Learning from Northern Lights

Northern Lights: The Positive Policy Example of Sweden, Finland, Denmark and Norway by Professor Andrew Scott from Deakin’s School of Humanities and Social Sciences is the product of many years spent analysing Scandinavia’s social and economic success. Professor Scott was interviewed by Dr Tim Thornton from the School of Politics and Philosophy, La Trobe University.

By Dr Tim Thornton
Thursday, October 29, 2015

Tim Thornton: It's sometimes struck me that Australia is Sweden's underperforming twin sibling. Do you think there is any basis to that?

Andrew Scott: There is some basis for that comparison because both countries like to perceive themselves as being egalitarian. This perception reflects the reality within Nordic nations. It is a perception that is still somewhat true in Australia, in which the ethos of egalitarianism remains stronger than in other English-speaking countries. However, we are underperforming on some vital measures, and going backwards in others.  For example, we are underperforming in reducing inequality and we've never been as strong as the Nordic nations in gender equality. Indeed, our egalitarianism has been a blokey male-dominated egalitarianism. Nonetheless, Australia is still very well placed to learn from Scandinavia’s success. 

Tim Thornton: What do you think the Scandinavian countries tell us about the conventional wisdom that there is a trade-off between a more dynamic and efficient economy and a more equal and fair society? 

Andrew Scott: Well, equality and efficiency are not opposites. That's one of their key messages: the Nordic countries are very efficient places. Rationalise is one of their favourite words to describe the things that they do, but they don't rationalise in a cold, clinical, very narrowly measured way as the term ‘economic rationalism’ has been used in Australia. They use their rational powers of thought to identify and pursue niches that allow their societies to prosper in the global economy. In particular, they understand that to compete internationally, they must co-operatively innovate at home. It is all about building high-skill, high-wage employment and productivity in particular promising niches.

Tim Thornton: I think it's significant that you use the phrase ‘cooperatively innovate’ as this contrasts with a policy paradigm in Australia that stresses competition and self-interest. 

Andrew Scott: Yes, I think there is a different mind set. 

Tim Thornton: How is it that Sweden and the other Scandinavian countries have been able to maintain a globally competitive manufacturing sector in a way that Australia has not?

Andrew Scott: It's a result of the characteristics we have just discussed: the rational identification of niches, working cooperatively and creating egalitarian institutions in the wider society. It’s been particularly important to focus on precision manufacturing that countries such as China are not able to do. Building and maintaining a reputation for quality and innovation is also crucial. The other issue is to do with intent and mindset: these countries don't see manufacturing as an old sector to be forsaken and left behind. They see it as something that must be an essential part of their nations’ export future, providing labour intensive, high skill, high wage jobs.

Tim Thornton: How would you describe the difference between the Australian and Scandinavian union movements, Sweden’s in particular?

Andrew Scott: Well, the first difference of course is that the Nordic nations' unions still represent more than two-thirds of the workforce, and that's higher than just about anywhere else; certainly much higher than what Australia has become. Why is this? it's hard to say what's cause and what's effect in the decline of Australian union membership and of Australian egalitarianism.

Because unions still have a strong institutional base in the Nordic nations, they don't need to be affiliated to the equivalent of the Labor Party - the Swedish Social Democratic Party. Many of their members do participate in both union and party, but the unions choose not to formally affiliate to the party in the way the Australian unions do.

Tim Thornton: Turning now to issues of child poverty, why does a country like Sweden do much better than Australia in protecting the wellbeing of children?

Andrew Scott: Well, it comes back to the fact that first of all there's strong public investment in early childhood education and care. Early childhood education and care is an integrated concept. It acts on what developmental psychologists have been telling us for decades: a profound amount of learning goes on in the early years. So, there's quality public early childhood education and care in the Nordic nations which is affordable because it's publicly provided through their tax and services arrangements. This public investment then pays profound social and economic dividends.

People enter childhood education from the age of three. This is of course after parents have their extensive paid parental leave, during which time they bond with their children and they spend that crucial first 18 months or so with their child, at home. They can then return to the workforce confident in the knowledge that placing their child in early childhood education and care is both affordable and is good for the child's development.

Tim Thornton: In what ways is Finland's school system different to ours here in Australia?

Andrew Scott: Well, the first thing is private schools aren't allowed to charge fees there. By contrast, Australia is a country where private schools are more entrenched than most countries. It is unusual to have private schools on the scale we do in Australia but also it's particularly unusual for them to receive such a significant level of government funding.

Of course the Gonski Report is an attempt to rebalance funding towards need and therefore towards public sector schools and it notices and draws upon Finland's achievements in excellence which come out of its equitable approach.

Tim Thornton: What do you feel that Denmark can teach us about the way they organise their employment relations and training?

Andrew Scott: First of all by insuring against unemployment as part of the life cycle. We insure against retirement in the form of superannuation. We insure against illness in the form of health insurance, sick leave and so on. We insure against old age in the form of pension provision. We need to insure against unemployment by contributions to a central fund which can enable a replacement wage for those affected by job loss. Such funding can allow unemployed people to adjust and re-skill rather than lose hope and disappear from the workforce.

Tim Thornton: Let's turn now to how we might learn to better manage our natural resources. Norway is a country that's similar to Australia in that it has a heavy endowment of natural resources. How have they chosen to manage this?

Andrew Scott: They've certainly managed it in a different way to Australia, and also to many other countries. We can see this in how they have managed North Sea oil reserves. 

These North-Sea reserves are divided along territorial principles with Britain. Whereas the British took the proceeds from North Sea oil and handed it out in tax cuts to well-off people who did not need them, particularly in the Thatcher years, Norway ensured the proceeds from the natural resources belonging to it were taxed in a way that benefited the revenue of the nation. This revenue was then put in a sovereign wealth fund which supports free university education and other social and economic objectives. 

It’s important to note that companies do accept significant taxation of their extraction of natural resources.  When some  threatened to leave Norway if the tax wasn't lowered, Norway stood firm and those companies — and they now include large multinationals like BP and Exxon – quickly relented. They are there today, both continuing to make substantial profits, and pay substantial taxation.

Norway’s sovereign wealth fund not only underpins stable revenue for social investment, it helps the nation’s currency. The fund’s money is invested overseas, so resources booms don't have a distorting effect on other sectors of the economy – something that occurred during the recent mining boom where a rising Australian dollar damaged the export competitiveness of all Australia’s other export industries.  

A sovereign wealth fund for Australia has such promise that it has already attracted a range of diverse high-profile supporters such as Malcolm Turnbull and the former CEO of the Commonwealth Bank of Australia David Murray.