The Nordic Model Invents The Goods

by Nick Warino

edited by Laura Brahm

People’s Policy Project

Nordic societies are lead­ers at the tech­no­logi­cal frontier.

Through state-owned organizations, as well as the broader public sector, they disprove the belief that governments stifle innovation. Moreover, Nordic governments show how to use new technologies to solve the biggest social and environmental problems while ensuring the disruptions and gains of innovation are distributed fairly.

Diagram of a molecule

The Nordic experience with technology differs vastly from that of the United States.

For all its world-leading firms and universities, the US has often failed to convert its innovation into meaningful improvements in Americans’ lives. Compared to the Nordics, as well as several other countries in Europe and Asia, US economic growth per hour worked has been mediocre over the last several decades. Most of that growth has flowed to the rich, limiting the country’s ability to improve rates for life expectancy, child and maternal mortality, suicide, depression, and poverty—all metrics where the US fares poorly against its peers. Meanwhile the US has continued to struggle to use its technological might to prevent climate change, relying on a dirty grid and making inferior progress in green energy over the past 50 years.

How the Nordics and the US approach innovation raises important questions about the relationship between technology and the social good. What’s the best way for the state to boost innovation? How can it guide innovation toward socially useful purposes and away from harmful ones? How can we prevent innovation from creating a set of winners and losers that widen inequality and cause long-lasting damage to households and entire communities? And is there an inherent tension in achieving all of these goals?

Futuristic delivery driver

Behind Nordic innovation and shared prosperity is the distinct bundle of institutions that define the region’s model:

Universal and robust welfare for citizens, widespread and powerful labor unions and collectively bargained contracts, and big roles for the public sector and state-owned firms under responsive democratic governments.

Critics of the Nordic model argue that these countries freeride off US technological innovation and distribute the benefits to their citizens. The problem with this critique is that the Nordics compare favorably, and often surpass other wealthy nations, in measurements of “inventiveness.” The Global Innovation Index ranked Sweden 2nd best in the world in 2021, with Finland, Denmark, Iceland, and Norway ranking 7th, 9th, 17th, and 20th respectively—all in the tier of “performance above expectations for the level of development.” For decades, Nordic countries have had some of the biggest productivity gains in the world, becoming overall some of the world’s most productive, healthiest, and happiest societies. They have some of the cleanest energy grids and high concentrations of electric vehicles.

Futuristic workers retrieving boxes from a pneumatic tube

The fact that the Nordics are both egalitarian and innovative is not incidental.

Sectoral bargaining and unions compress wages across the economy, which reduces inequality while also inducing more creative destruction in the economy. By raising wages for the least-paid workers, the least productive firms cannot afford them and die, while the most productive firms receive big profits from lower wages at the top.

Unproductive firms dying off due to the lack of cheap labor could be disruptive to workers employed at such firms, along with their households and communities. But this is where another element of the Nordic model helps: Robust labor market policies. The Nordics spend by far the most on unemployment insurance, job training, and job placement programs, which protect workers from permanent unemployment, and train and move workers from the least to the most productive firms. This entire process causes average wages and productivity to grow.

The Nordic welfare state, in addition to equalizing distribution of income and keeping poverty low, cushions financial hits, which encourages risk-taking and more welcoming attitudes toward technology in the worksite and society (Pew 2020, Eurobarometer 2012, 2015, 2017, 2020).

Futuristic restaurant

State ownership is an especially useful and under­appre­ciated social institu­tion in this model.

For production purposes, the state can support and guide innovation throughout the entire process to ensure innovation serves larger social missions. Compared to private actors, the state has unique powers that benefit socially useful innovation: greater tolerance for risk, more patience for rewards, and more ability to coordinate key actors and to force required systemic change. The productive benefits of state-led innovation can even be seen in the US, with DARPA (Defense Advanced Research Projects Agency) in particular playing a critical role in the advancement of microchips, telecommunications, and more. But the state’s role in US innovation is mostly a limited one: financing early research and development while absorbing most of the risks and allowing private firms to convert the innovation for products for the market. By avoiding ownership, the US government is only able to recapture the value it created in the innovation process via taxes. But taxes are worse at capturing value, since private profits can be hidden, moved, or otherwise escape the arm of the state.

Below, I highlight four cases of state-led Nordic innovation. Together, they bust a number of myths about state ownership and the Nordic model.

Futuristic monorail trains

State-Owned Electric Robo­ships


Ninety per­cent of the world’s tra­ded goods travel over the seas.

