Pitfalls of excessive welfare in Nordic model

As a citizen of Finland, I read with great interest the commentary by Associate Professor Nitin Pangarkar ("The misguided pursuit to be like North Europe"; Wednesday).

I had mixed feelings about his conclusion.

While I would like to be proud of my country and the Nordic model, the Nordic countries will face serious challenges with the dynamics of growth and the funding of excessive welfare systems.

Finland got rich on paper and mobile phones. Nokia was a mighty success, but it made people think that the state of Finland was also a winning model. The economy delivered large tax revenues that made politicians promise new welfare benefits.

That was a mistake.

Nokia collapsed and the nation lost its competitiveness, but the need for benefits funding remained. Finnish public deficit soared and debt increases by billions of euros a year. The gross domestic product has hardly grown since 2012.

It is sad that there is no big idea to get Finland back on track and there is an increasing risk that it will become a failed state.

The main reasons are fat public benefits discouraging work, heavy regulation which makes new business difficult, high taxes, inflexibility of the labour market and dysfunctional democracy.

Employers struggle to hire workers, while blue-collar workers in Helsinki openly say there is no reason to work because they get almost the same standard of living by doing nothing.

The politicians try to adjust the benefits, but there will always be noisy and aggressive interest groups, backed by trade unions, which the politicians do not dare to challenge.

Of course, not everything is wrong in the Nordic countries.

The Swedes perform better than the Finns because they adjusted their generous welfare state and made structural reforms towards a more competitive economy. Unemployment benefits were cut and the tax burden was reduced.

The Nordic countries are a late-20th century success story. But the crash looms when the finances drain away.

The case of Finland shows that when the state gives too much protection and benefits to the people, these principally good things can turn bad for them.

There is not much to recommend from the Nordic lessons to Singapore.

Instead, the only way I can see to stop Finland from going belly-up is for it to study and take steps towards the Singapore model, which is winning.

Olli Muurainen

A version of this article appeared in the print edition of The Straits Times on March 26, 2016, with the headline 'Pitfalls of excessive welfare in Nordic model'. Print Edition | Subscribe