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What about the next 60? New report predicts continued success for the Nordic model

What about the next 60? New report predicts continued success for the Nordic model

| Text: Berit Kvam

“We need to make adjustments going forward, but if we do we have every chance of succeeding,” says the Managing Director of the Research Institute of the Finnish Economy, Vesa Vihriälä. He is just finishing a report on the challenges facing the Nordic welfare model in the wake of the 2008 financial crisis.

Working on the report has made Vesa Vihriälä optimistic about the future. The Nordic countries are challenged by the same mega-trends as the rest of the world, like the digital revolution, globalisation, ageing and climate change, writes Vesa Vihriälä in the final part III of the report: The Nordic Model – challenges and reform needs.

“But there are some features which we have seen in the Nordic approach to this development which make me optimistic,” Vesa Vihriälä tells the Nordic Labour Journal.

Employers' initiative

The report was originally commissioned by Nordic employers’ organisations. They wanted a comprehensive research-based overview of the challenges facing the Nordic welfare model in the wake of the 2008 financial crisis. The report has been written for the Nordic Council of Ministers with contributions from researchers from across the Nordic region. The project has used reference groups made up of representatives from both employers and employees in a three-partite cooperation with the authorities.

Early last year, The Economist launched the Nordic region as the next super model. Vesa Vihriälä thinks that made a lot of sense. Yet he doesn’t deny that the Nordic model is a difficult term. There are great variations between the countries’ welfare state models; they are not standardised or uniform. Still the term can be defended because there are so many more shared traits, he says, and quotes his Swedish colleague Lars Calmfors. Lars Calmfors has been responsible for part 1 of the report, which discusses the term a Nordic Model. Part II analyses more in detail some important themes related to the challenges faced by the Nordic countries. 

Vesa Vihriälä thinks the Nordic welfare states could be particularly vulnerable to two challenges. Firstly, an extensive public welfare state could create expectations and political pressure for the public sector to take responsibility for an increasing number of services, for instance new and expensive medical technology. It could prove difficult to find enough public money to cover this.

Small countries, big shocks

Secondly, he points to the fact that the Nordic countries are small and open economies which operate close to the technology frontier. Major focus on innovation and highly specialised export industries could make the countries particularly vulnerable to shocks to the market.

Such shocks could create a larger relative adjustment need in a small country than in more diversified economies, as exemplified in the crisis that hit mobile telephone producer Nokia.

On the other hand the Nordic countries are better placed than many other countries, says Vesa Vihriälä.

“The Nordic countries have shown that they can adjust to economic pressure and structural change. The countries enjoy high productivity, high employment, low unemployment, high levels of education and they have a culture which allows them to adjust to structural change.”

An ageing population is one of the challenges, but here too the Nordic countries are well prepared:

“Because we have already reformed our pension systems and are planning further reform. Finland in particular is exposed to a rapidly ageing population and needs to continue to reform its pension system, and to carry out reforms to increase public sector efficiency,” says Vesa Vihriälä. 

Technological challenge

Another mega-challenge is the technological development. Nobody know how it will pan out in the near future, let alone over the next 60 years. Automatisation of many ‘ordinary’ jobs is a major challenge in any case for the Nordic countries. This could undermine the middle classes in a way which would increase demand for a public safety net while the tax intake is reduced. On the other hand the Nordic countries can benefit from the fact that the Nordic region so far has proven capable of adjusting to new technological challenges.   

Climate change represents a third mega-trend. Yet the forces of nature could help the Nordic region too, says Vesa Vihriälä.

“The Nordic region is an outpost. This could prove beneficial in several ways. When the Northeast Passage opens up to traffic for longer periods of the year, it could lead to better communication and improve access to Eastern markets.”

Globalisation could as such benefit the Nordic region. Taxation and education reforms could be important political adjustments. An emphasis on equal opportunities provided by the education system could for instance reduce the risk of an increase in social inequality and low mobility.

“The Nordic model does not need dismantling and reconstruction, but there is a need to refocus and recalibrate policies,” says Vesa Vihriälä.


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