Nordic model

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This article is about the social and economic model in northern Europe. For the socioeconomic model in continental Europe and Germany in particular, see Rhenish model. For the political ideology often associated with the Nordic model, see Social democracy.

The Nordic model (also called Nordic capitalism[1] or Nordic social democracy)[2][3] refers to the economic and social policies common to the Nordic countries (Denmark, Finland, Norway, Iceland and Sweden). This includes a combination of free market capitalism with a comprehensive welfare state and collective bargaining at the national level.[4][5]

Although there are significant differences among the Nordic countries, they all share some common traits. These include support for a "universalist" welfare state aimed specifically at enhancing individual autonomy and promoting social mobility; a corporatist system involving a tripartite arrangement where representatives of labor and employers negotiate wages and labor market policy mediated by the government;[6] and a commitment to widespread private ownership, free markets and free trade.[7]

Each of the Nordic countries has its own economic and social models, sometimes with large differences from its neighbours.[8] According to sociologist Lane Kenworthy, in the context of the Nordic model, "social democracy" refers to a set of policies for promoting economic security and opportunity within the framework of capitalism rather than a system to replace capitalism.[9]


Flags of the Nordic countries

"The Nordic Model - Embracing globalization and sharing risks" characterises the system as follows:[10]

  • An elaborate social safety net in addition to public services such as free education and universal healthcare.[10]
  • Strong property rights, contract enforcement, and overall ease of doing business.[11]
  • Public pension plans.[10]
  • Low barriers to free trade.[12] 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.[10]
  • Little product market regulation. Nordic countries rank very high in product market freedom according to OECD rankings.[10]
  • Low levels of corruption.[10] In Transparency International's 2014 Corruption Perceptions Index all five Nordic countries were ranked among the 12 least corrupt of 176 evaluated countries, and Denmark, Finland, Sweden and Norway all ranked within top 5.[13]
  • 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.[14] 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.[15]
  • 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.[16] Sweden has decentralised wage co-ordination, while Finland is ranked the least flexible.[10] The changing economic conditions have given rise to fear among workers as well as resistance by trade unions in regards to reforms.[10] 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% reflect very high public spending.[12] 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.[17]
  • Overall tax burdens (as a percentage of GDP) are among the world's highest; Sweden (51.1%), Denmark (46% in 2011),[18] and Finland (43.3%)
  • The United Nations World Happiness Report 2013 shows that the happiest nations are concentrated in Northern Europe. 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.[19]
  • The Nordic countries received the highest ranking for protecting workers rights on the International Trade Union Confederation's 2014 Global Rights Index, with Denmark being the only nation to receive a perfect score.[20]


Labor market policy[edit]

The Nordic countries share active labor market policies as part of a corporatist economic model intended to reduce conflict between labor and the interests of capital. The corporatist system is most extensive in Sweden and Norway, where employer federations and labor representatives bargain at the national level mediated by the government. Labor market interventions are aimed at providing job retraining and relocation.[21]

The Nordic labor market is flexible, with laws making it easy for employers to hire and shed workers or introduce labor-saving technology. To mitigate the negative effect on workers, the government labor market policies are designed to provide generous social welfare, job retraining and relocation to limit any conflicts between capital and labor that might arise from this process.[22]

Economic system[edit]

The Nordic model is underpinned by a free market capitalist economic system that features high degrees of private ownership[5] with the exception of Norway, which includes a large number of state-owned enterprises and state ownership in publicly-listed firms.[23]

The Nordic model is described as a system of competitive capitalism combined with a large percentage of the population employed by the public sector (roughly 30% of the work force).[24] 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".[24][25] 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.[26][27][10]

Beginning in the 1990s, the Swedish economy pursued neoliberal reforms[28][29] that reduced the role of the public sector, leading to the fastest growth in inequality of any OECD economy.[30] However, Sweden's income inequality still remains lower than most other countries.[31]

Nordic welfare model[edit]

The Nordic welfare model refers to the welfare policies of the Nordic countries, which also tie into their labor market policies. The Nordic model of welfare 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 income redistribution, and liberal use of expansionary fiscal policy.[32]

