Davos the nordic way

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Davos the nordic way

  1. 1. The Nordic WayShared norms for the new realityworld economic forum DAVOS 2011
  2. 2. In international comparisons, not least the World Economic Forum’s global com-petitiveness index, the Nordic countries are almost always found at or near the top.In one meta-index that is an aggregate of 16 different global indices (competitive-ness, productivity, growth, quality of life, prosperity, equality etc) the four mainNordic countries − Sweden, Norway, Denmark and Finland − top the list.1What are the reasons? Is there such a thing as a common“Model”particular to theNordics and if so, will it last? Is it sustainable, even transferable to other parts ofthe world?In this little brief we would like to provide bits and pieces of what we believe aresome plausible explanations for the relative success of the Nordic societies. If theseexperiences can improve the understanding of our way of doing things and in-spire debate and development in other parts of the world we will be very pleased.Shared values are also about sharing values and experiences with others.The fact that Nordic countries showed resilience during the recent financial crisislargely seems to be the result of previous deep crises in the Nordic region in the1980s and 90s. During these crises, the Nordic countries renewed and modernizedtheir respective economies in ways which sometimes constituted a break with pre-vious regulations and tax systems.Klas Eklund (senior economist at SEB and adjunct professor of economics at LundUniversity) consequently claims in his contribution “Nordic capitalism – lessonslearned”that what we ought to search for is not a crisis-free“Nordic model”butrather a“Nordic experience”– efficient ways to handle deep crises. However, thatraises the question of why the Nordic countries were able to meet these challenges.Here, social cohesion seems to have played a role in making tough reforms possible.The second article by Henrik Berggren (historian, former political editor ofDagens Nyheter) and Lars Trägårdh (historian, professor at Ersta Sköndal Uni-versity College) addresses precisely this issue, in their contribution “Social Trustand Radical Individualism”.Many people see the Nordic countries as some kind of compromise between so-cialism and capitalism. This is not at all the case, according to Berggren-Trägårdh.Instead, it is the combination of extreme individualism and a strong state that hasshaped the fertile ground for an efficient market economy: Less tied down by legal,practical or moral obligations within families, individuals of both sexes becomemore flexible and available for productive work in a market economy. Genderequality has resulted in both higher fertility rates and higher female participationon the labor market than in other parts of Europe.Economic performance also benefits from low transaction costs, generally deliv-ered by social trust, adherence to laws and low levels of corruption. According tosome studies2it is the most modern and individualistic countries, most notably theNordic countries that are characterized by such broad social trust.We believe – like the three authors – that it is not enough to share values.Valuesalso have to be translated into institutions, rules and legislation. Cultural and socialvalues are not easily transferable across borders, but systems and policies that haveproved to work well might still serve as an inspiration for others.Stockholm, December 20, 2010Jacob Wallenberg Kristina PerssonChairman of Investor President of Global Utmaning and The Norden Association1. Tällberg Foundation, 2009 2. World Value Surveys, Eurobarometer, ESS, EVSShared norms for the new realityWhat’s so special about the Nordics?
  3. 3. is an EU member, with an opt-out from thecurrency union – but still keeps its currencytightly pegged to the euro. Sweden is also anEU member with no opt-out – yet is nonethe-less not a member of the euro zone and has afloating currency. Norway, finally, is neither inthe EU nor in the euro zone. Four countries,four different strategies.Of course, there are economic similarities. Allfour are small, open economies with high percapita incomes. All have a rather large publicsector with high taxes, and all have inclusivewelfare states. But they have different histo-ries and structures. The richest Nordic coun-try – Norway – largely bases its accumulatingwealth on oil and gas revenues. Denmark’seconomy is based on transport and agricul-ture; Sweden is successful in manufacturing,pulp and paper, telecom and design. Finland’sindustrial structure is similar to that of Swe-den but the manufacturing sector is not asDuring the recent financial crisis, thefour main Nordic countries showedresilience. They suffered during thedownturn but rebounded fairly quickly. Noneof them went through any devastating bank-ing crisis. Although the Danish real estatemarket took a beating, none of these coun-tries is showing dangerous budget deficits,and none of them has current account prob-lems.Their resilience has rekindled internationalinterest in what sometimes is called “TheNordic Model”. However, one should be verycareful about using such a term. It is difficultto find any kind of common Nordic economicblueprint that is transferable to other coun-tries.Actually, in important respect the Nordiccountries follow different economic strategies.This is most visible in their stance toward theeuro. Finland is a member of the EuropeanUnion and has adopted the euro. DenmarkNordic capitalism: Lessons learnedKlas Eklund54
