What America Needs is a Little Flexicurity

nordic model

                Odin, the Norse All-Father, is said to have hung from a tree for 9 days and sacrificed one of his eyes to acquire the knowledge of the world. These days, thankfully, all the Nordic people have to do to acquire knowledge is… well, live in the Nordics.

The five countries which make up the Nordic region are: Denmark, Finland, Iceland, Norway, and Sweden. For centuries they have valued knowledge and equality and such virtues are evident in their current social policies. Large public investments in human capital—free education, free healthcare, free job training and vocational education—are supported by conservative and liberal parties equally. Investments in their future have not only kept these small countries competitive, they are the basis for a one of the most ingenious social policies ever created—flexicurity.

Adopted by the Swedish government in 1962, flexicurity came out of the Rehn-Meidner Model. After World War II, Swedes began to reassess their domestic and global situations.  Looking at their economic balance sheets, they realized they would not be competitive in the growing global markets with agriculture and lumber as their profit centers. Since most of their GDP—and employment—was in low-skill industries, a plan was devised to slowly shift resources to more productive and profitable industries. In order to maintain their goals of equity during this transition, they proposed a “wage solidarity” program that limited wages at the top in order to subsidize wages at the bottom. The Swedes believed that if the whole country was to benefit equally from the economic growth created by transitioning to a more skilled and knowledge-based, capitalist economy, then the hardships that come with joblessness and displacement of workers should be equally distributed as well. From this collective action came flexicurity and the modern Nordic unemployment system.

Defined as a social policy which, “encourages collective action, solidarity, and social security by investing in social capital and keeping the labor market flexible,” flexicurity ensures that  resources are not spent on guaranteeing workers their low-paying, low-value-added existing jobs; instead workers receive ongoing support and retraining so they can be “recycled” for better jobs as technology and industries change. In the 1930’s, Joseph Schumpeter identified what he called “creative destruction” as key to economic growth in capitalism—as entrepreneurs create new industries, old enterprises become obsolete and go out of business. Following him, American pundits routinely insinuate that there is a tradeoff between individual economic security and national growth and innovation. Flexicurity seamlessly combines the security of social-democracy with the creative destruction of capitalism. As Americans, and the world, continue to reel from the fall-out of the Covid-19 pandemic, unemployment is surpassing historical records. Perhaps now is a good time to re-image our workforce development strategy and how we deal with unemployment in the future.

During the transition, Swedes cleverly implemented public programs such as free vocational training and free education through college. Tax benefits incentivized companies in high-value-added sectors to reinvest their profits from lower payrolls—due to wage solidarity—in capital to increase production and with it, more jobs. In an article for the Journal of Public Economics (2015), Joseph Stiglitz concluded that the US economy would greatly benefit from the implementation of flexicurity. Being able to replace failing industries—instead of constant bailouts—with new, more productive ones would help to maintain economic growth and encourage innovation.  Workers could be “recycled” and retrained to compete in higher skilled industries instead of increasing the structural unemployment prevalent today.

Critics of the system point to the high levels of taxation needed to pay for such extravagant public programs as detrimental to the ideal, neo-liberal, business-friendly environment.  However, compared to Europe as a whole, where the average corporate tax rate is 21.3 percent the Scandinavian countries are quite normal: Denmark’s is 22%, Norway’s 24%, and Sweden’s 20.6%. Even with the current tax rates, The Heritage Foundation, a conservative think-tank, still ranks the Nordic countries as “Mostly Free” on their overall index and, since 2006, they have all been rated “Free” on their Business Freedom Index. Evidently, corporations have found that the additional support and government spending directed at incubators, education, and paid benefits—which corporations do not have to provide—makes up for what they must pay in taxes. The small Nordic countries have found a “middle way” to be not only competitive in the global markets but have some of the largest rates of economic growth in the developed world. They have remained true to the egalitarian goals of socialism while capturing the efficiency of dynamic capitalist markets.

For decades, countries around the world have been experiencing a slow but steady shift from labor and manufacturing jobs to service or knowledge-based ones.  Simultaneously, corporations have found it easier to hire workers on “contract” rather than as full employees, to whom they must provide benefits. As these changes occur, employees in the Nordic countries will hardly notice a difference, as most of their benefits are tied to their citizenship and not their employer; however, in the United States, the story is quite different. As we have seen, when businesses close, even temporarily, people lose their benefits, including healthcare. With the global outbreak of Covid-19, the role of government and its responsibilities to its citizens is under scrutiny.  As the pandemic and the shift in the labor force continue to play out around the world, the value of social protections and responsible government may once again be appreciated.

Unfortunately, the current myopic views on governing in the US would make such policies almost impossible to implement in the absence of a public uprising. Nothing will occur if the people—the voters—do not stand up and demand it.  Many of the Nordic social programs could be tweaked to fit American norms and culture. The initial benefits are easy to see; however, the larger payoffs are in the tangential benefits. For example, job training and paid unemployment are wonderful immediately, but the real benefits of flexicurity and other social policies will be realized in the years to come, as a better-educated, healthier, and more secure labor force emerges. A well-educated workforce, dynamic economy, and cutting-edge technologies all lead to higher incomes for individuals, increased productivity, and a larger tax base for the government—even for a tax-averse country like the US.

The policies of the Nordic model came out of a need to rebuild Scandinavia after the Great Depression and World War II. A similar rebuilding must occur in the United States, in order to create a more sustainable and stable future for all. Even before the Covid-19 crisis, “gig workers,” “contract workers,” “independent consultants,” whatever you choose to call them, faced an uncertain future with large, personal, educational debts; no guaranteed, steady income; and no benefits. Long term, this system is completely unsustainable. Traditional lending will be difficult to acquire for these members of the precariat, making the purchasing of larger items—homes, cars, higher education—impossible.  As larger percentages of the population are systematically denied the ability to fully participate in our economy, impacts will be felt in all sectors. Given the overall stigmatization of welfare and the lack of political support for expanding it, proposed policies that provide institutional support for individuals’ abilities to “re-invent” themselves and to “be enterprising” are much likelier to gain traction. Doing the right thing for workers does not have to undermine economic growth, indeed, it can promote it; we just need to accept there are lessons yet to be learned from small countries like the Nordics.

Christine Welcher is completing a Master’s in International Public Affairs at the University of Wisconsin at Madison, where she is focusing on studying features of the “Nordic model” that can be implemented in other countries like the United States. She was formerly chair of the Democratic Party for Wisconsin’s 2nd Congressional District.



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