Why The Nordic Model Works

The Nordic countries — Denmark, Norway, Sweden, Finland, and Iceland — are some of the most successful, and subsequently admired, nations in the world. They often rank high, if not highest, in just about every metric of prosperity, including life expectancy, gender equality, political stability, civil liberties, and economic competitiveness.

These achievements in human development are attributed to the so-called Nordic Model, which combines the competitive, dynamic, and business-friendly economy of a capitalist market with the stability and safety net of the state — in short, the best of both worlds.

But as the Finnish-born Anu Partanen writes in The Atlantic, there is much about this vaunted approach to governance that is misunderstood by Americans across the political spectrum.

Nordic countries are the way they are, I’m told, because they are small, homogeneous “nanny states” where everyone looks alike, thinks alike, and belongs to a big extended family. This, in turn, makes Nordic citizens willing to sacrifice their own interests to help their neighbors. Americans don’t feel a similar kinship with other Americans, I’m told, and thus will never sacrifice their own interests for the common good. What this is mostly taken to mean is that Americans will never, ever agree to pay higher taxes to provide universal social services, as the Nordics do. Thus Bernie Sanders, and anyone else in the U.S. who brings up Nordic countries as an example for America, is living in la-la land.

But this vision of homogeneous, altruistic Nordic lands is mostly a fantasy. The choices Nordic countries have made have little to do with altruism or kinship. Rather, Nordic people have made their decisions out of self-interest. Nordic nations offer their citizens—all of their citizens, but especially the middle class—high-quality services that save people a lot of money, time, and trouble. This is what Americans fail to understand: My taxes in Finland were used to pay for top-notch services for me.

When I lived in Finland, as a middle-class citizen I paid income tax at a rate not much higher than what I now pay in New York City. True, Nordic countries have somewhat higher taxes on consumption than America, and overall they collect more tax revenue than the U.S. currently does—partly from the wealthy. But, as an example, here are some of the things I personally got in return for my taxes: nearly a full year of paid parental leave for each child (plus a smaller monthly payment for an additional two years, were I or the father of my child to choose to stay at home with our child longer), affordable high-quality day care for my kids, one of the world’s best public K-12 education systems, free college, free graduate school, nearly free world-class health care delivered through a pretty decent universal network, and a full year of partially paid disability leave. As far as I was concerned, it was a great deal. And it was equally beneficial for others. From a Nordic perspective, nothing Bernie Sanders is proposing is the least bit crazy—pretty much all Nordic countries have had policies like these in place for years.

In essence, this arrangement is no different than how the dollars are spent in the private sector. By engaging in a transaction with a company for a certain good or service, each individual consumer collectively sustains that company, providing it with the resources to continue providing said good or service. The key difference of course is that in the public sector, this transaction, via taxation, is obligatory; but the overall logic is the same: each individual contribution in the aggregate offers a return to the individual. Insurance works the same way; one’s own contribution does not directly nor proportionally benefit them when the insurance is utilized, but due to a pool of other consumers chipping in.

The Nordic approach is also a recognition that if everyone contributes in helping to keep everyone else in more or less good shape, it creates the sorts of conditions conducive to individual human flourishing; it is better to live in a society where most members have disposable income, good health and education, a lack of incentive for crime, etc. A lot of Nordic citizens see investing in society as benefiting themselves in this way — hence the author’s point that self interest and prudency are the operative values, not necessarily altruism and communitarian ideals. (Granted, public trust does tend to be higher by global standards, due in no small part to their governments rigorous standards of transparency and accountability.)

Contrary to popular belief, the Nordic model is not incompatible with commerce and entrepreneurship, and if anything allows these activities to thrive, thanks to reliable rule of law, a well educated populace, and efficient infrastructure and services (which benefit businesses as much as individuals).

