that were not enough, the health systems in Scandinavia are free, there is a comprehensive network of day-care facilities and an apparently stable social safety net. For years delegations of politicians have been queuing up in Helsinki, Stockholm and Copenhagen to find out how the Scandinavian model works.

Their expectations are high. For people are looking to the Scandinavian model not only as a blue print for social reforms in individual states but as something that might eventually make the rest of Europe a better place to live. "A European social model that really deserves the name would guarantee prosperity and competitiveness, prevent social division by safeguarding basic social rights, and help to reinforce the concept of Europe in the minds of Europe's citizens," the sociologist Josef Weidenholzer wrote in the Austrian newspaper Der Standard on 28 Februar 2006.

Sweden Is the Original Model

So what distinguishes the Scandinavian model? The simple answer is that the Scandinavian states use high levels of taxation to finance extensive welfare states that offer comprehensive provision to their citizens in many areas. Looked at in more detail, the picture quickly becomes more differentiated and more complex. Sweden is considered to represent the Scandinvian model in its purest form, with the others displaying differences of emphasis.

The parameters become clear when the Scandinavian countries are compared with Britain, whose espousal of minimal social provision now means that it represents the opposite end of the spectrum to Scandinavia within Europe. The top taxation rate in Sweden is 56 percent, in Britain it is 40 percent. The expenditure of public bodies and of the social security system is 60 percent of GDP in Sweden and 44 percent in Britain. Other equally important elements of the Scandinavian system that are more difficult to put a figure on include high levels of investment in education, training and research, a family policy favourable to children and women and strong but politically moderate trade unions.

For the German politician Karl-Martin Hentschel, a member of the Green Party, a special feature of the Scandinavian model is the proximity of the government to its citizens. As he wrote in the tageszeitung on 9 March 2007, "The municipal communes are the State. For example they collect most of the tax revenues... The average citizen only comes in contact with the federal state when he has dealings with the army, the police force or the judiciary, which are the traditional institutes of the authoritarian state. Given the important role of the communes it's no wonder citizens are willing to pay higher taxes. They see where the money's spent."

Early Reform of the Welfare State

While Scandinavia's European neighbours enthuse about the Nordic model, in Scandinavia itself it is not considered sacrosanct. Faced, [like many other countries], with the phenomenon of an aging population, Scandinavia too has cut back social spending in recent years. On 22 September 2007 the Swedish newspaper Expressen greeted the announcement by the conservative government of stricter regulations for the long-term unemployed. "The goal is to restructure a system in which 1.5 million people of working age were outside the job market when the Social Democrats left office..."

Reforms are also taking place in Denmark, which by Nordic standards is already considered almost neoliberal. The Danish version of Scandinvian employment policy is known as flexicurity. The obstacles to hiring and firing are lower than anywhere else except Ireland and Britain, but unemployment benefit is high and there is a good system for helping people to find employment. The result is a very dynamic labour market with a lot of movement. More than a quarter of Danish employees lose their jobs every year – but usually only for a short time.

When it comes to reforms, which are jointly supported by the government and the opposition, politicians are not afraid to introduce unpopular measures. Last year agreement was reached on raising the retirement age to sixty-seven and incentives were created for students to graduate more quickly. The Danish daily Berlingske Tidende welcomed this step on 21 June 2006. "The government carefully prepared Danish citizens for the measures over a long period of time. This has met with acceptance because a slight change in course now is better than radical measures later."

Is the Scandinavian Model Really a Model?

Denmark's recent moves in the direction of a more liberal economy demonstrate how difficult it is to generalise about the Scandinavian system. The economic journalist Inga Michler thinks the notion is questionable and concluded in Die Welt on 30 June 2006: "There are many good ideas in the North, but there's not a standard model that could be taken as a whole and implemented in Germany."

Looking abroad, the Swedish daily Dagens Nyheter also sought to dampen expectations. The economy has recovered since the crisis in the early 1990s, it wrote on 9 March 2007, "but it would be ridiculous to speak of a Scandinavian miracle."

Sceptics think that the Scandinavian economies are still growing not because of but in spite of their overblown welfare states. The European state is maternal: protective but also infantilising. Its high taxes and benefits discourage anybody from doing too well," Martin Wolf wrote in the Financial Times on 1 March 2006. In a piece for the Brussels Journal Martin de Vlieghere even declared the Scandinavian model to be a myth, citing the prosperity index of the OECD, in which the Scandinavian countries are continually falling. According to Vlieghere the real Europeans heros are the Irish, who in only eighteen years have moved from twenty-second to fourth place – thanks to low taxes.

Scandinavia and East European Pragmatism

In Eastern Europe, where national economies are having to manage an enormous transformation process, it tends to be Ireland rather than Scandinavia that is the model. In Gazeta Wyborcza of 21 September 2006 Witold Gadomski urged the Poles to make an effort to do what the Irish had done. "If Poland doesn't reform its public finances, enter the euro zone, lower taxes, introduce structural reforms (liberalising the energy sector, telecommunications and train services) and complete the privatisation process, it won't be able to repeat Ireland's success."

The Baltic countries, on the other hand, which are undergoing a similar transformation process, feel closer to the North, not only geographically: "Is Ireland really a model for Estonia?" the Estonian newspaper Postimees asked on 22 February 2007. "There can be no doubt that the Irish model is a sure bet because in Ireland there is a consensus between employers and employees about suitable outline agreements. However, we must bear in mind that Ireland took the first important steps towards boosting its industry a quarter of a century ago. It sounds like a cliché, but for Estonia, the only alternative is a science and research-based economy."

The Scandinavians themselves, while impressed by Ireland's economic miracle, basically support the course followed by their own governments. "But that is no guarantee," the Swedish sociologist Joakim Palme explained in an interview with euro|topics. "The Scandinavians will continue to advocate high taxes only as long as they continue to receive generous benefits from the state in return." So it is not a matter of a romantic ideal of the Nordic social state, but rather a temporary contract. Currently there is nothing to suggest that Sweden's welfare state might come under pressure. But the saying "ingenting är omöjligt,"nothing is impossible, applies in Sweden as well. It is not for nothing that the globally successful furniture company uses this slogan in its domestic advertising campaigns.

Christoph Mayerl
Born in 1976, Christoph Mayerl studied journalism, philosophy and politics in Eichstätt, Bavaria. He works as a free-lance journalist in Berlin.
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Melanie Newton
Original in German