The economies of Scandinavian countries, like Norway, Denmark, Sweden, Finland, and Iceland, have become a trending, and sometimes controversial, topic in recent years, especially in relation to democratic socialism. What is democratic socialism and why it is controversial?
Democratic socialism—a hybrid of capitalism and socialism—describes a particular governing model. The term “The Nordic Model” refers to the specific form of democratic socialism practiced in Scandinavian countries like Norway, Denmark, Sweden, Finland, and Iceland.
Some look at these countries’ political and economic systems and see a solution for the alleged weakness of capitalism. Yet others refer to the alleged weaknesses of the Nordic model as reasons why capitalism is superior.
Studies show that Scandinavian countries are the happiest in the world. Is this true? See Why Are Scandinavian Countries So Happy? to learn more.
While democratic socialism is controversial, it should not be confused with pure socialism. Social democracy is controversial to some who cite, for example, higher taxes and large government, as cause for concern. Others advocate for the so-called Nordic Model citing, for example, affordable healthcare and free education.
The article below is an introduction to the issues. The information is intended to inform, not persuade; to educate, not indoctrinate. It the assumption of the article that there are intelligent people on both sides of the discussion and perhaps many more in between who just want to learn more about it.
Is Scandinavia socialist?
Just the word “socialism” can ignite fierce debate, not just on economics, but on a variety of social and public policy issues. When socialism is discussed — even hybrid models of it — online, on television, on radio talk shows, or elsewhere, it is not uncommon to hear fiery culture-war debates about numerous topics not directly related to economics.
Some are for socialism and its hybrids: One side, in defense of socialism, or socialism-like economic models, touts affordable health care; free, high-quality education; and other government programs that are intended to raise the quality of life for citizens. (Several social welfare programs are described below.)
Some are against socialism and its hybrids: Others who criticize socialism, as well as hybrid models that implement the ideology to a lesser degrees, warn about relatively high taxes, relinquishing individual freedoms to large governments, and the inefficiency of government, or other controlling bodies, to make wise decisions in the stewardship of substantial amounts of money.
The flags of Norway, Denmark, Sweden, and other Scandinavian countries have similarities and differences. See the Flags of Scandinavia to learn more.
What is the definition of socialism?
Even though Scandinavian countries don’t make use of socialism in its purest form, but rather a combination of capitalism and socialism, it is still helpful to understand what socialism itself means.
The three definitions of “socialism” below will help the reader understand the basic concepts behind the ideology.
|Socialism is “a political and economic theory of social organization which advocates that the means of production, distribution, and exchange should be owned or regulated by the community as a whole” |
|Socialism is “any of various economic and political theories advocating collective or governmental ownership and administration of the means of production and distribution of goods” |
|Socialism refers to “the set of beliefs that states that all people are equal and should share equally in a country’s money, or the political systems based on these beliefs.” |
Within each definition is a statement about:
- (1) the nature of socialism: it’s a theory or belief about what is best economically for a society
- (2) who owns and distributes benefits: the government or regulatory body
- (3) who receives the welfare: the people.
While markets are free and private enterprise thrives in countries like Norway, Denmark, Sweden, Finland, and Iceland, the social welfare programs they fund and operate exhibit characteristics of socialism.
This capitalism-socialism hybrid approach, as its applied in Scandinavian nations, is referred to as the Nordic Model.
Ever heard of Hygge? Is it as great as people say? Can anyone practice it? See the article, Hygge: What is it? Why is it so popular? for more.
What is the Nordic Model?
The Nordic Model is a combination of economic and social welfare systems that Scandinavian countries have adopted.
The system combines elements of capitalism, like a free-market economy, with social programs, such as state-sponsored pensions, which reflect socialist policies.  As opposed to a “pure” form of socialism, the Nordic Model is considered democratic socialism. 
Lane Kenworthy, sociology and political science professor at the University of Arizona, described the Nordic Model as a system in which free markets are the driving force governing economic activity.
At the same time, the government administers a variety of programs to aid economic opportunity and security, as well as shared prosperity for all. 
The former Danish Prime Minister, Lars Løkke Rasmussen, discussed the Nordic Model while at Harvard University’s Kennedy School of Government in 2015. “The Nordic model is an expanded welfare state which provides a high level of security for its citizens,” he stated.
Continuing, he distinguished the system from pure socialism, concluding that “it is also a successful market economy with much freedom to pursue your dreams and live your life as you wish.” 
Questions about social democracy in Scandinavia
Based on the definitions of socialism above, it’s important to understand the Nordic Model in comparison to pure socialism. Three questions will provide some basic clarification:
1. Do the governments of Scandinavian countries own the means of production or distribution of goods in their respective countries?