  4. 4. broad. Denmark and Sweden have the high-est tax-to-GDP ratios in the world. Finlandhas lower taxes.Learning from previous crisesMore importantly, the Nordic countries havenot been free from crises. On the contrary, Iwould claim that one important reason fortheir relative success today is the fact thatthey suffered deep crises in the 1980s and1990s – and were able to learn from them.All of them used their crises to modernizetheir economies, reforming rather staid sys-tems and making them more flexible.In this sense the Nordic countries are turn-around cases. Within a few decades they havegone from poorly performing to stronglyperforming economies. But there is no clearcommon pattern in their crisis strategies. TheDanes started their turnaround as far back asthe late 1970s, the Norwegians had their cri-sis in the 1980s, while the Swedes and Finnsdid not suffer theirs until the 1990s – then in amore brutal way. Denmark used to have the most troubledeconomy in the Nordic area, suffering bothfrom inflation and high unemployment. Itjoined the European Union as early as 1973(far ahead of Finland and Sweden) anddecided early on that a fixed currency wasnecessary to overcome inflation and lackof economic policy credibility. In 1982 theDanish krone was pegged to the D-Mark.A number of tough austerity programsin the 1980s – notably the “potato cure” –made stability possible and the exchangerate credible, but at the same time pushedup unemployment. As a response, labormarket policy became much more flexible.Eventually, the result was low inflation anda gradually improving labor market. Norway suffered a prolonged financialand real estate crisis in the late 1980s, aftera mismanaged credit boom, which endedin a systemic crisis and the nationalizationof major banks. In the early 1990s, govern-ment, labor and management made anagreement according to which tight fiscalpolicy should contribute to stabilizing pro-duction and employment and wage policiesshould aim at competitiveness in the exportsector, while monetary policy was initiallygeared toward a stable exchange rate. Dur-ing the European currency crisis in 1992,monetary policy makers instead adoptedan inflation target and accepted a floatingcurrency. In both Finland and Sweden, the 1980swere years of high inflation and weak cur-rencies. Both nations had gone throughseveral devaluation cycles, with ensuinghigh inflation. Both – like Norway – hadWhen the World Economic Forum compiles its competitiveness index, this is based on aweighting of twelve "pillars", such as education, infrastructure, market efficiency etc. In therecent Report, the four main Nordic countries outclassed the European Union, beating the EU inall different pillars. At the same time the Nordics beat the US in nine out of twelve pillars, losingout only in market size (of course), innovations and "labor market efficiency". The latter definition,however, is debatable since the "flexicurity" of the Nordic economies is another way of organizingthe labor market than the Anglo-Saxon way - different, but not necessarily less "efficient".Source: World Economic Forum Global Competitiveness Report 2010-2011Strong Nordic competitivenessInnovationInstitutionsInfrastructureMacroeconomicenvironmentHealth and primaryeducationHigher educationand trainingGoods market efficiencyLabor market efficiencyFinancial marketdevelopmentTechnological readinessMarket sizeBusiness sophistication7654321Nordic (FI, DK, SE, NO) United States EU 276 7Nordic capitalism: Lesson learnedNordic capitalism: Lesson learned
  5. 5. benefit levels. In Sweden, the tax ratio (totaltax revenue as a share of GDP) has fallen from56 per cent in the late 1980s to 47 per cent thisyear. Expenditure has come down even faster,turning a budget deficit into a structural surplus.Both Finland and Sweden – mainly because ofthe political trauma created by deep recessions– were able to push through comprehen-sive reform programs. In only a few years inthe mid-90s, a radically new macroeconomicframework was put in place, with independentcentral banks, strict budget rules, deregulationand lower benefit levels. This framework hasgiven both countries a stable low-inflation en-vironment. In Sweden, a new partly defined-contribution public pension system replacedthe old defined-benefit system.On top of that, Finland and Sweden were wellpositioned to reap huge benefits from the“new economy”.They have world class IT andtelecom companies, as well as a tradition ofgood international management. The resulthas been rapid productivity growth. Denmarkhas benefited from expanding global tradeand increasing demand for agricultural prod-ucts. Norway, of course, has gained from theever-growing demand for commodities andenergy.It should be noted, though, that these fourNordic countries have not been immune tothe strains suffered by other countries dur-ing the recent crisis. The Danish real estatemarket has taken a severe hit, due to its highpre-crisis valuation, and private debt is stillhigh. In Sweden, some banks lent heavily tothe Baltic countries, which suffered a terriblecrash. Swedish real estate prices are now soar-ing − leading some economists to fear that anew bubble is under way. Still, as a group, theNordics have fared better than most coun-tries. And scarred from the banking crises ofthe early 1990s, Nordic banks did not ventureinto exotic and dangerous credit derivatives.In my mind, this relative Nordic success storyis largely due to the crisis management of the1980s and 1990s. Here, of course, is a lesson tobe learned by continental European countries: aswift and resolute reform strategy may yield bet-ter results than a wishy-washy, drawn-out one.A Nordic experience incrisis management?The policy lessons from the Nordic experienceshow it is possible to regain stability and forcrises-ridden economies to recover. However,we should be aware that in all countries ittook deep crises to trigger the necessary re-form programs.But this conclusion, of course, raises a morefundamental issue. What made it possiblefor the Nordic countries to actually makeproblems in controlling the aftermath ofcredit market deregulation, and both werehit by economic shocks in the early 1990s;Finland suffered from the collapse of tradewith the Soviet Union and Sweden fromhigh interest rates to protect a fixed ex-change rate. The result was banking crises,followed by severe recessions with fallingGDP levels and