Nordic Model - Overview

Overview

Economic publications, such as "The Nordic Model - Embracing globalization and sharing risks", characterize the system as follows:

• An elaborate social safety net in addition to public services such as free education and universal healthcare.
• Strong property rights, contract enforcement, and overall ease of doing business.
• Public pension schemes.
• Low barriers to free trade. This is combined with collective risk sharing (social programmes, labour market institutions) which has provided a form of protection against the risks associated with economic openness.
• Little product market regulation. Nordic countries rank very high in product market freedom according to OECD rankings.
• Low levels of corruption. In Transparency International's 2012 Corruption Perceptions Index all five Nordic countries were ranked among the 11 least corrupt of 176 evaluated countries.
• High percentage of workers belonging to a labour union. In 2010, labour union density was 69.9% in Finland, 68.3% in Sweden, and 54.8% in Norway. In comparison, labour union density was 12.9% in Mexico and 11.3% in the United States.
• A partnership between employers, trade unions and the government, whereby these social partners negotiate the terms to regulating the workplace among themselves, rather than the terms being imposed by law. Sweden has decentralised wage co-ordination, while Finland is ranked the least flexible. The changing economic conditions have given rise to fear among workers as well as resistance by trade unions in regards to reforms. At the same time, reforms and favourable economic development seem to have reduced unemployment, which has traditionally been higher. Denmark's Social Democrats managed to push through reforms in 1994 and 1996 (see flexicurity).
• Sweden at 56.6% of GDP, Denmark at 51.7%, and Finland at 48.6% reflects very high public spending. One key reason for public spending is the very large number of public employees. These employees work in various fields including education, healthcare, and for the government itself. They often have lifelong job security and make up around a third of the workforce (more than 38% in Denmark). The public sector's low productivity growth has been compensated by an increase in the private sector’s share of government financed services which has included outsourcing. Public spending in social transfers such as unemployment benefits and early-retirement programmes is high. In 2001, the wage-based unemployment benefits were around 90% of wage in Denmark and 80% in Sweden, compared to 75% in the Netherlands and 60% in Germany. The unemployed were also able to receive benefits several years before reductions, compared to quick benefit reduction in other countries.
• Public expenditure for health and education is significantly higher in Denmark, Sweden, and Norway in comparison to the OECD average.
• Overall tax burdens (as a percentage of GDP) are among the world's highest; Sweden (51.1%), Denmark (46% in 2011), and Finland (43.3%), compared to non-Nordic countries like Germany (34.7%), Canada (33.5%), and Ireland (30.5%).