In the 21st century’s toughest test yet of governing, the Nordics stand out.
After almost a year of the pandemic, the region’s societal model has made it “the most promising” in charting a sustainable path out of the crisis, according to the World Economic Forum. HSBC says that superiority is down to generous social safety nets and high digitization.
It’s already clear that Denmark, Norway, Sweden and Finland have suffered a smaller economic setback during the COVID-19 crisis than the eurozone or the U.K.
Though far from perfect — Sweden’s anti-lockdown strategy and high death rate even drew criticism from King Carl XVI Gustaf, while Denmark’s fight against a coronavirus mutation culminated in a botched mink cull — the bigger picture remains one of economic strength. According to the WEF’s December report on global competitiveness, the Nordic region is now best placed to achieve a “productive, sustainable and inclusive economic system.”
In fact, the pandemic is positively showcasing the Nordic model after a period of controversy on its merits, including the 2018 accusation by advisers to U.S. President Donald Trump that the region proves how “socialism reduces living standards” and belongs in the same basket as Venezuela.
The small and export-oriented Nordics have long combined high taxes channeled into public-sector spending with economic efficiency and technological innovation.
“Deep public coffers, a tight social security net and a larger reliance on sectors that have been able to work from home and sell online have helped the Nordics during the COVID-19 crisis,” said Johanna Jeansson of Bloomberg Economics.
Nordic taxes, among the highest in the world, are widely embraced by voters who see them as a necessary mechanism for maintaining a stable society. That in turn creates a steady taxable base that means Nordic state debt levels are among the lowest in the European Union.
Low debt levels allowed the region, which regularly tops global happiness rankings, to enter the crisis with the natural advantage of being already rich and better able to spend.
That wealth supports key corners of the region’s economy. In Sweden, bankruptcies last year were on the same level as in 2019, despite the pandemic, a report showed on Monday. The sectors that were hardest hit “represent a very small part of Sweden’s economy,” according to the report by credit reference agency, UC.
The Nordics generally also rank high on gender equality. The fact that Swedish schools and kindergartens remained open may help explain why unemployment among women rose less than male joblessness at the height of the pandemic, compared with the EU average, said Jeansson. In Norway, the gender gap in labor force participation even declined this year, after the government expanded paid time off for taking care of young children.
The Nordic countries all offer universal welfare support, including health care and generous unemployment assistance. That translates into less concern over lost jobs and income than elsewhere, paving the way for economic activity to resume quicker when restrictions are finally removed, according to HSBC economist James Pomeroy.
“It’s a good example of how putting money in people’s pockets essentially has been shown in the pandemic as the best way to keep things going,” he said.
Danes and Swedes were at the top of the 27-member European Union in assessing their financial situation in July compared with the three previous months, with the Finns placed 7th, according to a study by the bloc’s Eurofound agency.
The region’s experiences of banking crises in the 1990s, followed by the global financial turmoil of 2008, have kept the Nordics wary of taking on public debt. That legacy of prudence means governments now have space to spend more to support economies during the current emergency.
Norway, home to the world’s biggest sovereign wealth fund, is in a class of its own when it comes to fiscal freedom. Sweden and Denmark have debt of roughly 40% of GDP, while the highest ratio in the region is in Finland, at close to 70%. That’s still less than half the tally in Italy, and compares with an EU average of almost 90%.
Sweden’s strong public finances are allowing it to implement expansionary fiscal policy combined with structural reforms, the Riksbank said in November, listing investments in human capital and infrastructure as well as a “broad” tax reform among the options available.
In Denmark, central bank Governor Lars Rohde says that “the starting position, with low public debt and households and companies with sensible finances, means that we can get through better.”
When the pandemic forced the world to adopt social distancing measures, remote work and digital schooling, few regions were as well prepared as the Nordics. Years of investment in computer technology, connectivity and teaching digital skills are now paying off.
Finland and Sweden reported the EU’s smallest decline in working hours for the second quarter compared with last three months of 2019, at less than 5%, according to Eurostat data. Norway, which isn’t an EU member, was at a similar level. Denmark took the sixth spot in the bloc.
“The parts of the world that have suffered the most in the pandemic are those that aren’t able to go digital at the flick of a switch,” HSBC’s Pomeroy said. “If you have a very digitally-savvy population, that sets you up very well going forward in terms of productivity.”
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