Fostering cohesive societies

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I’m delighted to have the opportunity to contribute to the discussion on social cohesion. This is at the heart of my Government’s economic policy.

The OECD has done a lot of valuable work both on measuring (el. policies to enhance) well-being and on income distribution and growth. Norway and other member countries have benefited from dialogue and policy sharing within the OECD for a long time. I am particularly pleased to see that the Development Centre has put this on its agenda at a time where many developing countries experience high growth, but struggle at the same time with social inequality and poverty. Accordingly, across countries, there seems to be a growing consensus that assessments of economic performance should not only focus on income growth, but also on the distribution of income.

My country was among the poorest countries in Europe around 1900. We had caught up with the rest of Western Europe by 1950 and now GDP per capita in Norway is among the highest in the OECD-area. Large income from natural resources, such as hydroelectric power, fisheries and petroleum explain part of the rapid economic growth, but the main explanation is to be found in the high productivity growth combined with high employment rates, especially among women. How have we in Norway managed to combine economic security with high economic performance, including high labour market participation and low unemployment?.

We believe this is in part a result of the so called Nordic model, i.e. our comprehensive welfare state, our substantial public investments in human capital, our relatively high taxes and our labour market institutions including well organized employees and employers, a highly coordinated wage formation, active labour market policy and flexible labour market regulations.

Contrary to conventional wisdom, the Nordic experience indicates that comprehensive risk-reducing welfare systems may stimulate growth and employment. Despite a rather even income distribution, enrollment in higher education is good, and labour participation is high. The Nordic countries have fairly flexible labour markets that have proved effective in reallocating labour from declining low productivity industries to rising high productivity industries. The welfare system, combined with active labour market policies, plays an important role in facilitating this reallocation. Safety nets may promote a sense of security and thus enhance risk-taking and growth, and also promote macroeconomic resilience to shocks. Let me also mention tripartite cooperation between the social partners (labour unions and employers organisations) and the Government which has contributed to a common understanding on the functioning of the economy and facilitated fairly swift coordinated action in times of crisis.

Furthermore, there is a relatively weak relation between parent’s income and children’s income, which implies a high degree of social mobility. The variables we ourselves believe are most important explaining this is:

1. A common basic education for everyone from the age of 6 to the age of 16
   
   
2. A close following up of pupils in higher secondary school to reduce drop out rates
   
   
3. Full coverage of pre-school for the age group of 3-6
   
   
4. Tertiary education free of charge
   
   
5. A public system for giving grants and loans to all students ensuring that their ability to study is independent of parent’s economy.
   
   Measures that aim at increasing the human capital often gives a double dividend by equalizing the income distribution, while at the same time increasing growth.

I believe the heart of the matter is the combination policy tools, with a strong focus on dialogue with the social partners, social safety nets, gender equality which promotes family policies aiming at strengthening female participation in the labour market and substantial redistribution through the tax system. Taken together this has ensured an inclusive growth in Norway.

But the model faces challenges in common with other countries. An aging population, more globalized markets and a better integration of immigrants are the major ones. But the overall challenge for the future is still maintaining a high labour force participation.

In addition, other features in Nordic countries such as small and rather homogenous populations, large degree of openness to international trade, affluence of natural resources and peaceful neighbors play a role in the development of our economies. But above all, we have trust – among the labour market partners, the government and the people. This is a prerequisite for several of the traits characterizing the Nordic model. It also makes it easier for us to open up for globalization, yet another reason for our success the past decades.

Thus, I would not venture to say that our system can be transplanted as such to other countries elsewhere. Every country has it`s own characteristics and history which influence what it possible and desirable.

But some elements may well be both desirable for other countries to import, such as more active labour market policies and flexible labour market regulations. The present challenges in international labour markets, with huge and growing youth unemployment should put such measures high on the agenda.

To be effective the policy has to be cohesive. E.g. in Norway, the Ministry of Finance is responsible for sustainable development. Growth has to be green and inclusive to be sustainable. Moving from fossil fuels to more renewables will yield more stable energy supply, less volatile energy prices and hence more stable growth. It will also mean less local pollution and hence better quality of life, less health problems and better productivity. So greening the economy is not only a hindrance for growth and a cost, it should increase quality of life and the long term growth potential. Integrating environmental concerns into economic decisions is not primarily a matter of “loving nature“, it is sound management of crucial parts of our national and global capital – that done correctly is economically rational.

In my view, emphasis on building consensus is a strength of the Norwegian society. It has not always been like this. In earlier times, the level of conflict was much higher. The social partners often play an important role in consensus building. It involves taking time to study and search for solutions, to hear everyone’s views and to try to find compromises. You may call this a boring political method. But we have learned that it is the fastest way to reach real results in our country. I wish you all luck with your way in your country!

Thank you for your attention!

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