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Source link: http://archive.mises.org/12115/the-scandinavian-welfare-myth/

The Scandinavian-Welfare Myth

March 9, 2010 by

Obama seems hell-bent on expanding the US welfare state at any cost, and of course no welfare-state debate is complete without bringing up the Scandinavian countries as the perfect example of massive statism bringing prosperity. FULL ARTICLE by Marcus Bergstrom

{ 46 comments }

Barry Loberfeld March 9, 2010 at 9:27 am
Chip Krakoff March 9, 2010 at 9:35 am

A very good article, which confirms what I wrote on my blog last October: http://www.emergingmarketsoutlook.com/?p=907. The post, entitled “I’ll Take Sweden,” recounts how in the 90s and the 00s Sweden, without abandoning the welfare state entirely, realized it had gone too far and introduced market-based initiatives in health and education, and started to cut back a little on its nanny state policies. Sweden famously refused to bail out Saab, saying “government is not in the business of making automobiles.” and in a more recent post – “The Jobless Recovery and Other Paradoxes” (http://www.emergingmarketsoutlook.com/?p=1129#more-1129) I described how Sweden and other Nordic countries, instead of trying to preserve jobs in dying industries, helps redundant workers adapt to and find new jobs in the changing economy.

Great country, Sweden, able to learn from its mistakes. I’m planning to go skiing in Riksgransen in the spring.

gg March 9, 2010 at 9:38 am

Interesting. So it is possible to have universal healthcare without moving closer to socialism? And have a vast safety net while being economically free and vibrant? It would seem even more evidence in favor of a Scandinavian model.

Nick Bradley March 9, 2010 at 9:49 am

Yes. For example, if you completely deregulated the health care and insurance industries (ending mandates, required coverages, allowed purchases across state lines, etc.) and cut every american a check for $7,500 (current per capita spending), you would be much better off.

Markus B March 9, 2010 at 10:35 am

The U.S. already has an enormous government, and adding universal healthcare on top of what it already spends on the military, social security etc. would most certainly make the U.S. government bigger than the Swedish one in terms of % of GDP. The U.S. government would have to make serious spending cuts AND raise taxes substantially AND reduce regulations across the board in order to get the same type of welfare state as Sweden has. Even then the U.S. government would still be stuck with its astronomical debt, which would simply not make it possible for the U.S. to set up a Swedish-style welfare state.

And I wouldn’t call the Swedish economy “free and vibrant”. Getting a job here usually takes more than a month (IF you manage to get one at all), even in casual labor or a fast food joint, and thanks to the labor regulations and labor taxes it takes an additional 1 or 2 months to get your first paycheck. While living in Australia for about 8 months I had 3 different jobs, each of which took about 3 days to get, and then about 1.5 weeks to get the first paycheck.

Markus B March 9, 2010 at 10:39 am

The U.S. already has an enormous government, and adding universal healthcare on top of what it already spends on the military, social security etc. would most certainly make the U.S. government bigger than the Swedish one in terms of % of GDP. The U.S. government would have to make serious spending cuts AND raise taxes substantially AND reduce regulations across the board in order to get the same type of welfare state as Sweden has. Even then the U.S. government would still be stuck with its astronomical debt, which would simply make it impossible to set up a Swedish-style welfare state.

And I wouldn’t call the Swedish economy “free and vibrant”. Getting a job here usually takes more than a month (IF you manage to get one at all), even in casual labor or a fast food joint, and thanks to the labor regulations and labor taxes it takes an additional 1 or 2 months to get your first paycheck. While living in Australia for about 8 months I had 3 different jobs, each of which took about 3 days to get, and then about 1.5 weeks to get the first paycheck.

Fredrik March 9, 2010 at 12:05 pm

As the article said yes we in Sweden are economically free. Compared to Cuba.
Our high tax system has has made it almost impossible to accumulate capital 2/3 has saving of less than $4000.
The median year of start up of our 40 largest companies is 1917. No large company has been created after 1973.

This is the most important pat, without new companies we will have a lesser economic growth, witch you can see in OECD statistics sins 1970

The unemployment rate is 9,6% (25% for people below the age of 26).
People often stay in jobs they dont like sin they have grater job security there than if that started at a new company.

