Nordic cuddly capitalism: Utopia, no. But a global model for equity

The cuddly capitalism of the Nordic nations provides an economic equity that makes a middle class lifestyle the norm, where the sharp edges of worry about the cost of health care, elder care, child care, and education simply don't exist. But is it a sustainable model for anyone but the pragmatic North?

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The street-level entrance to the drab, gray office complex in downtown Stockholm is squeezed next to a nondescript flower shop and a run-of-the-mill supermarket. You’d never know that the floors above house the heart of a revolution in the music industry. 

This is the global headquarters of Spotify, the music-streaming service whose brand has become synonymous with the act of streaming itself. It draws the gods of music and tech industries – like Kanye West, the Red Hot Chili Peppers, former Microsoft chief executive officer Steve Ballmer, and Facebook founder Mark Zuckerberg – on pilgrimages to Sweden, where the start-up was launched in 2008, rocking the music world with its proposition that allowing music consumers to listen to anything they want free of charge could actually generate revenue for the music industry. 

While Spotify still rankles many artists, big-name players come to Sweden to see what this Nordic country foretells about the music business in the digitized world. In just over five years Sweden has evolved from a hotbed of illegal downloading to a nation of streamers where, as one Spotify manager puts it, a 15-year-old asked about piracy “would look at you like you were talking about pay phones.” That’s because Spotify, he says, simply offers a smoother experience than downloading and “piracy has become somewhat redundant here.”

Like any start-up, Spotify has made it, so far, because it was at the right place at the right time, when the music industry was being so pillaged by piracy that it had nothing to lose. And, in many ways, it could have been a product dreamed up in any basement or bar, from Silicon Valley to Santiago, Chile. Behind the ordinary facade, Spotify’s offices effuse the universal ethos of the start-up culture, with its suitably untucked and knit-capped staff, ping-pong tables, artfully graffitied walls, and ironically chic conference rooms.

But Spotify’s success – it claims 28 million users in 56 countries – owes a lot to the fact that it happened right here in Sweden. It is more than coincidence that the company emerged in the birthplace of ABBA: Sweden is a global force in pop music worldwide. But what is probably more relevant is its emergence in a nation known for its tech and design creativity, where quality of life is considered a basic right, where big government does not inhibit but, some argue, nurtures innovation, and where a culture of dispassionate pragmatism means change can happen fast and without huge upheaval.

“Today people are holding devices, holding everything ever created, connected to everyone they know,” says Jonathan Forster, one of the first employees at Spotify and now manager of the firm’s Nordic market. “We are at the epicenter of all that change.”

Spotify is just the latest Nordic product at the epicenter of change. The quiet northern fringe regularly captures world attention with bright new concepts like Swedish “fast fashion” store H&M, which churns out runway knockoffs for the masses, and Swedish furniture store IKEA, which exports the low-cost-but-cool housewares ubiquitous in American dorms. And there are the games and toys that mesmerize mobile users worldwide, such as the Swedish Candy Crush Saga or the Finnish Angry Birds, and the Danish LEGO bricks that litter modern childhood. And there is Nokia, the Finnish telecommunications pioneer that equipped legions of Finnish teens with tiny affordable cellphones before they ever became a mass American distraction. And Skype – a company founded by a Swede and a Dane, along with some Estonian developers – revolutionized telecommunications, too. (Editor's note: This has been changed from the original to correct and clarify the Nordic hand in the development of Skype.)
 

​All the creative output flourishing here tests assumptions about the ability of capitalism to thrive under big government. Sweden, Norway, Denmark, Finland, and Iceland, with a collective 26 million inhabitants, don’t just produce successful companies. They have a creative capacity that transcends language and cultural barriers to fascinate, humor, and entertain global markets. Think Ylvis, the Norwegian comedy duo and their viral YouTube hit “What Does the Fox Say?” Or “Nordic Noir” crime fiction like Denmark’s TV series “The Killing,” and the Swedish Stieg Larsson book and movie franchise that started with “The Girl with the Dragon Tattoo.” Or Icelandic singer-songwriter Björk. 

And these countries have pioneered public policies, the effects of which – if not the tax burden – are the envy of the common man worldwide: from universal preschool and paternity leave to vocational training schools and voucher programs for private schools.

Some of it is hype, which naysayers love to shoot down, as in the recent viral Guardian article that spelled out “the grim truth behind the ‘Scandinavian miracle.’ ” Much of Nordic success has happened because the countries are small, nimble, and, until recently, homogenous. But problems do loom on the horizon, with growing inequality and anti-immigration sentiment, stubborn youth unemployment, and education scores dropping in Sweden and one of the world’s star education performers, Finland. 