rapidly rising unemploy-ment. The numbers were astounding. InSweden, the budget deficit peaked at 12per cent of GDP, and the central bank’s keyinterest rate peaked at 500 per cent. Unem-ployment quadrupled; in Finland, jobless-ness reached almost 20 per cent. Not untilhard currency policies were abandoned in1992 was it possible to lay the foundationsof a turnaround, but a period of tight fiscalpolicies made the recovery painful.So Nordic economic performance in the 1970sand 80s was not very successful, to put it mild-ly. Instead, all four countries suffered deep re-cessions.Since then, these countries have shaped up.The reason, however, is not that taxes havebeen hiked or benefits have become moregenerous or any other such actions whichmany people may associate with a “Nordicmodel”. On the contrary, economic policy inall four countries, but to a different extent,has been modernized, not least by market re-forms.Policy makeoverThe high inflation policy of previous decadeshas been replaced by national inflation targetsin both Sweden and Norway, whose centralbanks have been pioneers. Denmark and Fin-land, of course, adhere to the ECB target. Inthis sense, they all have inflation targets, al-beit in the Danish case via a fixed exchangerate.The sloppy budget practices of yesteryearhave been replaced by strict budget rules. Inboth Sweden and Finland, fiscal tighteningamounted to some 7-8 per cent of GDP in themid-90s, mainly through expenditure cuts. InSweden, the national budget targets today aremuch tougher than in the euro zone, requir-ing the government to show a hefty surplus ingood years in order to obtain a small surplusover the economic cycle as a whole, aiming toreduce government debt.In Norway, revenues from oil and gas nowhave to be handled according to strict rules inorder to keep the government budget moreor less balanced. The bulk of revenues is putinto a sovereign wealth fund – the Govern-ment Pension Fund Global – for future needsand investments. Moreover, a “fiscal policyrule”limits the structural non-oil budget defi-cit over a full economic cycle to the 4 per centexpected real return on the Fund.In all four countries,several markets have beenderegulated. Taxes have been cut, as well as8 9Nordic capitalism: Lesson learnedNordic capitalism: Lesson learned
  6. 6. good use of their respective crises? PresidentObama’s former Chief of Staff, Rahm Eman-uel, famously quipped“Never let a good cri-sis go to waste.”But many countries do. Howcome the Nordic countries did not wastetheirs? Are there some common elements inthe Nordic way of handling crises which arebeneficial and could be emulated in othercountries? Is there a certain “Nordic experi-ence”from which we might learn?Once again, it is almost impossible to createblueprints for other countries, with differentcharacteristics, in different times. And as seenabove, the four countriesfollowed different strate-gies as regards currencypolicy, income policy etc.Nonetheless, there are cer-tain common traits in howthese countries answeredthe challenges. All fourhave a tradition of consensus-seeking policysolutions – the obvious example here is theNorwegian deal between the government, la-bor and management.Also, their economies are open and protec-tionism is out of the question. Labor unionsare positive toward new technology. And theyall – more or less – adhere to the view that sickleave and unemployment insurance systemsshould be shaped in ways which are both gen-erous and growth-promoting. This creates acertain social cohesion, which may have bene-ficial effects on policy-making and growth.Thecombination of liberal labor laws – it is com-paratively easy to hire and fire – with generousbenefit levels and an active labor market policyhas been dubbed flexicurity, since it aims tocombine both flexibility and security.This system, however, does not always func-tion as intended. It has not prevented unem-ployment from rising over the long-term andduring the recent crisis. And it has not beenable to fully prevent the creation of a largegroup of structurally unemployed immigrants,who are now creating riftsin previous homogeneouscountries. Nonetheless, itmay be an important partof the answer to the ques-tions about the Nordic ex-perience.However, this raises new questions andpushes us to the next analytical level: Howcome the Nordic countries have adopted thisflexicurity model, with its strong emphasis onlabor and work ethics? Here, the wretchedeconomist must leave the floor to the histori-ans. Precisely this issue is analyzed in the nextessay by Lars Trägårdh and Henrik Berggren.Is there a certain“Nordic experience”from which wemight learn?One of the indices in the World Economic Forum Competitiveness report concerns thetransparency and efficiency of public institutions. In the recent report, four out of the six topspots in this ”pillar” were clinched by the main Nordic countries.Source: World Economic Forum Global Competitiveness Report 2010-2011Trustworthy public institutions in the Nordics7654321Global Competetiveness Index 2010–20111st pillar: Institutions1 2 3 4 5 6 7DKNOFISE10 11Nordic capitalism: Lesson learnedNordic capitalism: Lesson learned
