Tne Nordic model:From victories to new challenges

Riga, September 17, 2013

Klas EklundSenior Economist SEB

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The Nordics are hot

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The 1990s crisis in Sweden

The “Swedish model” cracked in the 1970’s

Two decades of slow growth, devaluations and inflation

1990’s: Deep crisis: Over-heating, currency crisis, rate hikes,

banking crisis, depression, unemployment, budget chaos

The grim realization: We were not God’s chosen people!

Forced brutal adaptation

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Comprehensive Swedish reforms

Big tax reform 1990-91

Financial market and FX deregulation 1991

Bank crisis resolution 1992-93

Utilities deregulation 1992

Floating currency 1992

Inflation target 1993

Independent central bank 1994

Fiscal austerity program 1993-96

Budget reform 1995

EU membership 1995

Pension reform 1996

Wage negotiations overhaul 1996

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The results

Well consolidated banks

Current account surplus

Budget surplus/balance

Falling government debt

Low inflation

Low interest rates

Falling unemployment

Rapid productivity growth

But still high unemployment

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Now: Nordic strength

Source: WEF

The peculiar Nordic Way

Big unions, big industry, big government, high taxes, egalitarianism

And openness, readiness to innovate

Ambition to combine equity with efficiency

Neither Anglo-Saxon unfettered markets nor Continental European rigidities

A strange mix of egalitarianism, high taxes – and free markets with individualism

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Nordic trust

The Swedish Government’s ”Commission for the Future”

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Globalisation

Will we be able to innovate and stay open?

Financing the welfare state

Will we be able to reform our welfare systems?

Regionalvulnerability

The labour market

Will we be able to mend the widening rifts?

Recipe 1. A more dynamic economy!

Build, spread and commercialize knowledge

School, university, R&D – but don’t overestimate R&D

The broader task: a creative society! Encourage entrepreneurs

Encourage SMEs

Encourage also simple services

Overhaul taxes and regulations

Build infrastructure

Support clusters and centers of excellence

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Recipe 2: Labour market on two legs!

Labour market is much more than high-productive positions in “the information society”

Also ”simple” jobs are necessary

Smooth transition from school to labour market

Lower thresholds

Broader labour market for non-moveable jobs

Recipe 3. Modernised welfare system!

Work longer, save more!

Make welfare services into growth sectors, not cost problems

Centralised state control creates inertia and inefficiencies

Pure markets do not work when information is asymmetric

Quality control, better procurement, creative cooperation between private and public sectors

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Conclusions

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When in crisis:‘Never waste a good crisis’

Bite the bullet, comprehensive reforms

Preparing the future:Buld innovative climate

Dynamism, flexibility, entrepreneurship