This is an interesting analysis, as Scandinavia is rarely a topic for politicians and the media in the stringently neo-liberal rest of the EU. To select Norway as a model is somewhat borderline, as the nation sits on incredible wealth with its oil and natural gas. Would it change its policies if these were left where they are, which considering climate change would be the right thing to do?
Steffen Stierle is one of the coordinators of the European Lexit network as well as active in Attac Germany and the Eurexit initiative. He works as a freelance journalist in Berlin. His thematic focus is the political economy of European integration.
Cross-posted from Makroskop
Translated and edited by BRAVE NEW EUROPE
According to the economic and political mainstream of the rest of the EU, the Brexit vote is simply irrational. The repeated impact assessments presented to the public assume a loss of economic strength. The withdrawal of the British would deprive its society of a good part of their prosperity – the scenarios range from a strong but bearable decline to the complete collapse of the British economy.
Leftists like to add that the fundamental social rights of the British are also in jeopardy, as they are protected by the EU. Thomas Fazi and Bill Mitchell have already pointed out the weaknesses of the economic forecasts and argued why it is nonsense to view the EU as a shield for social rights.
Looking to the North – above all at Norway, a European nation that twice voted against EU membership by referendum and is now at the top of the global prosperity scale – supports Fazi’s and Mitchell’s argumentation.
Let us first look at Sweden – the former Scandinavian model nation that joined the EU in 1995 – as an example to illustrate the challenges posed by EU membership for the Scandinavian welfare model. Later, we shall examine Sweden’s economic and social developments since joining the EU compared with those of Norway. Finally, in an interview with the Oslo historian and trade union researcher Idar Helle, we approach the question of to what extent the Norwegian experience are applicable in the case of Great Britain.
The neoliberalisation of Scandinavia
A look at Sweden shows how challenging the EU rules are for generous welfare states and economies with a broad public sector. Until its accession to the EU, the country was regarded as the ideal example of the Scandinavian welfare model: high and even distribution of income, a broad public sector, strong redistribution through tax and social policy, etc. In the meantime, however, the EU has had more influence on Sweden than vice versa.
The EU’s economic and fiscal rules are hard law, i.e. tough, binding, and sanctionable rules. Those areas in which Sweden has been able to exert influence incorporating its background of Scandinavian traditions at best occur at EU level as soft laws and therefore remain non-binding. Who remembers the European Employment Strategy or the EU´s Open Method of Coordination? And for whom does ESM still stand for the “European social model” today? Sweden has contributed a great deal here, but these contributions have remained structurally subordinated to the hard core of EU rules for integration.
On the other hand, the EU´s strict rules concerning public debt rules have increased the pressure upon Sweden to reduce social and the public sector spending. Internal market rules and competition laws have led to increasing liberalisation of product and labour markets. Direct competition, including from highly qualified German low-wage employees, caused the high-wage model to stumble. Increased competition to get businesses to invest has reduced taxes on profits, investment income, and assets everywhere. For a social model based on high taxes, this “race to the bottom” results in a broken neck.
Sweden and Norway in comparison
Norway went a different route. While in November 1994 52.3 percent of Swedes voted in a referendum to join the EU, the Norwegians just as narrowly opposed the latter, with 52.2 percent voting against joining the EU. Sweden joined the EU together with Austria and Finland in 1995. Norway, like Iceland, has remained outside the union.
Today, most indicators suggest that the Norwegians have made the better decision. While the distribution of power and prosperity in Sweden has clearly developed to the disadvantage of those who are often called “normal” or “small” people, conditions in Norway have remained relatively stable, contrary to the EU trend.
According to EU statistics, for example, in Sweden wage share of total economic output has fallen significantly from 54.8 percent in 2000 to 46.9 percent. In Norway, the wage share at the turn of the millennium was only 43.1 percent. Since then, however, it has risen to 47.6 percent, which is now higher than the Swedish figure.
The distribution of wages across the social classes presents a similar picture: the 80/20-quintile ratio, i.e. the ratio of the 20 percent highest income to the 20 percent lowest income in Sweden at the turn of the millennium was 3.3. 20 percent with the highest income have thus earned 3.3 times as much as those with the lowest income. In 2016 – the last year for which statistics are currently available – the figure was 4.3, an impressive increase in inequality. Although the gap also widened in Norway during the same period, it was much more moderate, with an increase from 3.4 to 3.7. Here too, the Norwegians were able to overtake their Swedish neighbours after the latter joined the EU.
