of economists 3 argue that it is the collective risk sharing by the welfare state and the labour market that facilitates acceptance of globalisation. the traditional institutional system of the nordic labour market has based on coordinated negotiations between strong partners and supporting policies by the government. the group argues that this may be seen as a way of offering security to workers without drawbacks of tight legislative labour market regulation. the risk sharing has made it possible to combine the flexibility required by open markets with the security that workers and citizens want to have. according to professor dani rodrik ( 1998 ) 4 the positive correlation between openness and the size of the public sector means that external openness increases risks and so the demand for the insurance and security that the welfare state can offer. still not to make the issue too easy, there are many concrete cases also in our country which show that the closure of a factory which is an important employer in a region, is a painful process. the economic consequences of population ageing are fundamental ageing of the population will be an increasing problem in most industrialised countries during the next decades. in many countries the birth rate was high in the first decades after the second world war. later the birth rate lowered strongly, which causes the big difference in the size of age cohorts. andersen, t. m. ; holmstrom, b. ; honkapohja, s. ; korkman, s. ; soderstrom, h. t. and vartiainen, j. ( 2007 ) : " the nordic model, embracing globalisation and sharing risks ". the research institute of the finnish economy ( etla ). rodrik, d. ( 1998 ) : " why do more open economies have bigger governments? ". journal of political economy 105 ( 6 ), october 1998. in europe, finland is the first country to face the steep ageing due to the baby boom generation born in 1945 – 1949. in most countries the baby boom was later and it was longer. so the impact of aging is not a theoretical question but a reality for finnish policymakers today. the demographic change will be further strengthened by the increasing life expectancy. as you can see from the figure, the cohort of 60 - 64 years outnumbered the cohort of 20 - 24 years last year. the working age population starts to decline soon. there will be increasing shortage of labour force in many sectors – especially in services such as health and elderly care. the ageing affects not only on

social protection and compressed wage structures. however, 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. the nordics have been able to achieve high employment combined with macroeconomic stability. part of the strong economic performance in the nordic countries can also be attributed to luck – both bad and good. as for the bad luck, there was a serious sharp economic downturn in finland and sweden in the early 1990s. seen afterwards, it was to some extent a blessing in disguise. this is because it gave impetus to structural reforms and disciplined macroeconomic policies that ushered in a strong recovery from the recessions. as for the good luck, both finland and sweden have been lucky to have been in the vanguard of the mobile phone technology during its explosive growth phase. during the last 10 years the average economic growth in the nordic countries has been stronger than in the eu - 15 in average. does the good economic performance of nordic countries 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. 5 so, does the nordic model offer a way to reconcile the european ideals with the demands of the global economy? are there some practises and solutions in the nordic model that could be applied in other european countries? to answer this question, we need to look more closely at the nordic experience. • 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. the collective risk sharing included in the nordic social model has decreased the political resistance to such development. it has got easier for people to accept liberalisation of trade and globalisation when they feel they have some personal shelter against income fall caused by unemployment or other reason. • sound macroeconomic policies. public finances in the nordics are in better shape than in most other european countries although the welfare services are generous. their debt ratio is low and annual budgets are on the surplus. the price of this has been the high taxation. but also disciplined fiscal policy has contributed to the