Home TA Online In tough times, Nordic welfare states cushion economic hardship

In tough times, Nordic welfare states cushion economic hardship

With good governance and pre-crisis social safety nets resolutely in place, the people remained confident and resilient

Much fewer people on this street in Stockholm in September 2020 - M ABHINASH

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Like many other countries, Nordic countries experienced an economic downturn last year due to the coronavirus pandemic. But there was a difference: their economies have been robust and they endured the downturn much better than many other nations.  

State financial aid has helped businesses to weather the storm. Many Nordic businesses have appreciated their governments’ intervention and the support they received that allowed them to survive during this critical period.

State-sponsored financial assistance resulted in lower rentals for their premises and reduced social benefits charges. The government also topped up the staff salaries of firms, following a drop in working hours.

These financial aid programmes averted massive job layoffs. Thanks to these measures, some firms only retrenched only a fifth of their workforce, when it could have been worse.

Despite these prompt financial measures, Sweden fell in the limelight for the wrong reason: its lackadaisical attitude in dealing with the coronavirus pandemic. The country had not gone along with conventional measures that other nations turned to: it refrained from imposed a lockdown. Instead, schools functioned and restaurants and most business enterprises operated as usual.

The reason cited for not opting for a lockdown? It would have violated the basic civil liberties of the people and their constitutional rights.

Little did the Swedes realise that this narrow perspective of individual human rights and civil liberties should have taken a back seat for the good of the wider community. They failed to recognise they had to be pragmatic and adhere to the precautions practised all over the world.

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By September, stark reality set in and grim statistics revealed their blunder. Relative to its population, the country had the world’s ninth highest death toll since the start of the pandemic: 576 per million, according to Our World in Data.

Deserted street in Stockholm in September 2020 – M ABHINASH

Compared to Sweden, its neighbours Denmark, Finland, Norway and Iceland responded to the pandemic relatively well. All four countries implemented stricter quarantine measures than Sweden. They shut down schools, although commercial enterprises remained open.

Finland was able to get the coronavirus under control fairly well and quickly with a modest lockdown. Its partial lockdown halted retail trade and shut down all manufacturing concerns. Like other Nordic countries, state intervention and aid payments supported workers whose working hours had been reduced and eased a host of problems. Tax payments were deferred, and the government’s policies were more successful than in other Nordics countries.

Still, harsh effects were felt in the economies of Norway, Finland, Sweden and Denmark. All experienced contractions in the second quarter of 2020, shrinking year-on-year by between 6.3% and 8.2%. But this was manageable.

Nordic countries have long practised welfare-state policies: ethical public finances, prudent spending of taxpayers’ money, a high level of integrity, insignificant corruption, minimal tax evasion and strong online cultures that facilitated working from home. All these helped to contain the damage to their economies.

With such prevailing norms and pre-crisis social safety nets resolutely in place, along with relative job security, the people remained confident and resilient and continued to spend. Against this backdrop, the people in these Nordic countries never felt they might be confronted with the sort of economic calamity other nations faced. Apprehension and fear never permeated their thoughts during this difficult period.

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In Norway, people spent their free time during the enforced “holidays” to renovate their homes and stay in shape. At the height of the pandemic, sales of construction materials, bicycles, and hiking and sporting gear skyrocketed.

Reykjavik, Iceland in winter – BENEDICT LOPEZ, OCTOBER 2012

Only the Nordic’s smallest economy, Iceland, was hit by falling tourism. Iceland’s economy shrank by 9.3% in the second quarter of 2020. Few countries rely on tourism as much as Iceland does. The drop in tourism, which accounted for 8% of Iceland’s economy in 2019, took its toll: Iceland forecast that the country’s gross domestic product (GDP) would contract by 8.4% in 2020.

The impact of the pandemic had only a trivial effect on the economies of the other four Nordic countries. They were able to mitigate and cushion the adverse effects. Many other European countries where tourism contribute significant revenue, felt the brunt of the pandemic on their economies.

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Benedict Lopez was director of the Malaysian Investment Development Authority in Stockholm and economics counsellor at the Malaysian embassy there in 2010-2014. He covered all five Nordic countries in the course of his work. A pragmatic optimist and now an Aliran member, he believes Malaysia can provide its people with the same benefits and privileges found in the Nordic countries - not a far-fetched dream but one that he hopes will be realised in his lifetime
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