Illuminating outline

Source: Financial times
By Richard Milne , Andrew Ward

Idar Kreutzer, head of the Nordic region's biggest life assurer, was in New York recently when a senior executive of a large US bank invited him in for a quick chat. It soon extended into a two-hour discussion of the Nordic business model and corporate diversity.

“It surprises me, the interest and the curiosity in the Nordic model,” says Mr Kreutzer, chief executive of Norway's Storebrand. The model of capitalism practised in Sweden, Norway, Denmark and Finland is seen by some as one of the few winners of the current economic and financial crisis. From its response to a previous banking crisis to its promotion of women in the boardroom, the Nordic model is piquing interest around the world in the same way as the Japanese style of capitalism did in the 1980s or the Germans' in the 1960s.

Just as those systems faced challenges after their time in the limelight, so does the Nordic model. There are doubts, too, about how easy it would be to export it to other parts of the world. But the recent appointment of Ericsson's Carl-Henric Svanberg as chairman of BP, joining two other Nordic heads of big UK companies, demonstrates the growing respect for Nordic capitalism and its leaders.

Another of those chairmen, Jorma Ollila, who in his positions at Royal Dutch Shell and Nokia counts as one of the Nordic region's most prominent businessmen, says the model offers a possible way forward for a global system seeking to reform itself. “What is the future of capitalism? In one way or other the answer is to solve these issues that the Nordic model does well,” he says. “The Nordic model has a good bid” to be the best system.

Debate abounds as to what exactly the Nordic model stands for. But Mr Ollila points to the analysis of a group of academics from across the region who wrote a book called The Nordic Model. They argue that an openness to globalisation combined with strong social protection and egalitarianism defines the region's capitalism.
Francis Sejersted, a Norwegian historian and former chair of the country's Nobel prize committee, talks about “democratic capitalism”, meaning a high degree of equality and participation in political and corporate decision-making.

Matti Alahuhta, chief executive of Finland's other big company – Kone, the lift manufacturer – says the lack of a large domestic market makes Nordic openness to globalisation a necessity. “Finland is a very small country. The size of the market is very small so it is not very difficult to realise we have to expand abroad.”
Kone itself has embraced growth in markets such as Asia and the US in much the same way as Nokia did in mobile phones in the past 15 years. Other groups across the region have become world leaders, from SKF in bearings to Husqvarna in chainsaws.

But Nordic countries are also well aware of the negative side of globalisation and take measures to alleviate that. Mr Kreutzer refers to “the personal safety net”, explaining:

“There is a need to carry individuals who are hurt by things that are good for companies or society.” He points to workers in the paper and pulp sectors who saw their factories closed but were able to transfer to newer technologies.

Underlying this is a deep sense of egalitarianism, especially in the education system.

Mr Ollila points to the absence of social class as a factor, unlike in the UK and elsewhere:

“Everybody can get a good education no matter what your background is. It is not who you are but what you can contribute.”

It also extends to the boardroom, where Norway – thanks to a law that fixes a quota for women – has the highest level of female directorships in the world, with Sweden, Finland and Denmark all scoring relatively well too.

But this deeply held egalitarianism also makes the Nordic model difficult to export. Mr Alahuhta explains how hard it was in places such as the UK, in which Kone expanded in the 1990s, to persuade employees to embrace the non-hierarchical ways of Nordic companies. “Egalitarianism is very important to us. This culture is the glue that holds Kone together,” he says.

Executive pay reflects the same tendency. Many Nordic companies pay senior executives well below the international average, out of concern that the wage gap between the highest and lowest earners does not grow too large. Anne Breiby, a non-executive director of several Norwegian companies, says: “In most Nordic countries there are small wage gaps. People go to the same schools. There are no real class distinctions.”

Swedish managers – the best paid in the region – earn just one-third of what their German counterparts receive while Norwegian executives, who receive the lowest salaries, typically earn just NKr3m ($480,000, £290,000, €340,000) to NKr4m, according to consultants.

