WHAT CAN WE LEARN FROM THE NORDIC MODEL?
"Hvað getum við lært af norræna módelinu?" er ræða, sem var flutt á málþingi sósialdemókrataflokks Litáens í tilefni af 120 ára afmælinu.
This speech was given at the celebratory „120 year Anniversary of the Lithuanian Social-Demcorati Party in Vilnius, Sept. 9th, 2016. Mr Hannibalsson is the ex-leader of Iceland´s SDP.
1.The neo-liberal era started in the eighties as a revolt against the welfare state. It was a reassertion of the fundamentalist belief in market infallibility. It turned out to be a repeat version of history: Essentially it leads to casino-capitalism, in the thrall of high-finance, which ended in a stock exchange crash in 1929. Austerity-like policies to deal with the consequences deepened the crisis, then as now, and ended in a decade long Great Depression.
The bankruptcy of Lehmans´Brothers in 2008 signified the end of the neo-liberal era. Again this version of unregulated capitalism crashed. It ended in the biggest rescue operation by the state in history. Stimulus packages by the state and quantitative leasing (money printing) by central banks on a massive scale rescued us from a new Great Depression.
Indstead we are now experiencing the „great recession“ . What is the difference? A massive bail-out of the financial system by tax-payers. Once again unregulated capitalism had to be saved from the capitalists – by the state. This has revealed neo-liberalism to be what it is: pseudo-science in the service of the super-rich. Just like Soviet communism it is a fundamentalist dogma, which has utterly failed the test of implementation. And in so far as it is in the service of priviledged elites and rejects the role of the democratic state to take care of the public interest – it is in essence anti-democratic.
2.Underlying the demise of neo-liberalism is a financial system out of control. In the years 1980-2014 the financial system has grown six times faster than the real economy. The fundamentalist belief behind it is that the sole duty of corporate CEOs is to maximize short term profits, share-prices and dividends. Those perverse incentives are used to justify executive salaries more that 300 times higher than those of average workers; and obscene bonusus in the tens of millions.
This is many times more than in any other sectors of society, although managing money creates no comparable value. As such, this financial system has turned out to be the main conduit for moving streams of income and wealth from the productive sectors of society to the financial elite: from the 99% to the 1%. The share of labor in the global GDP has fallen by hundreds of billions annually, while the share of financial income enriching the 1% has increased dramatically.
This financial system does not serve the longterm interests of our communities, nor the requirements of productive business. Small and medium-sized companies (SMEs) account for 67% of job-creation in our societies, but receive only a frction of total bank-lending. In its single-minded pursuit of short term profit the banks concentrate their lending on stock exchange-speculation and real-estate, increasing the nominal value of existing assets – creating bubbles and busts – and further enriching the rich.
This is why inequality has reached exorbitant levels in our societies. The rich are getting richer and the poor are getting poorer by the day. This is why long-term unemployment is built into the system. This is why poverty is increasing amidst plenty. This is why social cohesion is dwindling and polarization growing. Since our leaders seem to be offering no convincing solutions, feelings of dissappointment, resentment, anger and distrust are rising. Our democracy is under siege by the plutocratic elite.
This financial system is utterly unsustainable. It is also out of democratic control. It is footloose and fickle and prone to panic at the slightest sign of trouble, leaving behind scorched earth: collapsed currencies, bankrupted banks, sovereign defaults and mountains of debt to be paid by others. There is a complete disconnect between freedom and responsibility. After the crash 2008 the system has been rebuilt on the same model. That means that we are stuck in a prolonged recession, even awaiting a new crisis. The people out there, who are suffering the consequences, are waiting for trustworthy solutions – radical reform.
3.What is our social-democratic response to this existentialist crisis of unregulated capitalism? The basic elements of the Nordic model took shape as a response to the great socio-economic upheavals in the interwar period in the last century. In the West we observed the market failure of unregulated capitalism which led to the Great Depression. In the East we observed the Soviet experiment with communism (aboliton of private property and nationalization of the means of production); a centralized command economy run by a police state, which enforced the abolition of human rights, democracy and the rule of law.
