also needs to be responsive to customers'needs in order ensure its legitimacy and support of the electorate. public services need to provide a good match with the preferences of a median voter. without such a match, the funding base of the public sector ( taxes ) will inevitably start to erode. this could lead to a vicious circle that would be difficult to reverse. 5. conclusions so, what is the answer to the question that i posed at the beginning, i. e., is the european social model an asset or a liability? as is often the case in real life, the answer is : " it depends ". namely, in a rapidly changing environment any static model is likely to become a liability. indeed, economic systems are so complicated that no single policy prescription can ensure rapid and sustainable growth over the long run. therefore, it would be helpful to shift the focus from copying particular " models " to analysing what structures are needed to support successful and adaptable approaches. i have attempted to do so by examining the experience of the nordic countries. this experience suggests that it is possible to combine economic dynamism with a system that is consistent with the core european values. the key lesson to be drawn from the apparent success of the nordics is the importance to ensure that both the private sector and public policies are capable of adapting to changing circumstances. to sustain a social system that is in keeping with the core european values, we need the following, mutually reinforcing three pillars : • a competitive private sector exposed to free competition ; • sound and transparent institutions ; and • an efficient and responsive public sector. there is no silver bullet. however, as i have argued, an active and open civil society plays a crucial role in keeping all these three pillars strong. going forward, european values of solidarity and social cohesion will be tested by centrifugal forces arising from globalization, rapid technological advances and population ageing. nevertheless, they should continue to guide policy choices also in the future. ensuring that these values are truly reflected in european social models will require many painful decisions, and we must be mindful of the dangers of populism. this calls for a frank and honest political discourse that recognizes the benefits and downsides of globalization and other forces that shape the future. this, combined with a well - educated electorate, press freedom, and a culture of transparency provide a powerful antidote against populist policies. i see some similarities between the current rapid phase of globalization and the

their industrial structure. moreover, the nordic countries'labour market and welfare policies are not uniform. see, for example, sapir, andre ( 2005 ) ; " globalization and the reform of european social models ", bruegel policy brief, issue 2005 / 1. sapir divided the eu - 15 countries into four groups based on their efficiency and equity : the mediterranean model ( low equity and low efficiency ) ; the continental model ( high equity and low efficiency ) ; the anglo - saxon model ( low equity and high efficiency ) ; and the nordic model ( high equity and high efficiency ). in reality, the groupings are far from being homogenous. sapir included in his nordic model denmark, finland, sweden and the netherlands. the two non - eu nordic countries, i. e., norway and iceland, also fit the description of the nordic model. at the same time, the countries share some characteristic features that constitute the essence of the nordic model. these include : a large government sector, high tax rates, generous social protection and highly compressed wage structures. the standard economics text books teach us that such features generally distort incentives for efficient resource allocation. this notwithstanding, during the past decade the nordic ( eu ) countries have achieved higher growth rates than the advanced european countries on average. moreover, the nordics have been able to achieve high employment combined with macroeconomic stability. does this mean that the economics textbooks are wrong and that incentives and markets do not really matter that much? the answer is a resounding no. in fact, the strong macroeconomic performance in the nordic countries owes a lot to policies that are well in line with recommendations of mainstream economics. 2 • openness to competition. substantial product market deregulation has helped underpin economic growth in the nordic countries. this deregulation took place earlier than in most other european countries and the level of product market regulation in the nordics is low by european standards. there have been reforms to enhance competition also by addressing rigidities of the labour markets, although such reforms have been more gradual and subtle. • sound macroeconomic policies. public finances in the nordics are in better shape than in most other european countries. disciplined fiscal policy has contributed to an environment in which consumers and businesses can plan for a longer term. sound monetary policies have also been instrumental in supporting growth, even though their role in explaining the relative performance of the nordics is limited since stability - oriented monetary policies have become increasingly widespread. •