ONE of Sweden’s most popular tourist attractions is the17th-century warship Vasa. Its hull is 70 metres long and decorated with oak carvings of mermaids, wild men and sea monsters. It is designed to celebrate the might of imperial Sweden and to intimidate its enemies. It is a visually stunning reminder that Sweden once dominated the northern tier of Europe, drawing many of its Baltic neighbours into its orbit. Both Norway and Finland have, at different periods in their history, been joined to Sweden in a union.
All three of these nations are broadly comparable to Scotland, at least at first glance: small populations spread across large territories, long coast lines (the Norwegian word “fjord” is surely derived from the same root as the Scots “firth”) and a traditional dependence on maritime activities, including fishing and shipbuilding. And Norway has an oil industry that has helped turn what was one of the poorest countries of Europe into one of the richest in the world.
They have also evolved a way of living, and of governing, which is the envy of much of Europe. They’re often held up as an example of what Scotland could aspire to become: they are benign, non-belligerent, socially harmonious and prosperous social democracies.
This reading appeals particularly to the pro-independence left in Scotland. The Nordic model is “a high wage economy, based on highly-productive enterprise,” says Robin McAlpine of left-wing think-tank the Jimmy Reid Foundation. “And you use the money that generates through tax to create extremely strong public services. You have this chain: good economy, good jobs, good wages, good taxes, good public services, and high social cohesion”.
Finland illustrates well both the strengths and weaknesses of small independent nations on the periphery of Europe. For decades after the Second World War, it was almost entirely dependent on trade with the Soviet Union. And it thrived. In fact it over-reached itself. In the late 1980s, it deregulated its banking sector and entered a period that came to be known as the “casino years”.
“House prices were going up like never before”, says Martti Salma, an economic adviser to the Finnish government. “There was a feeling that we were more or less invincible.”
Then the crash came. It provided a signature lesson on the key weakness of many small nations: that their economies are often dangerously dependent on a relatively small number of volatile sectors. In Finland’s case, its dependence on the Soviet Union meant that in 1991 its main export market disappeared almost overnight. “The world economy was also in turmoil and this resulted in a large banking crisis,” says Salma. “And very suddenly, more or less the whole Finnish economy collapsed”.
The economy shrank almost overnight by 10 per cent. The government was forced to make drastic cuts in public spending in what was already a high-tax country. Things got steadily worse. The Finns did not riot, they did not strike, they did not demand the ring-fencing of health budgets, or insist on spending money they did not have. Unemployment soared.
Is this a cautionary tale, useful, perhaps, to the Better Together campaign, which argues that Scotland, had it been independent, would have sunk under the weight of the near-collapse of RBS and HBoS?
Yes and no. It took years of pain but Finland recovered. This year, it was rated number one in Europe in a recent global dynamism index. Sweden and Norway came second and third and these were the only three European nations to make it into the top ten of that league table.
The secret of Finland’s successful emergence from economic catastrophe was its independent currency, the Markka. “We tried to keep it at a fixed rate against other currencies”, says Salma. “But we had to give it up and let it float. It devalued considerably and this helped exports. We let a couple of major banks go bust and the ones that were left merged. The whole banking sector was completely overhauled.”
An independent Scotland, in any similar crisis in the future, would not have this option, because under current plans Scotland is not to have an independent currency. Sweden, Norway and Denmark have all kept their own currencies. Among the Nordic states, only the Finns, ironically, joined the euro. They did so largely for political, rather than economic reasons, and many, given what has happened since, now regret the loss of their currency independence.
But it wasn’t only currency independence that brought Finland back from the brink and made it one of the continent’s most successful societies. It was a series of factors that illustrate the fleet-of-foot flexibility of small independent states. The one area of public spending the government did not cut was research and development. While hospitals and schools were being squeezed, the government increased spending in this field by 25 per cent.
At the same time, an old Finnish company that had built itself up over more than a century decided to take a major gamble. Nokia had started life in the 19thcentury in the wood pulp business. By the late twentieth century it also made electrical cabling and rubber boots – hardly the stuff of the digital future and the knowledge economy. “The decision was made to divest all the other businesses and to concentrate on mobile communications,” says Erkki Ormala, a former senior executive at Nokia, now an academic. “The rest is history”. For 20 years, tiny Finland dominated the world’s mobile phone market. At the height of its success, Nokia was supplying 40 per cent of the global market.
The sale of Nokia to Microsoft this summer marked the end of the company’s dominance. The company has laid off 10,000 workers globally. Unemployment in wealthy little Finland is 8 per cent – that is higher than Scotland’s. But it has weathered the storm because during the years of Nokia’s ascendancy, Finnish investment created scores of smaller, independent hi-tech enterprises selling services to Nokia. The games manufacturer Rovio is one. Their computer game Angry Birds has sold 1.7 billion downloads worldwide.
Is there a lesson here for Scotland? A decade ago, I asked the CEO of a small but highly successful internet security company a simple question: if Finland were still in a union with Sweden, and its tax regime was decided in Stockholm rather than Helsinki, what would the Finnish economy look like? “Nokia,” he said, “would still be making rubber boots”. Tax autonomy is vital to the success of the Nordic model.
