The Nordic Model - Embracing globalization and sharing risks

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With this kind of productivity growth in the private sector, the prospects for similar gains in the public sector would seem good. However, investments in IT alone are far from enough. IT is merely a technological enabler. To improve productivity, firms have to make complementary investments in human capital and changed work practices of the order of three to five times the investments in IT. 12 What is especially troublesome from the public sector’s perspective is that the changes in work practices that are essential include higher work autonomy and more powerful financial incentives (usually for teams of workers). Given the problems of accountability in the public sector and the bureaucracy built to deal with them, it is going to be hard to change the whole system. Yet, if these complementary investments are not made, the evidence from the private sector shows that returns from IT investments are often minimal, even negative. 13 8.5 THE FUTURE OF PUBLIC SERVICES – LEVERAGING THE PRIVATE SECTOR Increase the reliance on privately supplied services, but keep control of the “core” activities of the public sector The private sector is already providing a significant part of the services financed by the public sector, and the private sector could do more Because of the inevitable burdens of public bureaucracy, the best way to raise public sector productivity is often to look for ways to “leverage” the private sector without compromising the government’s broader social objectives. This means increasing the reliance on privately supplied services, while keeping “core activities” under government control. The strategy is similar to outsourcing within the private sector and some of the lessons learned there can be useful. But as always, one should be careful about imitating private business models without checking how well their logic fits the public context. The core activities of the public sector are obviously very different from those in the private sector. Many OECD countries, including the Nordic countries, are already relying heavily on the private sector for part of government financed services. Figure 8.1 shows the central governments’ purchases of all goods and services from outside vendors as a proportion of total expenditures, excluding transfers and interest payments. The Nordic countries, with their large government The proper scope of the public sector · 145
sectors, place at or above the median of the sample, which reveals considerable variation across countries. Unfortunately, the figure does not include local government expenditures. The role of private sector services has grown especially fast in local government where budget pressures have been most acute. The purpose of engaging the private sector is to bring in more competition. The hoped for benefits from competition include better allocation of resources, lower cost of service, higher quality of service, more innovation and new business models – in short, all the virtues of competition we discussed earlier. However, these benefits will necessarily be limited by the government’s need to retain control so that its broader missions can be achieved and its legitimacy preserved. Many bureaucratic rules will continue to apply in the relationship between the private sector and the government. For instance, while a firm is free to choose whichever private service provider it wants based on whatever criteria it chooses, including very subjective ones, the government has to rely on transparent, There are a lot of potential benefits from competition, but these will be limited by the government’s need to retain control of its broader mission Portugal Italy France Spain Ireland Belgium Luxembourg Austria Denmark Canada Germany Iceland Netherlands Finland Australia New Zealand Sweden Switzerland Norway United States United Kingdom 0 10 20 30 40 50 60 70 80 % Figure 8.1 Outsourcing of government services, 2001 Purchase of goods and services vs. in-house provision. Source: OECD Secretariat calculations based on GFS Data. 146 · The Nordic Model
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The Nordic Model Embracing globaliz
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ETLA B232 ISBN 978-951-628-468-5 IS
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THE AUTHORS Torben M. Andersen is P
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CONTENTS PREFACE THE AUTHORS 1 INTR
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8.5 The future of public services -
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Globalization is primarily an oppor
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ices financed by taxes, which are h
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14, respectively, out of a total of
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are the effects of technical change
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- and, particularly, their effect o
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not contesting economic growth as t
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1.6 AN EFFECTIVE WAGE BARGAINING PR
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etter be tried in individual cases
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The scheme of the social contract c
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is worthy and realistic. But the de
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supportive interaction of openness
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The financial deregulations in the
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horizontal axis). These indices are
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does can nowadays be seen, in a bro
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employment increases in the public
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are not at the top of the league, t
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ENDNOTES 1 Wikipedia refers to popu
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consider employment and productivit
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from the mid-1980s. Finland has gra
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% 7 6 5 4 3 2 1 0 IT expenditure, %
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As technological change is to a sig
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3.3 SOCIAL EQUALITY Economic effici
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0.9 0.8 0.7 Net Fin Den 0.9 Composi
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ANNEX: GROWTH ACCOUNTING The Nordic
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sources of GDP growth in the EU15,
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11 These decompositions have been c
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4.1 THE WELFARE STATE AS A SOCIAL C
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The extent, coverage and quality of
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% % 80 80 60 60 40 20 0 OECD max Fi
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% 80 Total Old age % 80 60 60 40 40
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tem is seriously affected. Today, t
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Historically, however, the share of
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More children. Since the problem is
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Actually higher growth may make the
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dependency ratio driven by the baby
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82 · The Nordic Model
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to handle much bigger fields today,
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Table 5.1 Projections of public hea
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5.4 AN EASY FIX - BRING SERVICES BA
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Box 5.1 Growth and the welfare stat
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it implies that the long-run defici
Page 95 and 96: The level of taxation is already hi
Page 97 and 98: One may ask why this problem arises
Page 99 and 100: globalization may contribute to bot
Page 101 and 102: able to pay to seek private solutio
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Page 105 and 106: ily policies that Nordic demographi
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Page 109 and 110: in the participation decision of th
Page 111 and 112: Table 6.2 The activity rate, aggreg
Page 113 and 114: Thus, responsible unions should res
Page 115 and 116: als take part in various unemployme
Page 117 and 118: Box 6.2 What is the Danish “flexi
Page 119 and 120: ENDNOTES 1 In his history of the ec
Page 121 and 122: particularly noteworthy in a euro a
Page 123 and 124: 7.2 COORDINATION AND DECENTRALIZATI
Page 125 and 126: also depends on the business cycle.
Page 127 and 128: ut not in any dramatic way (cf. fig
Page 129 and 130: displays higher nominal rigidity th
Page 131 and 132: model stem from an age in which the
Page 133 and 134: mostly in the years 1980-2000. For
Page 135 and 136: Table 8.1 Government expenditure by
Page 137 and 138: ure. This selection bias alone will
Page 139 and 140: that everyone gets their worth as m
Page 141 and 142: 8.3 THE CASE FOR GOVERNMENT PROVIDE
Page 143 and 144: maximizing firms tend to focus exce
Page 145: than zero based budgeting) are impe
Page 149 and 150: The demands for objectivity limit w
Page 151 and 152: assessed case by case. The importan
Page 153 and 154: c. Vouchers Vouchers are issued by
Page 155 and 156: mechanically in the political debat
Page 157 and 158: ENDNOTES 1 The private sector inclu
Page 159 and 160: The biggest hurdle to overcome for
Page 161 and 162: ment has a higher return when spent
Page 163 and 164: REFERENCES Adema, W. and Ladaique,
Page 165 and 166: Jonung, L. and Hagberg, T. (2005):
Page 167: Is there a Nordic model? What are t
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