THE PERFORMANCE OF THE NORDIC MODEL
3.3 S OCIAL EQUALITY
Economic efficiency is important in its own right and as a precon- dition for the realization of other ambitions, but it is not in itself the only or the most important goal of society. While it is unclear how the ultimate objective should be defined, there is no doubt that the Nordic political system attaches great importance to social considerations and the achievement of social equality or “justice”. This section will offer some brief observations on this vast topic.
A first observation is that the Nordic countries, again com- pared mainly to the EU15, are characterized by a rather low degree of income inequality and a relatively high degree of social mobility (figure 3.6). The degree of income inequality here refers to the Gini coefficient of the distribution of income after taxes and transfers. While income inequality is rather similar in most countries before taxes and transfers (see Mahler and Jesuit (2006)), income inequality after redistribution via taxes and cash benefits differs considerably, and would most probably differ even more if
Social welfare and equality are diffi cult to measure, but many indicators point in the same direction 0.1 0.2 0.3 0.4 0.5 0.6 0.22 0.26 0.30 0.34 0.38 0.22 0.26 0.30 0.34
0.38 Current income inequality
a
Intergenerational income elasticityb Den Swe Fin Ger Fra Ita Spa UK USA Figure 3.6 Income inequality
a Gini coeffi cient, data from The Luxembourg Income Study (www.lisproject.org). Data refer to the year
2000 except for Denmark (2004), the Netherlands and the UK (1999).
b A high elasticity value implies a high correlation between income levels of children and parents. Data
The performance of the Nordic model
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also benefits in kind were included. Inequality is low in the Nordic countries as well as in the Netherlands and Austria, while it is high in the Anglo-Saxon and South-European countries.Social mobility refers in this context to a measure of intergen- erational income elasticity, i.e. a measure of the strength of the relation between income levels of children and parents. There are several possible reasons why children tend to “inherit” their par- ents’ socio-economic status (genes, wealth, transmission of learning behaviour and attitudes from parents to children). Redistributive family policies and particularly the educational system are prob- ably some of the main forces working in the opposite direction and contributing to intergenerational income mobility.
As is seen from figure 3.6, the intergenerational income elasticity is lower, that is, social mobility is higher in the Nordic countries than in France or the UK (or in the US). This may be deemed noteworthy, as few people find it desirable that the socio- economic status is strongly hereditary whatever the views held on current income inequality.
A second observation is that the Nordic countries score well in terms of indicators of social welfare. In figure 3.7 we show a measure of social expenditure and the OECD’s “composite social index”, which is a broad-based measure of social well-being that aggregates a number of sub-indices covering “self-sufficiency”, equity, health and social cohesion.9 The composite indicator gives
the highest ranks to Sweden, Denmark and Finland, while low ranks are accorded to the countries in the South. This measure is strongly correlated with GDP per capita, though the Nordic countries get higher ranks for their social performance as compared to their GDP per capita (contrary to, for instance, the US). As is seen, the Nordics achieve comparatively good results without in all cases being among the high spenders.10
The observations in this and the preceding chapter substanti- ate the claim that there exists a Nordic model in the sense of a number of shared attributes that are economically, socially and politically significant. What is the “bottom line” with regard to the performance of this model? Employment and productivity rates in the Nordic countries are relatively high, the former more so than the latter. The growth rate of GDP per capita has been Social mobility is high-
er in the Nordic coun- tries than in France, the UK or the US
The Nordics rank high on indicators of social welfare but are not the biggest spenders
There exists a Nordic model and it has per- formed relatively well
satisfactory, notably since the mid-1990s. (Also, price stability has prevailed and the general government budget is in surplus.) The Nordics have embraced globalization and are at the forefront in adopting new technologies. With regard to the social area, the Nordic countries are consistently at the top in terms of income equality, social mobility over generations, and broad indicators of social welfare. In all, the Nordics perform fairly well in economic terms and they rank quite high according to social indicators.
On balance, these observations do not suggest that the Nor- dic countries have, in the recent past, been paying a heavy price for their large public sectors in terms of economic distortions and inefficiency caused by the high tax rates. This need not be seen as surprising, as the effects of taxes and public expenditures are likely to depend very much on their content and context. Public action may obviously contribute to economic efficiency by correcting for market failures, by allowing for an improved risk allocation through social insurance, and by investing in infrastructures and human capital (see, e.g., Lindbeck (2006)). Increased income security and redistribution may also, up to a point, promote not only social
18 20 22 24 26 28 30 0.5 0.6 0.7 0.8 0.9 0.5 0.6 0.7 0.8 0.9Composite index a Social spending, 2003b Den Swe Fin Ger Fra Aut Net Ita Spa Por UK Figure 3.7
Social spending and welfare
a Median of a composite index based on selected social indicators. OECD (2006): Society at a Glance. b Net mandated social expenditure as a per cent of GDP, see Adema & Ladaique (2005).
So far the bumble bee has been fl ying – but what about the future?
The performance of the Nordic model