The governments of nations, like Norway, Denmark, Sweden, Finland, and Iceland, do not own the means of production or the distribution of goods.
It is true that the role that these Scandinavian governments play in production and distribution is different than in other countries in the western world — and people may disagree about the morality and efficiency of that — but “ownership” does not accurately describe their involvement.
2. Are there privately owned companies in Scandinavia?
Privately owned companies are found throughout Scandinavian countries. They provide goods and services for people, like in capitalist societies.
Governments make use of the strategic ownership of certain entities, yet they will also establish policies intended to help private business to succeed.
3. What is the basic nature of the labor pool?
The nature of the labor pool, which a term that describes the workforce in a particular country, is different than it is some other western nations. 
The degree to which a government operates, controls, regulates, or is otherwise involved with their labor pool, is an important aspect of any economic system.
In the Nordic Model, federal governments support individuals that make up the labor pool. Through collective bargaining by means of a representative body, like a union, workers are paid relatively high wages and receive benefits like educational opportunities.
There is no “minimum wage” under the Nordic Model, as the term is understood in western capitalist societies. 
Instead, unions negotiate pay for workers that can depend on a variety of factors, for example, the nature of a particular industry. Each industry has a pay scale, which include higher and lower tiers.
Each Scandinavian country has unique representative bodies, so the nature of labor in each nation is not exactly the same as the others.
Are taxes higher in the Nordic Model?
The cost to Scandinavian governments to operate the Nordic Model is significant and taxes provide the income to sustain it. Relative to other societies in the western world, the income tax rate of Scandinavian countries is higher than average.
Highest tax rates with average salaries in 2019
|Country||Rate ||Average |
It’s important to keep in mind that the table above compares income tax rates and does not take into account the amount of money an individual or family does not spend on services that the government provides, such as healthcare and education.
Privatization in Scandinavian countries
A second general aspect of socialism, according to the basic definitions above, relates to government ownership or control.
In the Nordic Model, citizens of Scandinavian countries can personally possess property. In other words, property is privatized in nations such as Norway, Denmark, Sweden, Finland, and Iceland. Federal law, in fact, guarantees it, which is a moral and practical pillar of their economic system. 
Similarly, the savings accounts of Scandinavians are fully private and free of government control. Nordic-Model economies depend on this basic right to uphold their pervasive social welfare programs.
Privately-owned businesses, both small and large, generate tax revenue for the federal government, which fund the social welfare programs for their citizens.
Other privatized sectors
In addition to the privately-owned businesses, there are many sectors in Scandinavian nations that are privatized, which are conventionally state-run elsewhere in the western world.
Examples include, but are not limited to, telecommunications, electricity generation and distribution, and even the management of some forests. This illustrates the centrality of private enterprise in the Nordic Model.
Still, while private ownership is abundant in Scandinavia, the federal government bears significant responsibility to steward the income it receives from relatively high taxes. It’s important to know about the social welfare program it funds to understand the economic system in its entirety.
Social Welfare Programs in Scandinavia
Just as the characteristics of capitalism are evident in private enterprise, the characteristics of socialism are evident in its welfare programs.
Social welfare programs refer to government-offered benefits that give people access to a variety of services and opportunities. The examples below will help illustrate the nature of the system as a whole.
Example 1: Health care
The Nordic Model of healthcare has three pillars, which provide the foundation, as well as the aim, for the system in its entirety:
- Pillar #1: primary access
- Pillar #2: treatment
- Pillar #3: preventative healthcare. 
Publicly funded healthcare systems, across all five Nordic counties, cover the entire population. Additionally, the system guarantees access to quality healthcare using publicly owned and operated hospitals and clinics.
Each Scandinavian country ranks among the best on numerous healthcare statistics when compared to other nations, and consistently receive high ratings from the World Health Organization.
The Nordic healthcare system is dependent upon taxation, and, in turn, every citizen has equal access to medical services. However, all Nordic countries require a co-payment from patients for hospital care and pharmaceuticals.
Despite a high degree of overlap in healthcare systems among Scandinavian countries, there are differences among them. For example, Denmark and Finland are making explicit moves to improve hospital efficiency and to decrease waiting times in their respective countries.
But what is the cost?
Federal and local tax revenues typically cover about 75 to 85 percent of patient healthcare costs in Nordic countries. However, there are co-payment costs for patients for services like hospitalization.
Additionally, there are cost-sharing payments required to cover prescription medications. Such payments are capped at levels affordable to most. Similarly, co-pays are waived for low-income individuals and persons suffering from certain chronic conditions.
