The Nordic model pairs free trade and high taxes with unions almost everywhere
In 2019, 90.7 percent of Icelandic workers belonged to a union, against 16.3 percent in Germany and 9.9 percent in the United States. That density is one pillar of the Nordic model, a mix of open markets, heavy taxation and broad welfare that some economists nickname cuddly capitalism.
Denmark, Finland, Iceland, Norway and Sweden differ in plenty of ways, yet share a pattern that took shape in the 1930s under social democratic leadership, with help from centrist and right-wing parties and unions, and drew wide attention after the Second World War. Each has a single-chamber parliament elected by proportional representation. Wages and labour rules are hammered out between unions and employers with the government mediating, and around 30 percent of workers are employed in public services such as health, education and administration.
The money side is striking. Tax takes range from 35.9 percent of GDP in Iceland to 43.4 percent in Denmark, well above the OECD average of 33.9, and public spending runs from 48.3 percent of GDP in Norway to 55.8 in Finland. In return come tax-funded education and universal healthcare, and income inequality after transfers is among the lowest anywhere. Yet these are firmly market economies with secure property rights and easy business rules; The Economist called them stout free-traders that resist propping up even famous companies, and probably the best-governed countries in the world.
The versions differ. After its banking crisis of 1990 to 1994, Sweden deregulated and toughened competition law, while keeping more than 650 national bargaining agreements; it then saw the fastest rise in inequality in the OECD. Norway is the outlier on ownership: the state holds 37 percent of the Oslo stock market and runs giants such as Equinor, a habit dating from its takeover of German business interests after the war, and it saves oil revenue in a vast sovereign fund for a future without oil.
Some scholars trace the model partly to culture, pointing to Lutheranism, whose idea of a nationwide community of believers encouraged the state to absorb health, schooling and social work. The results score well: in the 2018 World Happiness Report all five made the top ten, with Finland and Norway leading.
Source: Nordic model
