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'Flexicurity': A Hybrid Anglo-Saxon/European model, by way of Uppsala?

by marco Tue Nov 29th, 2005 at 05:14:40 PM EST

from the front page, with small edits

This column in the French left-leaning daily, Le Monde, discusses a hybrid "strong-state/strong-market" Scandinavian model that has supposedly emerged in the 1990s in response to the forces of globalization, and which has preserved and revitalized the economy of Sweden (and apparently Denmark), without sacrificing that country's legendary public service system.

The details of this "model" are somewhat sparse and vague (indeed, enumerated expeditiously in a single paragraph), and I have no idea if Sweden has indeed prospered as a result, as the article claims.

But the idea is intriguing, and I would be curious in learning more about its implementation, and the potential effectiveness of its application in other larger countries.  (Particularly interesting is the second objection to this model cited in the piece, that of a common "esprit civique" deeply rooted on the national level, and therefore hard if not impossible to transfer to more multicultural countries.  The description of this cultural factor reminded me immediately of Japan, which also has such a strong, deeply rooted "house in common" cultural outlook.)

The translation into English below is my own, and therefore no doubt riddled with errors and hard to understand transliterations.  I am open to corrections and revisions (especially on points where I provided the original French in brackets.)

Follow the Swedish Model?, by Eric Le Boucher

The mid-sized city of Uppsala, to the northwest of Stockholm, had gambled everything on this project: renovate the university, expand the biology curriculum, finance research laboratories, and give the Pharmacia group every reason to be happy to keep its headquarters there.  Drawn by the cutting edge biotech industry, the city's future seeemed assured.  But in July 2002, disaster struck:  Pharmacia was bought by the American company Pfizer for $56 billion, and jobs at headquarters and in the laboratories were quickly moved to the U.S., leaving dismay in their wake.

"We turned this catastrophe into an opportunity," explained Thomas Östros, the Swedish minister of industry and commerce and representative of Uppsala, during his trip to Paris this week.  "Pharmacia was gone, not the students."  And it was up to the city to help in the creation of biotechnology start-ups.  Eventually, seven small to mid-sized businesses survived, then flourished.  Today Uppsala has more jobs in the industry than when Pharmacia was the sole employer.

In the beginning of the 1990s, Sweden had the same problems as other countries, says Stéphane Boujnah ("Notes on The Stainless Swedish Model", En temps réel, December 2002).  Star companies (Volvo, Saab, Pharmacia, Stora) were passing into the hands of foreigners.  Small and mid-sized companies suffered.  Unemployment grew at a brutal pace from 2% to 10%.  The quality of education and healthcare deteriorated, as black market jobs appeared, inequalities increased, and brain-drain became a concern.  The Social Democratic Party saw its dominance threatened for the first time in 60 years.

The government then decided to initiate a series of vast reforms.  The administration was completely restructured around 13 ministries and 300 agencies.  Stock ownership [le capital] of these was made public or mixed [mixte], as was the case with the postal service and telecommunications.  Certain functions were completely privatized.  The ministries had their staffs cut and were limited to high-level political mediation roles.  At the same time, the government decided to increase loans for research and development to more than 4% of GDP (the EU average being 2.5%) and to cover the country with high-bandwidth network.  The government also created private schools for parents to choose among [donne le choix aux parents].  A supplementary stock-based retirement plan [une retraite complémentaire par capitalisation] was introduced and pensions were tied to the country's economic performance.

This "renewal strategy", sums up Thomas Östros, is composed of three components: (1) an openness to competition and the forces of change; (2) a massive drive to support innovation, universities, and research; and (3) a state that remains strong, but that has been completely retailored [adapté].

Today, Sweden has "American-style" growth, with the unemployment rate back at 5%, as well as a balanced budget.  Rather than causing a drop in the quality of public services, the reforms were actually the basis for their revitalization.

The great achievement of this country -- as, incidentally, that of Denmark -- was to find a way to preserve broad security for individuals while providing the economy with a necessary flexibility: whence the neologism, "flexicurity".  According to economist André Sapir, the Scandinavian model is the only one in Europe that is both just and efficient (in an column on October 23-24).  According to him, the Anglo-Saxon model is efficient, but inequitable; the Franco-German model is equitable, but not efficient (too expensive); and the Latin model is both inefficient and inequitable.  Thus, the [French] choice must be to slide either towards the Anglo-Saxon or towards the Nordic approach.

