How Norway Dispels the Private vs Public Sector Myth


David Sloan Wilson interviews Sigrun Aasland in Evonomics:

DSW: Thanks for this background—very helpful. Now let’s dive in. I first met you at a talk I gave at BI, Norway’s largest business school. My talk was titled “The Competitive Advantage of Cooperation” and you were present as a commentator. I was struck by how you described the Norwegian economy as a complex adaptive system with interlocking parts. Could you please repeat that succinct description?

SA: I would love to. My main point – well illustrated recently by the Economistand others, is that the Nordic model makes sense economically. It is not just about justice and equality. It is also – and more importantly – about using all the talent, using all the technology possible and changing all the time. That means high productivity.

The so-called Nordic model can be illustrated as a triangle consisting of three interlocking factors: First: a strong tax-funded welfare state providing education, healthcare and social safety nets. Second, an open market economy with active monetary and fiscal policies to ensure stability, distribution, and full employment. And third, strong collaboration in an organized labor market with coordinated wage formation and company-level collaboration.

Now this model has demonstrated the ability to combine relatively high taxes with high productivity. Productivity growth has fallen less in Norway than in many other countries. There are a number of reasons for this.

A collectively bargained and compressed salary structure means that low-skilled labor is relatively expensive while high-skilled labor is relatively cheap. Since high-skilled labor complements technology while low-skilled labor substitutes technology, three things happen. First, employers invest in technology to replace the expensive low-skilled workers. They also choose high skilled over low-skilled workers since the cost differential is small. Second, unless highly productive, the same employers cannot afford to keep workers and have to let them go. This ensures adaptability within companies but also among companies. Adapt or die.

More here.