The Nordic model comprises the economic and social policies, as well as typical cultural practices, common in the Nordic countries (Denmark, Finland, Iceland, Norway, and Sweden). Historically, this included a comprehensive welfare state and multi-level collective bargainingKjellberg, Anders (2019). "Sweden: Collective Bargaining Under the Industry Norm" . In Müller, Torsten; Vandaele, Kurt; Waddington, Jeremy, eds. (2019). Collective Bargaining in Europe: Towards an Endgame. Brussels: European Trade Union Institute. III. pp. 583–604. . based on social corporatism,Rosser, J. Barkley; Rosser, Marina V. (2003). Comparative Economics in a Transforming World Economy (2nd ed.). Cambridge, Massachusetts: MIT Press. p. 226. . and a commitment to private ownership within a market-based mixed economy. Norway is a partial exception due to a large number of state-owned enterprises, state ownership in publicly listed firms, and its sovereign wealth fund.
Although the Nordic countries retain significant differences, they share some common traits. The three Scandinavian countries are constitutional monarchies, while Finland and Iceland became republics in the 20th century. All the Nordic countries are described as democratic.
All have a unicameral legislature and use proportional representation. They all support a free market and universalist welfare state aimed specifically at enhancing individual autonomy and promoting social mobility, employing a sizable percentage of the population (roughly 30% of the work force in areas such as healthcare, education, and government), and a corporatist system with a highly unionized workforce. Representatives of labour and employers negotiate wages and labour market policy mediated by the government. As of 2020, all of the Nordic countries ranked highly on the inequality-adjusted HDI and the Global Peace Index, as well as ranking in the top 10 in the World Happiness Report.
The Nordic model was developed in the 1930s under the leadership of social democrats. Centrist and right-wing political parties, as well as labour unions contributed to its development. The Nordic model gained attention after World War II. It has continued to evolve, including decreased regulation and expanded privatization. However, it is distinguished from other models by its emphasis on public services and social investment.
Characteristics The 2007 Nordic model was characterized as follows: An elaborate social safety net, including free education and universal healthcare, largely tax-funded Protection of property rights, contract enforcement and working to make doing business straightforward Public pension plans Democracy20 March 2020. The Nordic Exceptionalism: What Explains Why the Nordic Countries Are Constantly Among the Happiest in the World. WHR 2020. Chapter 7. Retrieved: 2 September 2021. Free trade Labour market protections supporting trade unions. In 2019, trade union participation was 90.7% in Iceland, 67.0% in Denmark, 65.2% in Sweden, 58.8% in Finland, and 50.4% in Norway, versus 16.3% in Germany and 9.9% in the US. Free markets: high OECD product market freedom rank Attacks on corruption Employers, trade unions and the government mutually negotiate workplace regulation.Anders Kjellberg (2017) "Self-regulation versus State Regulation in Swedish Industrial Relations". In Mia Rönnmar and Jenny Julén Votinius (eds.) Festskrift till Ann Numhauser-Henning. Lund: Juristförlaget i Lund 2017, pp. 357–383. Sweden decentralised wage co-ordination, while Finland is the least flexible in the group. Changing economic conditions have pressured unions to resist reforms. Reliance on public service provision High taxes (% of GDP): Iceland (35.9%), Norway (41.4%), Sweden (41.4%), Finland (42.4%), Denmark (43.4%) versus OECD average of 33.9%. Income taxes are relatively progressive; combined with their welfare systems.
Outcomes Nordics scored high in the Freedom in the World survey and Democracy Index. United Nations World Happiness Reports state that Northern Europe has the happiest populations. Nordics ranked highest on metrics of real GDP per capita, healthy life expectancy, having someone to count on, perceived freedom to make life choices, generosity and freedom from corruption. The Nordic countries placed in the top 10 of the World Happiness Report 2018, with Finland and Norway taking the top spots. The International Trade Union Confederation's 2014 Global Rights Index ranked Nordic countries the highest for workers' rights; Denmark was the only nation to receive a perfect score. Transparency International's 2022 Corruption Perceptions Index, ranked Denmark, Finland, Norway and Sweden among the 10 least corrupt of the 180 countries evaluated. Norway spends 48.3% of GDP, Sweden 49.4%, Iceland 49.8%, Denmark 50.8% and Finland 55.8%, all higher than the 46.3% OECD average. Post-transfer income inequality is among the world's lowest.
Economic system The Nordic model combines capitalism with a large public sector that employs roughly 30% of the workforce, providing services in areas such as healthcare and higher education. In the early 21st century, in Norway, Finland, and Sweden, many companies and industries were state-run or state-owned, including utilities, mail, rail transport, airlines, electrical power industry, fossil fuels, the chemical industry, steel mills, electronics, machine, aerospace manufacturing, shipbuilding, and the arms industry.
