Does the Nordic Model need to be reformed?

Does the Nordic model need to be reformed to face up to the challenges of globalisation? What exactly are these challenges and what are the causes which make the model work successfully, creating strong economic performances? Is the Nordic approach sustainable? Can its characteristic elements be used in other economies? Here are some of the main questions posed at the OECD conference "Embracing Globalisation in the 21st Century: a Dialogue about the Nordic Approach".

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To better understand this issue I present a synthesis of the OECD Secretary-General’ keynote, , at the conference in Paris, on 21 May 2008. [1]

Is there a "Nordic model"? (Characteristics of the Nordic Model)

In fact, there is no one single model among the 5 Nordic countries. However, they share some common approaches:

1.Labour market institutions and policies that provide:

- relatively low employment protection

- high unemployment protection (coupled with high income-support benefits)

- strict activation policies

- high degree of centralized wage coordination

2.Comprehensive social benefits and publicly provided social services and:

- large investment in education and research

- development financed by taxes

3.Openness to trade and competitive product markets

4.High taxes

Together, these features offer:

- a collective mechanism for risk sharing

- play a key role securing the political acceptability of structural reforms

"Inflation has generally remained low over the last three years, although as elsewhere, recent increases in food and energy prices are exerting upward pressures."

Labour markets are characterized by:

- high participation rates

- generally low unemployment

- a small incidence of long-term unemployment

- high job mobility.

Nordic countries’ tax and welfare systems have generally ensured that the winners from structural transformation have shared their gains with the losers - "Nordic countries have expanded the size of “the economic pie”, the distribution of this “pie” has been widely shared."

"For example, in the Nordic countries, older workers’ employment rate in 2006 was well above the OECD average of 53%, reaching nearly 85% in Iceland."

"Income equality and poverty rates were lower in Denmark and Sweden than in any other OECD country, and they were below the OECD average in Finland and Norway."

Traditional commitment to free trade

- barriers to trade and investment are low (apart from agricultural products)

- measures of Nordic country participation in the international trading system are high

- Nordic countries score well in terms of competition-friendly regulation in markets for goods and services

High tax burden

- needed to finance the comprehensive and generous social expenditures and spending on education

- tax revenue is put to efficient use

"Taxation revenue to GDP last year was close to 50 per cent in Denmark and Sweden and over 40 per cent in Finland and Norway"

To what degree can the strong economic performance be attributed to the Nordic model?

Many attribute the combination of:

- solid economic growth

- well-performing labour market

- an equal distribution of income and social cohesion

Others recognize the recent good economic performance, but question:

- whether the incentives associated with high taxes and a generous social security system are compatible with long-term sustainability.

Nordic countries in particular have managed to seize the opportunities offered by globalization for higher productivity and living standards. OCDE attribute this to two forces:

- a lower exposure to globalisation, in the sense that the export sectors are geared towards fast growing and relatively profitable products.

"Finland and Sweden, for instance, specialize in the telecoms sector."

- a higher ability to cope with change

and:

- education levels

- the quality and public confidence in the institutions of government

- and their strong innovation frameworks.

Is the Nordic approach sustainable?

Moving on to the challenges, the Nordic Report [2] identified the risks for the Nordic model. The authors, six Nordic professors, focus on the implications of globalization and demographic change. The conference was organised against the background of the debate generated by this report. The authors think that the financial dilemma faced by the welfare state cannot be solved by increased growth, higher taxes, higher birth rates or increased immigration.

Globalization has accelerated:

- emergence of new players in the international trading system, bringing additional workers ( 1 billion over the last decade).

- new relationships such as cross-border out-sourcing and in-sourcing.

The globalization of innovation:

- many OECD-based businesses are setting up R&D operations in China and India, attracted by their abundant supply of highly skilled scientists and engineers.

The Report’s authors note that the costs of funding the Nordic model are likely to rise faster than nominal GDP. This is due to:

- expected demographic changes, leading to a higher proportion of retirees relative to the number of workers, as the baby boom generation retires, and life expectancy continues to lengthen.

- governments’ room for manoeuvre has become more limited, with taxation levels already high, and tax bases becoming more mobile (especially on capital and labour income). Both forces exert tensions on the long-run sustainability of the Nordic model.

"How can the essentials of the Nordic model be preserved going forward, especially its underlying philosophy of collective mechanisms for sharing risks? "

Can elements of the Nordic approach be transferred?

Are there lessons for other countries that can be drawn from the Nordic model? Certainly (second OCDE).

