ETLA's experts on the Nordic model

The Research Institute of the Finnish Economy (ETLA) released a report called The Nordic Model - Embracing globalization and sharing risks. (There's also a summary in Finnish (PDF) available.) ETLA is funded by employer organizations and as such tends to promote pro-business views. This report was written by a number of leading Nordic economists, including future Bank of Finland board member Professor Seppo Honkapohja.

With those caveats out of the way, the report points to some commonly perceived problems for the Nordic model: relocation of production and job losses, "international factor mobility", and tax competition. The solutions it advocates are also pretty standard: lengthening working careers, "clarifying" (i.e. limiting) the scope of public services, and privatization and outsourcing of services.

The most interesting part of the findings is the esteemed experts' evaluation of some often suggested fixes as unrealistic and based on deceptive thinking. Economic growth leads to higher wages also in the public sector. Increased fertility will start to increase public sector growth more than tax revenue after a few decades. Immigration helps the public sector only if its limited to easily employable young people, which isn't politically realistic. Taxation, especially on work, is already high.

But everything isn't broken:

[T]he authors believe it is essential to preserve one central feature of the Nordic Model. The Nordics have been embracing both globalization and the welfare state, and they argue that the security offered by collective mechanisms for sharing risks has been instrumental in enhancing a favourable attitude to globalization and competition. This key characteristic of the model must be preserved – in order to maintain an economic and social climate which is conducive to future welfare and growth. Collective risk sharing should continue to offer a safety net which helps workers and their families to cope with risks and to adapt to new requirements in times of change.

[...]

Finally, investment in human capital should not be the victim of increasingly tight budget constraints; what is good for the young is good for the future of society.

Yay for human capital.