Europe, Denmark, Finland, Iceland, Norway, Sweden, Opinion, Politics

The Nordic Model Explained: Happy Countries Pay more Taxes?

Year after year, the UN’s Sustainable Development Solutions Network releases the World Happiness Report. It’s basically a measure of happiness based on interviews and surveys all over the world about economics, laws, religions, education, food, health, shelter and other topics that, together, compose what we understand under well-being. Surprisingly, there are a few nations that seem to excel here, mainly those under the Nordic Model and the Scandinavian Model.

This report has been publishing since 2012, and counts the expertise of psychologists, lawyers, economists, and other professionals, to make sure their findings are the closest to the people’s true happiness.

In the top 10 of the happiest countries in the world we can, repeatedly, find Scandinavian countries. Norway and Denmark usually occupy places 1 and 2 respectively, closely followed by Sweden. However, high taxes and wealth inequality are remarkable in those countries. How exactly can these people be the happiest in the world under these conditions? The answer has a lot to do with the Nordic Model and the Scandinavian Model.

But before explaining each of them lets make one thing clear. The list of Scandinavian countries consists of Norway, Denmark, and Sweden while the list of Nordic countries includes Iceland, Finland, Greenland and the Scandinavian countries. The difference is that Scandinavia is a peninsula while the Nordic countries are recognized as states.

What is the Nordic Model?

Also called Nordic Social Democracy, the Nordic Model is a group of social and economic policies that combine free-market capitalism, a welfare state, and collective bargaining. Even though each Nordic country has its own social and economic models, they all share some common traits, like private ownership, free markets, and free trade.

The Nordic Model implies free education and universal healthcare, public pensions, economic openness, almost no product market regulation, financial transparency, partnerships between employers, the government and trade unions and, among other things, high tax burdens.

Let’s stop here, how come people with low or medium incomes while paying high tax rates are this happy?

Since the Nordic Model takes care of education, pensions, and health, a 28% tax rate is not that terrible, since you have all your basic needs covered. And that’s precisely what the World Happiness Report shows. Nordic people have a long life expectancy, they feel they have someone to count on, they don’t perceive their government as corrupted and they feel free to make important life decisions regarding economic issues.

The Nordics understand that this social and economic model is expensive for the State, but they are not willing to lose the advantages, that’s why the higher taxes compared to other European countries do not affect them that much.

What is the Scandinavian Model?

Even though Scandinavian countries are also Nordic, Denmark, Norway, and Sweden’s socialist model are based only on economic factors.

They do spend a lot protecting the unemployed, paying 80% of minimum salary during the first 200 days, and working towards to stop depending on oil sales, rewarding enterprises with ecological sensibility. Scandinavian countries don’t really spend much more on social expenses than what they annually get from their GDP.

Of course, both the Scandinavian Model and the Nordic Model have been highly criticised. Some economists claim that it’s wrong for the Government to depend so much on high taxes and that the way they divide the country’s richness is not actually equitable.

Others accuse both models of being way too interventionist and idealistic since we are talking about small countries (less than 5 million people); the same economic ideas wouldn’t be sustainable in bigger countries, and certainly, the high taxes would not be perceived the same way.

Whether these economists are right about the Nordic Model and Scandinavian Model being utopian, the truth is, their people rank in the top 10 of the Worlds Happiest Report. The models may not fully work in bigger countries, but it works for them and, let’s face it, creating positive social spaces where people feel safe and connected to each other settles the ground for better living conditions.

Unhappiness derives from earning a lot of money that, inevitably, has to be spent on private schools, insurances, and clinics, because the public ones do not work as expected, which is not the case for these Nordic countries, Maybe we need to start reconsidering the importance of people’s perception.

About Daniela D. Franco

Daniela is a Social Psychologist from Venezuela, she is interested in the changes technology and the development of social networks generate into human interactions, and is currently studying Digital Marketing. She enjoys reading, writing and biking while David Bowie is playing in her iPod.

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