- regulation does not buy security; in fact, the opposite appears to be true.

- to caution against trying to emulate directly the Nordic model. The precise balance between the different policy planks depends on country circumstances and institutions.

"For example, the quality of industrial relations, and agreement among trade unions and employer organizations on common objectives may play a key role in labour market performance, as well as the political feasibility of reforms. Establishing how countries can implement coherent policy packages in practice also takes time. The Danish version of the Nordic model, for example, is the result of a long series of reforms, started in 1994 and has required considerable fine-tuning to reach its present format."

Dealing with the political economy of reform

"Coping with globalization is about coping with change, and success in implementing policy reform requires winning broad support for change. But as you are well aware, that is not an easy task. There are winners and losers across countries and within each country. Even if a country benefits overall, the adjustment costs cannot be ignored."

*end of synthesis*

The compatibility between reformism and capitalism

The actual dominant ideology of global capitalism - designated as “neo-liberalism” by some and “open trade” by others - has its proper strong discourse to impose the program of “creative destruction” of collective structures contrary to the market logic, across the world.

Through agencies such as the OECD, “neo-liberalism” promotes the economics of the free market like an incontestable scientific theory - a logic of flexibility, competitiveness and extreme individualism that has no alternative. Indeed, the OECD is not ideologically neutral and, like other transnational bodies, it has the corporate speak characteristic of the corporate world.

We know that the compatibility between a true reformism and capitalism is measured by the relationship between the policies of labour organisations and the vital institutions of capital (private property and labour market).

Reform seeks to improve the economic system like it is. One neo-liberal reform, whose main goal consists in the “free market”, is quite different from a reform focused on progressive transition to social justice and job security. It is not a question of competition - “winners and losers”. It is a question of social justice and human rights, and the crucial factor for that change resides in the mobilized collective power of the workforce, which cannot be measured in economic terms.

We don’t need a "reformist reform", which simply supports the system and allows capitalism to function more effectively. We need a "non-reformist reform", a "structural reform” or a "revolutionary-reformism", that in a cumulative way tends to transform the actual system in all its economic, social and environmental dimensions. [3]

So, the governments and academic institutions that read these international reports should not to be so influenced. They should have in consideration the political and economical objectives that are behind them, and above all, that they have not passed through a democratic scrutiny.

References:

[1] Angel Gurría's keynote, Seminar on "Embracing globalisation in the 21st century: a dialogue on the Nordic approach", oecd.org"Reform the Nordic model" norden.org
[2]ETLA’s report “The Nordic Model – Embracing globalization and sharing risks” Read the book [PDF] ; Image: frontcover of the book

[3] Andre Gorz, Austrian and French social philosopher, Wikipedia article

POLL: Does the Nordic model need to be reformed? (top of left column)

Other related posts:
Fed eyes Nordic Model
Manufactured Landscape - Landscape as Architecture
The Global Business
The current capitalist system

Local actions in global climate change struggle

Video from Odense, Denmark. To guide the cyclists, Odense has developed a 'running light' that makes a green wave.

Local actions in global climate struggle. This is the central theme for the 3rd Nordic Sustainability Conference, “One Small Step”. On 15-17 September 2008, Odense (Denmark's 3rd largest city) hosts the Conference, which aims to gather experience and ideas from the public and the private sectors, researchers, politicians, NGOs and citizens in the Nordic countries with the purpose of launching actions that will prevent the worsening of the climate conditions. Proposed concrete measures can be taken by, for example, local councils and businesses to limit carbon dioxide emissions.

The municipality expects that 600 people will attend the meeting, which will debate the climate and local plans along 5 main tracks distributed along 3 themes: Visions, Options and Actions.

• transport, mobility and accessibility

• urban planning and construction

• consumption

• biodiversity as a climate regulator

• energy efficiency and sustainable energy
  

The practical measures the delegates at the meeting come up with will be collected in a catalogue for the UN major climate summit in Copenhagen in 2009, the COP15. The countries of the world, if all goes according to plan, will adopt a new global climate agreement at the summit in Copenhagen.

The COP15 conference is the fifteenth Conference of the Parties under the United Nations’ Climate Change Convention. The conference will take place from 30 November to 11 December 2009. The overall goal for the COP15 United Nations Climate Change Conference is to establish an ambitious global climate agreement for the period from 2012 when the first commitment period under the Kyoto Protocol expires.

"When considering sustainability, the climactic challenges are among the most urgent. It’s not enough that the government has climate policies and enter into international agreements. We must all make an effort – including the municipalities, the citizens and the private sector.", stated Connie Hedegaard, Danish Climate and Energy Minister.

