Is the Nordic model applicable to Central and Eastern Europe?

Twenty years after the transition from communism, the Central and Eastern European (CEE) region is disheartened. The much heralded GDP convergence with Western Europe conceals a bleak picture. For over twenty years employment levels across the region have remained far lower than in Western Europe, while the talented and most dynamic are leaving.

Foto: Creative Commons/ Anders Einarson

The gap in disposable income (i.e. income not spent on living costs and other compulsory expenses) has increased between East and West as prices have converged much faster than wages. Middle classes remain weak, and as a consequence the quality of democracy is deteriorating rapidly, evidenced by news reports saturated with corruption cases.

It is in this situation that some have suggested the CEE region might benefit from elements of the Nordic Model. Interest in the Scandinavian experience has increased primarily because it is, by and large, the only part of the Western world that has survived the post-2008 Great Recession intact. It is also the diametrical opposite of the CEE region: employment is the highest in the EU, wages are very high, democracy strong, corruption extremely low, the fiscal situation sustainable. Therefore the question is obvious: can Central and Eastern Europe learn from Scandinavia?

Objections as alibis for complacency and inaction

Before answering this question, it is necessary to sweep aside a few common objections that are based on myths. These are usually built on the assumption that ‘they (the Scandinavians) can afford it because they are rich’. Or ‘in fifty years time, when we become as affluent as they are, we can afford their welfare systems’. To this proposition, Scandinavians would respond by saying, correctly, that they are rich because they have these systems in place, not the other way around.

Another myth surrounding Scandinavia is that it is rich because of its natural resources. But this is simply false. They were rich welfare states even before they started extracting natural gas and oil in massive amounts in the seventies, which only some of them have done. Norway, which has oil and gas, uses only a tiny part of the revenues from these. They are wisely saving up for future generations in order to avoid the fate of natural resource cursed economies such as Nigeria or Saudi Arabia. The United Kingdom, by contrast, which shared the same North Sea deposits with Norway, took a different path under Margaret Thatcher using oil revenue to finance her neo-liberalist projects.

The model is also not culturally unique to the northern societies of Europe. As they themselves would put it, the Nordic Model is not something that grows on Scandinavian trees. Generations have had to struggle to implement it. At the beginning of the twentieth century, Finland was embroiled in a civil war, Norway was radically polarized politically, and even Sweden was lost in the eternal struggle between labour and capital that lead to a record number of working days lost to strikes and industrial action.

Social polarization in the twenties and thirties was becoming unbearable – much like in the CEE region today. It was out of this situation that they moved on to build the constructive Nordic Model in the decades following the famous Saltsjöbaden agreement of 1938 in Sweden. (The other Nordic countries had their own similar agreements.) Out of this confrontational situation generation after generation struggled to build a cooperative model; one which now enables the Danish trade unions to jokingly say today that they have become ‘the HR department of capital’, quickly adding that of course the threat of strikes remains.

The Nordic Model: institutions that shape culture, democracy and the economy

The Nordic Model is a set of institutions, and institutions can be transposed. Cultural objections are alibis for the maintenance of the status quo. If we accept that it is wrong to believe that the Roma are incapable of education, work and getting ahead in society – and it is certainly wrong – it is also false to believe that Swedes are somehow inherently more advanced than others, or that Slovaks, Hungarian or Macedonians are incapable of achieving current Nordic levels of education, cooperation and minimal corruption.

In fact self-deprecating cultural defeatism is a central part of what holds back institutional change and development in less affluent regions as far apart as Latin America, Africa and Central-Eastern Europe. As an analogy: if we had seriously believed that we were incapable of operating institutions for which we had not already developed any local traditions, then we should never have ventured into the project of democracy in 1989 in the first place.

The Nordic Model is both an economic project and a precondition of a functioning democracy. Powerful trade unions with almost universal membership sign agreements with representative employers’ associations on a biannual basis. They pledge themselves to increase productivity by maintaining a fantastic educational system and a comprehensive arrangement of adult education and in-house training. The motivation for employees is a share of the increased profits in the form of ever higher wages. The motivation for employers is also a share of the higher profits produced by a financially interested and more productive workforce, as well as a more amenable trade union that is more willing to accept wage restraints in bad times. The motivation for the government is social peace, high employment and more tax revenue.

The system presupposes a well-financed and well-administered educational system, as well as high industrial wage floors to motivate people to chose work rather than welfare benefits. The latter are financed from a progressive tax system and strong anti-corruption institutions. All this is highly relevant to CEE economies that suffer from low productivity, low wages and low employment. The CEE model of competing against other economies with low wages and low taxes has clearly failed.

A precondition of democracy

As Gøsta Esping-Andersen, the leading theoretician of the Nordic Model, has warned in his research no democracy is viable and sustainable without a massive middle class. He defines a person as middle class if they are materially independent (i.e. not prone to dependent clientalistic ties and not existentially threatened to speak out) and educated enough to understand and take part in public debates (which have become extremely complex in the age of nuclear energy and global monetary integration).

He adds that the market is incapable of creating this middle class. In fact the neo-liberalization of the last few decades has decimated middle classes in the West, as evidenced by statistics. Only welfare regimes are capable of providing the education, social protection, employment policy, public transport and other social services that enhance social mobility and strengthen middle classes. The principles underlying the CEE transition to democracy were just the opposite, namely, that markets in general and foreign direct investment in particular will lead to economic convergence and an ever strengthening middle classes.

Not surprisingly, this has failed to materialize. In the CEE, a third to a half of citizens live below the subsistence minimum. Middle class incomes in the region are equal to the bottom 10 percent of wages in Western Europe. Regional educational systems underperform. Middle classes, as defined by Esping-Andersen, can be estimated to constitute less than 10 percent of voters. This goes very far in explaining the declining quality of democracy in the CEE and the strengthening of clientalism and corruption as we have moved further away from the ’89 transitions.

When asked about the essence of the Nordic Model, a Scandinavian summed it up in the simple statement: “we talk to each other”. This is exactly what is missing in Central and Eastern Europe. It is not that in fifty years’ time, when the region is rich enough that it will be able to afford the Nordic Model. It is rather that if it does not start off on a more cooperative path now, it will never get rich enough.

Zoltán Pogátsa

Zoltán Pogátsa

is an international political economist. His home institution is the Faculty of Economics at the University of Western Hungary.