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The Nordic model (or Nordic capitalism or Nordic social democracy) refers to the economic and social models of the Nordic countries (Denmark, Finland, Norway, Iceland, Greenland, Faroe Islands and Sweden), which involves the combination of a free market economy with a welfare state.
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, alongside a commitment to free trade. 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 income 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 welfare and a culture of individualism 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's income inequality still remains lower than most other countries'.
"The Nordic Model - Embracing globalization and sharing risks" characterizes the system as follows:
- An elaborate social safety net in addition to public services such as free education and universal healthcare.
- Strong property rights, contract enforcement, and overall ease of doing business.
- Public pension plans.
- 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.
- Little product market regulation. Nordic countries rank very high in product market freedom according to OECD rankings.
- Low levels of corruption. 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.
- 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 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.
- 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.
Nordic welfare model
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.
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.
The Nordic model has been successful at significantly ameliorating poverty. 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. 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. 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.
Jerry Mander has likened the Nordic model to a kind of "hybrid" economics which features a blend of capitalist and socialist visions. According to sociologist Lane Kenworthy, in the context of the Nordic model, "social democracy" refers to a set of policies intended to improve capitalism as opposed to a system to replace capitalism. Kenworthy advocates for the U.S. to make a gradual transition to an economic system similar to those of the Nordic countries. United States Senator Bernie Sanders (I-VT), a self-described democratic socialist, has been a strong proponent of the Nordic system. 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.
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."
- Mixed economy
- Social corporatism
- Social democracy
- Social market economy
- Swedish welfare
- Welfare capitalism
- Corruption Perceptions Index
- Democracy Index
- Legatum Prosperity Index
- List of countries by inequality-adjusted HDI
- List of countries by Social Progress Index
- World Happiness Report
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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.
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