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This article was published 1/2/2013 (1484 days ago), so information in it may no longer be current.
Smallish countries are often in the vanguard when it comes to reforming government. In the 1980s Britain was in the lead, thanks to Thatcherism and privatization. Tiny Singapore has long been a role model for many reformers. Now the Nordic countries are likely to assume a similar role.
That is partly because the four main Nordics -- Denmark, Finland, Norway and Sweden -- are doing rather well. If you had to be reborn anywhere in the world as a person with average talents and income, you would want to be a Viking. The Nordics cluster at the top in everything from economic competitiveness to social health and happiness. They have avoided both southern Europe's economic sclerosis and America's extreme inequality. Development theorists have taken to calling successful modernization "getting to Denmark."
Meanwhile, a region that was once synonymous with do-it-yourself furniture and ABBA even has become a cultural haven, home to The Killing (2007), Noma and Angry Birds.
Some of this is due to lucky timing: The Nordics cleverly managed to have their debt crisis in the 1990s. The second reason the Nordic model is in vogue is more interesting, though. To politicians around the world, especially in the debt-ridden West, they offer a blueprint of how to reform the public sector, making the state far more efficient and responsive.
The idea of lean Nordic government will come as a shock, both to French leftists who dream of socialist Scandinavia and to American conservatives who fear U.S. President Barack Obama is bent on "Swedenization."
They are out of date. In the 1970s and 1980s the Nordics were indeed tax-and-spend countries. Sweden's public spending reached 67 per cent of GDP in 1993, when Astrid Lindgren, the creator of Pippi Longstocking, was forced to pay more than 100 per cent of her income in taxes. Tax-and-spend did not work, though: Sweden fell from being the world's fourth-richest country in 1970 to its 14th in 1993.
Since then the Nordics have changed course, mainly to the right. Government's share of GDP in Sweden, which has dropped by around 18 percentage points, is lower than France's and could soon be lower than Britain's. Taxes have been cut: The corporate rate is 22 per cent, far lower than America's.
The Nordics have focused on balancing the books. While Obama and Congress dither over entitlement reform, Sweden has reformed its pension system. Its budget deficit is 0.3 per cent of GDP, while America's is seven per cent.
In public services, the Nordics have been similarly pragmatic. So long as public services work, they do not mind who provides them. Denmark and Norway allow private firms to run public hospitals. Sweden has a universal system of school vouchers, with private, for-profit schools competing with public schools. Denmark also has vouchers, but ones you can supplement. When it comes to choice, Milton Friedman would be more at home in Stockholm than in Washington.
All Western politicians claim to promote transparency and technology. The Nordics can do so with more justification than most, though. The performance of all schools and hospitals is measured. Governments are forced to operate in the harsh light of day, because Sweden gives everyone access to official records. Politicians are vilified if they get off their bicycles and into official limousines. The home of Skype and Spotify is also a leader in e-government: You can pay your taxes with an SMS message.
This may sound like enhanced Thatcherism, but the Nordics also offer something for the progressive left by proving it is possible to combine competitive capitalism with a large state: They employ 30 per cent of their workforce in the public sector, compared with an Organization for Economic Co-operation and Development average of 15 per cent.
They are stout free-traders who resist the temptation to intervene even to protect iconic companies: Sweden let Saab go bankrupt and Volvo is now owned by China's Geeley. They also focus on the long term, however, most obviously through Norway's $600-billion sovereign-wealth fund, and they look for ways to temper capitalism's harsher effects. Denmark, for instance, has a system of "flexicurity" that makes it easier for employers to fire people but provides support and training for the unemployed, and Finland organizes venture-capital networks.
The new Nordic model is not perfect. Public spending as a proportion of these countries' GDP is still higher than will be sustainable. Their levels of taxation still encourage entrepreneurs to move abroad: London is full of clever young Swedes. Too many people, especially immigrants, live off benefits.
The pressures that have forced their governments to cut spending, such as growing global competition, will force more change. The Nordics are bloated compared with Singapore, and they have not focused enough on means-testing benefits.
All the same, more countries should look to the Nordics. Western countries will hit the limits of big government, as Sweden did. When Chancellor Angela Merkel of Germany worries the European Union has seven per cent of the world's population but half of its social spending, the Nordics are part of the answer. They also show European Union countries can be genuine economic successes. As the Asians introduce welfare states, they, too, will look to the Nordics: Norway is a particular focus of the Chinese.
The main lesson to learn from the Nordics is not ideological but practical. The state is popular not because it is big but because it works. A Swede pays taxes more willingly than a Californian because he gets decent schools and free health care.
The Nordics have pushed far-reaching reforms past unions and business lobbies. The proof is there. You can inject market mechanisms into the welfare state to sharpen its performance. You can put entitlement programs on sound foundations to avoid beggaring future generations. You need to be willing to root out corruption and vested interests, though, and you must be ready to abandon tired orthodoxies of the left and right alike and forage for good ideas across the political spectrum.
The world will be studying the Nordic model for years to come.