The Nordic model encourages inclusion, using the welfare state to promote social solidarity.
While the COVID-19 pandemic urgently requires new medical and social innovations, it also draws our attention to long-standing challenges in innovation policy. For example, the uneven health and economic impacts of the virus have sparked calls to design more inclusive policies. The most obvious benefits of inclusion are specific to the virus. Universal health care coverage and paid sick leave benefit everyone, the former by reducing financial barriers to testing and the latter by making it easier for ill workers to self-isolate. As a result, policy-makers have scrambled to patch holes in their social safety nets.
Their efforts to do so highlight another, more fundamental way in which social inclusion can improve resilience, by supporting bolder, more effective policy responses to unexpected shocks. While inclusive approaches are often perceived to delay decision-making, they can in fact support decisive action and accelerate change. Countries have developed rapid and effective responses to the pandemic by using inclusive strategies to persuade skeptics, compensate opponents and coordinate action.
Denmark provides an illustrative example, although the argument could be generalized to other countries in northern Europe. Denmark was one of the first countries in Europe to begin locking down its economy, before this became a widely accepted and politically safe response to the virus. High levels of interpersonal trust and confidence in public expertise helped, but even with this reservoir of social capital, the government did not act unilaterally.
Between sending non-essential public workers home on March 13 and shutting down a large swath of the private sector on March 18, the government consulted with employer associations and trade unions, which comprise one-half and two-thirds of the labour force respectively. By presenting a united front and sharing responsibility for the lockdown, this inclusive approach made it easier for the government to take bold action and secure societal support. Indeed, all 10 political parties backed the government’s action.
Even in a high-trust environment such as Denmark, governments rarely sway opponents with persuasive appeals alone. Between March 13 and March 18, the government worked with labour and industry to compensate those adversely affected by the lockdown. This, too, was an example of early and bold action.
The government replaced up to 90 percent of worker wages provided they remained on the payroll and made it easier for businesses to do so by covering fixed costs, such as rent. While this innovative approach was later emulated by risk-averse governments in other countries, its effectiveness and popularity was uncertain as of March 18.
Consulting with large associations resulted in a comprehensive rescue package with few gaps, making compliance with the lockdown less painful. It was not perfect. For example, it initially omitted self-employed individuals. This was quickly remedied, however, and the rescue package has required few amendments.
Finally, an inclusive approach to COVID-19 permitted deeper coordination. This is most obvious in the case of the lockdown, where effective social distancing is predicated on societal buy-in, and it also extends to the rescue package, which required Danish firms to keep workers on payroll.
Cooperation also made it easier for Denmark to exit the lockdown, and it was one of the first European countries to do so beginning on April 20. A partnership with the Danish pharmaceutical giant Novo Nordisk enabled the government to dramatically increase testing from US levels at the beginning of April to one of the highest rates in the world as the economy re-opened.
Meanwhile, the government worked with another Danish enterprise, Netcompany, to roll out a data gathering app, COVIDmeter, in late April. A locally developed, non-compulsory contact tracing app is scheduled to follow. Like the social distancing measures, its effectiveness will be based on trust.
Denmark’s response to the COVID-19 pandemic reflects a deeper pattern of successful adjustment to disruptive challenges in the Nordic region. In Sweden, generous social safety nets have long neutralized opposition to the disruptive effects of free trade and robust market competition. Denmark’s vaunted retraining programs are based on extensive private sector involvement, which increases the likelihood that participants develop industry relevant skills.
This capacity for bold and decisive action comes with risks, particularly in highly uncertain, unprecedented situations. The divergent Danish and Swedish responses to the COVID-19 virus, each of which enjoys broad public support, illustrate this. But inclusion has not resulted in paralysis or indecision.
Conversely, the United States illustrates what can happen when countries neglect social inclusion. The US, with a fragmented associational landscape, patchier social safety nets, and higher levels of political polarization, is a mirror image of Denmark. The federal government could not draw on large, encompassing business and labour associations to support its decisions.
It is unclear whether the United States could secure broad-based social support in any case, as the response to the virus was politicized. Different political parties and levels of government offered wildly different assessments about the level of danger and the appropriate policy response. As a result, US jurisdictions locked down their economies later and less consistently than in Denmark.
The incomplete politics of compensation exacerbated this problem. As a follower, the US copied the Danish approach with the Coronavirus Aid, Relief, and Economic Security (CARES) Act’s Paycheck Protection Program. Without input from large industry or labour associations, however, the initiative was riddled with shortcomings.
The initial program was too small, conditions designed to reduce fraud discouraged applications, and there were gaps in coverage. Unemployment surged to 14.7 percent in April, versus just 5.4 percent in Denmark. With the collapse of the labor market and patchy social supports, it is hardly surprising that the United States witnessed a growing backlash to social distancing.
In many states, the decision to exit the lockdown appears to have been motivated by discontent with social distancing instead of a well-designed, alternative strategy. Georgia, one of the first states to exit the lockdown, did so without widespread testing, a contact tracing app, or other complementary measures.
Federal, state, and local governments have made progress on this front by partnering with private industry, but collaboration is fraught with tension. The invocation of unilateral measures such as the Defense Production Act and the imposition of export controls speaks to the weakness of these relationships. As a result, case counts have not declined as rapidly or deeply as they have in Denmark.
Skeptics might argue that these responses were predetermined. Denmark and the other Nordic countries are small, relatively homogeneous countries, whereas the United States is not. But social cohesion was constructed, not inherited. As recently as a century ago, the Nordics were deeply divided along class and, in some cases, linguistic lines. Social solidarity was developed through policy choices, as the Nordics encouraged the formation of larger, more inclusive associations and used the welfare state to integrate them into social and economic life.
Canada can learn from these experiences and has done so in the past, creatively adapting these strategies to local conditions. Social policies like universal health insurance are an obvious and important focus for action. But other policy instruments can increase social inclusion. The Innovation Policy Lab’s contributions to this project and our other research illustrate how the lessons above can be applied to innovation policy.
In the short run, widespread engagement could legitimize difficult choices about contact tracing or university reform. In the long run, innovation policy can improve the quality of those deliberations by expanding the reach of our social policies, improving the quality of the platforms which connect us, linking industry through local, long-term supply chains, and developing more effective ways to measure inclusion.
Inclusive innovation is worth taking seriously as social cohesion represents a valuable asset for Canada and others seeking to navigate a growing number of disruptive epidemiological, economic and geopolitical threats.
This article is part of the Building a More Inclusive Innovation Economy After the Pandemic special feature.