Nordic Model Survives The Storm

Jón Baldvin Hannibalsson

What are the prospects for the Nordic-Baltic region (5+3) in a decidedly unstable international environment?

The situation is radically different from what it looked like in the late 1980s and 90s. It is mostly due to external forces, which are in a flux, rather than due to any outstanding internal failures.

When I became personally involved in that period, trying to garner support for the restoration of independence of the Baltic States, most of us retained a healthy dose of optimism for the future. The grounds for our optimism have turned out to be illusionary.

Revanchist Russia

I presumed that post-Soviet Russia would somehow become a democracy of a sort. Despite the traumatic transition from a centralized, étatist economy to a market-driven one, we hoped that some sort of democratic governance would gradually gain hold. This would include an independent judiciary, free media – the rule of law. As a consequence we hoped that Russia could become a „normal“ country: a country that could cooperate with her neighbours, rather than being a threat to their sovereignty.

All those hopes have come to naught. Russia under Putin and his power-clique has reverted to her deep-rooted authoritarianism. Russia is not a democratic country, but a plutocratic state. Instead of free media, the state orchestrates its propaganda through submissive media. The judiciary is strictly beholden to the all-powerful state.

Although economically weak the government has channeled a disproportionate share of its limited resources to a military build-up. Dreams of empire are back. The privatization process á la Russe turned out to be the Theft of the Century, in the words of the impressive Canadian foreign minister, Chrystia Freeland. Foreign policy is revanchist. The aim is to restore the imperial „sphere of influence“. Russia is not going to tolerate Ukraine as a genuinely sovereign state. The holders of power in the Kremlin know that without Ukraine Russia will be unable to restore her empire. And the Baltic countries will remain under steady pressure. The preponderance of the Russian ethnic minorities in Latvia and Estonia makes direct interference in their domestic affairs a continuous threat.

So far the oligarchs have defied Western sanctions. The political will of Western leaders to maintain harsh sanctions in the long-term is questionable.

America the unpredictable

Since the Second World War and all through the Cold War, the United States guaranteed Europe´s security through NATO. This basic premise of Western security is now being questioned by none other than the US President himself. No-one could have foreseen this in the 1990s. If the Trump phenomenon comes to remain more than a temporary lapse into insanity, it is nothing short of an epoque-making rupture in international relations. The current occupant of the White House is a corrupt businessman who feels more at home in the companyof Russian oligarchs or Arab oil-magnates than in the councils of democratically elected leaders. Admittedly, policy statements from the President vary from day-to-day, and even by the hour; one day NATO is obsolete, but not the other. So, unpredictability is the order of the day.

But at least Trump has consistently refused to confirm US unflinching support for article 5 – the collective security guarantee of the Western alliance. This not only strengthens the hand of the Kremlin in the current power game in eastern Europe; if allowed to stand, it simply forces the EU’s leaders to reconsider the basic premises of European security. Not a small order, by any standard. Does this not affect the traditional policy of neutrality and non-alliance pursued by Sweden and Finland? Will Baltic and Eastern European leaders be forced to insist on activating a common European defence and security policy in response?

Eurozone sclerosis

In the early 1990s leaders of the newly independent countries in Central and Eastern Europe were united across the political spectrum in seeking membership of the EU and NATO. The primary concern was security within the framework of the Euro-Atlantic alliance. NATO was there for hard security. The EU was there for long-term prosperity. Now, both those basic premises are being questioned: NATO, because the basic US-security guarantee is being withheld, without the EU responding in any way; and the EU because of its failure to deal decisively with the consequences of the post-2008 financial crisis.

Instead of being a step forward in the European integration process, EMU (European Monetary Union) has turned out to be a force for disintegration. The crisis revealed major structural flaws in the monetary union, which have not been amended (see my views here) Austerity policy, imposed by Germany upon the weaker member states, has turned out to be an unmitigated disaster. The victims of this ill-conceived policy have suffered a lost decade of economic stagnation and social disruption.