Health care is better than you fu**ed up system, where you let the tax payer pay for court costs. But you do have to wait for month for non emergency operations.
Dogs ands cats has it WAY better (in both countries).

Inquisitor March 9, 2010 at 12:44 pm

Are you out of your mind, or just ignorant of Scandinavian economics? Curious.

Nick Bradley March 9, 2010 at 9:43 am

Marucs,

Excellent article. What I take from your article are two things:

1. Sweden isn’t nearly as socialist as people believe (due to the reforms over the past 30 years and its free-market past)

2. The Swedish welfare state is remarkably efficient compared to the rest of Western Europe and the United States.

I think the second point is key. You can have a heavily-regulated, less-taxed state, or a lightly-regulated, more-taxed state. Sweden is the latter, and the benefit from it.

I was discussing this with a friend the other day. Take fuel economy for example. In the US, Congress develops thousands of pages of regulation in order to get car manufacturers to make more fuel-efficient cars. A more “scandanavian” way to go about this would be to simply place a $1 tax on a gallon of gas, then rebate the tax revenue to other sources (payroll taxes, etc.)

Carbon regulation is another example. The US approach is to set up a byzantine trading system that increases the cost of producing energy with no savings to the average citizen. An alternative approach would be to tax carbon at $200 a ton and completely eliminate the personal income tax (roughly a trillion dollar tax divided by 5.7 billion tons of carbon). You would reduce carbon (if that’s your goal), increase energy efficiency, and create a more efficient method of taxation (income taxes are inherently inefficient).

Markus B March 9, 2010 at 11:09 am

Yeah, you two examples are spot on. I think taxes are generally the lesser of two evils. Taxes are “just another expense” for e.g. a private company, whereas regulations are both expensive AND extremely tedious to comply with.

Another problem is that governments too need to hire regulators and lawyers to make sure that all companies comply with their regulations. At the same time these regulations do not bring in any revenue for the government to actually pay for these regulators, which means the government has to raise taxes just in order to finance its regulatory activities. Meanwhile the public doesn’t get anything (such as welfare services) in return for those higher taxes – it’s all just a giant waste of time and money.

Stephon Smith March 9, 2010 at 8:12 pm

Great idea, but how would that be implemented? By the US Federal gov’t or a multinational gov’t cooperation? Or even state mandates?

Martin vom Treffpunkt Schweden July 27, 2010 at 1:43 am

We discuss the ‘high taxes’ in Sweden quite often, and more and more the consensus is that the taxes are not as high as they seem, and most importantly, that you get something valuable for paying them.

One of the reasons for the success of the Swedish Model is that the Swedish welfare state is born from feeling responsible and taking care. This results in less abuse and thus more efficiency.

Another sign of that is that there are much less court cases in Sweden. Solving conflicts outside of court is preferred. I think the success of Sweden is not just the Swedish Model itself, but most of all the attitude of the Swedes towards responsibility.

Chris March 9, 2010 at 10:03 am

Apples and Oranges. Sweden has a population of 9 million people while the US is a robust 300 million. They are smaller than Los Angeles. Avoiding the deleterious effects of wealth redistribution in Sweden is magnitudes of order simpler than accomplishing the same feat in the US.

Regardless, these practical arguments need to be thrown out the window. The ends do not justify the means.

Nick Bradley March 9, 2010 at 10:10 am

You have a point, but that point is that welfare programs are more effective in smaller, more homogenous populations.

Inquisitor March 9, 2010 at 12:43 pm

It’s not an argument for welfare at any rate, but that against it – it is even MORE destructive in larger countries.

Jonathan Finegold Catalán March 9, 2010 at 10:23 am

Chris,

Sweden also has a smaller pool of wealth.

Ohhh Henry March 9, 2010 at 10:12 am

“This is the simple reason why the Scandinavian welfare states appear to “work well”: because most alternatives are even worse, and in the land of the blind, the one-eyed man is king.”

There is an even bigger reason why it appears to work well – so far. Like practically every other country in the world, especially the western democratic socialist states, Swedes have been living in a fool’s paradise of ever-expanding debt and money creation. Still to come is the inevitable collapse when there are insufficient investors willing to throw their money away on Swedish government bonds, and an insufficient number of tax slaves being bred up or imported.