  7. 7. In a broad global perspective, the Nordic re-gion may seem of marginal significance. Thecombined population of the Nordic countriesis only 25 million people, but in qualitative termsthere is an argument to be made for the viabilityof the Nordic strand of capitalism.As Klas Eklund shows in his article, the regionhas emerged in good shape from the recent fi-nancial crisis, with budget surpluses and lowlevels of public debt. In a longer perspective thefour main Nordic countries are characterized bysteady growth,long-term political stability,trans-parent institutions, technological adaptability,flexible labor markets, open economies and highlevels of education. All these factors tend to putthe Nordic countries at the top of internationalranking lists both in terms of economic clout andquality of life. It has also been argued that thismakes the Nordic countries better equipped todeal with fundamental challenges concerningsustainability in general and global warming inparticular.How, then, can we explain the relative successof Nordic capitalism in a globalized world? Onepossibility is that Nordics by nature are unusu-ally cooperative, rational and less prone to suc-cumb to the lure of market egoism than otherpeople. If that is the case, there is not much tobe learned from the outside – other than thatthe world might be a more reasonable but alsopossibly duller place if it were inhabited solely bySwedes, Danes, Norwegians and Finns.However, if we assume that the citizens of theNordic countries are on the whole similar to oth-er human beings in their passions, both good andbad, other factors come into play: the social prac-tices, the long-term institutions and historical ex-periences that underpin Nordic capitalism.This isnot to imply that there is a free-floating Nordicmodel that can be applied to other countries. Butit does mean that some aspects of Nordic capital-ism might be relevant in addressing the problemsof globalization, social fragmentation and the in-stability of modern finance capitalism.Social trust and radical individualismThe paradox at the heart of Nordic capitalismHenrik Berggren/ Lars Trägårdh1312
  8. 8. Individual autonomy and social trustWhat then, are the most outstanding characteris-tics of Nordic society that are specifically relevantto the efficiency of its economy? Traditionally,outside observers have put a strong emphasis onsocial solidarity − an ability to subordinate indi-vidual interest to collective rationality. Often, thisstress on solidarity has been understood in op-position to the fundamental logic of the market:certain collective goods have been“decommodi-fied”and effectively removed from the cold logicof the market society. Indeed, this was a perspec-tive that Marquis Childs made famous as early asthe 1930s, when he wrote Sweden: the MiddleWay, suggesting that Sweden had found a way toa healthy balance betweenaltruistic socialism and self-ish capitalism, to use thecrude binary of that period.But this is, at best, a half-truth. This emphasis onsocial solidarity hides thestrong, not to say extreme,individualism that defines social relations andpolitical institutions in the Nordic countries. In-deed, it is precisely the fundamental harmonybetween the Nordic social contract and the basicprinciples of the market – that the basic unit ofsociety is the individual and a central purpose ofpolicy should be to maximize individual autono-my and social mobility – that we see as the keyto the vitality of Nordic capitalism. In a Europeanperspective, the Nordics do not hold particular-ly strong leftist attitudes in terms of equality ofclasses versus individual freedom, equality of payversus merit-based differentials or state versusprivate ownership of industries. As Ole Listhaughas put it:“This could well demonstrate a higherlevel of individualism and support for marketprinciples than is traditionally attributed to thecitizens of Scandinavia”.Nordic individualismWhile much has been written about the insti-tutionalized aspects of the Nordic welfare state,few have paid much attention to its underlyingmoral logic. Though the path hasn’t always beenstraight, one can discernover the course of the twen-tieth century an overarch-ing ambition in the Nordiccountries not to socialize theeconomy but to liberate theindividual citizen from allforms of subordination anddependency within the fam-ily and in civil society: the poor from charity, theworkers from their employers, wives from theirhusbands, children from parents – and vice versawhen the parents become elderly.In practice, the primacy of individual autonomyhas been institutionalized through a plethoraof laws and policies affecting Nordics in mat-ters minute and mundane as well as large anddramatic. Interdependency within the family hasbeen minimized through individual taxation ofspouses, family law reforms have revoked obli-gations to support elderly parents, more or lessuniversal day care makes it possible for womento work, student loans without means test in re-lation to the incomes of parents or spouse giveyoung adults a large degree of autonomy in rela-tion to their families, children are given a moreindependent status through the abolition ofcorporal punishment and a strong emphasis onchildren’s rights.All in all this legislation has made the Nordiccountries into the least family-dependent andmost individualized societies on the face of theearth. To be sure, the family remains a centralsocial institution in the Nordic countries, but ittoo is infused with the same moral logic stressingautonomy and equality.The ideal family is madeup of adults who work and are not financiallydependent on the other, and children who areencouraged to be as independent as early as pos-sible. Rather than undermining “family values”this could be interpreted as a modernization ofthe family as a social institution. While accept-ing the fact that long-term spousal commitmentis no longer the norm, the “new Nordic family”takes parenthood seriously, both in a demo-graphic sense (the Nordic countries have higherbirth rates than more traditional family culturesin southern Europe) and in terms of the timethat parents, married or not, spend with theirchildren.Has Sweden founda way to a healthybalance betweenaltruistic socialism andselfish capitalism?14 Social trust and radical individualism 15 Social trust and radical individualism