Maritime travel emits 3% of total greenhouse gas, which is on pace to triple in the next three decades. Making maritime trade more productive and at the same time greener thus looks like a clear social good. At the frontier of such technologies are the governments of Finland and Norway, which are pursuing the development of autonomous electric-powered ships (electric roboships).

In Norway and Finland, government agencies have partnered with private industry to coordinate research and development of roboships. The most noteworthy partnership involves Norwegian state-owned enterprises (SOEs) Yara and Kongsberg. Kongsberg’s technical expertise includes over 50 years of missile technology and 25 years of underwater autonomous navigation. Initial efforts in the 1990s included autonomously mapping the seabed to drill for oil and gas, and later to safely sweep mines. Since then they’ve worked on dozens of autonomous technology projects with partners in and outside Norway.

Kongsberg and Yara’s flagship project is the Yara Birkeland, intended to be the world’s first 100% electric autonomous container ship. In November 2021, the Yara Birkeland launched its maiden voyage in Oslo, with the following two years dedicated to testing before it is legally certified for autonomous container shipping.

Electric roboships fit the mission-oriented, innovative growth strategy of both Yara and Kongsberg. Yara is the world’s largest producer of fertilizer and recently partnered with a Swedish farmers co-op to produce the world’s first fossil-free nitrogen fertilizer. And Kongsberg’s expertise in autonomy on the sea has enabled it to become a leader in offshore wind turbine installation vessels. Kongsberg received a $40 million contract to build the first such vessels for an offshore wind farm in the United States.

Green Steel and Hy­dro­gen in Sweden


Fossil-free (“green”) steel is essen­tial to add­ress cli­mate change.

The steel industry alone accounts for 7% of global carbon dioxide emissions. The bulk of these emissions come from a blast furnace using coal or other fossil fuels to produce extremely high temperatures. These heat demands exceed offsite electricity delivery capacity, which is why the heavy industry sector is considered “hard to abate.” Instead of burning coal, green steel plants burn green hydrogen to produce iron, which is processed further to produce steel. It’s a highly technical, capital-intensive project of utmost importance. And three Swedish SOEs have joined together to take it on.

Swedish and Finnish SOE SSAB leads the world in producing steel with the lowest emissions, but its goal is emissions-free steel. In 2016, SSAB and the Swedish Energy Agency worked together on a prefeasibility study and launched a four-year R&D project for green steel. A year later SSAB, mining company LKAB (owned by Sweden and the largest shareholder of SSAB), and energy company Vattenfall (owned by Sweden) created the joint-venture company HYBRIT—the world’s first green mine-to-steel company.

In 2019, trials started for smelting sponge iron in electric arc furnaces. Powered by hydrogen, these furnaces are essential for green steel. A year later, HYBRIT produced the world's first fossil-free iron ore pellets. The company received its hydrogen storage permit in 2021, allowing it to build the onsite green hydrogen storage needed to power its furnaces. In that same year, HYBRIT delivered the first green steel to Volvo, and plans to scale capacity by 2026 to serve the global steel market. As of today, HYBRIT is the only project in the world producing carbon-free steel.

Green Energy Inno­va­tion in Denmark


The projects mentioned so far—electric robo­ships, green steel, and green hydro­gen—require a clean source of energy.

The Nordics, particularly Denmark, are pioneering the way to produce that energy. In the 1970s, Denmark imported 90% of its energy from oil producers in the Middle East. But after only two decades of coordination among governments, academics, workers, pension funds, and public and private companies, Denmark invested heavily in green energy, particularly wind. Denmark is now a net-energy exporter and dominates global wind energy, with the entire onshore and offshore production process present in the country.

Leading wind energy innovation is the Danish SOE Ørsted. As of 2020, Ørsted is the world’s largest developer of offshore wind energy and fifth largest for onshore. Through Ørsted, the Danish government is taking ownership of the emerging offshore energy industry, even in the United States. In 2016, Ørsted began operating the first and currently only US offshore wind farm, with the second one recently receiving final approval.

Ørsted isn’t the only Nordic SOE at the forefront of the wind industry. Swedish-owned Vattenfall trails Ørsted in onshore and offshore capacity and lacks its global ambitions, but still ranks as a top global wind developer and is increasing its role in offshore wind. Norwegian SOE Kongsberg is using its autonomous sea navigation to improve a key enabling technology of offshore farms: wind turbine installation vessels. Offshore wind farms cannot be built without these ships, and Kongsberg technology will make the process safer and more productive. America’s largest wind-energy company, Dominion Energy, purchased $40 million in Kongsberg tech.