Saying that the Swedish state “works well” is like saying that a family in your neighborhood is successful (either relatively or absolutely) because they have been papering the whole town with IOUs and the merchants and their neighbors haven’t YET started to spurn them.

All over the world right now, the “successful” semi-capitalist socialist states are in panic mode because the cracks between self-serving Keynesian myths on the one hand and fiscal and demographic reality on the other hand are getting deeper and wider – so fast that you can hear the cracking sounds of the real economy being shattered, and the frightened cries of the parasitical class.

fundamentalist March 9, 2010 at 10:23 am

Very interesting! Thanks! Europe considers itself socialist, or at best “third way”, while the US is considered capitalist. This article provides more ammo for the fact that there is little difference between the two.

A better comparison with Sweden might be Texas, although Texas has 20+ million people. Texas is about as close to capitalism as we get in the US. Still, what about immigration? Does Sweden and other Nordic countries have the massive immigration from the poor south that the US, especially Texas, has?

paul stephens March 9, 2010 at 4:13 pm

I read that Sweden has admitted more refugees from Iraq and Afghanistan than the U.S. has, since 2000 or whenever.
Call Sweden (and several other countries) good examples of “market socialism.” They don’t deny or violate economic principles like most governments do. Being a relatively homogenous country with a strong folk tradition, their politics is much simpler and more honest than ours.
And their welfare systems actually work – efficiently. All countries have the same kinds of “social costs” and necessary welfare expenditures, but some face up to them and simply pay to minimize them, rather than doing all the passive-aggressive, “2 party system of denial and blame” stuff which is just about all we do, here.

Fred Grau March 9, 2010 at 10:53 am

Agree. Excellent article.

There are a few intangible factors that are probably not figured into the Heritage ranking data:

1. Race/gender lawsuits. In the US, hiring a new employee automatically brings with it the risk of a devastating discrimination lawsuit. A Black or woman that doesn’t perform can easily initiate a discrimination lawsuit, even on the flimsiest of evidence. Examples abound.

2. Although regulation is dealt with (Heritage and Mr. Bergstrom), it’s doubtful that the true impact can be measured. Environmentalism in the U.S. has run amok and industry (especially the resource industries) must deal with the EPA and its State equivalents, the US Fish and Wildlife Service and its State equivalents, etc. Unless a project is projected to make large amounts over the long term, it is either dropped or put on hold.

3. Very close to the two items above is the unchecked power of the Green NGOs. They can initiate devastating lawsuits at zero risk to themselves. Why? Because the government reimburses their (inflated) costs of bringing the suit even if they lose. The Endangered Species Act, by way of “Critical Habitat” is just one example. Again, examples abound.

A final point is that most businesses realize that the U.S. is, at a minimum, three years away from any reform whatsoever. Let’s see where the U.S. ranks in 2013.

paul stephens March 9, 2010 at 4:22 pm

The “green NGO’s” are largely corporate-financed “greenwash”. Our environmental regulation nightmare is the consequence of decades of Democrat “Keynesianism”. Make the problems worse to create more (party-connected, govt.) jobs, and then create new agencies to deal with the problems which past “regulations” have caused. The Republicans have gotten very good at this, too, in league with Pharma, the Nuclear Industry, Prison Industry, War on Drugs, etc.
If we ever get a market-based Libertarian Green Party, we will have instant solutions to all these problems. That means smaller government, locally controlled, providing “public goods” cheaply and efficiently (and competitively) instead of by bureaucratic monopolies.
As a Green in Montana, most of my time is spent opposing the “coal state Democrats” and public school bureaucracies supported unconditionally by the teacher’s unions.
Freedom and sustainability go hand in hand. Peace is the answer, as Sweden proves best of all.

Kristian LJ March 9, 2010 at 11:10 am

I believe the distinction between triangular and binary intervetion is crucial in understanding this.

Shed Plant March 9, 2010 at 12:12 pm

Thanks for the article. The reputed wonders of Scandinavian socialism are a puzzle to which I’ve been looking for an answer for a while.

