Nordic model in the face of the pandemic, and its applicability on Singapore
Tu Weizhi, Research Executive
What is Nordic model
Nordic model is the economic model adopted across the Scandinavian countries (Norway, Sweden, Finland, Iceland and Denmark). The model brings Scandinavia society not only high standards of living, but also a small income gap, which achieves a unique balance of the seemingly impossible dichotomy of free market capitalism and inclusive welfare benefits.
There are differences on the interpretation of the model among Nordic countries due to different domestic contexts. For example, while peninsular Nordic countries (Finland, Sweden and Norway) are featured by social corporatism with consensual political practices, Iceland is much more rife with labour market conflict and strained government–union relationship. In principle, the Nordic model relies on relatively high taxation, partly supported by a high level of society’s trust in the government, who effectively uses the tax to fund large scale social programmes such as universal healthcare, free education and generous unemployment benefits. (Saunes, 2022) These transparent and effective social institutions have also been cited by the 2024 Nobel Economics laureates to be the key reason for the growth and prosperity of Scandinavia. (Acemoglu, 2012)
Nordic model performance during and after the pandemic
Figure 1. Performance of selected countries in the pandemic (Nordic countries are in bold font)
Figure 2. GDP indexed to Q4 2019 base, of EU and Nordic countries.
Figure 3. Employment rate of EU and Nordic countries.
Nordic countries had been resilient during the pandemic. Denmark and Sweden demonstrated a quick rebound in GDP, surpassing the Q4 2019 pre-pandemic baseline earlier than the EU average. From Q1 2021 onwards, the Nordic countries also consistently maintained a higher GDP index compared to the EU27, showcasing that their economic structures and policy responses allowed them to navigate the pandemic's economic challenges more effectively than the broader EU. (Figure 2) Regarding the job market, Nordic countries only experienced a modest decline of employment rates of an average 2%, while their overall employment rates stayed consistently higher than the EU average. (Figure 3)
As the pandemic unfolded in the early 2020, Nordic governments swiftly introduced economic stimulus packages to counteract the looming recession. For example, in Sweden, the government handed generous financial subsidies to companies to enable workers to reduce working times by 20–80% while receiving usual wages. In Norway, if firms reduced office time by at least 40%, the government will help compensate wages up to kr 50,000 for the first 20 days. These financial supports were quickly raised to cover 62–80% of the normal worker wage. In Finland, the government worked with trade unions to introduce more flexible furlough schemes and labour laws so that a wider range of affected workers could be covered for supportive labour policies (Nils, 2022). Moreover, tax credits and delayed tax payment were available to help companies to muddle through the uncertain periods. In Denmark, the government rolled out compensation schemes for firms’ fixed expenditure and for self-employed workers who might have experienced a critical decline in turnover. These measures not only protected people from financial hardship but also helped stabilise the economy by maintaining consumer confidence and spending. The purchasing power in the Nordic region is one of the highest in the whole world and the regional disposable income is about 20% higher than the European Union average. The Nordic region also has the highest consumer spend per capita in the entire EU even during the pandemic, 78% higher than the average of all EU countries. (Calmfors, 2024) These macroeconomic parameters were at relatively stable levels consistently throughout the pandemic, showing the inner resilience of the Nordic model despite unforeseen disruptions.
Relevance to Singapore
There have always been discussions about whether Singapore could adopt the Nordic model to achieve both the high economic growth rate and more inclusive social welfare (Civil Service College, 2007). More recently, the Straits Times published an article arguing for significant differences between Singapore and the Scandinavian countries which might act against a smooth local adoption of the Nordic model (Liew, 2016).
However, the Nordic model is a large basket of economic and social theories. Despite an unlikely full-scale adoption of the model, there are still many common grounds between Singapore and the Nordic countries which can make the application of certain Nordic ideas possible and desirable in Singapore’s context.
