The Nordic Model - Embracing globalization and sharing risks

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Social mobility is higher in the Nordic countries than in France, the UK or the US The Nordics rank high on indicators of social welfare but are not the biggest spenders There exists a Nordic model and it has performed relatively well also benefits in kind were included. Inequality is low in the Nordic countries as well as in the Netherlands and Austria, while it is high in the Anglo-Saxon and South-European countries. Social mobility refers in this context to a measure of intergenerational income elasticity, i.e. a measure of the strength of the relation between income levels of children and parents. There are several possible reasons why children tend to “inherit” their parents’ socio-economic status (genes, wealth, transmission of learning behaviour and attitudes from parents to children). Redistributive family policies and particularly the educational system are probably some of the main forces working in the opposite direction and contributing to intergenerational income mobility. As is seen from figure 3.6, the intergenerational income elasticity is lower, that is, social mobility is higher in the Nordic countries than in France or the UK (or in the US). This may be deemed noteworthy, as few people find it desirable that the socioeconomic status is strongly hereditary whatever the views held on current income inequality. A second observation is that the Nordic countries score well in terms of indicators of social welfare. In figure 3.7 we show a measure of social expenditure and the OECD’s “composite social index”, which is a broad-based measure of social well-being that aggregates a number of sub-indices covering “self-sufficiency”, equity, health and social cohesion. 9 The composite indicator gives the highest ranks to Sweden, Denmark and Finland, while low ranks are accorded to the countries in the South. This measure is strongly correlated with GDP per capita, though the Nordic countries get higher ranks for their social performance as compared to their GDP per capita (contrary to, for instance, the US). As is seen, the Nordics achieve comparatively good results without in all cases being among the high spenders. 10 The observations in this and the preceding chapter substantiate the claim that there exists a Nordic model in the sense of a number of shared attributes that are economically, socially and politically significant. What is the “bottom line” with regard to the performance of this model? Employment and productivity rates in the Nordic countries are relatively high, the former more so than the latter. The growth rate of GDP per capita has been The performance of the Nordic model · 55
0.9 0.8 0.7 Net Fin Den 0.9 Composite indexa Social spending, 2003 b Swe 0.8 0.7 0.6 Aut Spa UK Por Fra Ger 0.6 0.5 0.5 18 20 22 24 26 28 30 Ita Figure 3.7 Social spending and welfare a Median of a composite index based on selected social indicators. OECD (2006): Society at a Glance. b Net mandated social expenditure as a per cent of GDP, see Adema & Ladaique (2005). satisfactory, notably since the mid-1990s. (Also, price stability has prevailed and the general government budget is in surplus.) The Nordics have embraced globalization and are at the forefront in adopting new technologies. With regard to the social area, the Nordic countries are consistently at the top in terms of income equality, social mobility over generations, and broad indicators of social welfare. In all, the Nordics perform fairly well in economic terms and they rank quite high according to social indicators. On balance, these observations do not suggest that the Nordic countries have, in the recent past, been paying a heavy price for their large public sectors in terms of economic distortions and inefficiency caused by the high tax rates. This need not be seen as surprising, as the effects of taxes and public expenditures are likely to depend very much on their content and context. Public action may obviously contribute to economic efficiency by correcting for market failures, by allowing for an improved risk allocation through social insurance, and by investing in infrastructures and human capital (see, e.g., Lindbeck (2006)). Increased income security and redistribution may also, up to a point, promote not only social So far the bumble bee has been flying – but what about the future? 56 · 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
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 and 50: from the mid-1980s. Finland has gra
Page 51 and 52: % 7 6 5 4 3 2 1 0 IT expenditure, %
Page 53 and 54: As technological change is to a sig
Page 55: 3.3 SOCIAL EQUALITY Economic effici
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
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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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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,
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Jonung, L. and Hagberg, T. (2005):
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Is there a Nordic model? What are t
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