A Nordic Mirror: Why Structural Reform Has Proceeded Faster in Scandinavia Than in Japan

Katz, Richard

Like Japan, the countries of Scandinavia went through big macroeconomics crises brought on by structural flaws. The difference is that their recoveries came more quickly and have been far more robust. Once again, the Scandinavian economies are treated as models. We argue that three factors shed light on the difference between Japanese and Scandinavian performance: 1) Policies. We focus mainly on the strategy of "flexicurity" that provides society-wide security for workers, in return for which workers grant flexibility to business. Jobs are lost but income is sustained and a new job is found. This reduces pressure to sustain inefficient firms and industries. 2) Institutions. Centralized labor-management bargaining enhances equality, creative destruction, and responsibility. Both labor and management realize that wage hikes must be contained within the level commensurate with productivity growth and international competitiveness. Equality of wages across industries enhances market flexibility. Needed policy shifts are made easier by the fact that Scandinavia has moved from one-party dominance to contested elections. 3) Attitudes. Attitudes are born of long experience with both policies and institutions, and these attitudes, in turn, reinforce those policies and institutions. Trust is the key attitude. Workers trust they will get security if they give flexibility. Employers organized into a centralized federation treat adult training as a "public good" from which they will eventually benefit even if the particular worker that they train leaves after a few years. Voters accept harsh budget measures at a time of crisis because they trust it will be done fairly and is necessary to preserve the system.

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Academic Units
Center on Japanese Economy and Business
Center on Japanese Economy and Business, Graduate School of Business, Columbia University
Center on Japanese Economy and Business Working Papers, 265
Published Here
February 14, 2011