Norwegian Social Dynamics in the 21th Century

Distinguished congressmen, senators, ladies and gentlemen,

First of all, thank you for your warm welcome. I am very grateful for this opportunity to speak to such a distinguished audience with an interest in Norway. It is a great pleasure for me to visit Paraguay. All the more so being the first Norwegian minister ever to visit this nation.

Let me start with congratulating Paraguay on its successful return to democracy two decades ago. Two years ago you went one step further in democratic maturity, when you, with the election of President Lugo, for the first time in more than 60 years secured a change of party in the presidency.

On the plane coming over here I was reading the memoirs of a former Norwegian ambassador to Paraguay. He served here in the 1930s. On the mechanism of change of government in Paraguay he wrote that “elections are normally arranged so that the party in power wins. This will last for some time until the normal form of change in government occurs in the form of a small, peaceful revolution,  normally without any bloodshed”.

I believe that those days are long gone, and despite the many challenges facing Paraguay, the nation is on a promising road both democratically and economically.

I have been asked to give a presentation of the Norwegian model of society in the 21th century. I must say I really appreciate this kind invitation and it is a great honor to get this opportunity to speak to the Congress of Paraguay.

Let me start by giving you a brief presentation of the present government in Norway. It is a majority government which consists of three parties: The Labour Party, The Centre Party and The Socialist Left Party, which is the party I belong to. 

By the Norwegian – or perhaps we should say the Nordic model of society - I mean our way of balancing the market economy and the role of the government. I will try to single out some of its most distinctive features and explain its effectiveness. 

The Nordic Model
A definition of the Nordic model of society should be possible. I personally prefer a threefold definition. In my opinion the most accurate definition determines the Nordic model as a model which consists of three different components.  

First, an economic model. Briefly explained this means that the Nordic countries are characterized by a mixed economy, predominated by the private sector, but with an extensive role of government and the public sector. 

Second, a welfare model. In the Nordic countries, the government is involved in financing and organizing the welfare benefits to a greater extent than in most other countries. The system is universal, covering every citizen and financed by taxes. 

And third, a labor market model. The development of the tripartite cooperation between unions, employers and the state has had a great influence on the political life in all the Nordic countries. To a great extent this has historical reasons.

The Bumble Bee
If you look closely at a bumblebee, you will notice its very large body compared to its wings. This is something which has really puzzled those who study biology. For a long time biologists have been asking how this insect is able to fly. This is nothing but a mystery according to biologists. When studying physical laws it seems perfectly clear that the bumblebee’s anatomy should impede its ability to fly. Its body is too heavy and its wings are too small. 

One of my main points is that Norway like the rest of the Nordic countries in a way can be compared to a bumblebee. In the same way as biologists are puzzled by the bumblebee, so are economists puzzled by the fact that the Nordic countries “do fly”. We “fly” despite laws of economics. 

Let me give you a few examples from my own country: 

• Norway has some of the highest rates of taxation in the world.
• Norway is characterized by an extensive public sector.
• As well as extensive social insurance systems.
• Norway has strong unions.
• And slight wage differences. 

Traditional economic thought, however, has always seen these features as factors that threaten economic growth in a society. 

The Norwegian lessons undoubtedly put economic theories to a different test, as there definitely are many positive aspects of our society.

Equality
Norway, like the other Nordic countries, is characterized by strong ideals of equality. This concept of equality consists of three major pillars:

• Social security.
• Free health care.
• And free education.

Norway is also characterized by high levels of employment. We put strong emphasis on maximizing labor force participation.

And finally, our model of society seems to be conducive to good economic performance.

So how can it be that Norway - in spite of its “heaviness” – is a well functioning economy? Did economists get it wrong or was it rather a question of luck?

It is widely known that Norway is blessed by nature in terms of energy resources – not only oil and gas, but also hydropower. Access to electric power from waterfalls helped us build industries in the last century. Today, Norway is ranked as the fifth largest oil exporter and the third largest gas exporter in the world. It may be tempting then to jump to the conclusion that Norway’s success has benefited a lot from the export of oil and natural gas. This is certainly true! The Norwegian economy has since the 1970’s been heavily influenced by the discovery of petroleum resources in the North Sea. However, I believe it will be too easy to conclude that the Norwegian economy is only about oil and natural gas. Our good economic performance also reflects other factors.

