Resilient in global crises – the example of Nordic countries (Part 1)

(c) Japan Times

By stewartb

The First Minister launched the campaign to secure self-determination for Scotland by providing relevant, useful international perspective. If other countries not too different from Scotland can succeed as independent nation-states then why on earth not Scotland too? In this context, it is appropriate to draw attention to a recent (7 June) report published by the Nordic Council of Ministers.

It examines how the economies of Denmark (population c.5.8m), Finland (c.5.5m), Iceland (c.345k), Norway (c.5.5m) and Sweden (c.10.2m) have coped with the Covid-19 pandemic. It details specific government interventions – in what were extremely challenging circumstances for all countries – to support individual citizens, communities and businesses. It reveals how the Nordic countries have been capable of providing unprecedented financial support alongside effective public and acute healthcare services. All this confirms how northern European nation-states much smaller than the UK have demonstrated the capacity, the competences, the public policy tools, and the resilience to overcome adversity, to protect their citizens in time of crisis. It confirms the ability of the Nordic countries to respond successfully to economic and social shocks – countries not unlike Scotland, once it becomes independent! The UK/England is not as exceptional as Unionists might wish those in Scotland who are uncertain about independence to believe!

Source: Andersen et al (2022) Economic developments and policies during the COVID-19 crisis – Nordic experiences. In Flam and Skans (editors) Nordic Economic Policy Review 2022. Nordic Council of Ministers  (https://pub.norden.org/nord2022-001/#96429 )

International comparisons

The pandemic has had severe health and economic consequences worldwide. The chart below (taken from the aforementioned report) provides some insights. It shows that most but not all countries have had declines in economic activity: the report argues these declines were ‘unprecedented, large in scale, and abrupt compared to other crises’.

The chart picks out the position of the UK (GBR – red arrow): it has experienced a greater economic decline and a higher number of deaths relative to population size than any of the Nordics, and in some cases by a substantial amount! Denmark (DNK) and Norway (NOR) had relatively mild health and economic consequences. The economic impact in Sweden (SWE) is at a similar level as other Nordic countries, but the health consequences have been more grave: recall that Sweden operated less restrictive public health measures. In Iceland (ISL), the economy was severely hit, whilst the health consequences were mild: the former was almost entirely due to this small economy’s reliance on international tourism.

As well as the Nordics experiencing a less economically damaging pandemic than many other countries, their economic activity has recovered to pre-pandemic levels more quickly than many. This is illustrated below in the graph of GDP against time.

The review’s authors argue that: ‘It is now widely recognised that both the health and economic implications of the corona pandemic and lockdown policies depend not only on policies related specifically to these areas but also on behavioural responses, national characteristics, including population structure, urbanisation, health care system, sector structure, degree of digitalisation, and the economic situation at the outset of the pandemic …’  It adds that:  ‘The Nordic countries are among the most digitalised in Europe, and this is a contributing factor to the relatively smaller decline in economic activity in the bigger Nordic countries than elsewhere.’

Unsurprisingly, the report notes a deterioration in public finances in common with other countries dealing with the pandemic. However, comparative analysis shows that the deterioration was not as severe in the Nordic region (Iceland excepted) as it was in many others. This is because the downturn in economic activity was not as deep. Moreover, the initial levels of public debt in Denmark, Norway and Sweden were low, which afforded governments more headroom to cope with the crisis.

Government interventions

With little international perspective on offer from the corporate media and the BBC in Scotland, one could be forgiven for thinking that Westminster’s response to the pandemic was the exceptional fount of relevant policy interventions and of supporting finance amongst European countries. This report for the Nordic Council of Ministers sets the record straight. It notes for example:

‘To prevent job losses and cushion the income loss for households, almost all OECD countries applied some form of job retention scheme. Many OECD countries had job-retention schemes in place prior to the pandemic, but most nevertheless modified their schemes to increase take-up, and/or they introduced new schemes.’

