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Scandinavian ‘Socialism’: The Truth of the Nordic Model

Scandinavian socialism symbol

Global media (especially in the US) likes to portray Norway and Scandinavia as socialist. But “cuddly capitalism” is a much more accurate term. Let's take a look at the truth of the Nordic model.

Depending on where you get your political news, you’ve probably heard of Scandinavian socialism as either the beacon of hope for the world or the worst thing imaginable. So, which is it?

The truth, as always, is a little more complicated than a simple good or bad. All systems have positives and negatives and Scandinavian countries are no exception.

One thing’s for sure though, Many commentators have clearly never set foot in the Nordic region and barely understand the Nordic way of doing things. So, let's set a few things straight!

Is Scandinavia socialist?

Actually, to start with, what do we mean by socialism?

Socialism is a political, social, and economic philosophy encompassing a range of economic and social systems characterised by social ownership of the means of production and workers' self-management of enterprises.

That’s pretty much what Marx and Engels came up with in the 19th century. If you’re looking for a country that matches this definition, your search won’t take you to northern Europe. The simple fact is that Scandinavian countries are not, by any reasonable definition, socialist.

The Scandinavian flags
The flags of Scandinavia: Norway, Sweden, Denmark

In 2015, in fact, the Prime Minister of Denmark, in a lecture at Harvard’s Kennedy School of Government, addressed the issue directly.

I know that some people in the US associate the Nordic model with some sort of socialism. Therefore, I would like to make one thing clear. Denmark is far from a socialist planned economy. Denmark is a market economy.

Yet the idea persists. So, what exactly do people mean when talking of Scandinavian socialism?

Social democracy explained

Scandinavia and the Nordic countries can be best described as social democracies. Effectively, they’re democratic countries in which its citizens are well cared for.

Some refer to this as democratic socialism, though this is far from correct. Some economists refer to it as cuddly capitalism, contrasting with what is seen as cut-throat capitalism in other Western countries.

While the Scandinavian countries are in many ways very different, they share a lot of common history. The styles of government aren’t identical either, but they do share some common features. The ways in which they’re similar are enough that we can talk about them collectively – scholars call this the Nordic Model.

Northern Europe from space

Firstly, they are all free market capitalist countries. This fact gets missed by a lot of people, but their economies are fully open and trade globally like most countries in the world.

The way they differ is mostly in their welfare state. Social security in Scandinavia is more generous than pretty much anywhere else. Why? Well for that we need to delve into the history books.

The grand compromise

The Nordic Model traces its origins back to a 1930s compromise between workers and employers. It was spearheaded by farmers—which was how most people in the region, and indeed most of the world, made their money back then—and the workers parties that represented them.

The key feature of the Nordic Model is the social partnership. That's centralised coordination of wage negotiation and rights between employers and workers.

Agreements such as the Danish Kanslergade Agreement in 1933 and the Swedish Saltsjöbaden Agreement of 1938 set out a means for employers and unions to bargain on matters such as wages. In addition, both employers and workers have a framework to lobby the government to come to an arrangement on legislation affecting employment in terms of conditions and regulation.

One outcome of this, that certainly diverts from the left-wing playbook, is that there is no national minimum wage in Sweden, Denmark or Norway.

Instead, each sector has wages negotiated according to what the job is actually worth. Looking across the board, the average minimum wage in each country tends to be much higher than those that are mandated by other governments that have taken a blanket approach.

Three cartoon Viking characters
The Nordic model has its roots in history

Aspects of the Nordic Model

We can characterise the model as a number of key points:

  • Generous social safety net and public pension system with well-funded public services in a relatively high-tax economy
  • Strong property rights and contract enforcement coupled with an overall ease of doing business
  • Free trade combined with collective risk sharing, allowing the benefits of globalism while protecting against many of the risks
  • Low levels of regulation on product markets
  • Low levels of corruption – in 2015 five of the top ten spots were taken by Norway, Sweden, Denmark, Finland and Iceland in the Corruption Perceptions Index
  • High levels of unionisation – 51% in Norway up to 88% in Iceland compared with the levels of 18% in Germany, 11% in the US and 8% in France
  • A partnership between government, businesses and unions leading to everyone feeling invested in a system that works well for all
  • A relatively high personal tax burden. At 45.9%, Denmark has one of the highest tax burdens in the world. Tax rates are also fairly flat so even medium and lower income households pay relatively high levels of tax compared with the progressive systems in most Western countries

Perhaps the most important factor in all of this is the two-way trust between the government and the population. The government trusts the people and gives them the freedom to do what they feel is right. In turn the people trust the government to act according to the national interest.

