When the Social Democrat leaders in the Nordic region gathered last November just outside Oslo, the mood might have been expected to be upbeat. Stefan Löfven had just become Swedish prime minister, ending eight years of centre-right rule that had attacked some of the main tenets of Nordic social democracy. He joined Helle Thorning-Schmidt, Denmark’s prime minister, and Antti Rinne, Finland’s finance minister. Even the odd man out from the four big Nordic nations – Jonas Gahr Store, leader of Norway’s opposition Labour party – could puff out his chest as he was riding high in the polls.
But instead the mood was rather morose. Elections this year could see the Social Democrats ousted from government in Finland and Denmark, which would leave just one Social Democrat in power in the Nordic region for the first time ever in the post-war period. (As recently as 1995-97, all four countries had Social Democrat prime ministers while in Norway and Sweden the parties topped the polls for decade after decade).
The atmosphere was hardly lifted by a report commissioned by the region’s Social Democrats and unions about the Nordic model. The Nordic model has received gushing praise in recent years from the Scottish nationalists to Bill Gates and the Economist who have all marvelled at the ability of Sweden, Norway, Denmark and Finland to maintain big welfare systems and competitive economies.
But inside the Nordic region there is a growing worry about the model. “The model’s success must not blind us to the need for renewal and maintenance. Most international models that achieve paragon status fall rapidly to earth…There is growing controversy over the heart of the model,” according to the report, “The Nordic model towards 2030: A new chapter?” The report plaintively expands its own question to ask whether it will be an epilogue instead.
Required: a Nordic turnaround?
And it is certainly not just the Social Democrats worrying about cracks in the model. Boston Consulting Group also released a report in November arguing that the Nordics need to step up their reforms to maintain their competitiveness. “If the Nordics were a company, they would need a transformation. And if Denmark and Finland had been a company they would need a turnround,” said Lars Faeste, a BCG managing director, pointing to a marked decline in average GDP growth from the 1990s to the 2000s in all countries except Sweden. Lars Løkke Rasmussen, leader of the Danish centre-right Liberal party and front-runner to take over from Thorning-Schmidt as prime minister later this year, said: “The financial crisis has opened our eyes to the weaknesses in this model. We should be focused on increasing our competitiveness.”
To some extent, the problems among Nordic Social Democrats mirror the travails of their colleagues across the region as they have struggled with the post-financial crisis world of sluggish growth and austerity in most countries. But social democracy’s bedrock is arguably found in the Nordics. Even the populist right-wing parties that have popped up across the region – such as the Sweden Democrats and the Finns – embrace the welfare state and many social democratic principles. Indeed, a recent chart of Nordic political parties on a left-right economic scale had only two mainstream parties just to the right of centre, versus more than two dozen on the left.
There is indeed little backlash against the model with even the populist parties broadly in favour of it (although in Denmark and Norway the main populist parties come from an anti-tax background). Trust levels remain astonishingly high compared with the rest of Europe. But there are tensions. Concern over how immigration is changing largely homogenous Nordic societies has led to the rise of the Sweden Democrats and Danish People’s Party. There has also been acceptance in some countries of a reduction in parts of the welfare state to protect solid public finances.
The Nordic model itself reposes on three main principles, according to Thorning-Schmidt: equality, collaboration, and trust. At least the first two are under strain. Inequality in Sweden has risen faster than any other rich country in the past two decades, albeit off a low base, according to the OECD. The centre-right government from 2006 to 2014 also brought in private companies to operate everything from schools to hospitals – and while there have been scandals along the way, the current Social Democrat-led administration is not looking to reverse the action. Denmark has private ambulances and fire engines while Thorning-Schmidt has argued that the welfare state needs to be made more sustainable, cutting taxes for some of the biggest earners at the expense of benefits.
Collaboration, especially between workers and employers, is also being tested. Karl-Petter Thorwaldsson, head of Sweden’s LO trade union congress, said that at the heart of the model is a deal that high salaries are tolerated because of high productivity. “High salaries force companies to change more rapidly because they can’t afford our members. So they need to be more productive.” But productivity growth since 2000 has dropped to 1 per cent a year in Norway, Denmark and Finland, according to BCG, compared with 2-3 per cent in the 1980s.
For all the relative gloom, it is worth pointing out that many of the problems the Nordics are facing are luxury ones compared with the rest of Europe. The countries still top rankings of everything from happiness and competitiveness to the best place to be a woman and even for restaurants. But Nordic Social Democrats know that to keep those top rankings a lot of hard work will be required – and they may not always be in government to steer things their way.