The Nordic model (or Nordic capitalism or Nordic social democracy) refers to the economic and social models of the Nordic countries (Denmark, Finland, Iceland, Norway and Sweden). Although there are significant differences among the Nordic countries, they all share some common traits. These include support for a "universalist" welfare state (relative to other developed countries) which is aimed specifically at enhancing individual autonomy, promoting social mobility and ensuring the universal provision of basic human rights, as well as for stabilizing the economy. The Nordic model is distinguished from other types of welfare states by its emphasis on maximizing labor force participation, promoting gender equality, egalitarian and extensive benefit levels, the large magnitude of wealth redistribution, and liberal use of expansionary fiscal policy.
The Nordic model is described as a system of competitive capitalism combined with a large public sector (roughly 30% of the work force). In 2013, The Economist described its 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, and declared that the Nordic countries "are probably the best-governed in the world." The Nordic combination of extensive public provision of welfareandindividualism has been described by Lars Trägårdh, of Ersta Sköndal University College, as “statist individualism.” Some economists have referred to the Nordic economic model as a form of "cuddly" capitalism, with low levels of inequality, generous welfare states and reduced concentration of top incomes, and contrast it with the more "cut-throat" capitalism of the United States, which has high levels of inequality and a larger concentration of top incomes.
The Nordic model however is not a single identical set of policies and rules in every country; each of the Nordic countries has its own economic and social models, sometimes with large differences from its neighbors. While Sweden's neoliberal reforms have reduced the role of the public sector over the last decades, and saw the fastest growth in inequality of any OECD economy, Sweden still remains more equal than most societies.
Low barriers to free trade. This is combined with collective risk sharing (social programs, labour market institutions) which has provided a form of protection against the risks associated with economic openness.
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. The lower union density in Norway is mainly explained by the absence of a Ghent system since 1938. In contrast, Denmark, Finland and Sweden all have union-run unemployment funds.
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 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). 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%).
The Nordic model has been successful at significantly ameliorating poverty. Poverty rates pre-tax/transfer are 24.4% in Denmark, 32.3% in Finland, 21% in Iceland, 25.7% in Norway, and 27.8% in Sweden, and post-tax/transfer poverty rates become 6%, 7.3%, 6.4%, 7.5%, and 9.1% respectively.
The United Nations World Happiness Report 2013 shows that the happiest nations are concentrated in Northern Europe, with Denmark topping the list. The Nordics ranked highest on the 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.
^Pontusson, Jonas (2011). Once Again A Model: Nordic Social Democracy in a Globalized World.pp 89-115 in What's Left of the Left: Democrats and Social Democrats in Challenging Times. Edited by James E. Cronin , George W. Ross, and James Shoch. Duke University Press. ISBN 0822350793.
^Esping-Andersen, G. (1991). The three worlds of welfare capitalism. Princeton, NJ: Princeton University Press.