It is not only the Left in Scotland that applauds the Nordic model. Finland, Sweden and Norway all now have right-of-centre governments. Fraser Nelson, the Scottish editor of the far-from-left-wing London weekly The Spectator looks to Sweden for inspiration, and wishes David Cameron would have the guts to be as right wing in some of his thinking as the Swedes are.
Sweden is “one of the few countries in the world that is cutting tax and getting growth as a result” he says. “In everything, from pension policies to the way you run public services, the Swedes are at the forefront of liberalisation. They’re showing that there need not be a tension between free-market ideas and progressive ends”.
In Sweden, 10 per cent of the public health service is contracted out to private companies. Swedes also pay a fee to visit their GP.
Britta Walgreen is the chief executive of St Goran’s hospital on the outskirts of Stockholm. “We have a contract with the local authority to provide care as part of the public health service,” she told me.
“We are paid for each patient we treat. But if we improve the service, and we are able to discharge a patient two days early, we are paid the same but our cost comes down.”
It is not uncontroversial even in Sweden, because some public money ends up as private profit. “I think the important discussion is not whether the care provider is public or private but what it can deliver,” Walgreen, a former anaesthesiologist told me. “Just being publicly owned is no guarantee that the quality is high”.
This flexibility, too, is key to the Nordic model’s success. Would such a policy fly in Scotland? Would any government here dare to propose reforms that would, in our ideologically binary political culture, look like the privatisation of the health service?
Sweden’s welfare model is little understood here. It is not generous to the unemployed. It is designed to keep people in employment, not to reward them for being out of work. Sweden spends more on child care for working parents than it does on its armed forces. Local authorities are required by law to provide children over the age of 12 months with day care. Anna Nyborg is a young mother of two, and a senior executive at Ericsson in Stockholm. She pays £200 a month to keep her two infants in day care. “And this includes food and nappies and everything,” she says. As a result the Nordic countries have more women in work than almost anywhere else in Europe. It is welfare spending designed to sustain and support wealth creation, rather than drain from it.
But it is still costly. The historian Lars Tragardh took me out on to the roof of his university building and in a bracing Nordic wind we looked down onto the rooftops of Stockholm. “You get 360 degrees up here,” he said. “There’s the royal palace. There’s the fairground. But what is Stockholm’s tallest and most significant building? There it is and it symbolises Sweden’s love affair with the state: that is the headquarters of the national tax authority.”
Scandinavians pay the highest taxes in the world. In Sweden, if you’re only reasonably well off, you surrender close to two-thirds of your income to the taxman. It is a condition that Swedes have reconciled themselves to over the years.
But the Nordic country that is arguably most similar to Scotland is Norway. If you’d sailed into Oslo 30 years ago, you’d have passed shipyards and marine workshops on the waterfront. They were, by then, already in terminal decline. There was a lot of public pressure on the government to use the country’s new oil wealth to rescue the industry and save jobs. It didn’t happen. Norway, ruthlessly, let its declining old industries die.
For Norway understood very early that its oil wealth, if mismanaged, would be a curse rather than a blessing. Windfall resources like that can have the effect of so inflating a nation’s currency that every other sector of the productive economy becomes uncompetitive and collapses.
Norway’s political parties entered into a self-denying pact. They agreed not to spend a penny of the oil revenues in Norway itself. So they save it all instead and invest it in companies overseas. The oil fund is now worth £400 billion. What’s more, 96 per cent of the interest on that fund is re-invested in it. The Norwegians allow themselves to spend only 4 per cent of the interest each year – and none of the capital. But even that is enough to pay for 10 per cent of the annual public budget. “Most European countries have been spending money they don’t have”, one former minister told me. “Our problem is that we can’t spend the money we do have.”
It is a quiet Nordic rebuke to the rest of us. Britain’s oil wealth – of course much smaller as a proportion of GDP – has been used as part of the overall tax take. And an independent Scotland, initially at least, would need to spend its oil revenues to meet existing commitments. The Scottish Government argues that it could, in time, start an oil fund. But the Norwegians have a 40-year start on us, and much, perhaps most, of the wealth that was there has now gone.
The warship Vasa sank, just 1200 metres from the shore, on its maiden voyage in 1638. It keeled over under the weight of its own grandiose, unsustainable ambition. Twenty years ago, the received wisdom in Europe was that the Nordic economic model had had its day: the public sector was too big, and the state, like the Vasa, top heavy.
“We were told that we were doomed in the new global economy” the country’s former foreign minister, Jonas Store, told me. “But we’ve seen over these last years that the Nordic countries come out on top when it comes to innovation, creating new businesses and flexibility. We have higher employment, sounder public finances, and safe and solid public welfare, because we have unions that take collective responsibility and strike responsible deals. We have a high level of social capital, as well as financial capital”.
Could an independent Scotland emulate the model? And if it could, why couldn’t a strongly devolved Scotland within the UK do the same? For what, in the Nordic context, does “sovereignty” mean? And, given the extraordinary degree of interdependence and co-operation that exists between them and the rest of Europe, in what sense is any of these countries (in the parlance of the Scottish constitutional debate) “going it alone”? It’s not for me to answer these questions. But as an old foreign correspondent returning to my own country at a time of historic decision-making, I wonder this: shouldn’t we at least try to see the choice we face next year in its broader European context? «
Our Friends in The North is broadcast tomorrow at 10.30pm on BBC Two Scotland