One of the most ambitious green energy projects in the world is the Danish plan to build two “energy islands” in the North and Baltic seas. Energy islands are artificial or natural islands used as hubs to gather and distribute energy from several wind farms. This hub-and-spoke model allows wind farms to be built farther offshore, gathering more energy, and distributing it more efficiently to a wider region. The project originated from Dutch SOE TenneT, which presented plans in 2016 and began working with regional governments to bring the project to life.

Following the 2020 election, the new Danish government implemented its version of the plan and tasked the Danish Energy Agency (DEA) with beginning the process, including procurement of the islands and finding project partners. So far, the DEA has received two bids, one from Ørsted and the largest Danish pension plan (ATP), and the other from a group that consists of two other large Danish pensions (PensionDanmark and PFA Pension), a customer co-op regional energy grid operator (Andel), and a green energy fund management company started by PensionDanmark and former Ørsted executives. After planned completion in 2030, millions of homes throughout the region will receive a minimum of 12 GW of energy from these islands (roughly 10 times the size of the world’s current largest wind farm, the Hornsea Project One in the UK, also led by Ørsted).

Mines-to-Batt­eries Tech­nol­ogy in Finland


The future econ­omy and cli­mate hinge on dev­elop­ment of the battery industry.

Already an essential element of modern society, batteries are necessary for the transition to green transportation and energy storage, and they’ll shape the future of mobile computing and robotics. Finland has become a world leader in the battery industry by building the world’s most efficient, safe, and environmentally sustainable battery value chain. Finland benefits from being one of six countries with “top-ranking” mines for nickel and cobalt, essential minerals for batteries.

Nordic institutions are especially well-suited to take advantage of valuable natural resources by spreading the gains, ensuring worker safety, deploying productivity-enhancing technology, and incorporating the industry into a broader mission-oriented growth policy. Take for example the Finnish Minerals Group (FMG). Created in 2018 by the Finnish government, FMG reorganized and consolidated the country’s mining holdings, including SOE Terrafame. Terrafame itself was created in 2015 to take over a bankrupt mine in Sotkamo, Finland, with the goal of improving the mine’s environmental impact, productivity, and worker safety. FMG was tasked by the government to create the world’s first mine-to-battery value chain.

Once brought into FMG as a subsidiary, Terrafame began investing in battery chemical processing plants and took its first steps in integrating and moving up the battery value chain. To achieve its goals of increased efficiency and productivity, along with worker safety, Terrafame purchased mining automation from the Finnish part-SOE Valmet. But Terrafame’s key technology for efficiency is its innovative “bioleaching” process, where it uses microbes to extract metals from ore without high temperatures. By 2019, Terrafame was the world’s most energy-efficient producer of nickel. Also in 2019, two FMG subsidiaries (Terrafame and Keliber) were awarded financial and technical support from the European Commission’s Important Project of Common European Interest (IPCEI). The EU followed up in 2021 with a second battery innovation project, also supporting FMG, along with several other companies—including Tesla, due to its new gigafactory in Berlin, Germany.

Last year Finland funded FMG with EUR 450 million. Terrafame completed its new battery chemicals plant, began delivering its first product batches, and entered into a 10-year contract with the auto company Renault Group. FMG will continue to move up the value chain, with new plants scheduled for completion over the next couple of years. The final stage of the battery value chain is recycling and traceability, and in 2021, FMG entered into a partnership with Circular (a subsidiary of Oracle), to develop the world’s first “large-scale multi-user” solution for traceability.

Futuristic vehicles

Kon­klusjon Conclusie Epilogi

Nordic Model > US Model for Innovation

The preceding state-led innovation clusters demonstrate the brilliance of the Nordic model. Powerful labor unions, democratic governments, and other institutions can marshall resources and coordinate workers to protect against the most socially harmful problems, while ensuring productivity gains are shared broadly.

Exciting scene of a military robot

No other model of political economy has been so successful at simultaneously creating and implementing new technologies in a socially useful manner. Certainly not US policy—with its overreliance on patents, private ownership, military-focused R&D, and favoring of management over workers—which causes resources to be misallocated throughout the economy. The results are an overabundance of socially pointless, inaccessible, or harmful innovation (take the Magpul/ZEV FDP-9 Folding Pistol for example, the F-22 Raptor stealth fighter jet, or the re-patenting of Albuterol, an asthma-inhaler). When combined with an underfunded, poorly designed welfare state, it’s not surprising the US has seen decades of underwhelming productivity growth, an alarming rise of economic inequality, and death rates not seen elsewhere in other rich countries. If US policymakers want to reverse these trends, the Nordics have a winning formula to follow.