Even so, surely these Nordic “socialist nanny states” pay the price in squashing entrepreneurship and business innovation? This is another refrain I repeatedly hear: Nordic countries have produced no Steve Jobs, no General Motors, and no medical breakthroughs. In short, American entrepreneurs, scientists, and other innovators have changed the world while Nordic countries fall short of taking risks and working hard. This is what Hillary Clinton implied when she responded to Sanders’s praise of the Nordic region in the first Democratic debate. “When I think about capitalism,” Clinton said, “I think about all the small businesses that were started because we have the opportunity and the freedom in our country for people to do that and to make a good living for themselves and their families… And I think what Senator Sanders is saying certainly makes sense in the terms of the inequality that we have. But we are not Denmark. I love Denmark. We are the United States of America.”

In reality, however, Nordic nations have produced what is, by any metric, an impressive output of successful entrepreneurs, international businesses, and brands. Sweden has Ikea, H&M, Spotify, and Volvo, to name a few. From Denmark have come Lego, Carlsberg, and one of the world’s largest pharmaceutical companies, Novo Nordisk. A Swede and a Dane co-founded the video calling service Skype. The core programming code of Linux—the leading operating system running on the world’s servers and supercomputers—was developed by a Finn. The Finnish company Nokia was the world’s largest mobile phone maker for more than a decade. And newer players like Finland’s Supercell and Rovio, creators of the ubiquitous video games Clash of Clans and Angry Birds, or Sweden’s Mojang, the publisher of the equally popular video game Minecraft, are changing the face of online gaming.

Nordic countries are well-ranked when it comes to helping facilitate starting a business. At the most basic level, what the Nordic approach does is reduce the risk of starting a company, since basic services such as education and health care are covered for regardless of the fledgling company’s fate. In addition, companies themselves are freed from the burdens of having to offer such services for their employees at the scale American companies do. And if the entrepreneur succeeds, they are rewarded by tax rates on capital gains that are lower than the rate on wages.

Generally speaking, it appears that most Nordic people do not feel as if they necessarily need a competitive market to provide what are already efficient and satisfactory services; there is no comparable libertarian sentiment urging for school choice or privatizing the public sector. Indeed, certain kinds of services are more effective or more equitably distributed by a public institution that operates like a private one (as many Nordic agencies do). And if the U.S. (and for that matter highly capitalistic Switzerland) is any indication, services like healthcare or education are not exactly more efficient or affordable when left to a market (to be sure, some pernicious government collusion with  big companies accounts for some of this, but not all of it).

It is also important to point out that Nordic countries have a high rate of civic engagement with their governments, and by extension, the services they offer. When everyone is paying a lot of money to fund the state, they rightly expect and demand more out of it. The higher standards and subsequent demands for accountability help to keep costs down, or at the very least make it so that said monopolies are perceived to be perfectly (and democratically) adequate for the job. Vox.com has an excellent piece that explores the way broadly high taxes incentivize greater public involvement in governmance.

The United States is its own country, and no one expects it to become a Nordic utopia. But Nordic countries aren’t utopias either. What they’ve done has little to do with culture, size, or homogeneity, and everything to do with figuring out how to flourish and compete in the 21st century. In the U.S., supporters of not only Bernie Sanders and Hillary Clinton, but also of Donald Trump, are worried about exactly the kinds of problems that universal social policies can help solve: worsening income inequality, shrinking opportunity, the decline of the middle class, and the survival of the ordinary family in the face of globalization. What America needs right now, desperately, isn’t to keep fighting the socialist bogeymen of the past, but to see the future—at least one presidential candidate should show them that.

In short, the U.S. must tap into the same spirit of pragmatism — appropriately enough, an American invention — that has allowed each of the Nordic states, for all their understated political and cultural difference, to agree on a political and economic arrangement that works for everyone. We have the resources, ingenuity, and — for better or worse — the strong sense of individualism and self-interest that at least partly motivates this arrangement. But do we have the political will, and an ability to rethink and reframe collectivist institutions and values, to create a comparable American model? What are your thoughts?

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