The sad economic performance of the peripheral eurozone countries compares unfavorably with the quick and resounding recovery of Iceland, which suffered a devastating crisis, but rejected EU-type austerity policies in favour of fiscal stimulus, with resounding success. The miserable performance of the eurozone countries and their disruptive social consequences has undermined confidence in the EU’s future, both within member states and among those outside. In the case of Iceland, overwhelming support for EU membership immediately after the crisis has completely evaporated in light of the failure of the current EU leadership in handling the crisis.

This triple menace of Russian revanchism, American opportunism and Eurozone disintegration tendencies, does not bode well for the future prospects of the Nordic-Baltic region.

The Nordic Model: Still standing tall

Given this, it may sound paradoxical but the Nordic model is still standing tall. That is even an understatement. It is the only socio-economic model emerging from the ideological conflicts of the last century, which has stood the test of time in the age of globalization. Soviet-type communism has been wiped off the surface of the earth – relegated to the dustbin of history. And unbridled capitalism – or market fundamentalism of the neo-liberal variety – has only been saved from complete bankruptcy through a massive rescue operation by the arch-enemy – The State. And it may be only serving time.

The global financial mechanism, run for the benefit of „maximizing shareholder value“, continues to usurp the real economy and concentrate wealth and income in the coffers of a tiny elite. This system is inherently corrupt and utterly unsustainable. The massive eradication of jobs due to the ongoing technological revolution of automation will ultimately make this financial rentier-system unworkable. Underneath the surface deep-rooted social discontent is gathering strength, waiting to erupt, although the manifestations of it are still diverse and incoherent. But we are waiting for the gathering storm.

Amidst those reverse surroundings, the Nordic model has turned out to be surprisingly resilient. The Economist, a staunch advocate of market liberalism for more than a century, couldn´t hide its envy. On almost every criterion of socio-economic success, the Nordic countries come out top of the class. This is surprising because the neo-liberal critique of high taxes making those countries uncompetitive and ultimately technological laggards, devoid of the entrepreneurial spirit, had gained much credence. But here we are: Economic growth, hourly productivity, technological innovation, participation in the labour market (specially by women), quality of education, social mobility, quality health care, equality of income, affordable housing for all, access to unspoiled nature – a vibrant democracy; you name it, they´ve got it.

This outstanding performance disqualifies the neo-liberal critique in one swoop

Why is this solid performance not being emulated by others? Why do our friends across the Baltic Sea not look to the Nordic model to counteract the polarizing effects of their market-fundamentalist policies? Why do the countries of Southern or Eastern Europe, suffering from the devastation of German-imposed austerity, not look to Copenhagen or Stockholm for advice on how to combat systemic unemployment and increasing polarization between rich and poor? Notwithstanding the success or failure of the social democratic parties in the Nordic countries, this is where social democracy works. In the rest of Europe, it does not. Why?

The Western Nordics: Victims of Climate change?

Nordic-cooperation – if you include the West-Nordics – encompasses a huge area. Greenland is on a continental scale of its own and the northern seas are vast. But the populations are tiny and what is holding us together may be tenuous. Are there any cultural ties between Greenlanders and Icelanders? If so, they are not immediately visible. Is Iceland – still the preserve of our ancient, common Viking-language – a shareholder in the common Nordic model? Having been turned into a laboratory for neo-liberal experiments – with disastrous consequences – Iceland is still reeling from that experience.

In spite of our speedy recovery from the 2008 financial crash, the restoration is based on the same precarious foundation, with the underlying problems unsolved. Our welfare state is in tatters and our physical infrastructure has proven to be wholly inadequate to sustain the tourist boom. Continuing with the experiment of the smallest independent currency area in the world is simply too risky for comfort. The business class has turned out to be surprisingly corrupt, hiding their wealth in tax havens to avoid paying their fair share. Not exactly an advert for a Nordic welfare state.

