Financial Times published on July 30th a very interesting article about the Nordic way of capitalism, which reminded me of a book that I have recently read: Utopia by Thomas More, especially those chapters describing Utopia’s economic and political system.
In fact, the Nordic economic and management model is seen by some scholars as one of the few winners of the current financial crisis and is very different from that of other countries. According to Financial Times, Sweden, Norway, Denmark and Finland (what about Iceland!) are ”Economies that are open to the world and offer greater worker involvement are attracting attention – but benefits are hard to replicate elsewhere”.
The article focused on the strengths and weaknesses of this model.
Strengths:
- Openness to globalization:
- Facing a lack of a large domestic country, Nordic companies focus on expanding abroad
- Aware of negative side of globalization and very proactive. Example: transfer workers of sectors hurt by globalization to other sectors
- Strong social protection
- Egalitarianism: There are no real classes distinctions
- Salary gap between the highest and the lowest earners is relatively small
- Everybody can get good education.
- Senior executives are paid well below their counterparts abroad
- Democratic capitalism: high degree of equality and participation in political and corporate decision making
- Workers are not afraid to discuss with senior executives
- Employees sit on the board of companies thanks to heavy trade union presence. Trade unions participation is very mature allowing companies to make restructurings with the cooperation of workers
- Promotion of women in the boardroom: there is a law-fixed quota
- Record for bouncing back from strong economic turmoil
- 1990 crisis in the region was successfully handled in Sweden with a mixture of recapitalization and nationalization without making use of protectionism
Weaknesses:
- Difficult to export to other countries: Small egalitarian countries with good education system can hardly be found anywhere else.
- Difficult to convince employees in some countries to embrace the non hierarchical ways: people find imprecise who is taking responsibility or what is the objective
- The region has historically relied on big companies and has been poor at creating smaller entrepreneurial businesses, which is a weakness in generating employment
- Generous welfare state is increasingly under pressure from an aging population
- Cultural homogeneity that makes consensus-based decision-making possible is challenged by the increasing immigration
- Some Nordic companies are importing aspects of the angle-Saxon model, like reducing tax burden
Generally speaking, democratic capitalism is easier to find in small companies that in big one. Personally, I find democratic capitalism in large Nordic companies very interesting. My experience is that management styles based on authority (Imperial CEO) may erode the workers motivation and productivity. I think this is a weakness of the French and Chinese models, among others. (For information about Chinese working culture see this post)
For those who want to learn more, there is a book called “The Nordic model”, which can be downloaded in pdf from here, and there is also a very good description about the Nordic model on wikipedia.
Image: the image belongs to Xymara.com.
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