Exposing the Myth of Nordic Socialism

by Matthew Berto 2 years ago in opinion

The Nordic states are held up by many as socialist utopias. But is this in line with reality?

Exposing the Myth of Nordic Socialism

The Nordic countries (Denmark, Finland, Iceland, Norway and Sweden) are socialist utopias where the citizenry enjoy unparalleled standards of living in states that have successfully combined free market policies with state welfare provision. This could not be further from the truth.

In the first place, the Nordic countries are not socialist states; they are amongst the freest economies in the world. Take corporation tax. The United States has a corporation tax rate of 40%. Denmark, by contrast, has a corporation tax rate of 24.5%. For Norway, it’s 27% and for Sweden it’s just 22.0%. So much for the stereotype of the Nordic command economy. In fact, to quote Lars Løkke Rasmussen, Prime Minister of Denmark:

‘I know that some people in the U.S. associate the Nordic model with some sort of socialism. Therefore I would like to make one thing clear. Denmark is far from a socialist planned economy. Denmark is a market economy. ’

Granted, income tax rates are substantially higher in the Nordic states than they are in other countries. For example, whereas the top marginal income tax rate in Sweden is 56.9%, that in the United States is 46.3%. In fact, the overall tax burden for the average Swede is in excess of 50%. At the same time, though, the government generally interferes less in the economy in Nordic countries than in the United States, again undermining the stereotype of Nordic planned economies. The Swedish postal service, for instance, is privatized. There has been an increase in for-profit schools and elderly care units. It comes as no surprise, therefore, that all of the Nordic countries rank highly on the Index of Economic Freedom.

Second, and following on from the previous point, the Nordic countries are amongst the wealthiest in the world but this wealth is a consequence of free market policies, not socialism. Between 1870 and 1936 Sweden operated a free-market economy and the Swedish economy grew more rapidly than any other in Western Europe. When the Social Democrats came to power and implemented socialist economic policies between 1970 and 1991, Sweden’s growth rate fell to the second lowest in Europe. The Swedes learnt their lesson, returned to free-market policies post-1991 and have enjoyed an increase in growth rates. The record of history testifies, therefore, that the present wealth of the Nordic countries is based on free-market policies, not socialism.

Third, it is claimed that the high standard of living enjoyed in the Nordic countries is because of their generous welfare models but these high standards of living pre-date the development of the welfare state. Today, the Nordic countries are amongst the best in the world in terms of life span and infant mortality. But they already held this record back in 1960, before the development of the welfare state there. In fact, it was during this time that the Nordic countries actually had tax rates lower than that of the United States. Swedes were already living longer lives in 1960 than their American counterparts.

The same is true regarding income equality – high rates of income equality pre-date the Nordic experiment with socialism. As Nima Sanandaji, author of Debunking Utopia succinctly puts it, ‘The social success of Nordic countries pre-dates progressive welfare state policies.’

What then is responsible for the high levels of income equality in the Nordic countries? A Lutheran culture that emphasises hard work and individual responsibility in the context of a free-market economy. At the same time, however, the expansion of the welfare state in Nordic countries has seen more citizens relying on welfare, eroding said culture and invariably creating an undesirable cycle of dependency. By definition, an expansion in welfare provision increases incentives for individuals to rely on the state rather than themselves, especially if welfare comes to pay higher than work. Economic data testifies that an excess of welfare does not help but the poor; it hurts them.

Returning to the issue of income equality, while it is true that wage gaps are on average lower in the Nordic countries than elsewhere, it is telling that during the decades of Nordic socialism real wages did not rise; they stagnated.

Fourth, and following on from the previous point, the welfare state models used in the Nordic countries are held up as ideals for other countries, like the United States, to employ. During the 2016 presidential race, for example, Democratic nominee Bernie Sanders commented:

‘ I think we should look to countries like Denmark, like Sweden and Norway and learn from what they have accomplished for their working people.’

But, as aforementioned, the welfare models used in the Nordic countries exist within the context of an idiosyncratic culture present in countries with relatively small and homogenous populations. The idea, then, that the Nordic welfare system can be exported to the rest of the world is as idealistic as it is fanciful.

Fifth, it is often claimed that poverty simply does not exist in Nordic states, courtesy of their generous welfare provision. This is factually incorrect. There are homeless people in England and there are homeless people in Sweden. In fact, in 2014, Sweden actually had a higher homelessness ratio (0.36%) than that of England (0.20%). At the time of writing, Sweden has an unemployment rate of 6.1%; for Britain the figure is 4.8%, the same figure for the United States. Evidently, the notion that poverty is non-existent in the Nordic countries is simply false.

And, of course, one can make the argument that a perpetual decline in GDP creates poverty in the long-term in that a lack of growth is linked to a lack of jobs. Fewer jobs means higher unemployment, in turn creating a heavier burden on the welfare state. To quote Nima Sanandaji, writing in Scandinavian Unexceptionalism:

'Generous welfare policies have created new social problems...The combination of high taxes, generous government benefits and a rigid labour market has led to a dependency on government handouts among large subsections of the population. Families have thus become trapped in poverty.'

Lastly, the Nordic welfare model is being reformed. Contemporary economic realities have compelled governments to cut taxes, limits have been placed on public benefits and pension savings have been partially privatized. ‘In recent years,’ writes Tim Bale, ‘Sweden has looked less immune than previously to recession, and social democratic led governments have had little compunction in slowing the growth of welfare spending, not least on pensions.’ This is part of a wider transition from demand-side solutions to unemployment towards supply-side solutions, a transition than even Nordic Social Democrats have been willing to make in the face of economic reality. Indeed, the combination of an ageing population and a globalized economy render national welfare states increasingly vulnerable.

As Tom G. Palmer puts it in After the Welfare State:

'Governments have promised so many benefits to so many constituencies, all at the expense of each other, that the systems are unsustainable, but none of the recipients want to give up their benefits. We might do so in exchange for lower taxes, but we don't even get that choice.'

In summary, the paradigm of the Nordic socialist utopia is exposed as a myth on the basis of three facts: the social success of Nordic countries pre-date 'progressive' welfare policies; the very existence of these policies is due not to command economics but to free-market economics; and, far from being immune to reform, the Nordic welfare model is being increasingly subjected to privatization. The Nordic countries are not socialist utopias; they are mixed economies with generous welfare systems, but systems that nonetheless have to be reformed in order to keep them sustainable for the future.

How does it work?
Read next: New Mexico—It's like a State, like All the Others!
Matthew Berto

See all posts by Matthew Berto