The Nordic Model - Embracing globalization and sharing risks

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stability but also economic growth (Alesina and Rodrik (1994)). The design and implementation of policies has, by and large, helped the economy to cope with the challenges of globalization and new technologies. In other words, the interaction of policies and markets has been such as to allow the “bumble bee” to fly. This is comforting, but the real question is whether we can count on this continuing to be the case in the future. The performance of the Nordic model · 57
ANNEX: GROWTH ACCOUNTING The Nordic countries have relied strongly on the IT revolution for their economic growth success. The methodology of growth accounting allows us to assess the quantitative importance of this and other sources of growth, such as the growth of conventional capital and labour input as well as general technological change (referred to as total factor productivity or TFP). Growth accounting tries to uncover the sources of economic growth by considering the production side of the economy. The growth of aggregate output is decomposed into contributions from growth in different factor inputs (capital, labour and other factors) and from general technological change. The method can be used in a flexible way depending on the availability of data on inputs of productive factors. It should be noted that it is not possible to measure general technological change directly, so its effects are shown by the residual in the growth accounting decomposition. In this study, we have used the method to decompose overall GDP growth into contributions from the growth of labour input, non-IT capital input, IT capital input and general technological progress (total factor productivity). The contribution of each productive factor follows from its growth rate and its relative importance in production. The decompositions are based on the formula: GDP growth rate = contribution of labour + contribution of non-IT capital + contribution of IT capital + residual contribution (TFP). We now consider the three Nordic countries, using the growth accounting technique, and we also compare developments to those of the US and the EU15. Table 3.2 shows the results of the growth accounting computations 11 (first panel), the rate of accumulation of IT and non-IT capital (second panel), the growth of labour input (third panel), and technological progress or TFP (last panel). Several observations can be made. First, information technology has played a fairly big role (first panel in table 3.2). The Nordics are much like the US in the sense that the contribution of IT 58 · 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
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 and 56: 3.3 SOCIAL EQUALITY Economic effici
Page 57: 0.9 0.8 0.7 Net Fin Den 0.9 Composi
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
Page 103 and 104: 102 · The Nordic Model
Page 105 and 106: ily policies that Nordic demographi
Page 107 and 108: 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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