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The Covid pandemic was an unexpected event for the entire world. Policymakers worldwide are struggling to find solutions to deal with the health and economic crises it has engendered. Over 148 countries imposed lockdowns.
As countries consider policies to deal with such uncertainties, the Nordic model provides an example. This model is unique in its ability to weave characteristics of a welfare state and a free market economy into a sustainable operative. This model provides the flexibility needed to prepare for tough times and allows citizens to navigate the pandemic better.
Anglo-Saxon economists firmly believe in the miraculous workings of Adam Smith’s invisible hand. The Nordics have shown that a large public sector is possible without compromising on entrepreneurship, a booming stock market, and an openness that engenders a free flow of capital and labour.
In building an efficient social and economic system, trust in authorities is vital for policies to be implemented quickly and effectively. The Nordic culture and value system relies heavily on public welfare and social trust among its citizens and authorities. The Nordic countries have some of the lowest corruption rates globally and have vital programmes in place for public accountability and transparency at all levels of public service.
Unique model
They embraced Eastern values of education and well-being and a consistent investment in both has resulted in a well-educated and healthy people. What they did that India could not do was to provide a public safety net for its citizens. Reliable social security, best-in-class low-cost education, and investments in healthcare infrastructure have helped these countries gain economic efficiency and better society building.
This kind of model is only possible when citizens contribute to their collective welfare, which is evident from the tax rates in these countries that are among the world's highest.
However, having only high tax rates is not enough. India has, since Independence, had phenomenally high taxe rates but could not generate responsible contributions by its citizens. This is due to the widespread misuse of funds and the government’s inability to fulfill the taxpayers’ needs. Accountability at both ends is the key to the trusting relationship that permeates the Nordic diaspora .
Paradoxically, the Nordic countries have promoted free capitalism within a welfare society state, an unusual model in mainstream economics. Governments here have offered sufficient incentives for businesses to invest in these countries. Multi-level collective bargaining arrangements also facilitate free enterprise, which keeps the citizen’s welfare at heart while formulating policies.
Leveraging IT
Nordic countries have also been at the forefront of adopting Information Technology (IT) and Information and Communications Technology (ICT) into the public infrastructure and citizens’ daily lives.
After the tech-boom in the US during the 1980s and the 1990s, the Nordic countries quickly transferred the new technologies from that country and integrated them into their social system. Thus, Nordic citizens became much more adept at using ICT technologies. The strategic and long-term spending on IT and ICT technology during the 1990s proved to be a boon for the Nordic countries, which helped them adapt much quicker during the pandemic. Smooth transition from office spaces or school classes to work/school from home are two examples that show the importance of early adoption of technology.
Given the Nordic countries’ strong entrepreneurship culture, companies and entrepreneurs have emerged in these regions to lead world IT and ICT markets. Data analytics to solve public policy issues can only be possible if good sources of data are available. In this respect, these countries are far ahead of others in using data to drive policy decisions.
These countries have a natural advantage in being small, but that has also forced them to rely on imports. However, their entrepreneurship is most starkly evident in that their exports have consistently surpassed imports. Their huge trade surpluses have kept them in good stead particularly in times of a crisis like the current one, giving these countries considerable fiscal and monetary space.
The Nordic belief in cooperation and trust extended to policies that help them collectively as a region. The first Nordic cooperation movement started in 1971 has again been ratified on August 20, 2020. India already has a socialistic welfare system. It would do well to strengthen its fabric by making the system transparent and corruption-free, prioritising trust between citizens and authorities.
The writer is Professor of Finance - IIM-Calcutta and Visiting Professor CBS. This article is based on a White Paper by R. Seth and D. Banerjee
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