Sweden Is Not a Liberal Utopia

The Nordic countries are known for their punitively high tax rates and high levels of wealth redistribution. The left’s high regard for this model should come as no surprise: these countries are very successful.

These countries have low crime rates, high standards of living, high “happiness” scores, relatively little income inequality, and greater longevity than their Anglo counterparts. Liberal politicians and activists, like Bernie Sanders, frequently cite the Nordic model as evidence that big-government (or, to use Bernie’s preferred expression, “democratic socialist”) policies work.

And if it did work, it would be great. “Cutthroat” capitalism would become a thing of the past. Living standards would continue to rise as they had under cutthroat capitalism while, at the same time, the differences between the rich and the poor would be shrink. Sound too good to be true? Because it is.

The Nordic countries, in fact, pose a bit of a problem for the left. Economist Daniel J. Mitchell, using economic freedom data from the Fraser Institute, was able to rank countries based on economic freedom excluding their fiscal policy score. In other words, he is measuring which countries have a “free market,” not which countries have “big government.”

The Nordic countries do have a relatively free market compared to the United States. When fiscal policies are excluded from Fraser’s data, the United States ranks as the 24th most economically free nation—this is behind Denmark (7th), Sweden (8th), and Norway (14th).[1] While the Nordic countries do have terrifyingly high taxation and bloated welfare states, they have other policies that make them enviable from a free market standpoint.

Not only that, but some of the countries—specifically Sweden—are “cutthroat” capitalists as well. Sweden’s educational system, which relies on school vouchers, mimics Milton Friedman’s ideas in his essay The Role of Government in Education.[2] Every single Nordic nation has a lower corporate tax rate than the United States, and some of them—Iceland and Norway—actually have lower income taxes.[3] All Nordic countries have open and free trade.

Denmark, Sweden, Norway, and Iceland have no minimum wage, either. Still, when all is said and done, these countries are still relatively prosperous despite high taxes and large welfare states. Does this mean we should adopt high taxes and a large welfare state in exchange for school choice, free trade, and lower business taxes?

Well, it all depends on what caused the Nordic countries to become wealthy. If they became wealthy after democratic socialist policies took hold, free marketers would be in trouble. Fortunately, the opposite occurred: free markets and a strong cultural work ethic made the Nordic countries wealthy before these countries became socialist.

As Swedish economist Nima Sanandaji writes:[4]

High levels of trust, strong work ethic, civic participation, social cohesion, individual responsibility and family values are long-standing features of Nordic society that pre-date the welfare state. These deeper social institutions explain why Sweden, Denmark and Norway could so quickly grow from impoverished nations to wealthy ones as industrialisation and the market economy were introduced in the late 19th century. …The same norms explain why large welfare systems could be implemented in the mid-20th century. Strong work ethics and high levels of trust made it possible to levy high taxes and offer generous benefits with limited risk of abuse and undesirable incentive effects. It is important to stress that the direction of causality seems to be from cultures with strong social capital towards welfare states that have not had serious adverse consequences, and not the other way around.

The Nordic countries became wealthy before the establishment of the welfare state, and that wealth allowed them to fund those endeavors. In other words, their wealth allowed them to make a welfare state—a welfare state did not allow them to garner wealth. Progressives have the order mixed up!

Sanandaji is also correct to point out the Nordic countries have a different culture that centers around work and may reduce the deleterious effects of high income taxes. He points out that the median income of Danish Americans is $61,920, $59,379 for Finish-Americans, $60,935 for Norwegian Americans, and $61,549 for Swedish Americans. The median wage for the United States as a whole was $51,914 in 2010. Not only that, but Sanandaji points out that people of Nordic descent are much more productive in the low-tax United States than the tax and spend “utopias” back home in Europe. This suggests the high tax rates in Europe have, in fact, made them less productive than they otherwise would be!

Sweden is not a liberal utopia. When a progressive says “the United States should be more like Sweden,” if fiscal policies are excluded, they’d be onto something. Even when we include fiscal policy, we still see many desirable aspects of the Nordic model: low corporate and investment taxes, free trade, and a very market oriented education system.

The evidence also suggests the Nordic countries are wealthy not because of their welfare states; instead, they became wealthy first, and only after their wealth was acquired could they afford to embark on the social welfare programs they have today.

In sum, Nordic countries do not offer a strong argument against capitalism; to the contrary, it gives ammunition to those who favor free markets.

References

[1] Daniel J. Mitchell, “Economic Freedom in America Is Declining Mostly Because of Creeping Protectionism and the Loss of Rule of Law and Property Rights,”August 24, 2015, https://danieljmitchell.wordpress.com/2015/08/24/economic-freedom-in-america-is-declining-mostly-because-of-creeping-protectionism-and-the-loss-of-rule-of-law-and-property-rights/.

[2] Anders Böhlmark and Mikael Lindahl, Independent Schools and Long-Run Educational Outcomes: Evidence from Sweden’s Large Scale Voucher Reform, (Institute for the Study of Labor, 2012), http://ftp.iza.org/dp6683.pdf.

[3] Daniel J. Mitchell, What Can the United States Learn from the Nordic Model?, (Cato Institute, 2007), http://object.cato.org/sites/cato.org/files/pubs/pdf/pa-603.pdf.

[4] Nima Sanandaji, “Culture, Economics, and Lessons from the Nordic Model,” October 27, 2015, http://www.compasscayman.com/cfr/2015/10/07/Culture,-economics,-and-lessons-from-the-Nordic-model/.

 

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