A Utopia for a Few

Nordic Social Democracies and their Wider Application

As the neoliberal hegemony asserts itself as the dominant economic system of the modern West, a progressive branch of the electorate identifies the Nordic Social Democracies as the ideal alternative. Idealized as isolated utopian societies, in which welfare systems reflect those predating the Washington Consensus and the current state of oscillation between austerity and populist short-term public spending, there is more to these systems than what meets the eye. Through integration into globalized neoliberal institutions, these systems are components of a neoliberal economic machine, not exceptions to it. The blueprint they are viewed as may not be as sustainable as it appears.

Whether through sovereign wealth funds amassed through massive deposits of ecologically harmful fossil fuels, healthy enterprise sustained through exploiting cheap unregulated labour from underdeveloped countries, or inconsistent cooperation with modern liberal institutions in an attempt to protect fragile social cohesion, much of the success found by these models relies on conditions that are either unrealistic for many nations or unsustainable globally. These countries may offer certain attitudes or policies that pro-working-class voters may advocate for: union representation in governance, high wages, low levels of labour-market dualisation, and strong labour protections. However, these conditions must be conceptualized within their material context, and adjusted if applied at a global scale.

Norwegian Houses - Credits: Air Culinaire

An Exception to the New World Order?

Following the conclusion of the Second World War, U.S.-aligned European nations adopted Keynesian economies: a form of embedded liberalism influenced by F.D. Roosevelt’s “New Deal” that allowed for access to the Marshall Funds. This economic system fostered domestic development, encouraged infrastructure investment , strengthened conditions for union power, and prioritized reducing unemployment over controlling inflation. Western nations engaged in substantial welfare investment, laying the grounds for the civic infrastructure Western nations are now often praised for. The Scandinavians integrated this system enthusiastically, as domestic social cohesion and considerable access to wealth allowed for this.

In the ‘70s, however, a crisis struck throughout these countries. Due to the OPEC Oil Crises, stagflation, and rising sovereign debts, the paradigm shifted. Monetarist economic theory gained influence in the West, and Ronald Reagan and Margaret Thatcher gained control over the hegemonic powers of the West and a new system was established. The 1980s saw the rise of Western neoliberalism, marked by increased market liberalization, monetarism, fiscal discipline, and a systematic weakening of labour union influence within governance, tipping the balance to capital over labour in the name of economic growth. Globalisation expanded rapidly, with international banking systems and the newfound movement of labour. A new compromise was struck, in which workers accepted less bargaining and influence in return for growing wages.

However, the Scandinavians were hailed as an exception to this transition. Employers’ Associations (EAs), the employers’ parallel to labour unions, retained their role as a significant agent in communication between corporations and the state – unlike in other Western nations where corporations were able to directly exert demands without communicative intermediaries. This retained the influence of the EAs’ counterparts: labour unions. Much of what can be considered labour law is coordinated between governments, EAs, and unions. Furthermore, these nations adopted the Ghent System, a system under which a portion of welfare (unemployment security) is administered by unions, fostering further integration and influence as they become a significant player within welfare systems. Furthermore, the neoliberal compromise was more balanced within these nations. Instead of labour having to compromise, it was the corporations that had to accept that while they were given expanded opportunities for growth, this came with the expectation of redistribution. This is largely due to the importance of social cohesion within these societies, as civic sense and societal cooperation are viewed as paramount.

Nordic Social Democracies also stand out for their considerable welfare spending. As universalist welfare systems, they were designed to encompass the whole population, integrating everyone into social institutions. Extensive subsidized childcare and public daycare, combined with long-term parental leave, have allowed for higher female labour force participation and lower childcare costs. Student support and highly subsidized public education are also central features of these welfare systems. Furthermore, these countries engage in substantial investment in infrastructure, including transport, digital networks, or energy-based systems. These welfare investments are funded through high levels of national wealth and redistributive taxation systems.

Contrary to how it may seem, these conditions are far from anti-capitalist, and can in fact be beneficial for these firms. Wage coordination within sectors allows for predictability when factoring in costs, and broader social stability reduces the likelihood of industrial action and therefore workers are less likely to strike. This low volatility also appears in consumer demand due to low inequality and poverty. The labour force itself is one of the most developed in the world, as workers are healthy and educated; for those who aren’t, the Ghent system’s unemployment benefits allow for ease in hiring and firing. Furthermore, one of the concessions unions make is to restrain wage growth, so as to make exports economically feasible for these companies. Since exports are a major part of the economies of Denmark and Sweden, coordinated wage negotiation is not a constraint on this economic model, but one of the conditions that makes it possible.