The lack of hierarchy in companies extends right to the top. Mr Kreutzer explains how his workers “just pop up and knock on my door”. He carries on: “They feel responsible for the company. And I want to put myself in situations where I receive the unpolished truth.”

Worker participation in the strategy of companies is an important factor. Employees sit on the boards of many Nordic companies thanks to a heavy trade union presence. But executives say the relationship has matured in recent years, allowing companies to make big restructurings with the co-operation of workers. Jorgen Buhl Rasmussen, chief executive of Carlsberg, the Danish brewer, says: “I think there's a better understanding on both sides today: it's less about conflict. It's quite easy to add people in good times but also to adjust downwards in tougher times.”

If demand were down 30 per cent at a company, executives and employees would discuss whether to cut the same percentage of jobs or make 60 per cent work half-time, says Ms Breiby by way of example. She adds: “There are really grown-up discussions between management and workers. They solve the problem together.”

Pontus Braunerhjelm, economics professor at Sweden's Royal Institute of Technology, says the success of Nordic companies suggests their informal management style provides a competitive advantage. But as groups such as Nokia and Ericsson have expanded across the globe, not everyone has found the Nordic way to their liking. “People from other cultures sometimes find it a little imprecise in terms of who is taking responsibility, what is the order, what is the objective?” he says.

Some critics question whether Nordic capitalism is quite as unique as its boosters claim and point out that the region has been retreating from some of the characteristics that set it apart. “Nordic businesses are not that different from those in other parts of Europe,” says Fredrick Erixon, director of the European Centre for International Political Economy, a free-market think-tank based in Stockholm and Brussels. “They are driven by the same forces as everywhere else.”

Indeed, far from exporting their model to the rest of the world, some Nordic countries are trying to overhaul their economies and import elements of the Anglo-Saxon system. In Sweden, for example, a centre-right government has been in power since 2006 with a mandate to reduce the country's tax burden – one of the highest in Europe – and make the labour market more flexible.

The region has also historically relied on big companies and has been poor at generating smaller entrepreneurial businesses – a weakness in generating employment
The generous social welfare net that underpins Nordic capitalism is meanwhile facing increasing pressure from an ageing population and the cultural homogeneity that makes the consensus-based system possible is being unsettled by increasing immigration. “There are certain weaknesses in the Nordic model and they are being ‘stress-tested' by globalisation,” says Prof Braunerhjelm.

Economic data show that Nordic countries have so far fared little better, and in some cases worse, than the US and UK during the current downturn. Nordic manufacturers have cut jobs as aggressively as rivals elsewhere, driving unemployment to more than 9 per cent in Sweden and Finland. Economists forecast that Sweden's economy will have contracted by 6 per cent from a year earlier when the country releases second-quarter data tomorrow, similar to the 5.6 per cent drop revealed for the UK last week.

But while the region has not been insulated from the crisis, Nordic countries have a record of bouncing back strongly from economic turmoil. Sweden has been held up as a role model for its successful response to a regional financial crisis in the early 1990s, with a mixture of enforced recapitalisations and nationalisation.

That success has been undermined somewhat by a fresh barrage of bad loans facing Swedish banks that lent heavily to the troubled Baltic countries. But Mr Ollila says there are still lessons from how Nordic countries tackled their 1990s crisis. Politicians did not resort to protectionism and took bold decisions: Sweden and Finland applied for European Union membership in the middle of that downturn.

Mr Ollila says he hopes policymakers today will also take the unselfish approach: “It would be very much on my wish-list for Europe. You don't look at how good you are yourself but you look at the world as a whole.”

This open approach may have much to commend it in the current crisis. But while it may be interesting for foreigners such as the US banker to look at the Nordic model, it appears difficult to emulate it. One leading Nordic businessman says the region's capitalism is not exportable as it is so rooted in the traditions of all the countries: “You are talking about small, egalitarian countries with good education systems. That hardly applies anywhere else in the world. So you can admire it but replicating it is very tricky.”