We use cookies on this site for personalisation and analytics. By continuing to browse you are agreeing to our use of these cookies. Click to see our cookie policy.
Nordic Model 1

What is the Nordic Model? Explaining the success of Scandinavian economies

The economic and societal success of the Nordic countries – Norway, Sweden, Denmark, Iceland, and Finland — has world leaders around the globe asking, what is the Nordic model? And how can we adapt their ideas to serve our own people?

And with good reason, too. 

The Nordic countries consistently have some of the best-performing economies and highest standards of living in the world. They enjoy low rates of income disparity, strong societal cohesion and sense of community, and they steadily rank at the top of national happiness polls

Especially in these times of profound economic despair and unprecedented disparity between rich and poor, along with widespread political unrest. 

Economists and world leaders alike are looking to Scandinavia and the Nordic region for ways they might borrow some of Scandinavia’s ideas to help stabilize their own countries.

The Nordic economic model

But what is the Nordic Model? There’s a whole lot of confusion in some English-speaking countries—some of which is clearly manufactured for political purposes—about whether the Nordic nations are actually “socialist” countries. 

While it’s true that there are aspects of the Nordic Model that reflect concern and care for the social needs of the populace, in truth the model is a clever combination of a fully globalized, competitive market economy blended with generous social benefits. 

The Nordic Model combines some of the best aspects of a robust social contract—making for those happy, productive Scandinavians from the polls we hear reported year after year—along with a firm foothold in modern, global capitalism.

Here are some of the main points that define the Nordic Model, which we’ll examine in more depth below.

The Nordic Model features a mixed economic system:

  • Market capitalism: Companies are competitive in the marketplace and encouraged to innovate.
  • Globalization: Business in the Nordic countries is every bit as much a part the global economy as that of other western nations.
  • Worker participation: Employees are fully vested in their companies and participate in management-level decision making.
  • Strong labor presence: Workers’ rights are strongly protected via government oversight and societal pressure.
  • Strong social safety net: Social benefits are robust and the government-provided safety net means all citizens are taken care of.
  • Equality: Governments are trusted to look out for everyone equally, just as businesses are run in a very egalitarian manner.
  • Taxes: The strong social safety net is provided by high taxes, but most people are content with the trade-off.
Nordic Model 2

The Nordic Model and market capitalism

When western politicians seek to deride the Nordic Model, the first point they make—and often only point—is about the tax rate. As we’ll see, the tax rate in the Scandinavian countries is actually quite fair given the benefits provided, and indeed in some ways it turns out to be lower than that of the US. 

Not to mention that in poll after poll, there’s great citizen satisfaction in nations operating under the Nordic Model with the bargain they’ve struck between paying taxes and getting a stunningly generous package of benefits as a birthright.

Global economy: The Nordic economy

However, let’s start with an important fact that inevitably gets glossed over when we talk about the Nordic Model critically, and that’s market capitalism. 

All five of the Nordic countries, and especially the trio that make up the core of Scandinavia—Denmark Sweden and Norway—are highly successful players in the modern globalized economy. 

When dyed-in-the-wool neoliberal think tanks like the Heritage Foundation float white papers touting how “Economic Freedom Underpins Nordic Prosperity,” you can be pretty certain these nations aren’t run by packs of wild-eyed Commies. 

Indeed, by many measures Scandinavia is doing a whole lot better economically than the supposed models of modern globalization in the west, the US and the UK.

Going into 2021 in the wake of the devastating global economic downturn associated with the coronavirus pandemic, the Nordic nations collectively are looking at an inflation rate of just 0.7 percent according to economists

Domestic demand is on the rise as consumer and capital spending continue to improve. 

What’s more, labor markets in the region are also responding to continued fiscal stimulus. The trio of pillars that undergird any nation’s economy—capital, labor, and consumer spending—are all on the rise as these nations are readying themselves to respond to increased global trade. 

As much of the rest of the western world continues to reel economically and socially as they struggle to adjust to a new coronavirus normal, Scandinavia and the Nordic nations are calmly, quietly doing the work that will put them out in front of the pack.

Indeed, it’s hard to deny that the Nordic countries are pretty much in the best economic shape possible, given what the global economy has been through over the past year. 

Business under the Nordic economic model

Two of the most important concepts you need to get in order to understand the success of businesses under the Nordic Model are innovation and trust. 

But baked into those concepts is another key to understanding Scandinavia and the Nordic region in the present: understanding the history of the region. 

There is a strong tradition of people in disparate and geographically isolated communities working together to reach a consensus for any decision that’s going to affect the group. 

There are in-jokes in each of the Scandinavian countries about how they are prone to scheduling meetings to decide when to have meetings about the meetings they need have. Reaching a satisfactory consensus is paramount, no matter how many meetings need to happen in order to do so.

This sense of the importance of reaching unanimity is so integral to the region in part because of the history of the Scandinavian economic structure. 

Before Norway, Sweden and Denmark were even nations, their societies developed around farming communities that were largely run independently. 

