Published online by Cambridge University Press: 22 May 2009
Although the Nordic countries are small, open economies, they were able to benefit considerably from the expansion of the world economy during the “Golden Age” of the 1950s and 1960s. They achieved industrial diversification and consolidated welfare-state reforms. Throughout this period, several economic policy routines were institutionalized. These routines may be analyzed as parts of a specific economic policy model, determined by the economic structure and the pattern of political mobilization. It seems more fruitful to distinguish five such models rather than to use the generalizing notion of a “Scandinavian model.” In the 1970s, the world economic crisis posed new challenges for the Nordic countries. In the first phase of the crisis, economic policies continued to operate in accordance with the established routines. But structural problems, new patterns of political mobilization, and new forms of external pressure forced governments to shift towards austerity policies in the late 1970s. The extent and the specificities of these shifts are compared and the degree to which the economic policy models have changed assessed. Such an analysis is a first step to answer some crucial questions now facing the Nordic countries: Was their flexible adjustment merely the result of favorable conditions during the 1960s—or is it a permanent trait? Are they now trapped between large industrial nations and dynamic newly industrializingcountries? If so, what will be the fate of their advanced welfare sectors?
1. The Nordic Economic Policy Project was organized as a network of part-time research activities from 1981–85. Main support was granted by the Nordic Social Science Cooperation Council and additional support was provided by the Nordic Economic Research Council and Nordiska Forskarkurser. The research group comprised fifteen members: Denmark: Gert Birnbacher, Jørgen Lindgaard Pedersen, Ida Munk, Knud Erik Skouby (Copenhagen); Finland: Jan Otto Andersson (Turku), Pekka Kosonen, Tapio Lovio, Jukka Pekkarinen (Helsinki); Iceland: Birgir Bjørn Sigurjónsson (Reykjavik); Norway: Ådne Cappelen, Jan Fagerberg, Lars Mjøset (Oslo); Sweden: Peter Dencik (Copenhagen), Lennart Erixon, Thorleif Herrström (Stockholm). The two main reports of the project are published in Scandinavian language: a special issue of Nordisk Tidskrift for Politisk Ekonomi 15–16 (1984)Google Scholar, containing short monographs for each of the five countries; and the comparative final report, Mjøset, L., ed., Norden dagen derpå (Oslo: Norwegian University Press, 1986)Google Scholar. These are the basic sources for much of this article. The present English-language summary of the project's results was presented at Center for International Studies, Cornell University, 30 April 1985, and at Center for European Studies, Harvard University, 7 May 1985. Revisions of this article have benefited from the comments of Ådne Cappelen, Jan Fagerberg, and Lennart Erixon, as well as referees of International Organization, and the journal's former editor, Peter J. Katzenstein.
2. The best summary is Korpi, Walter, The Democratic Class Struggle (London: Routledge & Regan Paul, 1982)Google Scholar. See also Martin, Andrew, “The Dynamics of Change in a Keynesian Political Economy: The Swedish Case and Its Implications,” in Crouch, C., ed., State and Economy in Contemporary Capitalism (London: Croom Helm, 1979)Google Scholar; Esping-Andersen, Gøsta, Politics against Markets (Princeton: Princeton University Press, 1985)Google Scholar. For a slightly different perspective, see Przeworski, Adam, Capitalism and Social Democracy (Cambridge: Cambridge University Press, 1985)CrossRefGoogle Scholar.
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4. He thereby has difficulty linking functional and historical reasoning: “…the relationship between small size and democratic corporatism is historically contingent rather than logically necessary.” Ibid., p. 137.
5. There are “American” perspectives, like those of Charles P. Kindleberger, Robert G. Gilpin, Stephen D. Krasner and Robert O. Keohane; “European perspectives” like those of David P. Calleo or Susan Strange. Some try to relate alleged economic long waves, either within an economistic framework (Wallerstein), or within a geopolitical framework (Modelski).