But by so many measures, the Nordic countries simply work well, sustaining the security of a welfare state while being unabashed capitalists and innovators, adapting to change, and doing so with a long tradition of pragmatic consensus. The region tops charts on equality, transparency, and innovation.

Nordic countries are anything but declining, and they have their mind-set to thank for it. Despite problems, says Henrik Berggren, a Swedish historian, there are basic lessons that the Nordics provide. Among them: “Having a state that takes a lot of responsibility for citizens is not bad for the economy,” he says. “A welfare state doesn’t take away from being creative.”  

Safe, like the Vikings

To crystallize the Nordic experience, most casual visitors would start with a relentless quest for security, in all forms and nuances: private and public, economic and social. Long, dark winter days – often punctuated by harsh winds – have something to do with it, as citizens of these resilient lands could not endure without looking after one another.

Uffe Østergaard, a history professor at the Copenhagen Business School, traces the Nordic welfare state to the Lutheran Church “universalist” practices of delivering public goods to the population. (He cites a Danish church ordinance from 1539 stating that “children shall be taught properly [and] schools and the poor shall have their food.”) Danish political scientist Gert T. Svendsen reaches further back to the Vikings, who shifted from “roving to stationary banditry” around the 10th century, focusing on security for the community around them. 

As far back as scholars can trace it, the Nordics overwhelmingly strove for social safety.

Today that goal is embodied in the Nordic welfare state. Its philosophical underpinnings are found in the Swedish concept of folkhemmet, translated loosely as “people’s home.” At once quaint and political, it was adopted by the Social Democrats as the ideal as they began building the welfare model in the 1930s. But its basic principles are fully adhered to in Swedish – and the broader Nordic – society today.

As Ola Johansson, Swedish geographer at the University of Pittsburgh at Johnstown, Pa., puts it, the ethic is “a comfortable life in general, that everyone has a right to a high standard of living.” The actual element of “home” can be taken to a certain extent literally: Furnishing company IKEA’s commercial strategy – “to help more people live a better life at home” – would resonate for Swedes who believe in the principles of folkhemmet. But “home” also encompasses an entire way of life, implicitly entailing a big role for a caring state.

The trade-off is straightforward: Citizens pay higher income taxes for social services that other nations leave to families. 

The earned income tax burden for a family of four with a single wage earner in Sweden is close to 38 percent, according to the Organization for Economic Cooperation and Development (OECD), compared with the United States at 20.3 percent (and 38 percent in Finland, 31 percent in Norway, and 28 percent in Denmark).

In return for their fiscal burden, Nordics smooth away the worries of the middle class: They get comprehensive pensions, unemployment insurance, and universal health care. Losing a job, while professionally defeating, doesn’t turn into financial demise. Nor does a long-term illness. The welfare state means free university education and heavily subsidized all-day preschools. Public spending on day care and early education in the Nordic countries averages 1.4 percent of gross domestic product; it is less than 0.4 percent in the US, for example. 

The result is a robust middle class. All five Nordic nations rank in the top 10 most equal countries globally, according to the OECD. (The US, by comparison, sits at 31, just above Turkey and Mexico.)

In general, few want for food or housing in Nordic nations. The few beggars on the street of Stockholm are largely Roma, who have migrated here from Eastern European countries. There are, of course, variations in incomes in Sweden, and there is the opportunity to become wealthy – for example, Stefan Persson, chairman of H&M, is listed by Forbes as the 16th richest person in the world. A doctor might earn twice as much as a teacher and pay more taxes, but is ultimately wealthier than the teacher. And while inequality is a growing concern in Sweden, after reforms that have reduced benefits and taxes since the 1990s, few are considered poor by Western standards. 

Swedes like it that way: Ahead of September national elections, no party is talking about lowering taxes (in the next four years) further than they have been since the ruling center-right coalition took power in 2006, because most – right, left, and center – believe taxes have been lowered enough.

“The social welfare system that we have is quite a good thing, because with taxes you can build a good society,” says Per Ericsson, a cheerful high school Swedish and English teacher with a shock of blond hair. “If you are unlucky, or don’t have a job, it’s OK; you can still go to the dentist.” 

