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The Nordic model refers to the economic and social models of the Nordic countries (Iceland, Denmark, Finland, Sweden and Norway). This particular adaptation of the mixed market economy is characterized by more generous welfare states (relative to other developed countries), which are aimed specifically at enhancing individual autonomy, ensuring the universal provision of basic human rights and stabilizing the economy. It is distinguished from other welfare states with similar goals by its emphasis on maximizing labour force participation, promoting gender equality, egalitarian and extensive benefit levels, large magnitude of redistribution, and liberal use of expansionary fiscal policy.^[1] The Nordic Model however is not a single model with specific components or rules; each of the Nordic countries has their own economic and social models, sometimes with large differences from the neighbours.

On the Index of Economic Freedom 2008, Denmark's rating is 11th highest of 162 countries (4th in Europe), Finland's 16th, and Sweden's 27th.^[2]

[edit] Overview

Economic publications, such as the "The Nordic Model - Embracing globalization and sharing risks", characterize the system as follows:^[3]

• Strong property rights, contract enforcement, and overall ease of doing business.^[2]
• Low barriers to free trade.^[2]
• Little product market regulation. Nordic countries rank very high in product market freedom according to OECD rankings.^[3]
• Little financial market regulation. Denmark and Finland have the lowest regulation burden in EU-15 according to OECD rankings.^[3]
• All Nordics have been pioneers in privatization alongside competitive public services. For instance, Sweden privatized education with education vouchers in 1992.^[4]
• Pension systems are privatized. Systems have higher pension funding rates than in most European countries. They still have deficits, however.
• Sweden has decentralized wage coordination, while Finland is ranked the least flexible.^[3] As in other European countries, the powerful labour unions tend to block attempts at reform .^[3] 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. Denmark's flexible market differs radically from other Nordics (see Flexicurity). According to World Bank data, Denmark has almost no labour market regulation, and ranks first in Europe in labor freedom.^[2]
• Sweden at 56.6% of GDP, Denmark at 51.7%, and Finland at 48.6% reflects very high public spending, compared to 46.9% in Germany, 39.3% in Canada, and 33.5% in Ireland.^[2]
• A key reason for public spending is the very large number of public employees. They often have jobs-for-life 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 Europe's pioneering privatization and outsourcing programs.^[3] Public spending in social transfers such as unemployment benefits and early-retired programs 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. Unemployed were also able to receive benefits several years before reductions, compared to quick benefit reduction in other countries. Public spending in areas such as education or health is not far from the OECD median.^[3]
• 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. Median employee's tax wedge is between 57%-65%. Value-added tax rates are over 20% and corporate tax rates around the OECD median at around 26%. Property taxes are low or non-existent. The tax burden is particularly heavy on service sectors. Karlson, Johansson & Johnsson estimates that the percentage of the buyer’s income entering the service vendor’s wallet (inverted tax wedge) is around 15% in Nordic countries, compared to 10% in Belgium, 15% in Germany, 25% in France, 30% in Ireland and 50% in the United States. Some taxation is avoided by self-service and in the black market.

[edit] Welfare benefits

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In the Nordic countries, the State is involved in financing and organizing the welfare benefits available to the citizens to a greater extent than in most other European countries. The system is universal, covering everyone. In Denmark the government even has a constitutional duty to ensure all citizens can have a home and enough to eat.

There are three major pillars of the modern Nordic welfare state: social security, health care and free education.

Health care and social security ensure a high minimum living standard for all citizens regardless of their economic situation. The free education maximizes the social mobility, and strives to make it possible for everyone to better themselves, without relying on economic support from their families.

The benefits given are more generous than is the case in the British Beveridge model – and in combination with the taxation system this brings about a greater redistribution than is the case in the Bismarck welfare model, which is aimed rather at maintaining the present status.

Economists^[who?] in favor of the Nordic model of organization argue that it is far simpler and more immediately comprehensible than is the case in the other European countries. In the Nordic countries most of the social welfare tasks are undertaken by the State or local authorities, and only to a limited extent by individuals, families, churches or national welfare organizations. It's also pointed out that the Nordic model represents a ladder out of dependence (as evidenced by extremely low unemployment), where in order to receive full benefits, one must either be improving his or her education, learning a new skill, or seeking employment.^{[citation needed]} Because of the fact that there are no tuition fees for universities in the Nordic countries, it's quite easy to gain new skills and stay competitive in the work markets. American economists, such as Nobel prize winner Joseph Stiglitz, say that the Nordic model is superior to American social security in these respects, and that it could considerably reduce welfare dependence in the United States were it implemented.^{[citation needed]}

Critics^[who?] of the Nordic model sometimes charge that this amounts to increased interference in the of the markets, and criticize the redistribution of wealth which they see as a fundamental violation of liberty. They point out that the system only has been implemented in countries with small populations.

