Expert View: The American way it isn't, a Nordic success it is

One of the more worrying things about a potential change of prime minister is that, while Tony Blair is accused of slavish addiction to US foreign policy, Gordon Brown is every bit as dewy-eyed in his admiration of the US economic model. But in seeking an intellectual foundation for a newly reinvigorated "Third Way", it is to Europe and not the States that I believe he should look.

During lunch at a restaurant in New York a few weeks ago, a hardened US economist barked at me over his salad: "I doubt Europe will ever see economic growth again - at least not in my lifetime."

I thought of him last week when Joaquin Almunia, who holds the somewhat challenging position of EU Commissioner for Economic and Monetary Affairs, was at last able to stand up and announce an increase in European economic growth forecasts. The 2006 prediction for the EU was collectively raised from 2.3 to 2.7 per cent (the UK is now right on the average) GDP growth, with real dynamism coming from Ireland, Spain, Eastern Europe and the Nordic countries.

While much of this "fringe" effect could be termed catch-up, as we move to greater economic equality across the EU, that does not apply to the three Scandinavian members: Denmark, Sweden and Finland. They already enjoyed living standards well above the EU average before membership, and their consistently strong economic performance has led many to ponder the "Nordic effect".

These three countries have achieved their success by doing everything the US doesn't. Taxation is heavy (70 per cent in Denmark for top-rate earners) and funds an extraordinarily high level of public expenditure, ranging from 50.7 per cent of GDP in Finland right up to 57.1 per cent in Sweden. The OECD average is 40.8 per cent.

And yet the economies of Denmark, Sweden and Finland are booming. So can we learn anything from the Nordics?

The first thing to observe is that we must be careful in comparing what are still, in essence, small economies with much bigger and more complex ones. This came home to me on Thursday as I tucked into my eel mousse in Helsinki, discussing how a strike over holiday pay in the pulp industry managed to wipe 1 per cent off Finland's GDP.

Second, we pay far too little attention to deep-rooted cultural mores (and indeed geographical facts) that no politician can do much to change. The US is a new society of self-selected entrepreneurs operating from a seemingly limitless land mass with rich mineral resources.

In Scandinavia, by contrast, a consensus approach to all kinds of issues permits gradual but meaningful change - in a way French governments could only dream of.

Most importantly for Britain, high taxation is accepted in the Nordic region in a way it never will be here. We have already experimented with this - think of the disasters of the 1970s, the capital flight and the brain drain, which destroyed so much of the UK's competitiveness. We must never again take a path so at odds with British entrepreneurialism.

These are factors that no politician can change, but other lessons can be learnt. What seems crucial to the Nordic success is the "flexi-security" of those countries' business models. It is relatively easy to hire and fire (much more so than in Germany or France), but at the same time the workforce feels remarkably secure. This is because labour flexibility means it is easy to get another job ,while high social security (60 per cent of previous pay in Denmark, for example) protects you while you are looking.

Consider a reinvigorated New Labour that has as its goal actually increasing labour flexibility but at the same time encouraging a feeling of greater security through more targeted public expenditure.

I believe most UK citizens do not want to live in a society as ruthless, indeed as cruel, as the US and would opt for a European model in terms of quality of life. Over to you, Gordon.

Christopher.walker@tiscali.co.uk