Firstly, the Nordic countries had been successful in dealing with the economic shock of the pandemic and its aftermath by strong fiscal support to the nation. Systematic support packages ensured that households were able to maintain their confidence and normal level of spending, which in turn kept the entire economy prevailing during the uncertain pandemic. (Pedersen, 2003) Singapore adopted a similarly proactive approach by introducing four unprecedented budgets in the first half of 2020, namely Unity (S$6.4 billion), Resilience (S$48.4 billion), Solidarity (S$5.1 billion) and Fortitude (S$33 billion) Budgets (Lim, 2020). These were aimed at providing broad-based support to local businesses and stabilising household incomes (Yan & Bhaskaran, 2024). By reducing financial uncertainty and preserving employment, these measures helped to sustain a resilient marginal propensity to consume (MPC) in the society as workers were willing and able to spend on usual goods and services rather than hoarding savings out of fear. This active spending cycle contributed to demand-led growth and prevented a collapse in economic activity during the pandemic. Building on the fiscal efforts, Singapore could further enhance its resilience by easing labour legislation and strengthening collaboration with trade unions similar to Nordic practices. On the one hand, Singapore could streamline processes for temporary wage adjustments or job redeployment, allowing employers to retain workers flexibly while managing costs. These flexible labor regulations would act as automatic stabilisers during economic downturns and also help maintain consumption levels in recessions (Tan & Bhaskaran, 2015). On the other hand, trade unions could be empowered to offer more targeted support to individual workers and build tripartite trust among governments, employers and union members. By reducing structural rigidities such as excessive labor regulations, Singapore’s economy can achieve higher productivity and more resilient growth which are key factors in sustaining long-term prosperity.
Secondly, Nordic countries had tapped on technology to make their economy more resilient against external disruptions such as the Covid-19 pandemic. By heavily investing in education and innovation, the Nordic countries have a highly educated population and a strong culture of innovation and entrepreneurship (OECD, 2023). These have upgraded the economic structure across sectors, improving both the quality and strength of the economy. This model not only serves as a blueprint but as validation that smaller economies can still achieve disproportionate global influence through strategic technology adoption and innovation. Hence, Singapore has also pursued to build a similar knowledge-based economy which emphasises education, technology and innovation to drive growth through the improvements in total factor productivity (Yue, 2001). As Singapore has an inherently limited population and natural resource stock, it strategically relied on technology to overcome the physical restraints and significantly improve efficiency and global competitiveness (Sidhu, 2015). By enhancing the nation’s long-term economic capacity and resilience, the strategy indeed helped Singapore fight and reemerge from the pandemic. For example, Singapore is a regional leader in Fintech and it has made exceptional progress in fields such as cashless payment and digital banking which are overhauling the financial traditions in this uncertain post-pandemic world (Mittal & Koh, 2023). Another example would be the emphasis on upskilling programmes such as SkillsFuture to better equip the population with capabilities to build and support the knowledge-based economy.
Finally, for other key ideas in the Nordic model such as high tax rates, Singapore might not have the capacity to implement them due to the unique island-state context. Nordic countries fund their broad-based social welfare system by both the resource endowments and generally high tax rates, whereas Singapore predominantly relies on global trade and foreign investment as it lacks both natural resources and domestic market. Hence, Singapore has to build an open economy and keep appealing to global companies for investment which rules out the use of high tax rates or overly flexible labour law. On the other hand, Singapore has a much smaller population which makes it easier for the government to build an inclusive socioeconomic system that covers the demographic majority.
In conclusion, the Nordic model has been highly successful in balancing both economic growth and inclusive social benefits, even in the pandemic. The model itself requires certain social philosophies and a strong national finance as its foundation, which many countries may not find achievable. Singapore can draw important lessons from the model in regard to dealing with the labour market in crisis and structurally building a more resilient economy, and it has already made headway in building an educated and innovative society. By better balancing the economic and social needs, Singapore can eventually achieve the ultimate goal of the Nordic model, that is to attain sustainable economic growth and let it benefit every individual in the economy.
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