The Nordic model: From Reykjavik to Paris

It is not often OECD economists are invited to an internal seminar on the Nordic Model. It happened on 11 June in Paris and was called ‘Growth, employment and welfare, Nordic experiences and perspectives’. The background was the Norwell report 'The Nordic Model - challenged but capable of reform', which was launched in Reykjavik on 22 May.

The Nordic model is not as unique as it used to be, says the Norwell report. Other countries have a well developed welfare system, like for instance Germany. Christian Kastrop, who chaired the seminar, used to be the Deputy Secretary-General for policy development at the German Ministry of Finance. When it comes to values, Germany and the Nordic countries aren’t that far apart, he says.

“The difference between Germany and the Nordic countries is the high degree of trust which people have to politicians and institutions. Germans have little trust in the state,” he points out.

“There is a further dimension too: building trust in a small country is related to the fact that people know each other. It is my experience from travelling in the Nordic countries that when people from different spheres like government, politics, business and trade unions meet, they know each other.

“This is not only trust in the system. People also know who they can trust. In Germany the whole thing is more of a large anonymous entity. This is one major advantage which the smaller countries enjoy.”

Trust is an important dimension. Another dimension typical to the Nordic countries is that they have a culture of failure, says Christian Kastrop.

Culture of failure

“Yes, I would say this is an issue which is undervalued. The Nordic countries are very good at adapting if they do something wrong. If they make a mistake, they write a report. Often an independent finance policy commission will give recommendations which can improve policies. So you are able to say, hey, we have made a mistake, we need to change this.

“Other countries don’t do this. Some don’t even want to have a report on the measures which have been initiated because it could show that I made a mistake, and I don’t want that, I want the power, I don’t want to be exposed to the public. So there is also a culture of failure. The Nordic countries are very capable of dealing with their mistakes. We have done it wrong, we make a change.

“In Germany you would say, no, no, we did nothing wrong, it is simply a bad report, we didn’t do anything wrong. This is a major difference.”

Inclusive growth

In this economists’ stronghold the vision of inclusive growth is now being promoted. It was a key point during the OECD Secretary-General’s speech in Montreal on 9 June: 

”The world is calling for change, for solutions where growth is more inclusive, where the gap between rich and poor is narrowing and where the growth dividend is shared in a fairer way,” said Angel Gurría when he promoted ‘All on board for inclusive growth’.

“This is a new, wider approach to the economic challenges where you focus not only on growth but also on other dimensions of welfare and resiliency and sustainability of the economy,” says Tuomas Sukselainen, economist counsellor to Finland’s permanent delegation to the OECD, and a member of the committee which reviews the bi-annual country reports for the OECD member states drafted by the OECD Secretariat.

Increased focus on the Nordic region

Tuomas Sukselainen was the organiser, together with counsellors from other Nordic countries’ delegations and the OECD secretariat, for the EDRC seminar where the Nordic model was presented and discussed. EDRC, The Economic and Development Review Committee, is the core of the OECD’s peer pressure mechanism and has members from all of the 34 member states as well as the EU.

The EDRC’s role is to review and accept the economic surveys on economic trends and policies in the individual OECD countries and their key partners which measure achievements and give policy recommendations. The background for the seminar this time was the comprehensive Norwell report ‘The Nordic Model, challenged but capable of reform’, prepared jointly by the Research Institute of the Finnish Economy, ETLA, and economists from universities and institutes in the other Nordic countries, on commission from the Nordic Council of Ministers.

Now people here are aware of this material, summed up Tuomas Sukselainen. The report has been an incentive to study the Nordic model in depth and to use this as a reference point when the OECD develops other countries’ country reports.

The debate around the Nordic model can also help bridge gaps internally, thinks Tuomas Sukselainen, because the seminar gathered people from several directorates of the OECD’s Secretariat. Advisors from many non-Nordic national delegations also participated and learned more about the Nordic model.

The Nordic region is a model

Is the Nordic model an example for other countries to follow?

“I think yes, says Christian Kastrop. The Nordic countries are still an example, with certain reservations of course. You cannot use the Nordic model as an example for everything. But when it comes to a well balance approach to a market based economy while also delivering a high social standard, I think they really are a very good example. And after the crisis it is even more interesting because the Nordic countries have to change too, and I think we can learn a lot from the Nordics and their process of change. It also has a lot to do with how you deal with change and with mistakes.”

Worrying inequalities

There are growing inequalities in the Nordic countries too; how do you view that?

“From my point of view, being responsible for policy studies, I think there is a very broad area where growth and social inclusion is really in harmony. I don’t believe that you have to cut your social expenditure to create growth. I think it is more a matter of doing it in an intelligent way. I am pretty sure the Nordics will be very careful not to lower their equality level.

“I cannot imagine that the general consensus of the Nordic society is lost. Of course there may be some temporary exaggerations if the financial stability is under pressure, but I believe this will be quickly corrected. I think it would be completely wrong to lower the equality.”

Is the low level of inequality also the reason why the Nordic countries are forerunners?

“Yes, and I think that is the entire strategy of the OECD, it is all about inclusive growth. Growth is a means, not a goal. We want to live, we want wellbeing, we want to have social security, we want a decent job. You want to have a decent income to cater for your family. Growth and social security is absolutely two sides of the same coin.”

Is increasing inequalities worrisome?

"There is no one answer for all countries at all times. Of course corrections and calibrations are sometimes necessary, tailoring them to the challenges and changes, doing more here and less there, making and keeping social systems efficient and effective. But I would be worried if inequalities increased beyond a certain level.”

Is any Nordic country doing better that the others?

“This is very difficult to say. In a sense they all have different problems and they try to cope. Finland is dealing with one single big corporate that has gone down. There is a specific problem there. Norway is a very special case because of the huge income from oil, which they try to keep very intelligently for the future.

“Sweden and Denmark are probably more alike, while Iceland is also a very special case. The way Iceland is trying to get back from the crisis is very good. They were in a very deep hole, and some of the generosity of the system has been lowered, but I am pretty sure that when they come out of that hole they will probably not reach the same level as before but they will keep a decent social level.”

Ageing and public cost

Tarmo Valkonen, Research Director at the Research Institute of the Finnish Economy, ETLA, says that an ageing population is not a problem in itself, like people have been saying.

What can be a challenge to public services and a burden on the welfare state is technological progress in the health sector which can lead to an increasing demand for services from the public sector.

“I think we probably exaggerate this a little bit. People living longer is a good thing, and if we link the pension system a bit more to life expectancy, age is not an issue. I think the pension systems in a lot of countries have been going in the right direction. We must also remember that because of improved health many wish to work a bit longer. We need to look at age as an opportunity, not a problem.”

The OECD is the best bank for comparative data. But the measuring parameters can represent a problem.

“Measuring will never be right for everybody. Whenever you measure there will always be somebody who complain. The point of measuring things, for instance in Pisa, is for me not a question of whether the figure is right for Sweden or for Norway or for Finland. What is important in doing measuring is that people and politicians become aware that there might be a problem to discuss. So when the OECD is producing a measurement or a figure I would not say this is the right figure.

“It is a possible figure, think about it. If it turns out there is a measurement problem and some issues are not measured in the right way, of course we can change that.”

What is the main message from the OECD to the Nordic countries?

“To me, the main message would be that the Nordic countries are a point of orientation, especially for the harmony between growth and really good social standards.”