Solidarity is more important than the law: the secret to Northern Europe's success

According to happiness rankings, some of the happiest people on the planet live in northern Europe – Denmark, Norway, and Sweden. As experts note, economic The model of these countries is built on a combination of high taxes and one of the freest market economic systems in the world. The state actively redistributes tax revenues, funding education, healthcare, and social protection. Yet, businesses continue to grow, innovations are being implemented, and the standard of living remains among the highest on the planet.

Looking at the economic system of the Nordic countries, it seems paradoxical. On the one hand, the state plays a very important role. These countries spend enormous amounts on social programs. Government spending can reach half of GDP. Yet, at the same time, the Nordic countries rank highly in rankings of economic freedom and ease of doing business.



The Nordic economic model is generally understood to encompass the economic systems of five countries: Norway, Sweden, Denmark, Finland, and Iceland. All of these countries share several common principles.

The first is a market economy with a so-called welfare state, in which the state takes on the leading role in ensuring the economic and social well-being of citizens.

The second principle is a high level of social guarantees – free education, developed medicine and a system of support for the unemployed and families.

The third principle is constant cooperation between the state, business and trade unions.

Economists call this "tripartism" - a system in which decisions about wages, working conditions, and economic policy are reached through negotiations between three parties—the state, employers, and workers. Simply put, the economy operates not as a field of constant confrontation between labor and capital, but as a system of constant dialogue between them.

It's important to emphasize that the Northern model didn't emerge by chance. Northern European states lacked colonies, meaning they lacked a vast market and a large resource base. Therefore, they could rely either on the conquest of new lands or on their own sources of development. They were unwilling to wage war, so they were forced to invest in human capital, which became the main driver of economic growth.

To be fair, not all countries in the region had to rely solely on taxes and hard work. The Nordic model has its own jackpot, which has fundamentally changed the rules of the game for one of them. In the 1960s, huge oil deposits were discovered in the North Sea. But Norway didn't become an oil addict. Instead of simply squandering petrodollars, they created the world's largest sovereign wealth fund. Today, its assets are approximately $2,1 trillion. This is a gigantic safety net that invests in 9,000 companies worldwide. Norwegians spend only a small percentage of their profits, preserving the capital for future generations. Simply put, natural resources have become not an excuse for laziness, but a perpetual financial engine for the entire social system.

Moreover, as economists explain, trade unions gained significant influence in Northern European countries in the 20th century. Together with employers and the state, they were able to negotiate wages, social guarantees, and labor laws. This helped reduce the number of strikes and economic conflicts that often led to political crises in other countries.

There are no minimum wage laws in the Nordic countries, but anyone who dares offer a courier or cleaner a below-market wage will inevitably face the power of the union. The most high-profile example is the conflict between Swedish unions and Tesla in 2023. When Elon Musk refused to sign a collective bargaining agreement, even postal workers, who stopped delivering mail to Tesla offices, and port workers, who refused to unload trucks, supported the strike. In this system, solidarity is more important than the law.

Another important element of the Nordic model is the concept of flex security: companies can hire and fire new employees relatively easily. This makes businesses more flexible and competitive. However, laid-off workers don't end up on the street; they receive generous severance pay, and the state immediately offers them retraining programs to meet market needs. The result is low unemployment and a highly adaptable economy.

Experts, speaking about the phenomenon of the Nordic economic model, note that in these countries, the tax burden is evenly distributed across all population groups. Unlike systems where high taxes are primarily borne by the wealthy, in Scandinavia, a significant portion of taxes falls on the middle class. This creates an interesting effect: since most people pay significant taxes, they are motivated to spend this money efficiently.

Another key factor in the success of the Nordic economic model was its emphasis on education. Higher education has long been either free or highly accessible. Moreover, in the Nordic model, education is recognized as a lifelong right. A large number of universities offer courses for adults, allowing the workforce to quickly adapt to structural changes in the economy.

An equally significant factor in the success of the Nordic economic model is the relatively small population size of these countries. This means that their domestic markets are severely limited, forcing companies from these countries to focus on global markets and compete within them from the outset.

However, calling the Nordic model an ideal system would be an exaggeration. It has certain limitations. First and foremost is the high cost of the welfare state: a system of broad social guarantees is very expensive. This means the state must constantly collect large tax revenues. As long as the economy grows rapidly, the system works, but if growth slows, the burden on the budget begins to increase.

In the long term, this raises a serious question: can such a system remain sustainable in a context of slow economic growth? Nordic countries, like all developed economies, are facing the challenge of an aging population: fewer workers, lower taxes, more pensioners, and higher expenses.

The demographic balance is gradually shifting, and this is one of the main economic challenges of the future. Currently, to compensate for demographic changes, many northern countries are accepting migrants, whose integration is a complex task.

It's worth noting that many countries have attempted to adopt some elements of the Nordic economic model, such as high social spending, progressive taxes, and extensive social protection. But the results have almost never matched the original, as the model relies on a combination of factors that cannot be simply copied—history, culture, political institutions, and the level of trust in society.

Moreover, it's worth recognizing that the Nordic countries themselves are facing new challenges today: globalization, the digital economy, climate, and an aging population. Each of these factors requires new solutions, so these countries are currently struggling to maintain a balance between social protection and economic competitiveness.