The Nordic Model - Embracing globalization and sharing risks

Governments used to
have a hands-on approach
to managing
industry and the
economy
ards. Also, exports will in the long run have to grow fast enough
to finance the imports associated with an acceptable growth rate
of the economy, which in turn requires the economy to adjust to
changes in the external environment in one way or another. The
post-war history amply testifies to the importance that the Nordic
countries have attached to the maintenance of competitiveness
through moderate wage developments and currency devaluations
as well as various means of structural policies.
Commitment to free trade does not automatically go hand
in hand with a market-friendly attitude more generally. Like
most parts of Europe and the world, the Nordic countries were in
the first post-war decades highly regulated. Structural economic
policies were interventionist, while macroeconomic policies were
active and discretionary. The governments were heavily involved
in managing industry through, e.g., state companies and subsidized
investment.
Considerations of openness and competitiveness were in those
days largely restricted to exports of goods and the manufacturing
industry, at times supported by devaluations. For other parts of the
economy – such as housing, banking, insurance, the food industry,
retail trade, agriculture and energy – administrative regulation was
extensive and price setting by cartels common. Structural change
of the economy was slowed down by selective subsidies to large
firms and high taxes on profits in combination with significant tax
advantages for investment and retained profits, which tended to
lock in capital in firms with a profitable past but not necessarily
present.
Capital markets and international financial flows acquired
increasing importance in the 1980s. Their growth was stimulated
by technological developments in information technology (IT)
that substantially reduced the cost of cross-border information
flows. The ability to exploit the new financial opportunities and
access to international finance of domestic firms was increasingly
seen as necessary for their competitiveness. Also, the effectiveness
of financial regulation was undermined as a consequence of IT as
well as the internationalization of companies and their possibilities
for evading regulations. These developments belatedly paved
the way for a re-evaluation of capital market controls and foreign
exchange market regulations.
The Nordic model: myth or reality? · 33