Despite the expectations of its critics the Nordic countries have strong economies, a high standard of living, low crime rates and are democracies.

It is important to note that the Nordic welfare model is a concept that is now embraced in by all mainstream parties on both the right and left of the political spectrum in the Nordic countries. This means that in practice critics of the Nordic model have difficulties being heard domestically in those countries.

[edit] Labour market

In the Nordic countries, social regulations do not come from the law, like in southern Europe, but are defined in collective agreement. Thus, for example, minimum wages do not exist in Norway, Sweden, Finland or Denmark; each branch determines its own rules. The high unionization rate (more than 85%) is partly a result of historic tradition following violent conflicts in the 30s, partly from the importance of Nordic trade unions in the political life of the countries, and also by the services provided (unemployment insurance, support for the negotiation of individual salaries, bank and insurance services, holidays, etc.). The importance and influence of the trade unions is very high in the Nordic countries.

[edit] Education and research

The Nordic countries are the highest spenders in Europe, both through the government training schemes and private sector, for education, training and research:

• According to the OECD, each year Denmark spends more than 7% of its GDP on education, Sweden 6.5% and Finland 6%, as opposed to 5.5% in United Kingdom.
• More than 80% of Swedes receive training each year, which is twice the European average
• Each year Sweden and Finland spend more than 4% of their GDP on research, Denmark 2.6% and the UK less than 2%.
• In 2002 the Nordic countries, including Iceland, protected more patents than France or the United Kingdom, despite having fewer than 25 million inhabitants.

[edit] Public sector

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Sweden and Denmark were in 2004 the countries of the European union where the expenses of the public administrations were the highest, with respectively 57.2 and 56.3%, Finland a little on this side with 50.7%. The Nordic countries are quite near France (53.8%) and very distant from the British model, where taxes and public expenditure in general are much lower, but where people are generally expected to manage more of their own affairs for themselves.

The Nordic countries spend a large amount on social protection, as much as France and the UK: between 26.4% and 32.5% of the GDP for 30.6% in France and 27.6% in United Kingdom in 2004. The social benefits are high, with a high level social net: the welfare system payments are higher than anywhere else in Europe, including Germany, Italy, Spain or France.

Almost all residents have access to a very comprehensive health system and social protection. Some^[who?] Nordic economists believe that high social contributions put a positive weight on national production, when VAT is paid also on imported products.^{[citation needed]}

2004 health cost in Finland was 7.5% of GDP, 15.3% in the US, 10.5% in France and 8.1% in the UK. Management costs of social programs were, in 2005 according to Eurostat, 4% in France and 2.9% to Denmark.

The crisis of the Nordic model in Sweden and Finland at the end of the 1980s and in the beginning of the 1990s pushed them to search for ways of making their welfare system more efficient. This was partly in an effort to install in the citizens’ minds a clear link between the taxes and the services they received, but also because the old systems were too costly to maintain. This decentralization has been in some countries quite extreme: in Finland, the whole sanitary and social system is under the responsibility of municipalities, which are sometimes quite small.

Denmark recently reviewed the number of municipalities, dividing their number by 3 from 300 to 99, partly in order to oblige them to provide services to at least 30 000 inhabitants, and also to try and improve local government efficiency. Finland, Sweden, Norway are going in the same direction, but slowly.

Sweden devised a labour market activation policy in the 1950s, when it decided to oblige unemployed people either to actively look for a job in support groups, or to train with a specific objective, or to participate as a trainee in the private or public sector. These activation schemes cost a lot: in 2003, Denmark dedicated 1.529% of its GDP to active employment measures, Sweden 1.042% and Finland 0.748%, the EU average being below 0.7%.

[edit] Other features

Denmark is adopting heavy use of wind energy, spawning many successful windmill-companies, the biggest of which is now Vestas. Wind-energy is currently meeting 25% of the country's energy requirements.^{[citation needed]}

Sweden is attempting to adopt a policy of being energy self-dependent by 2020 with an oil phase-out in Sweden.