So, we’ve looked at what the model is, and it all sounds great, right?

Employees are well looked after and paid well for their work. The unemployed are also well looked after and supported in their attempts to find work. Retirees are thanked for their years of service with a generous pension. Taxes are high but so are wages. For the most part, people can afford whatever they need.

So, everyone’s a winner, right? Well, there are a few issues to cover, too.

Norwegian flag full of a conforming population
An ageing population could put a strain on the Nordic welfare model

Problems with the Nordic Model

A few problems arise from the Nordic model that are inevitably going to cause changes over the coming years. The post-war Baby Boom produced a large generation that’s currently retiring or retired. This was then followed by a decline in the birth rate caused by more people working longer and thus having fewer children.

Populations are getting larger but the percentage of people working and paying taxes is in a slight decline. This is not unique to the Nordic countries – it’s a problem that every country is facing.

Current projections are that by the end of this century the global population will have started decreasing. Economists are not sure how to solve this problem, but they all agree it needs to be solved.

Another problem, arising from the region’s pro-globalisation stance, is that as economies in the East and in South America grow, they will continue to take on more and more jobs as their labour markets will operate more cheaply than they do in the West.

The Nordic countries are slightly shielded from this by their investment in R&D that allows the countries to excel in more technical fields.

What about Norwegian oil and the Wealth Fund?

It’s true that Norway has a higher degree of state-ownership of ‘the means of production’ than most countries, thanks to its oil economy and the state-owned energy company.

Johan Sverdrup oil field at sunset
Johan Sverdrup at sunset. (Photo: Equinor)

It’s important to note that even though it’s majority-owned by the government, Equinor is run as a for-profit concern in the same was as other non-state oil companies around the world. The government is effectively a major shareholder that leaves decision-making to the board.

As for the Sovereign Wealth Fund, it’s certainly true that having a massive amount of money in reserve helps back up a generous welfare state and it’s not an option for most countries.

It’s also true, however, that the SWF is mostly a fund for the future. It might help ease the transition to an older population and the outsourcing of labour but for now, it’s not the reason that makes the Nordic Model work in Norway!

Scandinavian ‘exceptionalism'

Another thing that detractors of the Nordic Model like to point to is that the system might actually be getting in the way of the people. Maybe it’s not the Scandinavian systems that are working well, but the people themselves.

Looking at Scandinavian Americans shows that their productivity is higher than average, their wages are higher than average and, because taxes in the US are lower, they get to keep more of the money than their homeland counterparts!

The argument, therefore, is that if Scandinavian countries adopted a more US-style of capitalism with smaller government, they would be even more productive and richer.

There could, of course, be many reasons for this. It’s clear that the Scandinavian people share a high, productive work ethic. It’s impossible to put this down to simple genetics. It could well be that this is fostered by the system that made them.

Proponents of the Nordic Model would argue that productivity and economic growth are not necessarily the be all and end all of society. This is probably best indicated by one of the most confounding aspects of Scandinavian societies – happiness!

Scandinavians people are Happy people

The World Happiness Report ranks countries according to how happy their citizens say they are. It’s the most reliable and reproduceable estimate of happiness. Every year, half of the top ten is taken up by Norway, Sweden, Denmark, Iceland and Finland.

A happy Danish guard
Scandinavians are generally considered happy/content with their lives

There’s no doubt that Scandinavians are happier with their lives than most of the rest of the world. In spite of high taxation, relatively cold weather and longer darker winters they’re happy people. It’s not due to the fact that they’re ‘born happy’ either. Surveys of immigrants shows comparable levels of happiness to the native population.

The report puts it mostly down to the fact that there’s high trust in government, low levels of corruption, low income inequality and high feelings of personal freedom. In other words, the things that many countries are pursuing are direct results of the Nordic Model.

Read more: Scandinavia May Not Be The Happiest Place On Earth After All

So, could countries around the world reproduce these levels of happiness simply by adopting the Nordic Model? Probably not. Or at least, it wouldn’t be easy.

The virtuous circle

Nordic countries foster a kind of virtuous circle. High levels of trust in the government aren’t necessarily caused by low-corruption and low corruption is not necessarily caused by high levels of trust in the government.

Instead, they feed into each other, and the other factors, to create a virtuous circle – everyone’s happy and everyone trust everybody else to keep doing whatever they need to do to keep things happy!