Dental services are free for children, but expensive for adults. However, private insurance is available for dental care, non-acute hospital care, and elective procedures.
Although healthcare costs have risen in Nordic countries in recent years, the overall cost has been stable for the past decade.  The economic burden related to Gross Domestic Product (GDP) ranges from 8.5 percent in Iceland on the low-end to 10.9 percent in Sweden at the top of the spectrum.
This cost is average for the Organisation for Economic Co-operation and Development, but it is about 40 percent less than costs in the United States.
Healthcare Administration in Nordic Countries
The basic structure of the Nordic healthcare model has remained virtually unchanged for decades. Patients select primary care physicians, subject to availability, and these doctors operate as gatekeepers to hospital care and specialized services. Emergency services are hospital-based with a variety of available “on-call” systems providing rapid access as needed.
Local or regional governments typically administer hospitals, and university teaching facilities are partially controlled at the federal level.
Recent healthcare management reforms have allowed private companies to manage and service hospitals on a limited basis, particularly in Sweden.
There is no cost associated with becoming a healthcare professional or physician as higher education is provided free of charge to all students throughout the Nordic region.
General practitioners contract their services with local health service organizations as self-employed professionals. Contractual terms and salaries are typically coordinated using collective agreements negotiated between unions and professional associations.
Physicians are usually paid using a combination of “capitation “payments and fees for specific services. The term, capitation, refers to a fixed rate assessed per patient in time units paid in advance for the delivery of healthcare services.
Example #2: Pension Systems
A variety of pension systems are available to workers worldwide with varying levels of quality. A recent study uncovered a correlation between available pension-asset levels and net household debt.
Published by Monash University’s Centre for Financial Studies, the Melbourne Mercer Global Pension Index (MMGPI) examined the pension systems of 37 countries around the world and made recommendations regarding how they could improve. 
For example, a common challenge global pension systems were recommended to address included increasing the average eligible retirement age due to the rise in life expectancy.
Scandinavian countries ranked in the top-ten listing of countries with the best pension systems.
- Denmark ranked second globally
- Finland ranked fourth
- Sweden ranked fifth
- Norway ranked sixth
- Iceland, which does have a pension system, was not examined
For the sake of comparison, The Netherlands ranked first, Canada ranked ninth, and the United States ranked sixteenth.
The Wealth Effect
The MMGPI was first the international report of its kind to document a modern phenomenon called the “wealth effect,” which is a tendency to increase an individual’s debt with rising income, and its relationship to pension assets.
The study suggests that as an individual’s pension assets increase, that person becomes more likely to borrow money to improve current and future living standards.
Dr. David Know, the author of the study, noted that as an individual’s wealth increased, so to did their comfort level with amassing debt. “The evidence suggests on a global basis, for every extra dollar a person has in pension assets, their net household debt rises by just under 50 cents,” Dr. Knox stated. 
Example #3: Paid parental leave
While parental leave after child birth is a common benefit in private enterprise elsewhere in the western world, in the Nordic Model its offered by the government. In Sweden, for example, regarding leaven of absence, both parents are entitled to 480 days, or 16 months, of paid time off.
Parents that adopt children also receive this benefit. Families with twins may receive even more days off. During their leave, each parent may receive up to 80% of their salary. The leave may also be taken any time before the child’s 8th birthday.
Parental leave in other countries is not as generous. For example, of the world’s 196 countries, the only ones that don’t have a federally mandated policy giving new mothers paid leave in the United States and Papua New Guinea.
Business Insider recently profiled 10 countries with the best-paid parental leave programs, and all 5 Nordic countries made the list. Below is a summary of each country’s system. 
Broken down by country, the residents enjoy the following general benefits:
- Denmark: Parents in Denmark have a combined total of 52 weeks with maternity sustenance allowance. However, full payment is not always provided for the full 52 weeks. 
- Finland: Family leave is set to increase from the current level of 12.7 months to about 14 months in the next two years, as per a recent announcement by the Finnish Ministry of Social Affairs and Health. 
- Iceland: Iceland updated its parental leave system effective for any birth after January 1, 2020. Under the new system, parents have 12 months of parental leave. Each parent receives five months under the new system, and they can decide how to split the remaining two months. 
- Norway: Norway has one of the most flexible and generous paternity leave systems in the world. Mothers can take up to 49 weeks of parental leave at full pay or 59 weeks leave at 80 percent of their salary.
- Sweden: Sweden is another country with a generous parental leave program that promotes time off for fathers. Parents in Sweden are entitled to a sum total of 480 days leave at about 80 percent of their usual pay 
A side note on child care: In the Nordic Model, childcare is often either subsidized or free, depending on the parent’s income level. As a result, there is a large percentage of women in the work force relative to other countries.