Local growers’ interests aligned, and thus community meetings were convened regularly in order to ensure everyone was on the same page, as well as decide what the best course of action would be moving forward. 

Scandinavian Model: Business by consensus

Over time, this sense of community evolved to encompass a strong notion of watching out for everyone in the group. 

As the “group” became larger and larger and finally developed into the nations we recognize today, this same spirit persevered: if everyone is doing pretty well, then no one needs to do without, and we are all better off in the end. 

This model of course runs in stark contrast to the English, French, or Spanish feudal economic model, in which a handful of lords got very very rich while the vast majority of the populace scraped by. 

This storied and unique history of the Scandinavian economic model is reflected to this day in the way individual companies are run. 

Workers are regularly consulted on much of the decision-making, and they are made to feel as though they are part of a team, not just cogs in a machine. 

Most companies have very low executive-to-worker pay gaps, meaning that while the company’s leaders do get paid more, the exorbitant salaries and bonuses of US or UK corporate heads don’t exist.

Labor under the Scandinavian Model

And that’s not the only way the Nordic model looks out for laborers. While US workers average 47 hours per week at work—despite being considered “full-time” at 40 hours—most Nordic countries have an average work week of between 35 and 40 hours. 

Yet their economies are doing just fine. 

Sweden recently took the tradition of short work hours even further and experimented with a 6-hour workday. What they found was that productivity wasn’t affected at all, perhaps because workers were motivated to do their tasks more efficiently. 

And not only were they happier, but they were also healthier, taking fewer sick days and fewer days off. 

And we can’t forget the generous vacation time and other perks built into companies that operate under the Nordic economic model. For instance, while the average Dane gets 25 paid vacation days per year, on average Americans only take 16 days of vacation. 

What’s more, a great many positions in America don’t come with paid holidays. We’ll have more on the social benefits enjoyed under the Scandinavian economic model below.

When it comes to how companies are run under the Nordic Model, one crucial takeaway is that the workers as well as those in the C-suite are encouraged to think of themselves as a genuine part of a team. 

Workers are regularly consulted on proposed directions the company might take, and the ethics of fairness and community consensus are integral to how most companies here function — again, with no apparent detriment to their productivity, ability to innovate, or potential for growth.

Nordic Model 3

The Nordic Model and social benefits

People from English-speaking countries are often flabbergasted when they visit one of the Nordic nations and learn of the generous—even downright lavish—social benefits that Danes, Swedes and people of other countries in the region take as a matter of course. 

Here are a few of the broad areas where the state takes care of its citizens:

  • Free healthcare for most services
  • Free education including university
  • Child allowance up to age 18
  • Generous maternity benefits
  • Extensive and well-maintained roads and bicycle lanes
  • Comprehensive, clean, and consistent public transport
  • Tons of pristine parks and public spaces
  • Well-maintained and extensive public beaches and wilderness areas 

Just the general list alone should be enough to make most Americans and Brits sit up and take note when we consider our own meager social benefits. But it’s worth taking a deeper dive into one or two of these broad areas, starting with childcare.

The Scandinavian economic model and childcare

In the US, a new mother gets just 12 weeks of paid leave, a piteous amount of time for much-needed bonding with a new child and among the lowest in the industrialized world. 

And note that US fathers are generally excluded from consideration altogether when it comes to paid time off to care for a newborn. 

However, if you are a happy new parent in Sweden, you can count on 480 paid days off during which time you will receive 80 percent of your regular pay. 

Mothers who are expecting can also expect to receive free childbirth coaching starting 60 days into the pregnancy, and they can cut their working hours by 25 percent until the child’s eighth birthday. 

Families with a new member also receive a monthly child allowance until their kid almost isn’t a kid anymore and they reach 16 years of age. Also, companies are required to hold your job for when you return, and you can have kids sequentially. 

So, for women with enough stamina and partners who like the pitter-patter of lots of tiny feet, you could keep having kids and not return to your job for years if you wanted.

And the kicker? While we’re talking above about how the childbirth benefit works for people with a job, guess who else is covered? 

Unemployed people who have a child are eligible for many of the same benefits.

Scandinavian Model and healthcare

The state covering essentially every dime associated with the medical cost of having a child is of course huge all on its own. However, healthcare in general in the Nordic states is also pretty great. 

For instance—again to take Sweden as the example—healthcare is pretty much completely free until you turn 20. And even after that, if your medical bills exceed around US$130, a high-cost type of coverage is triggered and you’re taken care of for the rest of the year.

Compare that with the US, where the latest figures suggest that on average most Americans pay about $11,000 annually for health insurance. 

And lest we forget, the health business in the US is very much a business. Even if you’re nominally “covered” by a US health insurance program, their entire business model is built on denying people coverage in order to cut costs. 

Medical bankruptcies in the US top 600,000 per year; one assumes that in Sweden that number is likely zero.