  9. 9. In quantitative terms, data from the WorldValues Survey confirm this picture, indicatingthat the Nordic countries stand out as a clus-ter of societies in which people put a strongemphasis on the importance of individualself-realization and personal autonomy. Inthe language of WVS, the Nordics are char-acterized by their embrace of “emancipatoryself-expression values”on the one hand, and“secular-rational values,”on the other.One effect of this radical individualism isthat, relatively speaking, people in the Nordiccountries are more willing to accept the marketeconomy both as consumers and producers.Less tied down by legal and moral obligationswithin the family, yet still protected from ex-treme risk by a universal safety net, they be-come more flexible on the labor market, whileas individual consumers they have developedfar-reaching needs of products and services thatpreviously were satisfied within the traditionalfamily. This market orientation is enforced ina number of ways in the Nordic countries, notleast by a social insurance system based onthe recipient’s level of earned income on theopen labor market, thereby creating an incen-tive to work while at the same time providingadequate coverage for illness, unemploymentand parental leave. Currently, the most famousexample is the Danish“flexicurity system.”To this should be added the historical legacyemphasizing equal access to fundamentalgoods, not just healthcare and pensions, butalso education.This has translated into a longhistory of investing in individuals and pro-viding access to resources that allow them tomaximize their value in the market place. His-torically the countries with the highest ratesof literacy, Nordic countries have for a longtime scored at the very top when it comes tobasic education and investment in research.The institutional foundationsof social trustThe image of a strongly individualized marketsociety filled with solitary consumers mightseem bleak and materialistic. But althoughthis may be true in some sense, the significantsocial phenomenon is that Nordic individual-ism has not led to the anomie, alienation andbreakdown of general trust that traditional so-cial theory has associated with the shift fromwarm Gemeinschaft to cold Gesellschaft.The underlying assumption of these theoriesis that trust arises in small, closely-knit com-munities where there is large degree of inter-dependence. More recent research has shown,however, that it is precisely the most modernand individualistic countries, most notably theNordic countries, that are characterized by abroad social trust extended beyond the inti-mate sphere of family and friends to includeother members of society.Secular-RationalValuesTraditionalValues2.01.51.00.50-0.5-1.0-1.5-2.0Survival Values-2.0 -1.5 -1 -0.5 0 0.5 1 1.5 2RussiaBulgariaEstoniaBelarusUkraineMontenegroLatviaAlbaniaMoldovaMacedoniaBosniaRomaniaSerbiaHungaryChinaS.KoreaEastGermanyCzechSloveniaSlovakiaCroatiaPolandGeorgiaAzerbaijanArmeniaIndia VietnamTurkeyBangladeshIndonesiaPhillippinesIranJordanZimbabweMoroccoAlgeria EgyptPortugalChile ArgentinaDominicanRepublicPeruBrazilMexicoVenezuelaColombiaElSalvadorPuertoRicoIrelandN.IrelandU.S.AAustraliaCanadaNewZeelandGreatBritainFranceBelgiumLuxembourgAustriaItalySpainUruguayUgandaSwedenNorwayJapanWestGermanyFinlandDenmarkNetherlandsSwitzerlandIcelandTaiwanSelf Expression ValuesProtestantEuropeEnglishspeakingLatin AmericaAfricaFactor ScoreTanzaniaGhanaConfucianCatholicEuropeEx-CommunistPakistan SouthAfricaSouth AsiaNigeriaLithuaniaGreeceIsraelRational and self-expression values dominate in the NordicsIn quantitative terms, data from the World Values Survey confirm this picture, indicating that theNordic countries stand out as a cluster of societies in which people put a strong emphasis onthe importance of individual self-realization and personal autonomy.Source: World Values Survey (WVS), fourth wave (1991-2001). Se Ronald Inglehart and ChristianWelzel, Modernization, Cultural Change, and Democracy: The Human Development Sequence.Cambridge: Cambridge University Press, 2005. Social trust and radical individualism16 Social trust and radical individualism 17
  10. 10. a great systemic advantage, which we fun-damentally can describe in economic termsas “low transaction costs.” Here, it should beadded, we include not only sheer or directeconomic transaction costs related to a low-er need to resort to written contracts, legalprotections, law-suits, and huge amounts ofbureaucratic paperwork, but also social andpolitical transaction costs that constitute indi-rect burdens and inefficiencies that ultimatelytranslate into added financial costs.One clear example of how a combination ofsocial trust and respect for the rule of law re-sults in lower transaction costs is the LandSurvey of Sweden (Lantmäteriet) which hasbeen registering the ownership of propertysince the 17th century. Because of the exactrecording of property boundaries and thegeneral trust in the impartiality of this stateagency, the amount of litigation over propertyrights has been negligible, which both lessensthe economic costs for the individual and pre-empts many possibilities of social conflict.Another example is labor market relationsin the Nordic countries, which, though notalways peaceful, have been characterizedby a mutual respect for negotiated contractsamong both employers and unions. It shouldbe noted that for most of the 20th century,political legislation has played a much smallerrole in regulating labor market relations thanvoluntary agreements between strong unionsGeneralized Trust – An international comparison and equally strong employer’s federations, of-ten at the national level.What are the historical roots ofthe Nordic social contract?As we noted, social trust and trust in institu-tions also co-vary with low levels of corrup-tion. Historically the Nordic region also standsout as a“community of law”; indeed it was acommunity of law before the individual Nor-dic states were consolidated. Rule of law wascentral to the social contract that underpinnedthe emerging state, and adherence to the lawby the King and his administration was crucialto the legitimacy of the state.The trust in and reliability of institutions thusdepends on the acceptance of the rule of law,but even more important is the extent to whichthe values implicit in formal law are also in-ternalized and embedded as social norms. Orput differently, the extent to which laws, rulesand institutions are viewed as legitimate, asthe outcome