The idea that Norway should copy Sweden’s innovation, business, or tax policies to improve its ranking and drive economic growth is flawed
Nordic countries may seem socially and culturally similar. But economically, they are very different and should't be directly compared
To understand this, lets examine these 5 countries through their 2 main economic tools: fiscal and monetary policies
In terms of fiscal policy, all Nordics follow the Nordic Model -high taxes, high government spending- but at very different capacity:
- Norway has a $2T fund, like a huge savings account. So it can expand its welfare state without raising taxes or borrowing. It has high capacity
- Sweden and Denmark don’t have such a fund. To run balanced budgets, they can only spend what taxpayers pay in. Their capacity is limited
- Finland and Iceland run deficits. They already spend more than they collect and rely on debt. They operate at overcapacity
In terms of monetary policy, each country follow a different model:
- Finland. As a part of EU and the euro, it has transferred its monetary policy to the European Central Bank. This means Finland has no control their interest rates or money supply
- Denmark. As a part of the EU but not the euro, it has formally kept control of its monetary policy. However, since the EU is its main market, Denmark has pegged the DKK to the euro. In effect, this forces the Danish National Bank to follow ECB policy, with its main role reduced to defending the peg
- Sweden. Like Denmark, Sweden belongs to the EU, but not to the euro. The difference is that the SEK is not pegged to the euro, which gives Sweden more freedom. Still, since the EU is its main market, the Riksbank tends to keep policy broadly aligned with the ECB, often mimicking its moves
- Norway. As a non-EU member it has full independence over its monetary policy. But with a trillion fund, it does not need to do "money printing" like for example, how Sweden does. And although EU is its main market, since oil is priced in USD, Norges Bank tends to follow the US FED policy
- Iceland. Similar to Norway, but does not count with a fund, and counts with a traumatic banking crisis that has made the Iceland Central Bank hyper-conservative. Its focus is on price stability and protecting the ISK, which means that follows mostly FED policies, but in their most restrictive form
Innovation policy is economic policy. And economic policy depends on the tools each country has available
The fact that the Nordics are so different economically, means that even if they pursued the same goals, they would need very different policies.
Or to put it another way, it means that if they all applied the same policy, the outcomes would still be very different.
That’s why the Nordics should not copy-paste each other’s economic policies. Instead, each country must find its own path, using its own tools, to reach its own goals.
Sorry Norway, but there are no shortcuts to economic development
