!!To be able to see this page correctly, you need to have Flash player 7 or higher installed!!
Please click here to start installing the player.
Please click here to start installing the player.
Nordic nirvana
April 2007
Paul Melly, International Trade Today
How do they do it? Looked at from the political right or the left, the Nordic economies continue to astonish. They enjoy generous welfare systems, high wages, exemplary environmental protection and a consensual approach to labour relations. Yet they are among Europe’s most internationally competitive economies, sustaining strong growth and a dynamic export performance year after year.
Scandinavia is often held out by progressive commentators as proof that relatively high taxation and expenditure on public services can be entirely compatible with economic success. But the region also offers useful examples for conservatives seeking to show the benefits of business efficiency; and it may soon offer more, if the privatisation programme launched by Sweden’s new conservative government succeeds in injecting fresh dynamism into the economy.
It has not always been such smooth sailing. The 1990s were a difficult decade for most Nordic countries, seeking to adapt their traditionally lavish welfare systems and extensive public sector structures against the pressures of international competition. Moreover, the region’s banks endured a grim crisis in the late 1980s and early 1990s, which forced a string of mergers and radical cost-cutting.
But, today, the Nordic economies enjoy renewed stable prosperity – and their voters have come to take this for granted and expect something more, as the Social Democrat parties in Sweden and Finland have found out over the past year, both suffering electoral rebuff despite their successful record of economic management.
There are a number of long-term factors underpinning Nordic affluence. High standards of education, modern infrastructure, a relatively narrow gap between the richest and the poorest, and an ample supply of natural resources – most graphically exemplified by Norwegian oil – to be shared among small populations all play a contributing role.
Although they are relatively small in size, these economies have also produced a clutch of companies that are genuine world leaders, and that have in some cases radically adapted their technological base to keep themselves relevant to the demands of the 21st century world market. Nokia, once a traditional pulp and paper manufacturer and now one of the top global names in mobile phones, is the outstanding example.
Volvo and Ericsson remain symbols of Sweden’s traditional industrial prowess, while Norway’s Statoil is now solidly established in the second rank of international oil companies – not one of the world’s big five, but certainly among those that are a serious force in exploration and development. Danish group Maersk remains a leading force in container shipping at a time when many other European names have disappeared from the transport map.
Financial services in the Nordic markets are, as one might expect, particularly well developed. The crisis of 15 years ago forced the banks to make an early start on modernisation and the automation of services.
A recent study by the region’s central banks found that commercial banks in the five Nordic economies are significantly more cost effective and profitable than those in the eurozone or, indeed, than the average for all the 15 countries that constituted the European Union before enlargement in 2004.
In such prosperous societies, the banks have also benefited from a growing customer base and strong demand for their services from personal consumers.
Even so, despite a long history of mergers and rationalisation, the banking sector remains surprisingly diverse, considering the small populations of the Nordic markets. Banking in Denmark is dominated by Danske Bank and the pan-regional Nordea group, and four medium-sized institutions; but altogether this country of only 5.45m people has 180 banking institutions, including specialist outfits.
Danish banks have cooperated closely together in many areas, notably in setting up a common payment system, shared by all institutions, large and small.
Finland is even more densely catered for, in banking terms, with some 360 credit institutions. But, as in Denmark, a clutch of big names predominate, including Sampo, OP Bank, Bank of Åland; savings and cooperative banks also play an important role.
In Iceland, much the smallest Nordic economy, just three commercial banks – Glitnir, Kaupthing and Landsbanki – account for 88 per cent of the market, and, perhaps, an even greater share of the commercial and investment banking services for business. Public sector traditions have always been strong in the Nordic countries and two of the trio were privatised only as recently as 2003.
Neither Iceland nor Norway are members of the EU. But, for practical purposes, they are operating under broadly similar financial regimes, thanks to the European Economic Area agreement between the union and its near neighbours: this means that financial legislation in both countries has been brought into line with the main European standards.
Indeed, Norway – where, in 1991, three of the four largest banks and a number of smaller ones had actually failed or were in deep trouble – imposes unusually tough deposit guarantee requirements on its financial institutions. These days the Norwegian banking sector, where DnB NOR and Nordea are now the leading players, is solidly based.
The financial market in Sweden, Scandinavia’s leading industrial economy, is dominated by four major banks: Handelsbanken, Nordea, SEB and FöreningsSparbanken. They have been particularly ambitious in international terms, particularly in the Baltic states. They are a major force in these small but increasingly affluent markets, and SEB is also highly active in Germany.
More generally, the larger Nordic financial institutions have also identified Russia and Ukraine as markets where they can make a major impact.
A striking feature of the Nordic financial systems is the widespread use of e-banking, helped by the high degree of internet use among consumers across the region; payments are increasingly automated.
This is partly the inheritance of the banking crisis of 15-20 years ago, which forced institutions to radically trim costs and branch networks. Moreover, competition between the region’s banks is intense, and, if one institution develops a new service, its rivals are forced to rapidly follow suit.
But internet-only banks have not really taken off, perhaps because the traditional established institutions have been so quick to develop their own electronic services.
Internet services are increasingly significant in the provision of trade finance and payment systems for business in the Nordic countries. They may not be catching on as easily as in the personal finance arena. Yet the long-term trend towards greater automation and use of on-line connections to banks appears irreversible.
