I am assuming if you are reading this you have heard of Ikea, the global furniture company founded in Sweden. That or the music streaming service Spotify which also comes from Sweden. Sweden is also the home of Ericsson, Volvo, H&M and Securitas.

You may have also heard of Norwegian sovereign wealth fund and their very high GDP per capita levels. More generally, the economic success these countries have enjoyed and their ability to combined it with sustainability.

The Nordic countries are successful when it comes to their economies, but the question is more about how that success came about. Depending on who you ask, these countries are either socialist or share similarities with Thatcher-style capitalists. The truth is they are a mixture of socialism and capitalism, a hybrid which is neither on the left nor the right.

In this article, I look at a few ways these countries have ended up with prospering capitalist economies whilst still offering a large level of welfare protection to people.

It is not just about oil

To start with, it is perhaps best to look at what has not created success for the Nordic countries. Oil is often mentioned as the easy route the Nordic countries took to success. There are two big issues with this. The first is that the Nordic countries are not the only countries to have oil; the UK, for instance, has North Sea oil reserves. Some research has suggested that the UK ended up with more oil than Norway but made less money. Norway also used the money wisely and invested it into a sovereign wealth fund, which has helped to fund public services and their transition to greener energy sources.

The second is that not every Nordic country has oil in any large quantities. Sweden, which has so many recognisable companies, missed out on sharing Norwegian oil wealth losing approximately $85 billion in the process. Other than this rejected deal Sweden does not have much in the way of oil reserves.

Free and mixed market economies

The Nordic countries in general do well when it comes to economic freedom. The economic freedom index from the Heritage Foundation shows how free an economy is from 0, which is the least free, to 100, the most free. The overall score for all of the Nordic countries is 75.4, and Sweden individually stands at 74.7. Finland stands at 76.1, Denmark at 77.8, Norway at 73.4 and Iceland at 77.4.

These countries are well known for their free market policies. Whilst the UK introduced and then increased the minimum wage, there is no minimum wage in the Nordic countries. Despite this, they still have high wages and use collective bargaining to negotiate wages. They are also free trading countries being part of either the European Union or the European Free Trade Association (EFTA). Both of these organisations have free trade deals with countries around the world, and EFTA also allows countries to negotiate deals outside of the set of deals negotiated by the group.

Collective bargaining

To help countries like Sweden to maintain both a free market economy without just forgetting about workers rights, they have collective bargaining. This is where workers sit down and negotiate with employers for things like pay, working conditions or perks. The government oversees negotiations and, in many cases, has created a legal framework around negotiations.

This means what whilst these countries have no minimum wage, they negotiate them very successfully. The same applies to multiple other areas of workers rights where, rather than the government deciding how companies should do things it is left up to workers and companies to negotiate.

High taxes

The Nordic countries spend a large amount of money on public services and government programs. Whilst this can boost the economy through things like a better educated or a healthier workforce it still needs to be paid for with taxes.

These countries have high taxes that are relatively flat meaning they do not change much depending on whether someone is a high or low earner. The reason even the middle class will pay these taxes is simple, they get services in return.

What we can learn

The Nordic countries have managed to blend together two opposing forces, capitalism and socialism, into one consistent approach. In the UK, we could easily use policies such as strengthening collective bargaining, embracing free trade, joining EFTA and reducing regulation. We are, however, lucky that we can also improve on the Nordic model in areas such as taxation. We propose to make more use of taxes such as a Land Value Tax, which Denmark uses and to increase taxes on dividends and capital gains.