6. A pioneer work of the regulation school was Aglietta, Michel, A Theory of Capitalist Regulation (London: New Left Books, 1978)Google Scholar, but the approach has been brought much further in later works by Aglietta, Robert Boyer, Jacques Mistral, and Alain Lipietz. For a general presentation, see Mjøset, Lars, “Regulation and the Institutionalist Tradition,” in Mjøset, and Bohlin, , Introduksjon til reguleringskolen, Working Papers, No. 21 (Aalborg, Denmark: Nordic Summeruniversity, 1985)Google Scholar, with full references. For a collection of the school's present views, see also Boyer, R., ed., Capitalismes: Fin de siècle (Paris, Presses Universitaires de France, 1986)Google Scholar and Boyer, , La théorie de la régulation: une analyse critique (Paris: La Decouverte, 1986)Google Scholar. Although this school has Western Marxism as its basic source of inspiration, it links up with economic history in a way reminiscent of older institutionalists. In fact, there is a striking convergence with some of the ideas held by Johan Åkerman, a much-neglected Swedish economist who worked in the tradition of Veblen and the business-cycle analysts. SeeAkerman, Johan, Structures et cycles économiques, 3 vols. (Paris: Presses Universitaires de France, 1955–1957)Google Scholar; Åkerman, . “Economic Plans and Causal Analysis” International Economic Papers 4 (London 1954)Google Scholar; ÅAkerman, , Theory of Industrialism (Lund, Sweden: Gleerups, 1960)Google Scholar. The idea of a diffusion of norms of production and consumption may also in many respects be viewed as a macro-oriented version of the theory of the product cycle, see Vernon, Raymond, “International Investment and International Trade in the Product Cycle,” Quarterly Journal of Economics 80 (05 1966)CrossRefGoogle Scholar. Note furthermore that the definition of regulation by three dimensions (the wage relation, the relation between firms and the monetary system) distinguishes this approach from any orthodox notion of “state-monopolist capitalism.” Rather, there are common features with recent studies of “embedded liberalism,” see Ruggie, John G., “International Regimes, Transactions, and Change: Embedded Liberalism in the Postwar Economic Order,” International Organization 36 (Spring 1982)CrossRefGoogle Scholar; as well as with analyses of the specificities of U.S. hegemony, see Arrighi, G., “A Crisis of Hegemony,” in Amin, S. et al. , Dynamics of Global Crisis (New York: Monthly Review Press, 1982)Google Scholar, and Russett, Bruce, “The Mysterious Case of Vanishing Hegemony,” International Organization 39 (Spring 1985)CrossRefGoogle Scholar.
7. While competitive and monopolistic regulation were at the outset fairly general notions, later works in the regulation school tend to specify varieties of “monopolistic regulation” as different postwar national models. See Mjøset, , “Regulation,” and particularly Boyer, R. and Mistral, J., Accumulation, Inflation, Crises, 2d ed. (Paris: Presses Universitaires de France, 1982), p. 131Google Scholar, for the notion of “modes of development.” In their analyses of the international sphere, they first consider whether international regulation is possible, given the different national regulations. This point of departure is clearly opposed to that of Wallerstein's world systems analysis.
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14. Also the work of Stein Rokkan is of particular importance; see, for example, Rokkan, S., “The Growth and Structuring of Mass Democracies,” in Allardt, E. et al. , Nordic Democracy (Copenhagen: Det Danske Selskap, 1981)Google Scholar.
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16. The notion of routines is loosely inspired by Nelson, R. R. and Winter, S. G., An Evolutionary Theory of Economic Change (Boston: Belknap/Harvard University Press, 1982)Google Scholar; they rely on Herbert Simon's notion of bounded rationality. However, we apply it not to the level of the firm (as they do), but rather to the field of economic policies.
17. For a very elaborate version, see Olson, Mancur Jr, The Rise and Decline of Nations (New Haven: Yale University Press, 1982)Google Scholar. See also Bell, Daniel, The Cultural Contradictions of Capitalism (New York: Basic Books, 1976)Google Scholar; Crazier, Michel, Huntington, Samuel P., and Watanuki, Toji, The Crisis of Democracy (New York: New York University Press, 1975)Google Scholar.
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19. A useful departure is S. Rokkan, “Mass Democracies.” See also L. Mjøset, Norden dagen derpå, chap. 2.
20. The dynamics of these models is discussed in L. Mjøset, ibid., chap. 3. A short project summary in English is also available. See also the useful overview in Andersen, P. Schelde and Åkerholm, J., “Scandinavia,” in Boltho, A., ed., The European Economy: Growth and Crisis (Oxford: Oxford University Press, 1982)Google Scholar.
22. CEPII, Économie mondiale: la montée des tensions (Paris, Économica, 1983)Google Scholar; Centre d'Études Prospectives et d'Information Internationales (CEPII). Économie mondiale: la fracture (Paris: Économica, 1984)Google Scholar; Lipietz, Alain, Mirages et miracles (Paris: La Decouverte, 1985)Google Scholar.
23. The so-called “Power Project” did comprehensive studies of ungovernability in Norway; see, for example, Olsen, Johan P., Organized Democracy (Oslo: Norwegian University Press, 1983)Google Scholar.
