The Nordic Model - Embracing globalization and sharing risks

supportive interaction of openness and collective risk sharing. It
follows that the constitutive elements of the model – including
tax, transfer and spending policies as well as labour market institutions
and labour force participation rates – cannot be evaluated
in isolation but have to be seen as part of a comprehensive and,
to some extent, coherent system.
This chapter first points to a number of shared attributes of
the Nordic countries. These cover areas such as labour market
institutions and performance, attitudes and policies with regard to
globalization and new technologies, and the design of the welfare
state and social policies. However, the focus is not on the visible
characteristics as such but on what we perceive as essential for
understanding the performance of the Nordic countries and the
way their policies have evolved over time. We emphasize two basic
and interrelated policy orientations that have played a fundamental
role for a long time and notably in the post war period: free trade
(in an increasingly broad sense) and collective mechanisms for risk
sharing. The Nordic countries have benefited from their openness
to globalization in the form of higher productivity and incomes.
The welfare state and labour market institutions have nevertheless
given protection against the risks associated with economic
openness. We argue that collective risk sharing facilitates acceptance
of globalization by reconciling the flexibility required by open
markets with the security that workers and citizens aspire to. This
has helped the Nordic countries to adapt institutions and policies,
though often only under the pressure of events, so as make it possible
to benefit from and cope with the process of globalization.
Globalization allows
higher incomes but
requires structural
adjustments, a process
with winners and
losers. Risk sharing
enhances safety and
makes globalization
more acceptable.
2.1 FREE TRADE AND THE MARKET MECHANISM
The Nordic countries are wedded to free trade and have, with some
sectoral exceptions, been in favour of free trade already for a very
long time. This policy orientation is easily understandable for any
small country. It is particularly rational for countries with a narrow
resource base and peripheral location; access to international
markets is essential as a precondition for attaining high living stand-
Free trade is a must
for small countries
with a narrow resource
base and
peripheral location
32 · The Nordic Model