Is it possible to copy Sweden?  Two objections are raised.  The first points to the small size of that country of 9 million people, as to the size of the Scandinavian countries in general, where the spirit of the "house in common" is very deeply rooted.  In particuliar, 80% of salaried employees belong to the single centralized Swedish Trade Union Confederation (Landsorganisationen i Sverige, LO) [syndiqués auprès de l'unique centrale, LO], which is largely consensus-based [habitée par une volonté de consensus].  Let us recall that in France, unions are divided in a race for ever higher bids, and represent only 8% of salaried employees.

The other objection is one of frame of mind.  According to economist Pierre Cahuc, Scandinavia is permeated with a powerful "civic spirit" that renders its model untransferable to a country like France.  "Civic attitudes are built on a national level and are deeply rooted regardless of what changes may occur in the economic environment."

"It's neither a question of size, nor of morale," retorts the Swedish minister, "but one of model" -- that is, of a coordinated strategy of structural reforms.  The key is not to change mentalities, but to propose "lots of State and lots of free market, both together [beaucoup d'Etat et beaucoup de marché, les deux ensemble]."

"France and Sweden are very close," he adds, "a strong state, the same industrial structure.  We have demonstrated that we can fight and preserve many industries in our country.  And create many jobs in related services."

And Thomas Östros doesn't understand why France, closed in on itself, fears globalization and opening up [Et Thomas Östros de ne vraiment pas comprendre pourquoi la France, renfermée sur elle-même, craint la mondialisation et l'ouverture.]

Thank you for bringing this to my attention!

A quick Google search found :

The Website for Tilburg University's Flexicurity Research Programme "Flexicurity: A New Paradigm for Labour Market and Employment Regulation?" can be found here

A paper by Dr. Ute Klammer, "On the path towards the concept of "flexicurity" in Europe" in pdf can be found here.  I found this paper very enlightening.

The European Trade Union Institute has funded a research project whose web page can be found here.
I quote from that web page for comment:

Flexibility seems not only to be the monopoly of employers since employees and their representatives also show a need for a more flexible organisation of work in order to meet employees' individual preferences and circumstances, e.g. in combining work and private duties and responsibilities on a life-long basis.

The concept is interesting but I also see some issues - to put it mildly.

Skepticism is the first step on the road to truth. -- Denis Diderot

by ATinNM on Sat Nov 26th, 2005 at 11:49:10 PM EST
The concept has been made very popular recently by André Sapir's study:

Globalisation and the Reform of European Social Models (pdf) - Background document for the presentation at ECOFIN Informal Meeting in Manchester, 9 September 2005

As described elsewhere, it identifies 4 models, based on whether they are efficient (Scandinavian, Anglo) or not (Rhineland, Meditteranean) and fair (Scandinavian, Rhineland) or not (Anglo, Mediterranean). The study itself cleary makes the Mediterranean model the worst, and the Scandinavian the best, with the other two in between, with different political choices.

The study has been grabbed by various parties, mostly in the business press, and you can now read the "definitive" proof that the Anglo model is better than the Rhineland one as it is supposedly more efficient.

Efficient being the only criteria of our times, Anglo and Scandinavian economies are thus both symbols that "reform" (i.e. cheaper labor) is what's needed everywhere.

Eric Le Boucher often falls for that trap. He alternates between insightful columns, bringing to France much needed economic literacy, and simple regurgitation of the "efficiency" talking points that show France in economic hell.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sun Nov 27th, 2005 at 04:54:15 AM EST
[ Parent ]
OK. I actually read the linked paper, in Jerome's post above. It isn't the most intellectually shoddy paper I've ever read but it's right up there.  I note definitions of "efficiency" and "equality" would be helpful and the Table on page 4 is an excellent example of a 'Gee-Whiz Graph.'

Skepticism is the first step on the road to truth. -- Denis Diderot
by ATinNM on Sun Nov 27th, 2005 at 01:24:47 PM EST
[ Parent ]
"Flexisecurity" is more hype than anything else. Not because the Scandivanian countries are not economically successful (they undeniably are, and spectacularly so), but that their success is supposedly yet another example of free markets at work.