Furthermore, many institutions within these countries underwent a neoliberal transition. The greater flexibility in hiring and firing also occurred as a result of neoliberal deregulation of hiring practices, and access to welfare became contingent on actively seeking employment or taking part in job training. Governments steadily reduced corporate tax rates, taxed labour more than capital, and created tax benefits for foreign investment. Financial markets also liberalized, decreasing corporations’ dependence on labour for profit and allowing for a degree of financialization. The state, which before protected the labour conditions of the working class, took a step back from direct economic intervention and large scale activity from state-owned enterprises. Central banks moved away from governments’ political interests and moved towards inflation targeting, indirectly increasing unemployment. Governments, which had often set up public companies in certain sectors, allowed for more privatization, shifting from direct participation in markets toward the regulation of markets. Additionally, integration within liberal institutions such as the EU (EEA in Norway’s case) structurally limited the scope of economic possibilities of these nations, allowing for stability but preventing a transition beyond liberal capitalism.

The Wealth Foundations

Norwegian Petrol Rig - Credits: Wikimedia Commons

Neoliberalisation was both explicitly pushed by institutions and a reaction to shifting socioeconomic dynamics, specifically an increase in bargaining power of capital compared to that of labour. As capital mobility increased with the advent of globalization, and the largest firms began organizing production through Global Value Chains (GVCs), they established their presence in multiple regions of the world. National governments thus had to undergo a “race to the bottom”, accommodating corporate interests by lowering taxes, deregulating the market, and allowing for direct communication with these corporations. Nordic countries did allow for some concessions, but not nearly to the same extent. This may be partially attributed to the beneficial conditions for companies within these nations. These countries have mixed economic systems, running on both domestic consumption and exports, and above all, are extremely wealthy. The way these nations amassed such wealth, however, may not be completely in line with the progressive reputation of social democracies, and is much more in line with how other neoliberal economies achieved such wealth.

Norway, now one of the 10 wealthiest countries in the world by GDP per capita, was in a different situation before discovering its petroleum. Prior to the 1960s, when the oil was found, Norway was a modest yet egalitarian society. Not outstandingly rich, nor poor, conditions of high social cohesion and strong labour movements as well as strong marine sectors allowed it to exhibit early signs of social democracy. However, after large oil deposits were discovered in the North Sea in 1969, Norway’s economic strategy shifted as national wealth boomed. Having learned from the mistakes of other resource-rich countries, Norway managed to escape the resource curse through high government intervention, maintaining a diversified economy, and carefully managing much of the profits made on oil, planning for long-term reinvestment. The previously existing institutions did not become reliant on this new discovery, but they did become inflated. Whilst domestic conditions substantially improved, incoherences make themselves apparent when analysed from a global lens. As Norway remained a progressive stronghold, including in environmentalism, it domestically transitioned into a substantially green economy. However, whilst the globe suffocates under the effects of global warming, Norwegian petroleum contributes to that, while not being burned domestically and hence maintaining their green image. Global warming also disproportionately affects less developed countries, with economies that are usually dependent on agriculture, and in volatile environments that can be deadly with a couple extra degrees of heat. Furthermore, the profits from petroleum went into Norway’s massive sovereign wealth fund (GPFG), a major instrument of Norway’s state-managed capitalism. Through the GPFG, Norway has turned itself into an international landlord, purchasing substantial amounts of real estate throughout the world to rent out and flip for profits. They have contributed to a housing crisis across the Western world, where exorbitant prices for purchasing and increasing rent help proliferate discrepancies in living standards between social classes. Furthermore, whereas the GPFG does have ethical guardrails, such as not investing in weapons, the balance between capital and labour maintained at home is subverted internationally, as they often invest in tech giants and multinationals that perpetuate current neoliberalism. Norway’s foreign economic activity contraposes their domestic policy, in that it establishes and supports the very hierarchies it mitigates locally.