In the next few decades the fundamental effect of climate change will put the precarious ties holding us together to a severe test. The melting of the ice will not only make the rich mineral resources accessible to the world, but also open up the northern sea routes for heavy traffic between the rising Pacific powers and the Atlantic seaboard. Will the tiny population of Greenland be able to assert control over the multinationals, awash in cash, queueing up to exploit their natural resources? Will Iceland be turned into a transportation hub – a new Rotterdam in the High North – for heavy cargo, shipped from the „new workshop of the world“ – China and South-East Asia – on its way to America and Europe? Follow the money. Will this gradually lead to the undue influence of China (and perhaps Russia) in this hitherto Nordic region?

And what about the European Union?

None of the countries involved – Greenland, Iceland, the Faroe Islands and Norway – are EU members. Given the EU´s inability so far to solve its inherent crisis, none of those countries is likely to apply for membership any time soon. That means the EU does not even have a seat at the table in the Arctic Council, except through Swedish or Finnish representatives. And what about the security dimension in the High North? The US closed down its naval presence in Iceland in 2006, on the premise that Russia had become a partner for peace.

China is already an active participant in arctic councils – investing heavily in scientific research in the area. The Middle Kingdom is historically known for its long-term thinking. So, everything is in a flux.

Norway and Iceland (along with Lichtenstein) still maintain what is left of EFTA (European Free Trade Association).They manage their relationship with the EU on the basis of the EEA-agreement from 1994. Both are rich and resource-based economies. That explains why Norway has twice rejected EU membership o; it is also the main explanation why Iceland is unlikely to renew its application any time soon.

The EEA-agreement provides those two countries with full access to the EU single market – without saddling them with the disadvantages of the common fisheries policy (an unmitigated disaster) – or European monetary policy (EMU), which is structurally flawed, at German insistence. This means those two countries are under no pressure to seek other arrangements with the EU, in spite of the sovereignty infringement involved, i.e. they receive the rules and laws governing the single market by email.

The Brexit-Flop and the Future

With British politics out of control – after Mrs May´s failed bid to strengthen her hand in the post-Brexit negotiations with the EU, the EEA-agreement has once again been presented as the ultimate safety valve, safeguarding the UK´s massive trading interests vis-a-vis the EU. Were this to be, it indicates how utterly the Westminster government has lost its grip on the course of events after Brexit. And it means a total reversal of declared policy. Immediately after Brexit, the UK government rejected EFTA-membership, since its sovereignty deficit would be wholy unacceptable for a major country like Great Britain. Also, it would involve continued British contribution to the EU budget, as well as accepting free movement of people and foreign jurisdiction (the EFTA-court).

It is a measure of how dismally the British Tories have handled the Brexit affair if they end up with no alternative but EFTA. On the other hand, EFTA membership and access to the single market through the EEA, would make perfect sense for an independent Scotland, were the UK to break up into its constituent parts after Brexit. This is not as far-fetched a possibility as it may seem for the time being. Scotland, after all, voted against leaving the EU, and the Scottish government is insisting on Scotland´s right to maintain access to the single market. This, indeed, could become the interesting outcome of one of the greatest political flops of recent history – namely Brexit.

So, what is the future of Nordic cooperation?

The resilience of the Nordic model points to its strength. The tenuous ties, linking the West-Nordics to heartland Scandinavia in a foreseeable sea of change, point to its weakness. The internal division between the hardcore eurozone members on the one hand and the reluctant members and the outsiders on the other, seems to exclude the possibility of common pathways for the future. The dominance of external forces – Russian revanchist policies, the unpredictability of US opportunism, and the unresolved debacle of the Eurozone crisis – all point to a future of uncertainty, in which the security dimension presents the greatest risk.

The author was leader of the Icelandic Social-Democratic Party (1984-96), Minister of Finance and Minister for Foreign Affairs and External Trade (1987-95). He was politically responsible for Iceland during the EEA-negotiations (1989-94). He is an honorary citizen of Vilnius in recognition of his active support for the restoration of independence of the Baltic countries (1988-91).