Ethos Perspectives
Making Sense of the Nordic Model
Introduction
The Nordic model intrigues and inspires. In Continental Europe,
welfare burdens have hurt competitiveness; America thrives
on the whole but records unprecedented levels of income inequality.
In contrast, Scandinavia provides some of the most comprehensive
social safety nets while delivering equally impressive economic
development.
Their accomplishment is the envy of many.
The Nordic states are found at top of the Human Development
Index (which measures the well being of citizens); their labour
participation rates are among of the highest in the world;
and they generate a healthy surplus (unlike most of their
Continental counterparts or the US).
But their main intrigue must stem from how
they challenge conventional assumptions on development, which
has tended to place extensive welfare outlays at odds with
market dynamism.
Recent policy developments in Singapore—creating
a competitive tax environment to spur economic growth, and
the strengthening of social safety nets—reflect similar
objectives. This edition of Ethos Perspectives presents a
snapshot of arguments by advocates of the Scandinavian experience
(References 1 and 2), and critics who believe that the former
pundits are mistaken about the lessons the Nordic states offer
us (References 3 and 4).
Reference 1: "The Social Welfare
State: Beyond Ideology" by Jeffrey D. Sachs
In this article, Sachs rejects the suggestion by economist
Friedrich von Hayek, that high taxation would be a sure "road
to serfdom". Sachs argues that the Nordic countries
are a prime example of how economic prosperity and social
security need not be antagonistic or mutually exclusive ideals.
Instead, Finland, Norway, Denmark and Sweden show that it
is possible to combine a "healthy respect for market
forces with a strong commitment to antipoverty programs".
The Nordic countries have maintained economic
dynamism despite high tax rates. They have done so by devoting
resources to research and development, higher education, and
infocomm technology. He also observes that the Nordic states
have worked to balance social expenditure with open and competitive
market-based economies. To continually promote business and
enterprise, for example, they maintain low tax rates on capital.
Sachs maintains that a generous social-welfare
state is not the antithesis of a strong and vibrant economy.
Rather, it can lead to fairness, economic equality and international
competitiveness, as the Nordic example has shown.
Sachs, Jeffrey D. "The Social Welfare
State, Beyond Ideology." Scientific American November
2006. http://www.sciam.com
(accessed February 5, 2007).
Reference 2: "Foreign Direct
Investment and the Nordic Model" by Phillip Whyte
It has become common to hear how globalisation has turned
the state powerless. Capital has become increasingly mobile
and naturally gravitates towards countries with low taxes,
cheap labour costs and minimal regulations. Countries have
no choice but to compete with others in deregulating and lowering
costs; democracy and the welfare state are consequently undermined.
Whyte contends this notion to be untrue,
at least not from the experience of Denmark, Finland and Sweden.
They attract more than their fair share of foreign investment,
despite having some of the highest tax rates and highest public
expenditure among OECD countries.
The tax regime, Whyte argues, is not the
only consideration for companies when they decide where to
place their investments. What Scandinavians lack in price
competitiveness, they make up by other qualities—transparency,
integrity, innovativeness, quality labour force, infrastructure,
stability of the political and investment climate, and market-friendly
policies. The Nordic experience suggests that it is not the
size of the state, but the quality that matters, Government,
if well managed, can be an effective agency for socio-economic
change.
Whyte, Phillip. "Foreign Direct Investment
and the Nordic Model." In EPC Working Paper No.20 The
Nordic model: a recipe for European success?. Belgium: European
Policy Centre, September 2005. http://www.theepc.be
(accessed February 5, 2007).
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