of a democratic decision-makingprocess and grounded in common values, willdetermine how well they work. The more ac-cepted and internalized, the less prominentthe specter of corruption and lawlessness.The central axis around which the Nordic so-cial contract is formed is the alliance betweenstate and individual, what we call“statist indi-DENMARKSWEDENNETHERLANDSFINLANDUNITED KINGDOMSPAINIRELANDGERMANYEU15ESTONIAAUSTRIALUXEMBOURGEU25BELGIUMTOTALHUNGARYSLOVENIAPORTUGALMALTAITALYFRANCEBULGARIACYPRUS (SOUTH)GREECEROMANIACZECH REPUBLICSLOVAKIANMS10LATVIALITHUANIAPOLAND0 10 20 30 40 50 60 70 80Again we find that the Nordic countries (andthe Netherlands) stand out in studies such asWorld Values Survey, European Social Survey,European Values Study and Eurobarometer.In addition to putting a strong emphasis onindividual self-realization these countries arecharacterized by a high degree of social trust:well over 50% of respondents claim to trustother people, including strangers. This socialtrust furthermore co-varies with a high degreeof trust or confidence in common institutions,such as the system of justice, public adminis-tration, the institutions of he state etc.From an economic point of view, social trustand adherence to the rule of law translate intoSource: the EuroBarometer 62.2 (2004). Data weighted.% Of respondents Social trust and radical individualism18 Social trust and radical individualism 19
  11. 11. ing the position of state, family and individ-ual in the U.S., Germany, and Sweden. In theNordic countries, as we have indicated, thestate and the individual form the dominantalliance. In the U.S., individual (rights) andfamily (values) trump the state (always seenas threat to liberty). In Germany, finally, thecentral axis is the one connecting state andfamily, with a much smaller role of eitherU.S.-style individual rights or a Nordic em-phasis on individual autonomy.This came to the forefront after World War I,when the Nordic countries undertook a jointeffort to modernize family legis-lation in each country that, withsome variances, resulted in themost gender-equal marriagelaws according to the generalEuropean standards of that era. These lawsdetermined that man and wife were equal interms of the marriage contract. though stillresponsible for different spheres within thedomestic arrangement.The egalitarianism of Nordic society is, ofcourse, an oft-noted feature of social and po-litical life in these societies. This is also trueof the prominence of gender equality. It hasbeen noted in comparative research that bothequality and gender equality are correlatedwith a number of other social virtues andcollective goods, including social trust, hap-piness, and economic development. What isless noted, since equality in the academic lit-erature is often linked to social engineeringand collectivist politics, is that equality in theNordic context is inseparable from individual-ism and the value of autonomy.According to what we have called“a Swedishtheory of love”, authentic relationships of loveand friendship are only possible between in-dividuals who do not depend on each other orstand in unequal power relations.Thus auton-omy, equality and (statist) individualism areinextricably linked to each other. Whateverpolitical and cultural drawbacks there mightbe to this commitment to per-sonal autonomy, a strong stateand social equality – the usualcriticisms are conformity, lone-liness and an intrusive bureau-cracy – one should note the upside: citizens,who feel empowered, accept the demands ofmodernity and are willing to make compro-mises to achieve economic efficiency and ra-tional decision-making.Is the Nordic instantiation ofcapitalism sustainable?The imminent death of the Swedish or Nor-dic model has been announced many times.It dates back to the Cold War disenchantmentwith Childs more celebratory account of a“middle way”, which resonated better duringPower Relations in Modern Welfare StatesStateGermanyFamilyUnited StatesIndividualSwedenvidualism”. Here an emphasis on individualautonomy coincides with a positive view ofthe state as an ally of not only weaker andmore vulnerable citizens, but the citizenry atlarge. This is coupled with a negative view ofunequal power relations between individualsin general and hierarchical institutions in par-ticular, such as the traditional patriarchal fam-ily and demeaning charitable organizations incivil society. In this regard, the Nordic modeldiffers from both their Anglo-American andcontinental European counterparts.Above we try to capture these different dy-namics of power in modern welfare statesgraphically as a“triangle drama”by contrast-“a Swedishtheory of love”Dynamics of power in modern welfare states. Graphically illustrated as a “triangle drama” bycontrasting the position of state, family and individual in the U.S., Germany, and Sweden.Source: ”Pippi Longstocking: The Autonomous Child and the Moral Logic of the SwedishWelfare State” in Helena Matsson and Sven-Olov Wallenstein (eds.), Swedish Modernism:Architecture, Consumption and the Welfare State. London: Black Dog Publishing, 2010. Social trust and radical individualism20 Social trust and radical individualism 21
