The welfare state as recession-proofing

One set of countries -- Sweden, Denmark and Norway -- seem to be enduring the current recession rather better than most. According to Harvard Business School economist Christian Ketels, "The outlook for these countries is good. They are going to return to normal quicker, and in better shape, than everybody else."

There are a number of reasons for this. All had sound public finances to begin with. All were running budget surpluses and all had tightened their banking regulations in the 1990s. Norway has accumulated its oil and gas revenues into a sovereign wealth found now worth $420-billion which provided ample funds for stimulus without running a major deficit. And the Scandinavians run highly competitive economies.

That competitiveness hints at yet another reason. It is supported by large, well-funded public sectors. The World Economic Forum insists that high levels of investment in education and training are a key to Scandinavia's success, stating in its competitiveness report, "This has provided the workforce with the skills needed to adapt rapidly to a changing environment and has laid the ground for their high levels of technological adoption and innovation in recent years."

Of particular importance in a recession, these countries' high-tax, high-benefit welfare systems stabilize their economies. Swedish workers who lose their jobs can expect to receive up to 80% of their wages for the first 200 days out of work, dropping to 70% for the next 100 days. In Norway, unemployed workers receive 62% of their salary for up to two years. This makes for a powerful economic stimulus by helping to keep demand high, and it does it by subsidizing working people rather than bankers and car companies.

Norwegian Finance Minister Kristin Halvorsen observes, "We notice more interest around the Nordic model because we manage to combine productivity, growth and welfare. A large public sector is a buffer against the turmoil of the markets." That others are interested is hardly surprising. It has recently become graphically clear how very important a buffer against economic turmoil is in a globalized capitalist economy. We Canadians will be well-served by taking the message to heart and beefing up our welfare state.