In 2013, The Economist described these countries as "stout free-traders who resist the temptation to intervene even to protect iconic companies", while also looking for ways to temper capitalism's harsher effects. It declared that the Nordic countries "are probably the best-governed in the world". Some economists have referred to the Nordic economic model as "cuddly capitalism", with low levels of inequality, generous welfare states, and fewer top incomes, contrasting it with the US' more "cut-throat capitalism", which has high levels of inequality.
In the early 21st century, the Nordic model was a market economic system that featured private ownership, with the exception of Norway, which included many state-owned enterprises and state ownership in public firms.
As a result of the Swedish financial crisis of 1990–1994, Sweden deregulated its economy and strengthened competition laws. Despite this, Sweden still has the highest government spending-to-GDP ratio among the Nordics. It retains national-level sectoral bargaining unlike Denmark and Iceland, with over 650 national-level bargaining agreements. It retains the Ghent system, unlike Norway and Iceland and consequently has the world's second-highest unionization rate. As one of the most equal OECD nations, from 1985 to the 2010s Sweden saw the largest growth in income inequality among OECD economies. Other effects of the 1990s reforms were the growth of mutual fund savings, which largely began with the Allemansfonder program in the 1980s in which the government subsidized savings; As of 2019 4 out of 5 Swedes aged 18–74 have fund savings.
Norway Norway has ownership stakes in many of the country's largest listed companies, including 37% of the Oslo stock market. It operates some of the country's largest non-listed companies, including Equinor and Statkraft. In January 2013, The Economist reported, "after the Second World War the government nationalised all German business interests in Norway and ended up owning 44% of Norsk Hydro's shares. The formula of controlling business through shares rather than regulation seemed to work well, so the government used it wherever possible. 'We invented the Chinese way of doing things before the Chinese', says Torger Reve of the Norwegian Business School."
The government operates a sovereign wealth fund, the Government Pension Fund of Norway, largely funded by oil revenues, whose partial objective is to prepare Norway for a post-oil future. However, "unusually among oil-producing nations, it is also a big advocate of human rightsand a powerful one, thanks to its control of the Nobel Peace Prize."
Norway is the only major economy in Northern Europe where younger generations are getting richer, with a 13% increase in disposable income for 2018, bucking the trend seen in other Northern European nations of millennials becoming poorer than the generations which came before.
Social democracy
Social democracy is a centre-left, social, economic, predominantly capitalist political ideology. Social democrat parties long governed in Sweden and Norway, while in the others social democrat parties and others at times formed coalition governments. Policies enacted by social democrats helped foster social cohesion.
While many countries have at times adopted social democracy, only the Nordic countries did so consistently.
Since the 1990s politicians, researchers and the media have increasingly explained the Nordic model in cultural rather than political terms. Earlier interpretations of the welfare state were attributed to political developments. However, in later years political factors increased in importance.
Lutheran influence Lutheranism is the religious tradition of the Nordic countries. It promoted the idea of a nationwide community of believers and led to increased state involvement in economic and social life.
Lutheran revival movements increased support for the modern welfare state, leading important social responsibilities (health care, education, and social work) to be absorbed by the state. This was made easier by the church's centralized structure, which made the transition less disruptive.
Labour markets The Nordic countries have similar labour market policies intended to reduce conflict between labour and business. This system is most extensive in Norway and Sweden, where employer federations and labour representatives bargain at the national level, mediated by the government. Labour market interventions emphasize job retraining and relocation.
The Nordic labour market is flexible, with laws making it easy for employers to hire and shed workers or introduce technology. Labour market policies rely on generous social welfare, job retraining and relocation services to mitigate potential conflicts.
In Sweden trade unions and employer organisations negotiate working conditions and pay without government involvement. Workers agree not to strike while employers agree not to lock them out. While some laws regulate basic labour rights, Sweden has no statutory minimum wage. Instead, pay is regulated through agreements. Should workers strike, the employer can claim refusal to work.Under a collective agreement, neither the trade union nor the employer is allowed to take any labour action such as strikes or lockouts until the agreement expires. The two largest trade unions are Landsorganisationen (LO) and SACO. Both are umbrella organisations comprising 34 trade unions, representing occupations such as bus and train drivers, constructions workers, teachers, industrial workers, and engineers. The main employer organisations are Sveriges Kommuner och Regioner (SKR) and Svenskt Näringsliv, which represent companies in the public sector and the private and business sectors, respectively.
Welfare model The Nordic model is distinguished from others by its emphasis on maximising labour force participation, promoting gender equality, egalitarianism, extensive benefits, income redistribution, and liberal use of expansionary fiscal policy.
The Nordic countries all share a broad commitment to social cohesion, universal welfare provision, and maximising public participation in social decision-making. It is characterized by flexibility and innovation. Nordic welfare systems are mainly funded through government spending.