It is also important to underline that Norway started introducing many progressive social reforms long before we struck oil. We started doing this when we were still a relatively poor country.Let me briefly mention some of the crucial factors that most often are considered when determining the Nordic model. These are:

• Tripartite cooperation between unions, employers and the government.
• Labor market policies.
• Gender equality.
• And openness to trade.

One of the most fiercely held Norwegian core values is likhet - which means alikeness, sameness or equality. Nothing usually upset the Norwegians more than transgressions against their notions of equality.

The most celebrated example of this egalitarian trait was the day the beloved King Olav hopped a city bus and rode to his destination. This happened in 1973 when the international oil crisis limited the use of private cars. The Norwegians loved him for it. He was demonstrating that although he was the king, he knew what to do. He wasn’t really any better than anyone else. He was one of us.  

The consensus for equality has deep roots and a complex history in Norway. As already mentioned, one vital factor is the development of the tripartite cooperation between unions, employers and the state. LO is the largest and most influential workers´ organization in Norway, while the Confederation of Norwegian Enterprise is the main organization for Norwegian employers.

The tripartite cooperation has led to a number of social reforms and has played an important role in shaping the Norwegian welfare state. Let me give you a few examples:

• The introduction of a Work Protection and Working Environment Act.
• Work hours regulation limits for all workers.
• Sickness benefit guaranteeing 100 per cent compensation during sick leave.

Among the many positive consequences of the tripartite cooperation is the way it seems to prevent long-lasting strikes. Serious, long lasting strikes are quite frequently experienced also in many other countries in Europe. Although we also experience strikes in Norway, I believe the social dialogue between employers and employees contributes to our low levels of strike activity compared to other European countries.

Highly centralized wage bargaining is another crucial factor to keep in mind when explaining the Nordic model. Norway has since 1945 developed a strong tradition for coordinated tripartite bargaining - I would say stronger than in most other countries. Furthermore, many social regulations do not come from the law, like in other countries, but are defined in collective agreements.

Let me give you an example of how this can work in practice. Today the global financial crisis has led to a situation which in many ways is quite similar to what we experienced during the 1990´s. At that time a tripartite cooperation between the unions, employers and the government secured moderation in the annual wage negotiations. This led to a rapid decline in wage growth which in turn contributed to a formidable recovery of the Norwegian economy. Today, the downturn in the global economy calls for similar moderation. Wage increases must be limited in order to secure high labor participation, low unemployment and stable growth.

The way our labor markets are organized is undoubtedly another key feature of the Nordic model. Compared with what is regarded as normal in many other nations, huge public efforts are focused on reducing the burden of unemployment. If a person becomes unemployed in Norway, he receives unemployment benefits from the state, education and job counseling. Jobseekers are offered assistance in finding a new job and are also offered the opportunity to take courses.

I am convinced that an active labor marked policy combined with a social safety net reduce the length of unemployment periods associated with job losses. On the other hand, we have also been working for more flexibility in our labor markets during difficult times. Flexible rules now make it easy for the employers to lay off employees during periods of recession and to re-hire them when markets improve again.

When a large company fails in Norway, it has traditionally been the role of the state to take responsibility to secure the individual and to restore the community. We aim at improving people´s employment opportunities, not sheltering particular types of jobs or industries. I believe this is something which makes us less vulnerable to globalization and changes in industrial structures. The simple explanation is this: as long as you are protected by welfare services, it is easier to adapt to challengesWhat we observe, is in fact that the Nordic model encourages business innovation. A well developed safety net has made workers more open for changes and increased the economy´s ability to adapt to a globalized world.    

Women
As previously mentioned the government in Norway provides more social services than in many other European countries. To some extent this has made it possible and necessary for women to be well represented in the labor market. Thirty years ago, less than half of all Norwegian women were employed or actively seeking work. Since then Norwegian women have increasingly participated in the work force. In 2008 70 per cent of the female population was working full or part time. It is a common assumption that this increase didn´t happen by itself. It came as a result of policy changes aimed at giving women more equal opportunities.

We are still debating how family and work can be made easier to combine through flexible arrangements. One example is the father´s quota of ten weeks of the parental leave. These weeks are exclusively reserved for him. If the father chooses not to take this leave, the quota is deducted from the total period of the parental leave. I believe this arrangement has been an important tool in changing attitudes and behavior regarding the sharing and balance of work and family responsibilities.