This pattern extends to other Northern European social democracies. Sweden managed to industrialize early, and had a capital-intensive economy before its transition into social democracy. Many of the largest Swedish companies emerged then, such as Volvo, Ericsson and SKF. This allowed for a long-term accumulation of corporate capital before the system underwent a transition. As Swedish social democracy emerged in the mid-20th century, its domestic features resembled the Norwegian model; however, its international trade took another form. Whilst relatively wealthy in natural resources, it lacked anything that warranted the same wealth as Norwegian petroleum reserves, and so its international profits were more dependent on GVC-dependent Swedish corporations benefitting from cheap labour abroad. The iconic furniture brand IKEA, for example, has been accused of hiring Eastern European truckers and paying them their local minimum wage while making them work in the West, as well as allegations that some foreign suppliers in Belarus use prison labour to produce their goods. Furthermore, having gone through a large-scale liberalisation in the ‘80s and ’90s, Sweden financialised, significantly increasing the concentration of wealth among the highest earners and creating conditions for a country with an extremely high number of billionaires per capita, despite creating an image of an egalitarian society.

Denmark similarly has a system of international wealth sustained through integration into neoliberal markets. Maersk, one of the largest shipping companies in the world, generates substantial profits through global trade networks and relies on globalisation and cheap international production systems. Furthermore, through companies such as Novo Nordisk, Denmark’s wealth partially relies on intellectual property regimes and exploitative pharmaceutical pricing structures that are not sustained domestically, and so the burden is displaced onto foreign consumers and healthcare systems. Trademarks limit the possibility of similar products being produced, so whilst patients in need of medication increase, supply and price structures limit the extent of availability. Denmark frequently generates wealth not through production itself, but by occupying strategic positions between producers and consumers, and this capital manipulation as a means to profit reflects neoliberal economic strategy.

Ultimately, whilst social democracy has feasibly increased living standards for insiders of the system, much of the wealth amassed to sustain these systems was gained through the exploitation of outsider countries. This presents contradictions in political ideology: egalitarianism against maintaining hierarchies in international trade, and domestic sustainability against foreign extraction.

Migration and the Limits of Solidarity

Domestically, while welfare systems have largely been successful in maintaining the living standards in these nations, they are not untouchable in the political sphere. Growing calls for austerity and a restructuring of welfare are becoming increasingly common. In Finland, which has long been a social democracy, the centre-right NCP won in a coalition with the populist “The Finns” party, whose leader was appointed as Finance Minister. One of the principal policies since then has been defunding welfare and implementing austerity. Whilst Finland has been systemically pushed towards austerity due to a lack of particularly solid wealth foundations and a preceding era of economic stagnation, as is common in much of the world, even the favourable context of the other nations has not left them exempt from difficulties. The Swedish welfare system, which was heralded as a fully inclusive welfare system, has slowly transformed into an insider-outsider system as their demographics have experienced a significant inflow of Syrian refugees following the 2015 migrant crisis. These refugees often faced higher levels of unemployment, and their employment was also structurally different, usually involving precarious work. They were pushed into certain suburban districts, creating ghettos with worse access to the labour market and fostering a worse standard of living. This has also worsened living conditions for the Swedish working class as a whole, as the strained living conditions have created tensions with social cohesion and led to increased crime and segregation. Ultimately, once these welfare systems dependent on pre-existing wealth face tension, they often buckle and either collapse or create outsiders.

The traditional rhetoric of progressivism further falls under scrutiny when analyzing the shifting dynamics of public perception towards immigration. The long-ruling social democrats of Denmark, for example, have stood out among their European leftist counterparts in being quite ardent towards mass migration, imposing strict quotas and enforcing regulation and stratification within migration. Within Sweden, internal tensions simmer as social cohesion is threatened by low-income migrant communities and the subsequent increase in crime attributed to such. Norway, which has remained a non-member of the EU despite benefiting from EU trade, has quite a strict stance when it comes to allowing migrants as well. These attitudes reflect cooperation with globalized institutions and other countries when convenient, but inconsistencies when the system is threatened. Nordic institutions were designed around unusually homogeneous labour markets and high levels of social trust. Rapid demographic change has made sustaining these institutions more difficult. This system’s dependence on social cohesion does not allow these countries to be as loyal to Western progressive ideals as foreign electorates may believe.

