Schooled by Scandinavia? Not Quite.

The bandwagon for lauding the Scandinavian countries (Denmark, Norway, Sweden) is here and just about every Japanese professor has hopped aboard.

They’re right about one thing: The Scandinavian welfare model is certainly an object of adolation all across the world.

It offers universal health-care, subsidized higher education, and comprehensive social security. The Scandinavian welfare model undoubtedly provides the best social safety net to its citizens compared with any other system in the world. A strong social safety net paves the road towards the egalitarian welfare states of Northern Europe, which Japanese professors have been viewing lately with increasing admiration.

Take Norway for instance. Norway has consistently ranked #1 on the UN’s HDI (Human Development Index) from 2001~2007, and again in 2009. Norway also has one of the smallest wage-differentials in the world, evident in its low Gini coefficient (the Gini coefficient measures inequality within a country; the lower the score, the more equal the nation is considered to be.)

In contrast, Japan’s Gini coefficient has been steadily rising. Wage-differentials are growing, with the middle-class being eroded from both sides: a greater number of people are slipping into the quagmire of poverty, and people who were originally average-Joe’s have started to earn incomes that go well up into the stratosphere as well.

To add insult to injury, Japan’s social safety is weak, unsustainable, and inefficient. For example, Japan does offer universal health care to its citizens, but just recently the amount the state covers has been reduced to 70% of the bill, from the original 80%. This makes it increasingly difficult for old people with chronic diseases to receive treatment.

So thus there is little wonder that Japan looks to the Scandinavian states for guidance.

But there are two critical difference between Japan and Scandinavia:

Japan is bereft of resources; Scandinavian countries have a surfeit of them.

Take Norway’s state-owned Statoil for instance. Whenever Norway needs a sizeable GDP boost, Statoil steps in by ramping up oil exports, providing Norway with a renewed inflow of foreign currency. Norway, like Sweden and Denmark, also enjoys a geography rich in natural gas, forests, and minerals: all primary goods that can be used for export should the need arise.

Of course, exporting natural resources is only a fall-back plan. The Scandinavian countries encourage their citizens to pursue higher education so that processed goods with higher market value can be exported. In other words, while the Scandinavian countries usually employ knowledge-intensive goods for export, they also have the ability to fall back on their natural resources to ride the rough waters should the need arise.

Japan, while having strong human capital, has very little natural resources available for export. Thus one reason that the Scandinavian model won’t work in Japan is Japan’s lack of natural resources available for export.

The other crucial difference between Japan and the Scandinavian countries is that Japan has a significantly larger population. In order to provide a strong social safety net to all of its citizens, Japan would need to earn much more through its exports. In contrast, since the Scandinavian countries have smaller populations, they can concentrate more of the nation’s wealth per capita than Japan can.

The need for a better social safety net in Japan is clear. But Scandinavian countries, while providing a good case study, is not the ideal model for Japan, atleast not without refinement.

The only path towards growth (which is a prerequisite for knitting a better social safety net) that Japan can take is by improving its education and strengthening its comparative advantage in knowledge-intensive goods. Japan had rationalized its educational institutions in the Post-war years and took the semi-conductor industry by storm in the 1970′s. But lately, the current Prime Minister Yukio Hatoyama has been consistently cutting the Ministry of Education’s budget.

With limited time and limited national savings, Japan must concentrate on providing quality education to its next generation of footsoldiers: before its too late.


Leave a Reply