We rejected both. We decided that we would follow „the third way“. We recognized the utility of a competitive market system, where applicable, to allocate resources and create wealth. But we put markets under strict democratic control to avoid market distortions (monopolies, booms and busts and extreme concentration of wealth). We insisted on public service, rather than for-profit solutions, in the provision of education, health care and the running of general utilities (energy, water, public transport, etc.).
The means are familiar. Social insurance (sickness-,accident-, old age-, and unemployment insurance), free access to quality health-care and education, paid for by progressive taxation; active labour-market policy to uproot unemployment and affordable housing for all. We emphasize equality of the sexes and strong support for families with children. These are redistributive policies aimed at increasing equality and social mobility, - as a matter of human rights – not as alms.
The result is a society where equality of income and wealth is greater than elsewhere. This means that individual freedom is not a privilege of the few, but a matter of emancipation for the many. Social mobility – the ability to advance in society, if you work hard and play by the rules – is de facto greater in the Nordic countries than elsewhere. The Nordic model has by now replaced the United States of America as „the land of opportunity“.
The Nordic model is the only socio-economic model, which emerged in the last century, and has withstood the test of time in the era of globalization in the 21st century. Communism has been buried on the trash-heap of history and unregulated capitalism – under the neo-liberal model – has crashed twice in the same period, only to be saved from oblivion by rescue operations by the state.
4.The neo-lib era began as a revolt against the welfare state. According to the neo-lib creed the welfare state, with its high progressive taxes and strong public sector, is non-competitive. State intervention would hamper growth and innovation and result in stagnation. The system was said to be inherently unsustainable. The bottom line was: due to its lack of dynamism, the welfare state was said to be unsustainable in the long run. And the proliferation of state bureaucracy was even said to threaten individual freedom and ultimately end in a totalitarian state (Hayek).
Now we know better. The facts speak for themselves. Innumerable reports on the performance of nation-states in the competitive era of globalization are there to prove the point. No matter what criteria we apply, the Nordic model is invariably in the top- league.
This applies no less to economic performance than other criteria: Economic growth, research and developement, tehnological innovation, productivity pr. hour of work, job creation, participation in the labour-market, (especially female participation), equality of the sexes, level of education, social mobility, absence of poverty, health and longevity, quality of infrastructure, access to unspoilt nature, the overall quality of life. Less inequality than in most places. And a vibrant democracy. What do you want more?
5.What are the tasks that lie ahead? An allout-effort against the financial elite to restrain the forces of inequality and to reclaim the power of democracy. An unyielding solidarity with Europe´s youth, who have been left to fend for themselves in the queues of the unemployed, bereft of hope. And take up the fight for the preservation of the environment and our common future on this planet. We don´t have another one in reserve, if we destroy this one.
There are three major challanges that lie ahead in the immediate and near future:
The first one is to sanitize the corrupt financial system and to put it back firmly under democratic control.
The second calls for massive investment in clean and renewable energy to replace fossil fuels as the life-blood of our economies. This is an urgent task which calls for social-democrats and environmentalists to stick together to save our planet.
The third is to start planning now how to tackle the consequences of the technological revolution which is ongoing all around us ( IT, digitalization and automation).
The prospect of massive and systemic unemployment due to automation calls for radical thinking about the distribution of income and the responsibilities of the democratic state in such a society. On the agenda should be proposals for a minimum „basic income“ for all. Although the idea may sound radical, it has found support in the past under the name „negative-income-tax“ (wage subsidy) – a proposal made by no less a neo-lib authority than Milton Freedman. This is a gigantic task that calls for well designed redistributive policies in the spirit of social-democracy, utterly beyond the capacity of unregulated capitalism to solve.
Those three major problems, as well as the relevent solutions, are inter-related. They call for thorough and carefully designed social-democratic policies as well as strategies for putting them into practice. A preconditon for success is a political alliance between social-democrats, trade unions, environmentalists and the radical left among Europe´s neglected youth. The roadsigns are already there.
Remember the motto of Tage Erlander, the long-time leader of Sweden´s social-democrats, and arguably the greatest reformer of the last century. He said: „The market is a useful servant, but an intolerable master“.
And the spiritual leader of the Catholic Faith, Pope Francis, agreed, when he said: „The worship of the golden calf of old has found a new and heartless image in the cult of money and the dictatorship of financial markets, which are faceless and lacking any humane goal. – Money has to serve, not rule“. Jón Baldvin Hannibalsson