TheSkeptic March 9, 2010 at 1:47 pm

What are the cultural and demographic differences between economies of the countries compared? For instance:
Is there a significant population of lawyers who are dependant on the cash flow paths established by the country’s current government regulations?
How much “free” industry has grown to be dependant on a tax payer based revenue?
Are there a significant population of health care providers who are dependant on cash flow paths established by the current government regulations?
Are there a significant population of “workers” whose salary is dependant on tax based sources (gov’t employees)-how does this data point compare?
Do its people understand where the social programs get thier funding? and that over use/abuse is like shootings ones own foot?
Do social welfare systems do anything to ensure that recipients are not dependant on them for life or do they foster generation after generation of societal liabilities?
Does media do anything other than display a stereotype of the portion of society dependant on welfare therefore reinforcing misconceptions?
Have so many generations of societal liabilities passed though the welfare system that citizens’ feelings have transformed from one of “thanks” to one of “entitlement”?

The US is economically free for the rich 2%, those who already hold 95% of the monetary transactions for which this measurement seems to be based upon. There is much harm to undo, and many non-productive leaches of the economy to flush, before any social programs like universal healthcare will ever be sustainable in the US. Please add a data point to the chart that diplays the liability vs. asset population ratio.

paul stephens March 9, 2010 at 4:26 pm

Good points and good questions, all. I think you would find that the Scandinavians have much better answers than American officials and spokespeople.

Caley McKibbin March 9, 2010 at 3:33 pm

I use the Fraser Institute index @ freetheworld.com instead of Heritage. It is based on the one started by Walter Block. You will find that it ranks Sweden at a lousy #40. A real Scandinavian relative success story would be Finland, the least of the welfare doldrums and has developed far faster than Sweden and Denmark with no special resources. Denmark is higher in the index at #12, though welfare evidently has greater impact.

Bill Miller March 9, 2010 at 3:37 pm

In general, any comparison of Scandinavian countries to the US is apples-to-oranges. For one, Scandinavians in general tend to be fairly productive. This is evidenced by the fact that Scandinavian immigrants have generally risen into the upper economic echelons wherever they have settled. Therefore, it makes sense that, all other things being equal, Scandinavian countries would be wealthier. Additionally, wrt healthcare, many factors (lifestyle, culture, and ethnic composition) that are unrelated to the relative quality of a nation’s healthcare system would tend to make such a system more expensive in the US than in any Scandinavian country. Finally, it’s very difficult to quantify “economic freedom”, especially in things like regulation. Sweden’s regulations (from what little I’ve heard) are at least consistent, and a business owner can “know what his rights are”. They are far less clear and well-defined in the US. An example is the Civil Rights Act, which theoretically will not punish an employer as long as he does not discriminate based on race, but in fact has been applied to extremely broad cases such as requiring job applicants to pass aptitude tests. Another is the Community Reinvestment Act, which was often interpreted as requiring banks to lower their lending standards. This led to a greater proportion of subprime loans, and may have contributed to the current housing crisis. In addition US economic policy is not uniform, as it differs from state to state, while Sweden’s policies are unitary. Many states that have historically been more wealthy (California, for example, which I would argue, taking both state and federal interventions into account, is less economically free than Sweden), have been gradually becoming more socialistic, and things like the housing crisis have hit those states much harder than other states. Much of the US’s economic growth, in recent years, has been concentrated in states with relatively low taxes and regulation levels (Texas, for example).

In general, I would say that a country with uniform, consistent, and clearly defined regulations will be better off, economically, than a country with nonuniform, inconsistent, and vaguely defined regulations, even if the latter country technically has fewer regulations and lower taxes.

Stephon Smith March 9, 2010 at 8:22 pm

Well put.

damocles March 9, 2010 at 6:17 pm

Another crucial point is that Scandinavian countries are small and homogeneous in population, which is well known to lead to more efficiencies and better outcomes.

matt470 March 9, 2010 at 9:10 pm

I live in Australia but have been looking to move somewhere with a lot more economic freedom. I’m very disheartened that the Heritage index claims Australia is the country with the most economic freedom (actually 3rd most – behind Hong Kong and Singapore)! We have both high taxation and enormous and ever-growing regulation. We have strong public sentiment for greater centralisation of power (goodbye to our federation) and increasing government interventionism in every sphere of people’s lives. Can anyone give me directions to Galt’s Gulch please?