Let me mention another example of policy changes in recent years. As far as I know Norway is the only country in the world to require gender balanced representation on corporate boards. The law, which was proposed by a conservative government, required 40 per cent of all company board members to be of either sex.

I believe this legislation has been an important step towards equality between the sexes and a more equal society. Some surveys also indicate that diversity on corporate boards has a positive impact on the companies' bottom line. Recruiting more women to the corporate boards will increase diversity, and thereby positively impact on the companies´ results. Furthermore, since women constitute half of the population, they should accordingly claim half of the influence and power.

Another factor which may also explain the good performance of the Nordic model is our strong dependence on trade. Norway, as a small economy, has strong traditions for open trade. We have largely no tariffs for industrial products and liberal access to foreign suppliers. This openness underpins our own economy, while at the same time benefiting our trade partners as well.

Our main export goods are petroleum and petroleum products, machinery, ships and fish. Due to the oil and gas exports Norway in recent years has had a surplus in external trade. This means that the value of goods and services that we export is greater than the import value. This has not always been the case. For a large part of last century, we had to import more than we managed to sell, and we were constantly borrowing money in order to cover the deficit.  Today, one of the Norwegian government’s key priorities is to ensure that the business environment remains conducive to innovation, investment and growth.

It seems that Norway, like the other Nordic countries, has found a good balance between market economy and state regulations. However, there is no doubt that the Nordic model is currently facing some challenges.

First of all, the Nordic model poses some questions. How far should governments go in providing for the welfare of its citizens? What happens to individual initiative and personal responsibility when governments provide generous welfare benefits? Let me give a few examples from Norway.

It is definitely worrying that more than 20 per cent of the working age population in Norway is on some form of disability pension, sick leave or other health related benefits. And it is even more worrying that the number is rising, as shown on this figure. The government in Norway is therefore taking several political initiatives to reverse this trend. Two months ago the government, the unions and the employers agreed on an extensive economic stimulus package to reduce sick leave among Norwegians. In order to maintain our extensive welfare system in the future, it is crucial that we succeed in reducing these alarming numbers.      

The number of citizens past the official retirement age will increase rapidly after 2010. In addition, the average pension compared to the average wage is expected to increase in Norway in the coming years. Benefits per pensioner will therefore rise dramatically in the years ahead. Furthermore, the opportunity to retire before the pensionable age of 67 has been unevenly distributed in our public pension system.

In recent years there has been a growing consensus that our current pension system poses a challenge to the welfare state and the Nordic model. The process of reforming this system started as early as in 2001, and in spring 2009 the Parliament passed a comprehensive reform. Calculations show that the reform will lead to a strong improvement in economic incentives to postpone retirement and continue working compared to the current system.

To sum up, although we haven´t been able to eliminate all disadvantages, I am deeply convinced that the Nordic model will be sustainable also in the future. Public opinion polls show strong support for the welfare state and the fundamental principles of the Nordic model. Furthermore, experiences during recent years show that a broad majority in Parliament supports political reforms which can secure sustainability in our welfare services. This however, doesn´t mean that we don´t need a debate on how to design the system so that it is able to meet future challenges.

I would certainly suggest that the Nordic model of society has something valuable to offer. It has been accused of hindering economic growth, but it seems however, that there is no demonstrable relationship between economic growth and tax levels or the size of the public sector. The Nordic bumblebee is actually able to fly although conventional economic thought still struggles to explain how this is possible.

Finally, if you allow me, I would like to draw your attention to this region. As I have pointed out, equality is at the heart of the Norwegian model and it is among the core factors explaining its success.

The Latin American region has made progress towards more equality over the last few years. This is very encouraging. However, the region still has a long way to go.  

ECLAC – The UN’s Economic Commission for Latin America and the Caribbean recently released a report claiming that 10 of the 15 most unequal countries in the world come from Latin America. The inequality of income in Latin America is in fact significantly greater than in Sub-Saharan Africa.

ECLAC says that even though the region is making substantial progress – Paraguay expecting to grow 7 percent this year - and has fared well through the financial crisis, “persistent inequality remains the principal obstacle to sustained growth and development in the region”.

I believe this is a very important observation and I think that the experiences from my own country show that the road to lasting growth and prosperity goes through social and economic inclusion for all. It is my impression that the government of Paraguay is strongly dedicated to this cause and I would like to express our strong support to the endeavours taken on by the Paraguayan people in this respect.  

Thank you for your attention. Gracias por su attention!