Nordic Economies - Macroeconomic management

September 30th, 2005 at 12:45 Björn Hallberg

The World Economic Forum has released its Global Competitiveness Report for 2005-2006. And not surprisingly, the small, somewhat “planned” economies of the Nordic region are excelling. Macroeconomic management if you will. Nevertheless, top ten looks remarkably … “socialistic”.

1. Finland
2. USA
3. Sweden
4. Denmark
5. Taiwan
6. Singapore
7. Iceland
8. Switzerland
9. Norway
10. Australia

Take Sweden for example. One should note that it gets low grades for its employment market and tax level but overall, it matters not. And one could also suspect that conditions “improved” in those areas, we would quickly lose competitiveness elsewhere. For example … obviously high taxes isn’t some peripheral problem to be remedied. It is in fact integral to why these nations, and Sweden specifically are doing so well and so much better than one would expect from just listening to the radical free market proponents. Having said that, it also follows that it may not be possible to emulate the success of these nations.

According to the WEF, what are the main reasons for the Nordic success?

From an interview with Augusto Lopez-Claros - The Nordic countries have traditionally done very well in the GCR rankings. What accounts for their consistently strong performance?

I think it is a combination of many factors that, taken together, create extremely healthy business environments. First, unlike some of the larger industrial countries, macroeconomic management has been quite admirable; the authorities in all of these countries are strongly committed to sound public finances. They are running budget surpluses to be able to meet pension and other obligations associated with rapidly ageing populations. Successive governments have managed to create a climate of transparency and honesty in public management that greatly contributes to business confidence. Integrity and efficiency in the use of public resources means there is money for investing in education, in public health, in state-of-the-art infrastructure, all of which contributes to boost productivity. Highly trained labor forces, in turn, adopt new technologies with enthusiasm or, as happens often in the Nordics, are themselves in the forefront of technological innovations.

In many ways the Nordics have entered virtuous circles where various factors reinforce each other to make them among the most competitive economies in the world, with world class institutions and some of the highest levels of per capita income in the world.

How do the Nordic countries ensure that their competitiveness is not undermined by high taxes and large safety nets?

While the business communities in the Nordic countries, when asked, point to high tax rates as a potential problem area, there is no evidence that these are adversely affecting the ability of these countries to compete effectively in world markets, or to deliver to their respective populations extremely high living standards.

High tax rates are problematic when the money collected is not directed to efficiency-enhancing activities or is otherwise misused in some way in what the IMF calls, perhaps euphemistically, “unproductive expenditures.” If, however, the high tax rates generate resources that are then used to deliver world-class educational establishments, an effective social safety net, and a highly motivated and skilled labor force, then competitiveness is boosted, not undermined.

And this is just looking at economics. Which, again, according to the currently dominant economic doctrine should be one of the weak points of such nations. Looking at standard socialist issues of liberal policies, social security, health, gender equality and such, there is a rift that seems hard to bridge for more market oriented nation states.

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