24. See data on profit margins in Hill, T. P., Profits and the Rate of Return, (Paris: OECD 1979)Google Scholar; OECD, National Accounts 1964–81 (Paris: OECD, 1983), vol. 2, annex IIIGoogle Scholar. The exception was Canada, but the Canadian economy is very similar to the Finnish, Norwegian, and Swedish ones; in fact, it is their main competitor in export markets for wood and pulp products.
25. See Crouch, C. and Pizzorno, A., eds., The Resurgence of Class Conflict in Western Europe since 1968 (London: Macmillan, 1978)Google Scholar.
26. Finnish strike waves during the postwar period seem to correspond roughly to periods of high international prices for wood, paper and pulp. See L. Mjøset, Norden dagen derpå, chap. 3.3.3. However, we know of no systematic statistical investigation.
28. Maier, C. S., “The Politics of Inflation in the 20th Century,” in Hirsch, F. and Goldthorpe, J. H., The Political Economy of Inflation (Oxford: Martin Robertson, 1978), pp. 41ffGoogle Scholar, classifies “Latin” inflation-rates to lie above 10%. In Scandinavia from 1970 to 1980, Denmark, Norway, and Sweden were well below 10%; Finland at 10%; and Iceland at an average of 34%; see OECD, Economic Outlook (July 1982). Whereas the below-10% inflation rate reflects “general consensus of all classes on high employment and welfare,” a Latin inflation rate reflects “strong interest-group disaggregation and working-class/bourgeois conflict.” Hence, the inflationary records fit our general characterization of the models.
29. See Hansen, S. A., Økonomisk vcekst i Danmark, vol. 2, 3d ed. (Copenhagen: Akademisk forlag, 1983), p. 209Google Scholar.
30. See Christensen, Jens Frøslev, Industrikapitalen og krisen (Roskilde: Roskilde University Press, 1977), chaps. 1.6 and 8Google Scholar; Sloth-Andersen, Esben, Exportudvikling, erhvervsstruktur og forskningspolilik (Aalborg: Aalborg University Press, 1978)Google Scholar. The MIKE (microelectronics and employment) project at Aalborg University Centre has studied some of the most important manufacturing “development blocs.” A summary is provided inBrandgaard, A. et al. , Strukturproblemer, Teknologipolilik, Sosial Innovation (Aalborg: Aalborg University Press, 1985)Google Scholar, and in English in Lundvall, B. Å., Product Innovation and User-Producer Interaction (Aalborg: Aalborg University Press, 1985), chap. 3Google Scholar.
31. See Hansen, , Økonomisk vœkst, p. 195Google Scholar. This analysis was repeated in most other analyses, irrespective of political convictions.
32. On the Norwegian oil adventure, see Noreng, Øystein, The Oil Industry and Government Strategy in the North Sea (London: Croom Helm, 1980)Google Scholar.
33. Compared with other European countries, capacity utilization remained very high; see Coe, D. and Holtham, G., “Output Responsiveness and Inflation,” OECD Economic Studies 1 (no. 1, 1983)Google Scholar. On labor market policies, see Johannesson, Jan, On the Composition of Swedish Labour Market Policies (Stockholm: EFA/Dept. of Labor, 1982)Google Scholar.
34. According to Carlsson, Bo, “Industrial Subsidies in Sweden: Macro-Economic Effects and an International Comparison,” The Journal of Industrial Economics 22 (no. 1, 1983)Google Scholar, it was more encompassing and more selective than in Norway and Finland. In 1982 they were at about the same level in Sweden and Norway (7.8% and 8.4% respectively of valued-added in mining and manufacturing, in Denmark 5.3%, and in Finland 3.9%); see Carlsson, Bo, “Industrial Subsidies in the Nordic Countries” in Economic Growth in a Nordic Perspective, Danish Economic Council (Copenhagen)Google Scholar; Research Institute of the Finnish Economy (Helsinki), Industrial Institute for Economic and Social Studies (Stockholm), Institute of Industrial Economics (Bergen), 1984.
36. For a full analysis, see Fagerberg, Jan, “Norden-en framtid gjennom økt integrasjon og samhandel?” Nordisk Forum 42, vol. 19, no. 2, 1984Google Scholar.
37. For these kinds of structural problems, the Relative Unit Labor Costs (RULC) reported in Table 6a may provide limited help as an indicator, although the aggregated nature of the indicator is a problem. However, the indicator does not reflect only the growth of nominal wages, but also the growth of productivity, as well as an exchange rate effect, since it consists of Unit Labor Costs (ULC), weighted with effective exchange rates, i.e., measured in a common currency (U.S. dollars). Hence, in an extreme case of strong revaluation, RULC may increase even though wages sink and productivity increases (i.e., ULC sinks).