Additionally, two-income families are common in Scandinavia and the government, in turn, receives greater tax revenue from such households.
The benefit to businesses: Government-supplied benefits also assist private industry because companies operate without the overhead costs related to child care and parental leave, among the many other programs the government provides.
New businesses are especially helped because their start-up budget can focus on spending directly related to items such as development and marketing.
Example #4: Education in Scandinavia
The education programs in Scandinavia are numerous and generous. For example, Sweden adopted a free nationwide voucher program for education, starting in 1992.
The system was part of a series of educational reforms designed to give more local control to towns and schools over the existing educational system.
In practice, families have the option to select any school, public, or private through university. This system allows families to use public funds in the form of vouchers to pay for their child’s education.
A recent study conducted by the IZA Institute of Labor Economics found that the expansion of private educational facilities and competition created by Sweden’s free-market reforms improved “average educational performance” through junior high and “in the long run in terms of high school grades [and] university attendance.” 
Additionally, the study determined that a “higher share” of private school students did not generate “increased school expenditures.” Accordingly, the study concluded that the program’s “positive educational performance effects” were “interpretable as positive effects of school productivity.”
Economic Freedom in Scandinavia
According to conventional wisdom, socialist countries should perform poorly in regards to their level of economic freedom. However, Scandinavian countries score similarly in the rankings.
The Heritage Foundation publishes an annual global ranking of countries called the Index of Economic Freedom.  The index assesses “12 freedoms – from property rights to financial freedom – in 186 countries.”
In turn, the Heritage Foundation groups those 12 freedoms into four categories or pillars:
- Rule of Law: government integrity, judicial effectiveness, and property rights;
- Government Size: fiscal health, government spending, and tax burden;
- Regulatory Efficiency: business freedom, labor freedom, and monetary freedom
- Open Markets: financial freedom, investment freedom, and trade freedom.
The Heritage Foundation grades each of those 12 freedoms on a scale from 0 to 100. Next, the Foundation averages those scores to derive a total score with “equal weight” given to each freedom.
Then, the index ranks countries using five categories:
- Free: with a score of 100 to 80;
- Mostly Free: 79.9 to 70;
- Moderately Free: 69.9 to 60;
- Mostly Free: 59.9 to 50;
- Repressed: 49.9 to 0.
Singapore heads up the list with an economic freedom score of 89.4 out of a possible 100, closely followed by Hong Kong with a score of 89.1.
Reviewing this year’s list, you can see that Scandinavian countries rank similar to the United States of America.
For the sake of comparison, Singapore is first with a score of 89.4, Hong Kong is second with a score of 89.1, and New Zealand is third with a score of 84.1. The bottom three countries are Cuba with a score of 26.9, Venezuela with a score of 25.2, and North Korea with a score of 4.2.
Did Social Democracy Create Scandinavia’s Economic Success?
American business magazine Forbes recently reported that Scandinavian countries gained economic success long before they turned to social democracy. 
Consequently, that economic success generated high levels of income for workers, which provided the opportunity for governments to raise their taxes to pay for their eventual welfare states.
In a genuine sense, it wasn’t the government administration of the economy that created wealth and improved quality of life.
Instead, the economic success of the Scandinavian countries provided the basis for increased taxation, which provides the “luxury of such generous government programs” enjoyed by Scandinavian citizens today.
Research suggests that the success of Scandinavian socialism is due to cultural factors and not economic ones. Economic experts like Swedish author Nima Sanandaji wrote of the period leading up to the development of the welfare state in Scandinavia.
Sanandaji, a researcher at the Centre for Policy Studies in London, wrote that beginning in the 19th century, the Scandinavian countries “created vast amounts of wealth, founded new firms and industries, and generated societies with high degrees of social trust and moral responsibility.”
Continuing, Sanandaji wrote that the “Nordic experiments in welfare statism” would have turned out quite differently, were it not for the earlier development of “wealth” and “social orders.” 
Pure Socialism in Scandinavia
As discussed above, Scandinavian countries are aligned with social democracy instead of pure socialism. However, socialism is represented in all three of the Scandinavian governments. 
For example, Denmark’s Socialist People Party received 7.7-percent of the vote in 2019. During the 2017 elections, Norway’s’ Socialist Left Party got 6-percent of the vote. And in 2018, Sweden’s Left Party, which endorses socialism, received 8-percent of the vote.
Additionally, in 2019, Finland’s Left Alliance garnered 7-percent of the vote.