Thursday, December 21, 2006

NORDIC MODELS - ADMIRE THE BEST BUT FORGET THE REST

The latest Economist's comment perfectly reveals the traps being hidden behind the myth of the Scandinavian models. However, it becomes unclear when various politicians around the globe tackle their rethorics and agendas under the attachment of a "single" Scandinavian model. We have written ostensibly on the point of problems which particular Nordic countries are now facing. The latest statistics shows that Sweden's GDP per person measured as a percentage of the OECD average is rapidly falling beyond historically achieved levels. Prior to 1950, Swedish GDP per person equaled 120 percent of the OECD level while in 1993 the level of the GDP per head was only 90 percent of the OECD level. It may take years for Sweden to recover from this particular loophole. Another striking information is that not even a single job in the private sector has been created since 1950. Statistical data and also observations written by Steffan Karlsson, Johnny Munkhammar and Johan Norberg confirm that. The so called "Swedish social model" may soon colapse because of the ageing population. Exactly 33 percent of the GDP is contributed to social welfare programs in Sweden and this number is significantly above the European average, not to mention the average of other countries around the globe. Technological sector and research and development activities are strongly supported as the whell of economic growth turns forward. In contrast to Continental countries, policy-makers in Sweden, Denmark, Finland, Norway and Iceland are running a disciplined public financial policy of budget surpluses. And since budget pressures are minimized or perhaps even eliminated, the outlays for social welfare benefits become much more sustainable than in the Continental European economies. Swedish economy grew at an annual rate of 5,6 percent in 2006. This was enough for the central bank to trigger interest rates in order to cool the economy and to increase the price of borrowing. Bigger Swedish companies have been breaking export records. In truth, golden age of Swedish economy has gone. Between 1870 and 1950, average growth in Swedish GDP and productivity was by some measures the strongest in the world. For most of the last 50 years, this miracle changed into the relative decline including a deep recession in the 1990s. There is also a heavily regulated labor market. While government employment has grown largely, private sector employment declined throughout the last 50 years. Despite the vast size of the government, the efficiency of public-sector input is less than 0,6 (1,0 = max) which means that the input of Swedish public sector is 40 percent lower than the input of the public sector in the United States.

An interesting definition of the Scandinavian model was given by one of the fewest Swedish reformers, namely Carl Bildt. According to Mr. Bildt, the recipe for the perfect Nordic model includes the following ingredients; Finland's education system, Danish labor market, Estonian tax system, Iceland's entrepreneurship, Sweden's management of big companies and Norwegian oil. These are honorably admired Nordic features while a bulk of social-welfare measures should be immediately forgotten no matter which country or a group of countries wants to look northward to pursue the Nordic economic and social policy. I recommend them not to copy the Nordic "welfare" experiment on a permanent basis. It will cost them too much.

2 comments:

Anonymous said...

A great Catalan economist, Xavier Sala-i-Martin (see www.columbia.edu/~xs23) wrote recently an article called "Sweden: Mirror or Mirage?". It pointed out an interesting fact: Sweden is the fourth richest country in the EU, but if it was an American State, it would be the seventh poorest.

But in Europe it is a dogma that Nordic models are better than the American.

Thanks to people like you, these dogmas are falling. Merry Christmas from Barcelona!!

Rocks said...

Merry Christmas to you as well!

There are also two articles about Nordic issues coming out soon.

Yeah it's true what you're saying. If Sweden were a state in the U.S. then it would exist as one of the poorest ones in the whole country. Its standard of living would be equal to the one in Alabama or Louisiana. This has also been empirically underpinned.

Of course Nordic region indeed has some admirable features but those features present a small minority in the vastness of socialistic features while solely those features are goals of "social-welfare" policymakers in Europe. Slovenian government, for example, has declared its Scandinavian orientation, several times.

As to education system - the best Finnish university is ranked 74th on a global scale. Consider a soccer team ranked 74 on the FIFA scale and then imagine if a soccer analyst put that country as "the best" while top 10 countries were left out. It would be hilarious:)

Liberatarian free market reforms are vastly needed, also in Nordic countries. I think that rapid economic transformations in Chile, Estonia, Ireland, Singapore and partly Switzerland as well as their free-market policies could be a great example for the Nordic group of countries in order to learn how to avoid long-term economic stagnation. Why particular activists from Nordic countries are trying to tell other countries what to do? I think they need some more economic education if take into account that economic policy of Sweden for example is mostly a "neosocialist experiment" or in a direct sense - a way to going down - a way to long-term stagnation and recession.

Mr. Carl Bildt has given a nice picture of Nordic positivism while a bulk of the remaining measures should be immediately forgotten when policymakers in certain countries are setting up a framework for the mainstream of their economic policy.

In fact, it is a sad story if policymakers ignore scientific improvements in the field of economic sciences and rather consider a group of countries to be a "guideline" in their economic policy. Decisions in modern economic policies are based upon the contemporary economic theory and empirical studies in certain situations while any kind of deviation from this particular rule is a road to discretionary system of decision-making while we alread know how painful is the legacy of gradual economic policy in countries such as Slovenia.

Thank you for the comment and I wish you a Merry Christmas from Slovenia to Barcelona!

Regards, Rocks