38. Eva C. Horwitz, “Export Performance of the Nordic Countries 1965–82–A Constant-Market-Shares Analysis,” in IUI/DØR/ETLA/IØI, Economic Growth in a Nordic Perspective. Having accounted for the impact of the commodity and the country composition, this traditional Learner/Stern variety of the method produces a residual which is taken to indicate competitiveness. In Horwitz's calculations for the 1970–80 period, this residual is particularly unfavorable for Sweden, since the country and commodity composition accounts for less of the loss to total market share than in the other countries. However, this traditional method has several weaknesses. Principally, it is difficult to give an economic interpretation of the residual. Empirically, the dramatic change in oil and energy prices throughout the 1970s not only distorts the calculation for Norway, but it also exaggerates the negative influence caused by the commodity composition. Furthermore, the exclusion of Eastern European trade obscures the Finnish situation. For these and other, more technical objections, see Fagerberg, Jan, Norden og strukturendringene på verdensmarkedet, Central Bureau of Statistics of Norway: reports 86/18, Oslo 1986Google Scholar. An example of Fagerberg's alternative calculations for the period 1973–83 are provided in Table 6c. They cover Nordic trade with OECD, excluding intra-Nordic trade (and Finland's trade with Eastern Europe), as well as the special commodities oil, gas, and shipping services. All calculations are in terms of value. The fourth column give decline (or gain) in the country's total exports as a percentage of total imports to the external market (in this case, non-Nordic OECD). All the Nordic countries record a decline in their share (12% for Sweden, etc.). This decline is analyzed as the result of three factors: 1) the commodity-composition effect, which accounts for the share of the decline due to changes in the composition of the external market (this share includes both the conventional commodity composition and the country composition in the Learner/Stern approach); 2) the market-share effect (or export-composition effect), which accounts for the share of the decline due to changes in the share of one commodity in the total exports of the country; and finally 3) the “adjustment effect,” which is positive to the extent that a country has had an above-average growth of exports to external markets which also has increased their size relative to the average growth of markets. (Formally, this third effect is the product of the changes in the first and second effects, summarized over all commodities, and it may be regarded as an alternative measure of competitiveness.) Fagerberg provides analyses of both intra-Nordic trade and Nordic trade with the non-Nordic OECD area for the two periods, 1961–73 and 1973–83; he relates the results to the dominant export-sectors.
39. Relative export prices are weighted relative to the most important trading partners and corrected for effective exchange rates. The development of this indicator depends on a number of factors, but a careful comparative analysis may isolate the impact of some of them, as we have done in the comparison of Swedish and Finnish pricing behavior. Again, however, the aggregated nature of the indicator is a problem: specific sectoral studies would most likely prove more fruitful. Another problem with this indicator is its assumption that all markets are homogenous and competitive markets, in which price competition determines everything. As soon as we admit that non-price factors such as quality, product design, and available service network are influential, we can no longer presuppose that any increase of relative export prices weakens competitiveness. In such markets, high price indicates high quality, and consequently high competitiveness.
40. Neoliberal views very often interpret increasing RULC as a proof of rigidities and an inability to restructure its industrial base. However, international comparisons have shown that there is no simple connection between, for example, increasing RULC and a deteriorating export performance. See Kaldor, Nicholas, “The Effect of Devaluations on Trade,” in Kaldor, N., Further Essays on Applied Economics (London: Duckworth, 1978), pp. 102ffGoogle Scholar. We have also seen that other measures of competitiveness do not follow the movements of RULC. This fact should not surprise anyone, since the different indicators reflect quite different causal forces. Concerning the fourth structural problem, it is particularly difficult to find sound quantitative indicators of such adjustment potentials. In the tradition of science policy studies, patent statistics, R&D expenditure, and similar indicators have been scrutinized; see particularly Freeman, Christopher, Clark, John, and Soete, Luc, Unemployment and Technical Innovation (London: Frances Pinter, 1982)Google Scholar. But the accuracy of these indicators is doubtful and different series, classifications, and indexes give no consistent ranking of different countries with respect to their alleged “adjustment capabilities.” With these reservations, Table 6d indicates differences between the Nordic countries regarding foreign patenting and R&D expenditure. The following discussion, however, relies more on qualitative and historical reasoning.
