Secrets of the Nordic Model

The Scandinavian system bears scrutiny - and not only because it's the only one that's worked in recent years.

The summer of 2011 will go down in history as the greatest civilian awakening in Israeli history. More than 10% of Israel's adult population took to the streets, united under a single slogan - social justice.

Naturally, it turned out all too fast that everybody had different ideas about what social justice is. Some didn't actually think about it at all. But one thing is crystal clear: A growing swathe of the population feels that something basic has gone wrong in Israel's social and economic systems.

Eyal Toueg

Some protesters switched their cry for "social justice" to a cry for a "welfare state", for more government spending - on housing and health care, "like they do in welfare states", or as they dimly remember from Israel's own past.

The prime minister and finance minister hastened to dismiss the idea of a welfare state, pointing to the collapse of Greece and problems in Italy and Spain, and the steep budget cuts in Britain. There you go, they said, that's what happens to governments that spend lavishly; they go bankrupt.

Greece and Italy, not to mention Britain, are not good models for welfare states, the ministers were told. Look instead at Scandinavia. The model is in Sweden, Finland, Denmark and Norway.

What then is the Nordic model of a welfare state? The cliche is high taxes and excellent services to the public.

How simple. Let's jack up taxes and have big government that supplies excellent services, and solve Israel's ills once and for all. Or is there more to the Nordic secret?

Well, what else do we know about the Nordic model? The stereotype is that they're social democrats, not captivated by capitalism, that they don't believe in the free market, that they have strong unions, and that workers can't be fired.

But the stereotype isn't true. Three top TheMarker editors visited Sweden, Finland and Denmark to gain a truer understanding. If Israel is finally engaging in a dialogue about what sort of nation it should be, not only politically but socially too, the Nordic model bears scrutiny - not only because it's the only one that's been working in recent years, but also because these three Nordic nations are similar to Israel in population size.

The reality isn't much like the stereotype.

The Nordic model sanctifies the free market, managerial flexibility, competition and globalization. There are strong unions but workers can easily be fired or moved. Their unions generally aren't like the powerful ones in Israel that have the whole country by the short hairs, blocking any reform or advance in their sectors. Nor do these nations have tycoons that play with politicians and regulators like marionettes.

Most do have high tax rates, but not necessarily much higher than those in Israel.

Psst: Ownership isn't the issue

Another thing Israel could stand to learn from the Nordic model is that privatization isn't the issue. It doesn't matter if a company is government owned or privately owned. What matters is how the government ensures service is good and competitive. Sweden, for instance, has one of the best education systems in the world and it's mostly privatized. Finland's education system is entirely governmental and it's also one of the best in the world.

How does one create one of the best, government-owned education systems in the world? Israelis generally almost always suggest paying teachers high salaries. Nice idea; but in Finland, teachers earn the average wage or less. Yet young adults stand in line to become teachers.

Some think a "welfare state" is one that shields workers and companies from globalization. Sweden, Finland and Denmark, the most successful welfare nations in the world, think the opposite. For them, globalization is a way of life, competition is the stuff of being, and the government's job is to make the economy as competitive as possible.

Some think those three countries offer job security for life. Not so: Dismissal is possible. In Denmark, they call it "flexicurity" - flexibility for employers together with security for workers.

Some tout Israel's economy as a latter-day miracle, a tiny nation with multinational success stories like Teva Pharmaceutical Industries, Check Point Software Technologies, Iscar, Keter and Elbit Systems. But Sweden, Finland and Denmark, countries with about the same number of people, have dozens of multinationals that sell worldwide and nobody makes a fuss about it.

So how does the Nordic model, with its "flexicurity", high tax rates, high productivity and competitive business sector actually work? The answer lies in one word - "culture." Or two - "culture" and "values."

Corruption is scarce. The black market is miniscule. The proportion of working adults is among the highest in the world. Competition is in the DNA of the decision-makers.

Israelis assume that the way to excellence in public service is to have a revolving door, for top management and employees, between the private sector and the public one. The Nordic nations have efficient public sectors even though their public servants may be on the job for decades: They don't need constant infusions of fresh blood from the private sector. The idea that bureaucrats must at some point quit and move to business in order to make a living sounds absurd to them.

Ties between wealth and government? Sweden has a giant company, Investor, owned by the Wallenbergs. Investor calls itself the largest industrial holding company in Northern Europe. It constitutes much of the Swedish economy. But that's where any similarity with Israel's giant concerns ends. The Wallenbergs don't set out to hire former regulators. They aren't Swedish champions in cutting their bondholders' hair or insider transactions. Much of their businesses are international and competitive. Unlike the Israeli tycoons, who own local monopolies and suck their power from tamed regulation, the big businessmen in Sweden, Finland, and Denmark made it in the international markets. They are held in high esteem. People don't feel they made their money at everybody else's expense.

Snowflakes in Israel

The Nordics have a huge advantage over Israel. They also think of themselves, as we do, as a society with solidarity, all men are brothers, that hard work pays and that we're successful entrepreneurs because of all the hard times we've been through. We know our troubled past all too well: Finns for instance feel they're caught between the Russian rock and the Swedish hard place so they have to excel.

The difference is that there, it's true. Here, our solidarity crumbles into dodging tax and swindling the government, segmentation of society into violent enclaves that deny each other's rights, public servants who view the public as a nuisance. We have no patience, no culture of long-term planning or commitment, and if we have something in common, it's that each of us thinks of himself as a precious snowflake. People there have a very different ethos, different culture, different narrative.

We all know the myth that the people there are miserable and dream of the chance to come to a place like Israel, where "real" people live. It's a great myth, but it isn't true. They don't want a different model. They know theirs works.

Naturally, the Nordic model has disadvantages, and it faces its threats. The three nations obsess over future dangers, immigration and the aging of their populations, as well as the need to sustain competitiveness vis-a-vis the Far East. But they don't waste their time hurling mud at one another or in violent battles between the public and private sectors over the pie to be shared out.

Jewish heritage has many sources of inspiration, too. And could we possibly emulate the Nordic model? Are we capable of respecting one another, ourselves, boundaries and the law, making Israel a more just place, more competitive, fairer and saner? These are points worthy of discussion. But at this stage, there are more questions than answers.