Many countries have the opposite problem. Low levels of trust in government and high corruption feed into each other to lower trust and increase corruption. Cycles like this are almost impossible to break. It’s difficult to build high-quality, trusted institutions when the people don’t trust the government.

And that’s probably the biggest thing that people on the right and the left fail to grasp. The Nordic Model works in Scandinavia because it’s in Scandinavia.

It’s a whole system, not just a few policies, that makes life in Scandinavian countries more like a shared journey. There are, no doubt, things that the rest of the world could learn from the region. But if you just take the Nordic Model and place it down somewhere else it simply wouldn’t work in the same way.

And that’s why arguing for or against the Nordic Model misses the point completely. The system always works for the people who run the system. In Scandinavia, that’s the population rather than the elite. So maybe, in that respect, it gets closer to the aims of socialism than actual socialism ever has!

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About the Author: Andrew McKay

6 Comments

  1. The reason people in America think that Norway is socialist is because, for decades, conservatism has been calling the things that Norway has “socialist”. Things like medicare for all, a functional justice system, an effective government, wealth redistribution policies, etc. Whether or not those things make a country socialist don’t matter to conservatives, they just like using the buzzword “socialism” to try and smear things they don’t like.

    However, over time this has had the side effect of people looking at Norway and saying “Well, if that’s socialism, then socialism looks pretty good.”

    And, of course there’s the fact that conservatives tend to say that socialism is “whenever the government owns the economy”, which puts them in a rather awkward place when you inform them that Norway’s government actually owns more of the economy than China’s or Venezuela’s governments do. (Source: https://theweek.com/articles/783700/democratic-socialism-bad-why-norway-great)

    So, this whole “Actually, Norway isn’t socialist” thing isn’t a result of socialists claiming Norway as one of their own, but rather of conservatives calling every social reform on the face of the earth “socialist”, and progressives eventually embracing that label. They opened Pandora’s box, and are now complaining about how they can’t close it again.

    1. No, it is indeed because every far left idiot claims the Scandanavian countries are socialist. Your arguement is absurd. Why would anyone bring the argument to the table that a well run, non socialist country is socialist when arguing against socialism? The only possible reason for a conservative to mention these countries would be in response, not as an initiator.

  2. My son and his family moved to Oslo about 8 years ago from the UK. Since then they have had two daughters. The first thing to mention is the maternity and child care benefits. My daughter-in-Law had more or less a year on full pay each time. Then there is the heavily subsidised Barnehagen from age one. These benefits together with the outdoor lifestyle in Norway have certainly made them happy! I think it’s the simplicity of life, hiking, swimming in lakes, camping in forests etc. that are the big difference in how Norwegians spend their leisure time that make for a satisfied society. Other capitalist societies seem to base life on amassing as much wealth as possible, often at the expense of others.

    1. Wealth is only amassed at the expense of others if it is acquired dishonestly or by force. If it is amassed legally then every single penny represents a voluntary exchange of value. Transactions are 2 way, not 1 way. Your comment is clearly biased nonsense. Your son is living a happy life and good luck to him. But he just happens to be living it in Norway, not BECAUSE he’s in Norway.

  3. I live and work in Denmark. There are lot of cultural reasons that the polices work here. Danes are, on the whole, very intense about work with a strong work ethic and a desire to do really good work. Even the simplest of jobs is done well and with pride. I have really enjoyed that part of being in Denmark. Danes, on the whole, are a also a very disciplined people and laying about on unemployment for a moment longer than necessary is highly frowned upon. Drawing on social benefits is seen as an absolute last resort for anyone of working age and considered to be fairly shameful if it goes on for any length of time. Retirement age is also mandated with no or very limited options for continuing employment once retirement age is reached, effectively forcing people out of the work force.

    While the income taxes here are quite high, you forgot to mention the sales tax (aka VAT) that is also quite high at 25%, Savings, other than pension, are also taxed quite heavily as are any gains from investments like stocks. Tax rates for that can go as high as 60%. .

  4. You didn’t actually point out any demerits of the Nordic model. May be this article wasn’t meant to do that. Your demerits were either too generic or actually came out as strengths. Also, about the unions bargaining for better pay is normally what happens in majority of the democracies world wide. Furthermore, the west calls this socialist or democratic socialist (although, I agree with you, that it is incorrect) is because of the free education and healthcare which wasn’t really discussed that much in this article.

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