41. Growth of real value-added in the manufacturing industry was at zero in 1976, –5.7 in 1977, and –2.7 in 1978, whereas average for the OECD area was 8.2, 4.5, and 3.8, according to the latest OECD data; see Historical Statistics 1960–1983 (Paris: OECD, 1984), Table 3.5Google Scholar.
42. According to the source used in Table 5b, the decline of the Swedish profit margin after the large leap in 1972–74 was: 1974: 12.0; 1975: 8.8; 1976: 7.0; 1977: 5.0; 1978: 4.4, improving to 7.4 again in 1979 and 1982.
43. For the following analysis, see Erixon, Lennart, “What's Wrong with the Swedish Model? An Analysis of Its Effects and Changed Conditions, 1974–1985”; Institutet för Social Forskning, Meddelande 12 (1985)Google Scholar, updated version of the article on Sweden in Nordisk Tidskrift för Politisk Ekonomi 15/16 (1984)Google Scholar.
44. Table 6b shows that exactly at the onset of the Swedish industrial crisis, between 1975 and 1976, Swedish relative export prices rose by 4.3%, against only 1.4% in Denmark and a decline in Finland and Norway.
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48. A government study, Norges Offentlige Utredninger (Norwegian State: Public Reports), Ensidige industristeder, 1983:10, pp. 19–21Google Scholar, counted 104 “one-sided industrial towns” in 1980, towns in which one plant is the crucial source of employment. In the western parts of Norway, one-third of these towns depend on a shipyard (verkstedsindustri).
49. A report by the Nordic Institutes of Industrial Research also concluded that Finland and Denmark are the most dynamic cases; see IUI/DOR/ETLA/IOI, Economic Growth in a Nordic Perspective. However, they apply a very simplistic explanatory scheme: these countries perform better because they have had less state intervention and less selective industries. In our view, however, Finland's success is primarily the result of its Eastern European trade; in the Danish case, one might argue that they could have done even better with a more deliberate industrial policy.
50. However, as the MIKE project has pointed out, the flexibility of the Danish small firm industrial structure may be exaggerated; see A. Brsndgaard, et al., Strukturproblemer, teknologipolilik, sociale innovationer.
51. See Lovio, Raimo, “Om den finländska industrins ställning i den internationella teknologiska arbetsfördelningen—kommer den goda circeln att brytas?” VTT, STIU project, Working Paper no. 1 (Helsinki 1984)Google Scholar. Concerning the negative influence of the export structure in Table 6c, remember that this table does not cover Eastern European trade.
53. See Mjøset, Norden dagen derpå, chap. 3.3.6, andSidenius, Niels Christian, “Danmark: liberalistisk industripolitik—også under krisen,” Politico 14 (no. 2, 1982)Google Scholar.
54. See Mjøset, Norden dagen derpå, chap. 4.
55. Total debt as a percentage of GDP increased from 32% in 1977 to 60% in 1984. Interests and return payments are now a quarter of export incomes. See OECD, Economic Surveys: Iceland (05 1985), p. 31Google Scholar.
56. For a detailed account of Swedish incomes policies, see Martin, Andrew, “The Trade Unions in Sweden: Strategic Responses to Change and Crisis,” in Gourevitch, P. et al. , Union and Economic Crisis, vol. 1 (London: Macmillan, 1984)Google Scholar.
57. Erixon, “What's Wrong with the Swedish Model?” section 2.3. Also state planners and policymakers changed their attitudes in a neoliberal direction. This change is clearly visible in the long-term study of 1980; see Statens offentliga utredningar (Swedish State: Public Reports), Långtidsutredningen 1980. Huvudrapport, 1980:52, Stockholm 1980Google ScholarPubMed.
58. Erixon, “What's Wrong with the Swedish Model?” section 2.4. For Korpi's view, see his Democratic Class Struggle, pp. 50ff., pp. 170ff., and “Sverige—arbetsfredens land?” in Broström, Anders, ed., Storkonflikten 1980 (Stockholm: Arbetslivscentrum, 1981)Google Scholar.
59. Private consumption sank during 1981. The same occurred in only one other year of postwar elections, namely 1965, when the Social Democrats also lost.
61. Uusitalo, Paavo, “Monetarism, Keynesianism and the Institutional Status of Central Banks,” Ada Sociologica 17 (no. 1, 1984)Google Scholar points out that while the Swedish and Norwegian Central Banks are strongly tied to the state, the Danish and Finnish ones are much more independent. However, we should specify that the Danish Central Bank has been much more alienated from the manufacturing sector's needs than the Finnish one.
62. See Mjøset, Norden dagen derpå, chap. 5.2.