While there are differences among different Nordic countries, they all share a broad commitment to social cohesion, a universal nature of welfare provision in order to safeguard individualism by providing protection for vulnerable individuals and groups in society, and maximizing public participation in social decision-making. It is characterized by flexibility and openness to innovation in the provision of welfare. The Nordic welfare systems are mainly funded through taxation.[33]

Despite the common values, the Nordic countries take different approaches to the practical administration of the welfare state. Denmark features a high degree of private sector provision of public services and welfare, alongside an assimilation immigration policy. Iceland's welfare model is based on a "welfare-to-work" (see: workfare) model, while part of Finland's welfare state includes the voluntary sector playing a significant role in providing care for the elderly. Norway relies most extensively on public provision of welfare.[33]

Poverty reduction[edit]

The Nordic model has been successful at significantly reducing poverty.[34] In 2011, poverty rates, before taking into account the effects of taxes and transfers, stood at 24.7% in Denmark, 31.9% in Finland, 21.6% in Iceland, 25.6% in Norway, and 26.5% in Sweden. After accounting for taxes and transfers the poverty rates for the same year became 6%, 7.5%, 5.7%, 7.7%, and 9.7% respectively, for an average reduction of 18.7 p.p.[35] Compared to the US, which has a poverty level pre-tax of 28.3% and post-tax of 17.4% for a reduction of 10.9 p.p., the effects of tax and transfers on poverty in all the Nordic countries are substantially bigger.[36] In comparison to France (27 p.p. reduction) and Germany (24.2 p.p. reduction), however, the taxes and transfers in the Nordic countries are smaller on average.[37]


Jerry Mander has likened the Nordic model to a kind of "hybrid" system which features a blend of capitalist economics and socialist values.[38] Lane Kenworthy advocates for the U.S. to make a gradual transition to an economic system similar to those of the Nordic countries.[39] United States Senator Bernie Sanders (I-VT), a self-described democratic socialist, has been a strong proponent of the Nordic system.[40][41][42] Nobel Prize-winning economist Joseph Stiglitz has noted that there is higher social mobility in the Scandinavian countries than in the United States, and argues that Scandinavia is now the land of opportunity that the United States once was.[43]

According to Naomi Klein, former Soviet leader Mikhail Gorbachev sought to move the USSR in a similar direction to the Nordic system, combining free markets with a social safety net — but still retaining public ownership of key sectors — ingredients that he believed would transform the USSR into "a socialist beacon for all mankind."[44][45]

The Nordic combination of extensive public provision of welfare and a culture of individualism has been described by Lars Trägårdh, of Ersta Sköndal University College, as "statist individualism".[24]


The socialist economists John Roemer and Pranab Bardhan criticize Nordic-style social democracy by questioning its effectiveness at promoting relative egalitarianism as well as its sustainability. They point out that social democracy requires a strong labor movement to sustain the heavy redistribution required, arguing that it is idealistic to think such redistribution can be accomplished in other countries with weaker labor movements. They note that even in the Scandinavian countries social democracy has been in decline since the weakening of the labor movement, arguing that the sustainability of social democracy is limited. Roemer and Bardham argue that establishing a market socialist economy by changing enterprise ownership would be more effective at promoting egalitarianism than social democratic redistribution.[46]

See also[edit]



