Nordic Model

What Is the Nordic Model?

The Nordic model is the combination of social welfare and economic systems adopted by Nordic countries. It combines elements of capitalism, for example, a market economy and economic efficiency, with social benefits, for example, state pensions and income distribution. The Nordic model, otherwise called the Scandinavian model, is generally commonly associated with the countries of Scandinavia: Sweden, Norway, Finland, Denmark, and Iceland.

Grasping the Nordic Model

The Nordic model hugs both the welfare state and globalization — two ways to deal with government that should be visible now and again as alternate extremes. The core parts of the Nordic model incorporate the public provision of social services funded by taxes; investment in education, child care, and different services associated with human capital; and strong workforce protections through unions and the social safety net. There is no lowest pay permitted by law since unions guarantee that wages stay high.

The Nordic model underscores expansive risk-sharing and the utilization of a social safety net to assist workers and families with adjusting to changes in the overall economy brought on by increased global competition for goods and services. These Scandinavian economies have profited from social homogeneity, political opportunities, and low levels of corruption.

A significant part of the model depends on how Nordic societies have developed throughout the long term. The residents have a high degree of trust in their government and a history of working together to arrive at compromises and address cultural difficulties through just processes. Residents trust that both public institutions and private companies have their best interests as a top priority through an overall social contract, with an accentuation on fairness.

Keeping up with economic growth while giving social welfare services requires Nordic countries to stress labor force participation. Nordic governments need to make incentives for their residents to continue to work notwithstanding having liberal welfare benefits. The finances of Nordic governments are generally considered strong, with economic growth consistent. This was not generally the situation, as several Nordic countries battled with low productivity and high unemployment during the 1990s.

The Nordic model is paid for by a portion of the world's highest tax rates.

The Nordic Model versus the U.S. Framework

The Nordic model is paid for by probably the highest tax rates in the world. In 2019, tax incomes as a percentage of gross domestic product (GDP) were roughly 46.3% in Denmark, 39.9% in Norway, and 42.9% in Sweden, according to the Organisation for Economic Co-operation and Development (OECD). That compares to the 24.5% of GDP raised by the United States through taxation in 2019.

According to TradingEconomics.com, in 2018 Sweden's top personal income tax rate was 57.3%, Denmark's was 55.8%, and Norway's was 46.6%. Tax rates in these countries are generally high on virtually all income, in addition to that of well off individuals.

By comparison, the top tax bracket in the U.S. in 2018 was 37% and just demanded on people who make $500,000 or more ($600,000 for married couples filing jointly). A key subject under banter in the 2020 U.S. decisions was whether the Nordic model, otherwise called vote based socialism, could work here.

Highlights

• The Nordic model combines components of capitalism and socialism.
• Vast risk sharing is a cardinal component of the Nordic model.
• Important highlights of the Nordic model incorporate the public provision of social services, investment in services associated with human capital, and a strong social safety net.