  12. 12. the era of the Depression and the New Deal.And since then it has been a recurring trope,especially in the U.S. To some extent, the fail-ure of these predictions can be traced to amisunderstanding that has been shared byenthusiasts and critics alike, namely that theNordic countries were built on a compromisebetween socialism and capitalism. For criticsthat meant that given enough time, the costlyand unproductive “socialist” elements of themodel were bound to overwhelm the produc-tive“capitalist”aspects that had been allowedto remain. However, as we have argued in thisessay, these argumentsrest on flawed assump-tions that tend to un-derplay the fundamentalcoherence and vitality ofNordic capitalism.Of course,this is not to say that these countriesare any more immune to recessions and globalfinancial crises than other capitalist countries,or that they have not been set back economi-cally from time by bad policy decisions at thenational level. However, on the whole Nordiccapitalism has proved remarkably sustainable,certainly according to the measures and datathat we have available today.Still, questions can be raised about the futuresustainability and relevance of the model.Some argue that the increased ethnic, racial,and religious diversity linked to the influx ofrefugees constitutes a deep challenge to thesocial cohesion of Nordic society.The politicalconsequences are already visible in the rise ofanti-immigrant parties throughout the Nordiccountries. Insofar as immigrants and minori-ties are perceived as both burdens to the wel-fare system and as a threat to national culture,questions are also raised as to whether broadsupport of a tax-based system of social ser-vices can be sustained.Another pessimistic line of argument centerson the impact of neoliberalism on the Nordicsocial contract. Alarmistspoint to trends towardincreased economic in-equality and the intro-duction of voucher sys-tems and privatizationin education, healthcare, and pensions. Suchdevelopments, it is argued, will over time un-dermine the universalism of the classic Nordicwelfare state in favor of a more pluralistic sys-tem characterized by private, market-basedalternatives leading to segregation and a de-cline in social trust.Against this gloomy account, currently fo-cused on the rise of anti-immigrant politicalparties in the Nordic countries, it is nonethe-less quite possible to counter with a more op-timistic scenario. The central argument is atheart very simple and rests on two ideas: (1)that the striving for individual freedom andprosperity (life, liberty, the pursuit of happi-ness) is a rather universal drive, and (2) thatthis desire can only be realized in an enablingsocial, legal and institutional context. Fromthis point of view, the Nordic institutionalframework is characterized precisely by its ca-pacity to promote both social trust/confidencein institutions and rule of law, and individualautonomy consistent with the logic of themarket society.In this more optimistic account, the combinedlure of individual freedom and social securityis more likely to“naturalize”immigrants overtime than seriously challenge the Nordic cul-ture and its institutional system. And with re-spect to the neoliberal challenge − the rheto-ric of“free schools”,“free choice”of healthcareproducers and the introduction of a privatecomponent in the government pension planpackage − these systems still remain highlyregulated within the confines of the morallogic of equal access to fundamental publicgoods. Even if these market elements withinthe public sector raise questions concerningaccountability, quality and fair distributionof health, education and other services, theystill operate within a system that is very dif-ferent from a truly marketized society like theUnited States.Thus, the combination of cultural and moralforces that underpin the Nordic social contractand the firm institutional framework that pro-on the whole Nordiccapitalism has provedremarkably sustainable Social trust and radical individualism22 Social trust and radical individualism 23
  13. 13. motes this seemingly paradoxical coexistenceof emancipatory individualism and social se-curity may well prove both a major systemicadvantage in a globalized market society andan attractive arrangement from the individu-al’s point of view. Whether it is strong enoughto withstand the polarizing impact of immi-gration and increased diversity − combinedwith widening differences in wealth, incomeand access to education and work − is an em-pirical question to be continuously revisited.Are there lessons to be learned fromthe Nordic variety of capitalism?Obviously many of the salient features of Nor-dic capitalism are idiosyncratic.They have beencreated by a combinationof contingent factors,ranging from geographyand natural resources toreligious inclinations andpolitical coincidences.But this also true of theclassical model of marketeconomy that is often been presented as‘uni-versal’. Specific British and American experi-ences of modernization have been generalizedinto historical truths that have been appliedto other cultures, sometimes with great suc-cess but also with astounding failures. Thepoint is not that it is wrong in principal to tryto emulate other successful cultures (how elseis mankind to learn anything?), but ratherthat we should do so with great deliberationand – most importantly – not assume a priorithat only one kind of capitalism is relevant asa source of inspiration.However, it is not an easy task to identify andtransfer such experience in a form that be-comes useful and accessible. To be sure, thereare a number of important lessons implicit inthe development of Nordic capitalism. Thefirst one is that vague references to “values”and “culture,” would not be helpful; what isneeded is a down-to-earth analysis of con-crete institutions and policies. However, evenspecific laws, policies and institutions are farfrom easily translated and transferred to otherenvironments with different traditions andhistorical experiences.Still, we would like topoint to a cluster of insti-tutions and policies thatdo tend to instrumental-ize a set of experiencesin the Nordic countries,which have kept the so-cially destructive aspects of capitalism at baywhile still retaining the dynamics of marketeconomy, with an eye to whether they mightbe applicable in other parts of the world.1. Nordic capitalism shows that individualismneed not lead to social fragmentation, dis-trust and short-term maximization of mate-what is needed is adown-to-earth analysisof concrete institutionsand policies Social trust and radical individualism24 Social trust and radical individualism 25
