Growth in Times of Austerity: Looking beyond Germany at the Scandinavian Model

March 27, 2013

Adrian Wooldridge joined us on March 27th to discuss his analysis of the Nordic model, and how that model can be applied to other countries.  Prior to explaining the Nordic model, Wooldridge presented some important caveats.  One was that the Nordic countries have a combined population of about 25 million people.  This is important to note because Germany has a total population of about 80 million; and such a disparity highlights the potential difficulty of applying this model to countries with populations larger than the Nordic region.  The other caveat was that the Nordic countries focused on structural reform and budget balancing during the 1990’s; this is important because during this period other countries were experiencing prosperity, not stagnation.  The focus on promoting growth accompanied by the aforementioned factors aided in the success of the Nordic model.

The model focuses on boosting the private and public sector while reducing the state, which is something that the Nordic countries avoided throughout the 70’s and 80’s.  These countries worked to balance their short and long term goals to improve the wellbeing of state architecture.  Prior to the reforms, Nordic countries relied on “big” government to fuel their economy; this was mainly accomplished by relying on a few strong state endorsed companies.  Within the private sector, reforms focused on creating an ecosystem that would promote new business through lifting restrictions.  This focus on a less homogenous approach allowed for new companies to achieve an easy startup and sustainability.  Nordic countries also focused reforms on the public sector as well.  The main goal of these reforms was to promote a balance between pragmatism and ideology.  These reforms included bold market experiments and education reforms.  For example, in Finland the education system includes short days, long holidays, and increased autonomy for teachers, but what is more important is that this system has remained unchanged.

Towards the end of his presentation Dr. Wooldridge stated that there are two important lessons to be learned from analyzing the Nordic model.  The first lesson is that this model was successful because of the focus on limiting big government to allow the private sector to grow, while also promoting innovation during cut backs.  The second lesson is the importance of good governance.  The focus was to promote good governance through less corruption, increased efficiency, and greater transparency.  As previously mentioned pragmatism is important, thus the new model focuses on consensus and continuity, which as Dr. Wooldridge pointed out, is very significant.  Instead of restructuring their system every election cycle, the Nordic countries focus on continuing their bold experiments, while adjusting the innovation as it evolves.  This is a key difference between the Nordic countries and other nations that hope to learn from this model.  This could be a cultural difference, but it is an important lesson, despite possible ideological differences.

Dr. Wooldridge stressed throughout the talk that it was important for governments to transcend ideological differences to reach consensus, which is important because the Nordic model relies on new innovations and experiments.  Consensus allows the government to not only keep innovations that are working, but also change or remove ones that are not.  Dr. Wooldridge did point out that as the country’s population increases certain aspects of the model do not apply because common interest is lost, but large populations do not completely discount the model.  Dr. Wooldridge stated that education reform is the most applicable aspect of the model because population has less of an effect on education reforms.  In summation Dr. Wooldridge’s analysis of the Nordic model provides interesting incite on how governments can reform and restructure to promote sustainable growth in times of economic stagnation.

Dr. Adrian Wooldridge is the Management Editor and Schumpeter Columnist for The Economist. He has also served as the magazine’s Washington Bureau Chief, Los Angeles correspondent, and Social Policy Editor (specializing in education and health care). Dr. Wooldridge is the coauthor or coeditor with fellow Economist journalist John Micklethwait of five books on globalization and business, including The Right Nation (2005), The Company (2005), God is Back (2009), The Witch Doctors (1998), and Masters of Management: How the Business Gurus and Their Ideas Have Changed the World – for Better and for Worse (2011).