Mette Frederiksen, PM of Denmark - Credits: Flickr

Global Application

Progressive sectors of other Western nations often pursue welfare through a different approach. Rather than focusing on tangible protections for labour and maintaining a balance between capital and labour, many centre-left parties have embraced labour-market deregulation in pursuit of higher employment rates. This has been seen in measures such as the PD's labour precarity reforms, such as the Decreto Poletti or their support of the Fornero Reform, and the SPD’s Hartz reforms that decreased unemployment benefits and increased low wage and precarious labour. Welfare spending takes the form of stimulus packages and capital transfers through private entities, policies that can be easily restructured or reversed once the political pendulum swings back toward economically conservative parties. If an average Western nation attempted to implement Nordic-style social democracy, it would lack a variety of factors, such as institutional infrastructure, established channels of communication between unions and EAs, social cohesion, and pre-existing wealth, which would present substantial obstacles.

Domestically, it is clear that Nordic Social Democracies have maintained high material standards of living for their citizens and a positive environment for enterprise to thrive. However, the question remains whether this model is applicable to other nations. Broadly speaking, Nordic Social Democracies are implemented from within the core of the Western world, with substantial pre-existing wealth available to fund their policies—something that much of the global periphery does not have access to. These economic systems externalize manual labour and environmental consequences to countries occupying weaker positions within the global hierarchy, and those countries would first have to alter their international standing before being able to adopt Nordic-style Social Democracy.

However, a problem faced by most non-Nordic nations, including those within the West, is the lack of institutions capable of sustaining such a model. The welfare that Nordic workers receive is maintained not only through public spending, but through institutional viability and stability. Institutions such as the Ghent system are absent outside the Nordic countries, while social security is kept partially outside the hands of partisan politics and sustained as a regular aspect of Nordic welfare. Furthermore, political systems in which unions are integrated into governance have become increasingly uncommon as neoliberalism has entrenched itself and are only rarely advocated for, outside of the Nordics, by contemporary social democratic parties. Institutional flaws elsewhere also create pathways for substantial waste and distrust with public spending, creating an electoral challenge in pushing for this investment.

Furthermore, the substantial public spending characteristic of Nordic social democracies may be unrealistic under different domestic conditions. Benefits may be less generous, states may possess less fiscal capacity, and firms may be less willing to operate within highly regulated environments. However, many of the institutional features associated with social democracy, such as coordinated bargaining, strong trade unions, and labour representation within governance, can exist independently of exceptionally high levels of welfare expenditure. Whilst generous social spending is a defining feature of the Nordic model, it is not the sole reason for its success. Countries such as France and Germany maintain extensive welfare systems while exhibiting weaker labour integration and greater susceptibility to corporate influence. The Nordic example therefore suggests that living standards depend not only on redistribution itself, but also on the institutional balance struck between labour, capital, and the state.

Electorally, Nordic Social Democracy as an evolution of a certain ideology presents significant complications. As an extension of liberalism, social democracy fails to function when completely compliant with liberal institutions, as previously mentioned, and whilst progressive in much of its stances, requires a certain level of nationalism to ensure social cohesion. On the other hand, as a branch of traditional socialism it fails as it is inherently reliant on preexisting hierarchies and maintaining that, exploiting those at the bottom of these hierarchies. This is especially troublesome when having to develop a social democratic movement within countries lacking a significant ideological basis for this. Social democracies may only partially appeal to electorates rooted in certain ideologies, and may be a tough sell as-is.

Conclusion

If progressive parties want to achieve Nordic living standards while being subject to their material context, a start could be creating permanent institutions that improve labour conditions by strengthening labour unions and maintaining social cohesion. Instead of populist spending on often wasteful infrastructural projects and bureaucratic ministries, or austerity that carries with it labour deregulation and the blind transfer of influence to employers, the Nordic model can find a balance that benefits all involved.

While progressive branches of politics can extrapolate a lot from Nordic Social Democracies and the way in which they sustain living standards for the working class, contradictions between their policies and broad Western leftism demonstrate certain levels of incompatibility with wider implementation. Nordic countries’ usage of fossil fuels despite a facade of environmentalism, exploitation of wealth-based power hierarchies with foreign nations, and selective participation within globalized institutions are effective if employed by the few. Only by viewing Nordic Social Democracies as beneficiaries of globalized neoliberalism, as well as transforming them into less exploitative and more viable growth regimes, can we implement these systems on a broader scale.

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