There is a lot of detail in the report on the Nordic countries concerning both so-called ‘unconventional’ measures such as furlough schemes as well as ‘conventional’ measures linked to changes to monetary and fiscal policies. The table from the report (below) indicates the scale of fiscal measures taken relative to national GDP: it makes the point that countries not dissimilar to an independent Scotland, have been perfectly capable of implementing the range and scale of economic support to suit their domestic circumstances.Image (In the table: Accel = accelerated)

And whatever the resulting deterioration of their public finances, this is a time limited ‘hit’: these nation states are resilient and their economies have bounced back.

Monetary policy measures

Again there is a lot of detail that is beyond the scope of this blog post. What is particularly interesting is to recall the diverse nature of the monetary powers and structures chosen by these Nordic countries:

  • Iceland – own currency, floating exchange rate, own central bank
  • Sweden – own currency, floating exchange rate, own central bank – signed up to the EU’s in principle requirement to join the EURO but with no intention of doing so
  • Denmark – own currency, pegged to the EURO, own central bank – negotiated opt-out from the EURO
  • Norway – own currency, floating exchange rate, own central bank
  • Finland – uses the EURO, own central bank but also supported/influenced by European Central Bank’s (ECB) monetary policies for EURO zone.

The Danish Central Bank has recently stated: ‘Like their fellow Europeans, Nordic consumers are feeling the effects higher energy and commodity prices but with more Nordic households relying on communal heating and electricity to heat their homes, soaring oil and gas prices are impacting the Nordic countries less than other European countries.

“The Nordic countries have all come through the Covid-19 crisis with fewer scars than most other European countries and have also all had strong recoveries. Now, they once again find themselves in less unfortunate circumstances than their European counterparts. With the exception of Finland, the Nordic countries had limited trade with Russia before the war, and with lower oil and gas dependencies, they are also experiences less of an inflation shock”, says Chief Economist, Las Olsen.

See https://danskebank.com/news-and-insights/news-archive/insights/2022/05042022

Track record

The nature of a Nordic governance ‘model’ and its resilience in the face of crisis has been well studied. For example see: Gylfason et al (2010) The Nordics in the global crisis. Vox EU/CEPR (https://voxeu.org/article/nordics-global-crisis )

Back in the midst of the last big global crisis, the financial crash in c. 2010, the authors (affiliated to University of Iceland, Massachusetts Institute of Technology, University of Helsinki and the Stockholm School of Economics) noted: ‘The current crisis is not only a financial and economic crisis but also a crisis of the much heralded globalisation process itself. It therefore raises many key questions for small open economies, not least the Nordics.’

They concluded at that time of crisis: ‘… the Nordic model itself contributes to resilience. The comprehensive safety net, one of the attributes of the Nordic model, has proved to be robust also in times of crisis. The entitlements are not tied to the fate of individual companies or particular markets, and risks are widely shared in the society. While forest plants are shutting down in Finland and car manufacturing is sharply contracting in Sweden, the governments are firmly rejecting requests for support of ailing industries. Still, there are no crowds protesting in the streets, largely because flexible work arrangements, based both on general and company-specific agreements between businesses and labour, alleviate a rise in unemployment. Structural change is enhanced by the employment protection legislation, which is more liberal than in most other EU countries. A well-educated labour force, another of the attributes of the Nordic model, facilitates adjustment by making it easier to upgrade skills through additional training.’

‘Provided that governments continue to be able to take the decisions needed to safeguard competitiveness and the sustainability of public finances, the Nordic model can be both robust and resilient. The Nordic model with its welfare state, labour market institutions and high rate of investment in human capital, is not the source of the current problems. On the contrary, the Nordic model, properly implemented, can be part of the solution.’

End note

So countries not unlike Scotland – except that they have AGENCY! – have been shown to be resilient in the wake of a global financial crash in 2009/10. And these same countries are proving to be resilient again in the wake of a global pandemic!  Yet another antidote to ‘project fear’!

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