Mr. Ericsson, 40-something and unmarried, takes home about $4,200 a month after the myriad taxes he pays. With the high cost of living in Stockholm – a dozen eggs are $4, 50 percent more than in Boston – he has $200 to $300 a month left for discretionary spending or savings. But he doesn’t need more, he says. Citizens here don’t need to save for medical emergencies, unexpected unemployment, pre-school, or college funds.

If Ericsson were a teacher in the US, he might get more as a percentage of income in his paycheck, but he’d have to save for the things taxes guarantee in Sweden. He says he lives a good life, which includes meals out, yearly vacations, and his own apartment – and a premium Spotify account (basic service is free; premium commercial-free service costs about $10 a month). He even took a sabbatical, to fulfill his dream of writing a book about the late Swedish songwriter Ted Gärdestad. As a comparison, Ericsson’s brother lives down the street and is married with three kids. The brother just sold his online marketing company for a significant amount. The two, Ericsson reckons, have a comparable quality of life.

For some, this philosophical commitment to equality has its downside. Swedish schoolchildren never receive a grade until sixth grade – it was eighth grade until 2012 – so that no young child is categorized, either as good or bad. In fact, playing down individual pursuits runs so deep in the Scandinavian psyche that it has a name: the Jante Law – which roughly means “don’t think you are better than anyone else.”

The Jante Law is “horrible” for artists, says Maria Marcus, who just produced a commercial for a new TV series, “Years of Living Dangerously,” by “Titanic” director James Cameron. Dressed in camouflage leggings and black boots in her cozy Stockholm studio, she explains the Jante Law is anathema to her profession of songwriting, in which one must strive to stand out. “I see it as 99 percent negative.” The 1 percent positive? Americans, Ms. Marcus explains – “no offense,” she adds politely – would say a song they’ve barely worked on is awesome, just to try to sell it. A Swede, she says, wouldn’t let a soul listen to it unless it truly were amazing.

Thank the welfare state for that IKEA sofa  

 That might explain why Sweden has emerged as one of the powerhouses of the pop world, a top exporter of the music, just behind the US and Britain, according to Swedish government figures. Swedes also have a knack for creating a melody that the world wants to listen to – think ABBA earworms like “Mamma Mia ” or “Dancing Queen. ” That ability to look outward and tap into a global middle-class aesthetic, imitating and exporting what the masses want to consume, is the same force behind the success of global companies IKEA and H&M.

But the success of various industries here has most to do with the fact that Sweden and other Nordic countries have always been, despite their big states, zealous free-marketeers. Markus Uvell, president of the free-market think tank Timbro, says foreigners, especially Americans, often ask him how the country’s business success coexists with its big-state mentality. His answer: the country’s uncontested embrace of an open economy. “That has never been challenged.” 

Nordic social reformers – as early as the 1930s – were genuine in their ambition to marry government stimuli and social solidarity on the one hand with open trade and private entrepreneurship on the other. It was the only way to grow their economies and continue paying for their welfare states.

And as such, Nordics have defied the conventional wisdom that a big state precludes big winners. According to the Global Innovation Index, a composite measure of things such as infrastructure, market sophistication, business environment, and technological and creative output, Sweden ranks No. 2 worldwide (behind Switzerland), with Finland and Denmark (and the US) in the top 10. 

Not only is big state good for innovation, but innovation is also a boon for the welfare state. This philosophy is exemplified by the Finnish government’s innovation agency, Tekes. On a budget of $800 million a year, injecting capital in almost 2,000 R&D companies, it clearly states that innovation is a “key driver” of economic growth that “enables the funding of welfare services in the long run.” Similarly, SITRA, the Finnish Innovation Fund, is an independent “think-and-do tank” under the Finnish parliament and has endowment capital with a market value of almost $900 million, investing in dozens of venture capital funds both in Finland and abroad, with the mandate to “accelerate social change” and “stimulate new business models that aim for sustainable well-being.”

In Sweden, politicians care that a company like Spotify survives. Olof Lavesson, a Swedish parliamentarian who sits on the trade and industry committee, organized a seminar in January with top players from the music industry, including Spotify, to assess their needs in the digital world. The creative industries, which comprise 120,000 businesses in Sweden, are key to its economy and image, he says, from gaming to tech start-ups. But right now, Spotify is the shining example. The Swedish government began issuing a premium Spotify subscription, and a playlist of Swedish music, as its gift to visiting dignitaries. “What better way to show off modern Sweden?” asks Mr. Lavesson.

While the big state and Spotify are no contradiction for the Swedes, some beg to differ. In a recent influential paper titled “Can’t we all be more like Scandinavians?,” three economists argue that the US, with its model of individualism, so identified with the pioneering spirit of capitalism, is still the world’s premier innovator, while “cuddly” Nordic welfare states create winners only because they can free-ride on US technological primacy. 