Other social benefits of the Nordic Model

Another huge cost that puts young US citizens behind the eight-ball is university. Student debt in the US is a trillion-dollar business with many people just giving up altogether on getting out from under someday. 

There are numerous anecdotal stories out there about families of recently deceased senior citizens being approached by student loan debt collectors at their relative’s funeral over the deceased’s long-ago student loans.

Even to get into a basic, state school in the US, you generally need to come up with between $10,000 and $20,000 — which goes a long way toward explaining why so many people take out those usurious loans to pay for school.

However, in most Nordic countries, education up to and including undergraduate university courses is completely free, setting up an entirely different dynamic in terms of the energy and hope people bring with them as they first enter the workforce. 

If you want workers who are innovative, imaginative, and forward-thinking, maybe try not to saddle them with debt and worry right out of the gate.

Other, perhaps less tangible social benefits that redound to people living under the Nordic Model include some of the best, most comprehensive, cleanest and greenest public transportation in the world. 

This is combined with strong labor protections for workers in case a rogue decision-maker does somehow get into the C-suite, and pristine, meticulously-maintained public parks, wilderness areas, and beaches.

Nordic Model 4

But, who pays for the Nordic Model?

The sheer volume of services the Nordic economic model provides to its citizens inevitably raises the question of the cost. That raises the ugly specter of taxes. 

Again, taxes are the tired talking point of politicians and business interests in the West always revert to when even mildly enhancing social benefits come up. But the facts don’t support the “But their taxes are CRAZY!” argument.

First of all, you get what you pay for — at least in the Nordic countries.

That is to say, on an average salary in Sweden, the worker pays around 32 percent in tax to the municipality, county, and national governments. 

In the US, for comparison, the median tax rate works out to something like 14 percent. 

However, this is a misleading figure in many regards. 

Scandinavian tax rates: Time for some numbers

First of all, the US tax system is progressive. That means that every worker pays just 10 percent in taxes on the first $9875 they make. If you make a salary of $35,000 a year, you’ll pay 10 percent on that first chunk, then you would pay 12 percent on the rest. 

The top tax rate in the US is 37 percent, but it’s important to note that this is what’s known as a marginal tax rate. 

For instance, someone who falls in the 24 percent tax bracket makes more than $85,525 per year. But that doesn’t mean they pay 24 percent on all of it. In fact, if you made $85,526, you would pay 24 percent only on that single dollar. The rest gets taxed at a lower rate.

So, yeah, it’s complicated. 

According to The Tax Foundation’s calculations—and keep in mind, this is a pro-business, anti-tax organization started by businessmen at the height of the Great Depression in order to beef with government about any and every tax increase—the vast majority of US tax dollars collected comes from people in the top 50 percent of earners.

They say there’s an “average” tax rate of 15.57 percent for the top 50 percent of earners, while the bottom 50 percent pay just 3.73 percent on average. This produces an average of 14.20 percent overall.

Nordic Model criticism: You get what you pay for

But even with these figures in mind, the argument that the Nordic Model taxes its citizens to death is still misleading. 

Remember those insane healthcare benefits the Swedes enjoy for virtually no cost? 

As noted above, on average, US citizens pay $11,000 a year for health insurance. And to reiterate for those who aren’t familiar with the US healthcare “system:” having insurance is absolutely no guarantee you’ll be covered for anything. 

Many, many people who are insured and go to the hospital for an emergency wind up with exorbitant, life-destroying bills even though they thought their insurance would cover them. 

Yes, under the Nordic Model, you may pay more in taxes. But you won’t get a bill for a $60 ibuprofen tablet, or a $238 bottle of eye drops, or pay $5,500 just to sit in the waiting room.

Indeed, if a US worker makes $32,000 a year and pays an insurance bill of $10,000 a year, he’s effectively paying a tax of 31.25 percent just for his insurance alone. That’s on top of the income tax he owes at the end of the year.

Conclusions

There are legitimate criticisms leveled at the Nordic Model, and there are trumped-up ones as well. Each nation is free to choose how to govern itself, and make taxation decisions that comport with their community’s vision. 

And, of course, there are advantages and disadvantages to having government take the people’s money—even if they’re spending for their benefit—versus leaving it in the hands of those who earned it.

But one thing is certain: the people who live under the Nordic Model are overwhelmingly satisfied with the system. 

They are provided with a life of dignity, fair pay, comprehensive social programs, and a standard of living that’s the envy of the world — all while their businesses lead in innovation and growth.

Scandification: Discovering Scandinavia.

Scandification explores and celebrates the magic of Scandinavia. Stay tuned and we’ll bring the essence of Scandinavia to you.

Advertising enquiries

Scandification explores and celebrates the magic of Scandinavia. To advertise your brand to a global audience, contact our advertising team below.

advertising@scandification.com

More Articles
Swedish Fish Sweets 1
The history of Swedish Fish: Discover Swedish Fish sweets
Subscribe Now
Join thousands of others and stay up to date with the our latest articles.



    close-link