Economy

The prevailing economic doctrine in the Nordics and Europe has it that, the lower the public debt, the more room there is for economic stimulation in downturns, such as the current covid-19 crisis. Denmark, Norway and Sweden with their comparatively low levels of public debt were able to announce relatively large economic crisis packages fairly quickly. Finland has a high level of public debt and is generally less economically flexible due to it being part of the eurozone. Despite the pressure to keep public debt down, the Nordics would do well not to sacrifice important public spending.

A look back at how Sweden and Finland dealt with two key crises in the twentieth century may be enlightening during the current Corona crisis. Firstly, the depression in 1930s, which led to Keynesian interventionalism - with some key differences - brought with it a series of steps throughout the following decades in both countries. Secondly, the global oil crisis in 1970s, when the two countries embraced an approach which heavily steered their national economies into becoming guarantors of smooth-functioning capitalism. While their responses were similar to other western democracies, certain aspects were divergent. There are similarities between the economic policies leading up to 1930s and the post-Bretton Woods capitalism that has lasted since 1970s. The current corona crisis may provide an opportunity for political elites in the Nordics as elsewhere to choose similar paths to back then, namely, either a Keynesian-type of countermovement to free market capitalism, or inward-looking xenophobic nationalism.

As small, open economies, all the Nordic countries (Denmark, Finland, Island, Norway and Sweden) have been well integrated in the regional and international economy. There have been moves to further intra-Nordic integration, such as, the NORDEK project in 1960s and the establishment of Nordic companies. Each of the five countries has had differing economic relationships with Europe, with Finland currently being the only country to have adopted the euro, and Iceland and Norway the only Nordic countries not to have become members of the EU.

Emigration has been a part of population mobility in the Nordic region for centuries. The numbers were generally very small until the mid-nineteenth century when a wide variety of 'push factors', such as limited farming opportunities, and 'pull factors', such as the promise of cheap or free land, led to mass migration from Norden. In the twenty-first century there has been relatively little out-migration, and it has been confined largely to specific groups such as those moving to other Nordic countries, the EU, or abroad to work.

The Nordic countries are today among the richest countries in the world measured by GDP per capita. These countries also come top in more or less every international comparison of competitiveness. This was not the case 150 years ago. In the mid-nineteenth century the Nordic economies lagged behind those of the leading industrialised nations. The economic development in these countries has therefore been swift. At the same time these countries do not resemble the ‘textbook model’ of efficiency: the Nordic economies have been marked by large public sectors, extensive and generous welfare systems, a high level of taxation and considerable state involvement. As a result the ‘Nordic model’ has received considerable international attention.

The five Nordic countries (Denmark, Finland, Iceland, Norway and Sweden) are often characterised as being welfare capitalist, featuring a combination of free market activity and government intervention. However, the institutional frameworks and economic policy models have changed over time, and the ‘model’ used has varied between countries and throughout their history. The success of the Nordic economies has arguably shown that economic prosperity can go hand in hand with the welfare state. Current challenges include increasing wage differentials and an ageing population, however.

Tax policy is a core instrument of public policy in the Nordic countries. Whilst popular media often criticise the high taxes in Nordic countries, the public generally recognises that taxes provide necessary support to essential services. They know that to ‘slash’ taxes also means slashing healthcare, education, social security, and numerous other public services. This they have been unwilling to do. However, between 2000 and 2018, total taxes in the Nordic countries declined marginally as a share of GDP.

The term wage earner fund refers to different models of redistributing profit amongst workers of individual employers or sectors. It is often characterised by the 1975 Meidner’s model which set out that new stocks issued could be paid to funds, which would be administered by a group of directors with advice from trade unions.