The Nordic Countries seem to have embraced the new economy. It is based on knowledge, technology and innovation - the Nokia factor - and Nordic countries bear all the hallmarks. (IWAVE, 16/12/2006)

Publié le par François Alex

Return of the Welfare State

When it comes to growth and global competitiveness Denmark, Finland, Norway and Sweden are model students, despite high welfare spending. What puts them ahead of the class? And what are the challenges ahead?

At the beginning of the 1990s the 'Nordic model' was going out of style fast. Aiming at full employment, social welfare and equal distribution of wealth, the system seemed to be collapsing under its own weight.

Finland and Sweden were particularly hard hit. Unemployment soared, economic growth came to a screeching halt and national debts racked up.

At a time when economic convention preached the need for tax cuts, reduced welfare spending and deregulation, the Nordic countries were seen as big losers in the face of global competition. The need for reforms became painfully obvious and decades of success seemed to be over.

But 15 years down the line the image of the Nordic countries is very different. Nordic growth rates are outpacing the European Union average.

The World Economic Forum puts Finland, Sweden and Denmark in second, third and fourth place in its latest Global Competitiveness Report. Only Switzerland beats the Nordics to the top spot.

Out of the Red

What's the recipe for this success? The economic expertise says healthier state budgets is one ingredient. "The crisis taught these countries you cannot continue raising taxes," says Henning Jorgensen, an economist from the Organisation of Economic Co-Operation and Development (OECD).

Nordic governments are no longer running their budgets into the red. Benefit spending has been cut drastically, a painful adjustment for ordinary citizens.

"Everyone understood we had to streamline our welfare state," adds Simo Pinomaa, Senior Economist at the Confederation of Finnish Industries. "We've understood that there's no such thing as a free lunch".

But lower spending has not been the only factor. The welfare state — under siege in the 1990s — has emerged as a key to labour market reforms and the Nordic success overall.

Return of the Welfare State

"What you thought was the worst thing you could do in the 90s has turned into one of the best investments," says Professor Henning Jorgensen at Aalborg University in Denmark. He says the Nordic welfare state has witnessed a revival at the expense of neo-liberal economic policies, which reject government interference in domestic economies.

"Even the OECD is now advocating another model, an interventionist model," says Jorgensen.

Jorgensen's theory receives support from Silje Hole from the Oslo-based think tank Mandag Morgen. She says it has become easier for Nordic employers to hire and fire. Impossible elsewhere in Europe - Nordics have agreed to these reforms because of the welfare state's safety net.

"It's not that dramatic to lose your job," says Hole.
Both Henning Jorgensen and Silje Hole speak of “flexicurity.” Companies and employers can fire during downturns and hire when the economy is booming. At the same time citizens feel secure because of a welfare system that catches them when they fall.
They say flexicurity has meant there is little or no conflict in the labour market. The state has been able to cooperate and agree on reforms with employers as well as employees.
"People are not afraid of the future, they trust society," says Jorgensen.
From Industry to Innovation
Nordic flexibility emerges as a success story from another perspective. Experts say the Nordics have adapted successfully to new times.

"The transformation from industrial production to industrial innovation is what signifies the Nordic countries," says Silje Hole.
"We're not relying on old industrial structures. There's a 'mental mobility' which we haven't seen in for instance France and Belgium," he adds.
The Nordic Countries seem to have embraced the new economy. It is based on knowledge, technology and innovation - the Nokia factor - and Nordic countries bear all the hallmarks.
Telecom and Internet usage is high. Denmark, Finland and Sweden are ahead of other EU countries in terms of spending on research and development relative to their gross domestic products.
Education levels are also high. The World Economic Forum Competitiveness Survey puts Finland in first in the "Higher Education and Training" category.
Constant Change
The OECD economist supports the image of the ever-changing Nordics. "The Nordic model is based on constant reform," he says.
The OECD researcher also attributes the recent success to an inherent market orientation. He says this trust in market mechanisms, together with a focus with human capital, should not be underestimated.
"In terms of market orientation, the Nordics are like the Anglo-Saxons and on the tax side like Europeans," he says.
The economist says other European governments could follow the Nordic example. But they should become more market-oriented and stop their focus on companies that are national champions. According to him, they should also worry less about job protection and more about pension reform.
Challenges Ahead
But experts are warning that it is not all plain sailing for the Nordic economies. Like in the rest of Europe, Nordic populations are getting older and troubled waters could lie ahead.
Simo Pinomaa says that Finland is already facing a lack of labour. He says it is a growing problem because the Finnish population is aging faster than the EU average.
"Half of construction companies report that a lack of labour is hitting their growth potential," says Simo Pinomaa at the Confederation of Finnish Industries.
Silje Hole from Mandag Morgen also says Nordic citizens have become more individualistic, which breaks away from a principle of equality.
"There is a discussion on how to finance the welfare-state in the future," she concludes.
Saturday, December 16, 2006
posted by IWave at 6:20 PM  


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