Let's look at the alleged differences between the Nordic countries and other models:

Government Spending and Taxes?

                                      Gov't     Social Security
                  Revenues    Spending      Transfers

Scandinavia      57%         53%            17%
Rhineland         47%         49%            17%
Anglo               38%         38%            11%

Source OECD (2004)

Labor Market Regulation?

Employment Protection Index              

                    1960s 1970s 1980s 1998

Mediterranean     98     93     98     77      
Rhineland           35     66     71     59  
Scandinavian      61     66     71     51
Anglo                 16     21     21     21

As I have said before, there's not a whole lot of difference between the Rhineland and Scandinavia on these measures - much closer to each other than they are to the "Anglo" economies.

That makes intuitive sense, since the Rhineland and Scandinavian models have much in common - powerful labor movements, institutions of social partnership that give labor and the public a much stronger voice in economic policy making and in how firms are run compared to the "Anglo" world (where shareholder value rules all), and generous welfare states.

But Scandinavia is undeniably successful, so that model has to be stuffed into a neoliberal box, no matter how ill-fitting, when it should be seen as a direct refutation of neoliberal orthodoxy.

by TGeraghty on Sun Nov 27th, 2005 at 12:36:14 AM EST
Why do the Nordic countries have high growth and low unemployment while France and Germany don't?  There must be some explanation.
by tyronen on Thu Dec 1st, 2005 at 05:25:16 PM EST
[ Parent ]
One might also look at the Finnish model - similarly devoted to high R&D spending both by business and the State.

Per capita, Finland is one of the leading (if not the leader) globally in all the folowing areas:

Business expenditure on R&D %GDP 2.46
Scale of cluster development 5.3 (scale 1-7)
Government R&D apppropriations %GDP 1.01
Knowledge transfer between companies and universities 7.31 (scale 1-8)
High tech patent application to European Patent offices (per million pop) 120.2
Private Equity investment %GDP  0,30

You can't be me, I'm taken

by Sven Triloqvist on Sun Nov 27th, 2005 at 04:24:34 AM EST
I was going to bring up Finland as well, as an example of how one wildly successful company in a small country can boost all sorts of statistics.

No bonus points for guessing the name of that company, but it does not a social model on its own. In the early 90s, I remember reading how Finland was paying for its intermediate model between the West's capitalism and Soviet "socialism" that it had supposedly copid for a good part - and the loss of trade with Russia in the chaos of the early 90s did have a huge negative impact on the country - again a example of how a single factor can impact a small economy.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sun Nov 27th, 2005 at 04:40:25 AM EST
[ Parent ]
While it is true that one company has enormous influence on the Finnish economy, that influence is not necessarily direct. Nokia has moved a lot of manufacturing stuff abroad. What it has created in Finland is an enormous amount of know-how now spread out amongst thousands of small companies (as a top Nokia guy told me once "All we have is brains and trees")

That know-how has rapidly filtered thru other large companies in different areas of 'hi-tech'. Konecranes eg is a global leader in lifting technologies and the largest servicer of cranes globally. Former sister company Kone lifts (elevators) has introduced new technology. I could give a long list of companies large and small that have prospered in Nokia's wake, but are now completely independent of Nokia fortunes.

I put VTT (the Technical Research Center of Finland) as the seed of all these developments - including Nokia. Talk to senior people there and you realise that they are deciding how mobile networks are going to look in 10 years time. They are way ahead of the game. They have huge budgets and the very top people. And it is not just IT technology - it's building, nano, foods, safety etc etc


You can't be me, I'm taken

by Sven Triloqvist on Sun Nov 27th, 2005 at 05:49:30 AM EST
[ Parent ]
None of the Nordic countries suffered the social fragmentation brought about by the Industrial Revolution - in fact most of them, except for Sweden, never had an Industrial Revolution - they stepped straight from the Agrarian to the Information Age.

Neither should one forget the deep psychological historical effect of winter. If you didn't prepare for winter, you died. Food and energy had to be stored or preserved. The elements also had tp be respected.