One of the special features of the Nordic countries is their decentralized organization and thus the proximity of the government to the citizens. Indeed, the municipalities are the State, since they collect most of the tax revenues. The traditional institutes of the authoritarian state, like the army, police force and judiciary are on a more distant level to the normal citizen in his everyday life.

Links:
Odense wants to unite the North to benefit the environment odense.dk
Local actions in global climate struggle norden.org

Other related posts:
Al Gore expects global climate agreement next year in Denmark
World's Healthiest Countries (Forbes): Iceland, Sweden and Finland
Al Gore to climate conference in the Faroe Islands
Shall the Nordic Region be a GMO-free zone in the future?
Baltic Sea Almost Ice-Free
Switzerland Tops 2008 Environmental Performance Index
The New Wars of Climate Change
Environmental Sector will create 500 000 jobs in the Nordic countries
Ranking of the Human Development Index: Iceland "best country to live"
Greenpeace: Neste palm-based biodiesel not so green
Fast Transport on Request: new alternative intercity transport
City of the future is for people, not cars
Ranking of the best (and worst) countries to live: Finland is the world's greenest
Hello Finland: Globalization does not require municipal amalgamation

Bloggers Unite For Human Rights MAY 15

Bloggers Unite is an opportunity for bloggers, vloggers, and photobloggers to use their space to make the world a better place. Show your support for this newest social awareness campaign!

Universal Declaration of Human Rights
"Article 6
Everyone has the right to recognition everywhere as a person before the law.
(...)
Article 22

Everyone, as a member of society, has the right to social security and is entitled to realization, through national effort and international co-operation and in accordance with the organization and resources of each State, of the economic, social and cultural rights indispensable for his dignity and the free development of his personality.

(...)
Article 23

1. Everyone has the right to work, to free choice of employment, to just and favourable conditions of work and to protection against unemployment.
2. Everyone, without any discrimination, has the right to equal pay for equal work.
3. Everyone who works has the right to just and favourable remuneration ensuring for himself and his family an existence worthy of human dignity, and supplemented, if necessary, by other means of social protection." knowyourrights2008.org

Fed eyes Nordic Model

The US Federal Reserve is examining the Nordic bank nationalisations of the 1990's

Recently, the online version of the British newspaper The Daily Telegraph reported that the US Federal Reserve was examining the Nordic bank nationalisations of the 1990s as a possible interim solution to the US financial crisis.

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Second the newspaper, a senior official at one of the Scandinavian central banks told that Fed strategists had stepped up contacts to learn how Norway, Sweden and Finland managed their traumatic crisis from 1991 to 1993, which brought the region's economy to its knees. Scandinavia's bank rescue proved successful and is now a model for central bankers, although the responses vary in each Nordic country. For example, Norway ensured that shareholders of insolvent lenders received nothing and the senior management was entirely purged, having two of the country's top four banks been seized.

Presently, the US Real Estate mortgage market (and especially the sub-prime lending) is under threat. US market mortgages represent $7,000bn and over the past decade, US house prices have increased 100%. Inflation in housing prices around the world is also impressive, making us wonder how long would it be sustainable (house prices increased over 100% in the UK and Australia, over 200% in Ireland, over 300% in South Africa, during the past decade).

In 2006 I referred to the economic crisis of the 1990’s in Finland not imagining that two years later, the Fed, very concerned by the depth of the US crisis, would be eyeing the Nordic approach for contingency options.

The Economic Crisis of the 1990’s in Finland – “Down from the heavens, Up from the ashes”

The Portuguese economic crisis started in 2002. Despite the slight recovery occurred in 2004, the growth of Portuguese economy is keeping on insufficient values (GDP growth rate below the EU average). Since that date there were many debates about European economic models of success, deserving particular attention the phenomenon of recovery, the Finnish "miracle".

The transformation of an outdated industrial complex into the largest world producer of cell phones, was crucial to the rapid productivity recorded in the 90’s.

The Finnish crisis activated a period of "creative destruction", a period of adjustments and reforms, related to technological advancements and long-term investments in technological innovation, as well to the increase of competitiveness, caused by the 1992’s currency depreciation.

The economic crisis of the first half of the 1990’s in Finland was long and profound. The real GDP, dropped about 14% from the peak in 1990 to the trough in 1993, was about four times superior to the collapse of the Great Depression of the 30’s. The unemployment rate rose from 3% in 1990 to almost 20% at the beginning of 1994. The economic crisis lowered the Finnish standard of life for many years, driving to the bankruptcy of companies and a wide scale bank crisis, and finally created serious problems to the public finances, which endangered the Finnish Nordic model of welfare state.

