Baba’s Explainer – Scandinavian Social democracy

• Terming the political-economic system in the Scandinavian countries, despite its strong welfarist basis and emphasis on collective bargaining as “socialist” would be a misnomer.
• For one, the term “socialism” is associated with the regimes of the erstwhile Communist bloc, which had a heavy preponderance of the state in not just the ownership of the major means of production but also in political life with a one-party system drawing its ideological basis for rule on behalf of the working class.
• Following the collapse of the Soviet Union, new socialist regimes in recent years have sought to distance themselves from the one-party model in the so-called “second world”, instead focusing on retaining the functioning of market economies, while emphasising redistribution of wealth and a greater preponderance for the state in this process.
• The regimes in Latin America led by ruling parties in Venezuela, Bolivia and recently in Chile, can be termed “democratic socialist” — seeking to achieve socialist goals of redistribution and restructuring of formal democratic and liberal institutions in vastly unequal and elite driven systems.

• In the Scandinavian countries, on the other hand, the systems are more akin to typical “social democracies” —
  • reliance on representative and participatory democratic institutions where separation of powers is ensured;
  • a comprehensive social welfare schema with emphasis on publicly provided social services and investment in child care, education and research among others, that are funded by progressive taxation;
  • presence of strong labour market institutions with active labour unions and employer associations which allow for significant collective bargaining, wage negotiations and coordination besides an active role in governance and policy.
• All these countries also follow a capitalist model of development, allowing for entrepreneurism and funding of welfare policies through a large degree of wage taxation in relation to corporate taxes.
  • Norway is an exception with high corporate income tax rate imposed on extractive activities — the country is a major producer of oil and gas).
• The commonalities in the Scandinavian countries — Norway, Sweden, Denmark, Finland and Iceland — on many of these counts are measurable.
  • Iceland (90.7% of the workforce), Denmark (67%), Sweden (65.2%), Finland (58.8%) and Norway (50.4%) have the highest proportion of the workforce belonging to trade unions (data as of 2019).
  • Education is free in all the Nordic States; health care is free in Denmark and Finland and partially free in Norway, Sweden and Iceland
  • workers get several benefits — from unemployment insurance to old age pensions, besides effective child care. Therefore, labour participation rates in these countries are among the highest in the world (even among women).
  • The five Nordic nations rank in the top 10 among OECD countries in government expenditure on health and education if calculated as percentage of GDP.
• Therefore, Nordic model is a unique combination of Free-Market Capitalism and Social Welfare.
  • An economic system that is based on supply and demand is known as the Free Market.
  • Social Benefits are funded by taxpayers and administered by the government for the benefit of all citizens.
• Gender equality is a hallmark trait of the culture that results in not only a high degree of workplace participation by women but also a high level of parental engagement by men.
• Such a model has helped these countries achieve significant outcomes —
  • high levels of international trade and participation in globalisation
  • economic progress
  • low levels of inequality and high living standards.
• In the most recent UNDP’s Human DeveIopment Index
  • Norway is ranked second (0.961)
  • Iceland stands at fourth (0.959)
  • Denmark at sixth (0.948)
  • Sweden at seventh (0.947)
  • Finland at 11 (0.940).
• The Nordic countries ranked the highest in various indices on press freedom across the world and in indices measuring gender equality. They were placed among the top 20 countries in GDP per capita (PPP, $) according to the World Bank’s recent data.

• One key reason for the thriving social democratic model in the Nordic countries has been their relatively smaller and more homogenous populations enabling focused governance.
• The “corporatist” model of involving interests of both capital and labour, mediated by the government at many levels, has allowed these countries to transition from agrarian to industrial to post-industrial (in some cases) and knowledge/service economies relatively smoothly.
• The tripartite consensus approach has also emphasised social policies that facilitate expansion of modern production, and thus more and better paid jobs. Such type of consensus is difficult to attain in a much larger and diverse societies.
• The other commonality is the political presence of the Social Democratic Parties in these countries. However, in many Democracies the central pole of politics have shifted from left leaning parties to right leaning parties as public lost trust on left parties which were embroiled in corruption & nepotism.
  • Norway is ruled by the social democratic Labour Party in coalition with the agrarian Centre Party
  • Denmark is ruled by the Social Democrats who are supported by the Red-Green Alliance, the Socialist Peoples’ Party and the Social Liberal Party
  • Finland’s government is led by the Social Democratic Party in coalition with the Centre Party, the Green League, the Left Alliance and the Swedish People’s Party
  • Iceland is ruled by a coalition led by the Left-Green Movement.
• Therefore, in many ways, the Nordic model of social democracy offers lessons to the developing world, including countries like India despite the myriad complexities of diversities, differential internal development and histories.

1.Ageing Population

• In terms of an aging population, a large base of young taxpayers and a smaller population of older residents receiving services are the ideal scenario. As the population balance shifts the other way, benefit reductions are a likely outcome.

2. Immigration

• The increased immigrant populations in countries such as Sweden has brought new strains in its social democratic model and its safety nets.
• In terms of immigration, these countries attract a notable influx of newcomers seeking to enjoy generous public benefits. These new arrivals often come from nations that do not have a long, shared history of making decisions on behalf of the common good.
• New arrivals can present a significant burden to the system and could, ultimately, result in its demise.
• However, some commentators believe that the rising influence of the SD in Sweden will not be a threat to its welfarist model despite the roots of the far-right party.