  14. 14. rial interests. Promoting individual autonomythrough policy can, on the contrary, lead togreater social cohesion if it is done in an egali-tarian way.Less dependence and weaker patri-archal structures means that more people feelempowered and satisfied with their lives.Thisis especially relevant for women, who want toparticipate in the labor market without relin-quishing the possibility of becoming moth-ers. In authoritarian and hierarchical societieswhere the individual desire for autonomy isgiven insufficient space, political tensions arelikely to arise while social trust and confidencein institutions are likely to decrease.In this perspective, promoting policies likegender-equal educational systems, individualtaxation, universal day care and anti-patriar-chal family laws seems to be a generally goodidea, even if obviously in conflict with long-standing traditional norms in some cultures.This may not be the rightmoment in time to suggestthat the European Unionshould expand its mandatein relation to the memberstates’ national sovereignty,but in a longer perspective it might be nec-essary to develop a common and more indi-vidualized family policy if Europe is to remaineconomically viable.2. Nordic capitalism also demonstrates thesystemic advantage of having a positive viewof the state, not just as an ally of the weak butas the promoter of ideals of equality and in-dividual autonomy. The stress on social trustand confidence in the common institutionsof the state is, of course, not peculiar to theNordic countries, nor is the awareness that apositive view of the state cannot be upheld ifsocial and economic divisions grow too large.Indeed, the objectives of keeping unemploy-ment down and having welfare systems thatare tied to employment and the work ethic arenot specific to the Nordic countries, but con-stitute central goals for most European wel-fare states. However, they are pursued withvarying degree of success. In the Nordic coun-tries social trust,confidence in state institutionsand relative equality coincide.Perhaps most crucial to the positive feedbackcycle that has managed to stabilize the Nor-dic economies at a productive equilibrium,allowing for individual socialmobility, economic efficiencyand sustained relative equal-ity, is the degree and extentof inclusion of citizens andcivil society in the gover-nance process. The Nordic experience sug-gests that the more this occurs, the more trustand confidence-building will result, and themore likely it is that key values and social factswill remain in harmony. In this vein it is ad-visable to encourage the development of de-liberative processes of governance. Churches,individualism neednot lead to socialfragmentationlabor unions, charities and other associationsin civil society should be supported consultedand involved through commissions, round ta-bles and other forums of interaction betweenstate and society. In the Nordic countries suchstate/civil society interaction has been insti-tutionalized and routinized in ways that mayprovide useful inspiration.3. A strong state and individual autonomy arenot a threat to civil society, but are insteadits prerequisites. Citizens who join togethernot mainly to protect themselves from arbi-trary abuse by vested state or business inter-ests but rather to increase their potential forself-realization and personal independenceare more likely to make positive contribu-tions to society as a whole. This allows for amore constructive engagement, at best, ortoo close an entanglement with the state (thecorporatist dilemma), at worst. One exampleis labor market relations in the Nordic coun-tries, where the unions have generally not hada narrow self-interested view of their role insociety but rather have assumed a macroeco-nomic responsibility. To achieve this social re-sponsibility, it is necessary that these and oth-er grassroots organizations be supported boththrough legislation and economic subsidiesthat encourage the formation of an effectiveand inclusive civil society network.In the face of reality, the above suggestionsmight seem like the ultimate expression of adelusional kind of Nordic naïveté. But even ifthere is very little in the Nordic historical ex-perience that is transferable to other cultures,it does bring one important point to the dis-cussion: economic policies that cater both toour desire for individual autonomy and ourneed of community and security can be re-markably successful. Social trust and radical individualism26 Social trust and radical individualism 27
  15. 15. Desktop rgb-BLÅ = 0, 43,127Desktop rgb-GUL = 252, 181, 2012970FWD2010Investor is the largestindustrial holding companyin Northern Europe.The Nordic Council ofMinisters is an inter-governmental collabora-tion between the fiveNordic countries. It hasfirm traditions in politics,the economy, and cultureand it aims at creating astrong Nordic communityin a strong Europe.The Norden Association isan NGO founded in 1919with the aim to supportthe development of thecooperation between theNordic countries. With itswide network of 60 000members organised in localbranches all over the regionit has a major impact onthe well developed cross-border cooperation in theNordic region.Global Utmaning, Birger Jarlsgatan 27, 111 45 Stockholm Sweden. +46–8–787 21 50. WWW.GLOBALUTMANING.SEGlobal Challenge is anindependent think tankthat promotes solutions toglobal challenges relating tothe economy, environmentand democracy.“In the World Economic Forum’s global competitiveness index, theNordic countries are almost always found at or near the top. But what arethe reasons? Is there such a thing as a common“Model”particular to theNordics and if so, will it last? Is it sustainable, even transferable to otherparts of the world?In this little brief we would like to provide bits and pieces of what webelieve are some plausible explanations for the relative success of theNordic societies. If these experiences can improve the understanding ofour way of doing things and inspire debate and development in otherparts of the world we will be very pleased.Shared values are also about sharing values and experiences with others.”

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