STANWOOD, Washington — Around the globe, countries struggle with poverty, but some governments have more success with keeping rates low. According to the latest available data from the Organisation for Economic Co-operation and Development (OECD), Iceland, the Czech Republic and Denmark stand as the countries with the lowest poverty rates in the world. Two out of three countries on this list are Nordic.
The Nordic Model
Nordic countries place a high emphasis on welfare to ensure a high quality of life for citizens, access to the necessary services and a sturdy social safety net. For instance, free education, cost-free health care and a strong pension system. The Nordic model works through a combination of “free-market capitalism” and a tax-funded welfare system.
Iceland
Iceland stands at the top of countries with the lowest poverty rates with a poverty rate of 4.9% in 2021. In 2017, Iceland’s poverty rate even hit 0%, according to the World Bank. Some factors contributing to low poverty are:
- Work Satisfaction. Iceland is the “most highly unionized country” out of the OECD countries. Wages are high and often negotiated. Iceland’s labor market “includes a fully-funded occupational pension system, sickness funds, rehabilitation funds for long-term ill or injured workers and funds for continuous education of lower-skilled workers and life-long learning,” the OECD reported. To elaborate on how Iceland and other Nordic governments reduce and prevent poverty, The Borgen Project spoke with Locke Elder, CEO of Warp and Woof Strategies and expert on the Nordic model. Elder says Iceland is “at the high end of male and female pay equity.”
- Social Services. In Iceland, schools and universities are free to attend and health care is mostly covered by taxes. According to Brittanica, welfare services that taxes pay for also include “unemployment insurance, old-age and disability pensions, family and childbearing allowances and sickness benefits.” There are also numerous government-funded housing initiatives to ensure that low-income families have access to shelter.
A 2001 research article by Gudmundur Jonsson said that, despite these policies, historically, Iceland’s welfare system has not been as comprehensive as other Nordic countries. However, Icelandic people also retire later, meaning there is less urgency for comprehensive social safety nets earlier in life. But, even though Iceland has the highest number of children among the Nordic countries, Iceland spends lower amounts of its GDP on children and families in comparison to its Nordic counterparts.
Czech Republic
Another one of the countries with the lowest poverty rates in the world is the Czech Republic. In 2020, the poverty rate in the Czech Republic stood at 8.6%, according to the World Bank. Some reasons for this low rate include:
- Economic Growth. The Czech Republic has expanded manufacturing as one of the key industries in global value chains. According to the OECD, in 2020, the Czech Republic had the “third highest share of manufacturing value added in GDP.”
- Taxes and Transfers. The Czech Republic redistributes income through tax reliefs and social transfers to benefit the poorest populations. The OECD states that, in 2017, social transfers reduced poverty by about 74%.
- Minimum Wage. In 2018, the Czech government increased the minimum wage by 9.6% and suggested that the country should reevaluate it every year, ensuring that it rises with the average wage. According to the World Bank, the Czech Republic also has very low rates of income inequality, earning a Gini coefficient of 0.25, a measure used to gauge income inequality. On this scale, zero reflects “complete equality” and one reflects “complete inequality.”
Denmark
Denmark comes in at number three on the list of countries with the lowest poverty rates. According to the World Bank, Denmark’s poverty rate sat at 12.3% in 2020. Most government spending goes toward old age, followed by disability and health care. Here are some ways that the Danish government keeps poverty rates low:
- High Employment Rates and Worker’s Rights. According to the OECD in 2014, Denmark’s employment rate stood as the “7th highest among the OECD countries.” One EU initiative that keeps employment high is the Youth Guarantee Scheme, which the EU established in 2012. In 2014, Denmark implemented the Youth Guarantee Implementation Plan. This initiative, still active today, ensures that everyone below the age of 25 receives “training, work experience or a job within four months if they were not in education or employment.” Additionally, more than 70% of wage workers in Denmark have trade union memberships.
- Low-income Housing. Danish social housing takes up 20% of Danish housing stock. Social housing sets a more affordable rent price so that people below or close to the poverty line can have a place to live. When determining who is eligible for social housing, Denmark gives priority to the elderly and disabled.
- Low Child Poverty. The child poverty rate in Denmark stood at 3.7% in 2020, the second lowest among OECD countries, partially because of the child benefit system and publicly funded daycare and education. The Child and Youth benefit ensures that parents of children younger than 18 receive a tax break while the Danish government ensures that childcare is free for low-income families.
- Health Care. Elder explained that health care in Denmark is largely free, even for complicated procedures such as surgeries. However, he added that “prescriptions are not [free], but they do give benefit for chronic prescription care,” meaning that there is a limit to how much a person can spend out-of-pocket on prescriptions.
Analysis
In Nordic countries, culture plays a significant role in preventing poverty. Elder said that there is a Swedish philosophy that many Nordic countries have their own version of and that philosophy is called ‘lagom,’ meaning “not too much, not too little.” In his view, this philosophy translates into policy.
Elder emphasized that, in Nordic countries, people understand not only that a person’s work has value but also that the individual as a whole has value. He added that “taking care of each other is really, really important. And I think that, fundamentally, those are the things that really create an environment to allow for those lower poverty rates.”
Despite being the only non-Nordic country to make the list of countries with the lowest poverty rates, the Czech Republic appears to share similar values. Through enforcing a livable wage and redistributing wealth, the Czech Republic seems to support the idea of an affordable living for everyone.
Although specific policies in these top countries vary, all three give social services that support their people and, for the most part, keep them out of poverty. Employment rates are high and so is the use of government welfare. Both of these factors keep poverty rates low and the standard of living high.
– Ava Ronning
Photo: Unsplash