newson March 9, 2010 at 9:35 pm

as an australian, i was horrified at the high heritage freedom ranking awarded to australia. i’d take the findings with a pinch of salt.

the other posters are also right in pointing out the cultural traits that tend to make scandivanians wealthier than some of the southern european nations.

excellent article and interesting footnote (1). worth a separate blog.

newson March 9, 2010 at 9:54 pm

i think economic freedom listings are deceptive in the sense that they premise that one respects the law. i know in certain parts of italy, in a sense there is a lot more economic freedom than in australia, notwithstanding the vastly more oppressive regulatory and tax burden, because the law is ignored, or is so byzantine that the wealthy can make of it what they will.

creso andrade March 9, 2010 at 11:37 pm

Hello you all!

Very nice job!!! Markus Bergstrom!!!

I longed this explanation about the success of Scandinavia. Thanks a a lot!

But i’m still longing an explanation for the China miracle, now on scene for 37 years, during which they multiplied their gross economy ppp by a factor of near 25 with no apparet signs of relenting.

Hope there is some hayekian there thinking about this.
creso

Jonathan Finegold Catalán March 10, 2010 at 10:13 am

Creso Andrade,

I think this piece by Tim Swanson is the one you’re looking for: Long on China, Short on the United States.

Vanmind March 10, 2010 at 3:35 pm

Perhaps the Swedes are starting to grab a clue:

Inflexible welfare model keeping young Swedes out of work

Vanmind March 10, 2010 at 3:41 pm

I’m guessing that mention of “early retirement” in the article linked above is PC-speak for “go on the dole.”

Alex Davidson March 10, 2010 at 5:41 pm

Those Heritage Foundation rankings simply don’t reflect reality, making the article unconvincing for me. I have lived and run businesses in Hong Kong, Australia, and New Zealand. Hong Kong is rightfully at the top, but Australia should be way down the scale, with New Zealand somewhere in the middle. The Heritage Foundation survey is far too superficial – e.g. in Australia land titles are well respected, but with a land use regime that is more restrictive than China (rated 20), property rights do not deserve to be rated at 90.

newson March 11, 2010 at 6:51 pm

totally agree with you about australia. there are pockets of freedom here in a vast bureaucratic tangle. these country listings are way too reductive. the austrian aversion to composite index numbers should put all on guard, in any case.

Raimondas March 11, 2010 at 3:48 pm

How many troops of Sweden are in Afganistan Iraq Yougoslavia to defend Western countries?
Let it be US welfare state: tell me who would guarantee Sweden security then?

Vanmind March 11, 2010 at 6:41 pm

My guess is, the same people who always have guaranteed Swedish security.

Martin vom Treffpunkt Schweden July 26, 2010 at 7:32 am

Compared to the small population there are lots of Swedish troops assigned to missions outside of Sweden. Of course they are not so visible, the absolute number is small.

Mege Dalton July 29, 2010 at 7:10 am

As an Australian migration lawyer, I can tell you that when it comes to migration Australia is highly regulated and getting more so each year. This increase in regulation extends to business migration making it harder for non residents seeking to establish businesses and live permanently in Australia.
Surely this increase in regulation can only be bad for economic growth.

collin September 2, 2010 at 2:44 am

Yes you are correct. Obamas government is really focusing upon the welfare of the American people. I agree your vies on the Scandinavians.

Thanks
Collin paul
HowMuchHomeCanIAfford.org

Royal Takeaway Clayton January 9, 2011 at 11:53 am

Royal Takeaway Clayton
I have been reading your articles during my lunch break, and I have to admit the whole article has been very valuable and very well written.I also found a lot of stuff in your pages especially it’s discussion.I think I will come back soon.

Universal Garage Remote June 28, 2011 at 3:17 am

Scandinavian model s said to combine the economic efficiency of the Anglo-Saxon social model with the welfare state benefits of the continental European ones. I don’t see anything wrong with that. Doing something to improve any situation is better than not doing anything at all. And the success of any endeavor relies on unified effort.

experience July 31, 2011 at 9:02 pm

Excellent post over again. I am looking forward for your next post:)

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