IN “THE LION AND THE UNICORN”, written in 1941, George Orwell invoked the spirit of England in a handful of images—“solid breakfasts and gloomy Sundays, smoky towns and windy roads, green fields and red pillar-boxes”. When this correspondent tried to summon up appropriate images for the spirit of the Nordic region he found himself turning to the welfare state: Swedish fathers enjoying a leisurely lunch while their children sleep in prams (Sweden’s paternity leave is among the most generous in the world); Danish mothers cycling, helmetless, through the early morning mist with their children in sidecars (Copenhagen has more than 350km of cycle lanes, and a third of the population cycles to work); a Finnish physics teacher discussing the nature of elegance with a class of 15-year-olds (Finland regularly comes near the top of international league tables for educational attainment).

The Nordics still have the world’s most generous welfare states, but a succession of crises put an end to the region’s magical thinking about welfare. Denmark went into freefall in the early 1980s. Finland imploded in the early 1990s when the collapse of communism killed its most reliable market. Sweden and Norway faced serious financial crises at about the same time. These events are still fairly fresh in people’s memories.

Policymakers responded to these near-death experiences by changing their habits, above all by putting their budgets back into balance. The Swedes, for instance, reduced their national debt from 84% of GDP in 1996 to 49% in 2011. They also tackled entitlements to take account of ageing populations. In 1998 Sweden passed the most sweeping pension reform in any rich country, replacing a defined-benefit system with a defined-contribution one and bringing pensions more in line with lifetime incomes.

Denmark has been slower than Sweden to clean out its closets. Public spending as a proportion of GDP increased from 51% to 58% after the 2007-08 financial crisis and is now the highest in the OECD. But the pace of reform is speeding up. In 2006 Denmark increased the state pension age from 65 to 67, to be phased in by 2024-27. In 2010 it halved the upper limit on paying out unemployment benefit from four to two years. In 2011 it hastened the demise of an early-retirement scheme which gave some people the option to leave at 60. In 2012 it announced plans to increase the differential between wages and benefits.

Welfare capitalism

Even more striking than the Nordic world’s commitment to balancing its books is its enthusiasm for experimenting with new ideas. The Swedish state now allows private companies to compete with government bodies for public contracts. The majority of new health clinics and kindergartens are being built by private companies, frequently using private money. The state also allows citizens to shop around for the best services and take the money with them.

The Swedes have done more than anyone else in the world to embrace Milton Friedman’s idea of educational vouchers—allowing parents to send their children to whatever school they choose and inviting private companies or voluntary groups to establish “free” schools. Almost half the country’s schoolchildren choose not to go to their local schools. More than 10% of students under 16 and more than 20% of those over 16 attend “free” schools, two-thirds of which are run by private companies.

Denmark has added a useful twist to the voucher idea. It not only allows parents to take their public funds to private schools with them but also to top them up (within limits) with their own money. This is creating a flourishing market, particularly in Copenhagen, ranging from academic schools for traditionalists via religious ones for Muslims to experimental ones for ageing hippies. “One of the most popular entertainments in Denmark”, says Mr Mogensen, the historian, “is to spot the latest left-wing politicians to send their children to private school.”

In the workplace Denmark is a pioneer of flexicurity: companies can sack employees with almost American ease but the government provides displaced workers with generous benefits and helps them get new jobs. Most employers like the system because it frees them from one of continental Europe’s biggest problems: a dual labour market divided between heavily protected insiders and casualised outsiders.

Denmark is also a pioneer of what might be called the intelligent state. The government abandoned its fat tax which was intended to nudge people into leading healthier lives because the results were disappointing. But it is also using its purchasing power to encourage innovation: for example, instead of ordering wheelchairs from the same old provider it now plans to order “mobility solutions” from competing companies and then encourage the most successful ones to export their products. “We need to learn how to make businesses out of things that we want to do for political reasons,” says Lars Andersen, head of the Economic Council of the Labour Movement, a think-tank.

The Finns have one of the world’s most successful educational systems without so much as a nod to Friedman

It would be an exaggeration to describe these welfare reforms as a triumph for Friedmanism. The most comprehensive study of school reform in Sweden demonstrates that choice has had a positive effect. Anders Bohlmark and Mikael Lindahl examined data for all Swedish schoolchildren between 1988 and 2009 and found that increasing the share of “free” schools in a particular district leads to better performance on a variety of measures, from school grades to university attendance. The biggest gains are recorded in the regular public schools rather than in the “free” schools. At the same time, though, Sweden’s ranking in the OECD’s annual PISA tables on educational achievement has declined. The Swedish press is full of stories about the misdeeds of private schools and hospitals. Private companies have promised to generate profits year in, year out, particularly if they are backed by private-equity companies; but after the first wave of rationalisation it often becomes more difficult to squeeze savings out of schools and hospitals.