But from music and games to furniture and clothes, the Nordics argue that it is their social security net that fosters innovation by allowing entrepreneurs to try, err, and still survive.

Asked why Sweden has been such a dominant player on the music scene, Linda Portnoff, acting director of the Swedish music industry’s interest organization Music Sweden, says: “You can really afford to take the risk. If it doesn’t work, there is a safety net. You can put your kid in day care – it doesn’t cost you anything – and you can go home and work on your song.”

Pragmatic no-shouting zone 

American pop icons have long recognized a Swedish talent for songwriting, and from Britney Spears to the Backstreet Boys they’ve flocked to Stockholm’s studios, where saccharine songs are churned out – and often go straight to the top of the charts. But the music industry became associated with something entirely more sinister at the turn of the century. The Pirate Bay, Sweden’s version of Napster, emerged here in 2003 and music piracy became the socially acceptable way to consume.

“For a while we almost thought this was a war we couldn’t win,” says Marten Aglander, the CEO of the independent Swedish record label Roxy Recordings. 

And then came Spotify, Mr. Aglander says. It was a revolutionary idea for the labels, as well as for artists and songwriters, to hand over art that consumers could access free of charge. The idea, Spotify said, was to offer a service so good that consumers would upgrade to a paid premium service, allowing unlimited listening, including on their phones, without commercials. 

“I had my doubts, but there was no other way. The Swedish music industry was in really bad shape; something really radical needed to happen,” he says. 

The bet seems to have paid off here. Once an epicenter of illegal downloading, Sweden has, via Spotify, turned into a nation of streamers: Its green logo is as ubiquitous as Google or Skype icons on iPhones here as well as globally.

“The labels believe this is the future,” explains Ms. Portnoff. “Whether they like it or not, this is how consumers want to listen to music.”

One can argue that the music industry agreed to cooperate with Spotify out of self-preservation, but it also was an example of an urge for consensus that runs deep in Nordic culture, and as far back as the “flat hierarchy” of the Viking Age, when one of the world’s first parliamentary institutions, the Althingi, was established in Iceland. It was “a national assembly of freemen [who] ... were not linked by a formal hierarchy,” writes Jesse Byock, a medieval history scholar at the University of California at Los Angeles. 

That continues to define everything from labor policy to environmental legislation to music. Indeed, Spotify itself operates on a version of flat hierarchy. Nordic consensus is perhaps best exemplified by the role of unions in the region, which are often on the side of employers as they seek workable solutions. Tellingly, union representatives sit on the boards of big companies. Though teachers go on strike here, too, reforms in Nordic countries don’t seem to be systematically held hostage by special interests. Compromise is not regarded as a sellout, but as something of a higher synthesis to strive for.

“Consensus and pragmatism have always been very important to the Nordic model,” says Karl-Petter Thorwaldsson, the president of the Swedish trade union federation LO. “It’s not so ideologically driven here.”

American-style political gridlock is inconceivable here, and Mr. Thorwaldsson says he often has a hard time explaining to outsiders that his union stands for innovation, globalization, even “robots,” because he knows Sweden can’t compete with cheap labor in China or India. It is new technology and a highly educated workforce that makes it competitive.

One of the biggest tests for Nordic pragmatism came in the 1990s, as familiar global cycles – starting with the 1970s oil crisis – brought deregulation, which fed credit and real estate bubbles, in turn leading to banking crises, a deep recession, unemployment, and then to rocketing budget deficits and currency devaluations. With aging populations and incoming immigrants, the welfare culture had to change drastically. Some observers argue that these challenges led to an ideological reversal of the traditional markers of the Nordic model. Indeed, such conservative icons as Milton Friedman and Ayn Rand are increasingly popular in Scandinavia. 

But the Nordic countries simply chose to adapt, essentially creating a radically new macroeconomic framework – compared with the paralysis and confrontation European countries are facing today with austerity measures. Since the crisis of the 1990s, Sweden granted independent status to its central bank, applied strict budget targets, and lowered the generous benefits levels.

In the process, Sweden drastically reduced its tax burden – by 10 percentage points between the 1980s and today. Public spending fell from 67 percent of GDP in 1993 to 49 percent today. At the same time, growth rates averaged 2.6 percent between 2003 and 2012, twice those of Germany, Europe’s dynamo. The other Nordics grew, too, more modestly, but far better than most of Europe. 