Though this may seem trite, I believe that this 'looking, planning ahead' and respect for nature are essential ingredients in the Nordic psyche leading to the attributes described in this diary.

You can't be me, I'm taken

by Sven Triloqvist on Sun Nov 27th, 2005 at 06:05:36 AM EST
Though this may seem trite, I believe that this 'looking, planning ahead' and respect for nature are essential ingredients in the Nordic psyche leading to the attributes described in this diary.

Interesting point.  I keep going back and forth on the relative importance of climate and geography on the formation of culture, and in turn the relative importance of culture on economic performance.  But what you write certainly jiibes with what many Japanese seem to claim about how the lack of natural resources and habitable terrain in their own country "selected for" a cultural ethic that put a premium on making the most of scarce resources, extremely low tolerance for error, and "looking, planning ahead", as you put it.

Point n'est besoin d'espérer pour entreprendre, ni de réussir pour persévérer. - Charles le Téméraire

by marco on Sun Nov 27th, 2005 at 07:53:14 AM EST
[ Parent ]
There clearly must be a genetic component if the original ethnic population is fairly 'pure'.

But the cultural component is much more powerful. It is not, as people seem to think, the passing on of information from one generation to another in 'folk memory', as it were. It is that cultural tendencies, over time, become deeply embedded in all aspects of the culture - in education, work ethic, politics, belief and value systems etc. In other words it 'infects' the entire social organization.

That kind of deep effect is very very slow to change, and influences the context of individuals who may lose or reject the folk memory of their family.

Even as an Englishman (living here 35 years) in Finland, I am also affected by this cultural context, though the values I came here with were hardly in tune with it.

You can't be me, I'm taken

by Sven Triloqvist on Sun Nov 27th, 2005 at 08:27:51 AM EST
[ Parent ]
one has only to look at nearby Russia, "blessed" with endless supplies of pretty much all kinds of natural resources, and never able to jump out of their poverty.

There is a form of responsibility which comes from the requirement to run a tight ship - the important item being the notion of "ship", i.e. self-contained, with no outside savior to help you if you run out of resources. If you are dependent on outside resources (as Japan and much or Europe for energy) you need to have something of value to provide in return, and that certainly makes you a lot more serious about working enough and well.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sun Nov 27th, 2005 at 09:33:00 AM EST
[ Parent ]
If you havn't, you may want to read Guns, Germs and Steel by Jared Diamond
by David in Burbank on Sun Nov 27th, 2005 at 10:14:16 AM EST
[ Parent ]
As it happens, I do think it can be oversimplistic to suggest that Sweden's model can be transferred to France or Germany (or elsewhere) without adjustments to take account of differing conditions (e.g. population size, cultural history, etc.).

Of course, the problem is that many of the people who would agree with me on this point would agree with my next one:

By the same logic, extreme caution must be exercised in attempting to apply the US model to any other economy. After all, which other country contains the same size of both population and geography. (Don't even get me started on the history angle.)

by Metatone (metatone [a|t] gmail (dot) com) on Sun Nov 27th, 2005 at 11:42:44 AM EST
I always thought of it as solidly establishment and centrist.
by citizen k (sansracine yahoo.fr) on Sun Nov 27th, 2005 at 08:53:48 PM EST
can an economist comment on this post on Brussels' journal: http://www.brusselsjournal.com/node/510 which seems to tear apart the Bruegel report (but I don't really trust it).

Via instapundit.

by koenzel (koen@vanschie.net) on Mon Nov 28th, 2005 at 04:39:31 AM EST
For starters, unlike most countries its GDP is much higher than its GNP, because so much of its production is foreign-owned and repatriated abroad.  Irish politicians brag about GDP when running for re-election but use the lower GNP when asking for EU subsidies.

Second, Ireland has also outperformed the USA and the UK, two other countries favored by neoliberals.  So there is something else, specific to it, that is at play here.  The UK and US have not outperformed Scandinavia, and in the Bush era the US has underperformed Canada, the UK, and Scandinavia.

by tyronen on Thu Dec 1st, 2005 at 05:31:59 PM EST
[ Parent ]
Is China in the same situation regarding the GDP and GNP?

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Thu Dec 1st, 2005 at 05:57:23 PM EST
[ Parent ]

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