And what about the general wage level? According to OECD statistics, Norwegian employees have experienced a strong increase in average wages from $35,800 to $46,900 since the turn of the millennium. In Sweden, however, wage increases were much more moderate, rising from $29,800 to $31,600.
The comparatively poor wage and distribution development in Sweden is also likely to have to do with the fact that the degree of worker unionisation since EU accession has slumped from well over 80 to 66.8 per cent in 2015. In Norway, this figure is significantly lower at 55 percent due to a different collective bargaining system, but it has remained constant over the last two decades. This suggests that the workers there did not suffer any significant loss of power, while in Sweden there was some fragmentation.
While, as the statistics listed here show, the employees in Norway were able to secure a significantly larger slice of the cake than their Swedish colleagues, the size of the cake has developed more or less the same in both countries since Sweden joined the EU. While Sweden’s per capita economic output in 1995 was around $30,000, it had risen to around $45,000 by 2017. Meanwhile, the Norwegian comparative value developed from around $45,000 to just over $60,000 today. Economic growth is therefore parallel, while capital owners and top earners in Sweden have become more powerful and can therefore claim an ever greater share of the wealth.
Other indicators could be cited, for example, employee protection, wage density, asset distribution. or the degree of state control of the economy. Other comparable countries such as Iceland and Finland the situation is similar. For “ordinary people”, people who possess no significant assets and have to earn their income through work and/or state support, things have been better outside the EU in the last twenty to thirty years than within.
And Britain after Brexit?
But why do so many forecasts predict an economic catastrophe for Britain after leaving the EU? We spoke to the Oslo historian Idar Helle, who is active in the Norwegian “No to EU” campaign, which is currently campaigning for a withdrawal from the European Economic Area (EEA), which binds the country to numerous EU directives. As some authors argue in the Lexit network’s Country Report, the question of EU membership in Norway has long been off the table, while that of trade relations with the EU is quite topical. Helle has also followed the Brexit negotiations closely and organised political trips to London in recent years.
Responding to the current scenarios, according to which Britain can expect large economic losses, Helle argues that these scenarios overlook the economic policy margins that countries gain as they become more independent. European countries outside the EU could develop more diverse trade relations and should be able to find adequate sales markets in the medium term. However, many forecasts were based statically on the existing trading arrangements.
Helle added that empirical evidence shows that European states outside the EU develop economically better over longer periods because they are better able to take their national interests and particularities into account politically. For example, Norway’s independence from EU trade policy has made it possible to open up Asian and American markets on a larger scale, which is why its dependence on the EU internal market is now much lower than it was 20 years ago. Great Britain will also have this necessary leeway. It could well be even larger, as the country is more powerful and has much more economic clout.
But Helle also warns against a soft Brexit that would give the EU a great deal of influence over British economic policy. According to his assessment, the EU is prepared to go very far to secure the neo-liberal regime in the nations that surround it as well. In the Brexit negotiations, for example, it is trying to obtain guarantees from the British government that will prevent the nationalisation of important infrastructures even after Brexit. The price of close economic relations with the EU could therefore be a far-reaching renunciation of political sovereignty. Then Britain would have won little.
Social rights within and outside of the EU
And what about social rights, the second major point in the left-wing Brexit debate? Fazi and Mitchell have explained why the British should have better conditions for defending their rights outside the EU. The example of Norway supports this argument. After all, there is no other European country with such a strong social security systems, such a broad range of worker protection standards, and such a large and high-quality public sector.
Helle also argues in this direction. He admits, for example, that the attack against social rights in Great Britain went further in many places than in the rest of the EU. However, this had happened above all in the 1980s, when neoliberal ideology had its strongest phase and there were powerful, radical-neoliberal governments. Today, the political situation is a different one. The Tories’ neoliberal agenda is far less radical and clear than it was five or ten years ago. The change in the Labour Party is even more obvious. Labour is presenting anti-neoliberal options, which go further than the EU´s social charta, so that the EU’s rules would no longer protect workers – which are only the remnants of social rights – but are an obstacle that set narrow limits to veering from the neoliberal course.
It would be up to the British people to choose parties that stand for further neoliberalisation or parties that want a more social state. All options are on the table. The argument that the British need the EU to defend their rights is therefore not really thought through and ignores the real political situation, Helle said.
Incidentally, it is quite possible that the British Government will fall before Brexit negotiations are completed. Then it would also conceivable that the next Prime Minister’s name would be Jeremy Corbyn. In any case, EU membership would not be a support for his programme, but a major hurdle, as has already been argued in the Brexit debate on Makroskop (here and here).
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