Bo Lidegaard, a historian and editor in chief of the leading Danish daily Politiken, says the success of Nordic pragmatism all starts with talk: “The starting point for building democracy is a culture of conversation,” he says.

In a Nordic context, that conversation doesn’t necessarily mean tough talk. If restraint has been a boon to the economy, it’s hardly a stimulant for excitement as it filters down into interpersonal relationships. Nordics are often seen as cool and detached. Ericsson, the schoolteacher, says he admires how easily Americans can give a compliment or show some oomph.

“Swedes don’t make a fuss,” says Göran Rosenberg, a Swedish author and journalist. “We are not a passionate country or people. In social relations we don’t like to have an argument. We don’t shout like Southern Europeans. That would seem extreme.” Other Nordic nations might agree. How else to qualify one hit prime-time Norwegian broadcast – “National Firewood Night” – featuring logs burning in a farmhouse fireplace ... for eight hours. (Enthused viewers called it “exciting.”)

Benefits to envy, problems to solve  

Nordic countries have at times been shaken from their lulls. In 2011, it was by white supremacist Norwegian Anders Behring Breivik – who killed 77 and injured hundreds in a bombing in Oslo and mass shooting at a youth summer camp 40 miles from the capital. Last year it was in Sweden, after rioting youths, mostly immigrant, took to the streets in the northern Stockholm suburb of Husby, after police killed a man in their community. Today, residents approached by the Monitor at random on the streets of Husby – a neat, clean, but nondescript neighborhood of concrete high-rises separated from the dynamism of central Stockholm – look at the riots as the mistaken actions of impulsive youths frustrated about being shut out of the labor market. But it forced a spotlight on the region’s ability to integrate the many migrants – especially refugees, in Sweden – who are moving to richer nations across the globe.

While the Nordic nations continue to rank among the most satisfied regions in the world – an ad at the Copenhagen airport says, “Welcome to the World’s Happiest Nation” – frustration is growing. It’s behind the rise of anti-immigrant populist parties such as the Finns Party, Sweden Democrats, Danish People’s Party, and the Norwegian Progress Party. 

And this is the next big test for the Nordic model, says Mr. Lidegaard. Integrating peasants, then workers, and, most recently, women, has been a cornerstone of its success. As a result, Nordic countries are not just the most equal but the most gender-equal countries in the world, with generous paternity policies that fill Stockholm’s streets with fathers on paid leave pushing strollers. Gender equality is taken so seriously that at the LO union headquarters, staff members don’t like photos to be taken in front of the mural at reception because, featuring one blond, shirtless working-class man, it’s “too male.” 

Today, Lidegaard says, integration of immigrants, and the rest of those outside the social market, is essential to the Nordic model’s ability to compete on the world stage in the future. “If we can’t [include them], the social expenses ... of having people in society that are not integrated will be unsustainable.”

A model for the rest of us?

The assertion of French philosopher Jean-Jacques Rousseau – that virtue is better advanced in small states – certainly raises the question of whether lessons from Europe’s North are replicable anywhere else. Nor would countries or citizens want to emulate everything: The French value their proclivity for taking to the streets to flex labor muscle and to engage in heated political arguments at the dinner table. Many Americans wouldn’t be American without their bombast and affinity for the superlative.

Yet there is temptation to envy the Northern models that produce admirable design innovation, work-life balance, and ... the luxury of digital music choices anytime, anywhere.

Today in Sweden, music revenues are finally in the black after a decade of losses. From 2010 to 2011 revenues grew by 5 percent, from 2011 to 2012 by 17 percent. Among all recorded music in the Swedish market, some 62 percent of sales are digital, according to Music Sweden, and most of that is through Spotify.

The music model is still evolving, and record labels and artists still have their doubts. Marcus, the newly successful singer, says she’s a fan of Spotify, using it as a consumer, and relieved that in Sweden illegal downloading largely feels of a different era. But, she adds, “it feels like a joke when it comes to royalties.”

Aglander, at Roxy Recordings, says the future is still unclear, with questions raging over free content and value, but the difference today, he says, from five years ago, is that the direction feels right. “[Sweden] is one of the best performers in the transition from a physical to digital world,” he says.

And the world, once again, is listening.

•Fabrizio Tassinari is head of foreign policy studies at the Danish Institute for International Studies and nonresident senior fellow at the German Marshall Fund of the United States. He is writing a book on the lessons of the Nordic socioeconomic model.

© 2014 The Christian Science Monitor and Fabrizio Tassinari