The once so flourishing Nordic model that has served its people well for many decades is facing increasing challenges, such as a decreasing economic complexity, lack of investment in the future and an aging population. In order for the region not to miss out on economic opportunities and to secure a bright and prosperous future, the Nordic model needs to be revised and tweaked, concludes BCG.
The Boston Consulting Group (BCG) recently released a new report into the economies of the Nordics (Denmark, Finland, Norway and Sweden): ‘Nordic Agenda: Transforming for the Next Wave of Success’. The report shows that although the Nordics have been flourishing in the past few decades, their much admired Nordic model is starting to show cracks. In its report, the consulting firm highlights several major challenges the Nordics are facing, and states that, as a result of these challenges, the four countries must transform in order to secure future prosperity. An overview of the main challenges:
Economic complexity is decreasing
As small open economies that rely highly on trade to create wealth, the uniqueness and diversity of the Nordics exports have declined by nearly a quarter in the past 20 years as the emerging economies are caching up. Comparing the Nordic economies with the rest of the world, all except Finland are exporting less to high-growth markets compared to their key competitor group average, and all are average or less than average when it comes to their complexity.
Not enough future investment
The Nordics have some of the highest levels of government spending relative to GDP in the developed world, but they spend far less on forward-looking investment than their key competitors. All four countries score considerably lower on the ratio of forward-to backward-looking expenditures compared to the average.
Another big challenge is the aging population in the Nordics. BCG’s research shows that by 2030, the workforce gap will reach 2 million*. It is estimated that, by 2030, there will be on average 92 dependents for every 100 workers to support in the Nordics. This will seriously limit the Nordics' ability to create wealth and threaten the sustainability of their current welfare model.
Other challenges mentioned in the report are the declining momentum of Nordic productivity as a result of shift from manufacturing to services, the fading competitive advantages and increasing competitive disadvantages, stagnancy in hours worked, and lack of labour immigration and foreign talent.
Transformation of the Nordic model will unleash enormous potential to create wealth and well-being for the Nordic people. According to BCG, Denmark and Finland have the potential to add 1.5 to 2 percentage points to their annual GDP growth while Norway and Sweden have the potential to increase their annual GDP growth by 1 to 1.5 percentage points. Lars Fæste, Senior Partner and Global Lead for Transformation at BCG, comments: “We need to transform the Nordic model in order to protect its core and secure the competitiveness of our nations. We owe ourselves and the future generations this effort. The potential benefit of transformation is enormous. We are confident that our transformation agenda, if implemented, will enable the Nordics to create the next wave of success.”
* See the article 'Labour mismatch risks 10 trillion of unrealised GDP' for more details.