The Nordic Model - Embracing globalization and sharing risks

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The Annex to this chapter contains calculations of the quantitative significance of various sources of growth, and notably of the big importance of IT and “total factor productivity” The Nordics have advanced more than most on the path to the knowledge-based economy particularly difficult period, as both countries experienced major recessions. 2 Since then, both countries have grown more rapidly than both the euro area and the US. Overall, Denmark has also kept pace with growth in the US, while growth in the euro area has been quite weak. 3 The growth performance of the Nordic economies has in recent years been associated with an increased use of new technologies, reflecting the readiness of these countries to participate in and benefit from information and communication technology (IT) developments. In fact, these countries were early starters in the use of IT and had high shares of IT capital relative to most countries already in the mid-1990s, i.e. at the time that the IT revolution really took off. In the Annex to this chapter we will use growth accounting to assess the quantitative significance of various sources of growth. It indeed turns out that the contribution of IT capital to growth has been significant since the 1990s in the Nordic countries (similar to that in the US) and typically bigger than that of non-IT capital. Data on the whole confirms that the Nordic countries do well on indicators of IT diffusion, such as IT expenditure or personal computers (PCs) per capita. Figure 3.4 shows the expenditure on IT as a share of GDP and the number of computers per 1000 people. Sweden is at the top in both respects and also Finland scores well above the average. Denmark is close to the EU average for IT expenditure but scores very high in terms of the number of PCs per population. According to the World Economic Forum, these Nordic countries are at the top (with positions 1, 2 and 4) in a global ranking measuring the environment for IT as well as the readiness to use IT by various stakeholders. It should be emphasized that these indicators measure the diffusion or use of IT in the economy, while a different picture emerges from looking at the production side. 4 In fact, IT production has a strong role notably in the Finnish and to some extent in the Swedish economy: the share of IT in total industrial production in 2004 was some 11 and a bit over 7 per cent respectively, while its role in Denmark and the EU15 is on average more modest. Many important aspects of technology are not captured by the amount of IT capital or IT diffusion. Notably for Finland and The performance of the Nordic model · 49
% 7 6 5 4 3 2 1 0 IT expenditure, % of GDP (left scale) PCs per 1000 people (right scale) Spa Ire Ita Por Gre Aut Bel Ger Den Fra Net Fin Swe UK Units 700 600 500 400 300 200 100 0 Figure 3.4 IT expenditure and diffusion in the EU15, 2003 Source: World Bank Development Indicators 2005. Sweden, the computations in the Annex suggest that there has also been an important growth contribution from general technological progress (referred to as growth in total factor productivity or TFP), which cannot be assigned to any specific factor. A difficulty with TFP growth is that it reflects factors which are not directly measurable (with reasonable precision), such as structural change, innovations, and improvements in the general knowledge and organization of economic activities. Among such indirect factors of growth, it is usually thought that a high quality of the education system, strong competition and deregulation, and innovation and entrepreneurship are of particular importance. We will next make some remarks on these factors. Education is often considered a key determinant of both TFP growth and economic growth in general, though the measurement of human capital and its formation is very difficult. Indicators such as years of schooling or changes in the educational composition of labour do not capture all the potential effects of investment in human capital. In particular, labour quality improvements may be complementary to technological progress by, for instance, facilitating the adoption of new technologies. 5 50 · The Nordic Model
Page 1 and 2: The Nordic Model Embracing globaliz
Page 3 and 4: ETLA B232 ISBN 978-951-628-468-5 IS
Page 6 and 7: THE AUTHORS Torben M. Andersen is P
Page 8 and 9: CONTENTS PREFACE THE AUTHORS 1 INTR
Page 10: 8.5 The future of public services -
Page 13 and 14: Globalization is primarily an oppor
Page 15 and 16: ices financed by taxes, which are h
Page 17 and 18: 14, respectively, out of a total of
Page 19 and 20: are the effects of technical change
Page 21 and 22: - and, particularly, their effect o
Page 23 and 24: not contesting economic growth as t
Page 25 and 26: 1.6 AN EFFECTIVE WAGE BARGAINING PR
Page 27 and 28: etter be tried in individual cases
Page 29 and 30: The scheme of the social contract c
Page 31 and 32: is worthy and realistic. But the de
Page 33 and 34: supportive interaction of openness
Page 35 and 36: The financial deregulations in the
Page 37 and 38: horizontal axis). These indices are
Page 39 and 40: does can nowadays be seen, in a bro
Page 41 and 42: employment increases in the public
Page 43 and 44: are not at the top of the league, t
Page 45 and 46: ENDNOTES 1 Wikipedia refers to popu
Page 47 and 48: consider employment and productivit
Page 49: from the mid-1980s. Finland has gra
Page 53 and 54: As technological change is to a sig
Page 55 and 56: 3.3 SOCIAL EQUALITY Economic effici
Page 57 and 58: 0.9 0.8 0.7 Net Fin Den 0.9 Composi
Page 59 and 60: ANNEX: GROWTH ACCOUNTING The Nordic
Page 61 and 62: sources of GDP growth in the EU15,
Page 63 and 64: 11 These decompositions have been c
Page 65 and 66: 4.1 THE WELFARE STATE AS A SOCIAL C
Page 67 and 68: The extent, coverage and quality of
Page 69 and 70: % % 80 80 60 60 40 20 0 OECD max Fi
Page 71 and 72: % 80 Total Old age % 80 60 60 40 40
Page 73 and 74: tem is seriously affected. Today, t
Page 75 and 76: Historically, however, the share of
Page 77 and 78: More children. Since the problem is
Page 79 and 80: Actually higher growth may make the
Page 81 and 82: dependency ratio driven by the baby
Page 83 and 84: 82 · The Nordic Model
Page 85 and 86: to handle much bigger fields today,
Page 87 and 88: Table 5.1 Projections of public hea
Page 89 and 90: 5.4 AN EASY FIX - BRING SERVICES BA
Page 91 and 92: Box 5.1 Growth and the welfare stat
Page 93 and 94: 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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102 · The Nordic Model
Page 105 and 106:
ily policies that Nordic demographi
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absolute and relative terms than hi
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in the participation decision of th
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Table 6.2 The activity rate, aggreg
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Thus, responsible unions should res
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als take part in various unemployme
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Box 6.2 What is the Danish “flexi
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ENDNOTES 1 In his history of the ec
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particularly noteworthy in a euro a
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7.2 COORDINATION AND DECENTRALIZATI
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also depends on the business cycle.
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ut not in any dramatic way (cf. fig
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displays higher nominal rigidity th
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model stem from an age in which the
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mostly in the years 1980-2000. For
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Table 8.1 Government expenditure by
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ure. This selection bias alone will
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that everyone gets their worth as m
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8.3 THE CASE FOR GOVERNMENT PROVIDE
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maximizing firms tend to focus exce
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than zero based budgeting) are impe
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sectors, place at or above the medi
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The demands for objectivity limit w
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assessed case by case. The importan
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c. Vouchers Vouchers are issued by
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mechanically in the political debat
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ENDNOTES 1 The private sector inclu
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The biggest hurdle to overcome for
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ment has a higher return when spent
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REFERENCES Adema, W. and Ladaique,
Page 165 and 166:
Jonung, L. and Hagberg, T. (2005):
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Is there a Nordic model? What are t
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