  1. ^ The Nordic Way, Klas Eklund, Henrik Berggren and Lars Trägårdh. 2011.
  2. ^ Nik Brandal, Øivind Bratberg, Dag Einar Thorsen. The Nordic Model of Social Democracy. Palgrave Macmillan, 2013. ISBN 1137013265
  3. ^ 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.
  4. ^ "The surprising ingredients of Swedish success - free markets and social cohesion" (PDF). Institute of Economic Affairs. June 25, 2013. Retrieved January 15, 2014. 
  5. ^ a b James E. McWhinney (June 25, 2013). "The Nordic Model: Pros and Cons". Investopedia. Retrieved September 16, 2015. The Nordic model is a term coined to capture the unique combination of free market capitalism and social benefits that have given rise to a society that enjoys a host of top-quality services, including free education and free healthcare, as well as generous, guaranteed pension payments for retirees. These benefits are funded by taxpayers and administered by the government for the benefit of all citizens. 
  6. ^ Hicks, Alexander (January 20, 2000). Social democracy and Welfare Capitalism: A century of Income Security Politics. Cornell University Press. p. 130. ISBN 978-0801485565. By the late 1950s, labor had been incorporated alongside Swedish business in fully elaborated corporatist institutions of collective bargaining and policy making, public as well as private, supply-side (as for labour training) as well as demand side (e.g., Keynesian). During the 1950s and 1960s, similar neocorpratist institutions developed in Denmark and Norway, in Austria and the Netherlands, and somewhat later, in Belgium and Finland. 
  7. ^ James E. McWhinney (June 25, 2013). "The Nordic Model: Pros and Cons". Investopedia. Retrieved September 16, 2015. The model is underpinned by a capitalist economy that encourages creative destruction. While the laws make it is easy for companies to shed workers and implement transformative business models, employees are supported by generous social welfare programs. 
  8. ^ Kenworthy, Lane (2014). Social Democratic America. Oxford University Press. ISBN 0199322511 p. 138.
  9. ^ Lane Kenworthy (January 2014). "America's Social Democratic Future". Foreign Affairs. Retrieved 2 April 2014. 
  10. ^ a b c d e f g h i Torben M. Andersen, Bengt Holmström, Seppo Honkapohja, Sixten Korkman, Hans Tson Söderström, Juhana Vartiainen. The Nordic Model - Embracing globalization and sharing risks
  11. ^
  12. ^ a b Index of Economic Freedom
  13. ^ "CPI 2012 table". Transparency International. Retrieved 2013-04-23. 
  14. ^ "Trade Union Density" OECD StatExtracts. 2010. Accessed: 3 May 2013.
  15. ^ Kjellberg, Anders "The Swedish unemployment insurance - will the Ghent system survive?", Transfer – European Review of Labour and Research no 1 2006, pp. 87-98, ISSN 1024-2589. Accessed: 19 January 2014.
  16. ^
  17. ^ OECD. Growing Unequal? Income Distribution and Poverty in OECD Countries. Organisation for Economic Co-Operation and Development. 2008. p. 232, p. 233
  18. ^ "Skattetrykket". Danish Ministry of Taxation. Retrieved 2012-06-24. 
  19. ^ Carolyn Gregoire (10 September 2013). The Happiest Countries In The World (INFOGRAPHIC). The Huffington Post. Retrieved 1 October 2013.
  20. ^ David Wearing (22 May 2014). Where's the worst place to be a worker? Most of the world. The Guardian. Retrieved 26 June 2014.
  21. ^ Rosser, Mariana V. and J Barkley Jr. (July 23, 2003). Comparative Economics in a Transforming World Economy. MIT Press. p. 226. ISBN 978-0262182348. Liberal corporatism is largely self-organized between labor and management, with only a supporting role for government. Leading examples of such systems are found in small, ethnically homogeneous countries with strong traditions of social democratic or labor party rule, such as Sweden’s Nordic neighbors. Using a scale of 0.0 to 2.0 and subjectively assigning values based on six previous studies, Frederic Pryor in 1988 found Norway and Sweden the most corporatist at 2.0 each, followed by Austria at 1.8, the Netherlands at 1.5, Finland, Denmark, and Belgium at 1.3 each, and Switzerland and West Germany at 1.0 each…with the exception of Iceland all the Nordic countries have higher taxes, larger welfare states, and greater corporatist tendencies than most social market economies. 
  22. ^ James E. McWhinney (June 25, 2013). "The Nordic Model: Pros and Cons". Investopedia. Retrieved September 16, 2015. The model is underpinned by a capitalist economy that encourages creative destruction. While the laws make it is easy for companies to shed workers and implement transformative business models, employees are supported by generous social welfare programs. 