Finland fell down from the “paradise”, from the economical “boom” of the 80´s, in the peak of the Finnish version of Nordic welfare state. Since 1994 Finland began to recover from the recession, but the country was not the same of 1990, now with two new problems: a persistent unemployment and a worsening of the social inequalities.

In the 1980’s, the country was known as one of the Nordic rich countries, with advanced welfare systems and corporatist labor markets. Finland, Sweden, Norway, Austria and Switzerland seemed to be immune to the rise of the unemployment and related social problems experienced in other Western European countries. However, starting from the end of the 1980’s all the Nordic countries faced economical crisis, having been the Finnish crisis the most serious.

But what were the main causes of this deep recession? “Bad banking, bad luck and bad policy”. In respect to the “luck” factor, there are two important events to refer: the 1989–91 collapse of the Soviet Union, Finland’s principal trading partner in 1989, with important political-economical consequences, including losses for Finnish exporters; the Finnish EU membership since 1995, with the respective economic policy in preparation since the beginning of the 1980´s.

In respect to the banking crisis in 1991–94, there are other two factors which can explain the severity of the Finnish crisis (and also the Swedish), common to other countries which have experienced similar crises.

Like many other countries, before the crisis Finland had a system of fixed exchange rate regime and a overvalued currency (markka), resulting from inflation rate which was higher than in the core countries of European currency system; the inflation and overvalued currency were caused by the expansion of the bank credit and the deregulation of the capital market in the latter half of the 1980´s.

The deregulation of Finnish capital markets at the time and the increasing supply of credit had caused the private sector indebtedness and increase of domestic demand and asset prices, leading to widening current account deficits.

Concerning “ bad policies”, the Finnish labor market had a sharp increase in labor income taxes.

The whole document “The Economic Crisis of the 1990’s in Finland” is available via Valtion Taloudellinen Tutkimuskeskus

Reference:
Seppo Honkapohja e Erkki Koskela, Kiander (ed.), Kalela (ed.), Kivikuru (ed.), Loikkanen (ed.), Simpura (ed.), The Economic Crisis of the 1990’s in Finland, "Down from the heavens, Up from the ashes - The Finish economic crisis of the 1990’s in the light of economic and social research", Valtion Taloudellinen Tutkimuskeskus (Government Institut for Economic Research) Helsinki 2001.

"Creative destruction"

In fact, the deep causes of the current crisis of global capitalism had their origin decades earlier. During the stagflation of the 1970’s, big business and political forces mobilised to define the next stage of capitalism. They wanted to recover the class power that had been dissolved by postwar policies of wealth redistribution and social welfare, the so-called Keynesian fiscal and monetary policies. The goal of these postwar policies was to provide solutions for reducing the amplitude of business cycles, and for seeking full employment. Thus, Neoliberalism became the new economic ideology, with powerful influence in the corporate media and also in the academic circuits.

A wave of deregulation of financial markets swept over the world, besides a rapid increase of transnational mobility of capital. Corporate pressure intensified on governments to adopt neoliberal “reforms” that regularly produced state spending, and many developing countries were impelled to the neoliberal way, creating social instability and environmental catastrophes - a reality that is missing from the corporate media headlines and front pages.

This process has been a form of “creative destruction”, weakening and breaking institutions, social welfare, health care, education and culture. History shows that governments have been generally powerless to fight the unavoidable and damaging capitalist ‘business cycles’.

Although unstable and unfair, the capitalist system has evidenced a capacity to reform itself to survive economic business cycles. However, these ‘business cycles’, stimulated by corporate greed and maintained by deception of the people, cause huge human and environmental costs to the planet.

Reference:
'CREATIVE DESTRUCTION' – THE MADNESS OF THE GLOBAL ECONOMY, medialens.org

Image: www.kwaves.com [PDF]

April 2008 OviMagazine [Download the free PDF]

Download the free monthly PDF magazine from here, which contains original articles and other material:

And that was April 2008...
Published: 2008-05-01 (6.90 MB)

Here we all are for another Ovi front covers monthly issue, but brace your self because there has been a re-design of the pages.
(...)
April was a great month for articles in general, so, after you have browsed through the PDF, why not take a look back on our pages and read all the other submissions that sadly didn't receive a cover?

Roll on May!