The Nordic countries are still an attractive model

The Nordic model still represents an attractive approach to the economic and social challenges posed by global competition, new technology and ageing populations, according to a report written by a group of leading economists for the Nordic Council of Ministers. The report was presented in Helsinki on Wednesday in a seminar arranged by The Research Institute of the Finnish Economy ETLA.

On the one hand, the wide-ranging welfare commitment combined with the small size of the Nordic countries makes them more vulnerable than many other developed nations. On the other hand, they also have a number of strengths. Provided that a realistic range of reforms are introduced, the Nordic countries have the potential to guarantee sustainable welfare in the future, concludes The Nordic model – challenged but capable of reform a report written as part of the Nordic Council of Ministers’ Sustainable Nordic Welfare programme.

The report applied a broad perspective to the Region’s economic success and the factors that affect the national economies. The Nordic countries are not quite as unique or similar as is often thought. Many other countries now enjoy similar or higher standards of living, and have levels of public spending and taxation on a par with the Nordic Region. Nevertheless, the Nordic countries have been remarkably successful at combining high average standards of living with low levels of income inequality and poverty.

According to the report, the Nordic countries have achieved this combination of efficiency and equality by adopting a range of original solutions and approaches. These include relative openness to trade and international capital markets, as well as to structural economic changes, flexicurity, major investments in human capital and a comprehensive social-security safety net that is work related. The public sectors in the Region are relatively efficient, including their tax structures. The report also links the willingness to accept structural changes with the high degree of trust that characterises the Nordic societies.

In many policy areas, the Nordic countries are already well placed, but still have room for improvements, the extent of which varies from nation to nation. According to the report, these opportunities ought to be exploited more proactively than ever.

“Even greater emphasis should be placed on skills enhancement. Equal opportunities in education and lifelong learning should continue to serve as guiding principles. The Nordic model is based on very high levels of employment, hence the need for strong measures to offset the manpower shortages caused by the ageing population. Special attention should be paid to pension systems,” says Vesa Vihriälä, one of the co-authors of the report and MD of the Research Institute of the Finnish Economy (ETLA), Finland.

The report also concludes that it is important to build on the flexicurity model. Labour market flexibility should be increased despite the risk of greater income disparity and volatility. It calls for reforms of tax structures to boost labour supply, labour mobility and risk-taking, as well as clearer priorities and better use of market mechanisms and digital technology to keep public spending in check.

National challenges

    • Finland, which is suffering from structural problems, faces the greatest challenges in terms of adaptation. Manpower shortages are also predicted to be more of a problem for Finland than for the other Nordic countries.
    • Iceland is burdened by heavy national debt after the banking-related economic crisis.
    • Denmark needs to focus on macroeconomic stability and more efficient cost structures in health care.
    • In Sweden, the quality of primary education is still a weak point.
    • Norway needs to prepare for times ahead when its high standard of living will have to be based on innovation rather than on natural resources.

Read the report: The Nordic model – challenged but capable of reform


Vesa Vihriälä, managing director at the Research Institute of the Finnish Economy (ETLA)
Phone +358 9 609 900,