Nordic countries generally have very high rates of gender equality by most measurements.^{[citation needed]}

[edit] Performance

This section may contain original research or unverified claims. Please improve the article by adding references. See the talk page for details. (July 2009)

European countries on the Ease of Doing Business Index 2008[5]
Rank Country 1  Denmark 2  United Kingdom 3  Ireland 4  Iceland 5  Norway 6  Finland 7  Sweden 8  Switzerland 9  Estonia 10  Georgia 11  Belgium 12  Germany 13  Netherlands 14  Latvia 15  Austria 16  Lithuania 17  France 18  Slovakia 19  Portugal 20  Spain ...

To sum up the description of the Nordic models: the productive private sector needs to be efficient and generate exports due to the small indigenous populations. The workforce is highly unionised and therefore the unions have a major say in both the running of business and that of government. The governments ultimately have the biggest say in the management and development of the economy. Salaries (and taxes) are high, and there is a comprehensive social security system open to all.

There has been an overall strong economic recovery since the extreme economic malaise in the Nordic countries, especially Denmark and Sweden, suffered up to the 1990s when their currencies came under attack when members of the European Exchange Rate Mechanism.

In recent years the following official figures have been reported:

• Between 1984 and 2002, Sweden's GDP growth was 36% compared to 111% in Ireland.
• High growth in the last years, (10,05 percent for the EU to 15 on 2000-2004, 15% for Finland 12.3% for Sweden, 4.4% for Sweden and 5.5% for Finland in 2006.
• Low unemployment, the lowest of the European union for Denmark (3.4% in March 2007…) after having known high levels 10 years ago (9,1% in Sweden, 9.6% to Denmark and 16.3% in Finland for 1993
• Official poverty risk rate are 9% in Sweden, 10% in Denmark, 11% in Finland, 13% in France and 19% in United Kingdom.
• According to libertarian think tank Timbro, when measured by wealth, the poor have less wealth than in the United States. For instance, they live in smaller apartments, have lower home ownership, and have less household equipment. These findings are however contradicted by a peer-reviewed study in the American Economic Review by American economist Lane Kenworthy who found that the percentage of household living on less than 40% of U.S. median household income (adjusted for household size) was lowest in the Nordic countries, and much lower than in the U.S.
• Governments have committed to fiscal responsibility. In 2004, Sweden, Finland and Denmark presented an excess of the public accounts (respectively of 1.2%, 1.9% and 2.6% of the GDP), whereas France presented a deficit of 3.7% and United Kingdom a deficit of 3.1%.
• Flight of capital, as is often seen in any country where taxes are significantly higher than their neighbors, incentive to move ones financial dealings outside of the country to avoid taxation can become a problem. As a result, some Danes and Swedes have emigrated or based their financial affairs outside of their home countries. Examples of this include Ingvar Kamprad, the Swede who founded furniture retail chain IKEA, who has lived in Switzerland for the past 30 years, while the Ikea business operates through a Netherlands-based holding company. Janus Friis, the co-founder of Skype, is now based in the UK and another very recent Danish example is the boxer Mikkel Kessler, who rebased to Monaco in 2007. Stephen Kinnock, son of former UK Labour Party leader Neil Kinnock, and the husband of party leader Helle Thorning Schmidt of the Social Democrats, also doesn't base himself in Denmark. This latter case is perhaps unsurprising as he is not Danish has always worked for British or international organizations based outside of Denmark even though his wife and children live in Denmark.
• The extensive social services network can potentially lead to situations where a statistically significant amount of people live exclusively on unemployment benefits, without seeking employment. The magnitude of this problem is not certain, but it is worth noting that the countries following the Nordic model have very low unemployment.
• As globalisation becomes a more accepted part of business and personal life, many companies are becoming more aware of international opportunities to cut costs, as with the high taxes and high cost of living, they are finding they can recruit employees cheaper abroad. Thus outsourcing and offshoring are becoming very common, especially in sectors such as IT and manufacturing, and many building construction companies are importing labour from the new Eastern European members of the European Union, rather than recruit internally and pay Nordic salary levels.

[edit] See also

• Social Model
• Flexicurity
• Social Democracy
• Nordic countries
• Swedish welfare
• Folkhemmet

[edit] References

[edit] External links

• The Nordic Model - Analysis of the Nordic Model