  23. ^ "Norway: The rich cousin". The Economist. 2 February 2013. Retrieved 27 October 2014. 
  24. ^ a b c "The Nordic countries: The next supermodel" The Economist. Retrieved 27 July 2013. Cite error: Invalid <ref> tag; name "Economist" defined multiple times with different content (see the help page).
  25. ^ "The secret of their success". The Economist. 2013. 
  26. ^ Jonathan Hopkin, Victor Lapuente and Lovisa Moller (25 January 2014). Lower levels of inequality are linked with greater innovation in economies. London School of Economics. Retrieved 23 February 2014.
  27. ^ Kenworthy, Lane (2014). Social Democratic America. Oxford University Press. ISBN 0199322511 p. 88–93.
  28. ^ Per-Åke Westerlund (22 March 2014). Is Sweden a Model to Follow? Socialist Alternative. Retrieved 3 April 2014.
  29. ^ Michal Rozworski (27 February 2015). Beyond the Swedish Model. Jacobin. 27 February 2015.
  30. ^ Swedish riots rage for fourth night. The Guardian. 23 May 2013.
  31. ^ Higgins, Andrew (26 May 2013). "In Sweden, Riots Put an Identity in Question." The New York Times. Retrieved 29 June 2013.
  32. ^ Esping-Andersen, G. (1991). The three worlds of welfare capitalism. Princeton, NJ: Princeton University Press.
  33. ^ a b The Nordic Council. "About the Nordic welfare model". Norden. Retrieved 2 April 2014. 
  34. ^ Kevin Drum (26 September 2013). We Can Reduce Poverty If We Want To. We Just Have To Want To. Mother Jones. Retrieved 5 October 2013.
  35. ^ Income distribution and poverty - OECD. OECD
  36. ^ Income distribution and poverty - OECD. OECD
  37. ^ Income distribution and poverty - OECD. OECD
  38. ^ Jerry Mander (24 July 2013). "There Are Good Alternatives to US Capitalism, But No Way to Get There." Alternet. Retrieved 27 July 2013.
  39. ^ Matthews, Dylan (January 2014). This sociologist has a plan to make America more like Sweden The Washington Post. Retrieved 11 March 2014.
  40. ^ Sanders, Bernie (May 26, 2013). What Can We Learn From Denmark? The Huffington Post. Retrieved 11 March 2014.
  41. ^ Issenberg, Sasha (January 9, 2010). "Sanders a growing force on the far, far left". Boston Globe. You go to Scandinavia, and you will find that people have a much higher standard of living, in terms of education, health care, and decent paying jobs. 
  42. ^ Zeeshan Aleem (May 4, 2015). Bernie Sanders Says the U.S. Could Learn a Lot From Scandinavia. Here’s Why He's Right. Mic. Retrieved May 5, 2015.
  43. ^ 'Scandinavian Dream' is true fix for America's income inequality. CNN Money, June 3, 2014.
  44. ^ Klein, Naomi (2008). The Shock Doctrine: The Rise of Disaster Capitalism. Picador. ISBN 0312427999 p. 276
  45. ^ Philip Whyman, Mark Baimbridge and Andrew Mullen (2012). The Political Economy of the European Social Model (Routledge Studies in the European Economy). Routledge. ISBN 0415476291 p. 108 "In short, Gorbachev aimed to lead the Soviet Union towards the Scandinavian social democratic model."
  46. ^ Market socialism, a case for rejuvenation, by Pranab Bardhan and Johen E. Roemer. 1992. Journal of Economic Perspectives, Vol. 6, No. 3, pp. 104: "...we believe that social democracy requires rather special political circumstances that are absent in many countries for which our market socialism proposal may be feasible. Since it (social democracy) permits a powerful capitalist class to exist (90 percent of productive assets are privately owned in Sweden), only a strong and unified labor movement can win the redistribution through taxes that is characteristic of social democracy. It is idealistic to believe that tax concessions of this magnitude can be effected simply through electoral democracy without an organized labor movement, when capitalists organize and finance influential political parties. Even in the Scandinavian countries, strong apex labor organizations have been difficult to sustain and social democracy is somewhat on the decline now."

Further reading[edit]

  • Bucken-Knapp, Gregg (2009). Defending the Swedish Model: Social democrats, trade unions, and labor migration policy reform. Lexington Books. 
  • Christiansen, Niels Finn et al. The Nordic Model of Welfare (2006)
  • Hilson, Mary. The Nordic model: Scandinavia since 1945 (2008)
  • Kenworthy, Lane. Social Democratic America. Oxford University Press USA (2014). ISBN 0199322511
  • Kvist, Jon, et al. Changing social equality: The Nordic welfare model in the 21st century (2011)
  • Nik Brandal, Øivind Bratberg, Dag Einar Thorsen. The Nordic Model of Social Democracy (2013) Pallgrave MacMillan. ISBN 1137013265

External links[edit]